Chapter 13
List each of the five types of audit tests:
.risk assessment procedures • tests of controls • substantive tests of transactions • substantive analytical procedures •tests of details of balances
Risk assessment procedures are performed by the auditor to assess the risk of material misstatement in the financial statements. Below are four types of further audit procedures the auditor should perform that provide the basis for the auditor's opinion. Which of these are compliance procedures? 1. Tests of controls 2. Tests of details of balances 3. Substantive tests of transactions 4. Substantive analytical procedures
1 only
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. substantive tests of transactions 4. substantive analytical procedures 5. tests of details of balances
3, 4, and 5
The auditor has determined that a key control in the audit of the sales and collection cycle is that recorded sales are supported by authorized shipping documents and approved customer orders. What typical test of controls should be used in this situation?
Examine a sample of duplicate sales invoices to determine that each one is supported by an authorized shipping document and approved customer order.
Auditors can perform tests of controls separately from all other tests; therefore, it is inefficient to perform tests of controls, separately, from substantive tests of transactions.
FALSE
Auditors must perform tests of controls separately from substantive tests of transactions.
FALSE
Auditors use substantive analytical procedures and tests of details of balances to satisfy planned control risk.
FALSE
For automated controls, the auditor's procedures to determine whether the automated control has been implemented cannot also serve as the test of that control.
FALSE
Presentation and disclosure objectives are primarily addressed in the tests of details of
FALSE
Procedures to obtain an understanding of internal control generally provide sufficient appropriate evidence that a control is operating effectively.
FALSE
Substantive tests of transactions affect control risk but do not affect planned detection risk.
FALSE
Tests of controls are performed to support a reduced assessment of detection risk.
FALSE
Tests of controls should be performed after substantive tests of transactions.
FALSE
Tests of details of balances emphasize the overall reasonableness of transactions and the general ledger balances.
FALSE
The amount of additional evidence required for tests of controls depends on two things: the extent of evidence obtained in gaining an understanding of internal controls, and the planned reduction in detection risk.
FALSE
Tests of controls, either manual or automated, may include the following types of evidence and procedures. Which of these procedures is not the same as those procedures used to obtain an understanding of internal controls?
Reperform client procedures
Assume the beginning balance in cash was audited in the prior year and is considered to be correct. In the current year, the auditor verifies that sales and cash receipts transactions are correctly recorded in the accounting records and posted to the general ledger. Before the auditor can reach a conclusion about the ending balance in the cash account in the current year, cash disbursement transactions will have to be audited.
TRUE
Collectively, procedures performed to obtain an understanding of the entity and its environment, including internal controls, represent the auditor's risk assessment procedures.
TRUE
For automated controls, the auditor's procedures to determine whether the automated control has been implemented may also serve as the test of that control.
TRUE
One factor that determines the amount of additional evidence required for tests of controls is the planned reduction in control risk.
TRUE
Risk assessment procedures are performed to assess the risk of material misstatement in the financial statements.
TRUE
Substantive tests are procedures designed to test for dollar misstatements that directly affect the correctness of financial statement balances.
TRUE
Substantive tests are procedures designed to test for dollar misstatements that directly affect the correctness of financial statements balances and disclosures. Substantive tests are often called monetary misstatements.
TRUE
Which of the following statements is not true?
Tests of controls are concerned with evaluating whether controls are sufficiently effective to justify reducing control risk and thereby reducing analytical review procedures.
Which of the following is true?
Tests of details of balances focus on the ending general ledger balances for both balance sheet and income statement accounts.
In the context of an audit of financial statements, substantive tests are audit procedures that
are designed to test for dollar misstatements.
The primary emphasis in most tests of details of balances is on the
balance sheet accounts.
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
certain tests of details of balances may be eliminated for those accounts.
Which of the following types of evidence is not available when using substantive tests of transactions?
confirmation
Risk assessment procedures are performed by auditors during an audit in order to
determine the risk of material misstatement in the financial statements.
A system walkthrough is primarily used to help the auditor
determine whether internal controls have been properly implemented.
Tests of controls are directed toward the control's
effectiveness.
The purpose of tests of controls is to provide reasonable assurance that the
internal control procedures are functioning as intended.
Which phase(s) of the audit uses inquiries of clients as a type of evidence?
plan and design tests of controls and substantive tests of transactions completion of the audit and issuance of the audit report ALL OF THE ABOVE
Analytical procedures
provide substantive evidence.
Which of the following would not be considered further audit procedures?
risk assessment procedures
Collectively, procedures performed to obtain an understanding of the entity and its environment, including internal controls, represent the auditor's
risk assessment procedures.
A procedure designed to test for monetary misstatements directly affecting the correctness of financial statement balances is a
substantive test.
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?
substantive tests of transactions
What type of test is used to obtain the most types of evidence?
tests of details of balances
Which audit tests involve physical examination and confirmation?
tests of details of balances
Which of the following is ordinarily designed to detect material dollar errors on the financial statements?
tests of details of balances
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?
tests of details of balances
Many auditors perform extensive analytical procedures because
they indicate areas of potential risk and misstatement.
