Audit Chapter 7
Which of the following would not be considered to be an analytical procedure? (1) Estimating payroll expense by multiplying the number of employees by the average hourly wage rate and the total hours worked. (2) Projecting the error rate by comparing the results of a statistical sample with the actual population characteristics. (3) Computing accounts receivable turnover by dividing credit sales by the average net receivables. (4) Developing the expected current year sales based on the sales trend of the prior five years.
2
During an audit engagement, pertinent data are compiled and included in the audit files. The audit files primarily are considered to be (1) a client-owned record of conclusions reached by the auditors who performed the engagement. (2) evidence supporting financial statements. (3) support for the auditor's representations as to compliance with auditing standards. (4) a record to be used as a basis for the following year's engagement.
3
Which of the following is not a primary purpose of audit documentation? (1) To coordinate the audit (2) To assist in preparation of the audit report (3) To support the financial statements (4) To provide evidence of the audit work performed
3
According to PCAOB audit standards, audit documentation must be retained for (1) one year. (2) three years. (3) five years. (4) seven years.
4
Although the quantity, type, and content of audit documentation will vary with the circumstances, audit documentation generally will include the (1) copies of those client records examined by the auditor during the course of the engagement. (2) evaluation of the efficiency and competence of the audit staff assistants by the partner responsible for the audit. (3) auditor's comments concerning the efficiency and competence of client management personnel. (4) auditing procedures followed and the testing performed in obtaining audit evidence.
4
Audit evidence can come in different forms with different degrees of persuasiveness. Which of the following is the least persuasive type of evidence? (1) Vendor's invoice (2) Bank statement obtained from the client (3) Computations made by the auditor (4) Prenumbered sales invoices
4
Which of the following presumptions is correct about the reliability of audit evidence? (1) Information obtained indirectly from outside sources is the most reliable audit evidence. (2) To be reliable, audit evidence should be convincing rather than merely persuasive. (3) Reliability of audit evidence refers to the amount of corroborative evidence obtained. (4) Effective internal control provides more assurance about the reliability of audit evidence.
4
Which of the following situations has the best chance of being detected when a CPA compares 2016 revenues and expenses with the prior year and investigates all changes exceeding a fixed percent? (1) An increase in property tax rates has not been recognized in the company's 2016 accrual. (2) The cashier began lapping accounts receivable in 2016. (3) Because of worsening economic conditions, the 2016 provision for uncollectible accounts was inadequate. (4) The company changed its capitalization policy for small tools in 2016.
4
what is the document completion date deadline for PCAOB? no later than __________ after the audit report release date
45 days
how long does the AICPA require CPA firms to retain work papers?
5 years
when is the document completion date deadline for AICPA? no later than __________ after the audit report release date
60 days
how long does the PCAOB require CPA firms to retain work papers?
7 years
what are the four types of evaluating the reliability of the evidence?
externally produced/maintained externally produced/client maintained client prepared, externally reviewed, client maintained client prepared, client maintained
add down a column
foot
Obtain a letter from management stating that there are no unrecorded liabilities Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.
inquiries of client
Obtain information about internal control by requesting the client to fill out a questionnaire Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.
inquiries of client
Review the accounts receivable with the credit manager to evaluate their collectibility Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.
inquiries of client
Ask the accounts payable clerk about procedures for verifying prices, quantities, and extensions on vendors' invoices identify the type of audit evidence used and the transaction-related audit objective or objectives satisfied by each audit procedure
inquiries of client, accuracy
what is the weakest type of evidence?
inquiries of our client
the obtaining of written or oral information from the client in response to specific questions during the audit
inquiry
Compare a duplicate sales invoice with the sales journal for customer name and amount. Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.
inspection
Examine an insurance policy stating the amount of the fire insurance coverage on buildings and equipment Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.
inspection
Examine corporate minutes to determine the authorization of the issue of bonds Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.
inspection
the auditor's examination of the client's documents and records to substantiate the information that is or should be included in the financial statements
inspection
Examine expense voucher packages and related vendors' invoices for approval of expense account classification identify the type of audit evidence used and the transaction-related audit objective or objectives satisfied by each audit procedure
inspection, classification
Trace from receiving reports to vendors' invoices and entries in the acquisitions journal identify the type of audit evidence used and the transaction-related audit objective or objectives satisfied by each audit procedure
inspection, completeness
Vouch entries in sales journal to sales invoices and related shipping documents. identify the type of audit evidence used and the transaction-related audit objective or objectives satisfied by each audit procedure
inspection, occurrence
a document, such as an employee time report, that is pre- pared and used within the client's organization
internal document
Watch employees count inventory to determine whether company procedures are being followed Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.
observation
Observe opening of cash receipts to determine that cash receipts are promptly deposited and recorded identify the type of audit evidence used and the transaction-related audit objective or objectives satisfied by each audit procedure
observation, timing and completeness
what are the 4 primary requirements of AU 500?
obtain sufficient, appropriate audit evidence relevance and reliability adjust audit procedures for evidence gathering management specialist
what audit objective does vouching help meet?
occurrence
Should include reading the financial statements and notes to consider the adequacy of evidence gathered select the stage of audit that this statement most accurately is in Planning the audit Substantive testing Overall review Statement is not correct concerning analytical procedures
overall review
the degree to which the auditor is convinced that the evidence supports the audit opinion; the two determinants of persuasiveness are the appropriateness and sufficiency of the evidence
persuasiveness of evidence
Count a sample of inventory items and record the amount in the audit files. Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.
physical examination
Examine a piece of equipment to make sure that a major acquisition was actually received and is in operation Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.
physical examination
what are the 8 types of evidence?
physical examination confirmation inspection inquiries of our client recalculation reperformance observational analytical review
Should focus on enhancing the auditor's understanding of the client's business and the transactions and events that have occurred since the last audit date select the stage of audit that this statement most accurately is in Planning the audit Substantive testing Overall review Statement is not correct concerning analytical procedures
planning the audit
Should focus on identifying areas that may represent specific risks relevant to the audit select the stage of audit that this statement most accurately is in Planning the audit Substantive testing Overall review Statement is not correct concerning analytical procedures
planning the audit
Use the preliminary or unadjusted working trial balance as a source of data select the stage of audit that this statement most accurately is in Planning the audit Substantive testing Overall review Statement is not correct concerning analytical procedures
planning the audit
Add the sales journal entries to determine whether they were correctly totaled Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.
recalculation
Extend the cost of inventory times the quantity on an inventory listing to test whether it is accurate Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.
recalculation
the rechecking of a sample of the computations made by the client, including mathematical accuracy of individual transactions and amounts and the adding of journals and subsidiary records
recalculation
Add the sales journal for the month of July and trace amounts to the general ledger identify the type of audit evidence used and the transaction-related audit objective or objectives satisfied by each audit procedure
recalculation, posting and summarization
the extent to which evidence is believable or worthy of trust; evidence is reliable when it is obtained (1) from an independent provider, (2) from a client with effective internal controls, (3) from the auditor's direct knowledge, (4) from qualified providers such as law firms and banks, (5) from objective sources, and (6) in a timely manner
reliability of evidence
Trace the total in the cash disbursements journal to the general ledger Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.
reperformance
the auditor's independent tests of client accounting procedures or controls that were originally done as part of the entity's accounting and internal control system
reperformance
procedures that give an overall understanding of the client and its industry, including its internal control system
risk assessment procedures
what are the different types of audit procedures?
risk assessment procedures tests of controls substantive testing
when must the management rep letters be dated?
same date on audit report
Do not result in detection of misstatements select the stage of audit that this statement most accurately is in Planning the audit Substantive testing Overall review Statement is not correct concerning analytical procedures
statement is not correct concerning analytical procedures
Involve reconciliation of confirmation replies with recorded book amounts select the stage of audit that this statement most accurately is in Planning the audit Substantive testing Overall review Statement is not correct concerning analytical procedures
statement is not correct concerning analytical procedures
an analytical procedure in which the auditor develops an expectation of recorded amounts or ratios to provide evidence sup- porting an account balance
substantive analytical procedure
Designed to obtain evidential matter about particular assertions related to account balances or classes of transactions select the stage of audit that this statement most accurately is in Planning the audit Substantive testing Overall review Statement is not correct concerning analytical procedures
substantive testing
Generally use data aggregated at a lower level than the other stages select the stage of audit that this statement most accurately is in Planning the audit Substantive testing Overall review Statement is not correct concerning analytical procedures
substantive testing
Not required during this stage select the stage of audit that this statement most accurately is in Planning the audit Substantive testing Overall review Statement is not correct concerning analytical procedures
substantive testing
Require documentation in the working papers of the auditor's expectation of the ratio or account balance select the stage of audit that this statement most accurately is in Planning the audit Substantive testing Overall review Statement is not correct concerning analytical procedures
substantive testing
audit procedures we use to find misstatements
substantive testing
the quantity of evidence; proper sample size
sufficiency of evidence
test the effectiveness of internal controls that we want to rely on during this audit to accomplish our objectives
tests of controls
symbols used on an audit schedule that provide additional information or details of audit procedures performed
tick marks
external to internal - randomly select some items from a population and go into the accounting records
tracing
the use of documentation to determine if transactions or amounts are included in the accounting records
tracing
internal to external - going from a reported amount in the accounting system, out to some supporting document
vouching
the use of documentation to support recorded transactions or amounts
vouching
AU 230 states that ______ ________ can be used over any medium
work papers
what is AU 580?
written representations
An auditor most likely would apply analytical procedures in the overall review stage of an audit to (1) identify unusual or unexpected balances that were not previously identified. (2) obtain an understanding of high-risk areas. (3) evaluate the design and implementation of internal control. (4) identify related party transactions that may not have been previously identified.
1
For all audits of financial statements made in accordance with auditing standards, the use of analytical procedures is required to some extent planning stage substantive test completion stage (1) yes no yes (2) no yes no (3) no yes yes (4) yes no no
1
Which of the following types of audit evidence is generally the most reliable? (1) A bank statement (2) A bank confirmation (3) Analytical procedures (4) Inquiries made of the audit committee
2
Which of the following types of documentary evidence should the auditor consider to be the most reliable? (1) A sales invoice issued by the client and supported by a delivery receipt from an outside trucker (2) Confirmation of an account payable balance mailed by and returned directly to the auditor (3) A check, issued by the company and bearing the payee's endorsement, that is included with the bank statements mailed directly to the auditor (4) An audit schedule prepared by the client's controller and reviewed by the client's treasurer
2
Calculate the ratio of cost of goods sold to sales as a test of overall reasonableness of gross margin relative to the preceding year Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.
analytical procedures
Calculate the ratio of sales commission expense to sales as a test of sales commissions Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.
analytical procedures
Review the total of repairs and maintenance for each month to determine whether any month's total was unusually large. Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.
analytical procedures
evaluations of financial information through analysis of plausible relationships among financial and nonfinancial data
analytical procedures
a measure of the quality of evidence; appropriate evidence is relevant and reliable in meeting audit objectives for classes of transactions, account balances, and related disclosures
appropriateness of evidence
record of the audit procedures performed, relevant audit evidence, and conclusions the auditor reached
audit documentation
what is AU 230?
audit documentation
what is AU 500?
audit evidence
detailed instruction for the collection of a type of audit evidence
audit procedure
list of audit procedures for an audit area or an entire audit; the audit program always includes audit procedures and may also include sample sizes, items to select, and timing of the tests
audit program
includes business documents - invoices, PO, receiving reports
client prepared, client maintained
what is the weakest type of evaluations for the reliability of evidence?
client prepared, client maintained
cancel check produced by client
client prepared, externally reviewed, client maintained
what audit objective does tracing help meet?
completeness
Obtain a letter from an insurance company to the CPA firm stating the amount of the fire insurance coverage on buildings and equipment Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.
confirmation
Obtain a letter from the client's attorney addressed to the CPA firm stating that the attorney is not aware of any existing lawsuits. Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.
confirmation
Obtain a written statement from a bank stating that the client has $15,671 on deposit and liabilities of $500,000 on a demand note Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.
confirmation
the auditor's receipt of a direct written or electronic response from a third party verifying the accuracy of information requested
confirmation
what is the strongest type of evidence?
confirmation evidence
what is AU 585?
consideration of omitted procedures
add across a column
cross foot
what are the two types of substantive testing?
detailed substantive testing analytical review procedures
when the auditors have assembled, for retention, a complete and final document set of work papers
document completion date
a document, such as a vendor's invoice, that has been used by an outside party to the transaction being documented and that the client now has or can easily obtain
external document
monthly bank statements
externally produced/client maintained
confirmation sent to people who owe the client money by the auditor's
externally produced/maintained
what is the strongest type of evaluations for the reliability of evidence?
externally produced/maintained