Audit Ch 5
Which of the following statements are correct? During planning, the auditor determines whether planned procedures need to be revised due to preliminary analytical procedures. Unexpected differences may be addressed by reviewing the working papers for sufficient evidence. Differences are investigated in the same way for both planning and final analytical procedures. Entity personnel may be asked to explain unexpected differences.
During planning, the auditor determines whether planned procedures need to be revised due to preliminary analytical procedures. Unexpected differences may be addressed by reviewing the working papers for sufficient evidence. Entity personnel may be asked to explain unexpected differences.
True or false: Auditing standards dictate how audit documentation should be organized.
False
True or false: The auditor is required to obtain corroborative evidence for planned analytical procedures.
False
Which of the following statements are correct? Financial ratios should not be evaluated in isolation. Industry averages are always the best way to analyze an entity's financial ratios. A ratio may be favorable because its components are unfavorable. Accounting principle choices can impact some ratios.
Financial ratios should not be evaluated in isolation. A ratio may be favorable because its components are unfavorable. Accounting principle choices can impact some ratios.
True or false: Although the auditor owns the audit documents, they cannot be shown to outside parties without the entity's consent, except under certain circumstances.
True
True or false: Both oral and visual information can be used as audit evidence.
True
True or false: When doing ratio analysis, it is important to evaluate related financial ratios to avoid drawing an incorrect conclusion.
True
Under current auditing standards, management assertions fall into categories of assertions about [. ].
account balances and related disclosures at the period end classes of transactions and events and related disclosures for the period audited
PCAOB standards require that audit documentation contain
all documents that form the basis of the audit
This consists of evaluations of financial information through the examination of plausible relationships among both financial and nonfinancial data.
analytical procedures
The audit documentation needs to be organized so that_______can find the audit evidence that supports each financial statement account.
any member of the audit team reviewers
Expressed or implied representations by management regarding the recognition, measurement, presentation, and disclosure of information in the financial statements and related disclosures are referred to as [. ].
assertions
The auditor can issue an unqualified/unmodified report when audit evidence supports management's [. ] .
assertions
The document that outlines the auditor's understanding of the entity and potential risks as well as the strategy to be followed by the auditor is called the [. ] [. ]
audit plan
The document that outlines the auditor's understanding of the entity and potential risks as well as the strategy to be followed by the auditor is called the [. ] [. ] .
audit plan
Specific acts performed by the auditor to gather evidence about whether specific assertions are being met are referred to as [. ] [. ] .
audit procedures
Specific acts performed by the auditor to gather evidence about whether specific assertions are being met are referred to as [. ] [. ].
audit procedures
The audit procedures that will be conducted by the auditor are contained in the [. ] [. ] .
audit program
The audit procedures that will be conducted by the auditor are contained in the [. ] [. ].
audit program
The basic framework for the auditor's understanding of audit evidence and its use in supporting the auditor's opinion on the financial statements is (are)
auditing standards
In evaluating audit evidence, the auditor must________
be unbiased understand the types of information used as evidence be thorough
Identify the sources that can be used to develop an expectation for an analytical procedure.
competitor information industry publications budgets and forecasts
Audit evidence obtained by the auditor as a direct written response to the auditor from a third party in paper form or by electronic or other medium is called a(n) [. ]
confirmation
For lower-risk, well-controlled accounts, the assurance bucket may be filled entirely with tests of [. ] and substantive analytical procedures.
controls
In regards to applying the audit testing hierarchy, starting with tests of [ ] is generally more effective and efficient than starting with tests of [. ].
controls , details
In regards to applying the audit testing hierarchy, starting with tests of [. ] is generally more effective and efficient than starting with tests of [. ].
controls, details
The size of the "audit assurance bucket"____
depends upon the assertion being tested varies depending on the auditor's risk assessment does not equate solely to the quantity of evidence needed
When testing the occurrence and completeness assertions, the [. ] of testing between the accounting records and source documents is important.
direction
Two forms of electronic information that are used as audit evidence are [. ] and [. ] .
documents and data
The heading of all audit documentation should include the_________
entity's year-end date name of the entity title of the working paper
When testing an entire account with a substantive analytical procedure, tolerable difference will usually be________the account's tolerable misstatement.
equal to
Information to which audit procedures have been applied that corroborates or contradicts assertions in the financial statements is audit
evidence
The information used by the auditor in arriving at the conclusions on which the audit opinion is based is called audit
evidence
A management statement that the inventory shown on the balance sheet was available for sale at the balance sheet date is an example of the [. ] assertion.
existence
A management statement that the property, plant, and equipment shown on the balance sheet was owned and available for sale at the balance sheet date is an example of the ______ assertion.
existence
Audit documentation is the property of the________
independent auditors
When an auditor performs audit work on one working paper and supporting information is obtained from another working paper, the auditor uses Blank______ to ensure that members of the audit team or firm can find relevant audit evidence.
indexing and cross referencing
When an auditor performs audit work on one working paper and supporting information is obtained from another working paper, the auditor uses ______ to ensure that members of the audit team or firm can find relevant audit evidence. Multiple choice question.
indexing and cross referencing
Tests of controls_______
influence the scope of substantive testing may allow the auditor to gain a degree of assurance over thousands of transactions
This is an important audit procedure that is used extensively throughout the audit and is often complementary to performing other audit procedures.
inquiry
The reliability of evidence obtained through external confirmations may be affected by the___________
intended respondent nature of the information being confirmed prior experience with the entity form of the confirmation
The precision of the expectation_______
is a function of materiality and required detection risk may lead to a cost-benefit trade-off due to an increase in testing is a measure of potential effectiveness
Inquiry__________
may be complementary to other audit procedures is an important audit procedure is used extensively throughout the audit
Looking at a process or procedure being performed by others is referred to as [. ] .
observation
Looking at a process or procedure being performed by others is referred to as [. ].
observation
This is useful in helping auditors understand the entity's processes but is generally not considered very reliable.
observation
Vouching provides evidence for the _______ assertion,
occurrence
Whether all recorded transactions and events have happened and pertain to the entity is the basis of the [. ] assertion.
occurrence
Whether all recorded transactions and events have happened and pertain to the entity is the basis of the ______ assertion.
occurrence
Because the entity's personnel might have incentives to record fictitious transactions, the [. ] assertion is relevant to revenue transactions.
occurrence or validity
The quality of an expectation is referred to as the [. ] of the expectation.
precision
The reliability of analytical procedures is a function of the___________
precision of the expectation and the rigor of the investigation availability and reliability of the data used in the calculations plausibility and predictability of the relationship being tested
The functions of audit documentation are to
provide the basis for the review of the quality of work aid in the planning, performance, and supervision of the audit
The functions of audit documentation are to______
provide the basis for the review of the quality of work aid in the planning, performance, and supervision of the audit
Checking the mathematical accuracy of documents or records is referred to as [. ].
recalculation
Footing, crossfooting, reconciling subsidiary ledgers, and testing postings are all examples of
recalculation
Evidence is considered appropriate when it provides information that is [. ] .
reliable relevant
The auditor's independent execution of procedures or controls that were originally performed by company personnel is referred to as [. ]
reperformance
The independent execution by the auditor of procedures or controls that were originally performed by company personnel is called________
reperformance
Which of these processes are generally considered highly reliable because the auditor has direct knowledge about them?
reperformance recalculation inspection of tangible assets
Auditing standards
require that auditors perform substantive procedures for significant account balances and classes of transactions regardless of the assessed risk of material misstatement
Auditing standards_______
require that auditors perform substantive procedures for significant account balances and classes of transactions regardless of the assessed risk of material misstatement
The audit documentation needs to be organized so that_____ can find the audit evidence that supports each financial statement account.
reviewers any member of the audit team
The first item that goes in an auditor's "assurance bucket" is_____
risk assessment procedures
The first item that goes in an auditor's "assurance bucket" is_______
risk assessment procedures
Audit documentation should________
show that standards of fieldwork have been followed enable a knowledgeable reviewer to determine who performed the work demonstrate how the audit complied with appropriate standards
Assume an entity has 2,500 customers. If the auditor mails confirmation to 25 of the largest customers and only 20 respond the auditor must ___________.
still gather sufficient evidence on each of the 25 accounts
Assume an entity has 2,500 customers. If the auditor mails confirmation to 25 of the largest customers and only 20 respond the auditor must__________
still gather sufficient evidence on each of the 25 accounts
The measure of the quantity of audit evidence is referred to as [. ].
sufficiency
The second step in the analytical procedures decision process is to define a(n) [. ] difference
tolerable
The second step in the analytical procedures decision process is to define a(n) [. ] difference.
tolerable
What is the purpose of substantive procedures
used to detect material misstatements at the relevant assertion level
What is the purpose of risk assessment procedures
used to obtain an understanding of the entity and its environment, including its internal control, to assess the risks of material misstatement at the financial statement and relevant assertion levels
What is the purpose of test of controls
used to test the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the relevant assertion level
The size of the "audit assurance bucket"
varies depending on the auditor's risk assessment does not equate solely to the quantity of evidence needed depends upon the assertion being tested
Selecting an item for testing from the accounting journals or ledgers and then examining the underlying source document is referred to as
vouching
The reliability of inspection of records and documents depends primarily on_________
whether the document is internal or external
Audit documentation is referred to as [. ]. [. ] or the audit file.
working papers
