Chapter 5 MC

Which of the following is true relating to audit work paper documentation? -It serves as the basis of review for audit supervisors to determine if sufficient, appropriate evidence has been gathered. -It should not include copies of any client-generated documents. -It is generally examined and utilized by the client after the audit is completed. -It must be destroyed once the audit is complete and the opinion is rendered.

-It serves as the basis of review for audit supervisors to determine if sufficient, appropriate evidence has been gathered.

The current file of the auditor's working papers should generally include a. A flowchart of the accounting system. b. Organization charts. c. A copy of the financial statements. d. Copies of bond and note indentures.

A copy of the financial statements

In testing the existence assertion for an asset, an auditor ordinarily works from the a. Financial statements to the potentially unrecorded items. b. Potentially unrecorded items to the financial statements. c. Accounting records to the supporting documents. d. Supporting documents to the accounting records.

Accounting records to the supporting documents

Confirmations would normally be most likely used as a type of audit evidence in connection with which of the following? -Goodwill. -Deferred Taxes. -Machinery and Equipment. -Accounts Receivable

Accounts Receivable

Audit documentation provides the principal support for which of the following? -Demonstrate how the audit complied with auditing and related professional practice standards. -Support the basis for the auditor's conclusions concerning every material financial statement assertion. -Demonstrate that the underlying accounting records agreed or reconciled with the financial statements. -All of the above.

All of the above.

Which of the following presumptions is least likely to relate to the reliability of audit evidence? a. The more effective internal control, the more assurance it provides about the accounting data and financial statements. b. An auditor's opinion is formed within a reasonable time to achieve a balance between benefit and cost. c. Evidence obtained from independent sources outside the entity is more reliable than evidence secured solely within the entity d. The independent auditor's direct personal knowledge obtained through observation and inspection is more persuasive than information obtained indirectly.

An auditors opinion is formed with a reasonable time to achieve a balance between benefit and cost

Which of the following presumptions is correct regarding the reliability of audit evidence? -To be reliable, evidence should be convincing rather than simply persuasive. -Information obtained directly from the company is considered to be the most reliable type of evidence. -An effective internal control system provides increased assurance with regard to the reliability of audit evidence. -Reliability generally refers to the amount and relevance of corroborative audit evidence obtained.

An effective internal control system provides increased assurance with regard to the reliability of audit evidence.

The primary objective of final analytical procedures is to a. Obtain evidence from details tested to corroborate particular assertions. b. Identify areas that represent specific risks relevant to the audit. c. Assist the auditor in assessing the validity of the conclusions reached on the audit. d. Satisfy doubts when questions arise about an entity's ability to continue in existence.

Assist the auditor in assessing the validity of the conclusions reached on the audit

Which of the following is true regarding audit evidence? Auditors typically gather audit evidence about one whole financial statement at a time rather than one account at a time. Auditors rarely gather audit evidence about one business process at a time. Audit evidence is gathered to determine whether each relevant financial statement assertion is being supported. When audit evidence supports management's assertions, a qualified audit report can be issued.

Audit evidence is gathered to determine whether each relevant financial statement assertion is being supported.

Which of the following items is generally not included as part of audit documentation? -Heading. -Indexing. -Client review notation. -Tickmarks.

Client review notation.

Which of the following procedures would an auditor most likely rely on to verify management's assertion of completeness? a. Reviewing standard bank confirmations for indications of cash manipulations. b. Comparing a sample of shipping documents to related sales invoices. c. Observing the entity's distribution of payroll checks. d. Confirming a sample of recorded receivables by direct communication with the debtors.

Comparing a sample of shipping documents to related sales invoices

Discussions with the owner-manager of an entity under audit reveal to the auditor that the company is more concerned with minimizing its income tax payments than maximizing income. Based on this information, which management assertion will the auditor be most concerned about verifying with regard to sales revenue? Existence and occurrence. Completeness. Rights and obligations. Accuracy, Valuation and Allocation

Completeness.

Audit evidence can come in different forms with different degrees of reliability. Which of the following is the most persuasive type of evidence? a. Bank statements obtained from the entity. b. Computations made by the auditor. c. Prenumbered entity sales invoices. d. Vendors' invoices included in the entity's files.

Computations made by the auditor

Which of the following primary assertions is satisfied when an auditor observes the entity's physical count of inventory? Accuracy, Valuation and Allocation. Completeness. Existence. Rights and obligations.

Existence.

An audit document that reflects the major components of an amount reported in the financial statements is referred to as a(n) a. Lead schedule. b. Supporting schedule. c. Audit control account. d. Working trial balance.

Lead schedule

The permanent file section of the working papers that is kept for each audit client most likely contains a. Review notes pertaining to questions and comments regarding the audit work performed. b. A schedule of time spent on the engagement by each individual auditor. c. Correspondence with the entity's legal counsel concerning pending litigation. d. Narrative descriptions of the entity's accounting system and control procedures.

Narrative descriptions of the entity's accounting system and control procedures

According to the reliability hierarchy by evidence type as presented in the text, an example of audit evidence with a low level of reliability is: -Reperformance. -Inspection. -Observation. -Analytical procedures.

Observation.

Audit evidence can come in different forms with different degrees of reliability. Which of the following is the least reliable type of evidence? -Vendor confirmations of accounts payable balances. -Copies of bank statements obtained from the entity under audit. -Pre-numbered sales invoices. -The opinion of an outside specialist regarding inventory valuation.

Pre-numbered sales invoices

Which of the following types of audit evidence is the least reliable? a. Prenumbered purchase order forms prepared by the entity. b. Bank statements obtained from the entity. c. Test counts of inventory performed by the auditor. d. Correspondence from the entity's attorney about litigation.

Prenumbered purchase order forms prepared by the entity.

According to the reliability hierarchy by evidence type as presented in the text, an example of audit evidence with a high level of reliability is: -Scanning. -Recalculation. -Observation. -Confirmation.

Recalculation

An auditor would be least likely to use confirmations in connection with the examination of a. Inventory held in a third-party warehouse. b. Refundable income taxes. c. Long-term debt. d. Stockholders' equity.

Refundable income taxes

The assurance bucket is filled with all of the following types of evidence except a. Test of controls. b. The audit report. c. Substantive analytical procedures. d. Tests of details.

The audit report

Which of the following statements is correct with regard to the quality or appropriateness of evidential matter? -The auditor's direct personal knowledge, obtained through observation and inspection, is more persuasive than information obtained indirectly from independent outside sources. -Evidential matter must be either valid or relevant but need not be both. -Internal accounting data alone may be considered sufficient appropriate evidential matter to issue an unqualified opinion on financial statements. -Appropriateness of evidential matter refers to the amount of corroborative evidence to be obtained.

The auditor's direct personal knowledge, obtained through observation and inspection, is more persuasive than information obtained indirectly from independent outside sources.

The substantive analytical procedure known as trend analysis is best described by a. The comparison, across time or to a benchmark, of relationships between finan- cial statement accounts or between an account and nonfinancial data. b. Development of a model to form an expectation using financial data, nonfinancial data, or both to test account balances or changes in account balances between accounting periods. c. The examination of changes in an account over time. d. The comparison of common-size financial statements over time.

The examination of changes in an account over time

Which of the following statements concerning audit evidence is correct? a. To be appropriate, audit evidence should be either persuasive or relevant but need not be both. b. The measure of the reliability of audit evidence lies in the auditor's judgment. c. The difficulty and expense of obtaining audit evidence concerning an account balance are a valid basis for omitting the test. d. An entity's general ledger may be sufficient audit evidence to support the financial statements.

The measure of the reliability of audit evidence lies in the auditor's judgment

According to the text, each of the following is a main purpose for performing audit procedures except: -To obtain an understanding of the entity and its environment. -To test the operating effectiveness of controls. -To develop recommendations for the control system. -To detect material misstatements in the financial statements.

To develop recommendations for the control system.

One of the main objectives of performing analytical review procedures during the planning phase of the audit is to identify: -Transactions that have not been properly authorized. -Illegal acts undetected as a result of poor internal controls. -Inefficient operations. -Unusual changes that may signal possible account misstatements.

Unusual changes that may signal possible account misstatements.

Which of the following audit procedures would most likely be used to test the mathematical accuracy of a five-hundred page inventory listing? -Send confirmations to selected vendors to verify amounts. -Examine a random sample of inventory documents. -Manually foot, or sum, several randomly-selected pages. -Use computer assisted audit techniques to foot, or sum, the entire listing.

Use computer assisted audit techniques to foot, or sum, the entire listing.