Audit Evidence and Audit Programs PSA 500 and 230

60. When the recipient has accomplished the confirmation request, replies should be: A. Sent directly to the auditor B. Sent directly to the client, after which the client gives the replies to the auditor C. Sent directly to the auditor, with another copy of the reply going to the client D. Not sent back since a confirmation request does not necessitate replies

A

A CPA, in performing an independent audit, would most likely use recalculation as a substantive test for which of the following expense-related accounts? a. Purchases of supplies. b. Interest expense. c. Advertising expense. d. Repairs and maintenance expense.

B

An audit program provides proof that a. Sufficient competent evidential matter was obtained. b. The work was adequately planned. c. There was compliance with generally accepted standards of reporting. d. There was a proper study and evaluation of internal control.

B

6. An auditor's working papers will ordinarily be least likely to include documentation showing how the a. Client's schedules were prepared. b. Engagement was planned. c. Understanding of the client's internal control was obtained and control risk was assessed. d. Unusual matters were resolved.

A

29. Which of the following auditing procedures is ordinarily performed last? a. Reading of the minutes of the directors' meetings. b. Confirming accounts payable. c. Obtaining a management representation letter. d. Testing of the purchasing function.

C

3. Which of the following best describes the primary purpose of audit procedures? a. To detect errors or irregularities. b. To comply with generally accepted accounting principles. c. To gather corroborative evidence. d. To verify the accuracy of account balances.

C

3. Why does an auditor document audit evidence? a. To comply with the requirements of gathering all available evidence. b. To provide client reference for all account balances and correcting entries. c. To support audit opinion and to provide evidence that the audit was carried out in accordance with PSA. d. To document all records of misstatements noted in the financial statements.

C

30. Before applying substantive tests to the details of asset accounts at an interim date, an auditor should assess a. Control risk at below the maximum level. b. Inherent risk at the maximum level. c. The difficulty in controlling the incremental audit risk. d. Materiality for the accounts tested as insignificant.

C

31. Before applying principal substantive tests to the details of accounts at an interim date prior to the balance sheet date, an auditor should a. Assess control risk as below the maximum for the assertions embodied in the accounts selected for interim testing. b. Determine that the accounts selected for interim testing are not material to the financial statements taken as a whole. c. Consider whether the amounts of the year-end balances selected for interim testing are reasonably predictable. d. Obtain written representations from management that all financial records and related data will be made available.

C

31. What do you call the type of working paper where matters of importance are noted down for further verification? A. Summary sheet C. Agenda Sheet B. Audit program D. Supporting schedules.

C

31. Which of the following best describes the primary purpose of audit procedures? A. To detect fraud B. To comply with generally accepted accounting principles C. To gather corroborative evidence to support the audit opinion D. To verify the accuracy of account balances

C

32. The current file of the auditor's working papers generally should include. A. A flowchart of the internal controls C. A copy of the financial statements B. Organization charts D. Copies of bond and note indentures

C

34. Audit procedures to detect material misstatements at the assertion level. A. Risk assessment procedures C. Substantive procedures B. Tests of control D. Analytical procedures

C

36. It includes test of details of classes of transactions, account balances, and disclosures and analytical procedures. A. Risk assessment procedures C. Substantive procedures B. Tests of control D. Analytical procedures

C

37. Test of controls are necessary to be performed: A. When auditor's risk assessment includes an expectation of the operating effectiveness of controls. B. When substantive procedures alone do not provide sufficient appropriate audit evidence. C. Both a and b D. No circumstance will require tests of controls.

C

38. For what minimum period should audit working papers be retained by the independent CPA? A. For the period during which the entity remains a client of the independent CPA. B. For the period during which an auditor-client relationship exists but not more than six (6) years C. For the statutory period within which legal action may be brought against the independent CPA. D. For as long as the CPA is in public practice.

C

4. The measure of the quantity of audit evidence is: A. Sufficiency C. Appropriateness B. Competence D. Relevance

A

44. Auditor's independent execution of procedures or controls that were originally performed as part of the entity's internal control. A. Reperformance C. Reconciliation B. Confirmation D. Recomputation

A

47. The more the planned reliance of the auditor on the operating effectiveness of internal controls, A. The more the extent of the auditor's tests of controls. B. The less the extent of the auditor's tests of controls. C. The more the reliance of the auditor on information generated by the entity. D. The less the reliance of the auditor on information generated by the entity.

A

57. Who signs the confirmation requests: A. The appropriate level of management C. The CEO/CFO of the client B. The audit partner D. Both management and the auditor

A

14. Tests of controls are necessary a. When the auditor's risk assessment includes an expectation of the operating effectiveness of controls. b. When substantive procedures alone provide sufficient appropriate audit evidence. c. When risk assessment procedures by themselves do not provide sufficient appropriate audit evidence. d. Under no circumstances.

A

38. Examining records or documents, whether internal or external, in paper form, electronic form, or other media. A. Inspection of records or documents C. Observation B. Inspection of tangible assets D. Inquiry

A

1. All the information used by the auditor in arriving at the conclusion on which the audit opinion is based. It includes the information contained in the accounting records underlying the financial statements (underlying accounting data) and other information (corroborating information). A. Audit evidence C. Audit opinion B. Audit risk D. Audit program

A

1. It means the materials prepared by and for, or obtained and retained by the auditor in connection with the performance of the audit. a. Documentation c. Engagement letter b. Audit evidence d. Audit report

A

11. Audit working papers are indexed by means of reference numbers. The primary purpose of indexing is to a. Permit cross-referencing and simplify supervisory review. b. Support the audit report. c. Eliminate the need for follow-up reviews. d. Determine that working papers adequately support findings, conclusions, and reports.

A

12. Statement 1: Working papers are the property of the auditor. Statement 2: Although portions of or extracts from the working papers maybe made available to the entity at the discretion of the auditor, they may be substitute for the entity's accounting records. A. Only statement one is correct C. Both statements are correct B. Only statement two is correct D. Both statements are incorrect

A

15. Audit working papers are used to record the results of the auditor's evidence gathering work. When preparing working papers, the auditor should remember that A. Working papers should be designed to meet the circumstances and the auditor's need for each engagement B. Working papers should be kept on the client's premises so as to provide ready access to them by the client. C. Working papers should be at the primary support for the financial statements being examined. D. Working papers should be considered as a substitute for the client's accounting records.

A

16. Assertions used by the auditor fall into the following categories, except: A. Assertions about the faithful representations B. Assertions about account balances C. Assertions about classes of transactions and events D. Assertions about presentation and disclosure

A

16. In an internal audit, the audit supervisor determines that working papers are complete a. When satisfied that the audit objectives have been met and the working papers support the conclusions. b. When working papers refer to the steps outlined in the audit program. c. Only after the auditor who prepared the working papers has signed and dated them. d. When proper cross-references to other working papers are noted.

A

16. The primary purpose of audit working papers is to A. Provide evidence of compliance with auditing standards B. Provide management with an independent copy of financial records. C. Provide protection against litigation D. Document deficiencies in client policies and procedures

A

17. Standardized working papers are often used, chiefly because they allow working papers to be prepared more a. Efficiently b. Professionally c. Neatly d. Accurately

A

18. Observation a. Consists of looking at a process or procedure being performed by others. b. Consists of seeking information of knowledgeable persons, both financial and non-financial, throughout the entity or outside the entity. c. Is the process of obtaining a representation of information or of an existing condition directly from a third party. d. Is the auditor's independent execution of procedures or controls that were originally performed as part of the entity's internal control.

A

19. Working papers which contain information relating primarily to the audit of a single period. a. Current audit files c. Financial reporting files b. Permanent audit files d. Correspondence files

A

2. Which of the following statements concerning audit evidence is correct? Statement 1: The quantity of audit evidence is affected by the risk of misstatement and also by the quality of such audit evidence. Statement 2: The reliability of audit evidence is influenced by its source and by its nature and is dependent on the individual circumstances under which it is obtained. A. Both statements are true C. True; False B. Both statements are false D. False; True

A

20. Which of the following is the least required of the audit working papers? a. Substitute for the entity's accounting records. b. Confidentiality of information included in the working papers. c. Safe custody of the working papers. d. Retention for a period sufficient to meet the needs of the practice.

A

22. Which description refers to the completeness assertion? A. All disclosures that should have been included in the financial statements have been included. B. Disclosed events, transactions and other matters have occurred and pertain to the entity, C. Financial information is appropriately presented and described, and disclosures are clearly expressed. D. Financial and other information are disclosed fairly and at appropriate amounts.

A

26. Documentation is a form of evidence A. Used in every financial statement audit B. Used in most financial statement audit C. Used on the rare occasions when it is both readily available and less costly than other procedures. D. Used when nothing is available that is more competent

A

27. An audit working paper that shows the detailed evidence and procedures regarding the balance in the accumulated depreciation account in the year under audit will be found in the A. Current file of working papers B. Permanent file of working papers C. Other information working papers in the current file D. Planning memorandum in the current file.

A

27. When vouching, A. The direction of the test is from recorded item back to the underlying support. B. A complete examination of the transactions in the account is performed. C. Recomputations are performed. D. The auditor selects a transaction and follows it forward to recording in the accounting records.

A

28. Which of the following statements relating to the competence of evidential matter is always true? A. Evidence gathered by auditors must be both valid and relevant to be considered competent. B. Properly designed analytical procedures will detect material misstatements. C. Evidential matter gathered by an auditor from outside a client is reliable. D. Oral representations made by management are not valid.

A

28. You have been assigned to audit the maintenance department of an organization. Which of the following is likely to produce the least reliable audit evidence? a. Notes on discussions with mechanics in the maintenance operation. b. A schedule comparing actual maintenance expenses with budgeted expenses and those of the prior period and disclosing important differences. c. A narrative covering review of user reports on maintenance service. d. An analysis of changes in certain maintenance department ratios.

A

30. A schedule listing account balances for the current and previous years, and columns for adjusting and reclassifying entries proposed by the auditors to arrive at the final amount that will appear in the financial statements, is referred to as a A. Working trial balance C. Summarizing schedule B. Lead schedule D. Supporting schedule

A

32. Audit procedures performed to obtain an understanding of the entity and its environment, including its internal control. A. Risk assessment procedures C. Substantive procedures B. Tests of control D. Analytical procedures

A

32. If an auditor conducts an audit of financial statements in accordance with generally accepted auditing standards, which of the following will the auditor most likely detect? a. Misposting of recorded transactions c. Forgery b. Unrecorded transactions d. Collusive fraud

A

35. The current file of an auditor's working paper most likely would include copy of the A. Bank reconciliation C. Articles of incorporation B. Pension plan contract D. Flowchart of the internal control activities

A

61. Where no response is received to a positive confirmation request, the auditor should A. Contact the recipient to elicit a response and perform alternative procedures as necessary B. Issue a qualified opinion or an adverse opinion, depending on the materiality involved C. Issue a qualified opinion or a disclaimer of opinion on grounds of a scope limitation D. Contact the recipient/respondent in order to force a response from such recipient

A

64. Where there are unusual fluctuations and relationships ordinarily begins with inquiries of management, followed by A B C D Corroboration of management's responses Yes No Yes No Consideration of the need to apply other audit procedures based on the results of management Yes Yes No No inquiries

A

8. The auditor uses assertions in assessing risks by considering the different types of potential misstatements that may occur, and thereby designing audit procedures that are responsive to the assessed risks. Assertions used by the auditor fall into the following categories: I. Assertions about classes of transactions and events for the period under audit. II. Assertions about account balances at the period end. III. Assertions about presentation and disclosure. a. I, II and III b. I and II only c. II and III only d. II only

A

8. The form and content of working papers are affected by matters such as the: I. Nature of the engagement. II. Form of the auditor's report. III. Nature and complexity of the business. IV. Nature and condition of the entity's accounting and internal control systems. V. Needs in the particular circumstances for direction, supervision and review of work performed by assistants. VI. Specific audit methodology and technology used in the course of the audit. a. All of the above c. I, II and III only b. All except V and VI d. All except VI

A

Choose the best illustration of objective audit evidence from the following a. The paid invoice file containing invoices matched with receiving reports and purchase orders. b. Management's assertion that payment procedures require matching of invoice with receiving report and purchase order. c. Clerical staff assurances that management policy regarding payment of invoices--matching of invoice with receiving report and purchase order--is always followed. d. The treasurer's statement of not remembering any exceptions in which an invoice was submitted for payment that was not accompanied by a matching receiving report and purchase order.

A

Generally, what source of evidence should most impact audit conclusions? a. External b. Inquiry. c. Oral. d. Informal.

A

Of the following audit procedures, which best supports the valuation objective? a. Performing a lower of cost or market test of the client's inventories. b. Reviewing a contingent liability footnote for proper wording. c. Searching for unrecorded liabilities. d. Observing the client's year-end physical inventory taking.

A

One of the primary roles of an audit program is to: a. Serve as a tool for planning, directing, and controlling audit work. b. Document an auditor's understanding of the internal control. c. Provide for a standardized approach to the audit engagement. d. Delineate the audit risk accepted by the auditor.

A

To test for unsupported entries in the ledger, the direction of audit testing should be from the a. Ledger entries. b. Journal entries. c. Externally generated documents. d. Original source documents.

A

Which of the following factors is most important in determining the competence of audit evidence? a. The reliability of the evidence in meeting the audit objective. b. The objectivity of the auditor gathering the evidence. c. The quantity of the evidence obtained. d. The independence of the source of evidence.

A

Which of the following is responsible for the fairness of the representations made in financial statements? a. Client's management. b. Independent auditor. c. Audit committee. d. AICPA.

A

Which of the following workpapers would one normally expect to find in the permanent file? a. A copy of a long-term bond indenture. b. The working trial balance. c. An analysis of additions and disposals relating to marketable securities. d. A workpaper analyzing customer replies to confirmation requests.

A

Which of the following would be least likely to be comparable between similar corporations in the same industry line of business? a. Earnings per share. b. Return on total assets before interest and taxes. c. Accounts receivable turnover. d. Operating cycle.

A

65. Evidential matter consists of both underlying accounting data and corroborating information, which support the accounting data. Which of the following is considered corroborating information? A. Data files C. Subsidiary ledgers B. Records of electronic fund transfers D. General ledger

B

1. Which of the following statements concerning audit evidence is correct? A. To be appropriate, audit evidence should be either reliable or relevant, but it need not be both. B. The measure of validity of audit evidence lies in the auditor's judgment. C. The difficulty and expense of obtaining audit evidence concerning an account balance is a valid basis for omitting the test. D. A client's accounting records can be sufficient audit evidence to support the financial statements.

B

10. Which of the following statements concerning audit evidence is correct? A. An audit usually involves the authentication of documentation B. A given set of procedures may provide audit evidence that is relevant to certain assertions, but not others C. Audit evidence obtained from an independent external source is always reliable D. An entity's accounting records can be sufficient audit evidence to support the financial statements

B

12. The understanding between the client and the auditor as to the degree of responsibility to be assumed by each is normally set forth in a(n) a. Representation letter. b. Engagement letter. c. Management letter. d. Comfort letter.

B

13. Audit evidence takes different forms and varies in persuasiveness. Which of the following is the least persuasive type of evidence? a. Vendor's invoice. b. Bank statement obtained from the client. c. Computations made by the auditor. d. Canceled checks.

B

13. The auditor is not always required to perform a. Risk assessment procedures. c. Substantive procedures. b. Test of controls. d. Both a and c

B

13. Which of the following statements regarding reliability of evidence is incorrect? A. Audit evidence is more reliable when it is obtained from independent sources outside the entity. B. The condition of internal control of the entity does not contribute to the reliability of audit evidence. C. Audit evidence that is generated internally is more reliable when the related controls are effective. D. Audit evidence obtained directly by the auditor is more reliable than audit evidence obtained indirectly.

B

14. The following statements were made in a discussion of audit evidence by two independent auditors. Which statement is untrue? a. "I am seldom convinced beyond all doubt about all aspects of the financial statements being audited." b. "I would not undertake that procedure because, at best, the results would only be persuasive and I'm looking for convincing evidence." c. "I evaluate the degree of risk involved in deciding the kind of evidence I will gather." d. "I evaluate the usefulness of the evidence I can obtain against the cost to obtain it."

B

14. The form and content of working papers are affected by matters such as the following except: A. Nature of the engagement B. Type of opinion to be rendered by the auditor C. Nature and complexity of the business D. Needs in the particular circumstances for the direction, supervision and review of work performed by assistants.

B

15. As the acceptable level of detection risk decreases, an auditor may change the a. Timing of substantive tests by performing them at an interim date rather than at year-end. b. Nature of substantive tests from a less effective to a more effective procedure. c. Timing of tests of controls by performing them at several dates rather than at one time. d. Assessed level of inherent risk to a higher amount.

B

15. Which statement is incorrect regarding Inspection as an audit procedure? a. Inspection consists of examining records or documents or physical examination of assets. b. Inspection of tangible assets may provide reliable audit evidence with respect to their existence and about the entity's rights and obligations on the assets. c. Inspection of individual inventory items ordinarily accompanies the observation of inventory counting. d. Some documents represent direct audit evidence of the existence of an asset.

B

17. Effective internal controls over inventories are designed and implemented for the following reasons, except A. Inventories typically represent a large component of an entity's current tasks. B. Inventories are the most liquid asset. C. Inventories directly affect the financial directly affect the financial performance of an entity. D. Inventories typically represent a large portion of an entity's total assets.

B

17. Management assertions are: A. Stated in the footnotes to the financial statements B. Implied or express representations about the accounts in the financial statements. C. Explicitly expressed representations about the financial statements. D. Provided to the auditor in the assertions letter, but are not disclosed in the financial statements.

B

17. The purpose of tests of controls is to provide reasonable assurance that a. The extent of substantive testing is minimized. b. Evidence will be obtained to determine an assessed level of control risk. c. Errors and irregularities are prevented or detected in a timely manner. d. The auditor has an understanding of the control environment.

B

8. Which of the following is an example of "other information" that could be used by an auditor as evidential matter supporting financial statements A. Worksheet supporting cost allocations C. Special journals B. Confirmation of accounts receivable D. Accounting manuals

B

17. Which of the following is incorrect? A. Documentation prepared at the time the work is performed is likely to be more accurate than documentation prepared subsequently. B. The auditor ordinarily includes from audit documentation superseded drafts of working papers and financial statements, notes that reflect incomplete or preliminary thinking, previous copies of documents corrected for typographical or other errors, and duplicates of documents. C. It is neither necessary nor practicable to document every matter the auditor considers during the audit. D. Oral explanations by the auditor, on their own, do not represent adequate support for the work the auditor performed or conclusions the auditor reached, but may be used to explain or clarify information contained in the audit documentation.

B

19. This consists of checking the mathematical accuracy of documents or records. a. Reperformance b. Recalculation c. Confirmation d. Inspection

B

22. Using laptop computers in auditing may affect the methods used to review the work of staff assistants because a. Supervisory personnel may not have an understanding of the capabilities and limitations of computers. b. Working paper documentation may not contain readily observable details of calculations. c. The audit field work standards for supervision may differ. d. Documenting the supervisory review may require assistance of management services personnel.

B

24. An auditor audits an accounting estimate by any of the following means except A. Testing the process used by management to develop the estimate. B. Obtaining a confirmation from an independent source. C. Developing an independent expectation. D. Reviewing subsequent events or transactions.

B

24. In which of the following instances would an auditor be least likely to require the assistance of a specialist? a. Assessing the value of inventories of works of art. b. Determining the quantities of materials stored in piles. c. Determining the value of unlisted securities. d. Determining the assessed value of fixed assets.

B

26. The auditor notices that a client's cash basis financial statements are prepared with accrual basis financial titles. This situation bears on which financial statement assertion? A. Valuation or allocation C. Rights and obligations B. Presentation and disclosure D. Completeness

B

26. Which of the following presumptions does not relate to the competence of audit evidence? a. The more effective internal control, the more assurance it provides about the accounting data and financial statements. b. An auditor's opinion, to be economically useful, is formed within a reasonable time and based on evidence obtained at a reasonable cost. c. Evidence obtained from independent sources outside the entity is more reliable than evidence secured solely within the entity. d. The independent auditor's direct personal knowledge, obtained through observation and inspection, is more persuasive than information obtained indirectly.

B

27. Assuming a low assessed level of control risk, which of the following audit procedures is least likely to be performed? a. Physical inspection of a sample of inventory. b. Search for unrecorded cash receipts. c. Obtaining of a client representation letter. d. Confirmation of accounts receivable.

B

28. In the case of recurring audits, some working papers files may be classified as audit files which are updated with new information of continuing importance. This type of audit file is known as: A. Current audit file C. Electronic audit file B. Permanent audit file D. Planning memorandum file

B

30. Acts to be performed in order to obtain audit evidence A. Audit standards C. Audit program B. Audit procedures D. Audit strategy

B

33. Audit procedures to test the operating effectiveness in preventing or detecting and correcting material misstatements at the assertion level. A. Risk assessment procedures C. Substantive procedures B. Tests of control D. Analytical procedures

B

37. In general, which of the following statements is correct with respect to ownership, possession, or access to working papers prepared by a CPA firm in connection with an audit? A. The working papers may be obtained by third parties where they appear to be relevant to issues raised in litigation. B. The working papers are subject to the privileged communication rule which, in a majority of jurisdictions, prevents third-party access to the working papers. C. The working papers are the property of the client after the client pays the fees. D. The working papers must be retained by the CPA firm for a period of ten years.

B

39. Physical examination of the assets. A. Inspection of records or documents C. Observation B. Inspection of tangible assets D. Inquiry

B

42. The process of obtaining a representation of information or of an existing condition directly from third party. It is a specific type of inquiry. A. Reperformance C. Reconciliation B. Confirmation D. Recomputation

B

5. Which of the following is ordinarily designed to detect possible material dollar errors on the financial statements? a. Tests of controls. b. Analytical procedures. c. Computer controls. d. Post audit working paper review.

B

58. A confirmation requests letter should always be sent under the control of: A. The client C. The recipient B. The auditor D. Both a and b

B

6. An evidence to be considered appropriate must be: A. Relevant C. Reliable B. Relevant and reliable D. Relevant or reliable

B

6. Which of the following generalizations in assessing the reliability of audit evidence is incorrect? a. Audit evidence is more reliable when it is obtained from independent sources outside the entity. b. Audit evidence that is generated internally is not affected by the effectiveness of the controls imposed by the entity. c. Audit evidence obtained directly by the auditor is more reliable than audit evidence obtained indirectly or by inference. d. Audit evidence is more reliable when it exists in documentary form.

B

63. The following are purposes of analytical procedures, except: A. Assist the auditor in planning the nature, timing and extent of other audit procedures B. As a test to obtain audit evidence about the suitability of design and effective operation of internal controls. C. As a substantive procedure when their use can be more effective or efficient that tests of details in reducing detection risk for specific financial statement assertions D. As an overall review of the financial statements in the final review stage of the audit.

B

As a category of evidence, documents may be external or internal. As an auditor reviewing your client's accounts receivable, which of the following is an example of internal documentary evidence? a. The carrier's bill of lading. b. Sales invoice copies. c. A customer's purchase order. d. A vendor's month-end statement.

B

During an audit of the accounts receivable function, you found that the accounts receivable turnover rate had fallen from 7.3 to 4.3 over the last three years. What is the most likely cause of the decrease in the turnover rate? a. An increase in the discount offered for early payment. b. A more liberal credit policy. c. A change from net 30 to net 25. d. Greater cash sales.

B

Most of the independent auditor's work in formulating an opinion on the financial statements consists of a. Studying and evaluating internal control. b. Obtaining and examining evidential matter. c. Examining cash transactions. d. Comparing recorded accountability with assets.

B

Of the following procedures, which is not considered part of "obtaining an understanding of the client's environment?" a. Examining trade publications to gain a better understanding of the client's industry. b. Confirming customer accounts receivable for existence and valuation. c. Touring the client's manufacturing and warehousing facilities to gain a clearer understanding of operations. d. Studying the internal controls over cash receipts and disbursements.

B

The principal reason for developing a written audit program is to help assure that the a. Audit work is properly supervised. b. Audit work is properly planned and documented. c. Audit report contains only significant findings. d. Work of different auditors is properly coordinated.

B

Which of the following is not an example of confirmation evidence? a. Requesting the client's outside legal counsel to evaluate the possible outcome of pending litigation. b. Questioning the client's employees about existing internal control policies and procedures. c. Requesting the client's customers to verify year-end accounts receivable balances. d. Requesting payees to respond in writing to the terms contained in notes payable appearing in the client's ledger.

B

Which of the following statements about working papers is correct? a. Working papers are not permitted to be used as a reference source by the client. b. The auditor should document the understanding of the client's internal control obtained to plan the audit c. Working papers may be regarded as a substitute for the client's accounting records. d. When reporting on comparative financial statements, the independent auditor may discard working papers after two years.

B

1. Of the following, which is the least persuasive type of audit evidence? a. Documents mailed by outsiders to the auditor. b. Correspondence between auditor and vendors. c. Copies of sales invoices inspected by the auditor. d. Computations made by the auditor.

C

11. Ultimately, what is sufficient appropriate audit evidence depends on: A. The users of the financial statements under audit. B. The professional judgment of the client's management and those charged with governance. C. The professional judgment of the auditor. D. A combination of the professional judgment of the auditor and the client's management.

C

11. Which of the following is not a primary purpose of audit working papers? a. To coordinate the examination. b. To assist in preparation of the audit report. c. To support the financial statements. d. To provide evidence of the audit work performed.

C

13. An auditor ordinarily uses a working trial balance resembling the financial statements without footnotes, but containing columns for a. Cash flow increases and decreases c. Reclassifications and adjustments b. Audit objectives and assertions d. Reconciliations and tickmarks

C

13. Statement 1: The auditor should prepare working papers which are sufficiently complete and detailed to provide an overall understanding of the audit. Statement 2: The auditor should record in the working papers information on planning the audit work, the nature, timing and extent of the audit procedures performed, the results thereof, and the conclusions drawn from the audit evidence obtained. A. Only statement one is correct B. Only statement two is correct C. Both statements are correct D. Both statements are incorrect

C

14. Confirmation is "the process of obtaining and evaluating a direct communication from a third party in response to a request about a particular item affecting financial statement assertions." Two assertions for which confirmation of accounts receivable balances provides primary evidence are A. Completeness and valuation C. Rights and obligations and existence B. Valuation and rights and obligations D. Existence and completeness

C

14. In the course of the audit of financial statements for the purpose of expressing an opinion thereon, the auditor will normally prepare a schedule of unadjusted differences for which he did not propose adjustment when they were uncovered. The primary purpose served by this schedule is to a. Point out to the responsible client officials the errors made by various company personnel. b. Summarize the adjustments that must be made before the company can prepare and submit its income tax returns. c. Identify the potential financial statement effects of errors or disputed items that were considered immaterial when discovered. d. Summarize the errors made by the company so that corrections can be made after the audited financial statements are released.

C

15. Which of the following analyses appearing in a predecessor's working papers is the successor auditor least likely to be interested in reviewing? a. Analysis of noncurrent balance sheet accounts. c. Analysis of income statement accounts. b. Analysis of current balance sheet accounts. d. Analysis of contingencies.

C

15. Which of the following statement is/are correct? Statement 1: The auditor considers the relationship between the cost of obtaining audit evidence and the usefulness of the information obtained. Statement 2: The difficulty and the expense involved are valid basis of omitting an audit procedure for which there is no alternative. Statement 3: The auditor relies on audit evidence that is persuasive rather than conclusive. Statement 4: The auditor uses professional judgment and exercise professional skepticism to determine the sufficiency and appropriateness of evidence. A. Only one statement is correct C. Only three statements are correct B. Only two statements are correct D. All statements are correct

C

16. Which of the following audit procedures is used extensively throughout the audit and often is complementary to performing other audit procedures? a. Inspection b. Observation c. Inquiry d. Confirmation

C

18. During an audit engagement, pertinent data are compiled and included in the audit working papers. The working papers primarily are considered to be A. A client-owned record of conclusions reached by the auditors who performed the engagement B. Evidence supporting financial statements C. Support for the auditor's representations as to compliance with generally accepted auditing standards. D. A record to be used as a basis for the following year's engagement.

C

18. Management assertions are: A. Directly related to PSAs C. Directly related to GAAP B. Indirectly related to PSAs D. Indirectly related to GAAP

C

19. Assertions about account balances at the period-end include valuation and allocation, which means that A. Assets, liabilities and equity interest exist. B. All assets, liabilities and equity interests that should have been recorded have been recorded. C. Assets, liabilities and equity interests are included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded. D. The entity holds or controls the rights to assets, liabilities are the obligations of the entity.

C

19. Audit working papers should not A. Include any client-prepared papers or documents other than those prepared by the CPA or his assistant. B. Be kept by the CPA after review and completion of the audit except for items required for the income tax return or the permanent file. C. Be submitted to the client to support the financial statements and to provide evidence of the audit work performed. D. Be themselves be expected to provide sufficiency support for the auditor's opinion.

C

19. The primary source of information to be reported about litigation, claims, and assessments is the A. Client's lawyer C. Client's management B. Courts records D. Independent auditor

C

19. Which of the following is not a factor affecting the independent auditor's judgment about the quantity, type, and content of audit working papers? a. The needs for supervision and review of the work performed by assistants. b. The nature and condition of the client's records and internal controls. c. The expertise of client personnel and their participation in preparing schedules. d. The type of the financial statements, schedules, or other information on which the auditor is reporting.

C

2. Analytical procedures are a. Substantive tests designed to evaluate a system of internal control. b. Tests of controls designed to evaluate the validity of management's representation letter. c. Substantive tests designed to evaluate the reasonableness of financial information. d. Tests of controls designed to evaluate the reasonableness of financial information.

C

20. The assertion of cut-off means that: A. All transactions and events that should have been recorded B. Amounts and other data relating to recorded transactions and events have been recorded appropriately C. Transactions and events have been recorded in the correct accounting period D. Transactions and events have been recorded in the proper accounts.

C

20. Which of the following is an audit procedure that an auditor most likely would perform concerning litigation, claims and assessments? A. Request the clients lawyer to evaluate whether the client's pending litigations, claims and assessment indicate a going concern problem B. Examine the legal documents in the client's lawyer's possession concerning litigations, claims and assessment to which the lawyer has devoted substantive attention C. Discuss with management its policies and procedures adopted for evaluating and accounting for litigations, claims and assessments D. Confirm directly with the client's lawyer that all litigations, claims and assessment have been recorded or disclosed in the financial statements

C

21. The assertion of occurrence means that: A. All transactions and events that should have been recorded are recorded B. Amounts and other data relating to recorded transactions and events have been recorded appropriately C. Transactions and events that have been recorded have occurred, and pertain to the entity D. Transactions and events have been recorded in the proper accounts

C

21. Which of the following is not a factor affecting the independent auditor's judgement about the quantity, type and content of audit working papers? A. The needs for supervision and review of the work performed by assistants. B. The nature and condition of the client's records and internal control. C. The expertise of the client personnel and their participation in preparing schedules. D. The type of financial statements, schedules, or other information on which the auditor is reporting.

C

21. Which of the following is the best explanation of the difference, if any, between audit objectives and audit procedures? a. Audit procedures establish broad general goals, audit objectives specify the detailed work to be performed. b. Audit objectives are tailor-made for each assignment, audit procedures are generic in application. c. Audit objectives define specific desired accomplishments; audit procedures provide the means of achieving audit objectives. d. Audit procedures and audit objectives are essentially the same.

C

22. Although the validity of evidential matter is dependent on the circumstances under which it is obtained, there are three general presumptions that have some usefulness. The situations given below indicate the relative reliability a CPA has placed on two types of evidence obtained in different situations. Which of these is an exception to one of the general presumptions? A. The CPA places more reliance on the balance in the scrap sales account at Plant A, where the CPA has made limited tests of transactions because of effective controls, than at Plant B, where the CPA has made extensive tests of transactions because of ineffective controls. B. The CPA places more reliance on the CPAs computation of interest payable on outstanding bonds than on the amount confirmed by the trustee. C. The CPA places more reliance on the report of an expert on an inventory of precious gems than on the CPA's physical observation of the gems. D. The CPA places more reliance on a schedule of insurance coverage obtained from the company's insurance agent than on one prepared by the internal audit staff.

C

23. Which of the following persons is not a specialist upon whose work an auditor may rely? a. Actuary. b. Appraiser. c. Internal auditor. d. Engineer.

C

25. When analytical procedures are used as substantive tests, some account relationships are more predictable than others. For which of the following accounts is the prior-year balance likely to be the best predictor of the current year-end balance? A. Accounts payable C. Revenues B. Cash D. Inventory

C

26. Which of the following best describes the most important stage of an auditor's statistical analysis of significant ratios and trends? A. Computation of significant ratios and trends. B. Reconciliation of statistical data to the client's accounting ratios. C. Interpretation of significant variations and unusual relationships. D. Comparison of statistical data to prior-year statistics and to similar data published by government and private sources.

C

29. The process of vouching helps establish that all recorded transactions A. Have been completed C. Are valid B. Are complete D. Are presented properly

C

4. The objective of tests of details of transactions performed as substantive tests is to A. Comply with generally accepted auditing standards B. Attain assurance about the reliability of the accounting s system C. Detect material misstatements in the financial statements D. Evaluate whether management's policies and procedures operated effectively

C

4. Which statement is correct regarding the sufficiency and appropriateness of audit evidence? a. Sufficiency is the measure of the quality of audit evidence. b. Appropriateness is the measure of the quantity of audit evidence; that is, its relevance and its reliability in providing support for, or detecting misstatements in, the classes of transactions, account balances, and disclosures and related assertions. c. The quantity of audit evidence needed is affected by the risk of misstatement (the greater the risk, the more audit evidence is likely to be required) and also by the quality of such audit evidence (the higher the quality, the less may be required). d. Merely obtaining more audit evidence may compensate for its poor quality.

C

4. Working papers that record the procedures used by the auditor to gather evidence should be a. Considered the primary support for the financial statements being audited. b. Viewed as the connecting link between the books of accounts and the financial statements. c. Designed to meet the circumstances of the particular engagement. d. Destroyed when the audited entity ceases to be a client.

C

40. Consists of looking at a process or procedures being performed by others. A. Inspection of records or documents C. Observation B. Inspection of tangible assets D. Inquiry

C

42. In documenting the nature, timing and extent of audit procedures performed, the auditor should record I. Who performed the audit work and the date such work papers was completed II. Who reviewed the audit work and the date and extent of such review A. I only C. Both I and II B. II Only D. Neither I nor II

C

48. In the context of an audit of financial statements, substantive tests are audit procedures that A. May be eliminated under certain conditions. B. Are designed to discover significant subsequent events. C. May be either tests of transactions, direct tests of financial balances, or analytical tests. D. Will increase proportionately with the auditor's reliance on internal control.

C

49. Which of the following methods is considered the best combination in obtaining audit evidence assuming documentary evidence is available to the auditor? A. Inspection and reperformance C. Inquiry and inspection B. Observation and inquiry D. Inquiry and analytical procedures

C

5. In testing the existence assertion for an asset, an auditor ordinarily works from the A. Financial statements to the potentially unrecorded items B. Potentially unrecorded items to the financial statements C. Accounting records to the supporting evidence D. Supporting evidence to the accounting records

C

5. The measure of the quality of audit evidence is: A. Sufficiency C. Appropriateness B. Competence D. Relevance

C

5. Which of the following statements is incorrect regarding relevance of audit evidence? a. A given set of audit procedures may provide audit evidence that is relevant to certain assertions, but not others. b. The auditor often obtains audit evidence from different sources or of a different nature that is relevant to the same assertion. c. Obtaining audit evidence relating to a particular assertion is a substitute for obtaining audit evidence regarding another assertion. d. None of the above.

C

50. As required by PSA 500, the auditor's substantive procedures should include the following: A. Agreeing the financial statements to the underlying accounting records. B. Examining material journal entries and other adjustments made during the course of preparing the financial statements. C. Both a and b. D. Neither a nor b.

C

53. Which of the following audit procedures is used extensively throughout the audit but does not, by itself, provide sufficient appropriate evidence? A. Inspection of records or documents C. Inquiry B. Observation D. Inspection of tangible assets

C

55. Confirmation is most likely to be the relevant form of evidence with regard to assertions about accounts receivable when the auditor has concerns about the receivables' A. Valuation C. Existence B. Classification D. Completeness

C

56. Confirmation is the process of obtaining a representation of information or of an existing condition directly from a third party. Traditionally, confirmation is used to verify: A. Individual transactions between organizations, such as sales transactions. B. Fixed asset additions. C. Bank balances and accounts receivables. D. All three of the above.

C

6. In determining whether transactions have been recorded, the direction of the audit testing should be from the A. General ledger balance C. Original source documents B. Adjusted trial balance D. General journal entries

C

69. In testing for lower-of-cost-or-net realizable value, the auditor is gathering evidence to support which of the following assertions? A. Pricing C. Valuation B. Accuracy D. Rights and obligations

C

7. In the context of an audit of financial statements, substantive tests are audit procedures that a. May be eliminated under certain conditions. b. Are designed to discover significant subsequent events. c. May be either tests of transactions, direct tests of financial balances, or analytical tests. d. Will increase proportionately with the auditor's assessment of control risk.

C

7. The following statements are correct, except: A. The greater the risk of misstatement, the more audit evidence is likely to be required. B. The higher the quality of audit evidence, the less may be required. C. Obtaining more audit evidence will compensate for its poor quality. D. The sufficiency and appropriateness of audit evidence are interrelated.

C

70. When performing trend analysis, A. Profitability ratios are required C. Comparison to budget may be performed B. Expected values are calculated D. Solvency ratios are computed

C

9. Audit evidence can come in different forms with different degrees of persuasiveness. Which of the following is the least persuasive type of evidence? A. Bank statement obtained from the client B. Test counts of inventory made by the auditor C. Prenumbered purchase order forms D. Correspondence from the client's attorney about litigation

C

9. Which of the following is not generally included in the working papers file? a. An indication as to who performed the audit procedures and when they were performed. b. Documentation of the auditor's understanding of the accounting and internal control systems. c. Copy of the internal audit's audit program. d. Analyses of significant ratios and trends.

C

An auditor is examining accounts receivable. What is the most competent type of evidence in this situation? a. Interviewing the personnel who record accounts receivable. b. Verifying that postings to the receivable account from journals have been made. c. Receipt by the auditor of a positive confirmation. d. No response received for a request for a negative confirmation.

C

An initial (first-time) audit requires more audit time to complete than a recurring audit. One of the reasons for this is that a. New auditors are usually assigned to an initial audit. b. Predecessor auditors need to be consulted. c. The client's business, industry, and internal control are unfamiliar to the auditor and need to be carefully studied. d. A larger proportion of customer accounts receivable need to be confirmed on an initial audit.

C

As part of audit planning, CPAs should design audit programs for each individual audit and should include audit steps and procedures to a. Detect and eliminate fraud. b. Increase the amount of management information available. c. Provide assurances that the objectives of the audit are met. d. Ensure that only material items are audited.

C

Auditors apply analytical procedures to the client's operations in order to identify a. Improper separation of accounting and other financial duties. b. Weaknesses of a material nature in the client's internal control. c. Unusual transactions. d. Noncompliance with prescribed control procedures.

C

If working papers are to have the characteristics that will ensure that they achieve their primary purposes, which of the following is the most important? a. Working papers must be of standard format and standard content. b. Working papers must be properly indexed and cross- referenced to the draft audit report. c. Working papers must provide sufficient, competent, and useful information to support the audit report. d. Working papers must be arranged in logical order following the audit program sequence.

C

In evaluating the reasonableness of advertising expense, which of the following would be the best evidence? a. Oral evidence obtained through discussions with company marketing executives and representatives of the advertising agency retained. b. Documentary evidence obtained by vouching charges to the account and by retracing charges from source documents to the account. c. Analytical evidence developed by comparing the ratio of advertising expenses to sales with historical data for the company and industry. d. Arithmetical evidence developed by re-computing charges submitted by the advertising agency and paid by the company.

C

Of the following procedures, which does not produce analytical evidence? a. Compare revenue, cost of sales, and gross profit with the prior year and investigate significant variations. b. Examine monthly performance reports and investigate significant revenue and expense variances. c. Confirm customers' accounts receivable and clear all material exceptions. d. Compare sales trends and profit margins with industry averages and investigate significant differences.

C

Which of the following is an example of inferential evidence? a. The auditor observes the taking of the client's physical inventory and performs test counts. b. The auditor inspects marketable securities for existence. c. An auditor, who notes that customer accounts receivable have increased significantly in the current year as a percentage of sales, suspects that a larger proportion of the accounts will prove uncollectible. d. The auditor counts cash on hand at year-end.

C

Which of the following is not a typical analytical procedure? a. Study of relationships of financial information with relevant nonfinancial information. b. Comparison of financial information with similar information regarding the industry in which the entity operates. c. Comparison of recorded amounts of major disbursements with appropriate invoices. d. Comparison of recorded amounts of major disbursements with budgeted amounts.

C

Which of the following is not an example of analytical evidence? a. Compared inventory turnover by major class with the prior year on a monthly and quarterly basis. b. Compared gross profit percentages by major product classes with the prior year. c. Examined invoices for plant asset additions to determine whether the client had erroneously recorded ordinary repairs as plant assets. d. Examined monthly performance reports and investigated significant variations from budgeted amounts.

C

3. Management makes certain assertions that are embodied in financial statement components; for example, two such categories of assertions are completeness and valuation and allocation. Which of the following is not a broad category of management assertions? A. Rights and obligations C. Existence B. Completeness D. Error or fraud

D

1. Which statement is incorrect regarding audit evidence? a. Audit evidence is all the information used by the auditor in arriving at the conclusions on which the audit opinion is based. b. Audit evidence includes the information contained in the accounting records underlying the financial statements and other information. c. Audit evidence is cumulative in nature. d. Auditors are expected to address all information that may exist.

D

10. Assertion about account balances at period end which means assets, liabilities, and equity interests are included in the financial statements at appropriate amounts is a. Existence c. Completeness b. Rights and obligations d. Valuation and allocation

D

10.Although the quantity and content of audit working papers vary with each particular engagement, an auditor's permanent files most likely include a. Schedules that support the current year's adjusting entries. b. Prior years' accounts receivable confirmations that were classified as exceptions. c. Documentation indicating that the audit work was adequately planned and supervised. d. Analyses of capital stock and other owners' equity accounts.

D

11. According to PSA 230 ''Documentation'', working papers do not A. Assist in the planning and performance of the audit. B. Assist in the supervision and review of the audit work. C. Record the audit evidence resulting from the audit work performed to support an auditor's opinion. D. Prove the independence of the auditor.

D

11. Accuracy and valuation assertions about presentation and disclosure means a. Disclosed events, transactions, and other matters have occurred and pertain to the entity. b. All disclosures that should have been included in the financial statements have been included. c. Financial information is appropriately presented and described, and disclosures are clearly expressed. d. Financial and other information are disclosed fairly and at appropriate amounts.

D

11. In which of the following circumstances would be the use of the negative form of accounts receivable confirmation most likely be justified? A. A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers B. A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances C. A small number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers D. A small number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances

D

12. The audit working paper that reflects the major components of an amount reported in the financial statements is the a. Interbank transfer schedule c. Supporting schedule b. Carryforward schedule d. Lead schedule

D

12. The auditor obtains audit evidence to draw reasonable conclusions on which to base the audit opinion by performing audit procedures to: a. 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 assertion levels. b. Test the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level. c. Detect material misstatements at the assertion level. d. All of the above.

D

12. The auditor's judgment as to what is sufficient appropriate audit evidence is influenced by such factors as: A. The auditor's assessment of the nature and level of inherent risk at both the financial statement level and the account balance or class of transaction level. B. The nature of the internal control structure and the assessment of control risk. C. The materiality of the item being examined. D. The experience gained during previous audits. E. The results of the audit procedures, including fraud or error which may have been found. F. The source and reliability of information available. A. A, B, D, F, G C. A, B, F B. A, B, D, E, F D. A, B, C, D, E, F

D

12. Which of the following might be detected by an auditor's review of the client's sale cut-off? A. Excessive goods returned for credit B. Unrecorded sales discounts C. Lapping of year-end accounts receivable D. Inflated sales for the year

D

13. Which of the following most likely would give the most assurance concerning the valuation and allocation assertion of accounts receivable? A. Vouching amounts of accounts subsidiary ledger to details on shipping documents B. Comparing receivable turnover ratios with industry statistics for reasonableness C. Inquiring about receivables pledged under loan agreements D. Assessing the allowance for uncollectible accounts for reasonableness

D

14. Which of the following is the least reliable evidence? A. Confirmation from third parties C. Documentary form evidence B. Observation of the inventory count D. Photocopies and facsimiles

D

15. Which of the following procedures would an auditor most likely perform for year-end accounts receivable confirmations when the auditor did not receive replies to second requests A. Review the cash receipts journal for the month prior to year-end B. Intensity the study of internal control concerning the revenue cycle C. Increase the assessed level of detection risk for the existence assertion D. Inspect the shipping records documenting the merchandise sold to the debtors

D

16. When an independent auditor is approached to perform an audit for the first time, he or she should make inquiries of the predecessor auditor. Inquiries are necessary because the predecessor may be able to provide the successor with information that will assist the successor in determining whether a. The predecessor's work should be used. b. The company rotates auditors. c. Control risk is low, in the predecessor's opinion. d. The engagement should be accepted.

D

16. Which of the following is an essential control procedure to ensure the accuracy of the recorded inventory quantities? A. Calculating unit costs and valuing obsolete or damaged inventory items in accordance with inventory policy. B. Testing inventory extensions. C. Performing a gross profit test D. Established a cutoff for goods received and shipped.

D

17. Which statement is incorrect regarding Inquiry? a. Responses to inquiries may provide the auditor with information not previously possessed or with corroborative audit evidence. b. Responses to inquiries might provide information that differs significantly from other information that the auditor has obtained. c. Responses to inquiries may provide a basis for the auditor to modify or perform additional audit procedures. d. Inquiry alone is sufficient to test the operating effectiveness of controls.

D

18. Ordinarily, the audit may use schedules, analyses and other documentation prepared by entity personnel in order to: a. Lessen auditor's responsibility. b. Eliminate the need to apply any audit procedures on verifying their correctness. c. Emphasize that the responsibility on financial statements rests with the client management. d. Improve audit efficiency.

D

2. Accounting records least likely include a. The records of initial entries and supporting records. b. The general and subsidiary ledgers. c. Work sheets and spreadsheets supporting cost allocations. d. Comparable data about competitors (benchmarking).

D

2. Which of the following statements is/are correct? Statement 1: Audit evidence comprises source documents and accounting records, underlying the financial statements and corroborating information from other sources. Statement 2: Audit evidence is obtained to form an appropriate mix of tests of control and substantive procedures. Statement 3: The auditor should obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion. A. Statements 1 and 2 only C. Statement 2 and 3 only B. Statements 1 and 3 only D. All statements are correct

D

20. Which of the following is a false statement about audit objectives? a. Audit objectives should be developed in light of management assertions about the financial statement components. b. Selection of tests to meet audit objectives should depend upon the understanding of internal control. c. The auditor should resolve any substantial doubt about any of management's material financial statement assertions d. There should be a one-to-one relationship between audit objectives and procedures.

D

22. Although the quantity, type and content of working paper will vary with the circumstance, the working papers generally include the A. Copies of those client records examined by the auditor during the course of the engagement. B. Evaluation of the efficiency and competence of the audit staff assistants by the partner responsible for the audit. C. Auditor's comments concerning the efficiency and competence of client management personnel. D. Auditing procedures followed, and the testing performed in obtaining evidential matter.

D

22. Walastik, Inc. has significant information that is transmitted, processed, maintained, and accessed electronically. The auditor has concluded that it is not possible to reduce detection risk to an acceptable level by performing only substantive tests for a number of financial statement assertions. The auditor's alternative strategy is to a. Increase the acceptable audit risk. b. Focus audit tests on other assertions for which substantive tests prove to be effective. c. Require management to change its information system to provide appropriate evidence. d. Perform tests of controls to gather evidential matter to use in assessing control risk related to those assertions.

D

23. Confirming proper title to equipment supports which of the following assertions? A. Existence or occurrence C. Presentation and disclosure B. Insurance or coverage D. Rights and obligations

D

24. Which of the following procedures would provide the most reliable audit evidence? a. Inquiries of the client's internal audit staff held in private. b. Inspection of prenumbered client purchase orders filed in the vouchers payable department. c. Analytical procedures performed by the auditor on the entity's trial balance. d. Inspection of bank statements obtained directly form the client's financial institution.

D

25. The completeness assertion addresses whether A. All of the assets on the balance sheet exist. B. All recorded transactions occurred. C. The entity has property rights to all assets on the balance sheet. D. All of the transactions, which occurred during the period, were recorded.

D

25. The most reliable form of documentary evidence are those documents that are a. Prenumbered c. Easily duplicated b. Internally generated d. Authorized by a responsible official

D

3. All of the following are underlying accounting data, except: A. Records of initial entries and supporting documents B. General and subsidiary ledgers C. Worksheets and spreadsheets for cost allocations D. Minutes of meetings

D

3. Other information that the auditor may use as audit evidence least likely includes a. Minutes of meetings. b. Confirmations from third parties. c. Information obtained by the auditor from such audit procedures as inquiry, observation, and inspection. d. Adjustments to the financial statements that are not reflected in formal journal entries.

D

33. The permanent file portion of the auditor's working papers generally should include A. A copy of the engagement letter. B. A copy of key customer confirmation C. Names and addresses of audit staff personnel on the engagements. D. Time and expense reports.

D

34. The permanent (continuing) file of an auditor's working paper most likely would include copies of the A. Lead schedules C. Banks statements B. Attorney's letter D. Debt agreements

D

36. The permanent file section of the working papers that is kept for each audit client most likely contains A. Review notes pertaining to questions and comments regarding the audit work performed. B. A schedule of time spent on the engagement by each individual auditor. C. Correspondence with the client's legal counsel concerning pending litigation. D. Narrative descriptions of the client's accounting procedures and internal controls.

D

39. Which of the following documentation is required for an audit in accordance with PSA? A. An internal control questionnaire C. A planning memorandum or checklist B. A client engagement letter D. A client representation letter

D

4. The procedures specifically outlined in an audit program are primarily designed to a. Protect the auditor in the event of litigation. b. Detect errors or irregularities. c. Test internal control structure. d. Gather evidence.

D

41. Consists of seeking information from knowledgeable persons, both financial and nonfinancial, within the entity or outside the entity. A. Inspection of records or documents C. Observation B. Inspection of tangible assets D. Inquiry

D

45. Evaluation of financial information made by study of plausible relationships among both financial and non-financial data. A. Reperformance C. Reconciliation B. Confirmation D. Analytical procedures

D

46. Which statement is incorrect regarding the nature of further audit procedures? A. The nature of further audit procedures refers to their purpose and type. B. Certain audit procedures may be more appropriate for some assertions than others. C. The auditor is required to obtain audit evidence about the accuracy and completeness of information produced by the entity's information system when that information is used in performing audit procedures. D. The higher the auditor's assessment of inherent and control risks, the less reliable and relevant is the audit evidence sought by the auditor from substantive procedures.

D

5. Which of the following conditions constitutes inappropriate working paper preparation? a. Flowcharts are included in the working papers. b. Findings are cross-referenced to supporting documentation. c. Tick marks are explained in working papers. d. All forms and directives used by the auditee department are included in the working papers.

D

52. Physical examination of tangible assets is not a sufficient form of evidence when the auditor wants to determine the: A. Existence of the asset C. Condition or quality of the asset B. Quantity and description of the asset D. Ownership of the asset

D

54. Evidence obtained directly by the auditor is more reliable than information obtained indirectly. Which of the following is not an example of the auditor's direct knowledge? A. Inspection C. Computation B. Observation D. Inquiry

D

59. Negative confirmation requests may be used when: A. The assessed levels of inherent and control risks are high B. A large number of large balances is involved C. A substantial number of errors is expected D. The auditor has no reason to believe that the respondents will disregard these requests

D

6. Which of the following statements relating to the competence of evidential matter is always true? a. Evidential matter gathered by an auditor from outside an enterprise is reliable. b. Accounting data developed under satisfactory conditions of internal control are more relevant than data developed under unsatisfactory conditions. c. Oral representations made by management are not valid. d. Evidence gathered by auditors must be both valid and relevant to be considered competent.

D

62. The primary source for evidence to corroborate the existence of pending litigation is: A. Vendor confirmations C. management representation letters B. Disclosures in financial statements D. attorney confirmations

D

7. Which of the following is usually included or shown in the auditor's working papers? a. The procedures used by the auditor to verify the personal financial status of members of the client's management team b. Analyses that are designed to be a part of, or a substitute for, the client's accounting records c. Excerpts from authoritative pronouncements that support the underlying generally accepted accounting principles used in preparing the financial statements d. The manner in which exceptions and unusual matters disclosed by the auditor's procedures were resolved or treated

D

7. Which of the following statements concerning evidential matter is true? A. Appropriate evidence supporting management's assertions should be convincing rather than merely persuasive. B. Effective internal control contributes little to the reliability of the evidence created within the entity C. The cost of obtaining evidence is not an important consideration to an auditor in deciding what evidence should be obtained D. A client's accounting records cannot be considered sufficient evidence to support the financial statements

D

7. Which statement is incorrect regarding audit evidence? a. The auditor should obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion. b. Accounting records alone do not provide sufficient audit evidence. c. The auditor uses professional judgment and exercises professional skepticism in evaluating the quantity and quality of audit evidence, and thus its sufficiency and appropriateness, to support the audit opinion. d. The matter of difficulty or expense involved is a valid basis for omitting an audit procedure for which there is no alternative.

D

Which of the following is a basic tool used by the auditor to control the audit work and review the progress of the audit? a. Time and expense summary. b. Engagement letter. c. Progress flowchart. d. Audit program.

D

8. The appropriateness of audit evidence available to an auditor is least likely to be affected by: A. The relationship of the source or prepare of the evidence to the entity being audited. B. The relevance of the evidence to the financial statement assertion being investigated. C. The timeliness of the audit evidence. D. The sampling method employed by the auditor to obtain a sample of the evidence.

D

9. Assertions about classes of transactions and events for the period under audit least likely include a. Transactions and events that have been recorded have occurred and pertain to the entity. b. All transactions and events that should have been recorded have been recorded. c. Transactions and events have been recorded in the correct accounting period. d. All assets, liabilities and equity interests that should have been recorded have been recorded.

D

9. Which of the following factors will least affect the independent auditor's judgment as to the quantity, type, and content of the working papers desirable for a particular engagement? a. Nature of the auditor's report. b. Nature of the financial statements, schedules, or other information upon which the auditor is reporting. c. Need for supervision and review. d. Number of personnel assigned to the audit.

D

An assumption underlying analytical procedures is that a. These procedures cannot replace tests of balances and transactions. b. Statistical tests of financial information may lead to the discovery of material errors in the financial statements. c. The study of financial ratios is an acceptable alternative to the investigation of unusual fluctuations. d. Relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary.

D

An auditor wants to develop an audit test to evaluate the reasonableness of the quantity of scrap material resulting from a certain production process compared to industry standards. Which would be the most competent type of evidence available to satisfy this objective? a. Documentary. b. Hearsay. c. Physical. d. Analytical.

D

Audit information is generally considered relevant when it is: a. Derived through valid statistical sampling. b. Objective and unbiased. c. Factual, adequate, and convincing. d. Consistent with the audit objectives.

D

Audit working papers are used to record the results of the auditor's evidence-gathering procedures. When preparing working papers, the auditor should remember that working papers should be a. Kept on the client's premises so that the client can have access to them for reference purposes. b. The primary support for the financial statements being examined. c. Considered as a part of the client's accounting records that are retained by the auditor. d. Designed to meet the circumstances and the auditor's needs on each engagement.

D

During the course of an audit engagement, an auditor prepares and accumulates audit working papers. The primary purpose of the audit working papers is to a. Aid the auditor in adequately planning his work. b. Provide a point of reference for future audit engagements. c. Support the underlying concepts included in the preparation of the basic financial statements. d. Support the auditor's opinion.

D

During the working paper review, an audit supervisor finds that the auditor's reported findings are not adequately cross-referenced to supporting documentation. The supervisor will most likely instruct the auditor to a. Prepare a working paper to indicate that the full scope of the audit was carried out. b. Familiarize him/herself with the sequence of working papers so that he(she) will be able to answer questions about the conclusions stated in the report. c. Eliminate any cross-references to other working papers since the system is unclear. d. Provide a workpaper indexing system that shows the relationship between findings, conclusions, and the related facts.

D

External auditors often confirm assertions contained in the organization's financial statements and accounting records with third parties. Which of the following best explains why confirmation produces evidence of high quality? a. Written assertions from knowledgeable third parties provide sufficient evidence to achieve most audit objectives. b. Confirmation by knowledgeable third parties is usually the most relevant evidence available. c. Confirmation by knowledgeable third parties is usually the least costly evidence available. d. Confirmation by knowledgeable third parties is highly competent because of its independent source.

D

Sales commissions as a percentage of sales declined significantly during the year under audit. Of the following possible causes, the most likely is a. Sales increased during the year. b. The sales force was reduced at the end of the year. c. Sales commission rates were increased at the beginning of the year. d. Fictitious sales were recorded at year-end to inflate earnings. Commissions were not recorded on these sales.

D

The competence of evidence available to an auditor is least likely to be affected by a. The relevance of such evidence to the financial statement assertion being investigated. b. The relationship of the preparer of such evidence to the entity being audited. c. The timeliness of such audit evidence. d. The sampling method employed by the auditor to obtain a sample of such evidence.

D

The principal purpose for cross-indexing audit working papers is to a. Give the working papers a professional appearance. b. Explain the use of tick marks. c. Provide explanation of the audit steps performed. d. Provide a trail for the auditor and the reviewer.

D

When reviewing audit working papers, the primary responsibility of an audit supervisor is to determine that: a. Each worksheet is properly identified with a descriptive heading. b. Working papers are properly referenced and kept in logical groupings. c. Standard departmental procedures are adhered to with regard to work paper preparation and technique. d. Working papers adequately support the audit findings, conclusions, and report.

D

Which of the following does not describe one of the functions of audit workpapers? a. Facilitates third-party reviews. b. Aids in the planning, performance, and review of audits. c. Provides the principal evidential support for the auditor's report. d. Aids in the professional development of the operating staff.

D

Which of the following is not a consideration in the development of audit programs? a. Internal control over the recording of plant asset additions and repairs and maintenance expenditures is found to be weak. b. The client constructed a major addition to its central manufacturing facility during the year under audit. c. The client is a private university located in the Midwest. d. The client's board or directors is elected by the stockholders at the annual meeting.

D

Which of the following is not a purpose of working papers? a. Assist in the planning and performance of the audit. b. Assist in the supervision and review of the audit work. c. Record the audit evidence resulting from the audit work performed to support the auditor's opinion. d. Support the client's financial statements.

D

Which of the following is not an appropriate auditing procedure supporting fairness of financial presentation? a. Inspecting plant asset additions for existence. b. Recalculating accrued interest on notes payable. c. Examining invoices in support of legal fees recorded during the fiscal year. d. Reviewing the client's production quality control program.

D

With respect to the auditor's planning of a year-end examination, which of the following statements is always true? a. An engagement should not be accepted after the fiscal year-end. b. An inventory count must be observed at the balance sheet date. c. The client's audit committee should not be told of the specific audit procedures that will be performed. d. It is an acceptable practice to carry out substantial parts of the examination at interim dates.

D