ACCT 421 Test 2
Engagement risk is: a. the risk of issuing an incorrect auditors opinion b. the auditors risk of loss from events arising in connection with the financial report audited and reported upon. c. the overall risk of material misstatements d. the risk of entity financial failure
B
Management implements internal controls to ensure that all required footnote disclosures are accurate. Auditors tests those controls to provide evidence supporting the ________ presentation. A) completeness and valuation B) completeness and accuracy C) rights and obligations and existence D) occurrence and accuracy
B
Tests of controls are directed toward the control's A) efficiency. B) effectiveness. C) cost and effectiveness. D) cost benefit ratio.
B
The ________ is the combination of the types of tests to obtain sufficient appropriate evidence for a cycle. There are likely to be variations in the mix from cycle to cycle depending on the circumstances of the audit. A) testing mix B) evidence mix C) audit process mix D) procedures mix
B
The auditor would design which of the following audit tests to detect possible monetary errors in the financial statements? A) control tests B) substantive analytical procedures C) risk assessment procedures D) tests of operating effectiveness of controls over revenue and cash
B
The document that details the specific audit procedures for each type of test is the A) audit strategy. B) audit program. C) audit procedure. D) audit risk model.
B
Substantive tests of balances performed before year-end provide significant assurance and are normally only done when internal controls are ineffective.
False
Tests of controls are performed to support a reduced assessment of detection risk.
False
Procedures to obtain an understanding of internal control generally provide sufficient appropriate evidence that a control is operating effectively.
False
Tests of details of balances emphasize the overall reasonableness of transactions and the general ledger balances.
False
Which of the following statements is correct regarding the costs involved in obtaining evidence?
Physical examination is usually the least expensive type of audit evidence-NO Cost of obtaining evidence may be a factor in deciding whether to obtain that evidence Yes
When can audit procedures be performed?
Prior to the fiscal year-end of the client yes Subsequent to the fiscal year-end of the client Yes
which of the following statements concerning evidence is correct?
a client's accounting data cannot be considered sufficient audit evidence to support the financial report
which of the following factors is most important in determining the appropriateness of audit evidence?
the reliability of the evidence in meeting the audit objective
If internal controls are tested and are considered effective, the auditor generally will increase both substantive tests of transactions and tests of details of balances.
False
Presentation and disclosure objectives are primarily addressed in the tests of details of balances phase of the audit.
False
Which of the following is an accurate statement regarding the four phases of the audit process? A) After the planning stage, the auditor should have a well-defined audit strategy and plan and a specific audit program for the entire audit. B) The objective of phase III is to perform tests of controls. C) During phase II, the auditor must evaluate the going-concern assumption. D) All of the above are correct statements.
A
Which of the following is true? A) Tests of details of balances focus on the ending general ledger balances for both balance sheet and income statement accounts. B) Tests of details of balances focus on the transactions during the period for both balance sheet and income statement accounts. C) Tests of details of balances focus on the auditor's understanding of internal controls. D) Tests of details of balances focus on comparisons of recorded amounts to expectations developed by the auditor.
A
Which of the following tests commonly occur together? A) substantive tests of transactions and tests of controls B) substantive tests of transactions and obtaining an understanding of internal controls C) analytical procedures and tests of controls D) tests of controls and tests of details of balances
A
Audit documents that record the procedures used by the auditor to gather evidence should be:
designed to meet the circumstances of the particular engagement
Audit objectives:
develops specific audit objectives to substantiate assertions that are material to the financial statements
the extent of substantive tests for an assertion in relation to the assessed level of inherent risk varies in a relationship that is ordinarilyL
direct
which of the following statements relating to the appropriateness of audit evidence is always true?
evidence gathered by auditors must both be reliable and relevant to be considered appropriate
Inherent risk and control risk differ from detection risk in that they:
exist independently of the financial report audit
The evidence mix includes risk assessment procedures.
false
which of the following audit objectives does not relate primarily to the financial report assertion of completeness? a.inventories are reduced, when appropriate, to net realisable value B. inventory quantities include all products, materials and supplies owned by the company that are in transit. c. inventory listings are accurately compiled and the totals are properly included in the inventory accounts. d. inventory quantities include products and materials owned by the company that are in transit
inventories are reduced, when appropriate, to net realisable value
Which of the following audit objectives relates primarily to the financial report assertion, rights and obligations?
inventories exlude items billed to customers or owned by others
Audit documentation:
may be in paper, electronic, or some other form
most of the independent auditors work in formulating an opinion on a financial report consists of:
obtaining and examining audit evidence
in determing whether transaction have been recorded, the direction of the audit testing should be from the:
original source documents
When an auditor believes that analytical procedures indicate a reasonable possibility of misstatement, the auditor usually would
perform additional tests of controls- no decide to modify tests of details of balances-yes
an auditors decision either to apply analytical procedures as substantive tests or to perform tests of details usually is determined by the:
relative effectiveness and efficiency of the tests
to be appropriate, evidence must be both:
reliable and relevant
Collectively, procedures performed to obtain an understanding of the entity and its environment, including internal controls, represent the auditors:
risk assessment procedures
auditors can eliminate engagement risk:
under no circumstances
6) When the auditor has completed the tests of details of balances and enters phase IV of the audit process, she must still perform audit procedures for which of the following? A) contingent liabilities and employee compensation B) contingent liabilities and subsequent events C) subsequent events and contractual commitments D) subsequent events and unrecorded liabilities
B
Which of the following types of evidence is not available when using substantive tests of transactions? A) inspection B) confirmation C) inquiries of the client D) reperformance
B
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 no material differences are found using analytical procedures, and the auditor concludes that misstatements are not likely to have occurred, A) other substantive tests may be reduced. B) it will be necessary to increase the tests of balances. C) it will not be necessary to perform tests of balances. D) it will be necessary to increase the tests of transactions.
A
If tests of controls support the control risk assessment, then ________ in the audit risk model is increased. A) planned detection risk B) planned inherent risk C) planned fraud risk D) planned assurance risk
A
Risk assessment procedures are performed by auditors during an audit in order to A) determine the risk of material misstatement in the financial statements. B) determine the amount of testing of internal control. C) determine the extent of testing of details of balances. D) determine the extent of testing of transactions.
A
Selecting a sample of quantities of inventory in the warehouse and tracing each item to the final stock sheets helps address which of the following assertions in respect of inventory? a. completeness b. valuation and allocation c. existence d. rights and obligations
A
Tests of controls and substantive tests of transactions are an important determinant of the extent of the auditor's use of tests of details of balances. Which of the following is true? A) They are likely to be performed prior to the client's end of the fiscal year. B) They are likely to eliminate the need for tests of details of balances. C) They are likely to have no impact on the planned tests of details of balances. D) They are likely to be used only in the audit of internal control.
A
The auditor has determined that a key control in the audit of the sales and collection cycle is that recorded sales are supported by authorized shipping documents and approved customer orders. What typical test of controls should be used in this situation? A) Examine a sample of duplicate sales invoices to determine that each on is supported by an authorized shipping document and approved customer order. B) Observe whether shipping documents are forwarded daily to billing and observe when they are billed. C) Examine a sample of sales invoices and agree prices to the authorized computer price list. D) Use audit software to trace postings from the batch of sales transactions to the subsidiary and general ledgers.
A
The primary emphasis in most tests of details of balances is on the A) balance sheet accounts. B) revenue accounts. C) cash flow statement accounts. D) expense accounts. Answer: A
A
When the auditor uses the audit procedure vouching she is primarily concerned with which of the following audit objectives when testing classes of transactions? A) occurrence B) completeness C) authorization D) classification
A
Which of the following audit objectives relates primarily to the financial report assertion of presentation and disclosure- classification and understandability? a. inventories are included in the statement of financial position as current assets b. inventories exclude items billed to customers or owned by others c. inventories are included in the statement of financial position at the lower of cost and NRV d. inventory quantities include all products, materials and supplies owned by the company that are in transit
A
Which of the following audit tests is usually the least costly to perform? A) substantive analytical procedures B) tests of controls C) tests of balances D) substantive tests of transactions
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 procedures would an auditor most likely rely on to verify management's assertion of completeness? a. comparing a sample of shipping documents to related sales invoices b. reviewing a standard bank confirmation c. confirming a sample of recorded receivables by direct communication with debtors d. observing the clients distribution of payroll cheques
A
________ generally provide the most reliable evidence. A) Confirmations B) Recalculations C) Reperformances D) Observations
A
as the acceptable level of detection risk decreases, the assurance directly provided from: a. substantive tests should increase b. substantive tests should decrease c. test of controls should increase d. tests of controls should decrease
A
evidence is reliable if it: a. signals the true state of an assertion b. applies to the period being audited c. relates to the audit objective being tested d. corroborates managements assertions
A
in testing plant and equipment balances, an auditor may inspect new addtions listed on the analysis of plant and equipment. this is designed to obtain evidence concerning managements assertions about classes of transactions and specifically, which assertion? a. occurence b. cut off c. accuracy d. classification
A
the auditor faces a risk that the audit will not detect material misstatements that occur in the accounting process. in regard to minimizing this risk, the auditor primarily relies on: a. substantive tests b. test of controls c. internal controls d. statistical analysis
A
the weakest form of audit evidence among the following is: a. a letter of representation from management b. confirmation of an inter-company receivable from a related company c. a letter of representation from the clients solicitors d. bank statement
A
vouching is primarily to test which of the following assertions? a. occurrence b. completeness c. authorization d. classification
A
you are concerned about whether all sales have occurred. the procedure that will be most effective in verifying this assertion is: a. selecting a sample of invoices and tracing them to delivery dockets b. selecting a sample of customer orders and tracing them to delivery dockets c. checking the sequence of delivery dockets and tracing them to customer orders d. selecting a sample of deliver dockets and tracing them to invoices.
A
Which audit tests involve physical examination and confirmation? A) tests of controls B) tests of transactions C) tests of details of balances D) analytical procedures
C
Indicate whether confirmation of accounts receivable and accounts payable, provided they each are significant accounts, is required or optional.
Accounts receivable- required accounts payable-optional
) Analytical procedures performed during phase III of the audit A) must be performed before the balance sheet date. B) can be used as a means of planning and directing other audit tests to specific areas. C) should be done after tests of details of balances. D) are expensive and are therefore not frequently used by the auditor.
B
) The auditor is concerned that a client is failing to bill customers for shipments. An audit procedure that would gather relevant evidence would be to A) select a sample of duplicate sales invoices and trace each to related shipping documents. B) trace a sample of shipping documents to related duplicate sales invoices. C) trace a sample of Sales Journal entries to the Accounts Receivable subsidiary ledger. D) compare the total of the Schedule of Accounts Receivable with the balance of the Accounts Receivable account in the general ledger
B
Analytical procedures are the most expensive type of audit test to perform because of the expertise and training required to properly use them.
False
A deficiency uncovered in the audit of internal control is explained by which of the following in relation to a financial statement misstatement? A) the amount of the misstatement B) the likelihood of the misstatement C) the amount, likelihood, and classification of the misstatement D) the amount and the classification of the misstatement
B
A procedure designed to test for monetary misstatements directly affecting the correctness of financial statement balances is a A) test of controls. B) substantive test. C) test of attributes. D) monetary unit sampling test.
B
A(n) ________ is the detailed instruction that explains the audit evidence to be obtained during the audit. A) audit objective B) audit procedure C) audit assertion D) audit program
B
All of the following are substantive tests except: a. analytical procedures b. tests of approvals on invoices c. direct tests of sales transactions d. confirmation of bank balances
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
Auditors follow a four step approach to reduce assessed control risk. Which of the following is not one of the four? A) Apply transaction-related audit objectives to a class of transactions. B) Identify accounts that have high inherent risk. C) Identify key controls that reduce control risk. D) For potential misstatements, design appropriate substantive tests of transactions.
B
The purpose of tests of controls is to provide reasonable assurance that the A) accounting treatment of transactions and balances is valid and proper. B) internal control procedures are functioning as intended. C) entity has complied with GAAP disclosure requirements. D) entity has complied with requirements of quality control.
B
The reliance the auditor places on substantive tests in relation to the reliance placed on internal control varies in a relationship that is ordinarily A) parallel. B) inverse. C) direct. D) equal.
B
Transaction-related audit objectives would most likely be performed in which phase of the audit process? A) plan and design audit approach B) perform tests of controls and substantive tests of transactions C) perform substantive analytical procedures and tests of details of balances D) complete the audit and issue the audit report Answer: B
B
When the auditor uses tracing as an audit procedure for tests of transactions, she is primarily concerned with which audit objective? A) occurrence B) completeness C) cutoff D) classification
B
Which of the following audit tests would be regarded as a test of controls? A) comparison of the inventory pricing to vendors' invoices B) tests of the signatures on canceled checks to board of directors' authorizations C) tests of the additions to property, plant, and equipment by physical inspections D) review of the specific items making up the balance in a given general ledger account
B
Which of the following is not an auditing procedure? a. physical examination b. disclosure c. vouching d. confirmation
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 statements is not a correct statement regarding 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
You are auditing Rodgers and Company. After performing substantive analytical procedures you conclude that, for the accounts tested, the client's balance appears reasonable. This may indicate that A) details test of balances can be eliminated for those accounts. B) certain tests of details of balances may be eliminated for those accounts. C) control tests may be eliminated for those accounts. D) control tests may be reduced for those accounts.
B
the audit trail includes all of the following except: a. journal and journal files b. segregation of duties c. ledgers and ledger files d. source docs and transaction files
B
the risk that an auditors procedures will lead to the conclusion that a material misstatement does not exist in an account balance when in fact it does exist is: a. audit risk b. detection risk c. control risk d. inherent risk
B
tracing is primarily used to test which of the following assertions about classes of transactions? a. occurence b. completeness c. cut off d. classification
B
which of the following best describes the concept of audit risk? a. the risk of the auditor being sued b. the risk that the auditor will provide an unmodified opinion on a materially misstated financial report c. overall risk that a material misstatement exists d. the risk that auditors use audits procedures that are inappropriate
B
which of the following does NOT assist in the achievement of the audit assertion of existence in relation to an investment in listed shares? a. a confirmation of shares held on the clients behalf b. a review of share prices quoted at the financial year-end c. a test of details of transaction of share purchases and sales during the year d. an analytical review of rate of return on investments
B
while undertaking the audit of the inventory balance, you use your audit software to extract, from the inventory master file, a report that shows those with a negative gross margin. the financial report assertion at which such a report is aimed is: a. existence b. valuation and allocation c. occurrence d. completeness
B
your audit client is under intense pressure to meet an earnings target. which audit procedure are you most likely to use when auditing purchases? A. vouching b. tracing c. recalculation d. confirmation
B
your audit client is under intense pressure to meet an earnings target. which transaction assertion for purchases are you most concerned with? a. occurrence b. completeness c. classification d. accuracy
B
) In the context of an audit of financial statements, substantive tests are audit procedures that A) may be eliminated under certain conditions. B) are designed to discover significant subsequent events. C) are designed to test for dollar misstatements. D) will increase proportionately with the auditor's reliance on internal control.
C
A system walkthrough is primarily used to help the auditor A) test the ending account balances. B) test the details of transactions. C) determine whether internal controls have been properly implemented. D) determine whether the audit engagement should be accepted.
C
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
An increased extent of tests of controls is most likely to occur when A) it is a first-year audit. B) the auditor is doing a "fraud audit." C) controls are effective and the preliminary control risk assessment is low. D) controls are ineffective and the preliminary control risk assessment is high.
C
As part of accounts payable testing, an auditor reviews cash payments made post balance date. this is done mainly to gain evidence about the: a. valuation and allocation assertion b. rights and obligations c. completeness assertion d. existence assertion
C
As the acceptable level of detection risk increases, an auditor may change the: a. assessed level of control risk from less than high to high b. assurance provided by tests of controls by using a larger sample size c. timing of substantive tests from year end to an interim date d. nature of substantive tests from less effective to more effective procedures
C
If the auditor finds extensive control test deviations and significant misstatements while performing substantive tests of transactions and substantive analytical procedures, A) the cost of the audit should decrease. B) the auditor will conclude that internal controls are effective. C) extensive tests of details of balances will need to be performed. D) all of the above
C
In auditing accounts payable, an auditor's procedures most likely would focus primarily on management's assertion of: A: Existence. B: Rights and obligations. C: Completeness. D: Occurrence.
C
Many auditors perform extensive analytical procedures because A) they are required by GAAS. B) they pinpoint errors in accounts. C) they indicate areas of potential risk and misstatement. D) they are required for tests of controls.
C
The auditor obtained an aged list of receivables and traced the accounts to the master file, footed the schedule, and traced the amounts to the general ledger. Which balance-related audit objective was met? A) existence B) cutoff C) detail tie-in D) all of the above
C
The situation and circumstances can dictate the level of certain risks no matter what the auditor does. however, the auditor is always able to decide to reduce one of the following risks: a. control risk b. risk of management fraud c. detection risk d. inherent risk
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 auditors use documentation to support recorded transactions and amounts, the process is usually called A) tracing. B) confirmations. C) vouching. D) reperformance.
C
When designing the audit program and the particular audit tests, the auditor should keep in mind that A) the audit program is broken down into two parts-the risk assessment procedures and the tests of details of balances. B) the tests of controls will not vary depending on assessed control risk. C) analytical procedures performed during substantive testing are generally more focused and more extensive than those done as part of planning. D) auditing standards require that the tests contained in the audit program must be approved by the PCAOB.
C
When the auditor uses 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
Which of the following audit objectives relates primarily to the financial report assertion, valuation and allocation? A. inventory listings are accurately compiled and the totals are properly included in the inventory accounts. B. inventory quantities include all products, materials and supplies owned by the company that are in transit. C. slow-moving, excess, defective and obsolete items included in inventories are properly identified D. inventories exclude items billed to customers or owned by others.
C
Which of the following audit tests form the basis for an auditor's report on internal control over financial reporting? A) analytical procedures B) tests of transactions C) tests of controls D) tests of details of balances
C
Which of the following is not completed during phase IV of the audit? A) Obtain a client representation letter. B) Read information in the annual report to make sure that it is consistent with the financial statements. C) Perform substantive tests of transactions. D) Perform final analytical procedures.
C
Which of the following procedures would most likely be performed in response to the auditor's assessment of the risk of monetary misstatements in the financial statements? A) ratio analysis B) tests of controls C) tests of details of balances D) risk assessment procedures
C
Who is responsible for the preparation of the financial report? a. auditor b. management c. both auditor and management d. none
C
Your audit client is a shop that sells some of its own merchandise and some merchandise held on consignment. which account balance assertion for inventory would you be most concerned about verifying? a. existence b. completeness c. rights and obligations d. valuation and allocation
C
which of the following further audit procedures are used to determine whether all six transaction-related audit objectives have been achieved for each class of transactions? a. test of controls b. risk assessment procedures c. substantive tests of transactions d. preliminary analytical procedures
C
which of the following would be least likely to be included in an auditors test of controls? a. observation b. inquiry c. confirmation d. inspection
C
Auditors must perform tests of controls separately from substantive tests of transactions.
False
Which audit assertion relates to ensuring that all recorded sales are valid? a. existence b. completeness c. occurrence d. valuation and allocation
C. Occurrence
This is your first audit of XYZ ltd. during the initial planning you have discovered that the client lacks receiving reports and a policy as to the timing within which to record purchases. you have also observed that there are many adjusting entries to accounts payable, which is a material balance. the audit assertion most at risk when auditing accounts payable is:
Completeness
"Physical examination" is the inspection or count by the auditor of items such as A) cash, inventory, and payroll timecards. B) cash, inventory, canceled checks, and sales documents. C) cash, inventory, canceled checks, and tangible fixed assets. D) cash, inventory, securities, notes receivable, and tangible fixed assets.
D
Because of the high cost of tests of details of balances, auditors do not perform this type of testing unless fraud is suspected.
False
Analytical procedures A) focus on the ending balances for income statement accounts. B) are only performed during the planning stage of the audit. C) are required to be performed when auditing an account balance. D) provide substantive evidence.
D
In order to promote audit efficiency the auditor considers cost in selecting audit tests to perform. Which of the following audit tests would be the most costly? A) substantive analytical procedures B) risk assessment procedures C) tests of controls D) tests of details of balances
D
Tests designed to detect goods which arrived at the warehouse just before year end and for which the audit client took ownership that have not been recorded in the perpetual inventory records until the subsequent year would most likely provide evidence about management's assertion of: A: Accuracy. B: Occurrence. C: Valuation and allocation. D: Cut-off.
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
What type of test is used to obtain the most types of evidence? A) substantive tests of transactions B) tests of controls C) risk assessment tests D) tests of details of balances
D
When the auditor scans the sales journal looking for large and unusual transactions, he is gathering what type of evidence? A) inspection B) recalculation C) physical examination D) analytical procedures
D
Which of the following is a correct statement regarding confirmations? A) Confirmations can be in oral or written form. B) Electronic confirmations are not acceptable under generally accepted auditing standards. C) Confirmations are generally used in the audit of fixed asset additions. D) Auditors consider alternative evidence available when determining if confirmations should be used.
D
Which of the following is ordinarily designed to detect material dollar errors on the financial statements? A) tests of controls B) analytical review procedures C) computer controls D) tests of details of balances
D
Which of the following would not be considered further audit procedures? A) tests of controls B) analytical procedures C) tests of details of balances D) risk assessment procedures
D
as the acceptable level of detection risk decreases, an auditor may change the: a. timing of substantive tests by performing them at an interim date rather than at balance date b. assessed level of inherent risk to a higher amount c. timing of tests of controls by performing them at several dates rather than at one time d. nature of substantive tests from a less effective to a more effective procedure
D
auditors are most likely to use focused audit procedures to examine: a. routine transactions b. low risk assertions c. only the rights and obligations assertion d. high-risk assertions
D
in testing the existence assertion for an asset, an auditor ordinarily works from the: a. potentially unrecorded items to the financial report b. financial report to the potentially unrecorded items c. supporting evidence to the accounting records d. accounting records to the supporting evidence
D
which of the following presumptions is correct about the reliability of audit evidence? a. info obtained indirectly from outside sources is the most reliable b. to be reliable, audit evidence should be convincing rather than persuasive c. reliability of audit evidence refers to the amount of corroborative evidence obtained d. an effective internal control system provides more reliable audit evidence than does an ineffective internal control system
D
Tests of controls should be performed after substantive tests of transactions.
FALSE
The two most important factors when determining the appropriate sample size in an audit are the auditor's expectation of misstatements and the objectivity of the evidence.
FALSE
Which items affect the sufficiency of evidence when choosing a sample?
Selecting items with a high likelihood of misstatement- yes The randomness of the items selected- no
Audit procedures can result in significant, unexpected differences. The auditor should investigate further if
Significant differences are not expected but do exist- Yes Significant differences are expected but do not exist Yes
Analytical procedures must be used during which phase(s) of the audit?
Test of Controls- No Planning- Yes Completion-Yes
which of the following is intended to detect deviations from prescribed Accounting Department procedures?
Tests of controls designed specifically for the client
One factor that determines the amount of additional evidence required for tests of controls is the planned reduction in control risk.
True
Risk assessment procedures are performed to assess the risk of material misstatement in the financial statements.
True
Substantive tests are procedures designed to test for dollar misstatements that directly affect the correctness of financial statement balances.
True
Tests of controls are generally more costly to perform than analytical procedures.
True
The auditor's understanding of internal control performed as part of risk assessment procedures provides the basis for the auditor's initial assessment of control risk.
True
Analytical procedures A) performed during the audit planning phase generally use aggregate data. B) are never performed during the testing phase of an audit. C) are declining in importance as a type of audit evidence. D) performed during the audit planning stage help the auditor take a final objective look at the audited financial statements.
a
To be considered reliable evidence, confirmations must be controlled by A) the client's employee responsible for accounts receivable. B) the external auditor. C) the client's internal audit department. D) the client's controller or CFO.
b
When practical and reasonable, U.S. auditing standards require the confirmation of A) individual transactions between organizations, such as sales transactions. B) accounts receivable. C) fixed asset additions. D) payroll expenses.
b
You are auditing the company's purchasing process for goods and services. You are primarily concerned with the company not recording all purchase transactions. Which audit procedure below would be the most effective audit procedure in this case? A) vouching from the accounts payable account to the vendor invoices B) tracing vendor invoices to recorded amounts in the accounts payable account C) confirmation accounts payable recorded amounts D) reconciling the accounts payable subsidiary ledger to the accounts payable account
b
which of the following is an essential factor in evaluating the sufficiency of evidence? the evidence must:
be of a quantity to enable the auditor to form an opinion
The primary purpose of audit procedures is to A) detect all errors or fraudulent activities as well as illegal activities. B) comply with auditing standards promulgated by the PCAOB for publicly held clients. C) gather corroborative audit evidence about management's assertions regarding the client's financial statements. D) determine the amount of errors in the balance sheet accounts in order to adjust the accounts to actual.
c
in the context of an audit of a financial report, substantive tests are audit procedures that: a. may be eliminated under certain conditions b. are designed to discover significant subsequent events c. may be either tests of details of transactions, tests of details of account balances, tests of disclosure, or analytical procedures
c. may be either tests of details of transactions, tests of details of account balances, tests of disclosure, or analytical procedures
which of the following audit risk components may be assessed in non-quantitative terms?
control risk- yes detection risk- yes
Which of the following discoveries through the use of analytical procedures would most likely indicate a relatively high risk of financial failure? A) a decline in gross margin percentages B) an increase in the balance in fixed assets C) an increase in the ratio of allowance for uncollectible accounts to gross accounts receivable, while at the same time accounts receivable turnover also decreased D) a higher than normal ratio of long-term debt to net worth as well as a lower than average ratio of profits to total assets
d
13) Substantive analytical procedures performed in all phases of the audit generally use aggregate data to help understand where misstatements are more likely to occur.
false
A canceled check written by the client, made payable to a local supplier and drawn on the client's bank account is one type of internal document
false
Accounts receivable confirmations must be controlled by the client from the time they are prepared until the time they are returned to the auditor
false
Once set during the planning phase, the audit program cannot be revised.
false
When analytical procedures reveal unusual fluctuations in an account balance, the auditor will probably perform fewer tests of details for that account and increase the tests of controls related to the account
false
When controls are effective and control risk is assessed as low, auditors put heavy emphasis on tests of balances.
false
When the auditor foots the journals and the subsidiary ledgers, it is considered reperformance.
false
when reviewing a loan agreement to ascertain whether the banks security over any of the clients assets has been included in the financial report, the audit assertion being achieved is:
presentation and disclousre--completeness
audit evidence can come in different forms with different degrees of persuasiveness. which of the following is the least persuasive type of evidence?
sales invoices inspected by the auditor
which of the following is the least persuasive documentation in support of an auditors opinion?
schedules of details of physical inventory counts conducted by the client
Dual purpose tests:
tests of transactions that include substantive procedures as well as tests of controls
which of the following statements concerning the auditors use of the work of an expert is correct?
the expert should have an understanding of the auditors corroborate use of the experts findings
) Only tests of details of balances involve physical examination and confirmation.
true
An audit program is the list of audit procedures for an audit area or an entire audit.
true
An exception in a test of control provides only an indication of the likelihood of monetary misstatements in the financial statements because tests of controls do not reveal whether monetary misstatements have actually occurred.
true
Analytical procedures are the least costly type of audit test.
true
Auditing standards require a written audit program.
true
Confirmations are among the most expensive type of evidence to obtain.
true
Inquiries of clients and recalculations normally have a low cost associated with them.
true
Tests of controls provide evidence about the likelihood for misstatements in a client's financial statements.
true
