auditing chapter 5

An analytical procedure example is the comparison of:

Financial ratios of the current year to previous years.

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.

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.

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 not an assertion relating to classes of transactions?

Adequacy

Which procedure is not a typical analytical procedure?

Comparison of recorded amounts of major disbursements with appropriate invoices

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

Documentary evidence about occurrence of a transaction.

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

Assertions with high inherent risk are least likely to involve

Routine transactions

1.The term __________ relates to the quantity of evidence that the auditors should obtain.substantive proceduresselected answer incorrect 2.The amount of evidence that is considered sufficient varies __________ with the reliability of the evidence.inverselyselected answer correct 3.The risk of material misstatement is composed of two risks that the auditor assesses, those risks are inherent risk and __________ risk.controlselected answer correct 4.Tests of controls and __________ are referred to as "further audit procedures."data analyticsselected answer incorrect 5.The audit approach of evaluating financial statement information by a study of relationships among financial and nonfinancial data is __________.sufficientselected answer incorrect 6.A __________ is a type of documentary evidence transmitted directly to the auditors by a third party (e.g., a customer or a vender).permanent fileselected answer incorrect 7.In relying upon the work of a specialist, the auditors must ascertain the __________ and reputation of the specialist.professional qualificationsselected answer correct 8.A letter signed by officers of the client company at the auditors' request which sets forth certain assertions about the company's financial position and operations is known as a __________.representation letterselected answer correct 9.Without regard to the effect of controls, __________ have a reasonable possibility of containing a misstatement that could cause the financial statements to be materially misstated.adjusting entriesselected answer incorrect 10.The __________ is a schedule listing the balances of accounts in the client's general ledger.lead schedulesselected answer incorrect 11.Separate __________ are used to combine similar general ledger accounts into the total that appears on the working trial balance.substantive proceduresselected answer incorrect 12.Working papers of audit interest over an extended period of time should be filed in the __________.permanent fileselected answer correct 13.The auditors develop __________ to recommend to management to correct the effects of errors or fraud in the client's accounting records.relevant assertionsselected answer incorrect 14.The purpose of an analysis of an account is to illustrate __________ in the account for the period under audit.changesselected answer correct 15.The examination of large data sets to uncover hidden patterns, unknown correlations and other useful information is referred to as _________.

Sufficient Inverse Control Substantive procedures Analytical procedure Confirmation reply Professional qualification Representation letter Relevant assertion Working trial balance Lead schedule Permanent file Adjusting entries Changes Data analytics

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.

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

Violates professional standards

a. Completeness : All assets have been recorded. b. Cutoff: Transactions are recorded in the correct accounting period. c. Existence and occurrence: There is such an asset. d. Presentation and disclosure: Assets are properly classified. e. Rights and obligations: The company legally owns the assets. f. Valuation: Assets are recorded at proper amounts. g. Prepare a flowchart of internal control over sales. Risk assessment procedures (other than analytical procedures) h. Calculate the ratio of bad debt expense to credit sales. Analytical procedures i. Determine whether disbursements are properly approved. Tests of controls j. Confirm accounts receivable. Tests of details of account balances, transactions, or disclosures k. Compare current financial information with comparable prior periods. Analytical procedures

complete and correct

1. The term __________ relates to the quantity of evidence that the auditors should obtain. sufficient 2. The amount of evidence that is considered sufficient varies __________ with the reliability of the evidence. inversely 3. The risk of material misstatement is composed of two risks that the auditor assesses, those risks are inherent risk and __________ risk. Control 4. Tests of controls and __________ are referred to as "further audit procedures." substantive procedures 5. The audit approach of evaluating financial statement information by a study of relationships among financial and nonfinancial data is __________. Analytical procedures 6. A __________ is a type of documentary evidence transmitted directly to the auditors by a third party (e.g., a customer or a vender). Confirmation reply 7. In relying upon the work of a specialist, the auditors must ascertain the __________ and reputation of the specialist.Professional qualifications 8. A letter signed by officers of the client company at the auditors' request which sets forth certain assertions about the company's financial position and operations is known as a __________. representation letter 9. Without regard to the effect of controls, __________ have a reasonable possibility of containing a misstatement that could cause the financial statements to be materially misstated. relevant assertions 10. The __________ is a schedule listing the balances of accounts in the client's general ledger. Working trial balance 11. Separate __________ are used to combine similar general ledger accounts into the total that appears on the working trial balance. lead schedules 12. Working papers of audit interest over an extended period of time should be filed in the __________. Permanent files 13. The auditors develop __________ to recommend to management to correct the effects of errors or fraud in the client's accounting records. adjusting entries 14. The purpose of an analysis of an account is to illustrate __________ in the account for the period under audit. Changes 15. The examination of large data sets to uncover hidden patterns, unknown correlations and other useful information is referred to as _________. Data analytics

complete and correct

Inspection of records : Examining a document or record. Inspection of tangible assets: Physically examining an asset. External confirmation: Obtaining a written response about a particular item from a third party. Reperformance: An independent execution of procedures or controls that were originally performed by the client. Recalculation Testing the mathematical accuracy of documents or records. s Tracing: Following a transaction from a source document to recorded entries. se Vouching: Establishing the validity of a transaction by examining supporting documents.

complete and correct