Question

In: Accounting

1. The major advantage to using statistical techniques is: a. it limits the risk of incorrect...

1. The major advantage to using statistical techniques is:

a. it limits the risk of incorrect acceptance

b. it relate sample size to audit risk

c. it limits the risk of inefficiency

d. it limits sample size to the smallest appropriate size

2. If the auditor is performing an audit of a nonpublic company and the client refuses to provide a management representation letter, the auditor may:

a. issue a financial statement audit report

b. issue an integrated audit report

c. issue a financial statement audit report with a scope limitation

d. dependening on the circumstances the auditor may choose any of the alternitives

3. Which of the following would be least likely to preclude an audit firm from proposing on a potential client due to independence concerns?

a. A recently-promoted partner in the audit firm holds a financial interest in the potential client company.

b. Someone who resigned from the audit firm three years ago is now the Chief Accounting Officer at the potential client company.

c. The audit firm provides internal audit outsourcing and certain nonaudit services to the client company.

d. The audit firm's pension plan holds securities of the potential client company.

4. If an auditor determines that a client company's internal controls are producing reliable and complete financial information, the auditor will rely upon the internal control system and:

a. reduce the extent of controls testing in the interim phase of the financial statement audit.

b. reduce the planned substantive testing during the financial statement audit.

c. increase the amount of evidence collected during the financial statement audit.

d. increase the planned substantive testing during the financial statement audit.

5. Which of the following internal control activities most likely would deter lapping of collections from customers?

a. Independent internal verification of dates of entry in the cash receipts journal with dates of daily cash summaries.

b. Separation of duties between receiving cash and posting the accounts receivable ledger.

c. Authorization of write-offs of uncollectible accounts by a supervisor independent of credit approval.

d. Supervisory comparison of the daily cash summary with the sum of the cash receipts journal entries.

Expert Solution

Answer1. a. it limits the risk of incorrect acceptance.

Risk of incorrect acceptance shows the risk that the auditor concludes that a material misstatement does not exist when in fact a material misstatement does exist. Statistical audit techniques limit/eliminate the risk of incorrect acceptance, so that auditor gets accurate result during his audit.

Answer 2. c. issue a financial statement audit report with a scope limitation.

During audit of books of accounts of an organization, if management refuse to provide management representation letter on some audit issue, than auditor should issue audit report with a scope limitation, however if the issue is material then auditor should issue disclaimer of opinion.

Answer 3. a. A recently-promoted partner in the audit firm holds a financial interest in the potential client company.

Auditor should not have any direct or indirect financial interest in the client company, because this matter limits the auditor independence during his audit of financial statement of that client.

Answer 4. b. reduce the planned substantive testing during the financial statement audit.

After testing internal control and accounting system and auditor satisfied that internal control is very strong and organization follows all rules, regulation relating to his business and accounting process, then he can reduce the planned all his testing during the audit but he should keep in mind that he himself will be finally responsible if there are any fraud or error in financial statement.

Answer 5. b. Separation of duties between receiving cash and posting the accounts receivable ledger.

Management should design internal control of organization in such a way so that there are separations of between receiving cash and posting the accounts receivable ledger, it will reduce the chance of lapping of collections from customers from discretion and influences.

ekkarill92 answered 2 years ago

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