D215 - Auditing | OA Practice

Question 21: During a yearly audit, the audit team becomes aware of the companys pressure to increase next years profit. Which factor should the audit team be on the lookout for in the near future?

Accruals for subsequent year sales in the current year

Disposals of inventory during the week before the current year-end

Payroll expenses incurred the month after the year-end and recorded in the last month of the year

Sales commissions paid to staff incurred during the last week of the year and not recorded in the current year

Question 22: Which management assertion states that financial and other information are disclosed fairly and in appropriate amounts?

Completeness

Accuracy and valuation

Classification and understandability

Occurrence and rights and obligations

Question 23: Which factor describes the sufficiency of audit evidence gathered?

Quantity of evidence

Documentation of evidence

How the evidence was obtained

When the evidence was obtained

Question 24: Which combination of assessed inherent risk and control risk will require the greatest amount of sufficient evidence?

Low inherent risk, low control risk

High inherent risk, low control risk

Low inherent risk, high control risk

High inherent risk, high control risk

Question 25: Which type of procedure is being performed when an auditor selects transactions from a sales journal or ledger and then examines the underlying source documents?

Tracing

Vouching

Observing

Journaling

Question 26: Which dimension of the COSO framework identifies five integrated items of internal control?

Objectives

Components

Information technology

Organizational structure

Question 27: Which principle should an organization implement in order to have an effective risk assessment process?

The organization should demonstrate a commitment to integrity and ethical values.

The organization should select and develop general control activities over technology.

The organization should select and develop control activities that contribute to the mitigation of risk.

The organization should specify objectives with clarity to enable the identification and assessment of risks.

Question 28: Which action is considered a control activity that helps ensure management's directives are carried out across the entity?

Conducting periodic evaluations of internal controls

Ensuring there are proper authorization control procedures

Committing to attract, develop, and retain competent employees

Implementing internal control recommendations when deficiencies are detected

Question 29: Which type of audit test would help auditors determine whether the client has met the financial reporting objectives?

Substantive tests

Tests of controls

Tests of details

Risk assessment procedures

Question 30: When should auditors perform substantive procedures on a transaction?

When they do not intend to rely on internal controls

When they intend to place reliance on controls

When inherent risk is low

When they intend to increase detection risk

Question 31: Which activity occurs in the reporting phase of an audit?

Gaining an understanding of the client

Identifying material misstatements

Forming an opinion on the fair presentation of the financial statements

Developing the audit strategy

Question 32: Which audit procedure would provide evidence of the existence assertion for a clients inventory balance?

Observation of physical inventory count

Inquiry of management

Review of purchase orders

Review of inventory valuation reports

Question 33: What must the audit team do during the risk response phase of the audit?

Understand the clients business and environment

Gain an understanding of the clients internal controls

Perform detailed substantive testing of transactions and accounts

Issue the audit report and opinion

Question 34: An auditor is testing a clients payroll system and is concerned about the completeness of the recorded payroll expenses. Which action should the auditor perform?

Trace recorded payroll entries to underlying timesheets

Recalculate payroll expenses

Compare payroll reports to general ledger entries

Test payroll system controls

Question 35: A clients financial statements include an estimate for warranty expenses based on historical data. Which type of risk is associated with this estimate?

Detection risk

Control risk

Inherent risk

Audit risk

Question 36: Which of the following should an auditor use as the basis for determining a materiality threshold?

Net income

Working capital

Total assets

External audit reports

Question 37: When auditors identify fraud risks that involve senior management, which course of action should they take?

Discuss the risks with the clients legal counsel

Withdraw from the engagement

Report the risks to the clients board of directors

Discuss the risks with external stakeholders

Question 38: Which characteristic of audit evidence would an auditor consider when determining whether it is appropriate?

Quantity

Reliability

Accessibility

Audit risk

Question 39: What is the primary purpose of using analytical procedures during the planning phase of an audit?

To form an opinion on the financial statements

To identify potential risks of material misstatement

To confirm account balances

To determine whether internal controls are effective

Question 40: Which of the following is an example of a preventive control?

Reconciliation of bank statements

Physical counts of inventory

Segregation of duties

Review of financial statements by management

D215 Auditing - Set 1 - Part 2