cpa audit review ch5 review 5

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Joens1313
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cpa audit review ch5 review 5
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2014-08-03 21:05:29
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cpa audit review ch5 review 5
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  1. In an audit of financial statements in accordance with generally accepted auditing standards, an auditor should

    A.Determine whether procedures are suitably designed to prevent, or detect and correct, material misstatement.

    B.Perform tests of controls to evaluate the effectiveness of the entity’s accounting system.

    C.Document the auditor’s understanding of the entity’s internal control.

    D.Identify specific controls relevant to management’s financial statement assertions.
    C.Document the auditor’s understanding of the entity’s internal control.

    The auditor should document (1) the understanding of the entity and its environment and the components of internal control, (2) the sources of information regarding the understanding, and (3) the risk assessment procedures performed. The form and extent of the documentation are influenced by the nature and complexity of the entity’s controls (AU-C 315).
  2. Internal controls are designed to provide reasonable assurance that

    A.Management’s plans have not been circumvented by worker collusion.

    B.Material errors or fraud will be prevented, or detected and corrected, within a timely period by employees in the course of performing their assigned duties.

    C.The internal auditing department’s guidance and oversight of management’s performance is accomplished economically and efficiently.

    D.Management’s planning, organizing, and directing processes are properly evaluated.
    B.Material errors or fraud will be prevented, or detected and corrected, within a timely period by employees in the course of performing their assigned duties.

    Cost-effective controls should restrict deviations to a tolerable rate. Thus, material errors and improper or illegal acts should be prevented, or detected and corrected, within a timely period by employees in the normal course of performing their assigned duties. Accordingly, the cost-benefit relationship is considered by management during the design of systems, and the potential loss associated with any exposure or risk is weighed against the cost to control it.
  3. Which of the following statements most likely represents a disadvantage for an entity that keeps digital computer files rather than manually prepared files?

    A.It is usually more difficult to compare recorded accountability with physical count of assets.

    B.It is usually easier for unauthorized persons to access and alter the files.

    C.Random error associated with processing similar transactions in different ways is usually greater.

    D.Attention is focused on the accuracy of the programming process rather than errors in individual transactions.
    B.It is usually easier for unauthorized persons to access and alter the files.

    In a manual system, one individual is assigned responsibility for maintaining and safeguarding the records. However, in a computer environment, the data files may be subject to change by others without documentation or indication of who made the changes.
  4. In obtaining an understanding of internal control, the auditor may trace several transactions through the control process, including how the transactions interface with any service organizations whose services are part of the information system. The primary purpose of this task is to

    A.Determine the effectiveness of the control procedures.

    B.Determine whether the controls have been implemented.

    C.Replace substantive procedures.

    D.Detect fraud.
    B.Determine whether the controls have been implemented.

    The understanding should include information about the design of relevant controls and determining whether they have been implemented by the entity and by service organizations whose services are part of the entity’s information system. Tracing a few transactions through the control process (a walkthrough) should provide that evidence. A walkthrough follows transactions from origination through the entity’s processes, including IT systems, until they are reflected in the entity’s financial records (AS No. 12).

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