Problem set 1 Becker Qs

If an auditor of an issuer examines purchase orders obtained from the issuer to verify proper authorization of transactions, then the auditor is conducting

an inspection

Which of the following statements regarding analytical procedures is correct?

analytical procedures are required during the planning and final review stages, but can also be used as substantive procedures to support other substantive testing.

Analytical procedures are required for which of the following?

audit planning

which of the following would not represent a relevant assertion when testing a client's presentation and disclosure?

cutoff

the auditor would not be required to use analytical procedures for which of the following purposes?

in obtaining corroborating evidence when the evidence gathered by the auditor is circumstantial

If not already performed during the overall review stage of the audit, the auditor should perform analytical procedures relating to which of the following transaction cycles?

revenue

Analytical procedures performed in the final review stage of an audit generally would include:

Considering the adequacy of the evidence gathered in response to unexpected balances identified in planning.

An auditor's decision whether to apply analytical procedures as substantive tests usually is determined by the

Precision and reliability of the data used to develop expectations.

Which of the following would not be considered an analytical procedure?

Projecting a deviation rate by comparing the results of a statistical sample with the actual population characteristics.

Which of the following statements is correct regarding the predictability of analytical procedures in a financial statement audit?

Relationships involving income statement accounts tend to be more predictable than relationships involving only balance sheet accounts.

An auditor is planning to use substantive analytical procedures in the current audit. Which of the following is not a primary factor that affects the efficiency and effectiveness of these procedures in detecting possible misstatements by the client?

The analytical procedures should be applied to assertions that have potential misstatements which are apparent from an examination of detailed evidence

Which of the following most likely would cause an auditor to consider whether a client's financial statements contain material misstatements?

The results of an analytical procedure disclose unexpected differences.

Considering the adequacy of the evidence gathered in response to unexpected balances identified in planning.

To achieve audit objectives in the most effective and efficient manner possible.

An auditor's analytical procedures most likely would be facilitated if the entity:

Uses a standard cost system that produces variance reports.

Which of the following is a true statement regarding documentation requirements for analytical procedures?

When an analytical procedure is used as the principal substantive test of a significant financial statement assertion, the auditor is required to document both the auditor's expectation and the factors considered in developing that expectation

After investigating further, the auditor would be most concerned with which of the following reasons for the confirmation exceptions?

a deficiency in accounts receivable internal control results in client reporting errors.

To be effective, analytical procedures in the overall review stage of an audit engagement should be performed by.

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

Which of the following is true about using analytical procedures as a substantive test?

Analytical procedures are not required to be used as a substantive test and are more likely to be used for accounts that are predictable

For audits of financial statements made in accordance with generally accepted auditing standards, the use of analytical procedures is required to some extent.

As a substantive test: NoIn the final review stage: Yes

A primary objective of analytical procedures used in the final review stage of an audit is to

Assist the auditor in evaluating the overall financial statement presentation.

Which of the following is an analytical procedure?

Comparing current-year balances to prior-year balances.

Which of the following would be considered an analytical procedure?

Comparing inventory balances to recent sales activities

Which of the following activities is an analytical procedure an auditor would perform in the final overall review stage of an audit to ensure that the financial statements are free from material misstatement? Comparing the current year's financial statements with those of the prior year

Comparing the current year's financial statements with those of the prior year

Analytical procedures used in the overall review stage of an audit generally include:

Considering unusual or unexpected account balances that were not previously identified.

The objective of tests of details of transactions performed as substantive procedures is to:

Detect material misstatements in the financial statements

An auditor most likely would apply analytical procedures in the overall review stage of an audit to

Determine whether additional audit evidence may be needed.

an auditor is in the process of designing substantive analytical procedures for a client audit. All of the following would be considered an analytical procedure except for:

Determining the accuracy of the client's reported year-end cash and cash equivalent balance

Which of the following steps should be performed first in applying analytical procedures?

Develop an expectation of a balance or ratio by using relationships that are expected to exist.

Which of the following is not true about the auditor's use of relevant assertions?

Each relevant assertion should have one (and only one) audit procedure associated with it

The purpose of applying analytical procedures in the overall review stage of an audit includes assisting the auditor in all the following except:

Enhancing the understanding of the client's business

When applying analytical procedures during an audit, which of the following is the best approach for developing expectations?

Identify reasonable explanations for unexpected differences before talking to client management.

Which of the following actions is an analytical procedure that an auditor most likely would use while auditing a company's notes payable?

Multiplying the average outstanding loan balance by the interest rate and comparing the result to interest expense actually recorded.

Which of the following procedures would the auditors most likely perform to test controls relating to managements's assertion about the completeness of cash receipts for cash sales at a retail outlet

Observe the consistency of the employees use of cash registered and tapes

Confirmation of accounts receivable that have been categorized initially by an auditor as "exceptions" most likely could be due to

Payments mailed to the client that have not been recorded.

An auditor may achieve audit objectives related to particular assertions by

Performing analytical procedures

Which of the following would not be considered an analytical procedure?

Projecting an error rate by comparing the results of a statistical sample with the actual population characteristics.

Which of the following is an analytical procedure that an auditor most likely would perform during the final review stage of an audit?

Reading the financial statements and considering whether there are any unusual or unexpected balances that were not previously identified.

Which of the following procedures would an auditor most likely perform in auditing the statement of cash flows?

Reconcile the amounts included in the statement of cash flows to the other financial statements' amounts.

an auditor compares the current year's average age of fixed assets ratio with the clients prior years ratio and current years budgeted ratio. performing this task during the audit of a clients property, plant, and equipment transaction cycle would be considered to be which of the following audit procedures?

Substantive analytical procedure

Analytical procedures performed during an audit indicate that accounts receivable doubled since the end of the prior year. However, the allowance for doubtful accounts as a percentage of accounts receivable remained about the same. Which of the following client explanations would satisfy the auditor?

The client opened a second retail outlet during the current year and its credit sales approximately equaled the older outlet.

Which of the following is a management assertion regarding account balances at the period end?

The entity holds or controls the rights to assets, and liabilities are obligations of the entity.

Which of the following ratios would an engagement partner most likely calculate when reviewing the balance sheet in the overall review stage of an audit?

Total debt ÷ Total assets

An auditor compares annual revenues and expenses with similar amounts from the prior year and investigates all changes exceeding 10%. This procedure most likely could indicate that:

Unrealized gains from increases in the value of available-for-sale securities were recorded in the income account for trading securities.

An auditor uses substantive analytical procedures as the primary means to test a financial statement assertion. While performing the analytical procedures, the auditor is required to document all of the following with the exception of which item?

a comparison of the results obtained from the current year's audit to the prior year's audit

if the objective of a test of details is to detect overstatements of sales, the auditor should trace transactions from the

accounting records to source documents

In testing the existence assertion for an asset, an auditor ordinarily works from the

accounting records to the supporting documents

Analytical procedures performed in the overall review stage of an audit suggest that several accounts have unexpected relationships. The results of these procedures most likely would indicate that:

additional tests of details are required.

an auditor scans the client's accounting records to search for large, significant, or unusual items that were recorded in the current year's audit. this standard procedure would be most appropriately classified as (an)

analytical procedure

The third standard of field work states that sufficient competent evidential matter is to be obtained through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an opinion regarding the financial statements under audit. The substantive evidential matter required by this standard may be obtained, in part, through:

analytical procedures

if an auditor performs an inspection of documentation supporting a client's account balances, he or she would most likely be testing any of the following financial statement assertions, with the exception of

completeness

all of the following would be considered an external confirmation with the exception of a

customer's oral response to a positive confirmation

PCAOB has established risk assessment standards for issuer audits. which of the following is not a financial statement assertions as recognized by PCAOB standards?

cutoff

as part of the current audit engagement, the auditor reviews equipment purchases and dispositions made by the client fifteen days before and fifteen days after year end. this procedure would be used to test which of the following assertions?

cutoff

During the audit of a client's accounts receivable transaction cycle, the auditor sends out external confirmations to the client's customers.... what is the most effective way for the auditor to improve the reliability of these electronic responses?

directly contract the customer to validate identity and accuracy of information received

When should an auditor use analytical procedures during the course of an audit?

during the planning and final review phases of an audit

analytical procedures used in planning an audit should focus on

enhancing the auditor's understanding of the client's business

when testing the presentation and disclosure assertion for a given client's transaction cycle, the auditor would consider which of the following the least relevant assertion?

existence

Which of the following statements regarding directional testing is correct?

in order to ensure that an asset has not been overstated, an auditor may want to vouch to source documentation

which of the following disclaimers of liability included within a response to an auditors confirmation request would allow the auditor to rely on the confirmation as appropriate audit evidence for an audit of a non-issuer?

information is furnished as a matter of courtesy without a duty to do so and without responsibility liability or warranty expressed or implied

An auditor has identified the controller's review of the bank reconciliation as a control to test. In connection with this test, the auditor interviews the controller to understand the specific data reviewed on the reconciliation. In addition, the auditor verifies that the bank reconciliation is properly prepared by the accountant and reviewed by the controller as evidenced by their respective sign-offs. Which of the following types of audit procedures do these actions illustrate?

inquiry and inspection of records

when testing the completeness assertion for a given transaction cycle, the auditor may perform all of the following audit procedures except for

inspecting documents that support a transaction

Auditors try to identify predictable relationships when using analytical procedures. Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence?

interest expense

Auditors try to identify predictable relationships when using analytical procedures. Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence? C) Interest expense.

interest expense

.... If the auditor only receives forty of the confirmations back from the client's customers, the auditor may do all of the following except for

issuing a qualified audit opinion given the nonresponse exceptions

which of the following does not accurately describe the external audit confirmation process

manual confirmations are mailed out by the auditor and electronic confirmations are sent by the client

An auditor sends out an audit confirmation request to one of the client's customers. if the instructions on the confirmation read "return directly to the auditor if there is a disagreement with the balance provided" this would be a

negative confirmation

analytical procedures may be used in various stages of an audit. the use of analytical procedures is required planning stage substantive test

no, yes

Which of the following pairs of accounts would be analyzed together in the audit documentation?

notes receivable and interest income

Which of the following procedures would least likely be included to test management's assertion of valuation, allocation, and accuracy?

observation

Analytical procedures are most appropriate when testing which of the following types of transactions?

operating expense transactions

In determining whether transactions have been recorded, the direction of the audit testing should start from the:

original source documents

Auditors try to identify predictable relationships when using analytical procedures. Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence?

payroll expense

Which of the following procedures would an auditor most likely use to identify unusual year-end transactions?

performing analytical procedures

as part of the planning phase of the current audit, the auditor is evaluating the use of inquiries as an audit procedure in the fieldwork phase of the audit. which of the following is not an accurate assessment of how inquiries may be used?

performing inquiries of company management will usually provide sufficient audit evidence

Although regression analysis has the same objective as trend analysis..... regression analysis has the following advantage over other methods

provides direct and quantitative measures of the precision of expectation

During the current year's audit, the auditor independently completes certain procedures that were previously done by the client as part of their internal control over the given transaction cycle. Which of the following standard audit procedures is this?

reperformace

which of the following would not be considered a relevant assertion when testing transactions and events during a client audit?

rights and obligations

the auditor is planning directional tests of details on several of a client's transaction cycles. if the auditor decides to test the existence assertion, which of the following tests would he or she most likely perform?

select a sample of journal entries and vouch back to the source documents

While performing an audit, the auditor compares the client's inventory turnover ratio for this year to the prior year and to the clients main competitor. The above would be most appropriately considered a:

substantive analytical procedure

while performing the current year's audit, the auditor calculates the client's current and quick ratios based on the year-end financial statements and then compares these ratios to the industry average published by the Standard & Poor's rating agency. This audit procedure used would be considered a(n)

substantive analytical procedure

As part of the current audit engagement, the auditor initially determines that the Treasury Stock account had minimal activity during the year. In designing audit procedures for the client's Treasury Stock account, the auditor would most likely use:

test of details

an auditor wishes to test for overstatement of sales and understatement of expenses. which of the following is true?

the auditor will test for the existence assertion for sales and the completeness assertion for expenses

the auditor should consider certain factors in assessing the efficiency and effectiveness of analytical procedures as compared to tests of details. in determining whether and to what extent analytical procedures should be used, which of the following should the auditor consider?

the nature of the assertion tested

which of the following circumstances most likely would cause an auditor to suspect that there are material misstatements in an entity's financial statements?

there are unusual discrepancies between the entity's records and confirmation replies

During the current audit engagement, the auditor inspects several lease contracts pertaining to the client's operating lease transactions. This audit procedure would most likey be testing which of the following assertions?

understandability and classification

the auditor is planning audit procedures to test the client's financial statement presentation and disclosure. if the auditor initial uses procedures to determine if the client's disclosures are clearly expressed in the financial statements, he/she would most likely be testing which of the following assertions?

understandability and classification

when performing tests on a client's account balances for a particular transaction cycle, the auditor would consider performing audit procedures on all of the following relevant assertions, except for

understandability and classification

as part of audit procedures performed on a client's transactions, the auditor reconciles supporting schedules to the corresponding general ledger entries. the auditor would most likely be testing which of the following assertions?

valuation, allocation, and accuracy

during the current audit, the auditor performs an independent recalculation of the client's depreciation charges recorded this year. this audit procedure would most likely be used to test the

valuation, allocation, and accuracy assertion

an auditor is in the process of testing the understandability and classification assertion for various transaction cycles. which of the following would most likely not be a procedure used to test this assertion?

vouching a sample of transactions from the financial statements to the source documents

An auditor wants to determine.... to test the valuation, allocation, and accuracy assertion, the auditor may perform all of the following procedures except for:

vouching a sample of transactions impacting the general ledge account to the supporting documentation