aud ch. 5

The PCAOB standard corresponding to an independent auditor's report when work of a component auditor is used is ________. A. AS 1205 Part of the Work Performed by Other Independent Auditors B. AS 2110 Identifying and Assessing the Risks of Material Misstatement C. AS 2605 Consideration of the Internal Audit Function D. AS 1210 Using the Work of a Specialist

A. AS 1205 Part of the Work Performed by Other Independent Auditors

Which of the following are included in the permanent file and not in the current file? A. Debt covenants B. All testing and evidence gathered in preparation of the audit report C. Correspondence with other auditors and specialists D. Extracts from the minutes of meetings

A. Debt covenants

What do auditors do when considering rights and obligations? A. Gather evidence to verify that recorded assets are owned by the entity and recorded liabilities represent commitments of the entity. B. Search for evidence to verify that asset, liability, and equity items on the balance sheet actually exist. C. Search for assets, liabilities, and equity items to ensure they have been recorded. D. Search for evidence that assets, liabilities, and equity items have been recorded at appropriate amounts.

A. Gather evidence to verify that recorded assets are owned by the entity and recorded liabilities represent commitments of the entity

Positive confirmations ask recipients to reply__________. A. in all circumstances. If a response cannot be obtained, auditors must obtain alternative evidence to determine if the balance exists. B. only if they disagree with the information provided. If a recipient does not respond, it is assumed that he/she agrees with the information provided C. in all circumstances. If a recipient does not respond, it is assumed that he/she agrees with the information provided D. only if they disagree with the information provided. If a response cannot be obtained, auditors assume that the receivable does not exist

A. In all circumstances. If a response cannot be obtained, auditors must obtain alternative evidence to determine if the balance exists

When considering CLASSIFICATION, auditors gather evidence that transactions and events have been recorded___________. A. in the proper accounts B. in the correct accounting period C. at appropriate amounts D. alongside equity interests

A. In the proper accounts

Among methods used by auditors in gathering evidence, what are tests of control? A. Methods used to determine the operating effectiveness of the client's controls in preventing, or detecting and correcting, material misstatements at the assertion level. B. Methods designed to detect material misstatements at the assertion level. C. Methods used to gain an understanding of a client and its industry for the purpose of identifying risk of material misstatement. D. Methods used in the evaluation of financial information by studying plausible relationships among both financial and non-financial data.

A. Methods used to determine the operating effectiveness of the client's controls in preventing, or detecting and correcting, material misstatements at the assertion level.

Who among the following is generally the most experienced in an audit team? A. Partner B. Manager C. Senior/in-charge D. Staff/associates

A. Partner

Which of the following includes client information and documentation that applies to multiple audits? A. Permanent file B. Lead schedules C. Bank confirmations D. Current file

A. Permanent file

The quality of evidence is determined by its___________ in providing support for the conclusions on which the auditor's opinion is based. A. relevance and reliability B. accuracy and valuation C. classification and understandability D. occurrence and rights and obligations

A. Relevance and Reliability

What term signifies assertions that have a reasonable possibility of containing a material misstatement that would cause the financial statements to be materially misstated? A. Relevant assertions B. Rights and obligations C. Valuation and allocation D. Accuracy and valuation

A. Relevant Assertions

Auditors gathering evidence to verify that recorded assets are owned by the entity and recorded liabilities represent commitments of the entity consider ________. A. Rights and obligations B. Completeness C. Occurrence D. Valuation and allocation

A. Rights and obligations

What do auditors do when considering EXISTENCE A. Search for evidence to verify that asset, liability, and equity items on the balance sheet actually exist. B. Gather evidence to verify recorded assets are owned by the entity and recorded liabilities represent commitments of the entity. C. Search for assets, liabilities, and equity items to ensure they have been recorded. D. Search for evidence that assets, liabilities, and equity items have been recorded at appropriate amounts.

A. Search for evidence to verify that asset, liability, and equity items on the balance sheet actually exist

Auditors are willing to accept a higher risk that their audit procedures may not detect a material misstatement__________. A. when detection risk is high B. when control risk is high C. when detection risk is low D. when control risk is low

A. When detection risk is high

In the context of assertions about classes of transactions and events for the period under audit, auditors considering occurrence gather evidence to verify that _______. A. a recorded transaction or event, such as a revenue or an expense item, actually took place and relates to the entity B. all transactions have been recorded and the financial statements are not understated or overstated because transactions have been omitted C. transactions and events have been recorded at appropriate amounts D. transactions and events have been recorded in the proper accounts

A. a recorded transaction or event, such as revenue or an expense item, actually took place and relates to the entity

Auditors gathering evidence that transactions and events have been recorded at appropriate amounts consider____________. A. accuracy B. occurrence C. completeness D. classification

A. accuracy

The completeness assertion relates to ______________. A. all transactions and events that should have been recorded have been recorded B. all payroll accounting records are complete and accounted for C. all entries are recorded in the correct period D. all accounts are valued at their correct amounts

A. all transactions and events that should have been recorded have been recorded

A document containing details of the period under audit, and the initials of preparers and reviewers is referred to as ________. A. an audit working paper B. an audit plan C. a management representation letter D. a positive confirmation

A. an audit working paper

What do you call a statement or representation, explicit or implied, made by management regarding the recognition, measurement, presentation, and disclosure of items included in the financial statements and notes? A. assertion B. inspection C. tracing D. vouching

A. assertion

When reporting inventory, management claims that the items exist, are owned by the entity, represent a complete list of the inventory owned, and are valued appropriately. These are examples of _______. A. Assertions B. Accounting records C. Negative confirmation D. Positive confirmation

A. assertions

The information that auditors use when arriving at their opinion on the fair presentation of the client's financial statements is called _______. A. audit evidence B. relevant assertion C. receivable confirmation D. working papers

A. audit evidence

In cases wherein specialists are hired, the responsibility for arriving at an overall conclusion regarding fair presentation of a client's financial statements rests with the _______. A. auditors B. specialists C. clients D. government

A. auditors

An auditor's request for information about the amount of cash held in the bank and details of any loans is referred to as a ________. A. bank confirmation B. financial confirmation C. negative confirmation D. audit confirmation

A. bank confirmation

When testing for the ________ assertion, auditors gather evidence that transactions and events have been recorded in the proper accounts. A. classification B. existence C. rights and obligations D. presentation and disclosure

A. classification

When testing for the ________ assertion, auditors ensure that all items included in the financial statements are appropriately presented and disclosures are clearly expressed. A. classification and understandability B. cutoff C. presentation and disclosure D. occurrence

A. classification and understandability

According to Brazel's research, responses from financial statement auditors in the U.S. who were surveyed about their experiences with IT auditors indicated that they believe IT auditors' _______ levels vary in practice. A. competence B. capability C. objectivity D. participation

A. competence

When testing for the ___________ assertion, auditors gather evidence that all transactions have been recorded and the financial statements are not understated or overstated. A. completeness B. cutoff C. valuation and allocation D. disclosure

A. completeness

In the PCAOB standard, the term "other auditors" refers to___________. A. component auditors B. principal auditors C. the group engagement team D. the group engagement partner

A. component auditors

The primary assertion that is tested when using receivable confirmation is__________. A. existence B. occurrence C. accuracy D. completeness

A. existence

The accuracy and valuation assertion relates to ___________. A. financial and other information is disclosed fairly and in appropriate amounts B. ensuring records of ownership of assets is accurate C. the auditor's charges for fees and services provided D. all disclosures having been properly made

A. financial and other information is disclosed fairly and in appropriate amounts

Positive confirmation is correspondence sent directly by an auditor to a third party, who must respond______________. A. in all circumstances B. only if it disagrees with the information provided C. only if it agrees with the information provided D. in circumstances where the client disagrees with the auditor

A. in all circumstances

Letters to management that detail weaknesses in internal controls identified by the auditors in previous years should be ________. A. included in the permanent file B. included in the current file C. destroyed if management corrects the weaknesses D. sent directly to the management's attorney for review

A. included in the permanent file

A detailed record of work completed, and evidence gathered in forming the audit opinion_______. A. is contained in the working papers B. is referred to as the audit plan C. should be submitted by the auditor to management for approval D. is confidential and should not be shared with client personnel

A. is contained in the working papers

An entity or business activity that is required by the applicable financial reporting framework to prepare financial information that will be included in group financial statements ________. A. is known as a component B. is referred to as a subsidiary C. should send separate financial information directly to the auditor D. should be audited by the internal audit function

A. is known as a component

A type of analytical procedure in which auditors use their professional judgment to review accounting data to identify unusual or significant items that may be an indication of a material misstatement_________. A. is referred to as scanning B. is known as substantive testing C. is known as an audit review D. is no longer allowed under Sarbanes-Oxley.

A. is referred to as scanning

Which of the following is true of the permanent file? A. It includes details of key personnel and an organizational chart. B. In the first year of a continuing audit, it offers no information for future audits. C. The information included in it is checked and updated at the end of each annual audit. D. It makes no reference to the client's primary accounting policies and methodologies.

A. it includes details of key personnel and an organizational chart

The auditing procedure of observation ________. A. only provides evidence of a process at the time auditors observe it being carried out B. is less reliable than auditing associated ledger accounts C. should be performed only once during the audit for each account D. should be conducted by the internal audit function to save time

A. only provides evidence of a process at the time auditors observe it being carried out

Examples of evidence indicating the competency of the internal audit function could be____________. A. professional certification in a relevant field B. high turnover of internal audit employees C. low salaries compared to the industry average D. little or no training provided to new employees

A. professional certification in a relevant field

The APPROPRIATENESS of audit evidence refers to ______________. A. quality of audit evidence gathered B. quantity of audit evidence gathered C. logical connection with the assertion being tested D. source, form, or nature of the audit evidence

A. quality of audit evidence gathered

The SUFFICIENCY of audit evidence refers to the ___________. A. quantity of audit evidence gathered B. quality of audit evidence gathered C. logical connection with the assertion being tested D. source, form, or nature of the audit evidence

A. quantity of audit evidence gathered

With respect to an auditor's working papers, a lead schedule_____________. A. summarizes the detail included in a certain account B. details who will be responsible for what parts of the audit C. should be sent to the client before acceptance of the audit D. should be prepared by the partner in charge of the audit

A. summarizes the detail included in a certain account

Auditors inspecting purchase orders for proper authorization by a manager before a purchase is made would be an example of ________. A. a test of controls B. client communication C. substantive procedures D. analytical procedures

A. test of controls

What do auditors consider when determining the extent to which the internal auditors' work will affect the auditors' procedures A. The materiality of the account balance or transaction, the risk of material misstatement of the assertions, and the amount of subjectivity involved in evaluating the evidence gathered. B. Only the materiality of the account balance or transaction and the risk of material misstatement of the assertions. C. Only the risk of material misstatement of the assertions related to the account balance, transaction, or disclosure and the amount of subjectivity involved in evaluating evidence gathered. D. Only the amount of subjectivity involved in evaluating the evidence gathered.

A. the materiality of the account balance or transaction, the risk of material misstatement of the assertions, and the amount of subjectivity involved in evaluating evidence gathered

The responsibility of ensuring sufficient appropriate audit evidence is gathered to arrive at an opinion is ___________. A. the responsibility of the auditor B. the responsibility of management C. a joint responsibility between management and the auditor D. a function of internal control

A. the responsibility of the auditor

The amount of evidence that an auditor must collect is a function of _________________. A. the risk of material misstatement in a relevant assertion for an account balance or class of transactions B. prior years' audit risk C. a detailed assessment of the clients' system of internal control D. the ability of the client to provide all documentation requested by the auditor

A. the risk of material misstatement in a relevant assertion for an account balance or class of transactions

Reliability of audit evidence refers to______________. A. the source of the evidence and form or nature of the evidence B. the accuracy and reliability of the balances C. only the specific source of the information D. only the nature of the evidence only

A. the source of evidence and form or nature of the evidence

As audit work is performed and the auditor amasses client information and documentation that apply to the current year's audit, ________. A. this should be placed in the current file B. this should be retained in the permanent file C. copies of all information should be placed in both the current and permanent files D. it should be destroyed after seven days to protect client confidentiality

A. this should be placed in the current file

Selecting source documents and working forward to follow the transaction through to recording in the journal and leger is called________. A. tracing B. vouching C. inquiring D. observing

A. tracing

At the front of every audit file is the client's _______ supporting the financial statements. A. trial balance B. prior year audit file C. key performance indicators D. relevant assertions

A. trial balance

Auditors would plan for audit procedures that may result in lower quality evidence and possibly a decreased quantity of evidence for that assertion ________. A. when detection risk is high B. when audit risk is low C. when management risk is low D. when control risk is high

A. when detection risk is high

In general, reliance on an IT specialist is appropriate when the financial statement auditor complies with the conditions of AU-C ________. A. 610 B. 620 C. 600 D. 500

B. 620

Which of the following helps discover and analyze patterns, identify anomalies, and extract other useful information in data underlying the subject matter of an audit? A. Tests of Control B. ADA C. XBRL D. GAAP

B. ADA

Which assertion is common to both (i) classes of transactions and events for the period under audit and (ii) account balances at period end? A. Classification B. Completeness C. Rights and obligation D. Valuation and allocation

B. Completeness

Considering the risk of overstatement of receivables due to premature revenue recognition that inflates revenues and receivables, which assertion for the accounts receivable balance is typically relevant? A. Accuracy B. Existence C. Completeness D. Rights and obligations

B. Existence

What procedures are designed to detect material misstatements at the assertion level (namely, tests of details and substantive analytical procedures)? A. Tests of controls B. Substantive procedures C. Analytical procedures D. Risk assessment procedures

B. Substantive procedures

Auditors spend a considerable amount of total audit time on the process of obtaining and evaluating audit evidence in support of management assertions, which is sourced primarily from the client's ________. A. working papers B. accounting records C. internal auditors D. audit data analytics

B. accounting records

When testing for the ________ assertion, auditors gather evidence that transactions and events have been recorded at appropriate amounts. A. cutoff B. accuracy C. existence D. completeness

B. accuracy

Employees of the client that perform assurance and consulting activities designed to evaluate and improve the effectiveness of the entity's governance, risk management, and internal control processes ________. A. should be expected to assist the auditor with the audit B. are known as internal auditors C. are referred to as specialists D. will provide evidence to the auditor which should always be considered reliable

B. are known as internal auditors

The permanent file should include____________. A. details of all members of the internal audit function B. details of the client's board of directors and its subcommittees C. details of all committees at the client's place of business D. all related party transactions

B. details of the client's board of directors and its subcommittees

When there is a low risk of material misstatement with an assertion and the client's system of internal controls is considered effective at reducing risk, ____________. A. detection risk is set at low B. detection risk is set at high C. inherent risk is set to medium D. control risk is ignored

B. detection risk is set as high

When testing for the ________ assertion, auditors search for evidence to verify that asset, liability and equity items on the balance sheet actually exist. A. presentation and disclosure B. existence C. occurrence D. valuation and accuracy

B. existence

Auditors communicating directly with a client's bank regarding the existence of the client's cash account balances at year-end would be an example of an: A. audit issue B. independent source C. internal source D. illegal communication

B. independent source

The extent of review of the component auditor's work depends on a number of factors. The group engagement partner will spend more time if the component auditor ________. A. has a good reputation B. is dealing with a component that is material C. has done audit work for the group engagement partner in the past D. is auditing statements that are at low risk of material misstatement

B. is dealing with a component that is material

An individual or an organization with expertise in a field other than accounting or auditing whose work in that field is used by the auditors to assist in obtaining sufficient appropriate audit evidence ________. A. is commonly known as an outside consultant B. is typically referred to as a specialist C. is not to be relied upon by the auditor D. should report to management, not the auditor

B. is typically referred to as a specialist

A common audit procedure that involves watching a process or procedure being carried out by client personnel or another party is known as ________. A. inspection B. observation C. recalculation D. reperformance

B. observation

With regard to management assertions, it is true to say that ___________. A. all assertions apply to all accounts and balances B. only some assertions apply to accounts and their balances C. none of the assertions apply to accounts and their balances D. management should be consulted to determine which assertions apply to which accounts

B. only some assertions apply to accounts and their balances

An auditor has just prepared and sent a letter to management detailing weaknesses in internal control. A copy of this letter should be ________. A. sent to the client's attorney B. placed in the permanent file C. placed in the temporary file, and removed when the client corrects the deficiencies D. filed with the Securities and Exchange Commission

B. placed in the permanent file

Extracts from the minutes of meetings that pertain to the current audit_________. A. should never be copied by the auditor B. should be added to the current file C. should immediately be copied and placed in the permanent file D. are confidential, and should not be shared with the auditor

B. should be added to the current file

A client's primary accounting methodologies and significant accounting policies___________. A. should be stored in the current file B. should be stored in the permanent file C. should be re-examined by the auditor once the audit report has been published D. is confidential, and should not be shared with the auditor

B. should be stored in the permanent file

Client information and documentation that applies to multiple audits should be A. stored in the current file B. stored in the permanent file C. destroyed upon completion of the audit D. returned to the client upon completion of the audit

B. stored in the permanent file

Ultimate responsibility for audit decisions, supervision of the team members, and the issuance of the final audit report rests with__________. A. management B. the audit partner C. the audit manager D. the audit committee

B. the audit partner

The management assertion of classification deals with _______________. A. ensuring vacancies are posted to appropriated classified ads B. transactions and events have been recorded in the proper accounts. C. classifying between the appropriate financial statements D. current versus non-current only

B. transactions and events have been recorded in the proper accounts

When testing for the ________ assertion, auditors search for evidence that assets, liabilities and equity items have been recorded at appropriate amounts and allocated to the correct general ledger accounts. A. presentation and disclosure B. valuation and allocation C. existence D. occurrence

B. valuation and allocation

When an auditor selects transactions from the sales journal or ledger and then examines the underlying source documents, such as a shipping document and an invoice to the customer, this is known as ________. A. tracing B. vouching C. examination D. inspection of records

B. vouching

When would auditors want to decrease the risk that their audit procedures will NOT detect a material misstatement A. When detection risk is high B. When detection risk is low C. When inherent risk is low D. When control risk is low

B. when detection risk is low

Which of the following summarizes the detail included in a specific account on the financial statements? A. Vouching B. Assertion C. Lead schedule D. Bank confirmation

C. Lead schedule

In audit evidence, which of the following refers to the logical connection with the assertion being tested? A. Reliability B. Sufficiency C. Relevance D. Appropriateness

C. Relevance

Which of the following is an individual or organization with expertise in a field other than accounting or auditing whose work in that field is used by the auditors to assist in obtaining sufficient appropriate evidence? A. Component auditor B. Internal auditor C. Specialist D. Group engagement partner

C. Specialist

Auditors who are searching for evidence that assets, liabilities, and equity items have been recorded at appropriate amounts and allocated to the correct general ledger accounts consider ________. A. existence B. classification C. valuation and allocation D. rights and obligations

C. Valuation and allocation

Which of the following provides evidence for the occurrence assertion? A. Tracing B. Visualization C. Vouching D. Tests of controls

C. Vouching

If an auditor has determined that inherent risk for accounts receivable is high and wishes to verify the balance as accurate, the best corroborating evidence would be ________. A. a phone call to the client B. a negative confirmation sent to the entity in question C. a positive confirmation sent to the entity in question D. inspection of supporting documents relating to the receivables transactions

C. a positive confirmation sent to the entity in question

Financial information of more than one entity, or component____________. A. are known as parent-subsidiary statements B. are not allowed under GAAP C. are referred to as group financial statements D. should be audited by the internal audit function instead

C. are referred to as group financial statements

The specific procedures auditors will use to gather evidence are detailed in the_____________. A. financial statements B. representation letter C. audit program D. flowchart

C. audit program

The procedure of auditors examining a client's unpaid invoices file and determining if payables have been properly created for any unpaid invoices would provide evidence in support of the _______ assertion. A. accuracy B. occurrence C. completeness D. cut-off

C. completeness

When testing for the ________ assertion, auditors search for assets, liabilities and equity items to ensure they have been recorded. A. cutoff B. valuation and accuracy C. completeness D. presentation and disclosure

C. completeness

Current year working papers for an audit client should contain________. A. a copy of the lead schedule B. a copy of the working papers C. copies of the lead schedule and working papers D. neither copies of the lead schedules nor working papers.

C. copies of the lead schedule and working papers

When testing for the ________ assertion, auditors search for evidence that transactions have been recorded in the correct accounting period. A. rights and obligations B. valuation and accuracy C. cutoff D. existence

C. cutoff

Auditors document details of tests undertaken_________. A. in the audit planning phase B. once the audit is completed C. during the risk response phase D. during risk assessment

C. during the risk response phase

The primary assertion being tested when using receivable confirmations is____________. A. completeness B. valuation and accuracy C. existence D. rights and obligations

C. existence

With respect to relying on the work of the internal audit function, external auditors should_____________. A. always be willing to accept work completed and documentation provided B. never be willing to accept work completed by the internal audit function C. impartially assess the objectivity, competence and processes of the internal audit function D. always assign junior members of the audit team to assist the internal audit function

C. impartially assess the objectivity, competence and processes of the internal audit function

Audit evidence will typically consist of_________________. A. all observations made by the auditor B. all records prepared by the auditor, not including records received from external entities C. information that supports and corroborates management's assertions and any information that contradicts the assertions D. information that supports the auditor's initial assessment of audit risk

C. information that supports and corroborates management's assertions and any information that contradicts the assertions

Performing numerical accuracy tests for foreign currency translations, payroll taxes, interest on loans outstanding, and depreciation calculations____________. A. is the role of the internal audit function B. is the responsibility of management C. is referred to as recalculation D. is unnecessary if the client is assessed as having low control risk

C. is referred to as recalculation

Relevance of audit evidence refers to__________. A. its importance to the audit B. its relevance to outside investors and creditors C. its relationship to the assertion being tested D. its relevance to the balance sheet

C. its relationship to the assertion being tested

Management assertions are best defined as ____________. A. sometimes being present in the financial statements, and sometimes not. B. optional items for the auditor to check C. representations by management, explicit and implicit, contained within the financial statements. D. management communications with an attorney

C. representations by management , explicit and implicit, contained within the financial statements

When testing for the ________ assertion, auditors gather evidence to verify recorded assets are owned by the entity and recorded liabilities represent commitments of the entity. A. existence B. valuation and accuracy C. rights and obligations D. occurrence

C. rights and obligations

If an audit partner reviewing an engagement was attempting to locate details of long-term contracts and agreements, this information would be found in ________. A. the representation letter B. communications with the client's attorney C. the permanent file D. the current file

C. the permanent file

When auditors start with the underlying source documents and work forward to follow the transaction through to recording in the journal and ledger, this is referred to as ________. A. audit procedures B. substantive procedures C. tracing D. vouching

C. tracing

The cuttoff assertion deals with ____________. A. ensuring accounts are appropriately valued B. ensuring amounts are recorded in the correct accounts C. transactions and events have been recorded in the correct accounting period D. ensuring that assets, liabilities and equity interests exist.

C. transactions and events have been recorded in the correct accounting period

Documentation contained in the working papers for a client ________. A. will be the same for each client within a particular industry B. will contain a few minor variations between different clients C. will vary by client D. should be shared with the client and appropriate changes made

C. will vary by client

Which of the following is a listing of details of the audit procedures to be used when testing controls and when conducting detailed substantive audit procedures? A. Audit data analytics B. Accounting records C. Analytical procedures D. Audit program

D. Audit program

Receivable confirmations provide very little evidence regarding the ________ assertion. A. accuracy B. rights and obligation C. occurrence D. completeness

D. Completeness

Auditors inspecting a sample of accounts payable balances listed on the ledger and verifying that they are true payables owed by the client gather evidence in support of the _______ assertion. A. accuracy B. occurrence C. completeness D. existence

D. Existence

AU-C 230 Audit Documentation and AS 1215 Audit Documentation require auditors to document each stage of the audit in their _______ to provide a record of work completed and evidence gathered in forming their audit opinion. A. Bank confirmations B. Audit data analytics C. Group financial statements D. Working papers

D. Working Papers

When an auditor asks questions verbally or in written form of knowledgeable individuals internal to the client, this is referred to as ________. A. confirmation B. attestation C. affirmation D. inquiry

D. inquiry

An auditor's evaluation of financial information by studying plausible relationships among both financial and non-financial data ____________. A. is known as recalculation B. is known as reperformance C. is referred to as substantive testing D. is referred to as analytical procedures

D. is referred to as analytical procedures

Using ADA software typically makes the audit_____________. A. more comprehensive but less efficient. B. less comprehensive and less efficient. C. less comprehensive but more efficient. D. more comprehensive and more efficient.

D. more comprehensive and more efficient