AICPA Exam CPA-Auditing Topic 3 Question 72 Discussion

Actual exam question for AICPA's CPA-Auditing exam

Question #: 72
Topic #: 3

An auditor's primary consideration regarding an entity's internal control is whether the controls:

AAffect the financial statement assertions.

BPrevent management override.

CRelate to the control environment.

DReflect management's philosophy and operating style.
Explanation
Choice 'a' is correct. An auditor's primary consideration regarding an entity's internal control is whether the controls affect the financial statement assertions (to evaluate the risk that a material misstatement may exist in the financial statements).
Choice 'b' is incorrect. An inherent limitation of an entity's internal control is that its effectiveness can be reduced by management override, but whether this occurs or not is not the auditor's primary consideration.
Choice 'c' is incorrect. The control environment is a component of internal control, and the auditor needs to understand it, but it is not the auditor's primary consideration.
Choice 'd' is incorrect. An auditor needs to determine how management's philosophy and operating style affect internal control, but it is not the auditor's primary consideration.

Show Suggested Answer

Suggested Answer: B

Choice 'b' is correct. A stratified sample generally is more efficient than an unstratified sample since the population is classified in a manner that emphasizes the higher dollar value items. The result is an estimate having a desired level of precision with a smaller sample size.

Choice 'a' is incorrect. Both stratified and unstratified MPU may be used for populations where many monetary errors are expected to occur.

Choice 'c' is incorrect. Stratified sampling reduces the variability among items in a stratum.

Choice 'd' is incorrect. Standard deviations measure variability, and stratification would tend to reduce the strata standard deviations as compared to the overall standard deviation of the population.

by Karl at Jul 24, 2023, 07:35 AM

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