Knowledge necessary for audit planning.An auditor's primary consideration regarding an entity's internal control structure policies and procedures is whether theyAffect the financial statement assertions.What procedure would an auditor most likely perform to test controls relating to management's assertion about the completeness of cash receipts for cash sales at a retail outlet?Observe the consistency of the employees' use of cash registers and tapes.After assessing control risk at below the maximum level, an auditor desires to seek a further reduction in the assessed level of control risk. At this time, the auditor would consider whetherAdditional evidential matter sufficient to support a further reduction is likely to be available.In addition to evaluating the frequency of deviations in tests of controls, an auditor should also consider certain qualitative aspects of the deviations.The auditor most likely would give broader consideration to the implications of a deviation if it wasInitially concealed by a forged document.When an auditor assesses control risk at the maximum level, the auditor is required to document the auditor'sUnderstanding of the entity's accounting system & basis for concluding that the control risk is at the maximum levelAfter obtaining an understanding of the internal control structure and assessing control risk of an entity, an auditor decided not to perform tests of controls.The auditor most likely decided thatIt would be inefficient to perform tests of controls that would result in a reduction in planned substantive tests.Which of the following is not a step in an auditor's decision to assess control risk at below the maximum?In assessing control risk below maximum, the auditor must: 1) obtain an understanding of the internal control structure; 2) identify specific controls relevant to specific financial statement assertions; and3) test the identified controls to determine if they are operating effectively. The auditor would NOT perform tests of details of transactions. These are substantive procedures which would generally be performed after the assessment of control risk is made.Which of the following is a step in an auditor's decision to assess control risk at below the maximum?Identify specific internal control policies and procedures that are likely to detect or prevent material misstatements.
The ultimate purpose of assessing control risk is to contribute to the auditor's evaluation of the risk thatMaterial misstatements may exist in the financial statements.An auditor assesses control risk because itAffects the level of detection risk that the auditor may accept.Which of the following most likely would not be considered an inherent limitation of the potential effectiveness of an entity's internal control structure?Incompatible duties.An auditor may decide to assess control risk at the maximum level for certain assertions because the auditor believesEvaluating the effectiveness of policies and procedures is inefficient.The ultimate purpose of assessing control risk is to contribute to the auditor's evaluation of theRisk that material misstatements exist in the financial statements.When assessing control risk below the maximum level, an auditor is required to document the auditor'sUnderstanding of the entity's control environment & basis for concluding that control risk is at the maximum levelWhat possible circumstance most likely would cause an auditor to consider whether material misstatements exist in an entity's financial statements?Transactions selected for testing are not supported by proper documentation.An auditor observed that a client mails monthly statements to customers. Subsequently, the auditor reviewed evidence of follow-up on the errors reported by the customers.This test of controls most likely was performed to support management's financial statement assertion(s) ofRights & obligationsIn obtaining an understanding of an entity's internal control structure, an auditor is required to obtain knowledge about thedesign of policies and proceduresAfter obtaining an understanding of the internal control structure and assessing control risk, an auditor decided to perform tests of controls. The auditor most likely decided thatIt would be efficient to perform tests of controls that would result in a reduction in planned substantive tests.True or False::An inherent limitation to internal control is the fact that controls can be circumvented by management override.TrueControl risk should be assessed in terms of
financial statement assertionsOn the basis of audit evidence gathered and evaluated, an auditor decides to increase the assessed level of control risk from that originally planned. To achieve an overall audit risk level that is substantially the same as the planned audit risk level, the auditor wouldDecrease detection risk.As part of understanding the internal control structure, an auditor is not required toObtain knowledge about the operating effectiveness of the internal control structure.An auditor would most likely be concerned with internal control structure policies and procedures that provide reasonable assurance about theEntity's ability to process and summarize financial data.An auditor may decide to assess control risk at the maximum level for certain assertions because the auditor believesControl policies and procedures are unlikely to pertain to the assertions.Which of the following should an auditor do when control risk is assessed at the maximum level?Document the assessmentThe objective of tests of details of transactions performed as tests of controls is toEvaluate whether internal control structure procedures operated effectively.Regardless of the assessed level of control risk, an auditor would perform someSubstantive tests to restrict detection risk for significant transaction classes.When reporting on conditions relating to an entity's internal control observed during an audit of the financial statements, the auditor should include aRestriction on the distribution of the report.When communicating internal control related matters noted in an audit, an auditor's report issued on significant deficiencies should indicate thatThe purpose of the audit was to report on the financial statements and not to provide assurance on internal control.An auditor's letter issued on significant deficiencies relating to an entity's internal control observed during a financial statement audit shouldIndicate that the audit's purpose was to report on the financial statements and not to provide assurance on internal controlIn assessing the competence of an internal auditor, an independent CPA would most likely obtain information about theQuality of the internal auditor's working paper documentation.To evaluate competence of an internal auditor, a CPA would obtain information about: 1) educational level and professional experience; 2) professional certification and continuing education; 3) audit policies, programs, and procedures; 4) assignment practices; 5) supervision and review; 6) quality of working paper documentation, reports and recommendations; and 7) performance evaluation.When considering the objectivity of internal auditors, an independent auditor shouldDetermine the organizational level to which the internal auditors report.Determine the organizational level to which the internal auditors report.Determine the organizational level to which the internal auditors report.An internal auditor's work would most likely affect the nature, timing, and extent of an independent CPA's auditing procedures when the internal auditor's work relates to assertions about theExistence of fixed asset additions.Some of the work performed by internal auditors may provide direct evidence about material misstatements in assertions. As a result, the auditor may be able to rely upon such work and reduce the nature, timing, or extent of the auditing procedures to be performed related to those assertions. Internal audit work pertaining to the existence of fixed asset additions would provide direct evidence which could be used to restrict other audit work to be performed.What is required for an auditor to assess control risk at below the maximum level?Assessing control risk below the maximum level most likely would involve: identifying specific control activities relevant to specific assertions. As the acceptable level of detection risk decreases, an auditor may: postpone the planned timing of substantive tests from interim dates to the year-end.
When control risk is assessed at the maximum level?Control risk should be assessed at the maximum level for relevant assertions (1) for which controls necessary to sufficiently address the assessed risk of material misstatement in those assertions are missing or ineffective or (2) when the auditor has not obtained sufficient appropriate evidence to support a control ...
When an auditor increases the assessed level of control risk because certain control procedures are determined to be ineffective the auditor will most likely increase the?Terms in this set (46) The relationship between control risk and detection risk is ordinarily parallel. When an auditor increase the assessed level of control risk because certain control activities were determined to be ineffective, the auditor would most likely increase the extent of substantive tests.
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