430- ch 5

The internal control flowchart is an example of:

an administrative working paper

During financial statement audits, auditors seek to restrict which type of risk?

detection risk

The inspection of a vendor's invoice by the auditors is:

documentary evidence about occurrence of a transaction

The date on which no information may be deleted from audit documentation is the

documentation completion date

An analytical procedure example is the comparison of:

financial ratios of the current year to previous year

Which of the following groups are not considered a specialist by AICPA Professional Standards?

internal auditors

Confirmation would be most effective in addressing the existence assertion for the:

inventory held on consignment

Which of the following best describes the reason that auditors are concerned with the detection of related party transactions?

material related party transactions must be disclosed in the notes to the financial statements

Applying substantive tests to the details of asset and liability accounts as of an interim date, rather than as of the balance sheet date:

potentially increases the risk that errors which exist at the balance sheet date will not be detected

In evaluating an entity's accounting estimates, one of the auditor's objectives is to determine whether the estimates are

reasonable in the circumstances

Auditors must obtain written client representations that typically should be signed by:

the CEO and CFO

financial statement assertions are established for classes of transactions account balances disclosures

yes & yes

Working papers used by the auditor that record the procedures used to gather evidence should be:

Designed to meet the circumstances of the particular engagement.

During an audit, the working papers are primarily considered to be:

Support for the auditors' representations as to compliance with generally accepted auditing standards.

Which of the following is generally true about the sufficiency of audit evidence?

The amount of evidence that is sufficient varies directly with the acceptable risk of material misstatement.

Which of the following statements regarding audit evidence is generally correct?

The auditor's direct personal knowledge, obtained through observation and inspection, is more persuasive than information obtained indirectly from independent outside sources

Which of the following is not generally considered a difficulty in using data analytical approaches in auditing and other areas?

The requirement for networks of linked "super-computers" to perform any such calculations.

In general, which of the following statements is correct with respect to ownership, possession, or access to working papers prepared by a CPA firm in connection with an audit?

The working papers may be obtained by third parties where they appear to be relevant to issues raised in litigation.

Which of the following is not a primary purpose of audit working papers?

To decrease the need for substantive procedures.

Which procedure is not a typical analytical procedure?

Comparison of recorded amounts of major disbursements with appropriate invoices.

Which of the following is not accurate as it applies to using data analytics in financial statement auditing:

It ordinarily requires that all audit staff members maintain a high level of data analytics skills.

Which of the following is least likely to be included in a client's representation letter?

Management acknowledges responsibility for illegal actions committed by employees.

The permanent file section of the working papers that is retained for each audit client most likely contains:

Narrative descriptions of the client's accounting procedures and controls.

Which of the following is the most accurate statement regarding audit evidence?

The auditor must obtain sufficient appropriate audit evidence.

To be effective, analytical procedures performed near the end of the audit should be performed by

a manager or partner who has a comprehensive knowledge of the client's business and industry

In auditing an asset valued at fair value, which of the following potentially provides the auditor with the strongest evidence?

a price for a similar asset obtained from an active market

Which of the following is not an assertion relating to classes of transactions?

adequacy

Audit documentation is intended to allow ___________ to understand the audit work performed, the evidence obtained, and the significant conclusions.

an experienced auditor

Comparing the current-year gross margin with the prior-year gross margin to determine if cost of sales is reasonable during an audit would be a type of:

analytical procedure

Which of the following is most likely to be considered an analytical procedure?

comparing inventory balances to recent sales activities

Which of the following is not considered to be an analytical procedure?

comparisons of financial statement amounts with source douments

When using management's written representations as audit evidence about the completeness assertion, an auditor should consider that such representations:

complement, but do not replace, substantive procedures designed to support the assertion

An auditor is performing an analytical procedure that involves comparing a client's ratios with other companies in the same industry. This technique is referred to as:

cross-sectional analysis

Examination of large data sets to uncover hidden patterns is often referred to as:

data analytics

The management representation letter date should coincide with the

date of the auditor's report

An unexpected economic downturn is likely to have which effect on inventory turnover.

decrease

What type of transactions ordinarily have high inherent risk because they involve management judgments or assumptions in formulating accounting balances?

estimation

An auditor is performing an analytical procedure that involves comparing a client's account balances over time. This technique is referred to as:

horizontal analysis

Fraudulent sales and accounts receivables recorded at year-end (with no cost of goods sold entry) will:

increase days of sales in accounts receivable

The auditors use analytical procedures during the course of an audit. The most important phase of performing these procedures is the:

investigation of significant variations and unusual relationships

Which of the following best describes the problem with the use of published industry averages for analytical procedures?

lack of comparability

A schedule set up to combine similar general ledger accounts, the total of which appears on the working trial balance as a single amount, is referred to as a:

lead schedule

An auditor should expect that fair value is the price that would be received to sell an asset in an orderly transaction between the market participants at the:

measurement date

further audit procedures include: risk assessment procedures tests of control

no & yes

Which of the following is not a basic approach often used by auditors to evaluate the reasonableness of accounting estimates?

observation of procedures

Which transaction would not necessarily be considered a related party transaction?

payment of a bonus to the president

Auditors can mitigate risk, like the failure to detect material dollar errors in the financial statements, by doing what?

performing substantive procedures

Analytical procedures are required at the risk assessment stage and as:

procedures near the end of the audit

Which of the following is not a function of working papers?

provide support for the accounting records

Which of the following is not a financial statement assertion relating to account balances?

recorded value and discounts

An independent auditor finds that the Simmer Corporation purchased land owned by an officer of the company for an amount in excess of its asking price. This finding indicates the existence of:

related party transactions

Assertions that have a meaningful bearing on whether an account balance, transaction class, or disclosure is fairly stated are referred to as:

relevant assertions

Which of the following is most consistent with an increase in the ratio of debt to equity?

repurchase of a portion of the company's outstanding common stock

Concerning retention of working papers, the Sarbanes-Oxley Act:

requires retention for at least 7 years

Which of the following is a basic approach often used by auditors to evaluate the reasonableness of accounting estimates?

reviewing subsequent events or transactions

Assertions with high inherent risk are least likely to involve:

routine transactions

Which of the following is not a basic procedure used in an audit?

tests of direct evidence

What ultimately determines the specific audit procedures necessary to provide independent auditors with a reasonable basis for the expression of an opinion?

the auditors' judgment

An auditor is performing an analytical procedure that involves developing common-size financial statements. This technique is referred to as:

vertical analysis

A CPA wishes to use a representation letter as a substitute for performing other audit procedures. Doing so:

violates professional standards

A schedule listing account balances for the current and previous years, and columns for adjusting and reclassifying entries proposed by the auditors to arrive at the final mount that will appear in the financial statement, is referred to as a:

working trial balance

In obtaining sufficient appropriate audit evidence, the work of which type or types of specialists may be relied upon? client engaged auditor engaged

yes & yes

the component of the risk of misstatement are inherent risk control risk detection risk

yes & yes & no

Which of the following approaches to an audit is most likely to result in a detailed analysis of one or more characteristics of an entire population?

a data analytical approach

The auditors of Smith Electronics wish to limit the audit risk of material misstatement in the test of accounts receivable to 5 percent. They believe that inherent risk is 100%, and there is a 40% risk that material misstatement could have bypassed the client's system of internal control. What is the maximum detection risk the auditors should specify in their substantive procedures of details of accounts receivable?

12.5%

Which of the following is true about analytical procedures?

Analytical procedures are used in risk assessment, as a substantive procedure for specific accounts, and near the completion of the audit of the audited financial statements.

An advantage of data analytical approaches applied to auditing is that

Auditing of entire populations of transactions may, in particular situations, become cost justified.

Even though the quantity, type, and content of working papers will vary, the working papers generally would include:

Auditing procedures followed and the testing performed in obtaining audit evidence.