Audit Exam Ch2
"The use of comparisons and relationships to assess whether account balances or other data appear reasonable compared to the auditor's expectations" is a definition of: A) analytical procedures. B) tests of transactions. C) tests of balances. D) auditing.
A
2) Audit procedures are concerned with the nature, extent, and timing in gathering audit evidence. Which, of the following, is true as to the timing of audit procedures? A) Prior to the fiscal year-end of the client Subsequent to the fiscal year-end of the client Yes Yes B) Prior to the fiscal year-end of the client Subsequent to the fiscal year-end of the client No No C) Prior to the fiscal year-end of the client Subsequent to the fiscal year-end of the client Yes No D) Prior to the fiscal year-end of the client Subsequent to the fiscal year-end of the client No Yes
A
After general audit objectives are understood, specific audit objectives for each account balance on the financial statements can be developed. Which of the following statements is true? A) There should be at least one specific objective for each relevant general objective. B) There will be only one specific objective for each relevant general objective. C) There will be many specific objectives developed for each relevant general objective. D) There must be one specific objective for each general objective.
A
An auditor should recognize that the application of auditing procedures may produce evidence indicating the possibility of errors or fraud and therefore should: A) plan and perform the engagement with an attitude of professional skepticism. B) not rely on internal controls that are designed to prevent or detect errors or fraud. C) design audit tests to detect unrecorded transactions. D) extend the work to audit most recorded transactions and records of an entity.
A
Audit evidence obtained directly by the auditor will not be reliable if: A) the auditor lacks the competence to evaluate the evidence. B) it is provided by the client's attorney. C) the client denies its veracity. D) it is impossible for the auditor to obtain additional corroboratory evidence.
A
Auditing standards require that an audit be designed to provide reasonable assurance of detecting: A) material errors in the financial statements. B) fraud in the financial statements. C) material errors and fraud in the financial statements. D) inadequate disclosure in the notes to the financial statements.
A
Evidence is usually more persuasive for balance sheet accounts when it is obtained: A) as close to the balance sheet date as possible. B) only from transactions occurring on the balance sheet date. C) from various times throughout the client's year. D) from the time period when transactions in that account were most numerous during the fiscal period.
A
If several employees collude to falsify documents, the chance a normal audit would uncover such acts is: A) very low. B) very high. C) zero. D) none of the above
A
Management assertions are: A) directly related to the financial reporting framework used by the company, usually U.S. GAAP or IFRS B) stated in the footnotes to the financial statements. C) explicitly expressed representations about the financial statements. D) provided to the auditor in the assertions letter, but are not disclosed on the financial statements.
A
Tests of details of balances are specific audit procedures that are intended to: A) test for monetary errors in the financial statements. B) prove that the accounts with material balances are classified correctly. C) prove that the trial balance is in balance. D) identify the details of the internal control system.
A
The auditor has considerable responsibility for notifying users as to whether or not the statements are properly stated. This imposes upon the auditor a duty to: A) provide reasonable assurance that material misstatements will be detected. B) be a guarantor of the fairness in the statements. C) be equally responsible with management for the preparation of the financial statements. D) be an insurer of the fairness in the statements.
A
The auditor's best defense when existing material misstatements in the financial statements are not uncovered in the audit is: A) the audit was conducted in accordance with auditing standards. B) the financial statements are the client's responsibility. C) the client is guilty of contributory negligence. D) the client is guilty of fraudulent misrepresentation
A
The auditor's best defense when material misstatements are not uncovered is to have conducted the audit: A) in accordance with generally accepted auditing standards. B) as effectively as reasonably possible. C) in a timely manner. D) only after an adequate investigation of the management team.
A
The concept of reasonable assurance indicates that the auditor is: A) not a guarantor of the correctness of the financial statements. B) not responsible for the fairness of the financial statements. C) responsible only for issuing an opinion on the financial statements. D) responsible for finding all misstatements.
A
The most important general ledger account included in and affecting several cycles is the: A) cash account. B) inventory account. C) income tax expense and liability accounts. D) retained earnings account.
A
The objective of the ordinary audit of financial statements is the expression of an opinion on: A) the fairness of the financial statements in all material respects. B) the accuracy of the financial statements. C) the accuracy of the annual report. D) the accuracy of the balance sheet and income statement.
A
The primary difference between an audit of the balance sheet and an audit of the income statement is that the audit of the income statement deals with the verification of: A) transactions. B) balances. C) costs. D) cutoffs.
A
Two overriding considerations affect the many ways an auditor can accumulate evidence: 1. Sufficient appropriate evidence must be accumulated to meet the auditor's professional responsibility. 2. Cost of accumulating evidence should be minimized. In evaluating these considerations: A) the first is more important than the second. B) the second is more important than the first. C) they are equally important. D) it is impossible to prioritize them.
A
When an auditor believes that an illegal act may have occurred, the auditor should first: A) inquire of management at a level above those likely to be involved. B) consult with legal counsel of others knowledgeable about the illegal acts. C) accumulate additional evidence. D) withdraw from the engagement.
A
Which of the following best describes tests of details of balances? A) audit procedures designed to test for monetary misstatements in the accounts summarized in the financial statements B) audit procedures designed to test for the monetary amounts of transactions C) audit procedures designed to test for reasonableness of account balances D) audit procedures designed to test for effectiveness in recording accounting information
A
Which of the following forms of evidence would be least persuasive in forming the auditor's opinion about marketable securities and other investments held by the company? A) Responses to auditor's questions by the president and controller regarding the investments account. B) Correspondence with a stockbroker regarding the quantity of client's investments held in street name by the broker. C) Minutes of the board of directors authorizing the purchase of stock as an investment. D) The auditor's count of marketable securities.
A
Which of the following is most correct with regard to the auditor's search of indirect-effect illegal acts that may have been committed by the client? A) No reason to search unless there is sufficient evidence to believe they have occurred. B) Same audit responsibility as the search for financial statement fraud. C) Same audit responsibility as the search for misappropriated assets. D) No reason to search as they would have an indirect effect on the financial statements.
A
Which of the following statements best describes the auditor's responsibility with respect to illegal acts that do not have a material effect on the client's financial statements? A) Generally, the auditor is under no obligation to notify parties other than personnel within the client's organization. B) Generally, the auditor is under an obligation to inform the PCAOB. C) Generally, the auditor is obligated to disclose the relevant facts in the auditor's report. D) Generally, the auditor is expected to compel the client to adhere to requirements of the Foreign Corrupt Practices Act.
A
Which of the following statements is correct with respect to the auditor's responsibilities relative to the detection of indirect-effect illegal acts? A) The auditor has no responsibility for searching for indirect-effect illegal acts. B) The auditor has the same responsibility for searching for indirect-effect illegal acts as any other potential misstatement that may occur. C) Auditors have responsibility for searching for any illegal act, whether direct-effect or indirect-effect. D) Discovery of indirect-effect illegal acts is usually easier than discovery of fraud.
A
Which of the following statements is most correct regarding errors and fraud? A) An error is unintentional, whereas fraud is intentional. B) Frauds occur more often than errors in financial statements. C) Errors are always fraud and frauds are always errors. D) Auditors have more responsibility for finding fraud than errors.
A
Which of the following statements is true? A) A large sample of highly competent evidence is persuasive if it is relevant to the objective being tested. B) A large sample of evidence that is neither competent nor timely is not persuasive. C) A small sample of only one or two pieces of relevant, competent, and timely evidence lacks persuasiveness. D) The persuasiveness of evidence can be evaluated after considering its sufficiency.
A
Which of the following statements is true? A) Auditors have generally found that the most effective and efficient way to conduct an audit is to obtain some assurance for each class of transaction and for the ending balance of the related account. B) Management's assertions follow and are closely related to the audit objectives. C) The auditor's primary responsibility is to find and disclose fraudulent management assertions. D) Assertions about presentation and disclosure deal with whether the accounts have been included in the financial statements at appropriate amounts.
A
Which of the following statements regarding the relevance of evidence is correct? A) To be relevant, evidence must pertain to the audit objective of the evidence. B) To be relevant, evidence must be persuasive. C) To be relevant, evidence must relate to multiple audit objectives. D) To be relevant, evidence must be derived from a system including effective internal controls.
A
Why does the auditor divide the financial statements into smaller segments? A) Using the cycle approach makes the audit more manageable. B) Most accounts have few relationships with others and so it is more efficient to break the financial statements into smaller pieces. C) The cycle approach is used because auditing standards require it. D) All of the above are correct.
A
With respect to the detection of indirect- effect illegal acts, auditing standards state that the auditor provides: A) no assurance that they will be detected. B) the same reasonable assurance provided for other items. C) assurance that they will be detected, if material. D) assurance that they will be detected, if highly material
A
"The auditor should not assume that management is dishonest, but the possibility of dishonesty must be considered." This is an example of: A) unprofessional behavior. B) an attitude of professional skepticism. C) due diligence. D) a rule in the AICPA's Code of Professional Conduct.
B
An example of an external document that provides reliable information for the auditor is: A) employees' time reports. B) bank statements. C) purchase order for company purchases. D) carbon copies of checks.
B
Appropriateness of evidence is a measure of the: A) quantity of evidence. B) quality of evidence. C) sufficiency of evidence. D) meaning of evidence.
B
Audit evidence has two primary qualities for the auditor; relevance and reliability. Given the choices below which provides the auditor with the most reliable audit evidence? A) general ledger account balances B) confirmation of accounts receivable balance received from a customer C) internal memo explaining the issuance of a credit memo D) copy of month-end adjusting entries
B
Calculating the gross margin for the current year under audit as a percent of sales and comparing it with previous years is what type of evidence? A) physical examination B) analytical procedures C) observation D) inquiry
B
Due professional care, the third general standard, is concerned with what is done by the independent auditor and how well it is done. For example, due care in the matter of audit documentation requires that audit documentation of the evidence gathered by the auditor meets which of the following criteria? A) Workpapers be indexed to the general ledger accounts and include both a permanent file and a general file. B) The content be sufficient to provide support for the auditor's opinion, including the auditor's representation as to compliance with auditing standards. C) Audit evidence is principally gathered to determine if the client's financial statements, as prepared by management, can be relied upon to make managerial decisions about the firm. D) Audit evidence as displayed in the workpapers is primarily performed to protect the auditing firm in the case of a lawsuit by investors.
B
For audit evidence to be compelling to the auditor it must be sufficient and appropriate. Which statement below is not correct regarding the appropriateness of audit evidence? A) The more effective the internal control system, the more assurance it provides the auditor about the reliability of financial reporting by the client. B) An auditor's opinion, to be economically useful and profitable to the auditing firm needs to be formed within a reasonable time and based on evidence obtained that assures profits for the auditing firm. C) Evidence obtained from independent sources outside the entity is generally more reliable than evidence secured solely within the entity. D) The independent auditor's direct personal knowledge, obtained through inquiry, observation and inspection, is generally more persuasive than information obtained indirectly.
B
If an auditor conducted an audit in accordance with auditing standards, which of the following would the auditor likely detect? A) unrecorded transactions B) errors in postings of recorded transactions C) counterfeit signatures on paid checks D) fraud involving collusion
B
If the auditor has obtained a reasonable level of assurance about the fair presentation of the financial statements through understanding internal control, assessing control risk, testing controls, and analytical procedures, then the auditor: A) can issue an unqualified opinion. B) can significantly reduce other substantive tests. C) can write the engagement letter. D) needs to perform additional tests of controls so that the assurance level can be increased.
B
In comparing management fraud with employee fraud, the auditor's risk of failing to discover the fraud is: A) greater for management fraud because managers are inherently more deceptive than employees. B) greater for management fraud because of management's ability to override existing internal controls. C) greater for employee fraud because of the higher crime rate among blue collar workers. D) greater for employee fraud because of the larger number of employees in the organization
B
In order to provide reasonable assurance the audit must be performed with an attitude of professional skepticism. Which of the following is most correct regarding the "attitude" of professional skepticism? A) auditors should assume that management is dishonest B) auditors should assume that management is neither dishonest nor honest C) auditors should assume that management is honest and mistakes are unintentional D) auditors should assume that management is incumbent in preparing financial statements
B
In testing for cutoff, the objective is to determine: A) whether all of the current period's transactions are recorded. B) whether transactions are recorded in the correct accounting period. C) the proper cutoff between capitalizing and expensing expenditures. D) the proper cutoff between disclosing items in footnotes or in account balances.
B
Most illegal acts affect the financial statements: A) directly. B) only indirectly. C) both directly and indirectly. D) materially if direct; immaterially if indirect.
B
The detail tie-in is part of the ________ assertion for account balances. A) classification B) valuation and allocation C) rights and obligations D) completeness
B
The detail tie-in objective is not concerned that the details in the account balance: A) agree with related subsidiary ledger amounts. B) are properly disclosed in accordance with GAAP. C) foot to the total in the account balance. D) agree with the total in the general ledger
B
The essence of the attest function is to: A) assure the consistent application of correct accounting procedures. B) determine whether the client's financial statements are fairly stated in accordance with an applicable financial reporting framework such as U.S. GAAP or IFRS. C) examine individual transactions so that the auditor may certify as to their validity. D) detect collusion and fraud.
B
The responsibility for adopting sound accounting policies and maintaining adequate internal control rests with the: A) board of directors. B) company management. C) financial statement auditor. D) company's internal audit department.
B
The responsibility for the preparation of the financial statements and the accompanying footnotes belongs to: A) the auditor. B) management. C) both management and the auditor equally. D) management for the statements and the auditor for the notes.
B
When the auditor knows that an illegal act has occurred, the auditor must: A) report it to the proper governmental authorities. B) consider the effects on the financial statements, including the adequacy of disclosure. C) withdraw from the engagement. D) issue an adverse opinion.
B
Which of the following assertions is described as "this assertion addresses whether all transactions that should be included in the financial statements are in fact included"? A) occurrence B) completeness C) rights and obligations D) existence
B
Which of the following is not a characteristic of the reliability of evidence? A) effectiveness of client internal controls B) education of auditor C) independence of information provider D) timeliness
B
Which of the following is not one of the three categories of assertions? A) Assertions about classes of transactions and events for the period under audit B) Assertions about financial statements and correspondence to GAAP C) Assertions about account balances at period end D) Assertions about presentation and disclosure
B
Which of the following is the most objective type of evidence? A) A letter written by the client's attorney discussing the likely outcome of outstanding lawsuits. B) The physical count of securities and cash. C) Inquiries of the credit manager about the collectability of noncurrent accounts receivable. D) Observation of cobwebs on some inventory bins.
B
Which of the following management assertions is not associated with transaction-related audit objectives? A) Occurrence B) Classification and understandability C) Accuracy D) Completeness
B
Which of the following statements best describes the auditor's responsibility regarding the detection of fraud? A) The auditor is responsible for the failure to detect fraud only when such failure clearly results from nonperformance of audit procedures specifically described in the engagement letter. B) The auditor is required to provide reasonable assurance that the financial statements are free of both material errors and fraud C) The auditor may extend auditing procedures to actively search for evidence of fraud where the examination indicates that fraud may exist. D) The auditor is responsible for the failure to detect fraud only when an unqualified opinion is issued.
B
Which of the following statements is not a correct use of the terminology in relation to audit evidence? A) Evidence obtained from an independent source outside the client organization is more reliable than that obtained from within. B) Documentary evidence is more reliable when it is received by the auditor indirectly rather than directly. C) Documents that originate outside the company are considered more reliable than those that originate within the client's organization. D) External evidence, such as communications from banks, is generally regarded as more reliable than answers obtained from inquiries of the client.
B
Which of the following statements is not correct? A) It is possible to vary the sample size from one unit to 100% of the items in the population. B) The decision of how many items to test should not be influenced by the increased costs of performing the additional tests. C) The decision of how many items to test must be made by the auditor for each audit procedure. D) The sample size for any given procedure is likely to vary from audit to audit.
B
Which of the following statements is true regarding the distinction between general audit objectives and specific audit objectives for each account balance? A) The specific audit objectives are applicable to every account balance on the financial statements. B) The general audit objectives are applicable to every account balance on the financial statements. C) The general audit objectives are stated in terms tailored to the engagement. D) For any given class of transactions, usually only one audit objective must be met to conclude the transactions are properly recorded.
B
Why does the auditor divide the financial statements into segments around the financial statement cycles? A) Most auditors are trained to audit cycles as opposed to entire financial statements. B) The approach aids in the assignment of tasks to different members of the audit team. C) The cycle approach is required by auditing standards. D) The cycle approach allows the auditor to detect indirect-effect illegal acts.
B
An example of a document the auditor receives from the client, but which was prepared by someone outside the client's organization, is a: A) confirmation. B) sales invoice. C) vendor invoice. D) bank reconciliation.
C
Auditors must make decisions regarding what evidence to gather and how much to accumulate. Which of the following is a decision that must be made by auditors related to evidence? A) Sample size Timing of audit procedures Yes Yes B) Sample size Timing of audit procedures No No C) Sample size Timing of audit procedures Yes No D) Sample size Timing of audit procedures No Yes
C
Evidence is generally considered appropriate when: A) it has been obtained by random selection. B) there is enough of it to afford a reasonable basis for an opinion on financial statements. C) it has the qualities of being relevant, objective, and free from known bias. D) it consists of written statements made by managers of the enterprise under audit.
C
Fraudulent financial reporting is most likely to be committed by whom? A) line employees of the company B) outside members of the company's board of directors C) company management D) the company's auditors
C
Given the economic and time constraints in which auditors can collect evidence about management assertions about the financial statements, the auditor normally gathers evidence that is: A) irrefutable. B) conclusive. C) persuasive. D) completely convincing.
C
If an auditor uncovers an illegal act at a public company, the auditor must notify: A) local law enforcement officials. B) the Public Company Accounting Oversight Board. C) the Securities and Exchange Commission. D) all of the above.
C
If the auditor believes that the financial statements are not fairly stated or is unable to reach a conclusion because of insufficient evidence, the auditor: A) should withdraw from the engagement. B) should request an increase in audit fees so that more resources can be used to conduct the audit. C) has the responsibility of notifying financial statement users through the auditor's report. D) should notify regulators of the circumstances.
C
Illegal acts are defined in auditing standards as: A) violations of laws or government regulations. B) violations of laws or government regulations other than errors. C) violations of laws or government regulations other than fraud. D) violations of law which would result in the arrest of the perpetrator.
C
In certifying their annual financial statements, the CEO and CFO of a public company certify that the financial statements comply with the requirements of: A) GAAP. B) the Sarbanes-Oxley Act. C) the Securities Exchange Act of 1934. D) GAAS.
C
International auditing standards and U.S. GAAP classify assertions into three categories. Which of the following is not a category of assertions that management makes about the accounting information in financial statements? A) Assertions about classes of transactions for the period under audit B) Assertions about account balances at period end C) Assertions about the quality of source documents used to prepare the financial statements D) Assertions about presentation and disclosure
C
The auditor has no responsibility to plan and perform the audit to obtain reasonable assurance that misstatements, whether caused by errors or fraud, that are not ________ are detected. A) important to the financial statements B) statistically significant to the financial statements C) material to the financial statements D) identified by the client
C
The auditor is determining that the recorded sales are for the amount of goods shipped are correctly billed and recorded. She is gathering evidence about which transaction related audit objective? A) existence B) completeness C) accuracy D) cut-off
C
The auditor's evaluation of the likelihood of material employee fraud is normally done initially as a part of: A) tests of controls. B) tests of transactions. C) understanding the entity's internal control. D) the assessment of whether to accept the audit engagement.
C
The two characteristics of the appropriateness of evidence are: A) relevance and timeliness. B) relevance and accuracy. C) relevance and reliability. D) reliability and accuracy
C
Two determinants of the persuasiveness of evidence are: A) competence and sufficiency. B) relevance and reliability. C) appropriateness and sufficiency. D) independence and effectiveness.
C
When comparing the auditor's responsibility for detecting employee fraud and for detecting errors, the profession has placed the responsibility: A) more on discovering errors than employee fraud. B) more on discovering employee fraud than errors. C) equally on discovering either one. D) on the senior auditor for detecting errors and on the manager for detecting employee fraud.
C
When the auditor develops supporting evidence for amounts posted to account balances with documentary evidence, that process is called: A) inquiry. B) confirmation. C) vouching. D) physical examination
C
When the auditor has reason to believe an illegal act has occurred, the auditor should: A) inquire of management only at one level below those likely to be involved with the illegality. B) begin communication with the FASB in accordance with PCAOB regulations. C) consider accumulating additional evidence to determine if there is actually an illegal act. D) withdraw from the engagement.
C
When using the cycle approach to segmenting the audit, the reason for treating capital acquisition and repayment separately from the acquisition of goods and services is that: A) the transactions are related to financing a company rather than to its operations. B) most capital acquisition and repayment cycle accounts involve few transactions, but each is often highly material and therefore should be audited extensively. C) both A and B are correct. D) neither A nor B is correct.
C
Which is the following is most correct regarding the distinction(s) between the auditor's responsibilities for searching for errors and fraud. A) little B) a significant C) no D) various
C
Which items affect the sufficiency of evidence when choosing a sample? A) Selecting items with a high likelihood of misstatement The randomness of the items selected Yes Yes B) Selecting items with a high likelihood of misstatement The randomness of the items selected No No C) Selecting items with a high likelihood of misstatement The randomness of the items selected Yes No D) Selecting items with a high likelihood of misstatement The randomness of the items selected No Yes
C
Which of the following combinations is correct? A) Existence relates to whether the amounts in accounts are understated. B) Occurrence relates to whether balances exist. C) Existence relates to whether amounts included exist. D) Occurrence relates to whether the amounts in accounts occurred in the proper year.
C
Which of the following is the auditor least likely to do when aware of an illegal act? A) Discuss the matter with the client's legal counsel. B) Obtain evidence about the potential effect of the illegal act on the financial statements. C) Contact the local law enforcement officials regarding potential criminal wrongdoing.
C
Which of the following journals would be included most often in the various audit cycles? A) cash receipts journal B) cash disbursements journal C) general journal D) sales journal
C
Which of the following statements about the existence and completeness assertions is not true? A) The existence and completeness assertions emphasize different audit concerns. B) Existence deals with overstatements and completeness deals with understatements. C) Existence deals with understatements and completeness deals with overstatements. D) The completeness assertion deals with unrecorded transactions.
C
Which of the following statements is true of a public company's financial statements? A) Sarbanes-Oxley requires the CEO only to certify the financial statements. B) Sarbanes-Oxley requires the CFO only to certify the financial statements. C) Sarbanes-Oxley requires the CEO and CFO to certify the financial statements. D) Sarbanes-Oxley neither requires the CEO nor the CFO to certify the financial statements.
C
Which of the following statements is usually true? A) It is easier for the auditor to uncover fraud than errors. B) It is easier for the auditor to uncover indirect-effect illegal acts than fraud. C) The auditor's responsibility for detecting direct-effect illegal acts is similar to the responsibility to detect fraud. D) The auditor's responsibility for detecting indirect-effect illegal acts is similar to the responsibility to detect fraud.
C
Which of the following would most likely be deemed a direct-effect illegal act? A) violation of federal employment laws B) violation of federal environmental regulations C) violation of federal income tax laws D) violation of civil rights laws
C
After the auditor has completed all audit procedures, it is necessary to combine the information obtained to reach an overall conclusion as to whether the financial statements are fairly presented. This is a highly subjective process that relies heavily on: A) generally accepted auditing standards. B) the AICPA's Code of Professional Conduct. C) generally accepted accounting principles. D) the auditor's professional judgment.
D
Auditors accumulate evidence to: A) defend themselves in the event of a lawsuit. B) justify the conclusions they have otherwise reached. C) satisfy the requirements of the Securities Acts of 1933 and 1934. D) enable them to reach conclusions about the fairness of the financial statements.
D
Determine which of the following is most correct regarding the reliability of audit evidence. A) Information that is indirectly obtained from external sources is the most reliable audit evidence. B) Reliability of audit evidence is dependent upon the evidence being convincing. C) Reliability of evidence refers to the amount of evidence obtained. D) An effective internal control system provides more reliable audit evidence.
D
If a short-term note payable is included in the accounts payable balance on the financial statement, there is a violation of the: A) completeness assertion. B) existence assertion. C) cutoff assertion. D) classification and understandability assertion.
D
If the auditor were responsible for making certain that all of management's assertions in the financial statements were absolutely correct: A) bankruptcies could no longer occur. B) bankruptcies would be reduced to a very small number. C) audits would be much easier to complete. D) audits would not be economically practical.
D
In describing the cycle approach to segmenting an audit, which of the following statements is not true? A) All general ledger accounts and journals are included at least once. B) Some journals and general ledger accounts are included in more than one cycle. C) The "capital acquisition and repayment" cycle is closely related to the "acquisition of goods and services and payment" cycle. D) The "inventory and warehousing" cycle may be audited at any time during the engagement since it is unrelated to the other cycles.
D
The auditor must gather sufficient and appropriate evidence during the course of the audit. Sufficient evidence must: A) be well documented and cross-referenced in the audit documents. B) be based on sources that are external to company. C) provide evidence that prove or disprove an audit objective/assertion. D) be persuasive enough to enable the auditor to issue an audit report.
D
When planning the audit, if the auditor has no reason to believe that illegal acts exist, the auditor should: A) include audit procedures which have a strong probability of detecting illegal acts. B) still include some audit procedures designed specifically to uncover illegalities. C) ignore the issue. D) make inquiries of management regarding their policies for detecting and preventing illegal acts and regarding their knowledge of violations, and then rely on normal audit procedures to detect errors, irregularities, and illegalities.
D
Which of the following is not one of the reasons that auditors provide only reasonable assurance on the financial statements? A) The auditor commonly examines a sample, rather than the entire population of transactions. B) Accounting presentations contain complex estimates which involve uncertainty. C) Fraudulently prepared financial statements are often difficult to detect. D) Auditors believe that reasonable assurance is sufficient in the vast majority of cases
D
Which of the following statements is not correct? A) There are many ways an auditor can accumulate evidence to meet overall audit objectives. B) Sufficient appropriate evidence must be accumulated to meet the auditor's professional responsibility. C) It is appropriate to minimize the cost of accumulating evidence. D) Gathering evidence and minimizing costs are equally important considerations that affect the approach the auditor selects.
D
Which of the following statements is not true? A) Balance-related audit objectives are applied to ending account balances. B) Transaction-related audit objectives are applied to classes of transactions. C) Balance-related audit objectives are applied to the ending balance in balance sheet accounts. D) Balance-related audit objectives are applied to both beginning and ending balances in balance sheet accounts.
D
Which of the following statements relating to the competence of evidential matter is always true? A) Evidence from outside an enterprise is always reliable. B) Accounting data developed under satisfactory conditions of internal control are more relevant than data developed under unsatisfactory internal control conditions. C) Oral representations made by management are not reliable evidence. D) Evidence must be both reliable and relevant to be considered appropriate.
D
Which one of the following is not one of the primary purposes of audit documentation prepared by the audit team? A) A basis for planning the audit. B) A record of the evidence accumulated and the results of the tests. C) A basis for review by supervisors and partners. D) A basis for determining work deficiencies by peer review teams.
D