Auditing Chapter 13 Questions
After finishing the review phase of the study and evaluation of internal control in an audit, the auditor should perform tests of controls on: a. those controls that the auditor wants and plans to rely upon. b. those controls in which material weaknesses were identified. c. those controls that have a material effect upon the financial statement balances. d. a random sample of the controls that were reviewed.
A
If no material differences are found using analytical procedures and the auditor concludes that misstatements are not likely to have occurred: A) other substantive tests may be reduced. B) it will be necessary to increase the tests of balances. C) it will not be necessary to perform tests of balances. D) it will be necessary to increase the tests of transactions.
A
If no material differences are found using analytical procedures and the auditor concludes that misstatements are not likely to have occurred: a. other tests may be reduced. b. it will be necessary to increase the tests of balances. c. it will not be necessary to perform tests of balances. d. it will be necessary to increase the tests of transactions.
A
If tests of controls support the control risk assessment, then ________ in the audit risk model is increased. A) planned detection risk. B) planned inherent risk. C) planned fraud risk. D) planned assurance risk.
A
Risk assessment procedures are performed by auditors during an audit in order to: A) determine the risk of material misstatement in the financial statements. B) determine the amount of testing of internal control. C) determine the extent of testing of details of balances. D) determine the extent of testing of transactions.
A
Tests of controls and substantive tests of transactions are an important determinant of the extent of the auditor's use of tests of details of balances. Which of the following is true? A) They are likely to be performed prior to the clients end of the fiscal year. B) They are likely to eliminate the need for tests of details of balances. C) They are likely to have no impact on the planned tests of details of balances. D) They are likely to be used only in the audit of internal control.
A
Tests of controls may include which of the following types of evidence? Reperformance Observation a. Yes Yes b. No No c. Yes No d. No Yes
A
The primary emphasis in most tests of details of balances is on the: A) balance sheet accounts. B) revenue accounts. C) cash flow statement accounts. D) expense accounts.
A
The primary emphasis in most tests of details of balances is on the: a. balance sheet accounts. b. revenue accounts. c. cash flow statement accounts. d. expense accounts.
A
When controls are deemed ineffective and assessed control risk is at the maximum for a private company, there will be ______ emphasis placed on tests of controls. a. no b. relatively little c. moderate d. heavy
A
When controls are deemed ineffective and assessed control risk is at the maximum for a private company, which of the following would normally be true? A) No emphasis is placed on the controls. B) Relatively little emphasis is placed on the controls. C) Moderate emphasis is placed on the controls. D) Heavy emphasis is placed on the controls.
A
Which of the following audit tests is usually the least costly to perform? A) Analytical procedures B) Tests of controls C) Tests of balances D) Substantive tests of transactions
A
Which of the following audit tests is usually the least costly to perform? a. Analytical procedures. b. Tests of controls. c. Tests of balances. d. Substantive tests of transactions.
A
Which of the following is not a valid basis for omitting an audit test in forming an opinion on the clients financial statements? A) The difficulty and expense involved in testing a particular item B) The relative risk involved C) The degree of reliance on the relevant internal controls D) The relationship between the cost of obtaining evidence and its usefulness
A
Which of the following is not a valid basis for omitting an audit test? a. the difficulty and expense involved in testing a particular item. b. the relative risk involved. c. the degree of reliance on the relevant internal controls. d. the relationship between the cost of obtaining evidence and its usefulness.
A
Which of the following is true? A) Tests of details of balances focus on the ending general ledger balances for both balance sheet and income statement accounts. B) Tests of details of balances focus on the transactions during the period for both balance sheet and income statement accounts. C) Tests of details of balances focus on the auditor's understanding of internal controls. D) Tests of details of balances focus on comparisons of recorded amounts to expectations developed by the auditor.
A
Which of the following tests commonly occur together? A) Substantive tests of transactions and tests of controls B) Substantive tests of transactions and obtaining an understanding of internal controls C) Analytical procedures and tests of controls D) Tests of controls and tests of details of balances
A
Which of the following tests commonly occur together? a. Substantive tests of transactions and tests of controls. b. Substantive tests of transactions and obtaining an understanding of internal controls. c. Analytical procedures and tests of controls. d. Tests of controls and tests of details of balances.
A
A deficiency uncovered in the audit of internal control is explained by which of the following in relation to a financial statement misstatement? A) The amount of the misstatement B) The likelihood of the misstatement C) The amount, likelihood, and classification of the misstatement D) The amount and the classification of the misstatement
B
A listing of all the things which the auditor will do to gather sufficient, competent evidence is the: a. audit strategy. b. audit program. c. audit procedure. d. audit risk model.
B
A procedure designed to test for monetary misstatements directly affecting the correctness of financial statement balances is a: A) test of controls. B) substantive test. C) test of attributes. D) monetary-unit sampling test.
B
A procedure designed to test for monetary misstatements directly affecting the correctness of financial statement balances is a: a. test of controls. b. substantive test. c. test of attributes. d. monetary-unit sampling test.
B
An exception in a test of control indicates the _______ of misstatements. a. the amount b. the likelihood c. the amount, likelihood, and classification d. the amount and the classification
B
An exception or deficiency found in a test of controls: A) indicates a financial statement misstatement. B) indicates the likelihood of a misstatement. C) indicates that the financial statements are fairly stated. D) indicates that an adverse opinion is warranted on the audit of internal control.
B
Analytical procedures are defined in the auditing standards as: a. compliance tests. b. substantive tests. c. tests of controls. d. helpful procedures not possessing the validity of other tests available to the auditor.
B
At what point in the audit are tests of details most appropriately designed? a. Engagement evaluation. b. Planning. c. Testing. d. Communication of material weaknesses.
B
Auditors follow a four step approach to reduce assessed control risk. Which of the following is not one of the four? A) Apply transaction related audit objectives to a class of transactions. B) Identify accounts that have high inherent risk. C) Identify key controls that reduce control risk. D) For potential misstatements, design appropriate substantive tests of transactions.
B
In which stage(s) of an audit are analytical procedures not performed? a. In the planning stage. b. In the test of controls stage. c. In the completion stage. d. In conjunction with tests of transactions and tests of details of balances.
B
Management implements internal controls to ensure that all required footnote disclosures are accurate. Auditors tests those controls to provide evidence supporting the ________ presentation. A) completeness and valuation B) completeness and accuracy C) rights and obligations and existence D) occurrence and accuracy
B
PCAOB Standard 2 _______ the auditor to perform walkthroughs of significant processes. a. encourages b. requires c. does not allow d. permits
B
Shown below (1 through 5) are the five types of tests which auditors use to determine whether financial statements are fairly stated. Which three are substantive tests? 1. Risk assessment procedures 2. Tests of controls 3. Tests of transactions 4. Substantive analytical procedures 5. Tests of details of balances A) 1, 2, and 3. B) 3, 4, and 5. C) 2, 3, and 5. D) 2, 3, and 4.
B
Shown below (1 through 5) are the five types of tests which auditors use to determine whether financial statements are fairly stated. Which three are substantive tests? 1. procedures to obtain an understanding of internal control 2. tests of controls 3. tests of transactions 4. analytical procedures 5. tests of details of balances a. 1, 2, and 3. b. 3, 4, and 5. c. 2, 3, and 5. d. 2, 3, and 4.
B
Tests of controls address each of the following questions except: a. How were the procedures performed? b. Why were the procedures performed? c. Were the necessary procedures performed? d. Who performed the procedures?
B
Tests of controls are directed toward the control's: A) efficiency. B) effectiveness. C) cost and effectiveness. D) cost benefit ratio.
B
Tests of controls are directed toward the control's: a. efficiency. b. effectiveness. c. efficiency and effectiveness. d. cost benefit ratio.
B
Tests of details of balances focus on: a. beginning of the year balances. b. end of the year balances. c. transaction details for the period under audit. d. accounting cycles.
B
The auditor would design which of the following audit tests to detect possible monetary errors in the financial statements? A) Control tests B) Analytical procedures C) Risk assessment procedures D) Tests of operating effectiveness of controls over revenue and cash
B
The document that details the specific audit procedures for each type of test is the: A) audit strategy. B) audit program. C) audit procedure. D) audit risk model.
B
The purpose of tests of controls is to provide reasonable assurance that the: A) accounting treatment of transactions and balances is valid and proper. B) internal control procedures are functioning as intended. C) entity has complied with GAAP disclosure requirements. D) entity has complied with requirements of quality control.
B
The purpose of tests of controls is to provide reasonable assurance that the: a. accounting treatment of transactions and balances is valid and proper. b. internal control procedures are functioning as intended. c. entity has complied with GAAP disclosure requirements. d. entity has complied with requirements of quality control.
B
The reliance placed on substantive tests in relation to the reliance placed on internal control varies in a relationship that is ordinarily: a. parallel. b. inverse. c. direct. d. equal.
B
The reliance the auditor places on substantive tests in relation to the reliance placed on internal control varies in a relationship that is ordinarily: A) parallel. B) inverse. C) direct. D) equal.
B
Transaction related audit objectives would most likely be performed in which phase of the audit process? A) Plan and design audit approach B) Perform audit tests for controls and transactions C) Perform analytical procedures and tests of balances D) Complete the audit and issue the audit report
B
When the auditor has completed the tests of details of balances and enters phase 4 of the audit process, she must still perform audit procedures for which of the following? A) Contingent liabilities and employee compensation B) Contingent liabilities and subsequent events C) Subsequent events and contractual commitments D) Subsequent events and unrecorded liabilities
B
Which of the following audit tests would be regarded as a test of controls? A) Comparison of the inventory pricing to vendors' invoices B) Tests of the signatures on canceled checks to board of directors' authorizations C) Tests of the additions to property, plant, and equipment by physical inspections D) Review of the specific items making up the balance in a given general ledger account
B
Which of the following audit tests would be regarded as a test of controls? a. Comparison of the inventory pricing to vendors' invoices. b. Tests of the signatures on canceled checks to board of directors' authorizations. c. Tests of the additions to property, plant, and equipment by physical inspections. d. Review of the specific items making up the balance in a given general ledger account.
B
Which of the following is not appropriate for purposes of testing the effectiveness of controls? a. Make inquiries of client personnel. b. Evaluate prior experience with the client. c. Observe control-related activities. d. Reperform client procedures.
B
Which of the following is ordinarily designed to detect possible material dollar errors on the financial statements? a. Tests of controls. b. Analytical review procedures. c. Computer controls. d. None of the above.
B
Which of the following is/are performed in an audit of internal control over financial reporting? Procedures to obtain an understanding of internal control Test of details of balances Analytical Procedures a. Yes Yes No b. Yes No No c. No Yes Yes d. No No Yes
B
Which of the following is/are performed in an audit of internal control over financial reporting? A) Procedures to obtain an understanding of internal control Test of details of balances Analytical Procedures Yes Yes No B) Procedures to obtain an understanding of internal control Test of details of balances Analytical Procedures Yes No No C) Procedures to obtain an understanding of internal control Test of details of balances Analytical Procedures No Yes Yes D) Procedures to obtain an understanding of internal control Test of details of balances Analytical Procedures No No Yes
B
Which of the following statements is not true? A) Analytical procedures emphasize the overall reasonableness of transactions and balances. B) Tests of controls are concerned with evaluating whether controls are sufficiently effective to justify reducing control risk and thereby reducing analytical review procedures. C) Substantive tests of transactions emphasize the verification of transactions recorded in the journals and then posted in the general ledger. D) Tests of details of balances emphasize the ending balances in the general ledger.
B
Which of the following statements is not true? a. Analytical procedures emphasize the overall reasonableness of transactions and balances. b. Tests of controls are concerned with evaluating whether controls are sufficiently effective to justify reducing control risk and thereby reducing analytical review procedures. c. Substantive tests of transactions emphasize the verification of transactions recorded in the journals and then posted in the general ledger. d. Tests of details of balances emphasize the ending balances in the general ledger.
B
Which of the following types of evidence is not available when using substantive tests of transactions? A) Inspection B) Confirmation C) Inquiries of the client D) Reperformance
B
Which of the following types of evidence is not available when using substantive tests of transactions? a. Documentation. b. Confirmation. c. Inquiries of the client. d. Reperformance.
B
Which of the following ultimately determines the specific audit procedures necessary to provide an independent auditor with a reasonable basis for the expression of an opinion? A) The audit program B) The auditor's judgment C) Generally accepted auditing standards D) The auditor's working papers
B
Which of the following ultimately determines the specific audit procedures necessary to provide an independent auditor with a reasonable basis for the expression of an opinion? a. The audit program. b. The auditor's judgment. c. Generally accepted auditing standards. d. The auditor's working papers.
B
You are auditing Rodgers and Company. After performing substantive analytical procedures you conclude that, for the accounts tested, the client's balance appears reasonable. This may indicate that: A) details test of balances can be eliminated for those accounts. B) certain tests of details of balances may be eliminated for those accounts. C) control tests may be eliminated for those accounts. D) control tests may be reduced for those accounts.
B
A system walkthrough is primarily used to help the auditor: A) test the ending account balances. B) test the details of transactions. C) determine whether internal controls are in place. D) determine whether the audit engagement should be accepted.
C
A system walkthrough is used to: a. test balances. b. test details of transactions. c. gain an understanding of internal controls. d. determine acceptance of the client.
C
An increased extent of tests of controls is most likely to occur when: A) it is a first-year audit. B) the auditor is doing a "fraud audit." C) controls are effective and the preliminary control risk assessment is low. D) controls are ineffective and the preliminary control risk assessment is high
C
An increased extent of tests of controls is most likely to occur when: a. it is a first-year audit. b. the auditor is doing a "fraud audit." c. controls are effective and the preliminary control risk assessment is low. d. controls are ineffective and the preliminary control risk assessment is high.
C
Analytical procedures must be performed in: A) the planning and test of control stages. B) conjunction with tests of transactions and tests of details of balances. C) the planning and completion stages. D) the planning, test of control, and completion stages.
C
Analytical procedures must be performed in: a. the planning and test of control stages. b. conjunction with tests of transactions and tests of details of balances. c. the planning and completion stages. d. the planning, test of control, and completion stages.
C
At what point in the audit process are tests of details most appropriately designed? A) Plan and design audit approach B) Perform audit tests for controls and transactions C) Perform analytical procedures and tests of balances D) Complete the audit and issue the audit report
C
Auditors who test manual controls that rely on IT-generated reports must consider: A) the effectiveness of management's review. B) automated controls over the accuracy of information in the report. C) both A and B D) neither A or B.
C
Auditors who test manual controls that rely on IT-generated reports must consider: a. the benefits of relying on IT-generated reports. b. separation of duties related to the IT-generated reports. c. the controls related to the accuracy of the information in the report. d. whether the manual controls are approved by the audit committee..
C
Collectively, procedures performed to obtain an understanding of the entity and its environment, including internal controls, represent the auditor's: A) audit strategy. B) tests of controls. C) risk assessment procedures. D) tests of transactions.
C
Collectively, procedures performed to obtain an understanding of the entity and its environment, including internal controls, represent the auditor's: a. audit strategy. b. tests of controls. c. risk assessment procedures. d. tests of transactions.
C
Documentation is used in every type of test except ________. a. tests of controls b. tests of transactions c. analytical procedures d. tests of details
C
For efficiency, tests of controls are frequently done at the same time as: a. analytical procedures. b. compliance tests. c. tests of transactions. d. tests of details of balances.
C
In the context of an audit of financial statements, substantive tests are audit procedures that: A) may be eliminated under certain conditions. B) are designed to discover significant subsequent events. C) are designed to test for dollar misstatements. D) will increase proportionately with the auditor's reliance on internal control.
C
In the context of an audit of financial statements, substantive tests are audit procedures that: a. may be eliminated under certain conditions. b. are designed to discover significant subsequent events. c. may be either tests of transactions, tests of balances, or analytical tests. d. will increase proportionately with the auditor's reliance on internal control.
C
Many auditors perform extensive analytical procedures on audits because: A) they are required by GAAS. B) they pinpoint errors in accounts. C) they indicate areas of potential risk and misstatement. D) they are required for tests of controls.
C
Many auditors perform extensive analytical procedures on audits because: a. they are required by GAAS. b. they pinpoint errors in accounts. c. they indicate areas of potential risk and misstatement. d. they are required for tests of controls.
C
Only _______ involve physical examination and confirmation. a. tests of controls b. tests of transactions c. tests of balances d. analytical procedures
C
Tests of transactions are used to determine whether ___________ have been satisfied. a. compliance test requirements. b. balance coverage requirements. c. transaction-related audit objectives. d. existence assertions
C
When designing the audit program and the particular audit tests, the auditor should keep in mind that: A) the audit program is broken down into two parts-the risk assessment procedures and the tests of details of balances. B) the tests of controls will not vary depending on assessed control risk. C) analytical procedures performed during substantive testing are generally more focused and more extensive than those done as part of planning. D) auditing standards require that the tests contained in the audit program must be approved by the PCAOB.
C
Which audit tests involve physical examination and confirmation? A) Tests of controls B) Tests of transactions C) Tests of balances D) Analytical procedures
C
Which of the following audit tests form the basis for an auditor's report on internal control over financial reporting? A) Analytical procedures B) Tests of transactions C) Tests of controls D) Tests of details of balances
C
Which of the following audit tests is usually the most costly to perform? a. Analytical procedures. b. Tests of controls. c. Tests of balances. d. Substantive tests of transactions.
C
Which of the following further audit procedures are used to determine whether all six transaction-related audit objectives have been achieved for each class of transactions? A) Tests of controls B) Risk assessment procedures C) Substantive tests of transactions D) Preliminary analytical procedures
C
Which of the following is generally not included in the "evidence mix"? A) Tests of controls B) Substantive tests of transactions C) Risk assessment procedures D) Tests of details of balances
C
Which of the following is not useful for obtaining an understanding of internal controls? a. Make inquiries of the client's personnel. b. Examine documents and records. c. Read industry trade magazines. d. Observe client activities and operations.
C
Which of the following procedures are frequently performed in response to the auditor's assessment of the risk of material misstatement? a. Ratio analysis b. Tests of controls c. Tests of details of balances d. Risk assessment procedures
C
Which of the following procedures would most likely be performed in response to the auditor's assessment of the risk of monetary misstatements in the financial statements? A) Ratio analysis B) Tests of controls C) Tests of details of balances D) Risk assessment procedures
C
Which of the following relationships between types of tests and audit evidence is not correct? a. Tests of details and documentation. b. Tests of controls and observation. c. Tests of details and observation. d. Substantive tests of transactions and reperformance
C
Which of the following tests form the basis for an auditor's report on internal control over financial reporting? a. Analytical procedures b. Tests of transactions c. Tests of controls d. Tests of details of balances
C
Which of the following types of procedures will be performed in an audit of internal control over financial reporting? Procedures to obtain an understanding of internal control Ratio analysis a. Yes Yes b. No No c. Yes No d. No Yes
C
Which of the following types of procedures will be performed in an audit of internal control over financial reporting? Procedures to obtain an understanding of internal control Ratio analysis a. Yes Yes b. No No c. Yes No d. No Yes
C
Which of the following types of procedures will be performed in an audit of internal control over financial reporting? A) Procedures to obtain an understanding of internal control Ratio analysis Yes Yes B) Procedures to obtain an understanding of internal control Ratio analysis No No C) Procedures to obtain an understanding of internal control Ratio analysis Yes No D) Procedures to obtain an understanding of internal control Ratio analysis No Yes
C
Analytical procedures: A) involve comparisons of recorded amounts to expectations developed by management. B) are only performed during the planning stage of the audit. C) are required to be performed when auditing an account balance. D) provide substantive evidence.
D
If the results of the tests of controls, substantive tests of transactions, and analytical procedures are not consistent with the predictions, tests of details of balances will be: a. eliminated. b. increased. c. unaffected. d. changed.
D
In order to promote audit efficiency the auditor considers cost in selecting audit tests to perform. Which of the following audit tests would be the most costly? A) Analytical procedures B) Risk assessment procedures C) Tests of controls D) Tests of details of balances
D
Presentation and disclosure related audit objectives would be performed in which phase of the audit process? A) Plan and design audit approach B) Perform audit tests for controls and transactions C) Perform analytical procedures and tests of balances D) Complete the audit and issue the audit report
D
The most important consideration in developing the audit plan and audit program is the: a. client's size. b. client's industry. c. audit firm's available personnel. d. the audit risk model used in its planning form.
D
What type of test is used to obtain more types of evidence than any other? a. Substantive tests of transactions. b. Tests of controls. c. Analytical procedures. d. Tests of details.
D
What type of test is used to obtain the most types of evidence? A) Substantive tests of transactions B) Tests of controls C) Risk assessment tests D) Tests of details of balances
D
When an auditor believes that analytical procedures indicate a reasonable possibility of misstatement, the auditor usually would: Perform additional tests of controls Decide to modify tests of details of balances a. Yes Yes b. No No c. Yes No d. No Yes
D
When an auditor believes that analytical procedures indicate a reasonable possibility of misstatement, the auditor usually would: Perform additional tests of controls Decide to modify tests of details of balances a. Yes Yes b. No No c. Yes No d. No Yes
D
When an auditor believes that analytical procedures indicate a reasonable possibility of misstatement, the auditor usually would: A) Perform additional tests of controls Decide to modify tests of details of balances Yes Yes B) Perform additional tests of controls Decide to modify tests of details of balances No No C) Perform additional tests of controls Decide to modify tests of details of balances Yes No D) Perform additional tests of controls Decide to modify tests of details of balances No Yes
D
When the auditor finds that there are missing controls in an area of the accounting system, the audit program in that area would be modified in such a way as to: a. increase the amount of tests of controls. b. increase the reliance on tests of controls. c. cause the issuance of a qualified or adverse opinion. d. eliminate the need for a test of controls.
D
Which of the following is not a direct result of performing analytical procedures? a. Identify areas of potential misstatements. b. Reduce detailed audit tests. c. Understand the client's business. d. Identify specific errors in the accounts.
D
Which of the following is ordinarily designed to detect material dollar errors on the financial statements? A) Tests of controls B) Analytical review procedures C) Computer controls D) Tests of details of balances
D
Which of the following would not be considered further audit procedures? A) Tests of controls B) Analytical procedures C) Tests of details of balances D) Risk assessment procedures
D
