Auditing Ch. 5

Valuation, allocation, and accuracy

All transactions, assets, liabilities and equity interests are included in the financial statements at proper amounts

Existence or occurence

Assets, liabilities, and equity interests exist and recorded transactions have occurred

An audit firm's audit documentation DOES NOT:

Assist predecessor auditors in performing their role

The working papers for a particular engagement are included in the ______ _______

audit file

The return envelope sent with confirmations should be addressed to the:

auditor's office

Cross-sectional analysis

comparisons of ratios of similar firms at a point in time

the audit risk model is a function of:

control risk, detection risk, inherent risk

The working papers that pertain solely to this year's audit are called the ____ files.

current

For a given level of audit risk, __________ risk varies inversely with the risk of material misstatement.

detection

Audit evidence in paper or electronic form is obtained through inspection of records is referred to as ______ evidence

documentary

The reliability of customer sales invoices created by the client and held internally depends on:

effectiveness of internal control

inherent risk is generally highest for _____ transactions because they involve management judgements or assumptions

estimation

Confirmations are generally effective at providing evidence for the _____ assertion

existence

Inspections of tangible assets provide high-quality evidence as to the ____ assertion

existence

Much of the information contained in the ______ file is gathered during the course of the first audit of a client's records

permanent

For items that are correctly recorded but not fairly presented in the client's financial statements, auditors develop ______ Journal entries. Never has the right to demand access to the auditors' working papers.

reclassification

In evaluating the appropriateness of audit evidence, auditors consider both its ______ and its ______

relevance;reliability

Which of the following related to the circumstances in which evidence is obtained?

reliability

At the conclusion of the audit, the CPAs obtain a written ______ ______ from client officers that includes several specific items, such as the fact that all known liabilities are reflected in the financial statements

representation letter

Horizontal analysis

review of client financial statement amount over time

sufficient audit evidence is affected by:

risk of misstatement and reliability of evidence

An individual or company that has a certain expertise in a field of knowledge other than accounting and auditing is called a(n) _______

specialist

Analytical procedures and tests of detail of account balances, transactions, and disclosures are _____ procedures

substantive

Detection risk is restricted through the performance of:

substantive procedures

Audit documentation should identify all of the following except: -the dates client transactions and entries were made -the dates audit work was performed -auditors who performed the work -auditors who reviewed the work

the dates audit work was performed

The backbone of the working papers (which is ordinarily an electronic spreadsheet) is the ____ ______ _____

working trial balance

A spreadsheet that combines Petty Cash with all the company's bank accounts is an example of

-lead schedule -summary schedule

auditing standards require that audit documentation provide evidence:

-of the auditor's bases for concluding on the achievement of the audit's overall objectives -that the audit was planned and performed in accordance with GAAS

What is the audit risk model?

AR = IR x CR x DR

Presentation and disclosure

Accounts are described and classified in accordance with generally accepted accounting principles, and financial statement disclosures are complete, appropriate, and clearly expressed

These components of audit risk exist for a client even if an audit is not performed

Inherent risk and control risk

Rights and obligations

The company holds rights to the assets, and liabilities are the obligations of the company

Cutoff

Transactions and events have been recorded in the correct accounting period

Completeness

all assets, liabilities, and equity interests that should have been recorded have been recorded

Audit documentation should be sufficient to allow ______ to understand the audit work performed, the evidence obtained, and the significant conclusions reached

an experienced auditor