Audit Chapter 5

Which of these are generally low-reliability types of evidence because they require further corroboration by the auditor?

Observation, Inquiry

True or False The auditor is not required to obtain corroborative evidence because planning analytical procedures do not provide substantive audit evidence regarding specific assertions.

True

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: Audit evidence includes information developed by the auditor that permits him or her to reach conclusions through valid reasoning.

True

In most cases, the ______ must give consent to show the audit documents.

entity

Audit documentation should ______.

include an audit program for the engagement, support the auditor's conclusions for each material financial statement assertion and demonstrate the underlying accounting records agreed with the financial statements

Audit documentation is the property of the ______.

independent auditors

Tests of controls ______.

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

Checks, invoices, contracts, ledgers, worksheets and spreadsheets are all part of auditing evidence referred to as

According records

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

The audit procedures that will be conducted by the auditor are contained in the _______ ________

Audit programs

The _________ ratio is usually considered acceptable if it is 2 to 1 or better.

Current

True or false: Auditing standards base the need for substantive procedures for significant account balances on the assessed risk of material misstatement.

False

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

False

The working papers document the auditor's compliance with auditing standards and particularly compliance with the standards of _______________

Fieldwork

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

Financial and operating data. Budgets and forecasts. Industry publications. Competitor information. Management's analyses. Analysts' reports.

The process of ___________ and ___________-___________ provides a trail from the financial statements to the individual audit documents that a reviewer can easily follow.

Indexing and cross-referencing

Who is responsible for the fair presentation of the financial statements?

Management

When audit evidence supports ____________ _________________, the auditor can issue an unqualified report.

Management assertions

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.

Risk assessment procedures

This is considered medium-reliability evidence.

Scanning

An entity's ability to meet its current obligations can be evaluated using ____-__________ ___________ ratios.

Short-term liquidity

Used to detect material misstatements at the relevant assertion level. Substantive procedures include tests of details and substantive analytical procedures.

Substantive procedures

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

Tests of controls

__________ are less costly to perform than tests of details

Tests of controls

True or False Accounting principle choices can impact some ratios.

True

Audit documentation is referred to as ________ ______________ or the audit file.

Working papers

The focal point for reviewing the work of subordinates and for quality control reviewers are the

Working papers

To properly present information on the financial statements a(n) ______________ entry that affects either the income statement or the balance sheet must be made.

reclassification

The second step in the analytical procedures decision process is to define a ____ difference.

Tolerable

The amount of difference that can be accepted will generally always be lower than

Tolerable misstatement

True or False Financial ratios should not be evaluated in isolation.

True

True or False Material misstatement may not significantly affect some ratios.

True

Misstatements in the entity's records are corrected with _________ entries.

adjusting

The functions of audit documentation are to ______.

aid in the planning, performance and supervision of the audit, provide principal support that the audit was conducted in accordance with GAAS, and provide the basis for the review of the quality of work

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

The working papers document the ______.

basis for the audit report decision, scope of the audit was adequate, and correspondence of the financial statements with GAAP

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

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

Audit documentation should ______.

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

The precision of the expectation ______.

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

The _____ precise the expectation, the ______ the likelihood that the difference is actually a misstatement.

more, greater

The heading of all audit documentation should include the ______.

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

The reliability of inspection of records and documents depends primarily on ______.

whether the document is internal or external

Auditing standards require testing regardless of the assessed

risk of material misstatement.