Audit Ch. 5 SmartBook
The basic framework for the auditor's understanding of audit evidence and its use in supporting the auditor's opinion on the financial statements is (are) ______.
auditing standards
Inquiry may ______.
-provide corroborative audit evidence -be formal or informal -provide new audit evidence
Who is responsible for the fair presentation of the financial statements?
Management
The auditor can issue an unqualified/unmodified report when audit evidence supports management's
assertation
Expressed or implied representations by management regarding the recognition, measurement, presentation, and disclosure of information in the financial statements and related disclosures are referred to as
assertions
A management statement that the property, plant, and equipment shown on the balance sheet was owned and available for sale at the balance sheet date is an example of the ______ assertion.
existence
Documents originating within the entity but circulated to independent sources outside the entity and documents generated outside the entity are referred to as
external
The process of
indexing, cross referencing
Confirmations ______.
may provide evidence about the completeness assertion provide reliable evidence for the existence assertion are used extensively on audits
This is useful in helping auditors understand the entity's processes but is generally not considered very reliable.
observation
The quality of an expectation is referred to as the
precision
In evaluating audit evidence, the auditor must ______.
remain objective be unbiased understand the types of evidence available
The auditor's independent execution of procedures or controls that were originally performed by company personnel is referred to as
reperformance
Searching for large and unusual items in the accounting records and reviewing transactions for errors are examples of
scanning
The auditor's exercise of professional judgment to review accounting data to identify significant or unusual items to test is referred to as
scanning
The functions of audit documentation are to ______.
provide principal support that the audit was conducted in accordance with GAAS provide the basis for the review of the quality of work aid in the planning, performance and supervision of the audit
Notations that are made by the auditor near, or next to, an item or amount on an audit document that are used to document work performed are called
tick marks
Because the entity's personnel might have incentives to record fictitious transactions, the
validity
Audit documentation is referred to as
working papers
True or false: Auditing standards dictate how audit documentation should be organized.
False
Which of these processes are generally considered highly reliable because the auditor has direct knowledge about them?
Reperformance of tangible assets Inspection of tangible assets Recalculation of tangible assets
True or false: Although the auditor owns the audit documents, they cannot be shown to outside parties without the entity's consent, except under certain circumstances.
True
True or false: Audit evidence includes information developed by the auditor that permits him or her to reach conclusions through valid reasoning.
True
Checks, invoices, contracts, ledgers, worksheets and spreadsheets are all part of auditing evidence referred to as
accounting records
Audit documentation is the property of the ______.
independent auditors
The measure of the quantity of audit evidence is referred to as
sufficiency
Audit documentation should ______.
support the auditor's conclusions for each material financial statement assertion include an audit program for the engagement demonstrate the underlying accounting records agreed with the financial statements show that standards of fieldwork have been followed enable a knowledgeable reviewer to determine who performed the work demonstrate how the audit complied with appropriate standards
Footing, crossfooting, reconciling subsidiary ledgers and testing postings are all examples of
recalculation
When filling the "assurance bucket", existence or validity is typically more important for accounts
receivable, payable
The precision of the expectation ______.
- is a function of materiality and required detection risk - is a measure of potential effectiveness - may lead to a cost-benefit trade-off due to an increase in testing
Tests of controls ______.
-may allow the auditor to gain a degree of assurance over thousands of transactions -influence the scope of substantive testing
PCAOB standards require that audit documentation contain ______.
all documents that form the basis of the audit
This consists of evaluations of financial information through the examination of plausible relationships among both financial and nonfinancial data.
analytical procedures
The document that outlines the auditor's understanding of the entity and potential risks as well as the strategy to be followed by the auditor is called the
audit plan
The audit procedures that will be conducted by the auditor are contained in the
audit program
Audit evidence obtained by the auditor as a direct written response to the auditor from a third party in paper form or by electronic or other medium is called a(n)
confirmation
In regards to applying the audit testing hierarchy, starting with tests of
control, details
For lower-risk, well-controlled accounts, the assurance bucket may be filled entirely with tests of
controls
The heading of all audit documentation should include the ______.
entity's year-end date name of the entity title of the working paper
True or false: Inspecting tangible assets provides significant assurance for the rights and obligations assertion.
false
Identify the sources that can be used to develop an expectation for an analytical procedure.
industry publications competitor information budgets and forecasts
This is an important audit procedure that is used extensively throughout the audit and is often complementary to performing other audit procedures.
inquiry
Auditors usually use the term
inquiry, confirmation
Counting cash on hand and examining inventory are examples of
inspection
Duplicate copies of invoices and shipping remittances are examples of ______ documents.
internal
There is a(n) ______ relationship between the sufficiency and appropriateness of audit evidence.
inverse
Evidence obtained from a source outside the entity is generally considered ______ evidence obtained solely from within the entity.
more reliable than
The reliability of evidence obtained through external confirmations may be affected by the ______.
nature of the information being confirmed form of the confirmation prior experience with the entity intended respondent
Looking at a process or procedure being performed by others is referred to as
observation
Whether all recorded transactions and events have happened and pertain to the entity is the basis of the ______ assertion.
occurrence
The reliability of analytical procedures is a function of the ______.
plausibility and predictability of the relationship being tested precision of the expectation and the rigor of the investigation availability and reliability of the data used in the calculations
The independent execution by the auditor of procedures or controls that were originally performed by company personnel is called ______.
reperformance
Match the appropriate category of audit procedure with the purpose that it serves. Instructions
risk assessment procedures-- used to obtain an understanding of the entity and its environment, including its internal control, to assess the risks of material misstatement at the financial statement and relevant assertion levels test of controls-- used to test the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the relevant assertion level used to test the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the relevant assertion level substantive procedures-- used to detect material misstatements at the relevant assertion level used to detect material misstatements at the relevant assertion levelDocuments originating within the entity but circulated to independent sources outside the entity and documents generated outside the entity are referred to as
The Sarbanes-Oxley Act and the PCAOB standards require that audit documentation be retained for
seven
Assume an entity has 2,500 customers. If the auditor mails confirmation to 25 of the largest customers and only 20 respond the auditor must ______.
still gather sufficient evidence on each of the 25 accounts
Analytical procedures can be used by auditors to accomplish ______ procedures.
substantive analytical risk assessment final analytical
Specific acts performed by the auditor to gather evidence about whether specific assertions are being met are referred to as
audit procedures
A management statement that the inventory shown on the balance sheet was available for sale at the balance sheet date is an example of the
existence
The audit documentation needs to be organized so that ______ can find the audit evidence that supports each financial statement account.
reviewers any member of the audit team
The reliability of inspection of records and documents depends primarily on ______.
whether the document is internal or external