Quiz 5

TRUE or FALSE: Analytical procedures are seldom used during the risk assessment stage of an audit engagement because they are substantive procedures

False Analytical procedures can be used at three stages: Risk assessment, substantive analytical procedures Final analytical procuedures

TRUE or FALSE: The most reliable form of documentary evidence generally is considered to be documents created by the client

False Evidence is more reliable when it is provided from external sources

TRUE or FALSE: The use of lead schedules is designed to increase the detail of the working trial balance

False A lead schedule is the first sheet/document in a series of supporting evidence. Leads are mainly used for reference

The risk that the auditors will conclude, based on substantive procedures, that a material misstatement does not exist in an account balance when, in fact, such misstatement does exist is referred to as a. Detection risk b. Control risk c. Engagement risk d. Business risk

A Detection risk is the risk that misstatements are undetected by auditors

Which of the following is not a function of audit working papers? a. Assist management in illustrating that the financial statements are in accordance with generally accepted accounting principles b. Assist audit audit team members responsible for supervision in reviewing the work c. Assist auditors in planning future engagements d. Assist peer reviewers and inspectors in performing their roles

A Working papers are the auditor's property and are not prepared for use by management

As one step in testing sales transactions, a CPA traces a random sample of sales journal entries to debits in the accounts receivable subsidiary ledger. This test provides evidence as to whether: a. Recorded sales have been properly posted to customer accounts b. Each recorded sale represents a bona fide transaction c. All sales have been recorded in the sales journal d. All debit entries in the accounts receivable subsidiary ledger are properly support by sales journal entries.

A. Here we are selecting sales entries and following them through to customer accounts. We want to make sure that there is a corresponding entry in customer accounts to ensure the completeness of accounts receivable. Agreement between the two also speaks to accuracy/valuation

Which portion of an audit is least likely to be completed before the balance sheet date? a. Test of controls b. Substantive procedures c. Assessment of control risk d. Issuance of an engagement letter

B

Prior to beginning fieldwork, an auditor usually discusses the general audit strategy with the client's management. Which of the following matters do the auditor and management agree upon this time? a. the appropriateness of the entity's plans for dealing with adverse economic conditions b. The coordination of the assistance of the client's personnel in data preparation c. The control weaknesses to be included in the communication with the audit committee d. The determination of the fraud risk factors

B A pertains to the going-concern issue C. comes after testing of internal controls D most likely wouldn't be shared with management as fraud risks likely involve management Audit requires responsiveness from the client so it's important to establish that upfront

In what section of the audit working papers would a long-term lease agreement be filed? a. Current working paper file b. Permanent working paper file c. Lead schedule file d. Corroboration documents file

B Permanent file includes things such as the articles of incorporation, known related parties, chart of accounts, and long-term contracts such as leases. They all pertain to multiple accounting periods.

Audit documentation relating to the A Company audit should be sufficient to allow which type of auditor to understand the audit work performed? a. Any auditor b. Any auditor that works on A Company's audit c. An experienced auditor d. An experienced auditor with experience on A Company audit

C

Documentation may not be deleted from the working papers after the a. Audit report delivery date b. Date of the audit report C. Documentation completion date d. Final day of fieldwork

C Auditor has 60 days after the completion of field work to finalize documentation. you should only discard things that are no longer relevant

The primary objective of tests of details of transactions performed as substantive procedures is to: a. Comply with generally accepted auditing standards b. Attain assurance about the reliability of the accounting system c. Detect material misstatements in the financial statements d. Evaluate whether management's policies and procedures are operating effectively

C Transactions are tested to determine whether they have been properly recorded

A primary purpose of the audit working papers is to: a. Aid the auditors by providing a list of required procedures 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

TRUE or FALSE: Preliminary arrangements with clients should be set forth in the management letter

False

Materiality can best be described as which of the following? a. Fixed percentage of assets b. Fixed percentage of net income c. Doesn't depend on the company being audited, but is solely dependent on the auditors discretion d. The amount at which judgments based on the financial statements may be altered

D.

A difference of opinion concerning accounting and auditing matters relative to a particular phase of audit arises between an assistant auditor and the auditor responsible for the engagement. After appropriate consultation, the assistant auditor asks to be disassociated from the resolution of the matter. The working papers would probably: a. Remain silent on the matter since it is an internal matter of the auditing firm b. Note that the assistant auditor is completely dissociated from responsibility of for the auditors' opinion c. Document the additional work required, since all disagreements of this type will require expanded substantive procedures d. Document the assistant auditors' position and how the difference of opinion was resolved

D. Disagreements are not ignored and the staff auditor is not disassociated from the audit. It's ultimately the auditor responsible's decision, but it is required that there by complete documentation of how the disagreement is resolved

TRUE or FALSE: A vendor's invoice is an example of documentary evidence created by a third party and held by the client

True

TRUE or FALSE: An audit plan includes a detailed listing of the audit procedures to be performed in the verification of items in the financial statements

True

TRUE or FALSE: When the risk of material misstatement for an account is high, the auditors may perform additional substantive procedures to restrict detection risk to a lower level

True

TRUE or FALSE: The completeness of recording of assets is generally verified by tracing from the source documents to the recorded entry

True Process is called "walk-through"