Auditing and Assurance Training Fundamentals 3

Question 1

In the audit risk model (AR = IR × CR × DR), if inherent risk and control risk are both high, how should the auditor respond?

Accepted Answer

Decrease detection risk by performing more extensive substantive procedures

Answer

When inherent and control risks are high, auditors must lower detection risk by expanding the nature, timing, and extent of substantive procedures.

Question 2

Which of the following is the best example of a preventive control?

Accepted Answer

Separation of duties between cash receipts and recordkeeping

Answer

Separation of duties is a preventive control because it reduces the opportunity for errors or fraud to occur in the first place.

Question 3

A CPA firm discovers an error in a prior-year audit report after it was issued. Under professional standards, the firm should:

Accepted Answer

Notify the client, regulatory authorities, and users who relied on the report

Answer

When a previously issued audit report is found to be incorrect, the auditor must notify the client and all known users who relied on the report.

Question 4

What is the purpose of performing a 'walkthrough' during an audit of internal controls?

Accepted Answer

To trace a transaction from initiation through recording to verify controls operate as designed

Answer

A walkthrough involves tracing one or a few transactions through the entire process to confirm that documented controls actually exist and function as described.

Question 5

Which of the following financial statement assertions does confirmations of accounts receivable most directly address?

Accepted Answer

Existence and rights

Answer

Accounts receivable confirmations provide evidence that the balances exist and that the client has the right to collect them from third parties.

Auditing and Assurance Training Practice Test

Auditing and Assurance Training Practice Test

Auditing and Assurance Training Fundamentals 3