B. Acy Bachelor of Accountancy Bachelor of Science in Accountancy: Audit 2 — Questions and Answers
Question 1: Which component of the audit risk model represents the risk that a material misstatement will not be prevented or detected by the client's internal controls?
- Inherent risk
- Control risk (Correct answer)
- Detection risk
- Audit risk
Correct answer: Control risk
Control risk is the risk that a material misstatement will not be prevented or detected on a timely basis by internal controls.
Question 2: Under PCAOB standards, an auditor of a public company must issue a separate opinion on the company's:
- Tax return accuracy
- Internal control over financial reporting (Correct answer)
- Board of directors effectiveness
- Compliance with SEC registration requirements
Correct answer: Internal control over financial reporting
PCAOB AS 2201 requires auditors of public companies to issue an integrated audit opinion that includes a separate opinion on ICFR.
Question 3: A predecessor auditor receives a request from a successor auditor to provide information about the client. The predecessor auditor should:
- Provide all requested information without restriction
- Obtain client permission before communicating with the successor (Correct answer)
- Decline to respond to protect client confidentiality
- Only communicate after receiving a court order
Correct answer: Obtain client permission before communicating with the successor
Professional standards require the predecessor to obtain the client's permission before disclosing confidential information to the successor auditor.
Question 4: The concept of 'professional skepticism' in auditing primarily means the auditor should:
- Assume management is always dishonest
- Trust all evidence equally regardless of source
- Maintain a questioning mind and critically assess audit evidence (Correct answer)
- Require corroborating evidence for every management assertion
Correct answer: Maintain a questioning mind and critically assess audit evidence
Professional skepticism means maintaining a questioning mind and making a critical assessment of evidence, neither assuming honesty nor dishonesty.
Question 5: Which audit procedure is MOST effective for verifying the existence of accounts receivable?
- Reviewing the aged receivables trial balance
- Sending positive confirmation requests to customers (Correct answer)
- Recalculating interest on overdue accounts
- Comparing current-year balances to prior-year balances
Correct answer: Sending positive confirmation requests to customers
Positive confirmations require customers to respond whether or not they agree, providing direct external evidence of the existence of receivables.
Question 6: When an auditor uses stratified sampling for accounts receivable, the primary benefit is:
- Eliminating the need for statistical methods
- Focusing more audit effort on higher-value items (Correct answer)
- Reducing the sample size below materiality
- Avoiding the need for confirmation procedures
Correct answer: Focusing more audit effort on higher-value items
Stratified sampling allows auditors to concentrate testing on higher-risk or higher-dollar strata, improving audit efficiency and effectiveness.
Question 7: An auditor discovers that a client's purchasing manager has both authorization authority and custody of purchased goods. This is an example of a:
- Compensating control
- Segregation of duties weakness (Correct answer)
- Detective control failure
- Preventive control strength
Correct answer: Segregation of duties weakness
Combining authorization and custody functions in one person violates segregation of duties, a fundamental internal control principle.
B. Acy Bachelor of Accountancy Bachelor of Science in Accountancy: Audit 2
Which component of the audit risk model represents the risk that a material misstatement will not be prevented or detected by the client's internal controls?