I1. In making the allocation of preliminary judgment about materiality (PJAM) to
ID: 2413496 • Letter: I
Question
I1. In making the allocation of preliminary judgment about materiality (PJAM) to tolerable misstatement (TM), the auditor should a allocate the same percentage of TM to an account for both overstatement and understatement. b. allocate a lower percentage of TM to an account which has a low propensity to overstatement and understatement relative to other accounts e allocate a higher percentage of TM to an account which has a high cost of collecting audit evidence relative to other accounts. d. allocate a higher percentage of TM to an asset account than a liability account Which of the following statements most accurately describes an auditor's assessment of control risk (CR) at the maximum of 100%? 12. a. The auditor assesses CR at the maximum of 100% by developing a greater understanding of the internal controls, which includes testing and evaluating the internal controls. b. If CR is assessed at the maximum of 100%, the auditor needs to document the basis for the assessment. c. The auditor assesses CR at the maximum of 100% based on an initial understanding of the internal controls by performing a walk-through test of the internal controls. d The auditor assessed CR at the maximurn of 100% by directly changing the actual level of CR. 13, Ifan auditor wishes to lower the detection risk (DR) from 5% to 4%, she should a. Consider using a smaller sample size. b. Consider gathering a larger amount of audit evidence. c. Consider decreasing the level of control risk (CR). d. Consider applying a less stringent type (nature) of audit procedure. Chapter 10 Audit plan- Program and Technology 14. When auditing an E-commerce System, the auditor's TOC and TOB would ordinarily not focus on a. gaining a detail knowledge of the network configuration. b. providing assurance about the reliability of the internal and external accounting systems.. c. preventing exposure of sensitive data to potential interception or sabotage. d. verifying the authenticity of external computer accounting systems. When a client uses Distributed Systems to track its accounting transactions, which of the following should ordinarily be used by the auditor to perform TOC? (Hint: Think of TOC versus TOB) a. IDEA (Interactive Data Extraction and Analysis). b. BCSE (Base Case System Evaluation). c. ACL (Audit Command Language). d. EAM (Embedded Audit Modules).Explanation / Answer
First four questions have been answered:
Q11.
Option (a) is the correct option. An auditor should allocate same percentage of TM to an account for both over and understatement. This is because the TM is equally important for both over and understatements.
Q12.
Option (b) is the correct option. In case the auditor has assessed the CR at the maximum of 100% then he must document the basis for such assessment.
Q13.
Option (b) is the correct option. The audit in such case must use extensive audit procedures to gather larger amount of audit evidence.
Q14.
Option (b) is the correct option as the reliability of internal and external accounting system is not directly related with the auditing of E-commerce.