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In which case might an auditor of an issuer render a qualified opinion on internal control?
Choice 'd' is correct. A scope limitation requires the auditor to disclaim an opinion or withdraw from the engagement, and a material weakness in internal control requires the auditor to issue an adverse opinion.
Neither situation would result in a qualified opinion.
Choice 'a' is incorrect. A scope limitation requires the auditor to disclaim an opinion or withdraw from the engagement.
Choice 'b' is incorrect. A material weakness in internal control requires the auditor to issue an adverse opinion.
Choice 'c' is incorrect. A scope limitation requires the auditor to disclaim an opinion or withdraw from the engagement, and a material weakness in internal control requires the auditor to issue an adverse opinion.
Neither situation would result in a qualified opinion.
Sound internal control dictates that, immediately upon receiving checks from customers by mail, a responsible employee should:
Choice 'c' is correct. Upon receipt of cash, a remittance listing should be prepared.
Choice 'a' is incorrect. Recording the check in the daily cash summary would ordinarily be done by a second party after the initial listing has been prepared.
Choice 'b' is incorrect. Verifying that each check is supported by a valid invoice is not necessary.
Choice 'd' is incorrect. Recording the check in the cash receipts journal would ordinarily be done by a second party after the initial listing has been prepared.
When an auditor qualifies an opinion because of inadequate disclosure, the auditor should describe the nature of the omission in a separate explanatory paragraph and modify the:
Choice 'd' is correct. In a report qualified for inadequate disclosure, the auditor would add an explanatory paragraph and modify the opinion paragraph, but the introductory and scope paragraphs would not be modified.
Choices 'a', 'b', and 'c' are incorrect, as per the above Explanation: .
Which of the following statements is not true of the test data approach to testing an accounting system?
Choice 'd' is correct. While the auditor will frequently use many valid and invalid conditions, it is not feasible to test every possible valid and invalid condition using a test data approach.
Choice 'a' is incorrect. Test data consists of a set of fictitious entries or inputs that are processed through the client's computer system under the control of the auditor.
Choice 'b' is incorrect. The auditor need only include valid and invalid conditions that interest the auditor.
Choice 'c' is incorrect. Only one transaction of each type need be tested, as the system should process similar transactions in a consistent manner.
An auditor desired to test credit approval on 10,000 sales invoices processed during the year. The auditor designed a statistical sample that would provide 1% risk of assessing control risk too low (99% confidence) that not more than 7% of the sales invoices lacked approval. The auditor estimated from previous experience that about 2 1/2% of the sales invoices lacked approval. A sample of 200 invoices was examined and 7 of them were lacking approval. The auditor then determined the upper deviation rate to be 8%.
In the evaluation of this sample, the auditor decided to increase the level of the preliminary assessment of control risk because the:
Choice 'a' is correct. The auditor decided to increase the level of the preliminary assessment of control risk because the 7% tolerable rate (maximum rate of deviations that an auditor would be willing to accept without altering his/her planned reliance on the control) was less than the 8% upper deviation rate.
Choice 'b' is incorrect. The expected deviation rate was 2.5%, not 7%.
Choice 'c' is incorrect. The upper deviation rate is always more than the percentage of errors in the sample since the sum of the percentage of the errors and the allowance for sampling risk equals the upper deviation rate.
Choice 'd' is incorrect. The expected deviation rate is not used in evaluating the sample. It is the upper deviation rate that is compared to the tolerable rate in evaluating a sample.
