Question

In: Accounting

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

d.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.

Solutions

Expert Solution

1. The Major advantage using Statistical Technique is it limits the sample size to the smallest appropriate size.

When data mining takes place, generally there will be huge number of records from which the analysis to the said objective is to be done.

e.g., To analyze a crowd behavior on some event, say election results, the data required to analyze such situatuions where 100,000,000 voters voted would be less than 10,000.

Thus, limiting the sample size is the major advantage of statistical techniques.

2. If Management refuses to issue representation letter, it shows that the management is not ready to accept that it had disclosed all the required information required by the auditor.

In such circumstances, the auditor may issue the report with a Scope of limitation.

3. Except the option B, rest all come under either direct or indirect financial interest in the client's company.

wrt option B, if some one resigns from the audit firm, the cooling off period would be one-year. So after one year h\if the partner joins the client, it will not be conflict of interest.


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