Auditing CH 5

Manager

Review of work done by staff and senior auditors near the end of the audit to make sure working papers "tie together."

Oral client representations generally ______ considered sufficient audit evidence in themselves

are not

Auditors gather evidence to restrict this risk to the appropriate level.

material misstatement

Auditors are given 60 days after the audit ______ date to complete the audit file.

report release

Audit working papers are the property of the ______.

auditors

Test of account balance

Confirmation of accounts receivable balance

Watching a process or procedure being performed by others is the definition of ______.

observation

Comparing the price on an invoice to that on an approved price list is an example of the audit procedure of...

reperformance

The comparison of relationships between two or more financial statement accounts is called

ratio analysis

The record of the audit procedures performed, relevant audit evidence obtained, and the conclusions the auditors reach is called audit documentation or

working papers

To prove the arithmetical accuracy of the client's analyses and records, auditors make independent

recalculations

The return envelope sent with confirmations should be addressed to the ______.

auditor's office

True or false: Inspection of assets is the best way to determine ownership, valuation, and condition of the assets.

False.

The examination of big data to uncover hidden patterns, unknown correlations, market trends, and other useful business applications is called

data analytics

When obtaining audit evidence, inquiries of knowledgeable persons ______.

may be oral or written and may result in oral or written replies

Making accounting estimates is the responsibility of ______.

management

The price that would be received to sell an asset or the amount that must be paid to transfer a liability in an orderly transaction between market participants is the definition of

Fair value

Working papers are assigned this, which allows the information to be tied together through a system of cross-referencing.

index number

One purpose of the ______ working paper review is to see that the staff assistant has performed the audit procedures properly. Multiple choice question. second partner One purpose of the ______ working paper review is to see that the staff assistant has performed the audit procedures properly.

senior

These components of audit risk exist for a client even if an audit is not performed.

inherent risk and control risk

A sophisticated expectation development technique using statistical models to quantify auditor expectations is ______ analysis. Multiple choice question. cross-sectional A sophisticated expectation development technique using statistical models to quantify auditor expectations is ______ analysis.

regression

In evaluating the appropriateness of audit evidence, auditors consider its ______.

relevance and reliability

Management makes financial statement assertions related to ______.

-classes of transactions and events -presentation and disclosure -account balances

Second partner review

Quality review to provide assurance that the CPA firm's in-house quality control policies have been complied with.

test of disclosure

Test of property, plant, and equipment footnote

test of class of transaction

Tests of inventory purchases to determine if properly accounted for

Auditors use plausible relationships among financial statement data to gather audit evidence about the reasonableness of financial statement amounts when performing...

analytical procedures

Evaluations of financial statement information by a study of relationships among financial and nonfinancial data is the basis of...

analytical procedures

The representation letter should be dated the same as the date of the ______.

auditor's report

Whether it was created within the company (sales invoice) or outside the company (vendor invoice) impacts the reliability of

document evidence.

During an audit, client oral inquiries ______.

may be made of both officers and employees

The most reliable piece of documentary evidence created within the client's organization is ordinarily a ______.

paid check

Helping the auditors identify items that indicate a heightened risk of material misstatement of the financial statements is the objective of analytical procedures ______.

performed at the risk assessment stage

For related party transactions, auditors should be most concerned about obtaining evidence regarding ______.

presentation and disclosure

The use of statistical models to quantify the auditors' expectation about a financial statement amount or ratio is called

regression analysis

The most technical audit working paper review is performed by the ______.

senior

Senior

Review of work performed by staff assistant to make sure audit procedures are performed properly and conclusions are clearly expressed

Categories of traditional financial ratios include ______ ratios

-activity -leverage -profitability -liquidity

Recalculations ______.

-are used to prove the accuracy of client calculations such as earnings per share -include making certain that accounting records agree with the financial statements

True or false: When performing analytical procedures, the best data for developing an expectation is industry averages.

False

Completed confirmations should be sent directly to the ______

auditor

Audit risk for an account or assertion is at an acceptable low level when the auditors have obtained

sufficient appropriate audit evidence.

The advantages of using computer-generated working papers include ______.

-an adjustment can be carried through the current file quicker -a nearly "paperless" audit can be performed -documents can be scanned

When developing expectations for analytical procedures ______.

-dollar amounts, quantities, ratios, or percentages may be used -separate relationships may be computed for each division or product line -prior year financial statements may be used

Auditors are required to ______.

-evaluate the reasonableness of accounting estimates -ensure accounting estimates are properly accounted for and disclosed

Representations in the representation letter include ______.

-financial statements are complete and were prepared with the use of generally accepted accounting principles -all items requiring any disclosure are sufficiently disclosed

Data analytics ______.

-may involve testing entire populations instead of samples -results in a more detailed understanding of the client -may assist in the assessment of risk of material misstatement

Common methods for auditors to determine related parties include ______.

-reviewing SEC filings -conflict-of-interest statements -inquiries of management

True or false: Auditors are not required to use analytical procedures as substantive procedures to provide evidence about financial statement assertions.

True.

External confirmations are normally used to gather evidence for all of the following accounts except ______.

buildings

No information may be discarded from the working papers after the ______ date.

documentation completion

The reliability of customer sales invoices created by the client and held internally depends on the ______.

effectiveness of internal control

Confirmations are generally effective at providing evidence for the ______ assertion.

existance

Management makes assertions for financial statements regarding all of the following except ______. Multiple choice question. properly presented disclosures proper amounts in various accounts fairness of the audit opinion properly recorded transactions owing except ______.

fairness of the audit opinion

Substantive procedures include analytical procedures and tests of details that are part of the auditors'...

further audit procedures

The possibility of material misstatement of an assertion before consideration of the client's internal control is called _____ _____.

inherent risk

Inherent risk and control risk are the two components of the risk of _______ _______.

material misstatement

During an audit, client oral inquiries ______

may be made of both officers and employees

The client ______. never has the right to demand access to the auditors' working papers always has the right to demand access to the auditors' working papers -may only demand access to the auditors' working papers if all fees have been paid

never has the right to demand access to the auditors' working papers

Audit risk is the risk that financial statements will contain a material departure from GAAP and the auditor will issue a(n) ______ opinion.

unmodified

The backbone of the working papers is the ______, which is the key schedule that controls and summarizes all supporting papers

working trial balance

Factors that affect inherent risk include the nature of the ______.

-client's environment -account -client

The audit risk model is a function of ______ risk.

-control -detection -inherent

In-charge partner

Review of entire set of working papers to determine audit was performed in accordance with GAAS and provide support for audit report.

Sufficiency relates to the quantity and relates to the quality of audit evidence needed.

appropriateness

Data analytics is the examination of large datasets or ________ ________ to uncover hidden patterns, unknown correlations, market trends, and other useful business applications.

big data

Audit evidence in paper or electronic form that is obtained through inspection of records is referred to as

documentary

Whether it was created within the company (sales invoice) or outside the company (vendor invoice) impacts the reliability of...

documentary evidence.

A review of client financial statement amounts and ratios over time is called

horizontal analysis

Audit evidence gathered from oral or written inquiries made by the auditor can include ______

oral representations from company personnel written representations from outside parties written representations from company personnel

Individuals or entities that may have dealings with the client in which one party is significantly influenced by the other such that it may not pursue its separate interests are known as

related parties

To identify the specific audit steps performed, auditors use these symbols when preparing the working paper

tick marks