Accounting The public believes that auditors test 95% of transactions. A reasonable public expectation is 35% testing. Auditing standards require 25% testing. Denis the dodgy auditor tests 10%. Which of the following statements is true? a. The gap due to deficient performance is 30%.

Accounting The public believes that auditors test 95% of transactions. A reasonable public expectation is 35% testing. Auditing standards require 25% testing. Denis the dodgy auditor tests 10%. Which of the following statements is true? a. The gap due to deficient performance is 30%.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The following information is provided for the audit of Vial-tech. Performance materiality is twice the amount of materiality. There are no other misstatements other than those indicated. Account Accounts receivable Inventory Fixed assets All other accounts (net) Net assets $5,000 $20,000 $25,000 Amount $45,000 1,000,000 2,500,000 2,000,000 1,500,000 7,000,000 Performance Materiality Amount includes projected misstatement and allowance for sampling risk: In testing accounts receivable, the auditor tested $200,000 of receivables and found $5,000 of misstatements. The direct projected misstatement in accounts receivable excluding sampling risk is: O Insufficient information to determine. 40,000 60,000 10,000 40,000 150,000 Estimated Misstatements Overstating Income 45,000 10,000 5,000 5,000
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Inquiries of clients and reperformance normally have a low cost to perform. True False When analytical procedures reveal no unusual fluctuations in an account balance, the auditor will probably perform fewer test of details of balance for that account. True False When analytical procedures reveal no unusual fluctuations in an account balance, the auditor will probably perform fewer test of controls for that account. True False Analytical procedures can be used to provide reliable evidence for all balance-related general audit objectives. True False One advantage of using statical techniques when performing analytical procedures is that they eliminate the need for auditor judgement. True False The type of audit evidence known as documentation involves the auditor’s examination of tangible assets with results of the examination being recorded, or “documented,” in the auditor’s work papers. True False If a company’s cash ratio is greater than 1.0, the company is…
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Marilyn Terrill is the senior auditor for the audit of Uden Supply Company for the year ended December 31, 20X4. In planning the audit, Marilyn is attempting to develop expectations for planning analytical procedures based on the financial information for prior years and her knowledge of the business and the industry, including these: 1. Based on economic conditions, she believes that the increase in sales for the current year should approximate the historical trend in terms of actual dollar increases. 2. Based on her knowledge of industry trends, she believes that the gross profit percentage for 20X4 should be about 2 percent less than the percentage for 20X3. 3. Based on her knowledge of regulations, she is aware that the effective tax rate for the company for 20X4 has been reduced by 5 percent from that in 20X3. 4. Based on her knowledge of economic conditions, she is aware that the effective interest rate on the company's line of credit for 20X4 was approximately 12 percent. The…
Francona Madden, an audit manager, considered the control risk assessments listed in theleft column of the following table in evaluating A. Cardinal’s internal control over salestransactions. The sample sizes for the substantive procedures of the customer accountsreceivable are shown to the right of each control risk. What risk of overreliance (ROO)could be assigned for tests of controls at each control risk level? Control Risk Accounts Receivable Sample ROO 0.20 400 ? 0.50 390 ? 0.80 350 ? 0.90 190 10% a. From top to bottom: 5 percent, 10 percent, 1 percent.b. From top to bottom: 10 percent, 1 percent, 5 percent.c. From top to bottom: 1 percent, 10 percent, 5 percent.d. From top to bottom: 1 percent, 5 percent, 10 percent.
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