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 type of audit evidence is generally considered most reliable when assessing inventory existence?
Answer: Physical observation of the inventory count
Physical observation provides direct, firsthand evidence that inventory exists, making it the most persuasive procedure for the existence assertion.
A material weakness in internal control differs from a significant deficiency in that a material weakness:
Answer: Represents a reasonable possibility that a material misstatement will not be prevented or detected
A material weakness is a deficiency (or combination of deficiencies) where there is a reasonable possibility that a material misstatement of the financial statements will not be prevented or detected on a timely basis.
What is the auditor's primary responsibility regarding fraud detection?
Answer: Obtain reasonable assurance that financial statements are free from material misstatement due to fraud or error
Auditors are responsible for obtaining reasonable assurance about material misstatements whether from fraud or error, but they do not guarantee detection of all fraud.
Which procedure is most effective for verifying the cutoff assertion for sales revenue near year-end?
Answer: Reviewing shipping documents for the last few days of the year and first few days of the new year
Examining shipping documents around year-end confirms whether sales were recorded in the correct period, directly addressing the cutoff assertion.
Which of the following describes an 'agreed-upon procedures' engagement?
Answer: The auditor performs specific procedures agreed to by the client and specified parties, reporting only factual findings
In an agreed-upon procedures engagement, the practitioner performs procedures defined by the engaging parties and reports only the findings without expressing an opinion or conclusion.
Which fraud risk factor relates to an employee who is experiencing severe financial pressure and has access to cash receipts?
Answer: Incentive/pressure
Financial pressure on an individual is classified under the incentive/pressure element of the fraud triangle, which motivates someone to commit fraud.
When an auditor communicates a significant deficiency to management and those charged with governance, this communication must be:
Answer: Made in writing
Auditing standards require that significant deficiencies and material weaknesses be communicated in writing to management and those charged with governance.