Question 1

The auditor will need to determine that any whistleblower program is effective by:
A) reading the Code of Ethics
B) monitoring all complaints
C) what information the board or the audit committee receives regarding the
 nature of whistleblower complaints
D) discussions with the internal auditor

Accepted Answer

The auditor needs to assess the effectiveness of the whistleblower program by understanding what information the board or audit committee receives about the nature of complaints, as this reflects how seriously the organization takes these issues and how they are addressed.

Question 2

Which of the following accounts is not related to the purchasing process?
A) accounts payable
B) inventory
C) accounts receivable
D) expenses

Accepted Answer

Accounts receivable is not related to the purchasing process. It is related to the sales process, where it represents money owed to the company by its customers.

Question 3

Which of the following accounts would not be considered significant for a non-manufacturing company?
A) inventory
B) revenue
C) raw materials
D) cost of goods sold

Accepted Answer

For a non-manufacturing company, raw materials account is not considered significant because these companies do not produce goods and therefore do not require raw materials for production processes.

Question 4

Large public company audited financial report is required to be accompanied by:
A) management's report on internal control over financial reporting
B) an external audit report on the financial report
C) the internal auditor's report on the financial report
D) management's report on the financial report

Accepted Answer

The answer of Large public company audited financial report is...

Question 5

When assessing the risk of material misstatement, which of the following would the auditor consider to be a management motivation for account misstatements?
A) transaction processing of high volumes of material transactions
B) IT risks and vulnerabilities
C) share market performance and debt covenants
D) processes affecting major estimates and adjusting entries

Accepted Answer

Management may have motivations to misstate accounts to present a more favorable picture of the company's financial health, which can be influenced by share market performance and the need to meet debt covenants.

Question 6

In the procurement process which of the following controls would the auditor determine to be key controls?
A) Only authorised goods are purchased from authorised vendors.
B) Payments are made in a timely fashion.
C) All purchases are recorded in a timely fashion and are appropriately classified.
D) All of these choices.

Accepted Answer

Key controls in the procurement process include ensuring that only authorized goods are purchased from authorized vendors, payments are made in a timely manner, and all purchases are recorded promptly and classified correctly. These controls help in preventing fraud, ensuring financial accuracy, and maintaining operational efficiency.

Question 7

The auditor could assess control risk for an account at the maximum when:
A) immaterial control deficiencies exists in the account
B) significant control deficiencies exists in an account
C) material weaknesses exists in an account
D) all of these choices

Accepted Answer

Material weaknesses in an account indicate a high likelihood of misstatements, leading the auditor to assess control risk at the maximum.

Question 8

In a financial report audit, the amount of direct testing of account balances is inversely related to:
A) subjectivity of estimates
B) riskiness of the account
C) effectiveness of internal control
D) materiality of the account

Accepted Answer

The amount of direct testing of account balances decreases as the effectiveness of internal control increases, because auditors can rely more on the controls in place, reducing the need for direct testing.

Question 9

The extent of testing for computerised controls is not influenced by:
A) review of exception reports
B) results of test transactions through the system
C) changes in the computer program during the year
D) cost/benefit analysis

Accepted Answer

The extent of testing for computerized controls is influenced by factors that directly relate to the operation and integrity of the system, such as review of exception reports, results of test transactions, and changes in the computer program. A cost/benefit analysis, while important in decision-making processes, does not directly influence the technical extent of testing required for ensuring the controls are functioning as intended.

Question 10

Direct testing examines:
A) controls
B) processes
C) account balances
D) transactions

Accepted Answer

Direct testing examines account balances to verify their accuracy and ensure that financial statements are correct.

Question 11

Management's assessment of controls
Weaknesses in internal control are classified as a deficiency or a significant deficiency. Identify the factors that management and auditors should consider when categorising identified control weaknesses.

Accepted Answer

The answer of Management's assessment of controls
Weaknesses in internal control...

Question 12

Auditor assessment of controls
Discuss the purpose of the auditor performing a walkthrough of processes and how the results are used to determine if there is a deficiency or a significant deficiency.

Accepted Answer

The answer of Auditor assessment of controls
Discuss the purpose of...

Question 13

Planning a financial report audit
Discuss the different steps and phases that are required in planning a financial report audit.

Accepted Answer

The answer of Planning a financial report audit
Discuss the different...

Question 14

Changes in guidance
What are the major changes in guidance since the introduction of auditing standards?

Accepted Answer

The answer of Changes in guidance
What are the major changes...

Question 15

Identifying audit work
What are the fundamental questions that the auditor must address to determine the optimal amount of audit work?

Accepted Answer

The answer of Identifying audit work
What are the fundamental questions...

Quiz 8: Tests of Control and Substantive Test Implications

The auditor will need to determine that any whistleblower program is effective by:

Which of the following accounts is not related to the purchasing process?

Which of the following accounts would not be considered significant for a non-manufacturing company?

Large public company audited financial report is required to be accompanied by:

When assessing the risk of material misstatement, which of the following would the auditor consider to be a management motivation for account misstatements?

In the procurement process which of the following controls would the auditor determine to be key controls?

The auditor could assess control risk for an account at the maximum when:

In a financial report audit, the amount of direct testing of account balances is inversely related to:

The extent of testing for computerised controls is not influenced by:

Direct testing examines:

Management's assessment of controls Weaknesses in internal control are classified as a deficiency or a significant deficiency. Identify the factors that management and auditors should consider when categorising identified control weaknesses.

Auditor assessment of controls Discuss the purpose of the auditor performing a walkthrough of processes and how the results are used to determine if there is a deficiency or a significant deficiency.

Planning a financial report audit Discuss the different steps and phases that are required in planning a financial report audit.

Changes in guidance What are the major changes in guidance since the introduction of auditing standards?

Identifying audit work What are the fundamental questions that the auditor must address to determine the optimal amount of audit work?