a
Introduction: Test of controls is the
To ascertain: The way that the auditor use the four types of exception reports in assessing the effectiveness of control
b
Introduction: Test of controls is the audit procedures, performed to test the operating effectiveness. The test is for detect material misstatements at assertion level. It requires inspection of documents, reperformance of the control to gather the information.
To ascertain: The chances that many exceptions affect the auditor’s assessment and judgment of effectiveness of control risk.
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Chapter 9 Solutions
Auditing: A Risk Based-Approach to Conducting a Quality Audit
- In performing a risk-based audit, when developing audit recommendations, the IT auditor should: a) Use Computer Assisted Audit Techniques (CAATs) to test transactions. b) Analyze the inherent risk, residual risk, and the cost of additional controls in relation to the potential for loss. c) Determine if the risk is material based solely on auditor judgement. d) Perform substantive procedures to eliminate control riskarrow_forwardStatement 1: As part of obtaining an understanding of internal control, an auditor is required to obtain knowledge about the operating effectiveness of internal control. Statement 2: The auditor obtains an understanding of internal controls to identify the types of potential misstatements that may occur. Group of answer choices A. False, true B. True, false C. False, false D. True, truearrow_forwardAfter obtaining an understanding of an entitiy's internal control, an auditor may assess control risk at the maximum level for some assertions because he A. performs tests of controls to restrict detection risk to an acceptable level. B. identifies internal control policies and procedures that are likely to prevent material misstatements. C. believes the internal control policies and procedures are unlikely to be effective. D. determines that the pertinent internal control components are not well documented.arrow_forward
- The audit risk model includes the four risks listed below. Match the type of risk with the related definition.A. Detection riskB. Control riskC. Inherent riskD. Audit risk___ 1. The probability that an auditor will give an inappropriate opinion on financial statements.___ 2. The probability that audit procedures will fail to produce evidence of material misstatements.___ 3. The probability that the client's internal control policies and procedures will fail to detect material misstatements if they have entered the accounting system.___ 4. The probability that material misstatements have occurred in transactions entering the accounting system.arrow_forwardWhich of the following statements is correct concerning the understanding of internal control needed by auditors? The auditors must understand the information system, not the accounting system, The auditors must understand monitoring and all preliminary accounting controls, The auditors must have a sufficient understanding to access the risks of material misstatement, The auditors must understand the control environment, risk assessment, and all control activitiesarrow_forwardRequired: When evaluating internal control design effectiveness during the internal control over financial reporting, the audit team must determine whether controls have been put in place for each relevant assertion about each significant account. For each relevant assertion, the audit team must determine the points in the process where a misstatement might occur and then determine if a control activity has been put in place to mitigate the risk of material misstatement for each relevant assertion. For each of the possible misstatements identified below, please select the appropriate financial statement assertion: Possible Misstatement/Risk a. Revenue is overstated because the controller created fraudulent invoices and recorded them. b. Revenue is understated because the accountant closed the sales cycle a week early to go on vacation. c. Accounts Receivable is overstated because the accounts receivable clerk forgot to apply available discounts. d. Accounts Receivable is overstated…arrow_forward
- Many auditors assert that certain audit tests can be significantlyreduced for clients with adequate perpetual records that include both unit and cost data.What are the most important tests of the perpetual records that the auditor must makebefore reducing assessed control risk? Assuming the perpetuals are determined to beaccurate, which tests can be reduced?arrow_forwardGrounds for Dismissal. This case is designed like the ones in the chapter. Your assignment is to write the “audit approach” portion of the case organized around these sections: Objective. Express the objective in terms of the facts supposedly asserted in financial records, accounts, and statements.Control. Write a brief explanation of desirable controls, missing controls, and especially the types of “deviations” that might arise from the situation described in the case.Tests of controls. Write some audit procedures for getting evidence about existing controls, especially procedures that could discover deviations from controls. If there are no controls to test, then there are no procedures to perform; go to the next section. A “procedure” should instruct someone about the source(s) of evidence to tap and the work to do. Audit of balance. Write some procedures for getting evidence about the existence, completeness, valuation or allocation, or rights and obligations assertions identified…arrow_forward1. What is the primary reason that auditors’ assess internal control? a)To determine the risk of misstatements of accounts. b)To make recommendations for improvements in controls. c)To determine the nature of various accounts. d)To find misstatements in accounts. 2. Tests of controls are designed to determine all of the following, except: a)How consistent the control was applied. b)Whether or not the control was overridden. c)How a control was applied. d)By what means the control was applied. 3. All of the following are possible responses to a pervasive weakness in internal control except: a)Increase the size of a sample for certain tests in the engagement. b)Adding an element of unpredictability to the procedures performed. c)Increasing the level of supervision on the engagement. d)Assign more experienced personnel to the engagement. 4. Which of the following is not a COSO component of internal control? a)Board oversight. b)Control activities. c)Risk assessment. d)Control…arrow_forward
- When an auditor tests the internal controls of a computerized accounting system, which of the following is true of the test data approach? A. Test data are coded to a dummy subsidiary so they can be extracted from the system under actual operating conditions. B. Test data programs need NOT be tailor-made by the auditor for each client's computer applications. C. Test data programs usually consist of all possible valid and invalid conditions reguarding compliance with internal controls. D. Test data are processed with the client's computer and the results are compared with the auditor's predetermined results.arrow_forwardStudy and Evaluation of Management Control. The study and evaluation of management risk mitigation control is not easy. First, auditors must determine the risks and the controls subject to audit. Then they must find a standard by which performance of the control can be evaluated. Next they must specify procedures to obtain the evidence on which an evaluationcan be based. Insofar as possible, the standards and related evidence must be quantified. The following description gives certain information (in italics) that internal auditors would know about or be able to determine on their own. Fulfilling the requirement thus amounts to taking some information from the scenario and figuring out other things by using accountants’ and auditors’ common sense.The ScenarioAce Corporation ships building materials to more than a thousand wholesale and retail customers in a five-state region. The company’s normal credit terms are net/30 days, and no cash discounts are offered. Fred Clark is the chief…arrow_forwardAuditors identify and assess the risk of material misstatement at these two levels Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a Financial Statement level and Information Process Goals level b Financial statement level and Operations Process Goals level c Information Process Goals level and Operations process goals level d Financial Statement Level and Relevant Assertion Levelarrow_forward
- Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage LearningAuditing: A Risk Based-Approach to Conducting a Q...AccountingISBN:9781305080577Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:South-Western College Pub