Chapter 5 - Practice Questions

Concerning retention of working papers, the Sarbanes-Oxley Act:

Requires retention for at least 7 years.

which of the following would not necessarily be considered a related party transaction?

Payment of a bonus to the president.

Assertions that have a meaningful bearing on whether an account balance, transaction class or disclosure is fairly stated are referred to as:

Relevant assertions.

To be effective, analytical procedures performed near the end of the audit should be performed by

A manager or partner who has a comprehensive knowledge of the client's business and industry.

Which of the following is true about analytical procedures?

Analytical procedures are used in risk assessment, as a substantive procedure for specific accounts, and near the completion of the audit of the audited financial statements.

An auditor compared the current-year gross margin with the prior-year gross margin to determine if cost of sales is reasonable. What type of audit procedure was performed?

Analytical procedures.

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

Comparisons of financial statement amounts with source documents.

n auditor is performing an analytical procedure that involves comparing a client's ratios with other companies in the same industry. This technique is referred to as:

Cross-sectional analysis.

As planning materiality is decreased, the auditor should plan more work on individual accounts to.

Find smaller misstatements.

An auditor is performing an analytical procedure that involves comparing a client's account balances over time. This technique is referred to as:

Horizontal analysis.

Which of the following groups are not considered a specialist by AICPA Professional Standards:

Internal auditors.

Confirmation would be most effective in addressing the existence assertion for the:

Inventory held on consignment.

Which of the following best describes the problem with the use of published industry averages for analytical procedures?

Lack of comparability.

Assertions with high inherent risk are least likely to involve:

Routine transactions.

During an audit engagement pertinent data are prepared and included in the audit working papers. The working papers primarily are considered to be:

Support for the auditors' representations as to compliance with generally accepted auditing standards.

Which of the following is not a basic procedure used in an audit?

Tests of direct evidence.