Connect Chapter 5 Questions
Under current auditing standards, management assertions fall into categories of assertions about ______.
- account balances and related disclosures at the period end - classes of transactions and events and related disclosures for the period audited
Audit documentation should ______.
-Accounting principle choices can impact some ratios. -Financial ratios should not be evaluated in isolation. -Material misstatement may not significantly affect some ratios.
Identify the sources that can be used to develop an expectation for an analytical procedure.
-Budgets and forecasts -Industry publications -Competitor information
Audit documentation should ______.
-Include an audit program for the engagement -Support the basis for the auditor's conclusions concerning each material financial statement assertion -Demonstrate that the underlying accounting records agreed or reconciled with the financial statements
The reliability of evidence obtained through external confirmations may be affected by the ______.
-form of the confirmation -intended respondent -prior experience with the entity -nature of the information being confirmed
Auditors usually use the term ________ to refer to unwritten questions asked of the entity's personnel or of a third party, and the term _________ to refer to written requests for a written response from a third party
-inquiry -confirmation
The precision of the expectation ______.
-may lead to a cost-benefit trade-off due to an increase in testing -is a function of materiality and required detection risk -is a measure of potential effectiveness
Inquiry may ______.
-provide corroborative audit evidence -be formal or informal -provide new audit evidence
Confirmations ______.
-provide reliable evidence for the existence assertion -are used extensively on audits -may provide evidence about the completeness assertion
Audit documentation should ______.
-show that standards of fieldwork have been followed -demonstrate how the audit complied with appropriate standards -enable a knowledgeable reviewer to determine who performed the work
For lower-risk, well controlled accounts, the assurance bucket may be filled entirely with tests of ___________ and substantive analytical procedures.
controls
A management statement that the inventory shown on the balance sheet was available for sale at the balance sheet date is an example of the __________ assertion.
existence
This consists of evaluations of financial information through the examination of plausible relationships among both financial and non-financial data.
analytical procedures
The measure of the quality of audit evidence is referred to as
appropriateness
Expressed or implied representations by management regarding the recognition, measurement, presentation and disclosure of information in the financial statements and related disclosures are referred to as
assertions
Specific acts performed by the auditor to gather evidence about whether specific assertions are being met are referred to as
audit procedures
The basic framework for the auditor's understanding of audit evidence and its use in supporting the auditor's opinion on the financial statements is (are) ______.
auditing standards
Examining ______________ and their related accounts allows the auditor to gather evidence by understanding the processing of related transactions through the information system from their origin to their ultimate disposition in the accounting journals and ledgers.
business processes
A financial statement component ______
can be an account or a business process
A financial statement component ______.
can be an account or a business process
A management statement that the property, plant and equipment shown on the balance sheet was owned and available for sale at the balance sheet date is an example of the ______ assertion.
existence
True or false: Inspecting tangible assets provides significant assurance for the rights and obligations assertion.
false
This is an important audit procedure that is used extensively throughout the audit and is often complementary to performing other audit procedures.
inquiry
There is a(n) ______ relationship between the sufficiency and appropriateness of audit evidence
inverse
Who is responsible for the fair presentation of the financial statements?
management
When audit evidence supports __________, the auditor can issue an unqualified report.
management's assertions
Evidence obtained from a source outside the entity is generally considered ______ evidence obtained solely from within the entity.
more reliable than
The ______ of the audit evidence refers to the form or type of information, which includes accounting records and other available information.
nature
Looking at a process or procedure being performed by others is referred to as
observation
This is useful in helping auditors understand the entity's processes but is generally not considered very reliable.
observation
Because the entity's personnel might have incentives to record fictitious transactions, the ____________ assertion is relevant for revenue transactions
occurrence
The ______ assertion relates to whether all recorded transactions and events have happened and pertain to the entity.
occurrence
The quality of an expectation is ________ referred to as the of the expectation.
precision
The independent execution by the auditor of procedures or controls that were originally performed by company personnel is called ______.
reperformance
Assume an entity has 2,500 customers. If the auditor mails confirmation to 25 of the largest customers and only 20 respond the auditor must ______.
still gather sufficient evidence on each of the 25 accounts
The measure of the quantity of audit evidence is referred to as
sufficiency
Footing, crossfooting, reconciling subsidiary ledgers and testing postings are all examples of
recalculation
When filling the "assurance bucket", existence or validity is typically more important for accounts __________ than for accounts ____________.
receivable payable
True or false: Audit evidence includes information developed by the auditor that permits him or her to reach conclusions through valid reasoning.
true
In evaluating audit evidence, the auditor must ______.
-understand the types of evidence available -remain objective -be unbiased
