Auditing & Assurance Flashcards
7 cards from real CGA 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 & Assurance flashcards as text
Which of the following is an example of a preventive control in an internal control system?
Answer: Segregation of duties
Segregation of duties prevents errors or fraud from occurring by ensuring no single individual controls all aspects of a transaction.
An engagement letter for an audit should include all of the following EXCEPT:
Answer: A guarantee that fraud will be detected
Auditors cannot guarantee fraud detection; the engagement letter sets out responsibilities and scope but makes no such guarantee.
During an audit, an auditor identifies a significant deficiency in internal controls. To whom must this be communicated?
Answer: Those charged with governance (e.g., the audit committee)
Significant deficiencies and material weaknesses must be communicated in writing to management and those charged with governance.
Which analytical procedure would best identify potential revenue overstatement?
Answer: Comparing current-year gross margin ratio to prior years and industry benchmarks
Comparing gross margin ratios can reveal unexplained improvements that may indicate inflated revenue or understated cost of goods sold.
A company uses electronic data interchange (EDI) for all purchases. Which internal control is most critical in this environment?
Answer: Application controls that validate transaction completeness and accuracy
In an EDI environment, automated application controls replace manual controls to ensure transactions are complete, accurate, and authorized.
The primary purpose of a review engagement, as opposed to an audit, is to provide:
Answer: Limited assurance that no material modifications are needed
A review provides limited (negative) assurance that nothing came to the auditor's attention indicating material modifications are needed.
Which factor would most likely increase the acceptable level of detection risk for a specific audit assertion?
Answer: Effective internal controls related to the assertion
When internal controls are effective (low control risk), the auditor can accept higher detection risk and perform less extensive substantive testing.