Auditing and Attestation

4.  Pablo makes extensive use of electronic data processing.  Which of the following does not describe a possible effect on internal control?
a.  Use of information technology makes it more difficult to appropriately monitor internal controls.
b.  An increase in the risk of unauthorized access to accounting data may negatively impact the control environment.
c.  User controls may be dependent on the accuracy of the information technology system.
d.  The use of information technology often provides more timely information, allowing a more effective assessment of risks facing the company.

Choice a is correct.  Use of information technology does not necessarily make it more difficult to monitor internal controls, as long as the information technology system provides accurate information.

Choice b is incorrect.  Extensive use of information technology does increase the risk of unauthorized access.  If management does not appropriately address this increased risk, the control environment may be negatively impacted.

Choice c is incorrect.  User controls are often dependent on the accuracy of the information provided by the information technology system.

Choice d is incorrect.  The use of information technology often enhances an entity's risk assessment by providing more timely information.

Auditing and Attestation Simulation 1

3.  Pablo makes extensive use of controls that are supported by a written audit trail, but such trails exist only for a limited period of time.  Which is a likely auditor response to this situation?
a.  Request that the client maintain the written audit trails until the annual audit has been completed.
b.  Perform audit tests several times throughout the year, to utilize the written audit trails when they exist.
c.  Shift a greater proportion of the testing of controls closer to year-end, to reduce detection risk.
d.  Assess control risk for the related controls at a high level, do not rely on the controls, and perform relatively more substantive testing instead.

Choice b is correct.  The auditor would likely perform testing throughout the year in order to utilize the written documentation while it existed.
Choice a is incorrect.  The auditor would not generally request that the client change its procedures to accommodate the audit.
Choice c is incorrect.  Shifting audit tests to year-end is a strategy used with substantive testing, to reduce detection risk.  In this case, performing tests of controls at year-end would be less effective, since the audit trail would no longer exist.

Auditing and Attestation Simulation 1

Pablo's Art and Crafts, a publicly traded company, is being audited by Cook and Cook CPAs. For each of the questions below, select the best answer from the choices provided by clicking on the appropriate button.  Only one answer can be selected for each question.

1. In an audit of Pablo's financial statements in accordance with generally accepted auditing standards, the auditor is required to do all of the following except:

a.  Document his or her understanding of Pablo's internal control.

b.  Understand the design of Pablo's relevant controls.

c.  Determine whether Pablo's internal controls have been implemented.

d.  Evaluate the operating effectiveness of Pablo's internal controls.

Choice d is correct.  An auditor is not required to evaluate the operating effectiveness of internal controls unless the auditor is planning to rely on these controls.

Choices a, b and c are incorrect.  As part of planning, an auditor is required to obtain and document an understanding of internal control  This understanding should include both the design of controls and whether they have been implemented.

Auditing final exam simulation

11 of 100
An auditor is reporting on condensed financial statements for an annual period that are derived from the audited financial statements of a publicly-held entity.  The auditor's opinion should indicate whether the information in the condensed financial statements is fairly stated in all material respects:
a.  In conformity with accounting principles generally accepted in the United States of America.
b.  In relation to the complete financial statements.
c.  In conformity with an other comprehensive basis of accounting.
d.  In relation to supplementary filings under federal security statutes.

Answer:  "b" is correct.  The auditor should report whether the information in the condensed financial statements is fairly stated, in all material respects, in relation to the financial statements from which it has been derived.

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