CSU ACT 441 Exam 2 Questions and Answers Latest Update 2025-2026
Financial Statement Assertions - Answers Existence or occurrence
Completeness
Valuation or allocation
Rights and obligations
Presentation and disclosure
Existence or occurrence - Answers Assets and liabilities included in the accounts exist and
recorded transactions are valid and have actually occurred.
Completeness - Answers all transactions and events that should have been recorded have been
recorded
Valuation or Allocation - Answers Assets, liabilities and recorded transactions have been valued
in accordance with GAAP
Rights and Obligations - Answers The company holds or controls rights to the assets, and
liabilities are obligations of the company at a given date
Presentation and Disclosure - Answers The components of the financial statements are
properly classified, described, and disclosed
Why do auditors care about internal controls? - Answers Determines if there is a greater risk of
misstatement in the audit '
What is the difference between the reliance strategy and the substantive strategy - Answers
Reliance strategy- rely's on the control, more IC less substantive
Substantive strategy- do this when the control's are not effective requires more work in the audit,
less IC, more substantive
Reliance or substantive-
What is related to high control risk? - Answers Substantive strategy
Reliance or substantive-
What is related to high detection risk? - Answers Reliance strategy
What type of audit procedures would you not use when testing internal controls - Answers
, Confirmation
Analytical procedures
3 categories of internal control opinions - Answers 1. Control deficiency -( least bad) control
does not prevent or detect misstatements in a timely manner
2. Significant Deficiency not material, but important enough to inform audit committee
3. Material Weakness- (Worst) deficiencies accompanied by reasonable possibility of material
misstatement of financial statements
When does an Auditor Give an adverse opinion on the INTERNAL CONTROLS? - Answers
Internal controls have material weakness
How does an auditor make a determination for how control deficiencies are classified - Answers
Magnitude and likeliness of possible misstatement
Audit sampling - Answers Evaluation of less than 100% of the population by taking a
representative sample of the population to provide reasonable basis for conclusions about the
population
Sampling risk - Answers The possibility that the sample drawn is not representative of the
population and that, as a result, the auditor reaches an incorrect conclusion about the reliability
of the control, the account balance, or class of transactions based on the sample.
Non-sampling risk - Answers The risk that auditors will make judgment errors caused by the use
of inappropriate audit procedures or misinterpretation of audit evidence and failure to recognize
a misstatement or deviation. Not related to sample risk
Risk of incorrect rejection (Type 1) - Answers Efficiency (under reliance)- saying controls are not
🙁
effective, when in fact, they are reliable auditor rejects but incorrectly
Risk of incorrect acceptance (Type 2) - Answers Effectiveness (over reliance)- say yes to
controls that are not effective giving the wrong opinion and over relying on controls 🙁🙁
CUDR - Answers Computed upper deviation rate
Sample deviation rate+sampling risk
TDR - Answers Tolerable deviation rate
The maximum deviation rate from a prescribed control that the auditor is willing to except
without altering the plant assessed level of control risk
TDR>CUDR - Answers supports reliance that controls are effective
Financial Statement Assertions - Answers Existence or occurrence
Completeness
Valuation or allocation
Rights and obligations
Presentation and disclosure
Existence or occurrence - Answers Assets and liabilities included in the accounts exist and
recorded transactions are valid and have actually occurred.
Completeness - Answers all transactions and events that should have been recorded have been
recorded
Valuation or Allocation - Answers Assets, liabilities and recorded transactions have been valued
in accordance with GAAP
Rights and Obligations - Answers The company holds or controls rights to the assets, and
liabilities are obligations of the company at a given date
Presentation and Disclosure - Answers The components of the financial statements are
properly classified, described, and disclosed
Why do auditors care about internal controls? - Answers Determines if there is a greater risk of
misstatement in the audit '
What is the difference between the reliance strategy and the substantive strategy - Answers
Reliance strategy- rely's on the control, more IC less substantive
Substantive strategy- do this when the control's are not effective requires more work in the audit,
less IC, more substantive
Reliance or substantive-
What is related to high control risk? - Answers Substantive strategy
Reliance or substantive-
What is related to high detection risk? - Answers Reliance strategy
What type of audit procedures would you not use when testing internal controls - Answers
, Confirmation
Analytical procedures
3 categories of internal control opinions - Answers 1. Control deficiency -( least bad) control
does not prevent or detect misstatements in a timely manner
2. Significant Deficiency not material, but important enough to inform audit committee
3. Material Weakness- (Worst) deficiencies accompanied by reasonable possibility of material
misstatement of financial statements
When does an Auditor Give an adverse opinion on the INTERNAL CONTROLS? - Answers
Internal controls have material weakness
How does an auditor make a determination for how control deficiencies are classified - Answers
Magnitude and likeliness of possible misstatement
Audit sampling - Answers Evaluation of less than 100% of the population by taking a
representative sample of the population to provide reasonable basis for conclusions about the
population
Sampling risk - Answers The possibility that the sample drawn is not representative of the
population and that, as a result, the auditor reaches an incorrect conclusion about the reliability
of the control, the account balance, or class of transactions based on the sample.
Non-sampling risk - Answers The risk that auditors will make judgment errors caused by the use
of inappropriate audit procedures or misinterpretation of audit evidence and failure to recognize
a misstatement or deviation. Not related to sample risk
Risk of incorrect rejection (Type 1) - Answers Efficiency (under reliance)- saying controls are not
🙁
effective, when in fact, they are reliable auditor rejects but incorrectly
Risk of incorrect acceptance (Type 2) - Answers Effectiveness (over reliance)- say yes to
controls that are not effective giving the wrong opinion and over relying on controls 🙁🙁
CUDR - Answers Computed upper deviation rate
Sample deviation rate+sampling risk
TDR - Answers Tolerable deviation rate
The maximum deviation rate from a prescribed control that the auditor is willing to except
without altering the plant assessed level of control risk
TDR>CUDR - Answers supports reliance that controls are effective
