Audit Ch 5

Which of the following statements are correct? During planning, the auditor determines whether planned procedures need to be revised due to preliminary analytical procedures. Unexpected differences may be addressed by reviewing the working papers for sufficient evidence. Differences are investigated in the same way for both planning and final analytical procedures. Entity personnel may be asked to explain unexpected differences.

During planning, the auditor determines whether planned procedures need to be revised due to preliminary analytical procedures. Unexpected differences may be addressed by reviewing the working papers for sufficient evidence. Entity personnel may be asked to explain unexpected differences.

True or false: Auditing standards dictate how audit documentation should be organized.

False

True or false: The auditor is required to obtain corroborative evidence for planned analytical procedures.

False

Which of the following statements are correct? Financial ratios should not be evaluated in isolation. Industry averages are always the best way to analyze an entity's financial ratios. A ratio may be favorable because its components are unfavorable. Accounting principle choices can impact some ratios.

Financial ratios should not be evaluated in isolation. A ratio may be favorable because its components are unfavorable. Accounting principle choices can impact some ratios.

True or false: Although the auditor owns the audit documents, they cannot be shown to outside parties without the entity's consent, except under certain circumstances.

True

True or false: Both oral and visual information can be used as audit evidence.

True

True or false: When doing ratio analysis, it is important to evaluate related financial ratios to avoid drawing an incorrect conclusion.

True

Under current auditing standards, management assertions fall into categories of assertions about [. ].

account balances and related disclosures at the period end classes of transactions and events and related disclosures for the period audited

PCAOB standards require that audit documentation contain

all documents that form the basis of the audit

This consists of evaluations of financial information through the examination of plausible relationships among both financial and nonfinancial data.

analytical procedures

The audit documentation needs to be organized so that_______can find the audit evidence that supports each financial statement account.

any member of the audit team reviewers

Expressed or implied representations by management regarding the recognition, measurement, presentation, and disclosure of information in the financial statements and related disclosures are referred to as [. ].

assertions

The auditor can issue an unqualified/unmodified report when audit evidence supports management's [. ] .

assertions

The document that outlines the auditor's understanding of the entity and potential risks as well as the strategy to be followed by the auditor is called the [. ] [. ]

audit plan

The document that outlines the auditor's understanding of the entity and potential risks as well as the strategy to be followed by the auditor is called the [. ] [. ] .

audit plan

Specific acts performed by the auditor to gather evidence about whether specific assertions are being met are referred to as [. ] [. ] .

audit procedures

Specific acts performed by the auditor to gather evidence about whether specific assertions are being met are referred to as [. ] [. ].

audit procedures

The audit procedures that will be conducted by the auditor are contained in the [. ] [. ] .

audit program

The audit procedures that will be conducted by the auditor are contained in the [. ] [. ].

audit program

The basic framework for the auditor's understanding of audit evidence and its use in supporting the auditor's opinion on the financial statements is (are)

auditing standards

In evaluating audit evidence, the auditor must________

be unbiased understand the types of information used as evidence be thorough

Identify the sources that can be used to develop an expectation for an analytical procedure.

competitor information industry publications budgets and forecasts

Audit evidence obtained by the auditor as a direct written response to the auditor from a third party in paper form or by electronic or other medium is called a(n) [. ]

confirmation

For lower-risk, well-controlled accounts, the assurance bucket may be filled entirely with tests of [. ] and substantive analytical procedures.

controls

In regards to applying the audit testing hierarchy, starting with tests of [ ] is generally more effective and efficient than starting with tests of [. ].

controls , details

In regards to applying the audit testing hierarchy, starting with tests of [. ] is generally more effective and efficient than starting with tests of [. ].

controls, details

The size of the "audit assurance bucket"____

depends upon the assertion being tested varies depending on the auditor's risk assessment does not equate solely to the quantity of evidence needed

When testing the occurrence and completeness assertions, the [. ] of testing between the accounting records and source documents is important.

direction

Two forms of electronic information that are used as audit evidence are [. ] and [. ] .

documents and data

The heading of all audit documentation should include the_________

entity's year-end date name of the entity title of the working paper

When testing an entire account with a substantive analytical procedure, tolerable difference will usually be________the account's tolerable misstatement.

equal to

Information to which audit procedures have been applied that corroborates or contradicts assertions in the financial statements is audit

evidence

The information used by the auditor in arriving at the conclusions on which the audit opinion is based is called audit

evidence

A management statement that the inventory shown on the balance sheet was available for sale at the balance sheet date is an example of the [. ] assertion.

existence

A management statement that the property, plant, and equipment shown on the balance sheet was owned and available for sale at the balance sheet date is an example of the ______ assertion.

existence

Audit documentation is the property of the________

independent auditors

When an auditor performs audit work on one working paper and supporting information is obtained from another working paper, the auditor uses Blank______ to ensure that members of the audit team or firm can find relevant audit evidence.

indexing and cross referencing

When an auditor performs audit work on one working paper and supporting information is obtained from another working paper, the auditor uses ______ to ensure that members of the audit team or firm can find relevant audit evidence. Multiple choice question.

indexing and cross referencing

Tests of controls_______

influence the scope of substantive testing may allow the auditor to gain a degree of assurance over thousands of transactions

This is an important audit procedure that is used extensively throughout the audit and is often complementary to performing other audit procedures.

inquiry

The reliability of evidence obtained through external confirmations may be affected by the___________

intended respondent nature of the information being confirmed prior experience with the entity form of the confirmation

The precision of the expectation_______

is a function of materiality and required detection risk may lead to a cost-benefit trade-off due to an increase in testing is a measure of potential effectiveness

Inquiry__________

may be complementary to other audit procedures is an important audit procedure is used extensively throughout the audit

Looking at a process or procedure being performed by others is referred to as [. ] .

observation

Looking at a process or procedure being performed by others is referred to as [. ].

observation

This is useful in helping auditors understand the entity's processes but is generally not considered very reliable.

observation

Vouching provides evidence for the _______ assertion,

occurrence

Whether all recorded transactions and events have happened and pertain to the entity is the basis of the [. ] assertion.

occurrence

Whether all recorded transactions and events have happened and pertain to the entity is the basis of the ______ assertion.

occurrence

Because the entity's personnel might have incentives to record fictitious transactions, the [. ] assertion is relevant to revenue transactions.

occurrence or validity

The quality of an expectation is referred to as the [. ] of the expectation.

precision

The reliability of analytical procedures is a function of the___________

precision of the expectation and the rigor of the investigation availability and reliability of the data used in the calculations plausibility and predictability of the relationship being tested

The functions of audit documentation are to

provide the basis for the review of the quality of work aid in the planning, performance, and supervision of the audit

The functions of audit documentation are to______

provide the basis for the review of the quality of work aid in the planning, performance, and supervision of the audit

Checking the mathematical accuracy of documents or records is referred to as [. ].

recalculation

Footing, crossfooting, reconciling subsidiary ledgers, and testing postings are all examples of

recalculation

Evidence is considered appropriate when it provides information that is [. ] .

reliable relevant

The auditor's independent execution of procedures or controls that were originally performed by company personnel is referred to as [. ]

reperformance

The independent execution by the auditor of procedures or controls that were originally performed by company personnel is called________

reperformance

Which of these processes are generally considered highly reliable because the auditor has direct knowledge about them?

reperformance recalculation inspection of tangible assets

Auditing standards

require that auditors perform substantive procedures for significant account balances and classes of transactions regardless of the assessed risk of material misstatement

Auditing standards_______

require that auditors perform substantive procedures for significant account balances and classes of transactions regardless of the assessed risk of material misstatement

The audit documentation needs to be organized so that_____ can find the audit evidence that supports each financial statement account.

reviewers any member of the audit team

The first item that goes in an auditor's "assurance bucket" is_____

risk assessment procedures

The first item that goes in an auditor's "assurance bucket" is_______

risk assessment procedures

Audit documentation should________

show that standards of fieldwork have been followed enable a knowledgeable reviewer to determine who performed the work demonstrate how the audit complied with appropriate standards

Assume an entity has 2,500 customers. If the auditor mails confirmation to 25 of the largest customers and only 20 respond the auditor must ___________.

still gather sufficient evidence on each of the 25 accounts

Assume an entity has 2,500 customers. If the auditor mails confirmation to 25 of the largest customers and only 20 respond the auditor must__________

still gather sufficient evidence on each of the 25 accounts

The measure of the quantity of audit evidence is referred to as [. ].

sufficiency

The second step in the analytical procedures decision process is to define a(n) [. ] difference

tolerable

The second step in the analytical procedures decision process is to define a(n) [. ] difference.

tolerable

What is the purpose of substantive procedures

used to detect material misstatements at the relevant assertion level

What is the purpose of risk assessment procedures

used to obtain an understanding of the entity and its environment, including its internal control, to assess the risks of material misstatement at the financial statement and relevant assertion levels

What is the purpose of test of controls

used to test the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the relevant assertion level

The size of the "audit assurance bucket"

varies depending on the auditor's risk assessment does not equate solely to the quantity of evidence needed depends upon the assertion being tested

Selecting an item for testing from the accounting journals or ledgers and then examining the underlying source document is referred to as

vouching

The reliability of inspection of records and documents depends primarily on_________

whether the document is internal or external

Audit documentation is referred to as [. ]. [. ] or the audit file.

working papers