Exam 9: Materiality and Audit Evidence

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?

Free

(Multiple Choice)

4.8/5

(32)

Question 1

Correct Answer:

Verified

What is the purpose of tests of control?

Free

(Multiple Choice)

4.9/5

(40)

Question 2

Correct Answer:

Verified

'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.

Free

(Essay)

4.9/5

(38)

Question 3

Correct Answer:

Verified

Sufficiency:
Sufficiency relates to the quantity of audit evidence.Factors that may affect the auditor's judgement of sufficiency include:
$\bullet$ 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
$\bullet$ Economic factors: sufficient evidence must be obtained within a reasonable time and at a reasonable cost.
$\bullet$ 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.
$\bullet$ Relevance: means that evidence must be sufficient with respect to each of the auditor's objectives.
$\bullet$ Reliability: the reliability of evidence is influenced by factors such as the source and nature of the information, and its timeliness and objectivity.

The appropriateness of audit evidence does not refer to:

(Multiple Choice)

4.9/5

(41)

Question 4

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

(Multiple Choice)

4.8/5

(33)

Question 5

Qualitative factors are applicable to materiality levels for particular classes of transactions, account balances or disclosures.The auditor considers the nature and other related matters of the items that might give risk to the risk of material misstatement such as:

(Multiple Choice)

4.8/5

(40)

Question 6

The auditor has assessed control risk as high.Which of the following is not true?

(Multiple Choice)

4.8/5

(39)

Question 7

Which of these is not a substantive procedure?

(Multiple Choice)

4.9/5

(41)

Question 8

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:

(Multiple Choice)

4.7/5

(34)

Question 9

OPQ Audit Firm was planning the audit for its existing client, Alpha & Beta Corp.The audit partner was trying to determine the best audit strategy to use.Alpha & Beta Corp is a small retailing company that does not have any warehousing facilities as all stock is kept on the premises.Being small, they only have a small team of staff, which makes the separation of duties principle difficult to achieve.The preliminary tests of controls found that the internal control procedures are well designed, but not always observed due to the small amount of staff.Previous experience with this client also showed that controls were not always observed.Despite this, OPQ has never discovered a material misstatement in the accounts. Required: determine what audit strategy should be used and justify your answer.

(Essay)

4.9/5

(27)

Question 10

Identify and explain each of the four broad categories of management's assertions about account balances.

(Essay)

4.8/5

(29)

Question 11

Which of the following procedures does not involve tracing? a.Selecting entries in the accounting records and inspecting the documentation that served as the basis for the entries. b.Inspecting documents created when transactions were executed and determining whether that information was properly recorded in the accounting records. c.Checking the original flow of the data through the accounting system. d.Ensuring that data from source documents are included in the accounts.

(Essay)

4.7/5

(32)

Question 12

The auditor has determined that there is a preponderance of persuasive evidence for each financial statement assertion that is material, and therefore a reasonable basis for their opinion.Which of the following would not be a possible opinion that the auditor could issue?

(Multiple Choice)

4.8/5

(43)

Question 13

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

(Multiple Choice)

4.8/5

(29)

Question 14

Assertions about account balances and related disclosures include all of the following except:

(Multiple Choice)

4.9/5

(32)

Question 15

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

(Multiple Choice)

4.8/5

(26)

Question 16

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

(Multiple Choice)

4.8/5

(32)

Question 17

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:

(Multiple Choice)

4.9/5

(36)

Question 18

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

(Multiple Choice)

4.9/5

(31)

Question 19

On each engagement, the specific audit objectives will normally be:

(Multiple Choice)

4.8/5

(38)

Question 20

Showing 1 - 20 of 34

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?

What is the purpose of tests of control?

The appropriateness of audit evidence does not refer to:

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

Qualitative factors are applicable to materiality levels for particular classes of transactions, account balances or disclosures.The auditor considers the nature and other related matters of the items that might give risk to the risk of material misstatement such as:

The auditor has assessed control risk as high.Which of the following is not true?

Which of these is not a substantive procedure?

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:

Identify and explain each of the four broad categories of management's assertions about account balances.

The auditor has determined that there is a preponderance of persuasive evidence for each financial statement assertion that is material, and therefore a reasonable basis for their opinion.Which of the following would not be a possible opinion that the auditor could issue?

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

Assertions about account balances and related disclosures include all of the following except:

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

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

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:

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

On each engagement, the specific audit objectives will normally be:

An Overview of Auditing

Governance and the Auditor

Professional Ethics, Regulation and Liability

Quality and Standards of Assurance Engagements

Overview of the Audit Financial Reports

The Auditors Report

Client Evaluation and Planning the Audit

Audit Risk Assessment

Tests of Controls

Designing Substantive Procedures

Managing Audit Data

Completing the Audit

Filters