Audit Chapter 3, Chapter 3-Audit, Auditing

Confirmation

-direct correspondence with independent parties -can produce evidence of existenve and ownership, sometimes valuation and cutoff -should be mailed directly to auditor -must have client's consent

Rights and obligations (rights and obligations)

-does the entity really own the assets? -are related legal responsibilities identified? -statements by independent parties -use confirmation ----letters form outside the firm letting you know something really did happen or they really do own these items

Inspections or records and documents

-examining authoritative documents prepared by individual parties and client -documents prepared by independent outside parties --external to internal documents (prepared by outsiders received by client) -documents prepared and processed by the client

Engagement letters include

-objective of the engagement -management's responsibilities -the auditor's responsibilities -any limitation of the engagement -if public: internal control considerations

Purpose for audit procedures to get evidence

-to gain understanding of the client's risk and risk associated with the client -to test operating effectiveness of clients of clients internal control activities (test of controls) -to produce measures of mgt asserions

before conductiong the audit the auditor should determine that managment

1 uses acceptable financial reporting framework in the preparation and fair presentation of the financial statements 2. understands its responsibility for the preparation and fair presentation of the financial statements 3. understands its responsibility for the design, implementation, and maintenance 4. understands its responsibility to provide access to all info and persons deemed necessary for the audit

Reasons for engagement planning

1. Primary: identify the material misstatements at the financial statement and assertion level 2. execute auditing procedures (both substantive and control tests) that are designed to mitigate these risks to ana cceptable level, which allows the auditor to issue an opinon

what the auditor should consider when developing an audit strategy

1. characteristics of engagement and reporting objectives 2. determine materrilaity 3. areas of high risk of material misstatement 4. involvment of specialists and use of component auditrs 5. reliance on controls 6. relevant entity specific, industry, or financial developments 7. audit resources required 8. the results of preliminary engagement activities related

The analytical procedures

1. comparison of current year balances to balnces of one or more comparable periods 2. comparison to current year account balances to anticipated results found in company's budgets and forecasts 3. evaluation of relationships of the current-year account balance to other current year balances for conformity with predictable patterns based on the company's experience 4. study of relationships of the current year account balances with relevant nonfinancial informaton

Three additional goals of audit planning

1. firm has to conduct audit in accordance with professional standards in a timely and profitable manner 2. determine materiality 3. outline specific audit procedures including control tests and substantive tests

8 general audit procedures to gather evidence

1. inspection of records and documents 2. inspection of tangible assets 3. observation 4. inquiry 5. confirmation 6. recalculation 7. re performance 8. analytical procedure

parts of an engagement letter

1. objective and scope of the audit 2. responsibilities of the auditor and management 3. inherent limitations of the audit of internal controls 4. the financial reporting framework 5. the expected form and content of auditor reports

PCAOB regulations require that all documentation be finalized within ______ days of the audit report's release date. Multiple choice question. 90 30 45 60

45

When significant events, such as a change in auditor occurs, public companies must file a Form ______with the SEC.

8-K

An auditor set overall materiality at $60,000. During the audit, no individual material misstatements were discovered. However, four misstatements that are individually immaterial were found. As a result of there misstatements, net income increased by $70,000. The auditor A. must factor in the probability that the aggregate of uncorrected and undetected misstatements could exceed overall materiality B. should conclude that the overall materiality threshold has been met, since all misstatements found were individually immaterial

A

Cloud computing A. saves computing costs but has additional risks B> saves computing costs and reduces overall risks C. increases computing costs but reduces overall risks D. increases computing costs and has additional risks

A

Computerized processing of similar transactions A. may result in all transactions being processed incorrectly B> significantly reduces the amount of time auditors spend on tests of detail C. virtually eliminates the occurrence of any type of error

A

Giving each electronic and paper document a number, like a book page number so it can be found, removed and replaced without loss is called A. indexing B. heading C. cross- referencing

A

The basis to determine the nature, timing, and extent of internal control tests and substantive tests of account balances and disclosures is the A. risk assessment process B. prior years audit C> number of management assertions D. nature of the clients business

A

The descriptive nature of an item or issue ____________ when setting performance materiality A. is an important qualitative factor B. is an important quantitative factor C. has not effect

A

The essential advantages of a computer-assisted audit techniques (CAATs) package would not include the fact that: A. software packages are always inexpensive. B. the same software can be used on different types of clients' computer environments. C. a large number of CAATs packages are currently available. D. the ability to control and modify the program to meet an auditors' need.

A

The most reliable form of documentary evidence is a document A. received directly from an independent outside party B. prepared and processed by the audit team C. prepared by an outside external third party and given to the auditor by the client who received it D. prepared and processed by the client

A

The primary reason for accepting or not accepting an audit engagement is A. management integrity B. the auditors independence or lack thereof C. agreement (or lack of agreement) regarding fees D. Whether or not special skills are required for the audit

A

computerized audit trails may A. required the auditor to alter the timing of testing B. required the auditor to alter the nature of testing C. require the auditor to alter the extent of testing

A,B

Cycles recognized by most audit firms are A. finance and investment B. production C. acquisition and expenditure D. revenue and collection E. Purchasing and payment

A,B,C,D

clients acceptance and continuation policies and procedures generally include A.inquires of persons who do business with the entity B. searching for lawsuits and court cases involving the entity C. considering the need for individuals with specials skills or knowledge D. criminal background checks for all senior and mid-level managers E. considering if any unusual risk is involved in the engagement

A,B,C,E

The nature and extent of work completed during engagement planning depends on the: Check all that apply A. prior experience with the company being audited B. number of auditors assigned to the audit C. size of the company being audited D. company's industry and complexity

A,C,D

Computerized audit trails may A. requires the auditor to alter the timing of testing B. requires the auditor to alter the nature of testing C. provide a permanent transaction trail useful for auditing purposes D. require the auditor to alter the extent of testing

AB

Reperformance: A. is commonly used when completing internal control system walkthroughs B. can be completed for any client control procedure C. is similar to recalculation but more narrow in approach D. must be done manually

AB

Computer - initiated transactions: A. can be generated without human review B. make it difficult to trace authorizations C. include invoice and purchase order generation D. make it easier to judge correctness of the transactions

ABC

Engagement letters: A. define management and auditor responsibilities B. set forth audit objectives C. reduce the risk of misunderstandings D. should not mention fees E. are only required for new clients

ABC

Relevant considerations when determining materiality include: A. matters surrounded by uncertainty of future outcomes B. amounts that allow the company to meet earnings expectations C. the likelihood of being selected for PCAOB inspection D. amounts that turn a net profit into a net loss

ABC

The audit team uses materiality as a guide. Check all that apply A. for determining performance materiality B. for making audit report decisions C. to planning substantive testing procedures D. to planning tests of controls

ABC

The goals of audit planning are to A. determine materiality B. ensure proper staffing C. outline specific audit procedures D. determine the feasibility of the audit

ABC

IT auditors: A. provide specialized skills related to programming languages B. may be needed to evaluate computerized processes C. are not part of the audit engagement team D. assist with understanding software packages

ABD

Confirmation can provide evidence regarding: A. existence B. rights and obligations C. completness D. cuttoff E. valuation

ABDE

Confirmations A. request information the recipient can supply B. are typically printed on the clients letterhead C. should be give to client personnel for mailing D. are signed by the audit engagement partner E. should be returned directly to the audit firm

ABE

Audit Documentation A. may be in either electronic or hard copy form B. is legally owned by the client that was audited C. Should contain support for the audit decision D. provides the auditors record of compliance with standards

ACD

Documents prepared and processed by the client A. become more reliable when mailed to third parties B. are referred to as internal- external evidence C. are more reliable when the clients internal control system is strong D. include copies of sales invoices and receiving reports

ACD

Recalculation A. provides evidence of valuation when used with other procedures B. serves the objective of rights and obligations C. can use computer - assisted audit techniques D. produces compelling evidence

ACD

When a public company changes auditors A. any pertinent disagreements with the former auditor must be disclosed B. the former auditor must file Form 8- k explaining whether or not they agree with the change C. documents filed regarding the change are available to the public D. the board of directors must approve the change

ACD

Pre-engagement activities

Also known as risk managment activities. because risk in a audit engagement generally refees to probability of blowing the audit 1. acceptance or continuance -obtaining and reviewing financial statements of clients -background checks of senior managers -ask questions of bankers, legal counsel -evaluating the public accounting firms indepndence with regard to the prospective client -considering the need for individual processing special skill or knowledge 2. compliance with independence and ethical requirements -Independence and due care --independence in mental attitude and appearance

When an auditor compares his or her expectation to a recorded balance ___________ are being performed

Analytical Procedures

The written record of the basis for the authors conclusions that provide the support for the auditor's representations is the PCAOB definition of ______________

Audit documentation

Persons skilled in areas outside of accounting are sometimes used to acquire information such individuals are called _______ and may include actuaries, attorneys and environmental engineers

Audit specialists

A ___________ audit plan contains specific procedures needed to obtain an understanding of the clients internal control system and test that understanding for those controls that relate to the relevant financial statement assertions A. control test B. internal control C. assertion D. substantive

B

A prospective auditor should attempt to obtain basic information directly from the predecessor auditor regarding issues that reflect directly on the A. team the predecessor auditor used for the engagement B. integrity of management C. basis for the predecessor's last audit opinion D. reasons why the predecessor auditor is no longer on the engagement

B

An auditor's purpose in auditing the information contained in the pension footnote most likely is to obtain evidence concerning management's assertion about: A. rights and obligations. B. presentation and disclosure. C. valuation. D. existence.

B

Debits to revenue accounts and credits to expense accounts are generally found using A. observation B. scanning C. vouching D. tracing

B

Giving each document a title including the name of the company, balance sheet date, and a descriptive title is called A. indexing B. heading C. cross reference

B

Materiality is based on A. industry benchmarks B. professional judgment C. definite, quantitative guidelines

B

Professional standards now require that the materiality level of the financial statement as a whole needs to be expressed A. as a percentage of reported net income B. as a specified amount C. for each major classification of the financial statements

B

Reperformance is a representative audit procedure used to test the PCAOB and ASB assertion of: A. presentation and disclosure B. valuation and allocation C. completness D. existence or occurrence

B

Risk management activities are undertaken A. before issuing the audit report B. before beginning any audit engagement C. only during the audit fieldwork D> at the conclusion of the audit engagement

B

The auditor begins the search for evidence by focusing on transactions that have already been recored in the financial statements and following them back to the source when engaged in A. tracing B. vouching C> confirmation D. inquiry

B

Whether or not information is material is based on the _______ point of view A. external auditors B. financial statement users C. company managements

B

the primary reason for engagement planning is to A. estimate the total cost of the audit and determine the fees that should be charged B. identify the risk of material misstatements for each relevant financial statement assertion C. determine the appropriate experience level and number of auditors needed for the engagement

B

when an audit specialist is engaged during an audit, it is best to hire someone who is _________ to the company under audit A. related B. unrelated

B

External auditors A. may delegate supervision of internal auditors to manager of internal audit B. may rely on some work completed by the internal audit department C. cannot delegate tasks that require professional judgement D. must review, evaluate and perform independent testing of the internal audit work.

B,C,D

firms often engage private investigators to conduct searches for additional information when prospective clients A. have never been audited before B. are under some type of investigation C. are financial institutions D. terminated the predecessor auditor E. have been shown recent losses

B,C,E

computer -assisted audit techniques (CAAT) can be used for A. observation B. recalculation C. judging the reasonableness of allowance for doubtful accounts D. analytical procedures

B,D

Favorable conclusion about the competence and objectivity of internal auditors allow external auditors to rely on the work internal auditors related to A. forming the audit decision B. substantive testing of balances on the audit C. testing the internal control system D. assessing the reasonableness of the allowance for doubtful accounts

BC

Inquiry A. relates to evidence from independent parties only B. is never enough on its own to reach an audit conclusion C. generally involves the collection of verbal evidence D. Procedures are generally used in to final stages of the audit

BC

Lack of Auditor Independence A. requires an adverse opinion B. can lead to investor and client lawsuits C. can result in disciplinary actions

BC

When an audit specialist is engaged during an audit A. auditors may rely on the findings of the specialist without performing additional testing on the data B. the external auditors must know about his or her qualifications, experience and reputation C. the auditor must gain a detailed understanding of the methods and assumptions used by the specialist D. the specialists findings are normally included in the audit report

BC

Assertions that can be tested by vouching include A. completness B. allocation C> valuation D> occurence

BCD

External auditors: A. may delegate supervision of internal auditors to the manager of internal audit B. must review, evaluate and perform independent testing of the internal audit work C. cannot delegate tasks that require professional judgment D. may rely on some work completed by the internal audit department

BCD

Reported net income under GAAP is not one "true" figure but a possible range of measure influenced by the choice of: A. estimating uncollectible accounts receivable or using direct write off of accounts B. fixed asset lives C. classification of marketable securities D. depreciation methods

BCD

Audit evidence documentation must show A. there were no exceptions or findings contradictor to the final conclusions B. work was adequately planned and supervised C. an understanding or internal controls was obtained D. sufficient evidence was obtained as a basis for the opinion E. management assertions that were audited

BCDE

Client acceptance and continuation polices and procedures generally include A. criminal background checks for all senior and mid level managers B. searching for lawsuits and court cases involving the entity C. considering the need for individuals with special skills or knowledge D. inquiries of persons who do business with the entity E. considering if any unusual risk in involved in the engagement

BCDE

Firms often engage private investigation to conduct searches for additional information when prospective clients A. have never been audited before B. are under some type of investigation C. have been shown recent losses D. terminated the predecessor auditor E. are financial institutions

BCE

Reperformance: A.is similar to recalculation but more narrow in approach B. can be completed for any client control procedure C. must be done manually D. is commonly used when completing internal control system walkthroughs

BD

A primary advantage of using computer-assisted audit techniques (CAATs) packages to audit the financial statements of a client that uses computerized information systems is that the auditor may: A. substantiate the accuracy of data by using self-checking digits and hash totals. B. consider increasing the use of substantive tests of transactions in place of analytical procedures. C. access information stored on computer files even with a limited understanding of the client's hardware and software features. D. reduce the level of required tests of controls to a relatively small amount.

C

As a general rule, analytical procedures are ________ detailed, document- oriented procedures A. more costly then B. about the same cost as C. less costly than

C

Computer Assisted Audit Techniques (CAAT) cannot be used for A. fraud investigation B. scanning C. vouching D. confirmation

C

External- internal documentary evidence means the documents were originally prepared by A. the auditor who sent it to a third party to be verified and returned directly to the auditor B. The client and sent for verification to third party who returned the document to the auditor C. an external third party, received by the client and passed to the auditor D. an external third party, received by the auditor and passed on the client for verification

C

The assignment of staff to an audit engagement depends on the A. number of staff member needed B. experience of the audit manager C. riskiness of the engagement

C

The auditor selects a basic source document and and follows its procession path forward to its final recording and to the financial statements when engaged in A. inquiry B. confirmation C. tracing D. vouching

C

To ensure that the aggregate of uncorrected and undetected immaterial misstatements does not exceed materiality for the financial statements a a whole, auditors use __________________ materiality A. selective B. tolerable C. performance D. judgmental

C

Which of the following statements is correct? A. all inaccuracies in financial statements affect user decisions B. the cost of finding and correcting all misstatements is worth the benefit derived from the corrections C. if time is taken to find all inaccuracies, the issuing of financial statements will be delayed

C

Which of the following would be a step in an internal control program? A.Obtain an aged trial balance of the accounts receivable. B. Read sales contracts for evidence of customers' rights of return or price allowance terms. C. Assess the control risk for sales and collections. D. Prepare and send confirmations on a sample of customers' accounts receivable.

C

obtaining evidence about their education, experience, and certifications along with a review of department policies and procedures enables external auditors to investigate internal auditors A. independence B. objectivity C. competence

C

the audit planning process is required to be led by the A. audit team assigned to the entity B. senior auditor in charge C. assigned engagement partner D. board of directors

C

In determining whether transactions have been recorded, the direction of the audit testing should start from the: A. general ledger balances. B. adjusted trial balance. C. original source documents. D. general journal entries.

C (tracing)

A computerized environment A. helps prevent unauthorized access to data and information B. increases control risks C. reduces the potential for observing errors or fraud D. can enhance the system of internal controls

CD

Which of the following statements are correct? A. potential errors in fixed assets are deferred charges are considered more important than potential errors in other accounts B. an illegal payment may or may not be considered material, depending on the amount C. any type of management fraud is considered material regardless of the amount D. the nature or an item or issue impacts materially considerations

CD

Presentation and disclosure (classification and Understanability)

Classification: -were all transaction recorded in their proper account? are repairs expensed instead of capatalized -comparisons of current year amounts with those from the prior year -analytical procedures Understanability -are the presentations and disclosures understandable to users? -managment prepared financial statements and footnotes -inguiry

Inspecting records or documents (tracing) prepared by the client is a representative audit procedures of the PCAOB assertion of

Completeness

Completeness (Completeness, cutoff)

Completeness: -are the financial statements (including footnotes) complete -documents prepared by the client -inspection of records (tracing) start with a source document and go to the journal Is every source document found in the journal Cutoff -were all transactions recorded in the proper period? -client receiving reports and shipping reports -inspections of records or documents (tracing or vouching) -did you record things in the correct period, fob shipping fob whatever

A widely used auditing procedure is ____________ or direct correspondence with independent parties

Confirmation

A widely used audition procedure is _________ or direct correspondences with independent parties

Confirmation

To simplify the audit plan, auditors typically group the accounts into ________ which are sets of logically grouped accounts

Cycles

During the initial planning phase of an audit, a CPA most likely would: A. evaluate the reasonableness of the client's accounting estimates of inventory obsolescence. B. inquire of the client's attorney as to whether any unrecorded claims are probable of assertion. C. test specific internal control activities that are likely to prevent fraud. D. discuss the timing of the audit procedures with the client's management.

D

Observation is commonly used as a test of A. ownership B. details C. substantive audit procedures D. Control

D

Reperformance is a representative audit procedure used to test the PCAOB and ASB assertion of: A. existence of occurrence B. presentation and disclosure C. completeness D. valuation and allocation

D

The auditor is not required to ask the predecessor auditor about: A. the predecessor's understanding about the reasons for the change of auditors. B. disagreements the predecessor may have had with management about accounting principles and audit procedures. C. facts that might bear on the integrity of management. D. the fees charged for the previous audit.

D

The confirmation of an accounts receivable balance provides primary evidence regarding which management assertion? A. Allocation. B. Valuation. C. Completeness. D. Existence.

D

The first step in the engagement planning process is A. assessing audit risk B. evaluating the client and agreeing to accept the engagement C. assigning the engagement partner in charge D. a detailed understanding of the clients business industry and strategy

D

The most important facet of the current audit evidence documentation files is the requirement that they show A. how exceptions were resolved or treated B. resolution of differences among audit team members audited management assertions C. audited management assertions D. the auditors conclusions E. work was adequately planned and supervised

D

The substantive audit plan depends almost exclusively upon the A. size of the audit team B. size of the client C. industry the client is in D. risk assessment of the client

D

Which of the following auditor concerns most likely could be so serious that the auditor would conclude that a financial statement audit cannot be conducted? A. Management fails to modify prescribed controls for changes in conditions. B. The entity has no formal written code of conduct. C. Procedures requiring separation of duties are subject to management override. D. The integrity of entity's management is suspect.

D

In testing the completeness assertion for a liability account, an auditor ordinarily works from the A. financial statements to the potentially unrecorded items. B. trial balance to the subsidiary ledger. C. accounting records to the supporting evidence. D. potentially unrecorded items to the financial statements.

D (tracing)

Professional standards require auditors to reach a mutual understanding with clients concerning requirements and expectations which is usually done by preparing a written __________

Engagement letter

Which of the following statements regarding company specialists are true? Multiple select question. External auditors must consider their objectively and competence. Their work may be used as audit evidence. Their work is evaluated differently than the work of auditor-engaged specialists.

External auditors must consider their objectively and competence. Their work may be used as audit evidence.

True or False: Auditors should resist using analytical procedures during substantive testing of balances

False

True or False: client continuance decisions are generally very different than client acceptance decisions

False

True or False: if internal auditors are objective they can be considered independent in the same sense that auditors are considered independent

False

True or False: one objective of a financial statement audit is to determine if in all material respects, the entity being audited is reporting the one true net income

False

True or false: Auditors may use the work of internal auditors, but not company specialists as audit evidence.

False

True or false: Auditors should resist using analytical procedures during the substantive testing of balances

False

True or false: One objective of a financial statement audit is to determine if, in all material respects, the entity being audited is reporting the one true net income.

False. A range of potential net income figures is allowable under both GAAP and IFRS.

Which of the followings statements is correct? Multiple choice question. The cost of finding and correcting all misstatements is worth the benefit derived from the corrections. All inaccuracies in financial statements affect user decisions. If time is taken to find all inaccuracies, the issuing of financial statements will be delayed.

If time is taken to find all inaccuracies, the issuing of financial statements will be delayed.

Materiality

In order to plan the nature, timing, and extent of audit procedures to be performed an auditor should establish the materiality level for the financial statements as a whole that is appropriate despite the cirumstance -emphasis of financial statemnt use point of view -auditors must remain conservative

Procedures performed weeks or months before the financial statement date is referred to as ______________ work

Interim audit

To plan the nature timing and extent further audit procedures to be preformed , an auditor should establish a _______ level for the financial statements as a whole that is appropriate in light of the companies earnings and other relevant factors

Materiality

Internal auditora

Objective -not independent -objectivity is questioned when managers have the power over the pay/tenure of individual internal auditors Competence -education, experience, certifications if external auditor reaches favorable conclusion about competence and objectivity enable auditors to accept internal audits documentation and work on review assessment, and the monitoring of iternal controls ***Never trust for judgement decisons if low judgment and low risk can reperform 30% of work if internal auditors are objective and competent

The two categories of audit documentation are __________ files and ________files

Permanent current

All important overall planning information and documentation that the audit team is following generally accepted auditing standards is often summarized in an

Planning memorandum

An eyes open approach of looking for anything unusual that can raise questions to evidence that needs to be obtained is called _______

Scanning

when an auditor/ client relationship ends a ___________ letter should be prepared that details the subject of future services and circumstance that caused the conflict

Termination

Which of the following statements are correct? Multiple select question. The nature or an item or issue impacts materiality considerations. Any type of management fraud is considered material regardless of the amount. An illegal payment may or may not be considered material, depending on the amount. Potential errors in fixed assets are deferred charges are considered more important than potential errors in other accounts.

The nature or an item or issue impacts materiality considerations. Any type of management fraud is considered material regardless of the amount.

When auditors use sampling, performance materiality is referred to as _________________

Tolerable misstatement

True or False: if the auditor is not independent, the financial statements are considered unaudited for all practical purposes

True

True or false: Given today's complex computing requirements, audits of large companies will require IT auditors as part of the engagement team.

True

True or false: If the auditor is not independent, the financial statements are considered unaudited for all practical purposes.

True

True or false: Public accounting firms devote substantial time to make sure their audit clients are not likely to become the focus of an accounting scandal.

True

True or false: The engagement letter is designed to act as a contract for the audit.

True

True or false: The first step in the engagement planning process includes obtaining an understanding of the client's accounting information system.

True

True or false: The first step in the engagement planning process includes obtaining an understanding of the client's accounting information system.

True. This is done as well as part of obtaining a detailed understanding of the client's business, industry and strategy.

Valuation and allocation (valuation or allocation and accuracy)

Valuation or allocation: -are accounts valued correctly? -client-prepared accounts receivable aging schedule -reperformance -see if you get the same value Accuracy -were the transactions recorded accurately ? -vendor invoices -inspection of records or documents (tracing or vouching) -did we record it right

Selecting an item in the financial records and following its path back to the source document is referred to as ___________

Vouching

Audit plan

a comprehensive list of specific audit procedures that the audit team needs to perform to gather sufficient appropriate evidence in which to base their opinion on the the financial statements -needs to describe the nature, timing, and extent of the procedures to be performed to assess the risk of material of misstatement at the financial statement and assertion level

The first step in the engagement planning process is ______. Multiple choice question. a detailed understanding of the client's business, industry and strategy evaluating the client and agreeing to accept the engagement assigning the engagement partner in charge assessing audit risk

a detailed understanding of the client's business, industry and strategy

The first step in the engagement planning process is ______. Multiple choice question. evaluating the client and agreeing to accept the engagement a detailed understanding of the client's business, industry and strategy assigning the engagement partner in charge assessing audit risk

a detailed understanding of the client's business, industry and strategy

substative plan

a list of audit procedures for gathering evidence related to the relevant assertions identified for significant financial statement accounts and disclosures of an audit client it is the nature, the timing, and extent of procedures depends on the assessment of risk at audit client

PCAOB requirws

all documentation must be finalaized within 45 days of the audit report date can ass extra info with sufficent data, but cant repove -audit info be retained for 7 years and retain rsolution of differences

Vouching

an auditor selects an an item of financial info like a journal and follows the path backwards to its origin -help with existence and occurence -Can't help with completeness

External-internal documentary evidence means the documents were originally prepared by ______. Multiple choice question. the client and sent for verification to a third party who returned the document to the auditor an external third party, received by the auditor and passed on to the client for verification the auditor who sent it to a third party to be verified and returned directly to the auditor an external third party, received by the client and passed on to the auditor

an external third party, received by the client and passed on to the auditor

when an auditor compares his or her expectation to a recorded balance, _____________ are being performed

analytical procedures

When a public company changes auditors ______. Multiple select question. the former auditor must file Form 8-K explaining whether or not they agree with the change Reason: The auditor must submit a letter but the company must file Form 8-K. any pertinent disagreements with the former auditor must be disclosed documents filed regarding the change are available to the public the board of directors must approve the change

any pertinent disagreements with the former auditor must be disclosed documents filed regarding the change are available to the public the board of directors must approve the change

Documents prepared and processed by the client ______. Multiple select question. are referred to as internal evidence include copies of insurance policies require additional audit testing to be considered reliable are less reliable when prepared by the client and mailed to third parties

are referred to as internal evidence require additional audit testing to be considered reliable

Confirmations ______. Multiple select question. should be given to client personnel for mailing are typically printed on the client's letterhead are signed by the audit engagement partner should be returned directly to the audit firm request information the recipient can supply

are typically printed on the client's letterhead should be returned directly to the audit firm request information the recipient can supply

Select all that apply Firms often engage private investigators to conduct searches for additional information when prospective clients ______. Multiple select question. terminated the predecessor auditor have never been audited before are under some type of investigation have shown recent losses are financial institutions

are under some type of investigation have shown recent losses are financial institutions

Professional standards now require that the materiality level of the financial statement as a whole needs to be expressed ______. Multiple choice question. for each major classification on the financial statements as a specified amount as a percentage of reported net income

as a specified amount

External evidence is considered reliable ______. Multiple choice question. as long as it is received directly from an independent outside party only when it contains seals, engraving or other distinctive attributes

as long as it is received directly from an independent outside party

The audit planning process is required to be led by the ______. Multiple choice question. senior auditor in charge board of directors assigned engagement partner audit team assigned to the entity

assigned engagement partner

The written record of the basis for the auditor's conclusions that provide the support for the auditor's representations is the PCAOB definition of ____________ _________________.

audit documentation

A comprehensive list of the specific procedures that need to be performed to gather sufficient appropriate evidence to base an opinion on the financial statements is called a(n) _______ ________.

audit plan

Persons skilled in areas outside of accounting are sometimes used to acquire information. Such individuals are called__________ _________ and may include actuaries, attorneys and environmental engineers.

audit specialist

When the external auditor is gaining an understanding of the business, information may be needed from individuals skilled in areas other than accounting and auditing who are not members of the audit team. Such individuals are referred to as ______. Multiple choice question. outside experts IT auditors audit specialists internal auditors

audit specialists

A chain of evidence provided through coding, cross reference and documentation connecting account balances and other summary results with the original transaction source is a(n) _____________________

audit trail

Termination letter

auditors future services -assess to audit documentation by successor auditors -reissuance or auditors report for SEC -fee arrangements for future services

auditiros mark and explanation

auditors short-hand abbreviating comments about work performed. Must be accompanied with full explanation of audit work

Documents prepared and processed by the client ______. Multiple select question. are referred to as internal-external evidence become more reliable when mailed to third parties are more reliable when the client's internal control system is strong include copies of sales invoices and receiving reports

become more reliable when mailed to third parties are more reliable when the client's internal control system is strong include copies of sales invoices and receiving reports

Risk management activities are undertaken ______. Multiple choice question. at the conclusion of the audit engagement before issuing the audit report only during the audit fieldwork before beginning any audit engagement

before beginning any audit engagement

The planning process begins with a calculation of a preliminary materiality amount that is based on a relevant _______________and a rule of thumb percentage applied to it.

benchmark

When setting a preliminary materiality amount, what is most important for financial statement users and the industry in which the client operates is the basis of the appropriate ___________ used.

benchmark

The use of electronic confirmations by auditors has led to improvements in ______ of the confirmation process. Multiple choice question. both effectiveness and efficiency effectiveness but not efficiency efficiency but not effectiveness

both effectiveness and efficiency

Auditors spend a considerable amount of time on risk assessment at ______. Multiple choice question. the financial statement level only both the financial statement and management assertion level neither the financial statement nor management assertion level the management assertion level only

both the financial statement and management assertion level

re-profirmance

broader than recalculation verify that account receivables aging schedule was prepared properly by sorting AR by due date

During the substantive testing of balances analytical procedures ______. Multiple choice question. can be very effective should not be used

can be very effective

A lack of auditor independence ______. can lead to investor and client lawsuits requires an adverse opinion can result in disciplinary actions

can lead to investor and client lawsuits can result in disciplinary actions

Internal auditors ______. Multiple choice question. can never be considered independent in the same sense that external auditors are considered independent can only be considered independent if they are found to be objective and report directly to the audit committee are always considered independent when they are found to be objective

can never be considered independent in the same sense that external auditors are considered independent

audit trail

chain of evidence provided through coding, cross-referencing, and documentation connecting account balances and other summary results with the original transaction source documents

Obtaining evidence about their education, experience, and certifications, along with a review of department policies and procedures enables external auditors to investigate internal auditors'

competence

Obtaining evidence about their education, experience, and certifications, along with a review of department policies and procedures enables external auditors to investigate internal auditors' ______. Multiple choice question. competence objectivity independence

competence

Vouching does not provide evidence regarding the ______ assertion. Multiple choice question. allocation existence valuation completeness

completeness

A widely used auditing procedure is ___________ by direct correspondence with independent parties.

confirmation

Select all that apply Client acceptance and continuation policies and procedures generally include ______. Multiple select question. considering the need for individuals with special skills or knowledge considering if any unusual risk is involved in the engagement criminal background checks for all senior and mid-level managers inquiries of persons who do business with the entity searching for lawsuits and court cases involving the entity

considering the need for individuals with special skills or knowledge considering if any unusual risk is involved in the engagement inquiries of persons who do business with the entity searching for lawsuits and court cases involving the entity

The permanent files are also called __________ _________files

continuing audit

The permanent files are also called __________ files

continuing audit

Observation is commonly used as a test of ______. Multiple choice question. details ownership control substantive audit procedures

control

Verifying if all transactions were recorded in the proper period address the ASB assertion of

cutoff

To simplify the audit plan, auditors typically group the accounts into ________ which are sets of logically grouped accounts.

cycles

Reported net income under GAAP is not one "true" figure but a possible range of measure influenced by the choice of ______. Multiple select question. estimating uncollectible accounts receivable or using direct write off of accounts depreciation methods classification of marketable securities fixed asset lives

depreciation methods classification of marketable securities fixed asset lives

Client retention reviews are typically ______. Multiple choice question. only done at the request of the client only done if the auditor is considering withdrawing from the engagement only done when a major event occurs done annually

done annually

heading

each doc is titles w/ the name of company, balance sheet date, and descriptive title of the contents document

planning documentation

each relevant financial assertion to be investigated during the audit records of procedures performed evidence obtained decisons made

The goals of audit planning are to ______. Multiple select question. ensure proper staffing determine materiality outline specific audit procedures determine the feasibility of the audit

ensure proper staffing determine materiality outline specific audit procedures

Analytical procedures

evaluate financial statement accounts by studying and comparing relationships among financial and nonfinancial data required to them when planning an audit and when performing the final review before the audit report issued Use analytical procedures to provide evidence about managements financial assertions during the testing phase

As indicated in the SEC stance on materiality, auditors should ______. Multiple choice question. examine both quantitative and qualitative factors rely mainly on certain quantitative benchmarks in the assessment not consider engagement circumstances when setting the amount

examine both quantitative and qualitative factors

Inspections of tangible assests

examining property, plant, and euaipment inventory and securites certificates -physcial inspction of tangible assets provide a compelling evidence and may provide tenative evidence for valuation -does NOT necessarily provide evidence that the entity owns the assets (rights) -leased -under consignment

The physical presence of assets is an example of evidence available to test the ASB assertion of _____

existence

Physical inspection of tangible assets provides strong evidence regarding assertion of ________ and may provide some evidence related to the assertion of ___________

existence valuation

Physical inspection of tangible assets provides strong evidence regarding the assertion of __________ and may provide some evidence related to the assertion of ______.

existence, valuation

Existence or occurence (existence occurrence)

existence: - do these assets really exist -the physical presence of assets -inspection of tangible assets occurrence: -did the recorded sales transactions really occur? -client shipping documents -Inspection of records or documents (vouching) (start at journal and go to the source document) prevent fictitious journal entries

When a document is initially prepared by a third party and returned to the client who gives it to the auditor is considered __________ documentary evidence

external internal

When a document is initially prepared by a third party and returned to the client who gives it to the auditor, it is considered ________________ - _________documentary evidence.

external-internal

Analytical procedures are required during ______. Multiple select question. final evaluation substantive testing planning

final evaluation planning

Whether or not information is material is based on the ______ point of view. Multiple choice question. external auditors' financial statement users' company managements'

financial statement users'

Reported net income under GAAP is not one "true" figure but a possible range of measure influenced by the choice of ______. Multiple select question. estimating uncollectible accounts receivable or using direct write off of accounts fixed asset lives classification of marketable securities depreciation methods

fixed asset lives classification of marketable securities depreciation methods

Auditors use audit procedures to ______. Multiple select question. produce evidence about the assertions made by the client's audit committee gain an understanding of the client and client risks to test the operating effectiveness of client internal control activities

gain an understanding of the client and client risks to test the operating effectiveness of client internal control activities

indexing

give each document an index number so it can be found, removed, and replaced without loss

3 ways audit team uses materiality

guide for planing substantive testing procedures -to make sure that the aggregate of unncorrected and undetected immaterial misstatements do not exceed materiality for the financial statements as a whole -guide for making the audit report

The term predecessor auditor refers to the public accounting firm that ______. Multiple choice question. has been terminated or voluntarily withdrawn from an audit engagement was considered but did not accept the audit engagement is being considered for an audit engagement

has been terminated or voluntarily withdrawn from an audit engagement

The audit engagement partner ______. Multiple select question. generally also serves as the audit manager has final responsibility for the audit reviews the audit team's work in critical audit areas is usually an industry specialist

has final responsibility for the audit is usually an industry specialist

Select all that apply Firms often engage private investigators to conduct searches for additional information when prospective clients ______. have never been audited before have shown recent losses are under some type of investigation terminated the predecessor auditor are financial institutions

have shown recent losses are under some type of investigation are financial institutions

Giving each document a title including the name of the company, balance sheet date, and a descriptive title is called ______. Multiple choice question. heading cross-referencing indexing

heading

Relevant considerations when determining materiality include ______. Multiple select question. how widely the financial statements will be used political events in foreign countries the auditors' legal liability whether or not the audit firm has chosen to provide the audit for PCAOB inspection

how widely the financial statements will be used political events in foreign countries the auditors' legal liability

Time budgets ______. Multiple select question. identify problem areas early in the engagement are often based on prior years audits are usually only prepared for year-end work may be based on a predecessor auditor's experience

identify problem areas early in the engagement are often based on prior years audits may be based on a predecessor auditor's experience

A planning memorandum ______. Multiple select question. includes specific directions related to the audit summarizes all important planning information documents the audit team is following generally accepted accounting standards can be used as an engagement letter

includes specific directions related to the audit summarizes all important planning information

The audit planning process ______. is prepared after procedures to assess the risk of material misstatement at the financial statement and assertion level have been completed includes the establishment of overall strategy details the nature, timing and extent of control and substantive tests designed to mitigate risk

includes the establishment of overall strategy details the nature, timing and extent of control and substantive tests designed to mitigate risk

Perceptions of others in regards to an auditor being unbiased is referred to as ______ in_______.

independence in appearance

An auditor's unbiased "state of mind" towards the financial statements and other information audited is referred to as the auditor possessing ______ in_______ .

independence in fact

An auditor's unbiased "state of mind" towards the financial statements and other information audited is referred to as the auditor possessing ____________ in ___________

independence in fact

risk assessment procedures performed to obtain understanding

inquiries analytical procedures observation an inspection

Client acceptance and continuation policies and procedures generally include ______. Multiple select question. criminal background checks for all senior and mid-level managers inquiries of persons who do business with the entity searching for lawsuits and court cases involving the entity considering if any unusual risk is involved in the engagement considering the need for individuals with special skills or knowledge

inquiries of persons who do business with the entity searching for lawsuits and court cases involving the entity considering if any unusual risk is involved in the engagement considering the need for individuals with special skills or knowledge

The collection of verbal evidence from independence parties and management is the audit procedures known as _____

inquiry

The collection of verbal evidence from independent parties and management is the audit procedure known as ________.

inquiry

A prospective auditor should attempt to obtain basic information directly from the predecessor auditor regarding issues that reflect directly on the ______. Multiple choice question. team the predecessor auditor used for the engagement reasons why the predecessor auditor is no longer on the engagement basis for the predecessor's last audit opinion integrity of management

integrity of management

Procedures performed weeks or months before the financial statement date are referred to as ___________ __________work.

interim audit

External auditors consider the objectivity and competence of ___________ before relying on their work

internal auditors

External auditors should consider the objectivity and competence of ____________ _____________before relying on their work.

internal auditors

The specific procedures needed to obtain an understanding of the client's internal control system and test that understanding for those controls that relate to the relevant financial statement assertions are contained in a(n) ______ audit plan. Multiple choice question. internal control control test assertion substantive

internal control

Inquiry

involves the collection of oral (but sometimes written) evidence from independent parties and managment -important inquires and responses should be documented in writng -typically used during the early planning stages of the engagement -cannot sant alone, auditor must corroborate evidence with independent findings ----exception is fraud

An audit plan ______. Multiple choice question. is a comprehensive list of specific procedures needed to gather sufficient appropriate evidence details the terms of the engagement, including auditor and management responsibilities is a contract between the client and the auditor that details the time line and fees for the audit

is a comprehensive list of specific procedures needed to gather sufficient appropriate evidence

The descriptive nature of an item or issue ______ when setting performance materiality. Multiple choice question. is an important qualitative factor has no effect is an important quantitative factor

is an important qualitative factor

Reperformance ______. Multiple select question. is commonly used when completing internal control system walkthroughs is similar to recalculation but more narrow in approach can be completed for any client control procedure must be done manually

is commonly used when completing internal control system walkthroughs can be completed for any client control procedure

Inquiry ______. Multiple select question. procedures are generally used in to final stages of the audit relates to evidence from independent parties only is never enough on its own to reach an audit conclusion generally involves the collection of verbal evidence

is never enough on its own to reach an audit conclusion generally involves the collection of verbal evidence

A summary of the accounts or components in an account group is called ____________

lead schedule

A summary of the accounts or components in an account group is called a(n) _________ __________.

lead schedule

As a general rule, analytical procedures are ______ detailed, document-oriented procedures. Multiple choice question. less costly than about the same cost as more costly than

less costly than

The professional standards require the auditor to evaluate the facts and circumstances of each engagement carefully to determine whether there are particular accounts or discounts where amounts ______ than established materiality might influence the judgment of a reasonable financial statement user. Multiple choice question. higher or lower higher lower

lower

Information is considered important or _________ if it is likely to influence financial statement users' decisions.

material

The three goals of audit planning are to make sure the firm has the requisite staff needed, to outline specific audit procedures needed and to determine _______

materiality

To plan the nature, timing, and extent of further audit procedures to be performed, an auditor "should establish a(n)________ level for the financial statements as a whole that is appropriate in light of the company's earnings and other relevant factors."

materiality

Relevant considerations when determining materiality include ______. Multiple select question. matters surrounded by uncertainty of future outcomes amounts that turn a net profit into a net loss the likelihood of being selected for PCAOB inspection amounts that allow the company to meet earnings expectations

matters surrounded by uncertainty of future outcomes the likelihood of being selected for PCAOB inspection amounts that allow the company to meet earnings expectations

primary reason for engagement planning

mitigating risk

testing is consideres

more effective

substative analytical procedeures

more efficient that testing controls

An auditor set overall materiality at $60,000. During the audit, no individual material misstatements were discovered. However, four misstatements that are individually immaterial were found. As a result of these misstatements, net income increased by $70,000. The auditor ______. Multiple choice question. should conclude that the overall materiality threshold has been met, since all misstatements found were individually immaterial must factor in the probability that the aggregate of uncorrected and undetected misstatements could exceed overall materiality

must factor in the probability that the aggregate of uncorrected and undetected misstatements could exceed overall materiality

With respect to a predecessor auditor, a perspective auditor ______. Multiple choice question. is prohibited by auditing standards from initiating any contact should not inform the perspective client if the auditor decides to initiate contact must initiate contact and attempt to obtain certain basic information may not accept the engagement if information from the predecessor cannot be obtained

must initiate contact and attempt to obtain certain basic information

External auditors ______. Multiple select question. may delegate supervision of internal auditors to the manager of internal audit must review, evaluate and perform independent testing of the internal audit work cannot delegate tasks that require professional judgment may rely on some work completed by the internal audit department

must review, evaluate and perform independent testing of the internal audit work cannot delegate tasks that require professional judgment may rely on some work completed by the internal audit department

An auditor with no connection to the audit should be able to tell the

nature, timing, and extent, and results of the procedures conclusions reached with respect to the are covered by audit documentation the audit team member performing the work, the date of work, and the date of revies

Public accounting firms are ______. Multiple choice question. only obligated to provide services for clients the firm has audited in the past obligated to provide services for any public company that files reports with the SEC not obligated to provide services for any new or existing client

not obligated to provide services for any new or existing client

The SEC recommends auditors ______. Multiple choice question. not put too much reliance on quantitative benchmarks when assessing materiality recognize that misstatements should be considered immaterial when they fall beneath a numerical threshold set materiality levels based on the "rule of thumb" for the industry

not put too much reliance on quantitative benchmarks when assessing materiality

cross-referencing

numbers of memoranda related to other documents carry the index of the other documents

Prior to relying on the work of internal auditors, external auditors should consider their ______and______.

objectivity and competence

Prior to relying on the work of internal auditors, external auditors should consider their _________ and _______

objectivity competence

Viewing a client's physical facilities and participating in a surprise payroll distributions are examples of the audit procedure known as ____________.

observation

An auditor set overall materiality at $60,000. During the audit, no individual material misstatements were discovered. However, four misstatements that are individually immaterial were found. The auditor ______. Multiple choice question. only has to consider the cumulative effects of the misstatements if together they increase net income by more than $60,000 never has to consider the cumulative effect since the individual misstatements were immaterial always has to consider the cumulative effect since more than one immaterial misstatement was found

only has to consider the cumulative effects of the misstatements if together they increase net income by more than $60,000

when do auditors accept engagements

only if the preconditions for an audit are present and a coomon understanding of the terms have been reached preconditions: -use of an acceptable accounting framework -agreement on the premise of the audit

Tracing

opposite direction of vouching auditor selects a basic source document and follows the path processing it forward to find its final recroding in the summary journal or ledger -can see if all events were recorded (completeness) -can also provide evidence with respect to valuation and allocation

To ensure that the aggregate of uncorrected and undetected immaterial misstatements does not exceed materiality for the financial statements as a whole, auditors use ______ materiality. Multiple choice question. selective judgmental performance tolerable

performance

Information to familiarize new audit team members with a client, company history, continuing schedules and prior years financial statements and audit reports may all be found in the ________files.

permanent

two categories of audit documentation

permanent files (continuing audit files) -info relevant for ongong client relationships current files -just one year of the audit relationship

Observation

physical inspection of inventory or view of plant activites -commonly used to test contrils

All important overall planning information and documentation that the audit team is following generally accepted auditing standards is often summarized in a(n) ___________ ____________.

planning memorandum

A public accounting firm that has been terminated or has voluntarily withdrawn from an audit engagement is known as the _______ ________

predecessor auditor

a public accounting firm that has been terminated or has voluntarily withdrawn from an audit engagement is known as the _______________

predecessor auditor

The starting point for amounts on the lead schedules is ______. Multiple choice question. prior-year numbers current general ledger amounts the audited financial statements amounts

prior-year numbers

Materiality is based on ______ Multiple choice question. industry benchmarks professional judgment definitive, quantitative guidelines

professional judgment

Engagement letters

professional standards require auditors to reach a mutual understanding with clients concerning requirements and expectations to document these understanding in an engagement letter -it must be prepared EVERY year _it acts as a contract

IT auditors ______. Multiple select question. provide specialized skills related to programming languages are not part of the audit engagement team may be needed to evaluate computerized processes assist with understanding software packages

provide specialized skills related to programming languages may be needed to evaluate computerized processes assist with understanding software packages

Recalculation ______. Multiple select question. provides evidence of valuation when used with other procedures produces compelling evidence serves the objectives of rights and obligations can use computer-assisted audit techniques

provides evidence of valuation when used with other procedures produces compelling evidence can use computer-assisted audit techniques

In addition to the audit engagement partner, audit teams typically include a(n) _______________ __________________ partner who reviews the audit team's work in critical audit areas.

quality assurance

in addition to the audit engagement partner, audit teams typically include a(n) _____________ partner who reviews the audit teams work in critical audit areas

quality assurance

When the audit team recomputes computations previously performed by client personnel, the audit procedure is called ______________.

recalculation

recalculation

recalculation of calculations previously performed by the clients personnel procesures compelling mathmatical evidence -used to provide evidence of valuation and other financial data

The most reliable form of documentary evidence is a document ______. Multiple choice question. received directly from an independent outside party prepared and processed by the client prepared by an outside external third party and given to the auditor by the client who received it prepared and processed by the audit team

received directly from an independent outside party

Engagement letters ______. are only required for new clients reduce the risk of misunderstandings set forth audit objectives define management and auditor responsibilities should not mention fees

reduce the risk of misunderstandings set forth audit objectives define management and auditor responsibilities

According to the professional standards, if as assertion has "a reasonable possibility of containing a misstatement that could cause the financial statements to be materially misstated," it must be categorized as ______

relevant

According to the professional standards, if as assertion has "a reasonable possibility of containing a misstatement that could cause the financial statements to be materially misstated," it must be categorized as __________.

relevant

An audit procedure that is similar to recalculation but much broader in approach is called ___________.

reperformance

Cycles recognized by most audit firms are ______. Multiple select question. revenue and collection production acquisition and expenditure finance and investment purchasing and payment

revenue and collection production acquisition and expenditure finance and investment

Inspection of tangible assets does not necessarily provide any evidence of ______. Multiple choice question. existence valuation rights

rights

Confirmation can provide evidence regarding ______. Multiple select question. rights and obligations existence completeness valuation cutoff

rights and obligations existence valuation cutoff

The basis to determine the nature, timing, and extent of internal control tests and substantive tests of account balances and disclosures is the ______ _______process.

risk assessment

The substantive audit plan depends almost exclusively upon the ______. Multiple choice question. size of the audit team size of the client risk assessment of the client industry the client is in

risk assessment of the client

The basis to determine the nature, timing, and extent of internal control tests and substantive tests of account balances and disclosures is the ______. Multiple choice question. risk assessment process nature of the client's business prior year's audit number of management assertions

risk assessment process

Auditors use audit procedures for ___________ assessment, tests of ___________ , and to produce evidence about management's assertions.

risk, control

The probability that the firm could issue a clean, unmodified opinion when in fact a modified opinion should have been issued is referred to as___

risk.

An "eyes-open" approach of looking for anything unusual that can raise questions related to evidence that needs to be obtained is called _____.

scanning

Debits to revenue accounts and credits to expense accounts are generally found using ______. Multiple choice question. scanning observation vouching tracing

scanning

AS 1215 requires that audit documentation be retained for ______ years following the conclusion of the engagement. Multiple choice question. three seven five ten

seven

Select all that apply When an auditor/client relationship ends a termination letter ______. Multiple select question. should address access to audit documentation by successor auditors may address the auditors' understanding of the termination circumstances is required by audit standards should not discuss fee arrangements for future services

should address access to audit documentation by successor auditors may address the auditors' understanding of the termination circumstances

Audit documentation ______. Multiple select question. should contain support for the audit decision provides the auditors' record of compliance with standards is legally owned by the client that was audited may be in either electronic or hard copy form

should contain support for the audit decision provides the auditors' record of compliance with standards may be in either electronic or hard copy form

According to the professional standards, if there is a chance an account could contain a material misstatement, it should be identified as ________________.

significant

Client continuance decisions are generally ______ client acceptance decisions. Multiple choice question. different than similar to

similar to

The nature and extent of work completed during engagement planning depends on the ______. Multiple select question. size of the company being audited prior experience with the company being audited company's industry and complexity number of auditors assigned to the audit

size of the company being audited prior experience with the company being audited company's industry and complexity

A list of audit procedures for gathering evidence related to the relevant assertions identified for an audit client's financial statement accounts and disclosures is a(n) _________ __________ plan.

substantive audit

a list of audit procedures for gathering evidence related to the relevant assertions identified for an audit clients financial statement accounts and disclosures is an ________ plan

substantive audit

Favorable conclusions about the competence and objectivity of internal auditors allow external auditors to rely on the work of internal auditors related to ______. Multiple select question. substantive testing of balances on the audit testing the internal control system assessing the reasonableness of the allowance for doubtful accounts forming the audit decision

substantive testing of balances on the audit testing the internal control system

planning memo

summarizes all the important overall planning info and documentation that the audit team is following GAAS

lead scheduling

summary of accounts or compnents in an account group

When an auditor/client relationship ends a(n) _____letter should be prepared that details the subject of future services and circumstances that caused the conflict.

termination

What the audit plan should servive

the audit plan needs to specify a list of procedures that must be completed to gather sufficient and appropriate evidence directed toward achieving particular audit objective

According to professional standards, ______. Multiple choice question. the auditor must determine if particular accounts require a higher materiality amount than that established for the overall financial statements once the auditor has set an overall materiality level, it is to be applied uniformly to all accounts the auditor must determine if particular accounts require a lower materiality amount than that established for the overall financial statements

the auditor must determine if particular accounts require a lower materiality amount than that established for the overall financial statements

The most important facet of the current audit evidence documentation files is the requirement that they show ______. Multiple choice question. audited management assertions how exceptions were resolved or treated resolution of differences among audit term members work was adequately planned and supervised the auditors' conclusions

the auditors' conclusions

professional auditing standars require that audit evidence shows

the clients account records agree or reconcile the financial statement the work was adequately planned and supervides sufficient understanding of the clients internal control was obtained sufficient underatnding of the clientsinternal control was obtained suffient appropriate audit evidence was obtained as reasonable assurance for the audit

When an audit specialist is engaged during an audit ______. Multiple select question. the specialist's findings are normally included in the audit report the external auditors must know about his or her qualifications, experience and reputation auditors may rely on the findings of the specialist without performing additional testing on the data the auditor must gain a detailed understanding of the methods and assumptions used by the specialist

the external auditors must know about his or her qualifications, experience and reputation the auditor must gain a detailed understanding of the methods and assumptions used by the specialist

Planning the audit =

the strategy and developing the audit plan with planned risk assessment and procedures and planned response to material misstatement

signatures and inittials

the suditor who worked and superivsor who reviews it must sign the audit documentation so personnel can be identified

scanning

the way auditors examine their general alertness to unusual items and events in the clients documentation looking for anything anusual -existence of assests and completeness of accountng records, including proper cutoff material transactions

audit documentation

the written record of the basis of the auditors conclusion that provides support for the auditors representations, whether those representations are contained in the auditor's report or otherwise

The objectivity of internal auditors is questionable when ______. Multiple select question. they report to a line manager they report directly to the audit committee they report directly to the board of directors divisional managers set their pay they are scheduled for promotion to areas under internal audit review

they report to a line manager divisional managers set their pay they are scheduled for promotion to areas under internal audit review

Auditor's shorthand for abbreviating comments about work performed are called audit or _________ ________.

tick marks

Auditors short hand for abbreviating comments about work performed are called audit or ___________________

tick marks

To ensure the audit is completed on schedule a _____________ is prepared to assist in identifying problem areas early in the engagement

time budget

To ensure the audit is completed on schedule, a(n) _______ __________is prepared to assist in identifying problem areas early in the engagement.

time budget

Performance materiality

to make sure aggrgate of uncorrected and undetected immaterial misstatements do not exceed materiality for financial statements as a whole

When auditors use sampling, performance materiality is referred to as _______ ____________.

tolerable misstatement

Commonly used benchmarks for setting materiality include ______. Multiple select question. total net assets for asset based entities profit after tax for profit based companies gross revenue or total contributions for nonprofits total revenue for high tech start-up companies

total net assets for asset based entities gross revenue or total contributions for nonprofits total revenue for high tech start-up companies

Testing the completeness assertion by following a sample of shipping documents forward to sales invoices, the sales journal and revenue earned is called ______

tracing

Testing the completeness assertion by following of shipping documents forward to sales invoices, the sales journal and revenue earned is called ___________

tracing

Some inaccuracy is allowed in financial statements because ______. Multiple select question. unimportant inaccuracies are immaterial some public companies choose not to follow GAAP or IFRS issuing financial statements could be delayed the cost of finding small misstatements is high

unimportant inaccuracies are immaterial issuing financial statements could be delayed the cost of finding small misstatements is high

When an audit specialist is engaged during an audit, it is best to hire someone who is ______ to the company under audit. Multiple choice question. unrelated related

unrelated

Assertions that can be tested by vouching include ______. Multiple select question. completeness valuation occurrence allocation

valuation occurrence allocation

The auditor begins the search for evidence by focusing on transactions that have already been recorded in the financial statements and following them back to the source when engaged in ______. Multiple choice question. vouching tracing inquiry confirmation

vouching

tolerable risk

when auditors use sampling perfromance materiality

Audit evidence documentation must show ______. Multiple select question. work was adequately planned and supervised an understanding of internal controls was obtained management assertions that were audited sufficient evidence was obtained as a basis for the opinion there were no exceptions or findings contradictory to the final conclusions

work was adequately planned and supervised an understanding of internal controls was obtained management assertions that were audited sufficient evidence was obtained as a basis for the opinion

Procedures performed shortly before and after the financial statement date are referred to as ______ audit work. Multiple choice question. year-end seasonal standard interim

year-end