Chapter 5 LS

True or false: When performing analytical procedures, the best data for developing an expectation is industry averages.

False

Working papers are assigned this, which allows the information to be tied together through a system of cross-referencing.

Index number

The examination of big data to uncover hidden patterns, unknown correlations, market trends, and other useful business applications is called

data analytics

The price that would be received to sell an asset or the amount that must be paid to transfer a liability in an orderly transaction between market participants is the definition of ______ value.

fair

The working papers that pertain solely to this year's audit are called the ______ files.

current

Today most working papers are prepared ______.

on electronic devices

Management makes financial statement assertions related to ______.

- classes of transactions and events - presentation and disclosure - account balances

Working papers need to be safeguarded because they contain ______ information.

confidential client

The client ______.

never has the right to demand access to the auditors' working papers

Audit risk is the risk that financial statements will contain a material departure from GAAP and the auditor will issue a(n) ______ opinion.

unmodified

Representations in the representation letter include ______.

- all items requiring any disclosure are sufficiently disclosed - financial statements are complete and were prepared with the use of generally accepted accounting principles

The most technical audit working paper review is performed by the ______.

senior

Audit working papers are the property of the ______.

auditors

Data analytics is the examination of large datasets or __________ __________ to uncover hidden patterns, unknown correlations, market trends, and other useful business applications.

big data

No information may be discarded from the working papers after the ______ date.

documentation completion

Several specific items, such as the fact that all known liabilities are reflected in the financial statements, are included in the written __________ __________ the CPAs obtain from client officers at the conclusion of the audit.

representation letter

Inherent risk and control risk are the two components of the risk of

material misstatement

Individuals or entities that may have dealings with the client in which one party is significantly influenced by the other such that it may not pursue its separate interests are known as

related parties

One purpose of the ______ working paper review is to see that the staff assistant has performed the audit procedures properly.

senior

As audit working papers are prepared, auditors use several symbols or __________ __________ to identify specific steps in the work performed.

tick marks

Audit documentation, which is the record of the audit procedures performed, relevant audit evidence obtained, and the conclusions the auditors reach, is also known as ______.

working papers

These components of audit risk exist for a client even if an audit is not performed.

Inherent risk and control risk

To identify the specific audit steps performed, auditors use these symbols when preparing the working paper.

Tick marks

True or false: Auditors are not required to use analytical procedures as substantive procedures to provide evidence about financial statement assertions.

True

Evaluations of financial statement information by a study of relationships among financial and nonfinancial data is the basis of

analytical procedures

Sufficiency relates to the quantity and __________ relates to the quality of audit evidence needed.

appropriateness

The term __________ risk refers to the possibility that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated.

audit

Management makes assertions for financial statements regarding all of the following except ______.

fairness of the audit opinion

Auditors are given 60 days after the audit ______ date to complete the audit file.

report release

Sufficient audit evidence is affected by ______.

risk of misstatement and reliability of evidence

Helping the auditors identify items that indicate a heightened risk of material misstatement of the financial statements is the objective of analytical procedures ______.

performed at the risk assessment stage

Data analytics ______.

- results in a more detailed understanding of the client - may assist in the assessment of risk of material misstatement - may involve testing entire populations instead of samples

When developing expectations for analytical procedures ______.

- separate relationships may be computed for each division or product line - dollar amounts, quantities, ratios, or percentages may be used - prior year financial statements may be used

Which of the following is true of analytical procedures?

They involve evaluations of financial statement information by a study of relationships among financial and nonfinancial data.

True or false: Data analytics is not used in most audits because it is often an inefficient procedure that fails the cost-benefit test.

False

True or false: The AICPA Code of Professional Conduct generally allows auditors to share working papers without restriction within the client's organization.

False

Making accounting estimates is the responsibility of ______.

management

Identify the components of the risk of material misstatement.

Control risk Inherent risk

Auditors gather evidence to restrict this risk to the appropriate level.

Detection

Second partner review

Quality review to provide assurance that the CPA firm's in-house quality control policies have been complied with.

In-charge partner

Review of entire set of working papers to determine audit was performed in accordance with GAAS and provide support for audit report.

Manager

Review of work done by staff and senior auditors near the end of the audit to make sure working papers "tie together."

Senior

Review of work performed by staff assistant to make sure audit procedures are performed properly and conclusions are clearly expressed.

The audit risk model is a function of ______ risk.

inherent detection control

The advantages of using computer-generated working papers include ______.

- an adjustment can be carried through the current file quicker - a nearly "paperless" audit can be performed - documents can be scanned

Common methods for auditors to determine related parties include ______.

- conflict-of-interest statements - reviewing SEC filings - inquiries of management

Auditors are required to ______.

- ensure accounting estimates are properly accounted for and disclosed - evaluate the reasonableness of accounting estimates

The backbone of the working papers is the ______, which is the key schedule that controls and summarizes all supporting papers.

working trial balance

The auditors have assessed the risk of material misstatement for the existence of cash as high. Which is the most effective audit procedure for the auditor to perform?

Confirm cash in bank

The working papers that pertain solely to this year's audit are called the

current

The backbone of the working papers (which is ordinarily an electronic spreadsheet) is the

working trial balance

The record of the audit procedures performed, relevant audit evidence obtained, and the conclusions the auditors reach is called audit documentation or

working papers

report release

- inquiries of management - conflict-of-interest statements - reviewing SEC filings