Transaction Testing
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Questions and Answers

Which risk can be increased or decreased by the auditor?

  • Control Risk
  • Audit Risk
  • Inherent Risk
  • Detection Risk (correct)

Which risk can only be controlled by the auditor?

  • Audit Risk
  • Inherent Risk
  • Detection Risk
  • Control Risk (correct)

What is the equation for Detection Risk?

  • DR = IR / (AR x CR)
  • DR = AR / (CR x IR)
  • DR = CR / (AR x IR)
  • DR = AR / (IR x CR) (correct)

What are the ways to decrease Detection Risk?

<p>All of the above (D)</p> Signup and view all the answers

What are the ways to increase Detection Risk?

<p>None of the above (D)</p> Signup and view all the answers

When is the 'audit around the computer' approach used?

<p>When there are visible input documents and detailed output (D)</p> Signup and view all the answers

What are some commonly used Computer-Assisted Audit Techniques (CAATs)?

<p>Both A and B (C)</p> Signup and view all the answers

Which of the following factors affects the timing of substantive testing (ST)?

<p>The risk of material misstatement (B)</p> Signup and view all the answers

What do tests of controls (TOC) provide evidence about?

<p>The effectiveness of internal controls (IC) (A)</p> Signup and view all the answers

What is the relationship between substantive testing (ST) and tests of controls (TOC)?

<p>ST provides evidence about the existence of MM (A)</p> Signup and view all the answers

What is the purpose of general controls in a computer information system (CIS) environment?

<p>To protect equipment, files, and programs (D)</p> Signup and view all the answers

What are application controls in a CIS environment?

<p>Controls designed to ensure the completeness and accuracy of data processing (A)</p> Signup and view all the answers

What is the purpose of control totals in application controls?

<p>To ensure the completeness of data through total computation (A)</p> Signup and view all the answers

What should an auditor consider in terms of CIS skills and competence?

<p>All of the above (D)</p> Signup and view all the answers

Which of the following is a key factor in planning an audit and developing an effective audit approach?

<p>Obtaining understanding of the significance and complexity of the CIS activities (D)</p> Signup and view all the answers

When the CIS is significant, what should auditors also obtain an understanding of?

<p>The significance and complexity of the CIS activities (B)</p> Signup and view all the answers

What is the potential use of Clients CIS in an audit?

<p>To increase efficiency in the performance of the audit procedures (A)</p> Signup and view all the answers

What is the significance of obtaining understanding of the organizational structure of the client's CIS activities?

<p>To assess the inherent and control risks (D)</p> Signup and view all the answers

What is the role of the availability of data source in the audit?

<p>To plan the audit and develop an effective audit approach (C)</p> Signup and view all the answers

What is the potential of Clients CIS in increasing efficiency in audit procedures?

<p>To use as computer-assisted audit techniques (CAAT) (C)</p> Signup and view all the answers

When should auditors obtain an understanding of the CIS environment?

<p>When the CIS is significant (A)</p> Signup and view all the answers

What is the importance of understanding the significance and complexity of the CIS activities?

<p>To plan the audit and develop an effective audit approach (D)</p> Signup and view all the answers

What is the role of the availability of data for use in the audit?

<p>To understand the organizational structure of the client's CIS activities (A)</p> Signup and view all the answers

Which type of audit risk refers to the risk that a material misstatement could occur in a financial statement assertion and not be prevented or detected by the client's internal controls?

<p>Control Risk (B)</p> Signup and view all the answers

What is the formula for Desired Audit Risk (DAR)?

<p>DAR = Inherent Risk (IR) x Control Risk (CR) x Detection Risk (DR) (A)</p> Signup and view all the answers

What is the definition of Inherent Risk?

<p>The susceptibility of a financial statement assertion to a material misstatement, assuming there are no related internal controls (C)</p> Signup and view all the answers

What is the definition of Control Risk?

<p>The risk that a material misstatement could occur in a financial statement assertion and not be prevented or detected by the client's internal controls (B)</p> Signup and view all the answers

What is the definition of Detection Risk?

<p>The risk that the auditor procedures will not detect a material misstatement that exists in a financial statement assertion (C)</p> Signup and view all the answers

What is the formula for Audit Risk?

<p>Audit Risk = Inherent Risk (IR) x Control Risk (CR) x Detection Risk (DR) (D)</p> Signup and view all the answers

What is the relationship between the desired level of audit risk and the design of substantive procedures?

<p>As the desired level of audit risk decreases, the auditor should design more effective substantive procedures (C)</p> Signup and view all the answers

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