Exam 5: Audit Evidence and Documentation

In obtaining sufficient appropriate audit evidence, the work of which type or types of specialists may be relied upon? Client Engaged Auditor Engaged A. Yes Yes B. Yes No C. No Yes D. No No

Management is concerned about the lower level of profitability in the Mid-Central Region. Which of the following would be a reasonable possible explanation(s) of the lower profitability for the Mid-Central Region? I. The lower number of stores in the Mid-Central Region. II. Sales employees are not as productive in generating sales as those in other regions. III. The Mid-Central Region has a lower gross margin.

When considering the use of management's written representations as audit evidence about the completeness assertion, an auditor should understand that such representations:

What type of transactions ordinarily have high inherent risk because they involve management judgments or assumptions in formulating accounting balances?

Which of the following is not a function of working papers?

An auditor should expect that fair value is the price that would be received to sell an asset in an orderly transaction between the market participants at the:

Assertions that have a meaningful bearing on whether an account balance, transaction class, or disclosure is fairly stated are referred to as:

A CPA wishes to use a representation letter as a substitute for performing other audit procedures. Doing so:

The auditors should propose an adjusting journal entry for all material related-party transactions.

In performing analytical procedures, the auditors may use dollar amounts, physical quantities, or percentages.

Analytical procedures are substantive procedures that may be used to provide evidence about specific accounts and classes of transactions. a. Describe three major types of comparisons the auditor might make in performing analytical procedures. b. At what stages of the audit are analytical procedures performed and what purpose do they serve at each stage?

A schedule set up to combine similar general ledger accounts, the total of which appears on the working trial balance as a single amount, is referred to as a:

An auditor compared the current-year gross margin with the prior-year gross margin to determine if cost of sales is reasonable. What type of audit procedure was performed?

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

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

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:

Although the quantity, type, and content of working papers will vary with the circumstances, the working papers generally would include the:

Based on the previous information, which of the following preliminary conclusions can the auditor use as a basis for further investigations?

Which of the following statements is not correct regarding the auditor's further analysis?

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-Central Stores Fegion Region Region Average sales per store \ 736,000 \ 840,000 \ 760,000 \ 630,000 Average cost of goods sold per store \ 375,000 \ 420,000 \ 325,000 \ 395,000 Number of stores 48 13 18 17 Average square feet per store 1,800 2,200 1,850 1,560 Average sales per full-time employee \ 137,000 \ 152,000 \ 140,000 \ 122,000 Average wage related expense per store \ 98,000 \ 102,000 \ 82,000 \ 112,000 Average net profit contribution per store \ 238,000 \ 285,000 \ 320,000 \ 115,000 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: