30 Questions
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
Which of the following is required to establish the tolerable deviation rate (TDR)?
Auditor judgement
What is the risk the auditor is willing to take of accepting a control as being effective when it is not?
Acceptable risk over-reliance
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
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.
What is the purpose of establishing the tolerable deviation rate (TDR) in a test of controls?
To reduce the assessed level of control risk
Which of the following factors is considered in determining the sample size for a test of controls?
Expected deviation rate
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
In tests of controls, what is an advantage of using statistical over nonstatistical sampling methods?
Statistical methods provide more reliable results
Which risk relates to assessing control risk too low?
Effectiveness of the audit
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
What factor is NOT considered when determining the sample size for a test of controls?
Effective date of audit report
When should the auditor be consulted regarding changes in the application of accounting principles?
Before material changes are made
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
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
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
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
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
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.
What is a scope limitation sufficient to preclude?
An unqualified opinion.
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.
Under what circumstances does an auditor need not apply an omitted procedure?
Other procedures applied tend to compensate for the omitted procedure.
What impairs the auditor's present ability to support a previously expressed opinion?
The omission of a substantive procedure considered necessary.
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.
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.
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.
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.
When is an event considered a 'subsequent event' for auditing purposes?
When it occurs after the date of the auditor’s report.
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.
What is the primary purpose of evaluating subsequent events in auditing?
To evaluate if new information affects conditions present at the financial statement date.
Test your knowledge on the tolerable deviation rate in auditing. Learn about the factors affecting the establishment of TDR and the importance of auditor judgment in this process.
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