ACC 406 EXAM 2 QUESTIONS WITH CORRECT
ANSWERS 2025/2026
Tolerable Difference - CORRECT ANSWER -1. How much evidence do we want?
-> More evidence = less tolerable difference
2. Can be expressed in money or percentages
Preliminary Analytical Procedures - CORRECT ANSWER -Used to assist the auditor to better
understand the business and to plan the nature, timing, and extent of audit procedures
Substantive Analytical Procedures - CORRECT ANSWER -Used to obtain evidential matter about
particular assertions related to account balances or classes of transactions
Final Analytical Procedures - CORRECT ANSWER -Used as an overall review of the financial
information in the final review stage of the audit
Limitations of an Entity's Internal Control - CORRECT ANSWER -1. Override of Internal Control by
Management
2. Human Errors or Mistakes
3. Collusion
-> Is it really incompatible, even if it violates the ARC framework?
Using the Conceptual Tools to Audit a Cycle - CORRECT ANSWER -Phase 3
1. Formalize acceptable audit risk, establish materiality, determine tolerable misstatement
-> Perform planning analytical procedures and assess IR (by account/assertion)
-> Assess preliminary IR (by acct./assert.)
-> Identify key controls (by acct./assert.)
, Phase 4
1. Test controls where control risk is set at less than 100% (i.e., other than High) using ROID
-> With results, reassess CR (by acct./assert.)
Phase 5
1. If using the reliance strategy, reevaluate the nature, timing, and extent of substantive tests
-> Sample and perform substantive tests (SAP, TD) using MIRADCOPS
What are some entity-level controls? - CORRECT ANSWER -1. Pervasive controls
2. Control environment
-> Tone at the top, policies and procedures, codes of conduct
3. The company's risk assessment process
4. Centralized process controls
-> e.g., IT general controls
5. Monitoring
-> e.g., Internal audit or audit committee
6. Period end reporting
-> e.g., Policies, reconciliations, top-side journal entries
Deficiencies - CORRECT ANSWER -What's the difference between design and operating
deficiencies?
1. Design and Implementation
-> A control necessary to meet the control objective is missing
-> An existing control is not properly designed
-> A control is not implemented correctly
2. Operating
ANSWERS 2025/2026
Tolerable Difference - CORRECT ANSWER -1. How much evidence do we want?
-> More evidence = less tolerable difference
2. Can be expressed in money or percentages
Preliminary Analytical Procedures - CORRECT ANSWER -Used to assist the auditor to better
understand the business and to plan the nature, timing, and extent of audit procedures
Substantive Analytical Procedures - CORRECT ANSWER -Used to obtain evidential matter about
particular assertions related to account balances or classes of transactions
Final Analytical Procedures - CORRECT ANSWER -Used as an overall review of the financial
information in the final review stage of the audit
Limitations of an Entity's Internal Control - CORRECT ANSWER -1. Override of Internal Control by
Management
2. Human Errors or Mistakes
3. Collusion
-> Is it really incompatible, even if it violates the ARC framework?
Using the Conceptual Tools to Audit a Cycle - CORRECT ANSWER -Phase 3
1. Formalize acceptable audit risk, establish materiality, determine tolerable misstatement
-> Perform planning analytical procedures and assess IR (by account/assertion)
-> Assess preliminary IR (by acct./assert.)
-> Identify key controls (by acct./assert.)
, Phase 4
1. Test controls where control risk is set at less than 100% (i.e., other than High) using ROID
-> With results, reassess CR (by acct./assert.)
Phase 5
1. If using the reliance strategy, reevaluate the nature, timing, and extent of substantive tests
-> Sample and perform substantive tests (SAP, TD) using MIRADCOPS
What are some entity-level controls? - CORRECT ANSWER -1. Pervasive controls
2. Control environment
-> Tone at the top, policies and procedures, codes of conduct
3. The company's risk assessment process
4. Centralized process controls
-> e.g., IT general controls
5. Monitoring
-> e.g., Internal audit or audit committee
6. Period end reporting
-> e.g., Policies, reconciliations, top-side journal entries
Deficiencies - CORRECT ANSWER -What's the difference between design and operating
deficiencies?
1. Design and Implementation
-> A control necessary to meet the control objective is missing
-> An existing control is not properly designed
-> A control is not implemented correctly
2. Operating
