Auditor's Tolerable Deviation Rate Quiz

What is the term used to describe the deviation rate the auditor will permit in the population and still be willing to reduce the assessed level of control risk?

Tolerable deviation rate (correct)
Estimated population rate
Sample deviation rate
Acceptable risk over-reliance

Which of the following is required to establish the tolerable deviation rate (TDR)?

A computer program
Statistical frequency possibility tables
Random number tables
Auditor judgement (correct)

What is the risk the auditor is willing to take of accepting a control as being effective when it is not?

Tolerable deviation rate
Estimated population deviation rate
Finite correction factor
Acceptable risk over-reliance (correct)

In planning a statistical sample for a test of controls, what did the auditor do regarding the expected population deviation rate from the prior year?

Increased it from the prior year (C) Signup and view all the answers

Which statement is correct regarding statistical sampling in tests of controls?

The population size has little or no effect on determining sample size except for a very small population. (D) Signup and view all the answers

What is the purpose of establishing the tolerable deviation rate (TDR) in a test of controls?

To reduce the assessed level of control risk (B) Signup and view all the answers

Which of the following factors is considered in determining the sample size for a test of controls?

Expected deviation rate (B) Signup and view all the answers

How would increases in tolerable misstatement and assessed level of control risk affect the sample size in a substantive test of details?

Decrease sample size Increase sample size (D) Signup and view all the answers

In tests of controls, what is an advantage of using statistical over nonstatistical sampling methods?

Statistical methods provide more reliable results (B) Signup and view all the answers

Which risk relates to assessing control risk too low?

Effectiveness of the audit (B) Signup and view all the answers

What should an auditor consider in determining the sample size for a test of controls, along with likely deviations and allowable risk?

Tolerable deviation rate (B) Signup and view all the answers

What factor is NOT considered when determining the sample size for a test of controls?

Effective date of audit report (D) Signup and view all the answers

When should the auditor be consulted regarding changes in the application of accounting principles?

Before material changes are made (C) Signup and view all the answers

What is the auditor's responsibility if management fails to provide adequate justification for a change in accounting principles?

Add an explanatory paragraph and express a qualified or adverse opinion (D) Signup and view all the answers

When an auditor qualifies an opinion due to inadequate disclosure, what should the auditor do?

Describe the nature of the omission in a separate explanatory paragraph and modify the opinion paragraph (A) Signup and view all the answers

Which of the following situations would prevent an auditor from expressing a qualified opinion?

A scope limitation prevents the auditor from completing an important audit procedure (D) Signup and view all the answers

Which of the following statements is true regarding the comparability of financial statements between periods?

Changes in accounting principles do not affect the comparability of financial statements if properly disclosed (C) Signup and view all the answers

Which of the following is a valid reason for an auditor to disclaim an opinion?

A scope limitation prevents the auditor from completing an important audit procedure (A) Signup and view all the answers

What does an auditor conclude when a substantive procedure considered necessary is omitted?

The results of other procedures tend to compensate for the omitted procedure. (A) Signup and view all the answers

What is a scope limitation sufficient to preclude?

An unqualified opinion. (A) Signup and view all the answers

What should an auditor do regarding the detection of related party transactions?

Perform audit procedures to obtain sufficient appropriate evidence on related parties and their transactions. (C) Signup and view all the answers

Under what circumstances does an auditor need not apply an omitted procedure?

Other procedures applied tend to compensate for the omitted procedure. (D) Signup and view all the answers

What impairs the auditor's present ability to support a previously expressed opinion?

The omission of a substantive procedure considered necessary. (C) Signup and view all the answers

Regarding related parties, what is the responsibility of an auditor?

Perform audit procedures designed to obtain sufficient appropriate audit evidence on related parties and their transactions. (C) Signup and view all the answers

What do 'subsequent events' refer to according to PSA 560?

Events occurring between the period end and the date of the auditor’s report and facts that become known to the auditor after the date of the auditor’s report. (C) Signup and view all the answers

Which event would require an adjustment to the financial statements before they are issued?

C Company settled its damages payable, originally estimated at P500,000, by paying P525,000 to the parties concerned. (C) Signup and view all the answers

What is a common procedure an auditor should generally perform regarding subsequent events?

Obtaining an understanding of any procedures management has established to ensure that subsequent events are identified. (C) Signup and view all the answers

When is an event considered a 'subsequent event' for auditing purposes?

When it occurs after the date of the auditor’s report. (C) Signup and view all the answers

Which factor influences whether a subsequent event should lead to an adjustment in financial statements?

The event's timing in relation to the financial statement date. (B) Signup and view all the answers

What is the primary purpose of evaluating subsequent events in auditing?

To evaluate if new information affects conditions present at the financial statement date. (C) Signup and view all the answers