Audit Chapter 7

Recompute

A calculation done to determine whether a client's calculation is correct.

______ all marketable securities as of the balance sheet date to determine whether they equal the total on the client's list.

Count -Type of evidence: Physical examination

______ the sales journal and ______ the total to the general ledger.

Foot, Trace -Type of evidence: Recalculation and Reperformance

______ of management whether all accounting employees are required to take annual vacations.

Inquire -Type of evidence: Inquiries of client

Reperformance

the auditor's independent tests of client accounting procedures or controls that were originally done as part of the entity's accounting and internal control system.

Some primary purposes of audit documentation

-To coordinate the audit -To assist in preparation of the audit report -To provide evidence of the audit work performed

Which of the following types of audit evidence is generally the most reliable?

A bank confirmation

Compute

A calculation done by the auditor independent of the client

Compare

A comparison of information in two different locations. The instructions should state which information is being compared in as much detail as practical.

Count

A determination of assets on hand at a given time. This term should be associated only with the type of evidence defined as physical examination.

Scan

A less-detailed examination of a document or record to determine whether there is something unusual warranting further investigation.

Examine

A reasonably detailed study of a document or record to determine specific facts about it

Foot

Addition of a column of numbers to determine whether the total is the same as the client's

Read

An examination of written information to determine facts pertinent to the audit.

Trace

An instruction normally associated with inspection or reperformance. The instruction should state what the auditor is tracing and where it is being traced from and to. -Often, an audit procedure that includes the term trace will also include a second instruction, such as compare or recalculate.

Inspection

Auditor's examination of the client's documents and records to substantiate the information that is, or should be, included in the financial statements.

______ the ratio of cost of goods sold to sales and compare the ratio to previous years.

Compute -Type of evidence: Analytical procedures

______ the balance in the bank account directly with the East State Bank.

Confirm -Type of evidence: Confirmation

Which of the following types of documentary evidence should the auditor consider to be the most reliable?

Confirmation of an account payable balance mailed by and returned directly to the auditor

Which of the following presumptions is correct about the reliability of audit evidence?

Effective internal control provides more assurance about the reliability of audit evidence.

Analytical Procedures

Evaluations of financial information through analysis of plausible relationships among financial and nonfinancial data.

______ a sample of duplicate sales invoices to determine if the controller's approval is included and ______ each duplicate sales invoice to the sales journal for agreement of name and amount.

Examine, Compare -Type of evidence: Inspection

For all audits of financial statements made in accordance with auditing standards, the use of analytical procedures is required to some extent

In the planning stage and in the completion stage but no in the substantive test

Physical examination

Inspection or count by the auditor of a tangible asset.

Recalculation

Involves rechecking a sample of calculations made by the client.

______ whether the accounts receivable bookkeeper is prohibited from handling cash.

Observe -Type of evidence: Observation

Inquiry

Obtaining of written or oral information for the client in response to questions from the auditor.

Audit evidence can come in different forms with different degrees of persuasiveness. Which of the following is the least persuasive type of evidence?

Prenumbered sales invoices

Which of the following would not be considered to be an analytical procedure?

Projecting the error rate by comparing the results of a statistical sample with the actual population characteristics.

______ the agreement between Johnson Wholesale Company and the client to determine whether the shipment is a sale or a consignment.

Read -Type of evidence: Inspection

______ the unit selling price times quantity on the duplicate sales invoice and compare the total to the amount on the duplicate sales invoice.

Recompute -Type of evidence: Recalculation

______ the sales journal, looking for large and unusual transactions requiring investigation.

Scan -Type of evidence: Analytical procedures

During an audit engagement, pertinent data are compiled and included in the audit files. The audit files primarily are considered to be

Support for the auditor's representations as to compliance with auditing standards.

Inquire

The act of inquiry should be associated with the type of evidence defined as inquiry

Observe

The act of observation should be associated with the type of evidence defined as observation

Which of the following situations has the best chance of being detected when a CPA compares 2016 revenues and expenses with the prior year and investigates all changes exceeding a fixed percent?

The company changed its capitalization policy for small tools in 2016.

Confirmation

The receipt of a direct written response from a third party verifying the accuracy of information that was requested by the auditor.

Vouch

The use of documents to verify recorded transactions or amounts

Which of the following is not a primary purpose of audit documentation?

To support the financial statements

Current files

all audit files applicable to the year under audit

Lead schedule

an audit schedule that contains the detailed accounts from the general ledger making up a line item total in the working trial balance

Although the quantity, type, and content of audit documentation will vary with the circumstances, audit documentation generally will include the

auditing procedures followed and the testing performed in obtaining audit evidence.

Permanent files

auditor's files that contain data of a historical or continuing nature pertinent to the current audit such as copies of articles of incorporation, bylaws, bond indentures, and contracts

Supporting schedules

detailed schedules prepared by the client or the auditor in support of specific amounts on the financial statements

An auditor most likely would apply analytical procedures in the overall review stage of an audit to

identify unusual or unexpected balances that were not previously identified.

Observation

looking at a process or procedure being performed by others.

According to PCAOB audit standards, audit documentation must be retained for

seven years.

Tick marks

symbols used on an audit schedule that provide additional information or details of audit procedures performed