In preparing for an audit of the retail footwear division of a major retail organization,the auditor gathered the following information about the organization's stores: $\begin{array}{lr} &\text { All } & \text { Northeast } & \text { Southwest } & \text { Mid-Centra } \\ &\text { Stores } & \text { Region } & \text { Region } & \text { Region }\\ \text { Average sales per store } &\$736,000&\$840,000&\$760,000&\$630,000\\ \text { Average cost of goods sold per store} &\$375,000&420,000&\$325,000&\$395,000\\ \text { Number of stores } &48&13&18&17\\ \text { Average square feet per store} &1,800&2,200&1,850&1,550\\ \text { Average sales per full-time employee } &\$137,000&\$152,000&\$140,000&\$122,000\\ \text { Average wage related expense per store} &\$98,000&\$102,000&\$82,000&\$112,000\\ \text {Average net profit contribution per store } &\$238,000&\$285,000&\$320,000&\$115,000\\ &\\ \text { } &\\ \end{array}$ -An auditor performs analytical procedures that involve comparing the gross margins of various divisional operations with those of other divisions and with the individual division's performance in previous years.The auditor notes a significant increase in the gross margin at one division.The auditor does some preliminary investigation and also notes that there were no changes in products,production methods,or divisional management during the year.Based on the above information,the most likely cause of the increase in gross margin would be:

A) An increase in the number of competitors selling similar products. B) A decrease in the number of suppliers of the material used in manufacturing the product. C) An overstatement of year-end inventory. D) An understatement of year-end accounts receivable. A) An increase in the number of competitors selling similar products. B) A decrease in the number of suppliers of the material used in manufacturing the product. C) An overstatement of year-end inventory. D) An understatement of year-end accounts receivable.

The components of the risk of misstatement are: $\begin{array}{llll}&\text { Inherent Risk } & \text { Control Risk } & \text { Detection Risk } \\ \text { A } & \text { Yes } & \text { Yes } & \text { Yes } \\ \text { B. } & \text { Yes } & \text { Yes } & \text { No } \\ \text { C. } & \text { Yes } & \text { No } & \text { No } \\ \text { D. } & \text { No } & \text { Yes } & \text { Yes } \end{array}$

A) Option A B) Option B C) Option C D) Option D A) Option A B) Option B C) Option C D) Option D

Exam 5: Audit Evidence and Documentation

When the risk of material misstatement for an account is high,the auditors may perform additional substantive procedures to restrict detection risk to a lower level.

(True/False)

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Question 61

For each of the audit procedures listed below select the type of audit procedure,if any,that the auditor performed.A type of audit procedure may be selected once or not at all. -The auditor obtained a copy of the company's accounting manual and read the section on inventory to prepare for the physical inventory observation.

(Multiple Choice)

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Question 62

During financial statement audits,auditors seek to restrict which type of risk?

(Multiple Choice)

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Question 63

Which of the following groups are not considered a specialist by AICPA Professional Standards?

(Multiple Choice)

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Question 64

In preparing for an audit of the retail footwear division of a major retail organization,the auditor gathered the following information about the organization's stores: All Northeast Southwest Mid-Centra Stores Region Region Region Average sales per store \7 36,000 \8 40,000 \7 60,000 \6 30,000 Average cost of goods sold per store \3 75,000 420,000 \3 25,000 \3 95,000 Number of stores 48 13 18 17 Average square feet per store 1,800 2,200 1,850 1,550 Average sales per full-time employee \1 37,000 \1 52,000 \1 40,000 \1 22,000 Average wage related expense per store \9 8,000 \1 02,000 \8 2,000 \1 12,000 Average net profit contribution per store \2 38,000 \2 85,000 \3 20,000 \1 15,000 -An auditor performs analytical procedures that involve comparing the gross margins of various divisional operations with those of other divisions and with the individual division's performance in previous years.The auditor notes a significant increase in the gross margin at one division.The auditor does some preliminary investigation and also notes that there were no changes in products,production methods,or divisional management during the year.Based on the above information,the most likely cause of the increase in gross margin would be:

(Multiple Choice)

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Question 65

In evaluating an entity's accounting estimates,one of the auditor's objectives is to determine whether the estimates are

(Multiple Choice)

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Question 66

A schedule listing account balances for the current and previous years,and columns for adjusting and reclassifying entries proposed by the auditors to arrive at the final mount that will appear in the financial statement,is referred to as a:

(Multiple Choice)

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Question 67

Which of the following is least likely to be included in a client's representation letter?

(Multiple Choice)

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Question 68

Concerning retention of working papers,the Sarbanes-Oxley Act:

(Multiple Choice)

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Question 69

An analytical procedure example is the comparison of:

(Multiple Choice)

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Question 70

The components of the risk of misstatement are: Inherent Risk Control Risk Detection Risk A Yes Yes Yes B. Yes Yes No C. Yes No No D. No Yes Yes

(Multiple Choice)

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Question 71

The most reliable form of documentary evidence generally is considered to be documents created by the client.

(True/False)

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Question 72

Confirmation would be most effective in addressing the existence assertion for the:

(Multiple Choice)

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Question 73

Comparing the current-year gross margin with the prior-year gross margin to determine if cost of sales is reasonable during an audit would be a type of:

(Multiple Choice)

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Question 74

Which transaction would not necessarily be considered a related party transaction?

(Multiple Choice)

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Question 75

Both adjusting journal entries and reclassifying journal entries are ordinarily recorded by the client.

(True/False)

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Question 76

Which of the following is not accurate as it applies to using data analytics in financial statement auditing:

(Multiple Choice)

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Question 77

The inspection of a vendor's invoice by the auditors is:

(Multiple Choice)

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Question 78

The permanent file section of the working papers that is retained for each audit client most likely contains:

(Multiple Choice)

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Question 79

Even though the quantity,type,and content of working papers will vary,the working papers generally would include:

(Multiple Choice)

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Question 80

When the risk of material misstatement for an account is high,the auditors may perform additional substantive procedures to restrict detection risk to a lower level.

During financial statement audits,auditors seek to restrict which type of risk?

Which of the following groups are not considered a specialist by AICPA Professional Standards?

In evaluating an entity's accounting estimates,one of the auditor's objectives is to determine whether the estimates are

A schedule listing account balances for the current and previous years,and columns for adjusting and reclassifying entries proposed by the auditors to arrive at the final mount that will appear in the financial statement,is referred to as a:

Which of the following is least likely to be included in a client's representation letter?

Concerning retention of working papers,the Sarbanes-Oxley Act:

An analytical procedure example is the comparison of:

The components of the risk of misstatement are: Inherent Risk Control Risk Detection Risk A Yes Yes Yes B. Yes Yes No C. Yes No No D. No Yes Yes

The most reliable form of documentary evidence generally is considered to be documents created by the client.

Confirmation would be most effective in addressing the existence assertion for the:

Comparing the current-year gross margin with the prior-year gross margin to determine if cost of sales is reasonable during an audit would be a type of:

Which transaction would not necessarily be considered a related party transaction?

Both adjusting journal entries and reclassifying journal entries are ordinarily recorded by the client.

Which of the following is not accurate as it applies to using data analytics in financial statement auditing:

The inspection of a vendor's invoice by the auditors is:

The permanent file section of the working papers that is retained for each audit client most likely contains:

Even though the quantity,type,and content of working papers will vary,the working papers generally would include:

The Role of the Public Accountant in the American Economy

Professional Standards

Professional Ethics

Legal Liability of Cpas

Audit Planning, understanding the Client, assessing Risks, and Responding

Internal Control

Consideration of Internal Control in an Information Technology Environment

Audit Sampling

Cash and Financial Investments

Accounts Receivable, notes Receivable, and Revenue

Inventories and Cost of Goods Sold

Property,plant,and Equipment: Depreciation and Depletion

Accounts Payable and Other Liabilities

Debt and Equity Capital

Auditing Operations and Completing the Audit

Auditors Reports

Integrated Audits of Public Companies

Additional Assurance Services: Historical Financial Information

Additional Assurance Services: Other Information

Internal, operational, and Compliance Auditing

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