Question 1

Which of the following assertions is least likely to be tested exclusively at an interim date?

Accepted Answer

A)  existence or occurrence for plant assets. 
B)  valuation for cash. 
C)  completeness for accounts payable. 
D)  existence or occurrence for inventory. 
E)  rights and obligations for inventory. 
A)  existence or occurrence for plant assets. 
B)  valuation for cash. 
C)  completeness for accounts payable. 
D)  existence or occurrence for inventory. 
E)  rights and obligations for inventory. C

Question 2

Smaller amounts of sampling risk should result in larger sample size.

Accepted Answer

A) True 
 B)False  True

Question 3

Generalized audit software packages available at high cost from software vendors.

Accepted Answer

A) True 
 B)False  False

Question 4

When evaluating the planned level of substantive tests for each significant financial statement assertion, the auditor will consider the evidence obtained from all of the following except:

Accepted Answer

A)  procedures to understand the business and industry and related analytical procedures that have been completed. 
B)  evidence about the effectiveness of internal controls gained while obtaining an understanding of internal controls. 
C)  the assessment of detection risk. 
D)  the assessment of inherent risk. 
E)  evidence of effectiveness of computer control procedures and related manual follow-up. 
A)  procedures to understand the business and industry and related analytical procedures that have been completed. 
B)  evidence about the effectiveness of internal controls gained while obtaining an understanding of internal controls. 
C)  the assessment of detection risk. 
D)  the assessment of inherent risk. 
E)  evidence of effectiveness of computer control procedures and related manual follow-up.

Question 5

Substantive tests must be designed to tests specific audit objectives.
REQUIRED: For the following specific audit procedures, indicate the assertion that is being tested. Use the following letters, placing your response in the space provideD.
-Examine vehicle registration forms to determine the registered owner.

Accepted Answer

A) Existence or occurrence 
B) Completeness 
C) Valuation or allocation 
D) Rights and obligations 
E) Presentation and disclosure 
A) Existence or occurrence 
B) Completeness 
C) Valuation or allocation 
D) Rights and obligations 
E) Presentation and disclosure

Question 6

Match between columns
                        Premises: Examine consignment agreements.
Examine check register for the month following year end for disbursements relating to the audit period.
Select high dollar items from the perpetual inventory records for inspection/counting during the physical inventory.
Select vendor accounts with high activity during the year, and low balance at year-end for confirmation.
Examine vehicle registration forms to determine the registered owner.
Review bond indenture agreement and ascertain client compliance with any restrictive covenants.
Obtain the market value of short term securities as of the balance sheet date from published records.
Inspect major new additions to plant assets during the current period.
Ascertain that the financial statements comply with the industry practice of presenting a classified balance sheet.
Test the aging of accounts receivable, discussing long-overdue accounts with the credit manager.
Observe procedures, including segregation of duties, for approving sales orders.
Trace shipping documents to sales invoices.
Reperform check on accuracy of sales invoice pricing.
Trace beginning balance for accounts payable to prior year’s working papers.
Inquire of accounting and purchasing personnel about unrecorded payables.

Accepted Answer

The Answer of Existence or occurrence and Completeness and Valuation is...

Question 7

Substantive tests must be designed to tests specific audit objectives.
REQUIRED: For the following specific audit procedures, indicate the assertion that is being tested. Use the following letters, placing your response in the space provideD.
-Test the aging of accounts receivable, discussing long-overdue accounts with the
credit manager.

Accepted Answer

A) Existence or occurrence 
B) Completeness 
C) Valuation or allocation 
D) Rights and obligations 
E) Presentation and disclosure 
A) Existence or occurrence 
B) Completeness 
C) Valuation or allocation 
D) Rights and obligations 
E) Presentation and disclosure

Question 8

SAS 57 lists all of the following objectives in evaluating accounting estimates except:

Accepted Answer

A)  the accounting estimates follow standard industry practices. 
B)  all accounting estimates that could be material to the financial statements have been developed. 
C)  the accounting estimates are reasonable in the circumstances. 
D)  the accounting estimates are presented in conformity with applicable accounting principles. 
E)  the accounting estimates are properly disclosed. 
A)  the accounting estimates follow standard industry practices. 
B)  all accounting estimates that could be material to the financial statements have been developed. 
C)  the accounting estimates are reasonable in the circumstances. 
D)  the accounting estimates are presented in conformity with applicable accounting principles. 
E)  the accounting estimates are properly disclosed.

Question 9

Following is a list of specific audit objectives, accompanied by a list of possible audit procedures for inventory.
REQUIRED: For each specific objective, indicate the assertion from which it was derived, and the audit procedure that best meets that objective. (Each procedure can only be used once.) Use the appropriate letters for the procedures and the following letters for the assertions:
A.Existence or occurrence
B.Completeness
C.Valuation or allocation
D.Rights and obligations
E.Presentation and disclosure

Accepted Answer

The answer of Following is a list of specific audit...

Question 10

The auditor would be least likely to perform early substantive testing of account balances when:

Accepted Answer

A)  a number of significant deviations from control policies and procedures were detected during tests of controls. 
B)  variance reports do not distinguish between price and quantity variances. 
C)  due to economic factors, fourth quarter activity this year is expected to be somewhat lower than prior year's. 
D)  the client uses a natural business year instead of the calendar year. 
E)  the taking of the client's inventory is performed at an early date. 
A)  a number of significant deviations from control policies and procedures were detected during tests of controls. 
B)  variance reports do not distinguish between price and quantity variances. 
C)  due to economic factors, fourth quarter activity this year is expected to be somewhat lower than prior year's. 
D)  the client uses a natural business year instead of the calendar year. 
E)  the taking of the client's inventory is performed at an early date.

Question 11

The balance sheet account Investments is related to which one of the following income statement accounts?

Accepted Answer

A)  Investment Income 
B)  Cost of Sales 
C)  Interest Expense 
D)  Depreciation Expense 
E)  Sales 
A)  Investment Income 
B)  Cost of Sales 
C)  Interest Expense 
D)  Depreciation Expense 
E)  Sales

Question 12

In practice, early substantive testing of account balances is done only when:

Accepted Answer

A)  the client has a calendar year end. 
B)  the client has reporting requirements under the Securities Acts. 
C)  evidence indicates effective control policies and procedures. 
D)  the primarily substantive approach is taken. 
E)  internal controls are weak. 
A)  the client has a calendar year end. 
B)  the client has reporting requirements under the Securities Acts. 
C)  evidence indicates effective control policies and procedures. 
D)  the primarily substantive approach is taken. 
E)  internal controls are weak.

Question 13

Use of auditor judgment or of a risk matrix is necessary in revising planned detection risk whenever:

Accepted Answer

A)  risk assessments are not quantified. 
B)  assessed control risk at the account balance level does not support the planned level of control risk. 
C)  control risk is assessed above the minimum. 
D)  control risk is assessed below the maximum. 
E)  tests of controls reveal substantial deviations from prescribed policies. 
A)  risk assessments are not quantified. 
B)  assessed control risk at the account balance level does not support the planned level of control risk. 
C)  control risk is assessed above the minimum. 
D)  control risk is assessed below the maximum. 
E)  tests of controls reveal substantial deviations from prescribed policies.

Question 14

Evidence for related party transactions should extend beyond inquiry of management.

Accepted Answer

A) True 
 B)False

Question 15

In auditing related party transactions, the auditor is expected to determine:

Accepted Answer

A)  whether a particular transaction would have occurred if the parties had not been related. 
B)  what the exchange price and terms would have been if the parties had not been related. 
C)  if the related parties acted fraudulently. 
D)  the substance of the transaction and its effects on the financial statements. 
E)  the nature of the transaction by simply inquiring of management. 
A)  whether a particular transaction would have occurred if the parties had not been related. 
B)  what the exchange price and terms would have been if the parties had not been related. 
C)  if the related parties acted fraudulently. 
D)  the substance of the transaction and its effects on the financial statements. 
E)  the nature of the transaction by simply inquiring of management.

Question 16

Substantive tests must be designed to tests specific audit objectives.
REQUIRED: For the following specific audit procedures, indicate the assertion that is being tested. Use the following letters, placing your response in the space provideD.
-Ascertain that the financial statements comply with the industry practice of
presenting a classified balance sheet.

Accepted Answer

A) Existence or occurrence 
B) Completeness 
C) Valuation or allocation 
D) Rights and obligations 
E) Presentation and disclosure 
A) Existence or occurrence 
B) Completeness 
C) Valuation or allocation 
D) Rights and obligations 
E) Presentation and disclosure

Question 17

Why is the understanding of the client's business and industry important in tests of details for accounting estimates?

Accepted Answer

Knowledge of the business and industry a

Question 18

Substantive tests must be designed to tests specific audit objectives.
REQUIRED: For the following specific audit procedures, indicate the assertion that is being tested. Use the following letters, placing your response in the space provideD.
-Inquire of accounting and purchasing personnel about unrecorded payables.

Accepted Answer

A) Existence or occurrence 
B) Completeness 
C) Valuation or allocation 
D) Rights and obligations 
E) Presentation and disclosure 
A) Existence or occurrence 
B) Completeness 
C) Valuation or allocation 
D) Rights and obligations 
E) Presentation and disclosure

Question 19

In performing tests of details of balances, the auditor would scan the client-prepared bank reconciliation, and verify the mathematical accuracy of the reconciliation if detection risk was:

Accepted Answer

A)  very high. 
B)  high. 
C)  moderate. 
D)  low. 
E)  very low. 
A)  very high. 
B)  high. 
C)  moderate. 
D)  low. 
E)  very low.

Question 20

Confirmation and direct knowledge by the auditor are most associated with:

Accepted Answer

A)  analytical procedures. 
B)  tests of controls. 
C)  tests of details of balances. 
D)  tests of details of transactions. 
E)  tests of compliance. 
A)  analytical procedures. 
B)  tests of controls. 
C)  tests of details of balances. 
D)  tests of details of transactions. 
E)  tests of compliance.

Which of the following assertions is least likely to be tested exclusively at an interim date?

Smaller amounts of sampling risk should result in larger sample size.

Generalized audit software packages available at high cost from software vendors.

When evaluating the planned level of substantive tests for each significant financial statement assertion, the auditor will consider the evidence obtained from all of the following except:

SAS 57 lists all of the following objectives in evaluating accounting estimates except:

The auditor would be least likely to perform early substantive testing of account balances when:

The balance sheet account Investments is related to which one of the following income statement accounts?

In practice, early substantive testing of account balances is done only when:

Use of auditor judgment or of a risk matrix is necessary in revising planned detection risk whenever:

Evidence for related party transactions should extend beyond inquiry of management.

In auditing related party transactions, the auditor is expected to determine:

Why is the understanding of the client's business and industry important in tests of details for accounting estimates?

In performing tests of details of balances, the auditor would scan the client-prepared bank reconciliation, and verify the mathematical accuracy of the reconciliation if detection risk was:

Confirmation and direct knowledge by the auditor are most associated with:

Auditing and the Public Accounting

Financial Statement Audits and

Professional Ethics

Auditors Legal Liability

Overview of the Audit Process

Audit Evidence, Audit Objectives,

Accepting the Engagement and

Materiality Decisions and Performing Analytical Procedures

Audit Risk, Including the Risk of Fraud

Understanding Internal Controls

Audit Procedures in Response to Assessed Risks: Tests of Controls

Audit Sampling in Substantive Tests

Auditing the Revenue Cycle

Auditing the Expenditure Cycle

Auditing the Production and

Auditing the Investing and

Auditing Investments and

Completing the Audit and Postaudit

Attest and Assurance Services, and Related Reports

Internal, Operational, and

Filters

Exam 12: Audit Procedures in Response to Assessed Risks: Substantive Tests

Which of the following assertions is least likely to be tested exclusively at an interim date?

Smaller amounts of sampling risk should result in larger sample size.

Generalized audit software packages available at high cost from software vendors.

When evaluating the planned level of substantive tests for each significant financial statement assertion, the auditor will consider the evidence obtained from all of the following except:

SAS 57 lists all of the following objectives in evaluating accounting estimates except:

The auditor would be least likely to perform early substantive testing of account balances when:

The balance sheet account Investments is related to which one of the following income statement accounts?

In practice, early substantive testing of account balances is done only when:

Use of auditor judgment or of a risk matrix is necessary in revising planned detection risk whenever:

Evidence for related party transactions should extend beyond inquiry of management.

In auditing related party transactions, the auditor is expected to determine:

Why is the understanding of the client's business and industry important in tests of details for accounting estimates?

In performing tests of details of balances, the auditor would scan the client-prepared bank reconciliation, and verify the mathematical accuracy of the reconciliation if detection risk was:

Confirmation and direct knowledge by the auditor are most associated with:

Auditing and the Public Accounting

Financial Statement Audits and

Professional Ethics

Auditors Legal Liability

Overview of the Audit Process

Audit Evidence, Audit Objectives,

Accepting the Engagement and

Materiality Decisions and Performing Analytical Procedures

Audit Risk, Including the Risk of Fraud

Understanding Internal Controls

Audit Procedures in Response to Assessed Risks: Tests of Controls

Audit Sampling in Substantive Tests

Auditing the Revenue Cycle

Auditing the Expenditure Cycle

Auditing the Production and

Auditing the Investing and

Auditing Investments and

Completing the Audit and Postaudit

Attest and Assurance Services, and Related Reports

Internal, Operational, and

Filters