AUD - ME 2 MC QUESTIONS AND VERIFIED ANSWERS
AN auditor notes that retained earnings includes an amount appropriated in accordance
with a loan covenant. Which procedures would the auditor use to audit retained
earnings?
1: Trace dividend declarations to appropriate authorization by management
2: Analyze the retained earnings account since the last audit
3: Use a standard bank confirmation to confirm the amount appropriated - Answers - 2
only
Which of the following documents should be sent to the A/P department?
Purchase order, Sales order, Signed check - Answers - Just the purchase order
A/P would have no use for the sales order
The signed check should be mailed out
What set of standards do examinations use? - Answers - SSAE
What set of standards do compilations (of prospective financial statements) use? -
Answers - SSARS
Would a change in materiality for the financial statements as a whole require an auditor
to reperform audit procedures already completed? - Answers - No but if could affect the
NET of the procedures (possible need to audit extra sampled items)
What are misstatements arising from fraudulent financial reporting? - Answers -
Intentional misstatements or omissions of amounts or disclosures in financial
statements designed to deceive financial statement users
where the effect causes the financial statements not to be presented, in all material
respects, in conformity with GAAP.
When can a control not be relied upon? (rates) - Answers - When the *sample deviation
rate* + the *allowance for sampling risk* is > the *tolerable deviation rate*
Or (AKA)
the *sample deviation rate* is > the *tolerable deviation rate* - the *allowance for
sampling risk*
Can procedures performed by an internal auditor be used to help the external auditor
understand internal control? - Answers - Yes
AN auditor notes that retained earnings includes an amount appropriated in accordance
with a loan covenant. Which procedures would the auditor use to audit retained
earnings?
1: Trace dividend declarations to appropriate authorization by management
2: Analyze the retained earnings account since the last audit
3: Use a standard bank confirmation to confirm the amount appropriated - Answers - 2
only
Which of the following documents should be sent to the A/P department?
Purchase order, Sales order, Signed check - Answers - Just the purchase order
A/P would have no use for the sales order
The signed check should be mailed out
What set of standards do examinations use? - Answers - SSAE
What set of standards do compilations (of prospective financial statements) use? -
Answers - SSARS
Would a change in materiality for the financial statements as a whole require an auditor
to reperform audit procedures already completed? - Answers - No but if could affect the
NET of the procedures (possible need to audit extra sampled items)
What are misstatements arising from fraudulent financial reporting? - Answers -
Intentional misstatements or omissions of amounts or disclosures in financial
statements designed to deceive financial statement users
where the effect causes the financial statements not to be presented, in all material
respects, in conformity with GAAP.
When can a control not be relied upon? (rates) - Answers - When the *sample deviation
rate* + the *allowance for sampling risk* is > the *tolerable deviation rate*
Or (AKA)
the *sample deviation rate* is > the *tolerable deviation rate* - the *allowance for
sampling risk*
Can procedures performed by an internal auditor be used to help the external auditor
understand internal control? - Answers - Yes
