Audit CH 5

When reporting inventory, management claims that the items exist, are owned by the entity, represent a complete list of the inventory owned, and are valued appropriately. These are examples of _______. A. Assertions B. Accounting records C. Negative confirmation D. Positive confirmation

A. Assertions

What do auditors do when considering rights and obligations? A. Gather evidence to verify that recorded assets are owned by the entity and recorded liabilities represent commitments of the entity. B. Search for evidence to verify that asset, liability, and equity items on the balance sheet actually exist. C. Search for assets, liabilities, and equity items to ensure they have been recorded. D. Search for evidence that assets, liabilities, and equity items have been recorded at appropriate amounts.

A. Gather evidence to verify that recorded assets are owned by the entity and recorded liabilities represent commitments of the entity.

Among methods used by auditors in gathering evidence, what are tests of control? A. Methods used to determine the operating effectiveness of the client's controls in preventing, or detecting and correcting, material misstatements at the assertion level. B. Methods designed to detect material misstatements at the assertion level. C. Methods used to gain an understanding of a client and its industry for the purpose of identifying risk of material misstatement. D. Methods used in the evaluation of financial information by studying plausible relationships among both financial and non-financial data.

A. Methods used to determine the operating effectiveness of the client's controls in preventing, or detecting and correcting, material misstatements at the assertion level.

What term signifies assertions that have a reasonable possibility of containing a material misstatement that would cause the financial statements to be materially misstated? A. Relevant assertions B. Rights and obligations C. Valuation and allocation D. Accuracy and valuation

A. Relevant assertions

Auditors gathering evidence to verify that recorded assets are owned by the entity and recorded liabilities represent commitments of the entity consider ________. A. Rights and obligations B. Completeness C. Occurrence D. Valuation and allocation

A. Rights and obligations

What do auditors do when considering existence? A. Search for evidence to verify that asset, liability, and equity items on the balance sheet actually exist. B. Gather evidence to verify recorded assets are owned by the entity and recorded liabilities represent commitments of the entity. C. Search for assets, liabilities, and equity items to ensure they have been recorded. D. Search for evidence that assets, liabilities, and equity items have been recorded at appropriate amounts.

A. Search for evidence to verify that asset, liability, and equity items on the balance sheet actually exist.

In the context of assertions about classes of transactions and events for the period under audit, auditors considering occurrence gather evidence to verify that _______. A. a recorded transaction or event, such as a revenue or an expense item, actually took place and relates to the entity B. all transactions have been recorded and the financial statements are not understated or overstated because transactions have been omitted C. transactions and events have been recorded at appropriate amounts D. transactions and events have been recorded in the proper accounts

A. a recorded transaction or event, such as a revenue or an expense item, actually took place and relates to the entity

Auditors inspecting purchase orders for proper authorization by a manager before a purchase is made would be an example of ________. A. a test of controls B. client communication C. substantive procedures D. analytical procedures

A. a test of controls

Auditors gathering evidence that transactions and events have been recorded at appropriate amounts consider _______. A. accuracy B. occurrence C. completeness D. classification

A. accuracy

The completeness assertion relates to ________. A. all transactions and events that should have been recorded have been recorded B. all payroll accounting records are complete and accounted for C. all entries are recorded in the correct period D. all accounts are valued at their correct amounts

A. all transactions and events that should have been recorded have been recorded

What do you call a statement or representation, explicit or implied, made by management regarding the recognition, measurement, presentation, and disclosure of items included in the financial statements and notes? A. assertion B. inspection C. tracing D. vouching

A. assertion

The information that auditors use when arriving at their opinion on the fair presentation of the client's financial statements is called _______. A. audit evidence B. relevant assertion C. receivable confirmation D. working papers

A. audit evidence

An auditor's request for information about the amount of cash held in the bank and details of any loans is referred to as a ________. A. bank confirmation B. financial confirmation C. negative confirmation D. audit confirmation

A. bank confirmation

When testing for the ________ assertion, auditors gather evidence that transactions and events have been recorded in the proper accounts. A. classification B. existence C. rights and obligations D. presentation and disclosure

A. classification

When testing for the ________ assertion, auditors ensure that all items included in the financial statements are appropriately presented and disclosures are clearly expressed. A. classification and understandability B. cutoff C. presentation and disclosure D. occurrence

A. classification and understandability

When testing for the ___________ assertion, auditors gather evidence that all transactions have been recorded and the financial statements are not understated or overstated. A. completeness B. cutoff C. valuation and allocation D. disclosure

A. completeness

The primary assertion that is tested when using receivable confirmations is _______. A. existence B. occurrence C. accuracy D. completeness

A. existence

The accuracy and valuation assertion relates to ________. A. financial and other information is disclosed fairly and in appropriate amounts B. ensuring records of ownership of assets is accurate C. the auditor's charges for fees and services provided D. all disclosures having been properly made

A. financial and other information is disclosed fairly and in appropriate amounts

Positive confirmation is correspondence sent directly by an auditor to a third party, who must respond _________. A. in all circumstances B. only if it disagrees with the information provided C. only if it agrees with the information provided D. in circumstances where the client disagrees with the auditor

A. in all circumstances

Positive confirmations ask recipients to reply ________. A. in all circumstances. If a response cannot be obtained, auditors must obtain alternative evidence to determine if the balance exists. B. only if they disagree with the information provided. If a recipient does not respond, it is assumed that he/she agrees with the information provided C. in all circumstances. If a recipient does not respond, it is assumed that he/she agrees with the information provided D. only if they disagree with the information provided. If a response cannot be obtained, auditors assume that the receivable does not exist

A. in all circumstances. If a response cannot be obtained, auditors must obtain alternative evidence to determine if the balance exists.

When considering classification, auditors gather evidence that transactions and events have been recorded _______. A. in the proper accounts B. in the correct accounting period C. at appropriate amounts D. alongside equity interests

A. in the proper accounts

A type of analytical procedure in which auditors use their professional judgment to review accounting data to identify unusual or significant items that may be an indication of a material misstatement ________. A. is referred to as scanning B. is known as substantive testing C. is known as an audit review D. is no longer allowed under Sarbanes-Oxley.

A. is referred to as scanning

The auditing procedure of observation ________. A. only provides evidence of a process at the time auditors observe it being carried out B. is less reliable than auditing associated ledger accounts C. should be performed only once during the audit for each account D. should be conducted by the internal audit function to save time

A. only provides evidence of a process at the time auditors observe it being carried out

The appropriateness of audit evidence refers to the _______. A. quality of audit evidence gathered B. quantity of audit evidence gathered C. logical connection with the assertion being tested D. source, form, or nature of the audit evidence

A. quality of audit evidence gathered

The sufficiency of audit evidence refers to the _______. A. quantity of audit evidence gathered B. quality of audit evidence gathered C. logical connection with the assertion being tested D. source, form, or nature of the audit evidence

A. quantity of audit evidence gathered

The quality of audit evidence is determined by its ________ in providing support for the conclusions on which the auditor's opinion is based. A. relevance and reliability B. accuracy and valuation C. classification and understandability D. occurrence and rights and obligations

A. relevance and reliability

The responsibility of ensuring sufficient appropriate audit evidence is gathered to arrive at an opinion is ________. A. the responsibility of the auditor B. the responsibility of management C. a joint responsibility between management and the auditor D. a function of internal control

A. the responsibility of the auditor

The amount of evidence that an auditor must collect is a function of __________. A. the risk of material misstatement in a relevant assertion for an account balance or class of transactions B. prior years' audit risk C. a detailed assessment of the clients' system of internal control D. the ability of the client to provide all documentation requested by the auditor

A. the risk of material misstatement in a relevant assertion for an account balance or class of transactions

Reliability of audit evidence refers to ________. A. the source of the evidence and form or nature of the evidence B. the accuracy and reliability of the balances C. only the specific source of the information D. only the nature of the evidence only

A. the source of the evidence and form or nature of the evidence

Selecting source documents and working forward to follow the transaction through to recording in the journal and ledger is called _______. A. tracing B. vouching C. inquiring D. observing

A. tracing

Auditors are willing to accept a higher risk that their audit procedures may not detect a material misstatement ________. A. when detection risk is high B. when control risk is high C. when detection risk is low D. when control risk is low

A. when detection risk is high

Auditors would plan for audit procedures that may result in lower quality evidence and possibly a decreased quantity of evidence for that assertion ________. A. when detection risk is high B. when audit risk is low C. when management risk is low D. when control risk is high

A. when detection risk is high

FILL IN THE BLANK: _______ is the information auditors use when arriving at their opinion on the fair presentation of the client's financial statements. Opinion evidence | Audit evidence | Privileged client information | Internal audit evidence

Audit evidence

Which of the following helps discover and analyze patterns, identify anomalies, and extract other useful information in data underlying the subject matter of an audit? A. Tests of Control B. ADA C. XBRL D. GAAP

B. ADA

Which assertion is common to both (i) classes of transactions and events for the period under audit and (ii) account balances at the period-end? A. Classification B. Completeness C. Rights and obligation D. Valuation and allocation

B. Completeness

Considering the risk of overstatement of receivables due to premature revenue recognition that inflates revenues and receivables, which assertion for the accounts receivable balance is typically relevant? A. Accuracy B. Existence C. Completeness D. Rights and obligations

B. Existence

What procedures are designed to detect material misstatements at the assertion level (namely, tests of details and substantive analytical procedures)? A. Tests of controls B. Substantive procedures C. Analytical procedures D. Risk assessment procedures

B. Substantive procedures

When would auditors want to decrease the risk that their audit procedures will not detect a material misstatement? A. When detection risk is high B. When detection risk is low C. When inherent risk is low D. When control risk is low

B. When detection risk is low

Auditors spend a considerable amount of total audit time on the process of obtaining and evaluating audit evidence in support of management assertions, which is sourced primarily from the client's ________. A. working papers B. accounting records C. internal auditors D. audit data analytics

B. accounting records

When testing for the ________ assertion, auditors gather evidence that transactions and events have been recorded at appropriate amounts. A. cutoff B. accuracy C. existence D. completeness

B. accuracy

When there is a low risk of material misstatement with an assertion and the client's system of internal controls is considered effective at reducing risk, ________. A. detection risk is set at low B. detection risk is set at high C. inherent risk is set to medium D. control risk is ignored

B. detection risk is set at high

When testing for the ________ assertion, auditors search for evidence to verify that asset, liability and equity items on the balance sheet actually exist. A. presentation and disclosure B. existence C. occurrence D. valuation and accuracy

B. existence

Auditors communicating directly with a client's bank regarding the existence of the client's cash account balances at year-end would be an example of an: A. audit issue B. independent source C. internal source D. illegal communication

B. independent source

A common audit procedure that involves watching a process or procedure being carried out by client personnel or another party is known as ________. A. inspection B. observation C. recalculation D. reperformance

B. observation

With regard to management assertions, it is true to say that ________. A. all assertions apply to all accounts and balances B. only some assertions apply to accounts and their balances C. none of the assertions apply to accounts and their balances D. management should be consulted to determine which assertions apply to which accounts.

B. only some assertions apply to accounts and their balances

The management assertion of classification deals with ________. A. ensuring vacancies are posted to appropriated classified ads B. transactions and events have been recorded in the proper accounts. C. classifying between the appropriate financial statements D. current versus non-current only

B. transactions and events have been recorded in the proper accounts.

When testing for the ________ assertion, auditors search for evidence that assets, liabilities and equity items have been recorded at appropriate amounts and allocated to the correct general ledger accounts. A. presentation and disclosure B. valuation and allocation C. existence D. occurrence

B. valuation and allocation

When an auditor selects transactions from the sales journal or ledger and then examines the underlying source documents, such as a shipping document and an invoice to the customer, this is known as ________. A. tracing B. vouching C. examination D. inspection of records

B. vouching

In audit evidence, which of the following refers to the logical connection with the assertion being tested? A. Reliability B. Sufficiency C. Relevance D. Appropriateness

C. Relevance

Which of the following provides evidence for the occurrence assertion? A. Tracing B. Visualization C. Vouching D. Tests of controls

C. Vouching

If an auditor has determined that inherent risk for accounts receivable is high and wishes to verify the balance as accurate, the best corroborating evidence would be ________. A. a phone call to the client B. a negative confirmation sent to the entity in question C. a positive confirmation sent to the entity in question D. inspection of supporting documents relating to the receivables transactions

C. a positive confirmation sent to the entity in question

The specific procedures auditors will use to gather evidence are detailed in the ________. A. financial statements B. representation letter C. audit program D. flowchart

C. audit program

The procedure of auditors examining a client's unpaid invoices file and determining if payables have been properly created for any unpaid invoices would provide evidence in support of the _______ assertion. A. accuracy B. occurrence C. completeness D. cut-off

C. completeness

When testing for the ________ assertion, auditors search for assets, liabilities and equity items to ensure they have been recorded. A. cutoff B. valuation and accuracy C. completeness D. presentation and disclosure

C. completeness

When testing for the ________ assertion, auditors search for evidence that transactions have been recorded in the correct accounting period. A. rights and obligations B. valuation and accuracy C. cutoff D. existence

C. cutoff

The primary assertion being tested when using receivable confirmations is ________. A. completeness B. valuation and accuracy C. existence D. rights and obligations

C. existence

Audit evidence will typically consist of ________. A. all observations made by the auditor B. all records prepared by the auditor, not including records received from external entities C. information that supports and corroborates management's assertions and any information that contradicts the assertions D. information that supports the auditor's initial assessment of audit risk

C. information that supports and corroborates management's assertions and any information that contradicts the assertions

Performing numerical accuracy tests for foreign currency translation, payroll taxes, interest on loans outstanding, and depreciation calculations ________. A. is the role of the internal audit function B. is the responsibility of management C. is referred to as recalculation D. is unnecessary if the client is assessed as having low control risk

C. is referred to as recalculation

Relevance of audit evidence refers to ________. A. its importance to the audit B. its relevance to outside investors and creditors C. its relationship to the assertion being tested D. its relevance to the balance sheet

C. its relationship to the assertion being tested

Management assertions are best defined as ________. A. sometimes being present in the financial statements, and sometimes not. B. optional items for the auditor to check C. representations by management, explicit and implicit, contained within the financial statements. D. management communications with an attorney

C. representations by management, explicit and implicit, contained within the financial statements.

When testing for the ________ assertion, auditors gather evidence to verify recorded assets are owned by the entity and recorded liabilities represent commitments of the entity. A. existence B. valuation and accuracy C. rights and obligations D. occurrence

C. rights and obligations

When auditors start with the underlying source documents and work forward to follow the transaction through to recording in the journal and ledger, this is referred to as ________. A. audit procedures B. substantive procedures C. tracing D. vouching

C. tracing

The cutoff assertion deals with ________. A. ensuring accounts are appropriately valued B. ensuring amounts are recorded in the correct accounts C. transactions and events have been recorded in the correct accounting period D. ensuring that assets, liabilities and equity interests exist.

C. transactions and events have been recorded in the correct accounting period

Auditors who are searching for evidence that assets, liabilities, and equity items have been recorded at appropriate amounts and allocated to the correct general ledger accounts consider ________. A. existence B. classification C. valuation and allocation D. rights and obligations

C. valuation and allocation

Which of the following is a listing of details of the audit procedures to be used when testing controls and when conducting detailed substantive audit procedures? A. Audit data analytics B. Accounting records C. Analytical procedures D. Audit program

D. Audit program

Receivable confirmations provide very little evidence regarding the _______ assertion. A. accuracy B. rights and obligation C. occurrence D. completeness

D. completeness

Auditors inspecting a sample of accounts payable balances listed on the ledger and verifying that they are true payables owed by the client gather evidence in support of the _______ assertion. A. accuracy B. occurrence C. completeness D. existence

D. existence

When an auditor asks questions verbally or in written form of knowledgeable individuals internal to the client, this is referred to as ________. A. confirmation B. attestation C. affirmation D. inquiry

D. inquiry

An auditors' evaluation of financial information by studying plausible relationships among both financial and non-financial data ________. A. is known as recalculation B. is known as reperformance C. is referred to as substantive testing D. is referred to as analytical procedures

D. is referred to as analytical procedures

Using ADA software typically makes the audit _______. A. more comprehensive but less efficient. B. less comprehensive and less efficient. C. less comprehensive but more efficient. D. more comprehensive and more efficient.

D. more comprehensive and more efficient.

FILL IN THE BLANK: _______ involves the examination of documents and physical assets. Observation | Inspection | Examination | Recording

Inspection

FILL IN THE BLANK: _______ refers to the quantity of audit evidence gathered. Appropriate | Timely | Sufficient | Complete

Sufficient

FILL IN THE BLANK: Once risks are identified, auditors assess the risk of material misstatement at the _______ level for these significant classes of transactions and account balances. relevant assertion level | account | financial statement | disclosure

relevant assertion level

FILL IN THE BLANK: Evidence gathered from a knowledgeable source independent of the client is more _______ than evidence gathered solely from internal client sources. complete | accurate | reliable | questionable

reliable