Auditing Principles & Procedures Flashcards
7 cards from real CAT practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Auditing Principles & Procedures flashcards as text
Which sampling method gives every item in the population an equal chance of being selected and is considered the most theoretically sound?
Answer: Simple random sampling
Simple random sampling ensures each item has an equal probability of selection, making it the most statistically rigorous approach and free from auditor bias.
The 'lower assessed level of control risk' approach means the auditor:
Answer: Performs fewer substantive procedures because controls are deemed effective
When control risk is assessed lower (i.e., controls are considered effective), the auditor can reduce the extent of substantive procedures, relying more heavily on the controls.
Which assertion is directly addressed when an auditor verifies that all recorded sales transactions actually occurred?
Answer: Occurrence
The occurrence assertion relates to whether recorded transactions and events actually took place and pertain to the entity.
An auditor uses analytical procedures during the planning phase primarily to:
Answer: Identify unusual fluctuations that may indicate risk areas
During planning, analytical procedures help the auditor understand the entity and identify areas of potential misstatement risk that should receive more audit attention.
What is the primary purpose of an engagement letter in an audit?
Answer: To document the terms and responsibilities of the audit engagement
The engagement letter establishes the agreed terms between the auditor and client, including the scope, objectives, responsibilities, and fees, reducing the risk of misunderstandings.
Which of the following is an example of a detective control?
Answer: Conducting monthly bank reconciliations
Bank reconciliations are detective controls because they identify errors or irregularities that have already occurred rather than preventing them.
When evaluating going concern, which condition would most likely trigger the auditor to include a going concern paragraph?
Answer: Recurring operating losses and inability to meet debt obligations
Recurring losses combined with inability to service debt are classic indicators of substantial doubt about an entity's ability to continue as a going concern.