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An auditor is concerned about a policy of management override as a limitation of internal control. Whichof the following tests would best assess the validity of the auditor's concern?aMatching purchase orders to accounts payable.bVerifying that approved spending limits arenotexceeded.cTracing sales orders to the revenue account.dReviewing minutes of board meetings.
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Financial Accounting: The Impact on Decision Makers
Norton/Porter
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Solution:Choice "b" is correct. If spending limits are exceeded, then this would be evidence that the spending limitcontrol was violated and that management overrode internal control.Choice "a" is incorrect. Matching purchase orders to accounts payable does not provide evidence regardingmanagement override of internal control.Choice "c" is incorrect. Tracing sales orders to the revenue account provides evidence concerning thecompleteness assertion of the revenue account and does not provide evidence of management override ofinternal control.Choice "d" is incorrect. Reviewing minutes of board meetings provides information about major issuesregarding the entity, such as mergers, but does not provide evidence regarding management override ofinternal control.34.When an auditor plans to rely on controls that have changed since they were last tested, which of thefollowing courses of action would be most appropriate?aTest the operating effectiveness of such controls in the current audit.bDocument that reliance and proceed with the original audit strategy.cInquire of management as to the effectiveness of the controls.dReport the reliance in the report on internal controls.Solution:Choice "a" is correct. If the auditor plans to rely on controls that have changed since they were lasttested, the auditor should test the operating effectiveness of such controls in the current audit.Choice "b" is incorrect. If the auditor plans to rely on controls that have changed since they were lasttested, the auditor should test the operating effectiveness of such controls in the current audit. Theauditor cannot document reliance on controls that have changed since they were last tested unless theauditor has tested the controls.Choice "c" is incorrect. If the auditor plans to rely on controls that have changed since they were lasttested, the auditor should test the operating effectiveness of such controls in the current audit. Inquiryalone does not provide sufficient evidence to form a conclusion regarding the operating effectiveness ofcontrols.Choice "d" is incorrect. The auditor does not report reliance on specific controls in the report on internalcontrols.35.In which of the following circumstances would an auditor expect to find that an entity implementedautomated controls to reduce risks of misstatement?aWhen errors are difficult to predict.
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Financial Accounting: The Impact on Decision Makers
Norton/Porter
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