Exam 10: Materiality and Audit Evidence

In making judgements about materiality at the account balance level, the auditor must consider the relationship between it and overall materiality. This should lead the auditor to plan the audit to detect misstatements that:

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Question 1

Correct Answer:

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The auditor shall obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor's opinion' - ASA 500 (ISA 500). Identify the factors that may affect the sufficiency and appropriateness of audit evidence and briefly explain how they impact on these criteria.

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Question 2

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Sufficiency:
-Materiality and risk: in general, more evidence is needed for accounts that are material to the financial statements and for accounts that have a higher likelihood (risk) of being misstated.
-Economic factors: sufficient evidence must be obtained within a reasonable time and at a reasonable cost.
-Population size and characteristics: The size of accounting populations underlying many financial statements makes sampling a practical necessity in gathering evidence.
Appropriateness:
Appropriateness refers to the quality of audit evidence. For evidence to be appropriate it must be relevant and reliable.
-Relevance : means that evidence must be sufficient with respect to each of the auditor's objectives
-Reliability: the reliability of evidence is influenced by factors such as the source and nature of the information, and its timeliness and objectivity.

All else being equal, as the level of materiality decreases, the amount of evidence required will:

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Question 3

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Which of these would generally be considered the least appropriate form of evidence?

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Question 4

Indicate an appropriate base amount that could be used in determining materiality for the following items: 1.accounts receivable 2.inventory 3.accounts payable 4.wages expense 5.cash inflow from the sales of property, plant and equipment 6.cash outflow from borrowing redemption 7.asset revaluation reserve 8.cash 9.interest revenue 10. cash outflow from employee expenses

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Question 5

The presentation and disclosure assertion often includes all of the following aspects except:

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Question 6

The statement that is most accurate about the procedures that can be performed by computer-assisted audit techniques is:

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Question 7

Which of these would not be considered corroborating information?

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Question 8

Which of these is not a substantive procedure?

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Question 9

In general, as an account balance decreases, the amount of evidence required will:

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Question 10

An auditor has obtained an understanding of the internal control structure and has decided that the appropriate controls are ineffective. The most appropriate audit strategy is:

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Question 11

An auditor contacts an accounts receivable of the client directly in order to confirm the balance owing. This is an example of:

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Question 12

If the bank reconciliation is incorrect the assertion violated would be:

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Question 13

What is the purpose of tests of control?

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Question 14

Identify the three general classes of auditing procedures that pertain to obtaining audit evidence and indicate the primary purpose of each class.

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Question 15

The recorded balance in an account generally represents:

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Question 16

The subject of the auditing procedure 'observation' is least likely to be:

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Question 17

The auditor has determined that, as the assessment of control risk is high, the audit strategy adopted will be the predominantly substantive approach. What is the cost of this audit likely to be?

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Question 18

In planning the audit, the auditor should assess materiality at two levels:

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Question 19

Use of the auditing procedure 'confirmation' would normally involve all of the following except:

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Question 20

Showing 1 - 20 of 35

In making judgements about materiality at the account balance level, the auditor must consider the relationship between it and overall materiality. This should lead the auditor to plan the audit to detect misstatements that:

All else being equal, as the level of materiality decreases, the amount of evidence required will:

Which of these would generally be considered the least appropriate form of evidence?

The presentation and disclosure assertion often includes all of the following aspects except:

The statement that is most accurate about the procedures that can be performed by computer-assisted audit techniques is:

Which of these would not be considered corroborating information?

Which of these is not a substantive procedure?

In general, as an account balance decreases, the amount of evidence required will:

An auditor has obtained an understanding of the internal control structure and has decided that the appropriate controls are ineffective. The most appropriate audit strategy is:

An auditor contacts an accounts receivable of the client directly in order to confirm the balance owing. This is an example of:

If the bank reconciliation is incorrect the assertion violated would be:

What is the purpose of tests of control?

Identify the three general classes of auditing procedures that pertain to obtaining audit evidence and indicate the primary purpose of each class.

The recorded balance in an account generally represents:

The subject of the auditing procedure 'observation' is least likely to be:

The auditor has determined that, as the assessment of control risk is high, the audit strategy adopted will be the predominantly substantive approach. What is the cost of this audit likely to be?

In planning the audit, the auditor should assess materiality at two levels:

Use of the auditing procedure 'confirmation' would normally involve all of the following except:

An Overview of Auditing

Governance and the Auditor

Professional Ethics, Independence and Audit Quality

Other Assurance Engagements and Quality Standards

The Auditors Legal Liability

Overview of the Audit Financial Statements

The Auditors Report

Client Evaluation and Planning the Audit

Audit Risk Assessment

Tests of Controls

Designing Substantive Procedures

Audit Sampling

Auditing Sales and Receivables

Auditing Purchases, Payables and Payroll

Auditing Inventories and Property, Plant and Equipment

Auditing Cash and Investments

Completing the Audit

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