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AICPA CPA-Auditing Exam - Topic 3 Question 72 Discussion

An auditor's primary consideration regarding an entity's internal control is whether the controls:
B) Prevent management override.
A) Affect the financial statement assertions.
C) Relate to the control environment.
D) Reflect 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.

AICPA CPA-Auditing Exam - Topic 3 Question 72 Discussion

Actual exam question for AICPA's CPA-Auditing exam
Question #: 72
Topic #: 3
[All CPA-Auditing Questions]

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

Show Suggested Answer Hide 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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Samira
8 months ago
I thought D might be a bigger deal. Surprised it's not the main focus!
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Kati
8 months ago
A is correct, but don’t underestimate the control environment either.
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Alishia
8 months ago
Wait, are we sure B isn't important? Management override seems huge!
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Josphine
8 months ago
I agree, A is the way to go!
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Adell
9 months ago
Definitely A! It's all about those financial statement assertions.
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Henriette
9 months ago
I recall that the control environment is important, but it’s more about understanding the context rather than being the primary focus for auditors.
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Tambra
9 months ago
I’m a bit confused about why management override isn’t the main concern. Isn’t that a big risk in internal controls?
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Angelica
9 months ago
I think we practiced a question similar to this where the emphasis was on evaluating risks related to misstatements. That makes sense for why A is correct.
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Karan
9 months ago
I remember we discussed how the primary focus is on financial statement assertions, but I’m not entirely sure why the other options aren’t as critical.
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Irene
9 months ago
Okay, I think I've got this. The definition is talking about keeping information limited to what's in the service contracts, so the correct answer must be "Service contracts."
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Providencia
10 months ago
Alright, I'm feeling confident about this. The rule-based workflow is highly customizable and can be combined with different templates, so that's the advantage it provides.
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Alise
10 months ago
I'm a little confused by the wording of this question. Does it mean we have to use IAM, or that IAM is one of the options? I want to make sure I understand the question fully before answering.
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Larae
1 year ago
I like how the explanation breaks down each option and clearly explains why the first one is the correct answer. Very helpful for understanding the concept.
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Sharen
1 year ago
Haha, that management override option is a sneaky one, but you're right, the auditor is more concerned with the overall control effectiveness.
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Leila
1 year ago
It's important to remember that the auditor's main concern is evaluating the risk of material misstatements in the financial statements.
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Tamera
1 year ago
I always make sure to focus on how the controls affect the financial statement assertions.
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Daniel
1 year ago
Yeah, that management override option can definitely throw you off.
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Shasta
1 year ago
Hmm, I was leaning towards the control environment, but I can see how the financial statement assertions are the real priority here.
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Aliza
1 year ago
Ah, got it! The auditor's primary focus is on how the controls affect the financial statement assertions. That makes perfect sense.
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Novella
1 year ago
Exactly, the auditor's main concern is how the controls impact the accuracy of the financial statements.
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Dustin
1 year ago
It's important to evaluate the risk of material misstatement in the financial statements.
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Kent
1 year ago
Yes, that's correct. The auditor needs to ensure that the controls are affecting the financial statement assertions.
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Malinda
1 year ago
But what about preventing management override? Isn't that important too?
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Tomas
1 year ago
I agree with you, Kristofer. That's important for evaluating the risk of material misstatement.
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Kristofer
1 year ago
I think the auditor's primary consideration is whether the controls affect the financial statement assertions.
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