AUDIT Ch 3 HW

audit documentation that shows the detailed evidence and procedures regarding the balance in the accumulated depreciation account for the year under audit will be found in the:

current file audit documentation

Confirmations of accounts receivable provide evidence primarily about which two assertions?

existence and rights and obligations

When auditing the existence assertion for an asset, auditors proceed from the

general ledger back to the supporting original transaction documents

which of the following procedures would most likely be performed during planning?

identifying related parties

with respect to the concept of materuality, which of the following statements is correct?

materiality is a matter of professional judgement

which of the following engagement planning procedures would most likely assist the auditor in identifying related-party transactions before the balance sheet date?

scanning the minutes for significant transactions with members of the board of directors

An audit engagement letter should normally include which of the following matters of agreement between the auditor and the client?

schedules and analyses to be prepared by the client's employees

an audit plan contains:

specifications of procedures the auditors believe appropriate for the financial statements under audit

when planning an audit, which of the following is not a factor that affects Auditors decisions about the quantity, type, and, audit documentation

the Auditors judgment about their independence with regard to the client

When auditing Vandalay Jewelry, Costanza, CPA, was not familiar with the quality and cut of the company's precious jewel inventory. To address this shortcoming, Costanza hired Benes, an expert in jewel valuation, to assist as an audit specialist for the inventory valuation. Should Costanza refer to Benes's work in the audit report?

the auditors' report should mention the use of the audit specialist only when the audit specialists findings affect the auditors' conclusions

which of the following is an advantage of computer assisted audit techniques (CAATs)?

the software can be used for audits of clients that use differing computer equipment and file formats

which of the following conditions most likely would pose the greatest risk in accepting a new audit engagement?

there will be a client imposed scope limitation

which of the following statements is correct concerning analytical procedures used in planning an audit engagement?

they typically use financial and nonfinancial data aggregated at a high level

a primary advantage of using CAATs in the audit of an advanced computerized system is that it enables the auditor to:

utilize the speed and accuracy of the computer

Spreadsheet software would be most useful for which of the following audit activities?

Preparing a comparison of current year expenses with those from the previous year

generally accepted auditing standards require that Auditors always prepare and use:

a written audit plan

which of the following would be considered an analytical procedure?

comparing inventory balances to recent sales activities

types of audit evidence auditors must gather a combination of many types of audit evidence to best reduce their audit risk. there are 7 major types of audit evidence; 1. accounting information system 2. documentary evidence 3. third party representation 4. physical evidence 5. computations 6. data interrelationships 7. client representations 1. representation letters are dated as of the date of the ___ 2. inventory can be observed as it is ___ by client personnel 3. ____ may be involved in some testing of calculations 4. analytical procedures are the primary way to test data ____ 5. the primary source of evidence about pending litigation is the attorney ___

1. audit report 2. counted 3. specialists 4. interrelationships 5. letter

match each audit procedure example to its correct general objective 1. establish the existence of assets 2. establish that the company has rights to the assets 3. establish the completeness of the recorded assets 4. verify the cutoff of transactions 5. determine the appropriate valuation of the assets 6. determine the appropriate financial statement presentation and disclosure of the asset

1. cash can be verified by physical inspection 2. rights to cash can be verified by sending a confirmation 3. examining shipping documents helps to determine of assets are properly recorded 4. auditors examine transactions just before and just after year end 5. vouch the cost of acquisition to paid checks 6. reviewing subsequent events is an important step

Auditors frequently refer to the terms principles and procedures. Required: Auditors use different types of audit procedures to gather the evidence necessary to conclude that the risk of material misstatement for each relevant assertion has been reduced to an acceptably low level. Identify the type of procedure used by auditors for each of the following examples. (1) Find brokers' invoices and canceled checks showing agreement with record amounts for securities investments. (2) Observe test counting of client's physical inventory taking (3) Select a sample of shipping documents and trace them to sales, invoices, sales journal recording, and posting to general ledger. (4) Ask client personnel about accounting levels (5) Study financial information in relation to nonfinancial information (6) Scan expense accounts for credit entries (7) Compare financial information with that of prior periods (8) Obtain written client representation letter. (9) Scan payroll check lists for unusually large checks. (10) Complete an internal control questionnaire. (11) Obtain client's lawyer's letter. (12) Study predictable financial information patterns (e.g., ratio analysis). (13) Analyze valuation of receivables by re-aging them by due date (14) Obtain accounts receivable confirmations (15) Compare financial information with budgets and forecasts (16) Verify existence of fixed assets by locating them. (17) Compare financial information to industry statistics (18) Recompute the client's calculation of depreciation expense.

1. document inspection (vouching) 2. observation 3. document inspection (tracing) 4. inquiry and written representation 5. analytical procedures 6. document inspection (scanning) 7. analytical procedures 8. inquiry and written representation 9. document inspection (scanning) 10. inquiry and written representation 11. confirmation 12. analytical procedures 13. reperformance 14. confirmation 15. analytical procedures 16.inspection of tangible assets 17. analytical procedures 18. recalculation

for each of the descriptions in column A, match the correct word or words from column B 1.Sets forth a contractual understanding with the client 2. Auditors' record of compliance with planning and supervision of provisions of GAAS 3. Written basis for Auditor's conclusions 4. A file that contains information of continuing audit significance 5. Chain of evidence found at an audit trail

1. engagement letter 2. planning memorandum 3. audit documentation 4. permanent file 5. audit trail

types of audit evidence auditors must gather a combination of many types of audit evidence to best reduce their audit risk. there are 7 major types of audit evidence; 1. accounting information system 2. documentary evidence 3. third party representation 4. physical evidence 5. computations 6. data interrelationships 7. client representations 1. accounting information system 2. documentary evidence 3. third party representation 4. physical evidence 5. computations 6. data interrelationships 7. client representations

1. methods and records to process, summaries and report the company's transaction 2. variety of records in support of the company's business and accounting information system 3. representations or evidence from outside parties 4. tangible assets from examinations 5. computations made independently to prove arithmetical accuracy of client records 6. comparison between the relationships among financial or non-financial data 7. written documentation and representation from clients

general objective for asset accounts the audit procedures for each financial statement account must be tailored potential misstatements in each account 1. a cutoff test that relates to plant assets typically affects ___ 2. because documents like checks, shipping documents, and receiving reports are usually___, it is easier for auditors to verify cutoff. 3. the amount appearing as an asset on a financial statement is usually the accumulation of many ____ items. 4. fair values can be evaluated by comparing to prices on ___ markets 5. auditors may use audit _____ to test clerical accuracy

1. the balance sheet 2. numbered 3. smaller 4. existing 5. software

for each of the descriptions 1-6, match the correct word or phrase from A-H a. inspection of tangible assets b. confirmation c. tracing d. vouching e. inquiry f. external - internal evidence g. audit plan h. substantive procedures 1. documentation prepared by independent parties and sent to the client 2. proceeding forward through the accounting and control system from the evidence to the financial statements 3. audit of details of transactions and balances 4. audit procedure that provides compelling evidence of existence 5. direct correspondence with independent parties 6. a list of audit procedures

F. external - internal evidence C. tracing H. substantive procedures A. inspection of tangible assets B. confirmation G. audit plan

when initiating Communications with predecessor Auditors, prospective Auditors should expect:

all of the above: to obtain copies of Summer all of the predecessor Auditors audit documentation to conduct interviews with the partner and manager in charge of the predecessor audit accounting firms engagement to take responsibility for obtaining the client's consent for the predecessor to give information about prior audits

Prior to accepting a new audit engagement, a public accounting firm should

all of the choices are correct: attempt to contact the predecessor auditors evaluate the integrity of management assess the firm's resources to ensure that they are sufficient to permit the firm to accept the engagement

the company being audited has an internal auditor who is both competent and objective. the independent auditor wants to assign tasks for the internal auditor to perform. under these circumstances, the independent auditor may:

allow the internal auditor to perform certain tests of internal controls

which of the following communications is most likely to be written before the balance sheet date?

an engagement letter

which of the following procedures would be a CPA most likely perform in planning a financial statement audit?

compare financial information with nonfinancial operating data

which of the following is not a benefit claimed for the practice of determining materiality in the initial planning stage of an audit?

being able to decide early what type of audit opinion to issue

The revenue cycle of a company generally includes which accounts?

cash, accounts receivable, and sales

when evaluating whether accounting estimates made by management are reasonable, the audit team would be most interested in which of the following?

evidence of a conservative systematic bias

in Auditors permanent file audit documentation most likely will contain

excerpts of the corporate charter and bylaws