Chapter 5 Connect and MC

Completeness

All assets have been recorded

Presentation & disclosure

Assets are properly classified.

Valuation

Assets are recorded at proper amounts.

The components of the risk of misstatement are: Inherent Risk Control Risk Detection Risk A. Yes Yes Yes B. Yes Yes No C. Yes No No D. No Yes Yes Option A Option B Option C Option D

Option B

Further audit procedures include: Risk assessment procedures Tests of controls A. Yes Yes B. Yes No C. No Yes D. No No Option A Option B Option C Option D

Option C

Rights & Obligations

The company legally owns the assets.

Existence & Occurence

There is such an asset.

Cutoff

Transactions are recorded in the correct accounting period.

Performing analytical procedures may help an auditor to: a. Achieve audit objectives related to a particular assertion. b. Develop an effective system of quality control. c. Meet PCAOB requirements that analytical procedures be performed relating to every major account. d. Increase the level of detection risk.

a. Achieve audit objectives related to a particular assertion.

Which of the following is not a function of audit working papers? a. Assist management in illustrating that the financial statements are in accordance with generally accepted accounting principles. b. Assist audit team members responsible for supervision in reviewing the work. c. Assist auditors in planning future engagements. d. Assist peer reviewers and inspectors in performing their roles.

a. Assist management in illustrating that the financial statements are in accordance with generally accepted accounting principles.

Which of the following is not considered to be an analytical procedure? a. Comparisons of financial statement amounts with source documents. b. Comparisons of financial statement amounts with non financial data. c. Comparisons of financial statement amounts with budgeted amounts. d. Comparisons of financial statement amounts with comparable prior year amounts.

a. Comparisons of financial statement amounts with source documents.

Failure to detect material dollar errors in the financial statements is a risk which the auditors primarily mitigate by: a. Performing substantive procedures. b. Performing tests of controls. c. Assessing control risk. d. Obtaining a client representation letter.

a. Performing substantive procedures.

As part of their audit, auditors obtain a representation letter from their client. Which of the following is not a valid purpose of such a letter? a. To increase the efficiency of the audit by eliminating the need for other audit procedures. b. To remind the client's management of its primary responsibility for the financial statements. c. To document in the audit working papers the client's responses to certain verbal inquiries made by the auditors during the engagement. d. To provide evidence in those areas dependent upon management's future intentions.

a. To increase the efficiency of the audit by eliminating the need for other audit procedures.

The major reason auditors gather evidence is to: a. form an opinion on the financial statements. b. detect fraud. c. assess control risk. d. evaluate management.

a. form an opinion on the financial statements.

Analytical procedures are: a. tests that involve evaluations of financial statement information by a study of relationships among financial and non financial data. b. analytical tests of financial information made by a computer. c. diagnostic tests of financial information that may not be classified as audit evidence. d. statistical tests of financial information designed to identify areas requiring intensive investigation.

a. tests that involve evaluations of financial statement information by a study of relationships among financial and non financial data.

Which of the following statements best describes why auditors investigate related party transactions? a. Related party transactions generally are illegal acts. b. The substance of related party transactions may differ from their form. c. All related party transactions must be eliminated as a step in preparing consolidated financial statements. d. Related party transactions are a form of management fraud.

b. The substance of related party transactions may differ from their form.

Analytical procedures are most likely to detect: a. Weaknesses of a material nature in internal control. b. Unusual transactions. c. Noncompliance with prescribed control activities. d. Improper separation of accounting and other financial duties.

b. Unusual transactions.

Which of the following is not a management assertion? a. Rights. b. Verification. c. Existence. d. Valuation.

b. Verification.

In developing an expectation for analytical procedures, the auditors are least likely to consider: a. Financial information for comparable prior periods. b. Relationships between financial information and relevant non financial data. c. Anticipated costs of audit completion. d. Relationships among elements of financial information within a period.

c. Anticipated costs of audit completion.

Which of the following is not a primary approach to auditing an accounting estimate? a. Review and test management's process for developing the estimate. b. Review subsequent transactions. c. Confirm the amounts. d. Develop an independent estimate.

c. Confirm the amounts.

Analytical procedures performed near the end of the audit to assist the auditor in forming an overall conclusion on the financial statements are aimed primarily at: a. Gathering evidence concerning account balances that have not changed from the prior year. b. Retesting internal control procedures. c. Considering unusual or unexpected account balances that were not previously identified. d. Performing a test of transactions to corroborate management's financial statement assertions.

c. Considering unusual or unexpected account balances that were not previously identified.

Of the following, which is the least reliable type of audit evidence? a. Confirmations mailed by outsiders to the auditors. b. Correspondence between the auditors and suppliers. c. Copies of sales invoices inspected by the auditors. d. Canceled checks returned in the year-end bank statement directly to the client.

c. Copies of sales invoices inspected by the auditors.

What type of analytical procedure would an auditor most likely use in developing relationships among balance sheet accounts? a. Trend analysis. b. A detailed test of balance analysis. c. Ratio analysis. d. Risk analysis.

c. Ratio analysis.

Assertions that have a meaningful bearing on whether an account balance, transaction class, or disclosure is fairly stated are referred to as: a. appropriate assertions. b. Sufficient assertions. c. Relevant assertions. d. Reliable assertions.

c. Relevant assertions.

When an audit is made in accordance with generally accepted auditing standards, the independent auditors must: a. observe the taking of physical inventory on the balance sheet date. b. perform tests of controls. c. perform analytical procedures. d. use statistical sampling

c. perform analytical procedures.

A difference of opinion concerning accounting and auditing matters relative to a particular phase of the audit arises between an assistant auditor and the auditor responsible for the engagement. After appropriate consultation, the assistant auditor asks to be disassociated from the resolution of the matter. The working papers would probably: a. Remain silent on the matter since it is an internal matter of the auditing firm. b. Note that the assistant auditor is completely dissociated from responsibility for the auditors' opinion. c. Document the additional work required, since all disagreements of this type will require expanded substantive procedures. d. Document the assistant auditor's position and how the difference of opinion was resolved.

d. Document the assistant auditor's position and how the difference of opinion was resolved.

Which of the following is not a financial statement assertion made by management? a. Existence of recorded assets and liabilities. b. Completeness of recorded assets and liabilities. c. Valuation of assets and liabilities. d. Effectiveness of internal control.

d. Effectiveness of internal control.

A primary purpose of the audit working papers is to: a. Aid the auditors by providing a list of required procedures. b. Provide a point of reference for future audit engagements. c. Support the underlying concepts included in the preparation of the basic financial statements. d. Support the auditors' opinion.

d. Support the auditors' opinion.

Tracing a sample of documents from the source documents to the ledgers is designed to test the financial statement assertion of: a. validity. b. existence. c. valuation. d. completeness.

d. completeness