True False Correct answer: b Learning Objective 1. Testbank to accompany Auditing: a practical approach 3e by Moroney et al. D company's controls do not promote compliance with applicable rules and regulations. Preventive controls are passive techniques designed to reduce fraud. D operate in stable economic environments. Application controls focus on exposures related to specific parts of the system: payroll, accounts receivable, etc.
A government can be considered to be a user of the general purpose financial reports because: a. D the policies and procedures may be so weak that no reliance is contemplated by the auditor. This is intended to specify categories of services that a public accounting firm cannot perform for its client. Written and electronic communications with outsiders 3. D analyzing the financial information to be sure that it complies with government requirements. A Reasons supporting a conclusion that there is not a significant risk of material improper expense recognition. A compliance audit is conducted to determine whether the auditee is following specific procedures, rules, or regulations set by some higher authority.
Section 404 of the Sarbanes-Oxley Act requires public companies to report management's assessment of the effectiveness of internal control over financial reporting. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. B evaluate the feasibility of attaining the entity's operational objectives. An auditor can provide a reasonable level of assurance on information other than historical financial information. Insurance hypothesis tells us that: a.
List the four basic types of audit evidence. What is a SysTrust engagement? These issues are: A the effectiveness and efficiency of the controls. Electronic and documentary data about economic transactions 2. C could cause a material loss, so it must be tested using substantive procedures. B Form an opinion on the effectiveness of internal for financial reporting.
. C Rely on the work on internal auditors in order to promote audit efficiency. Auditors compare evidence to established criteria. How is the expectation gap caused and how can the effects expectation gap be reduced? A Fraudulent financial reporting Misappropriation of assets Yes Yes B Fraudulent financial reporting Misappropriation of assets No No C Fraudulent financial reporting Misappropriation of assets Yes No D Fraudulent financial reporting Misappropriation of assets No Yes 4 With respect to misappropriation of assets, most frauds involve: A Inventory or liquid asset theft Intentional misstatements of amounts Yes Yes B Inventory or liquid asset theft Intentional misstatements of amounts No No C Inventory or liquid asset theft Intentional misstatements of amounts Yes No Yes No D Inventory or liquid asset theft Intentional misstatements of amounts No Yes 6 Which of the following would the auditor be most concerned about regarding a heightened risk of intentional misstatement? A well-designed purchase order is an example of a a. A Monitor transactions Record and process transactions Initiate transactions Yes Yes Yes B Monitor transactions Record and process transactions Initiate transactions No No No C Monitor transactions Record and process transactions Initiate transactions Yes No No D Monitor transactions Record and process transactions Initiate transactions No Yes Yes 11 Internal controls normally include procedures designed to provide reasonable assurance that: A employees act with integrity when performing their assigned tasks.
The completeness assertion declares that no material assets, equities, or transactions have been omitted from the financial statements. Complexity — Most financial report users do not have the accounting and legal knowledge to enable them to assess the complex accounting and disclosure choices being made by the entity. B It would increase because of the perceived increased risk due of lack of near-term leadership. Explain the relationship between internal controls and substantive testing. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
D High turnover of accounting, internal audit, and information technology staff. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Insurance hypothesis is a means whereby the investor can guarantee the success of their investment. Four causes of information risk are: remoteness of information, biases and motives of the provider, voluminous data, and complex exchange transactions. B hire highly ethical employees. Which of the following is correct? C Documents should be designed to be understandable only by those who use them.
Conflicts of interest often occur between absentee owners and managers. All modified audit reports are qualified audit opinions. This independence is necessary since the external auditors represent the interests of third-party stakeholders such as shareholders, creditors, and government agencies. Define and contrast attestation services and advisory services. This auditing standard is best expressed by which of the following? What are management responsibilities under section 302 and 404? B is still a major concern to the auditor. Which control procedure would most likely prevent or detect this error? The American Institute of Certified Public Accountants has the primary authority to establish accounting standards.