Audit Chapter 7

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Which of the following would not be considered to be an analytical procedure? (1) Estimating payroll expense by multiplying the number of employees by the average hourly wage rate and the total hours worked. (2) Projecting the error rate by comparing the results of a statistical sample with the actual population characteristics. (3) Computing accounts receivable turnover by dividing credit sales by the average net receivables. (4) Developing the expected current year sales based on the sales trend of the prior five years.

2

During an audit engagement, pertinent data are compiled and included in the audit files. The audit files primarily are considered to be (1) a client-owned record of conclusions reached by the auditors who performed the engagement. (2) evidence supporting financial statements. (3) support for the auditor's representations as to compliance with auditing standards. (4) a record to be used as a basis for the following year's engagement.

3

Which of the following is not a primary purpose of audit documentation? (1) To coordinate the audit (2) To assist in preparation of the audit report (3) To support the financial statements (4) To provide evidence of the audit work performed

3

According to PCAOB audit standards, audit documentation must be retained for (1) one year. (2) three years. (3) five years. (4) seven years.

4

Although the quantity, type, and content of audit documentation will vary with the circumstances, audit documentation generally will include the (1) copies of those client records examined by the auditor during the course of the engagement. (2) evaluation of the efficiency and competence of the audit staff assistants by the partner responsible for the audit. (3) auditor's comments concerning the efficiency and competence of client management personnel. (4) auditing procedures followed and the testing performed in obtaining audit evidence.

4

Audit evidence can come in different forms with different degrees of persuasiveness. Which of the following is the least persuasive type of evidence? (1) Vendor's invoice (2) Bank statement obtained from the client (3) Computations made by the auditor (4) Prenumbered sales invoices

4

Which of the following presumptions is correct about the reliability of audit evidence? (1) Information obtained indirectly from outside sources is the most reliable audit evidence. (2) To be reliable, audit evidence should be convincing rather than merely persuasive. (3) Reliability of audit evidence refers to the amount of corroborative evidence obtained. (4) Effective internal control provides more assurance about the reliability of audit evidence.

4

Which of the following situations has the best chance of being detected when a CPA compares 2016 revenues and expenses with the prior year and investigates all changes exceeding a fixed percent? (1) An increase in property tax rates has not been recognized in the company's 2016 accrual. (2) The cashier began lapping accounts receivable in 2016. (3) Because of worsening economic conditions, the 2016 provision for uncollectible accounts was inadequate. (4) The company changed its capitalization policy for small tools in 2016.

4

what is the document completion date deadline for PCAOB? no later than __________ after the audit report release date

45 days

how long does the AICPA require CPA firms to retain work papers?

5 years

when is the document completion date deadline for AICPA? no later than __________ after the audit report release date

60 days

how long does the PCAOB require CPA firms to retain work papers?

7 years

what are the four types of evaluating the reliability of the evidence?

externally produced/maintained externally produced/client maintained client prepared, externally reviewed, client maintained client prepared, client maintained

add down a column

foot

Obtain a letter from management stating that there are no unrecorded liabilities Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.

inquiries of client

Obtain information about internal control by requesting the client to fill out a questionnaire Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.

inquiries of client

Review the accounts receivable with the credit manager to evaluate their collectibility Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.

inquiries of client

Ask the accounts payable clerk about procedures for verifying prices, quantities, and extensions on vendors' invoices identify the type of audit evidence used and the transaction-related audit objective or objectives satisfied by each audit procedure

inquiries of client, accuracy

what is the weakest type of evidence?

inquiries of our client

the obtaining of written or oral information from the client in response to specific questions during the audit

inquiry

Compare a duplicate sales invoice with the sales journal for customer name and amount. Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.

inspection

Examine an insurance policy stating the amount of the fire insurance coverage on buildings and equipment Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.

inspection

Examine corporate minutes to determine the authorization of the issue of bonds Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.

inspection

the auditor's examination of the client's documents and records to substantiate the information that is or should be included in the financial statements

inspection

Examine expense voucher packages and related vendors' invoices for approval of expense account classification identify the type of audit evidence used and the transaction-related audit objective or objectives satisfied by each audit procedure

inspection, classification

Trace from receiving reports to vendors' invoices and entries in the acquisitions journal identify the type of audit evidence used and the transaction-related audit objective or objectives satisfied by each audit procedure

inspection, completeness

Vouch entries in sales journal to sales invoices and related shipping documents. identify the type of audit evidence used and the transaction-related audit objective or objectives satisfied by each audit procedure

inspection, occurrence

a document, such as an employee time report, that is pre- pared and used within the client's organization

internal document

Watch employees count inventory to determine whether company procedures are being followed Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.

observation

Observe opening of cash receipts to determine that cash receipts are promptly deposited and recorded identify the type of audit evidence used and the transaction-related audit objective or objectives satisfied by each audit procedure

observation, timing and completeness

what are the 4 primary requirements of AU 500?

obtain sufficient, appropriate audit evidence relevance and reliability adjust audit procedures for evidence gathering management specialist

what audit objective does vouching help meet?

occurrence

Should include reading the financial statements and notes to consider the adequacy of evidence gathered select the stage of audit that this statement most accurately is in Planning the audit Substantive testing Overall review Statement is not correct concerning analytical procedures

overall review

the degree to which the auditor is convinced that the evidence supports the audit opinion; the two determinants of persuasiveness are the appropriateness and sufficiency of the evidence

persuasiveness of evidence

Count a sample of inventory items and record the amount in the audit files. Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.

physical examination

Examine a piece of equipment to make sure that a major acquisition was actually received and is in operation Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.

physical examination

what are the 8 types of evidence?

physical examination confirmation inspection inquiries of our client recalculation reperformance observational analytical review

Should focus on enhancing the auditor's understanding of the client's business and the transactions and events that have occurred since the last audit date select the stage of audit that this statement most accurately is in Planning the audit Substantive testing Overall review Statement is not correct concerning analytical procedures

planning the audit

Should focus on identifying areas that may represent specific risks relevant to the audit select the stage of audit that this statement most accurately is in Planning the audit Substantive testing Overall review Statement is not correct concerning analytical procedures

planning the audit

Use the preliminary or unadjusted working trial balance as a source of data select the stage of audit that this statement most accurately is in Planning the audit Substantive testing Overall review Statement is not correct concerning analytical procedures

planning the audit

Add the sales journal entries to determine whether they were correctly totaled Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.

recalculation

Extend the cost of inventory times the quantity on an inventory listing to test whether it is accurate Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.

recalculation

the rechecking of a sample of the computations made by the client, including mathematical accuracy of individual transactions and amounts and the adding of journals and subsidiary records

recalculation

Add the sales journal for the month of July and trace amounts to the general ledger identify the type of audit evidence used and the transaction-related audit objective or objectives satisfied by each audit procedure

recalculation, posting and summarization

the extent to which evidence is believable or worthy of trust; evidence is reliable when it is obtained (1) from an independent provider, (2) from a client with effective internal controls, (3) from the auditor's direct knowledge, (4) from qualified providers such as law firms and banks, (5) from objective sources, and (6) in a timely manner

reliability of evidence

Trace the total in the cash disbursements journal to the general ledger Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.

reperformance

the auditor's independent tests of client accounting procedures or controls that were originally done as part of the entity's accounting and internal control system

reperformance

procedures that give an overall understanding of the client and its industry, including its internal control system

risk assessment procedures

what are the different types of audit procedures?

risk assessment procedures tests of controls substantive testing

when must the management rep letters be dated?

same date on audit report

Do not result in detection of misstatements select the stage of audit that this statement most accurately is in Planning the audit Substantive testing Overall review Statement is not correct concerning analytical procedures

statement is not correct concerning analytical procedures

Involve reconciliation of confirmation replies with recorded book amounts select the stage of audit that this statement most accurately is in Planning the audit Substantive testing Overall review Statement is not correct concerning analytical procedures

statement is not correct concerning analytical procedures

an analytical procedure in which the auditor develops an expectation of recorded amounts or ratios to provide evidence sup- porting an account balance

substantive analytical procedure

Designed to obtain evidential matter about particular assertions related to account balances or classes of transactions select the stage of audit that this statement most accurately is in Planning the audit Substantive testing Overall review Statement is not correct concerning analytical procedures

substantive testing

Generally use data aggregated at a lower level than the other stages select the stage of audit that this statement most accurately is in Planning the audit Substantive testing Overall review Statement is not correct concerning analytical procedures

substantive testing

Not required during this stage select the stage of audit that this statement most accurately is in Planning the audit Substantive testing Overall review Statement is not correct concerning analytical procedures

substantive testing

Require documentation in the working papers of the auditor's expectation of the ratio or account balance select the stage of audit that this statement most accurately is in Planning the audit Substantive testing Overall review Statement is not correct concerning analytical procedures

substantive testing

audit procedures we use to find misstatements

substantive testing

the quantity of evidence; proper sample size

sufficiency of evidence

test the effectiveness of internal controls that we want to rely on during this audit to accomplish our objectives

tests of controls

symbols used on an audit schedule that provide additional information or details of audit procedures performed

tick marks

external to internal - randomly select some items from a population and go into the accounting records

tracing

the use of documentation to determine if transactions or amounts are included in the accounting records

tracing

internal to external - going from a reported amount in the accounting system, out to some supporting document

vouching

the use of documentation to support recorded transactions or amounts

vouching

AU 230 states that ______ ________ can be used over any medium

work papers

what is AU 580?

written representations

An auditor most likely would apply analytical procedures in the overall review stage of an audit to (1) identify unusual or unexpected balances that were not previously identified. (2) obtain an understanding of high-risk areas. (3) evaluate the design and implementation of internal control. (4) identify related party transactions that may not have been previously identified.

1

For all audits of financial statements made in accordance with auditing standards, the use of analytical procedures is required to some extent planning stage substantive test completion stage (1) yes no yes (2) no yes no (3) no yes yes (4) yes no no

1

Which of the following types of audit evidence is generally the most reliable? (1) A bank statement (2) A bank confirmation (3) Analytical procedures (4) Inquiries made of the audit committee

2

Which of the following types of documentary evidence should the auditor consider to be the most reliable? (1) A sales invoice issued by the client and supported by a delivery receipt from an outside trucker (2) Confirmation of an account payable balance mailed by and returned directly to the auditor (3) A check, issued by the company and bearing the payee's endorsement, that is included with the bank statements mailed directly to the auditor (4) An audit schedule prepared by the client's controller and reviewed by the client's treasurer

2

Calculate the ratio of cost of goods sold to sales as a test of overall reasonableness of gross margin relative to the preceding year Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.

analytical procedures

Calculate the ratio of sales commission expense to sales as a test of sales commissions Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.

analytical procedures

Review the total of repairs and maintenance for each month to determine whether any month's total was unusually large. Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.

analytical procedures

evaluations of financial information through analysis of plausible relationships among financial and nonfinancial data

analytical procedures

a measure of the quality of evidence; appropriate evidence is relevant and reliable in meeting audit objectives for classes of transactions, account balances, and related disclosures

appropriateness of evidence

record of the audit procedures performed, relevant audit evidence, and conclusions the auditor reached

audit documentation

what is AU 230?

audit documentation

what is AU 500?

audit evidence

detailed instruction for the collection of a type of audit evidence

audit procedure

list of audit procedures for an audit area or an entire audit; the audit program always includes audit procedures and may also include sample sizes, items to select, and timing of the tests

audit program

includes business documents - invoices, PO, receiving reports

client prepared, client maintained

what is the weakest type of evaluations for the reliability of evidence?

client prepared, client maintained

cancel check produced by client

client prepared, externally reviewed, client maintained

what audit objective does tracing help meet?

completeness

Obtain a letter from an insurance company to the CPA firm stating the amount of the fire insurance coverage on buildings and equipment Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.

confirmation

Obtain a letter from the client's attorney addressed to the CPA firm stating that the attorney is not aware of any existing lawsuits. Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.

confirmation

Obtain a written statement from a bank stating that the client has $15,671 on deposit and liabilities of $500,000 on a demand note Classify the item according to the eight types of audit evidence: (1) physical examination, (2) confirmation, (3) inspection, (4) analytical procedures, (5) inquiries of the client, (6) recalculation, (7) reperformance, and (8) observation.

confirmation

the auditor's receipt of a direct written or electronic response from a third party verifying the accuracy of information requested

confirmation

what is the strongest type of evidence?

confirmation evidence

what is AU 585?

consideration of omitted procedures

add across a column

cross foot

what are the two types of substantive testing?

detailed substantive testing analytical review procedures

when the auditors have assembled, for retention, a complete and final document set of work papers

document completion date

a document, such as a vendor's invoice, that has been used by an outside party to the transaction being documented and that the client now has or can easily obtain

external document

monthly bank statements

externally produced/client maintained

confirmation sent to people who owe the client money by the auditor's

externally produced/maintained

what is the strongest type of evaluations for the reliability of evidence?

externally produced/maintained


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