Area III: Procedures

An auditor is performing a 'test of details' on the existence of accounts receivable. The auditor sends positive confirmations. A customer responds stating, 'We do not owe this amount; we paid it on December 28.' The auditor verifies that the check was received by the client on January 3 and recorded then. The year-end is December 31. This finding represents:

An auditor uses attribute sampling to test internal controls. The auditor establishes a tolerable deviation rate of 5%. The sample results indicate a sample deviation rate of 3% and an allowance for sampling risk of 3%. The auditor should conclude:

In a probability-proportional-to-size (PPS) sampling application, the sampling interval is determined to be $10,000. An account with a recorded amount of $50,000 is selected. The auditor finds a misstatement of $500 in this account. What is the projected misstatement for this item?

An auditor is reviewing the minutes of board meetings for a nonissuer. The auditor discovers that the company is a defendant in a patent infringement lawsuit filed two weeks before year-end. Management did not disclose this to the auditor. This discovery most likely affects the auditor's assessment of:

Which of the following procedures would be MOST effective in detecting unrecorded liabilities (completeness of accounts payable)?

An auditor is auditing the fair value of Level 3 assets (illiquid, no observable market). Management uses a complex proprietary model. The auditor does not have the expertise to evaluate the model. The auditor should:

Which of the following subsequent events would require adjustment to the financial statements for the year ended December 31, Year 1?

An auditor is evaluating the sufficiency of audit evidence. Which of the following combinations of evidence would provide the HIGHEST level of assurance regarding the existence of inventory?

An auditor is testing the completeness of sales. Which of the following audit procedures should the auditor perform?

An auditor is testing the valuation of a client's allowance for doubtful accounts. The auditor reviews the aging of receivables and subsequent cash receipts. This approach is best described as:

An auditor is testing the 'Rights and Obligations' assertion for a client's inventory. Which of the following procedures is MOST relevant?

An auditor is testing the operating effectiveness of a control that leaves no documentary evidence (e.g., the controller's review of the budget vs. actual report). Which audit procedure is MOST appropriate?

An auditor is performing substantive analytical procedures on payroll expense. The auditor develops an expectation of payroll expense by multiplying the number of employees by the average wage rate. Which of the following factors would MOST likely reduce the precision of this expectation?

An auditor is testing the completeness of the liability for claims and assessments. The auditor sends a letter of inquiry to the client's external legal counsel. The lawyer's response states that the outcome of a material pending lawsuit is 'uncertain' and 'unable to be estimated'. How should this be reported in the financial statements?

In the audit of a nonissuer, the auditor concludes that there is substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time. Management's plans do not alleviate this doubt. The financial statements adequately disclose the uncertainty. The auditor should issue:

An auditor is testing the existence of equipment. Which of the following procedures is MOST appropriate?

An auditor is testing the 'Presentation and Disclosure' assertion for a client's debt. The auditor is most concerned with:

In a statistical sampling application for substantive testing (Variables Sampling), the auditor calculates a point estimate of the population misstatement. If the point estimate plus the allowance for sampling risk exceeds the tolerable misstatement, the auditor should:

An auditor is using 'generalized audit software' (GAS) to extract data from a client's system. Which of the following is the primary advantage of using GAS?

An auditor is testing the 'Valuation' assertion for a client's long-term investments in equity securities. The securities are not traded on an active market (Level 2 inputs). Which procedure is most appropriate?

An auditor is testing the 'Accuracy' assertion for payroll expense. Which procedure is most relevant?

An auditor is testing the 'Cutoff' assertion for sales. Which procedure is most appropriate?

An auditor is performing a ratio analysis. The 'Inventory Turnover' ratio has decreased significantly from the prior year. This most likely indicates:

An auditor is testing the 'Occurrence' assertion for sales. The auditor should select a sample from:

Which of the following is a 'Type 2' subsequent event?

Which of the following is a 'substantive procedure'?

An auditor is using 'stratification' in a sampling application for accounts receivable. The primary objective of stratification is to:

An auditor is auditing the statement of cash flows. Which of the following procedures is most likely to detect a misclassification between operating and investing activities?