MaoEn/USCPA_AUD_Data huggingface dataset:
Choice “D” is incorrect. An effective system of internal controls has all components and associated principles “present” in the system."
Which of the following statements best describes an audit strategy?
A.
An audit strategy identifies the relevant assertions for material account balances.
B.
An audit strategy identifies the risks of material misstatement.
C.
An audit strategy forms the basis for a more detailed audit plan.
D.
An audit strategy describes the professional responsibility to comply with generally accepted auditing standards.,"Choice "C" is correct. The audit strategy outlines the scope of the engagement, objectives, timing of the audit, required communications, and other factors that determine the focus of the audit. All of this information helps the auditor create a more detailed audit plan.
Choice "A" is incorrect. An audit strategy does not identify relevant assertions for material account balances. Material account balances may be considered when establishing the audit strategy.
Choice "B" is incorrect. An audit strategy does not identify the risks of material misstatement. The risks of material misstatement are assessed after the audit strategy has been established.
Choice "D" is incorrect. An audit strategy does not describe an auditor's professional responsibility. The professional responsibility to comply with generally accepted auditing standards is assumed when establishing the audit strategy."
In assessing the competence, objectivity, and application of a systematic and disciplined approach by the entity's internal audit function, an independent auditor would least likely consider information obtained from:
A.
Discussions with management personnel.
B.
External quality reviews of the internal auditor's activities.
C.
Previous experience with the internal auditor.
D.
The results of analytical procedures.,"Choice "D" is correct. Analytical procedures may be used to enhance the auditor's understanding of the client's business or to evaluate financial statement assertions, but generally would not be helpful in assessing competence, objectivity, and application of a systematic and disciplined approach by the entity's internal audit function.
Choice "A" is incorrect. In assessing competence, objectivity, and application of a systematic and disciplined approach by the entity's internal audit function, the auditor usually considers information obtained from discussions with management personnel.
Choice "B" is incorrect. In assessing competence, objectivity, and application of a systematic and disciplined approach by the entity's internal audit function, the auditor usually considers information obtained from external quality reviews of internal audit activities.
Choice "C" is incorrect. In assessing competence, objectivity, and application of a systematic and disciplined approach by the entity's internal audit function, the auditor usually considers information obtained from previous experience with the internal audit function."
Which of the following statements is most accurate regarding principles and components within the Internal Control—Integrated Framework?
A.
Identifying and assessing changes falls within monitoring activities.
B.
Specifying objectives falls within the control environment.
C.
Policy and procedure deployment falls within (existing) control activities.
D.
Communication of deficiencies falls within information and communication.,"Choice “C” is correct. Creating policies and procedures related to internal controls and then subsequently deploying them is a principle that falls under the (existing) control activities component.
Choice “A” is incorrect. Identifying and assessing changes falls within the risk assessment component.
Choice “B” is incorrect. Specifying objectives falls within the risk assessment component.
Choice “D” is incorrect. Communication of deficiencies falls within the monitoring activities component."
Inherent risk and control risk differ from detection risk in that they:
A.
May be assessed in either quantitative or nonquantitative terms.
B.
Arise from the misapplication of auditing procedures.
C.
Exist independently of the financial statement audit.
D.
Can be changed at the auditor's discretion.,"Choice "C" is correct. Inherent risk and control risk differ from detection risk in that they exist independently of the audit of financial statements, whereas detection risk is related to the auditor's procedures and can be changed at the auditor's sole discretion.
Choice "A" is incorrect. Both the risk of material misstatement (including control risk and inherent risk) and detection risk may be assessed in quantitative terms, such as percentages, or in nonquantitative terms that range, for example, from a minimum to a maximum.
Choice "B" is incorrect. Inherent risk and control risk exist independently of the audit and do not arise from misapplication of auditing procedures.
Choice "D" is incorrect. The auditor cannot change inherent risk or control risk since they exist independently of the financial statement audit. Only detection risk can be changed at the auditor's discretion."
The Treadway Commission was established to study factors that lead to fraudulent financial reporting. The Treadway Commission was established by:
A.
Sarbanes-Oxley Act of 2002.
B.
Securities and Exchange Commission.
C.
Private sponsoring organizations.
D.
Treadway Foundation.,"Choice "C" is correct. The Committee on Sponsoring Organizations (COSO), an independent private sector initiative, was initially established in the mid 1980's to study the factors that can lead to fraudulent financial reporting. The COSO is sometimes referred to as the Treadway Commission after its original Chairman, James Treadway, Jr., an executive in the private sector. The private "sponsoring organizations" included the five major financial professional associations in the United States: the American Accounting Association (AAA), the American Institute of Certified Public Accountants (AICPA), the Financial Executives Institute (FEI), the Institute of Internal Auditors (IIA), and the Institute of Management Accountants (IMA).
Choice "A" is incorrect. The Sarbanes-Oxley Act of 2002 did not establish the Treadway Commission.  The Sarbanes-Oxley Act is a federal law enacted with the intent of improving the accuracy and reliability of financial information disclosed by public companies.
Choice "B" is incorrect. The Securities and Exhange Commission (SEC) did not establish the Treadway Commission.  The SEC is a U.S. government agency created by Congress with the overall purpose of protecting investors.
Choice "D" is incorrect. The Treadway Foundation did not establish the Treadway Commission."
The Gotham Corporation regularly produces budget vs. actual data for its managers. The company is particularly sensitive to personnel costs, and division variances of greater than five percent for any period are promptly investigated to determine if budgeted positions have not been filled or if there has been extraordinary overtime. Timely exception resolution of this character illustrates the information and communication principles typically associated with:
A.
Internal Communication.
B.
External Communication.
C.
Financial Reporting Information.
D.
Obtain and Use Information.,"Choice "D" is correct.The principle of obtain and use information is applied when the organization obtains or generates and uses relevant, high-quality information to support the functioning of the control. In this case, management is using the exception report (information) to support the control of monitoring overtime costs.
Choice "A" is incorrect. Internal communications anticipate that communications enable and support understanding and execution of internal control objectives, processes, and individual responsibilities. Variance analysis specifically supports internal control, not simply internal communications generally.
Choice "B" is incorrect. External communications anticipate that matters affecting the achievement of financial reporting are communicated with outside parties.
Choice "C" is incorrect. Financial reporting information is not a principle of COSO."
In an audit of a nonissuer, the auditor plans to recalculate the nonissuer's year-end employee vacation accrual using a management-provided list of employees' salaries and banked vacation hours. In order to validate the completeness of the employees' information, the auditor would most appropriately:
A.
Verify that the number of vacation hours accrued by each employee for each pay period complies with the corresponding policy from the human resources department.
B.
Use the payroll system to validate a sample of employee salaries.
C.
Review a list of employees who were terminated after year-end to verify that they have been removed from the vacation-accrual calculation.
D.
Agree the number of employees included in the vacation-accrual calculation to the final payroll register.,"Choice "D" is correct. To test the completeness of the employees' information in the vacation-accrual calculation, the auditor would likely verify that all the active employees are included in the calculation. Confirming that no employees are excluded tests the completeness of the employees.
Choice "A" is incorrect. Verifying the number of vacation hours for each employee tests the accuracy of the calculation, not the completeness. This procedure also does not test the employees' information.
Choice "B" is incorrect. Using the payroll system to validate a sample of the employee salaries will test the accuracy of the salaries, but it does not address the completeness of the employees' information.
Choice "C" is incorrect. Reviewing a list of employees who were terminated and making sure that they have been removed from the calculation tests the existence of the employees included in the calculation, not the completeness."
In a financial statement audit, inherent risk is evaluated to help an auditor assess which of the following?
A.
The risk that the internal control system will not detect a material misstatement of a financial statement assertion.
B.
The risk that the audit procedures implemented will not detect a material misstatement of a financial statement assertion.
C.
The susceptibility of a financial statement assertion to a material misstatement assuming there are no related controls.
D.
The internal audit department's objectivity in reporting a material misstatement of a financial statement assertion it detects to the audit committee.,"Choice "C" is correct. Inherent risk is the susceptibility of a relevant assertion to a material misstatement, assuming there are no related controls.
Choice "A" is incorrect. Control risk (not inherent risk) is the risk that a material misstatement will not be detected (or prevented) on a timely basis by the entity's internal control.
Choice "B" is incorrect. Detection risk (not inherent risk) is the risk that the audit procedures implemented will not detect a misstatement that exists in a relevant assertion.
Choice "D" is incorrect. Evaluation of inherent risk is based on the nature of the assertion, and is unrelated to the objectivity of the internal audit department."
In a financial statement audit, inherent risk is evaluated to help an auditor assess which of the following?
A.
The internal audit department's objectivity in reporting a material misstatement of a financial statement assertion it detects to the audit committee.
B.
The risk that the audit procedures implemented will not detect a material misstatement of a financial statement assertion.
C.
The susceptibility of a financial statement assertion to a material misstatement assuming there are no related controls.
D.
The risk that the internal control system will not detect a material misstatement of a financial statement assertion.,"Choice "C" is correct. Inherent risk is the susceptibility of a relevant assertion to a material misstatement, assuming there are no related controls.
Choice "A" is incorrect. Evaluation of inherent risk is based on the nature of the assertion, and is unrelated to the objectivity of the internal audit department.
Choice "D" is incorrect. Control risk (not inherent risk) is the risk that a material misstatement will not be detected (or prevented) on a timely basis by the entity's internal control."
Controls are likely to fail for any of the following reasons, except:
A.
They are designed and implemented properly, but their operation changes in some way.
B.
They are designed and implemented properly, and their design changes as processes change.
C.
They are designed and implemented properly as static controls, but the environment in which they operate changes.
D.
They are not designed and implemented properly at the outset.,"Choice “B” is correct. Controls that are designed and implemented properly, including the ability for their design to adapt as processes change, will have the lowest chance of failure.
Choice “A” is incorrect. If controls are designed and implemented properly but their operation changes in some way, there is a greater chance the controls may fail.
Choice “C” is incorrect. When controls are designed and implemented as static controls, any change in the operating environment will increase the likelihood of their failure.
Choice “D” is incorrect. Controls that are not designed or implemented properly at the outset will not function, with failure inevitable."
Which of the following would an auditor most likely use in determining the auditor's preliminary judgment about materiality?
A.
The results of the initial assessment of control risk.
B.
The assertions that are embodied in the financial statements.
C.
The entity's financial statements of the prior year.
D.
The anticipated sample size for planned substantive tests.,"Choice "C" is correct. The auditor would most likely use the entity's financial statements of the prior year in the preliminary determination of materiality. The prior year financial statements would be a good starting point in estimating the current year's expected results, especially for a continuing client.
Choice "A" is incorrect. The assessment of control risk affects the design of audit procedures but is not relevant in determining materiality.
Choice "B" is incorrect. Management assertions embodied in the financial statements have little relationship to materiality.
Choice "D" is incorrect. The anticipated sample size for planned substantive tests is set after the preliminary materiality level is determined."
Which of the following statements is true regarding internal control objectives of information systems?
A.
Control objectives primarily emphasize output distribution issues.
B.
Primary responsibility of viable internal control rests with the internal audit division.
C.
An entity's corporate culture is irrelevant to the objectives.
D.
A secure system may have inherent risks due to management's analysis of trade-offs identified by cost-benefit studies.,"Choice "D" is correct. One of the limitations of even a well-designed internal control system is management's ability to override those controls. One reason management may override them is that the benefit of doing so exceeds the cost, which represents an inherent risk of even the strongest systems.
Choice "A" is incorrect. Objectives within the internal control integrated framework include operations, reporting, and compliance objectives. Output distribution issues are just one aspect of what may be covered through the establishment of these objectives.
Choice "B" is incorrect. Senior management and the board of directors have primary responsibility for establishing, implementing, and enforcing internal controls. Internal Audit is a partner in the process, but it does not have primary responsibility.
Choice "C" is incorrect. The corporate culture (or "tone at the top") is extremely critical to the process of establishing and enforcing objectives."
Which of the following statements is not correct about materiality?
A.
An auditor considers materiality for the financial statements as a whole in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements.
B.
The concept of materiality recognizes that some matters are important for fair presentation of financial statements in conformity with GAAP, while other matters are not important.
C.
Materiality judgments are made in light of surrounding circumstances and necessarily involve both quantitative and qualitative judgments.
D.
An auditor's consideration of materiality is influenced by the auditor's perception of the needs of a reasonable person who will rely on the financial statements.,"Choice "A" is correct. Materiality levels include an overall level for each statement; however, because the statements are interrelated, and for reasons of efficiency, the auditor ordinarily considers materiality for planning purposes in terms of the smallest aggregate level of misstatements that could be considered material to any one of the financial statements.
Choice "B" is incorrect. The concept of materiality recognizes that some matters, either individually or in the aggregate, are important for the fair presentation of financial statements in conformity with GAAP, while other matters are not important.
Choice "C" is incorrect. Materiality judgments are made in light of the surrounding circumstances and necessarily involve both quantitative and qualitative considerations.
Choice "D" is incorrect. The auditor's consideration of materiality is influenced by his or her perception of the needs of a reasonable person relying on the financial statements."
Which of the following journal entries would the auditor least likely examine in an effort to address the risk of management override of controls?
A.
A journal entry made to record recurring periodic accounting estimates.
B.
A journal entry recorded as a post-closing entry that has no explanation or description.
C.
A journal entry made to a seldom-used account.
D.
A journal entry made by an individual who does not typically make journal entries.,"Choice "A" is correct. Inappropriate or unauthorized journal entries are often used to override controls and manipulate the financial reporting process. Periodic, recurring accounting estimates are least likely to be subject to management override since they are expected and occur regularly.
Choice "B" is incorrect. Inappropriate or unauthorized journal entries are often used to override controls and manipulate the financial reporting process. A journal entry recorded after closing without an appropriate explanation or description might be indicative of such management override.
Choice "C" is incorrect. Inappropriate or unauthorized journal entries are often used to override controls and manipulate the financial reporting process. A journal entry made to a seldom-used account might be indicative of such management override.
Choice "D" is incorrect. Inappropriate or unauthorized journal entries are often used to override controls and manipulate the financial reporting process. A journal entry made by a person who generally does not have that responsibility might be indicative of such management override."
The COSO Cube is used to illustrate the relationship between:
A.
Risk management strategies, internal control components, and the elements of the Audit Framework.
B.
The five components of internal control, the three categories of objectives, and the 17 principles.
C.
Internal controls, enterprise risk management, and Sarbanes-Oxley requirements.
D.
Categories of objectives, internal control components, and entity organizational levels.,"Choice “D” is correct. The COSO Cube shows the three categories of objectives as columns, the five internal control components as rows, and the four levels of an entity’s organization as the third dimension.
Choice “A” is incorrect. Risk management strategies and the elements of the Audit Framework are not reflected on the COSO Cube.
Choice “B” is incorrect. The 17 principles that fall into the five components of internal control are not reflected on the COSO Cube.
Choice “C” is incorrect. Enterprise risk management and Sarbanes-Oxley are not reflected on the COSO Cube."
Which type of audit procedures would an auditor use to test a client’s financial statement assertions at the account, transaction, or disclosure level?
A.
Substantive procedures and test of controls.
B.
Test of controls (only).
C.
Analytical procedures (only).
D.
Substantive procedures (only).,"Choice "A" is correct. The auditor uses substantive procedures and tests of controls at the relevant assertion level to test a client’s significant account balances, transaction classes, and disclosure items in the financial statements.
Choice "B" is incorrect. Although an auditor may use test of controls as an audit procedure to test a client’s financial statement assertions, substantive procedures would also be used by the auditor.
Choice "C" is incorrect. Analytical procedures are a form of substantive procedures. There may be certain situations when using analytical procedures may be a more effective means of gathering evidence than tests of controls.
Choice "D" is incorrect. While the auditor would use substantive procedures to test a client’s financial statement assertions, test of controls may also be performed."
Choice "A" is correct. The auditor uses substantive procedures and tests of controls at the relevant assertion level to test a client’s significant account balances, transaction classes, and disclosure items in the financial statements.
Choice "B" is incorrect. Although an auditor may use test of controls as an audit procedure to test a client’s financial statement assertions, substantive procedures would also be used by the auditor.
Choice "C" is incorrect. Analytical procedures are a form of substantive procedures. There may be certain situations when using analytical procedures may be a more effective means of gathering evidence than tests of controls.
Choice "D" is incorrect. While the auditor would use substantive procedures to test a client’s financial statement assertions, test of controls may also be performed.,"Choice "B" is correct. In an audit of financial statements, substantive procedures will always be necessary for all relevant assertions related to significant transaction classes.
Choice "A" is incorrect. An auditor is not required to determine the effectiveness of controls in a financial statement audit.
Choice "C" is incorrect. The auditors are responsible for their own assessment of risk and response to risks. They should not discuss strategies to eliminate risks with top management.
Choice "D" is incorrect. Considering the appropriateness of risk assessment procedures does not adequately respond to the fact that the auditor's assessment of risk is always subjective rather than objective. The appropriate response is to perform substantive procedures for all relevant assertions related to each significant class of transactions."
The element of the audit planning process most likely to be agreed upon with the client before implementation of the audit strategy is the determination of the:
A.
Evidence to be gathered to provide a sufficient basis for the auditor's opinion.
B.
Timing of inventory observation procedures to be performed.
C.
Pending legal matters to be included in the inquiry of the client's attorney.
D.
Procedures to be undertaken to discover litigation, claims, and assessments.,"Choice "B" is correct. In order to observe the physical inventory count, the auditor would have to coordinate schedules with the client. This timing is usually agreed upon before implementation of the audit strategy.
Choice "A" is incorrect. It would not be appropriate for the client to be involved in determining the amount of evidence necessary to provide a basis for an opinion.
Choice "C" is incorrect. Determination of the pending legal matters to be included in a letter to the client's attorney would not generally be made during the planning stage of the audit.
Choice "D" is incorrect. It would not be appropriate for the client to be involved in determining the procedures necessary to obtain evidence about litigation, claims and assessments."