Chp10-Approach quiz knotia

.docx
Chp10 - approach Knotia n 1 Which of the following statements regarding a combined approach is true? a) A combined approach cannot be taken if there are control risks assessed as moderate or high at the assert cycle. b) A combined approach should be used when substantive procedures alone cannot provide sufficient appro c) A combined approach relies solely on test of control procedures for audit evidence. d) A combined approach tests that controls exist and are designed effectively. Hide question 1 feedback Answer b) is correct. Per CAS 330.8, tests of controls should be performed to obtain sufficient appropriate audit evidence if substantive procedures alone cannot provide sufficient appropriate audit evidence at the assertion level n 2 You are the senior on the XYZ Co. audit. You are reviewing the planning section of the audit and notice that your staff has planned for a substantive approach. XYZ Co. has a large number of small dollar purchases. Which of the following statements is most accurate? a) The staff member's assessment appears accurate. When there is a high number of small dollar purchases, is preferred for efficiency reasons. b) The staff member's assessment appears accurate. When there is a high number of small dollar purchases, control risk, so a substantive approach is preferred. c) The staff member's assessment should be questioned. When there is a high number of small dollar purch decreased, so a combined approach is preferred. d) The staff member's assessment should be questioned. When there is a high number of small dollar purch approach is preferred for efficiency reasons. Hide question 2 feedback Answer d) is correct. When there is a high number of small dollar purchases, testing controls would reduce the sampling size, which would be more efficient. n 3
You have been performing the audit of ABC Ltd. for three years and have relied on controls in the past for the accounts receivable and revenue cycles. ABC Ltd.'s controller retired early in the year, and a new controller was hired two months later. The new controller has since been let go because it became known that she had let a staff member use her username and password and instructed them to approve all journal entries in order to reduce her workload. Which of the following statements is true? a) A substantive approach should be taken, as the issues with staff member approval result in a pervasive ris affect all accounts. b) A combined approach should still be taken for accounts receivable and revenue, with substantive tests de month period when the controller position was vacant. c) The audit approach used for the past three years should be maintained, as there is no reason to expect tha the most appropriate approach. d) A combined approach should be taken, as the staff member approval is an account level risk; therefore, s designed for the accounts affected. Hide question 3 feedback Answer a) is correct. A pervasive risk affects all accounts and assertions, and therefore control risk would be affected at the overall financial statement level. Controls in place over the approval and posting of journal entries cannot be relied upon. n 4 You are the auditor for Bala Ltd. Last year, a combined approach was used and tests of controls were planned for the payroll and property, plant, and equipment cycles. When the testing of controls was performed, the payroll controls were not operating effectively, but the property, plant, and equipment controls were operating effectively. Bala Ltd. has not made any changes to controls in the current year. As well, Bala has introduced a new product line in the current year, which has increased the profitability of the company and has resulted in significant additions to property, plant, and equipment. What is the appropriate response for the current year audit? a) A substantive approach should be taken, as controls were tested in the previous year and were not operati
b) A substantive approach should be taken, as there is a new product line that has resulted in significant add and equipment, which will increase control risk. c) A combined approach should be taken, as the auditor can still rely on controls for the property, plant, and d) A combined approach should be taken, as the company's increase in profitability will decrease control ris Hide question 4 feedback Answer c) is correct. The controls for property, plant, and equipment were operating effectively; therefore, a combined approach can be taken and controls for property, plant, and equipment should be tested. n 5 You are the senior auditor of Windy Inc., which has five subsidiaries across Atlantic Canada. You have assessed the controls at the parent company and have deemed them to be operating effectively. Component auditors have been hired to audit the other locations. Which of the following statements is true? a) A combined approach may be taken for all companies, given that controls are operating effectively at the b) As component auditors will be auditing the subsidiaries, we have no responsibility for the audit approach c) We will be unable to provide an opinion on the subsidiaries, given that component auditors were used. d) We will need to ensure that we have obtained a sufficient understanding of the parent and its subsidiaries approach. Hide question 5 feedback Answer d) is correct. We must obtain a sufficient understanding of the group, including all of its components and their control environments, in order to determine the approach to be taken at each component.
Uploaded by DeaconGalaxy7314 on coursehero.com