Audit Ch. 5 SmartBook

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

Inquiry may ______.

-provide corroborative audit evidence -be formal or informal -provide new audit evidence

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

Management

The auditor can issue an unqualified/unmodified report when audit evidence supports management's

assertation

Expressed or implied representations by management regarding the recognition, measurement, presentation, and disclosure of information in the financial statements and related disclosures are referred to as

assertions

A management statement that the property, plant, and equipment shown on the balance sheet was owned and available for sale at the balance sheet date is an example of the ______ assertion.

existence

Documents originating within the entity but circulated to independent sources outside the entity and documents generated outside the entity are referred to as

external

The process of

indexing, cross referencing

Confirmations ______.

may provide evidence about the completeness assertion provide reliable evidence for the existence assertion are used extensively on audits

This is useful in helping auditors understand the entity's processes but is generally not considered very reliable.

observation

The quality of an expectation is referred to as the

precision

In evaluating audit evidence, the auditor must ______.

remain objective be unbiased understand the types of evidence available

The auditor's independent execution of procedures or controls that were originally performed by company personnel is referred to as

reperformance

Searching for large and unusual items in the accounting records and reviewing transactions for errors are examples of

scanning

The auditor's exercise of professional judgment to review accounting data to identify significant or unusual items to test is referred to as

scanning

The functions of audit documentation are to ______.

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

Notations that are made by the auditor near, or next to, an item or amount on an audit document that are used to document work performed are called

tick marks

Because the entity's personnel might have incentives to record fictitious transactions, the

validity

Audit documentation is referred to as

working papers

True or false: Auditing standards dictate how audit documentation should be organized.

False

Which of these processes are generally considered highly reliable because the auditor has direct knowledge about them?

Reperformance of tangible assets Inspection of tangible assets Recalculation of tangible assets

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

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

accounting records

Audit documentation is the property of the ______.

independent auditors

The measure of the quantity of audit evidence is referred to as

sufficiency

Audit documentation should ______.

support the auditor's conclusions for each material financial statement assertion include an audit program for the engagement demonstrate the underlying accounting records agreed with the financial statements show that standards of fieldwork have been followed enable a knowledgeable reviewer to determine who performed the work demonstrate how the audit complied with appropriate standards

Footing, crossfooting, reconciling subsidiary ledgers and testing postings are all examples of

recalculation

When filling the "assurance bucket", existence or validity is typically more important for accounts

receivable, payable

The precision of the expectation ______.

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

Tests of controls ______.

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

PCAOB standards require that audit documentation contain ______.

all documents that form the basis of the audit

This consists of evaluations of financial information through the examination of plausible relationships among both financial and nonfinancial data.

analytical procedures

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

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

audit program

Audit evidence obtained by the auditor as a direct written response to the auditor from a third party in paper form or by electronic or other medium is called a(n)

confirmation

In regards to applying the audit testing hierarchy, starting with tests of

control, details

For lower-risk, well-controlled accounts, the assurance bucket may be filled entirely with tests of

controls

The heading of all audit documentation should include the ______.

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

True or false: Inspecting tangible assets provides significant assurance for the rights and obligations assertion.

false

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

industry publications competitor information budgets and forecasts

This is an important audit procedure that is used extensively throughout the audit and is often complementary to performing other audit procedures.

inquiry

Auditors usually use the term

inquiry, confirmation

Counting cash on hand and examining inventory are examples of

inspection

Duplicate copies of invoices and shipping remittances are examples of ______ documents.

internal

There is a(n) ______ relationship between the sufficiency and appropriateness of audit evidence.

inverse

Evidence obtained from a source outside the entity is generally considered ______ evidence obtained solely from within the entity.

more reliable than

The reliability of evidence obtained through external confirmations may be affected by the ______.

nature of the information being confirmed form of the confirmation prior experience with the entity intended respondent

Looking at a process or procedure being performed by others is referred to as

observation

Whether all recorded transactions and events have happened and pertain to the entity is the basis of the ______ assertion.

occurrence

The reliability of analytical procedures is a function of the ______.

plausibility and predictability of the relationship being tested precision of the expectation and the rigor of the investigation availability and reliability of the data used in the calculations

The independent execution by the auditor of procedures or controls that were originally performed by company personnel is called ______.

reperformance

Match the appropriate category of audit procedure with the purpose that it serves. Instructions

risk assessment procedures-- 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 test of controls-- used to test the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the relevant assertion level used to test the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the relevant assertion level substantive procedures-- used to detect material misstatements at the relevant assertion level used to detect material misstatements at the relevant assertion levelDocuments originating within the entity but circulated to independent sources outside the entity and documents generated outside the entity are referred to as

The Sarbanes-Oxley Act and the PCAOB standards require that audit documentation be retained for

seven

Assume an entity has 2,500 customers. If the auditor mails confirmation to 25 of the largest customers and only 20 respond the auditor must ______.

still gather sufficient evidence on each of the 25 accounts

Analytical procedures can be used by auditors to accomplish ______ procedures.

substantive analytical risk assessment final analytical

Specific acts performed by the auditor to gather evidence about whether specific assertions are being met are referred to as

audit procedures

A management statement that the inventory shown on the balance sheet was available for sale at the balance sheet date is an example of the

existence

The audit documentation needs to be organized so that ______ can find the audit evidence that supports each financial statement account.

reviewers any member of the audit team

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

whether the document is internal or external