B. Acy Bachelor of Accountancy Bachelor of Science in Accountancy: Audit 4

Question 1

Which of the following best describes a 'walk-through' in an audit of internal controls?

Accepted Answer

Tracing a transaction from origination through the recording process

Answer

A walk-through involves following a transaction from its initiation through the accounting system to confirm that controls operate as described.

Question 2

Lapping is a type of fraud that most commonly involves which account?

Accepted Answer

Accounts receivable

Answer

Lapping involves concealing a cash shortfall by applying later customer receipts to earlier accounts, making it an accounts receivable fraud.

Question 3

An auditor increases the assessed level of control risk. The effect on detection risk and planned substantive procedures is:

Accepted Answer

Detection risk decreases; substantive procedures increase

Answer

When control risk rises, detection risk must be reduced to keep overall audit risk at an acceptable level, which requires more extensive substantive procedures.

Question 4

Which of the following is an example of a 'substantive analytical procedure'?

Accepted Answer

Comparing recorded interest expense to the expected amount based on average debt balance

Answer

Substantive analytical procedures use relationships among financial data (e.g., average debt × interest rate) to detect material misstatements.

Question 5

The auditor's standard report on financial statements prepared under US GAAP is addressed to:

Accepted Answer

The shareholders, board of directors, or equivalent governing body

Answer

Audit reports are addressed to shareholders and/or the board of directors, as these are the parties who engage the auditor on behalf of the entity.

B. Acy Bachelor of Accountancy Practice Test

B. Acy Bachelor of Accountancy Practice Test

B. Acy Bachelor of Accountancy Bachelor of Science in Accountancy: Audit 4