Question 1

Reading the terms of the lease agreement for a lessee is an example of analysis.

Accepted Answer

A) True 
 B)False  False

Question 2

The degree of reliability that can be obtained from documents like sales invoice copies,employee time cards,and receiving report,is most dependent on which factor?

Accepted Answer

A) The number of copies produced for each document. 
B) Whether or not the documents are sequentially numbered. 
C) The quality of the internal control system that produced them. 
D) The number of individuals to whom the documents are circulated within the auditee. 
A) The number of copies produced for each document. 
B) Whether or not the documents are sequentially numbered. 
C) The quality of the internal control system that produced them. 
D) The number of individuals to whom the documents are circulated within the auditee. C

Question 3

The audit technique of inquiry has advantages and disadvantages.Discuss some of them.

Accepted Answer

Advantages: Inquiries,interviews,and other oral evidence are significant because management's explanations are an important part of obtaining an understanding of the business and the nature of specific transactions.
Inquiry is especially useful in determining management's strategic plan such as its intentions to invest in new products,divest old product lines or expand into new markets.
Informal discussion with client personnel may reveal a great deal of information which more formal procedures may not uncover.
It is a relatively inexpensive means of gathering audit evidence.
Disadvantages: Inquiry can only produce spoken representations,which are the least reliable form of evidence.
The auditor may misunderstand statements made during a discussion or fail to properly document the discussion,or the interviewee may later deny statements made during the discussion.
Evidence gathered by formal and informal enquiry of auditee personnel generally cannot stand alone and must be corroborated by the findings of other procedures.

Question 4

The two primary forms of audit evidence used during the risk assessment phase are:

Accepted Answer

A) Inquiry and analysis 
B) Inspection and observation 
C) Confirmation and analysis 
D) Inquiry and recalculation/reperformance 
A) Inquiry and analysis 
B) Inspection and observation 
C) Confirmation and analysis 
D) Inquiry and recalculation/reperformance

Question 5

A non-response to a negative confirmation indicates agreement with the confirmed balance.

Accepted Answer

A) True 
 B)False

Question 6

For new clients,the auditor can obtain knowledge about the client's business and its industry from the permanent file.

Accepted Answer

A) True 
 B)False

Question 7

Explain the difference between positive and negative confirmations.

Accepted Answer

Positive confirmations require the respo

Question 8

Loan application documents are considered authoritative evidence.

Accepted Answer

A) True 
 B)False

Question 9

Permanent audit files contain such documents as the engagement letter,client organization chart,and internal control system flowcharts.

Accepted Answer

A) True 
 B)False

Question 10

What is the most reliable form of audit evidence?

Accepted Answer

A) Evidence obtained through the auditor's direct personal knowledge. 
B) Evidence gathered directly from independent third parties. 
C) Evidence produced by independent third parties. 
D) Comprehensive analysis performed by the auditor. 
A) Evidence obtained through the auditor's direct personal knowledge. 
B) Evidence gathered directly from independent third parties. 
C) Evidence produced by independent third parties. 
D) Comprehensive analysis performed by the auditor.

Question 11

An important planning decision made by the auditor is called the audit approach decision.With this decision,the auditor decides

Accepted Answer

A) The nature,timing,and extent of individual audit procedures. 
B) The acceptable level of audit risk and the overall materiality. 
C) The experience level of staff needed on the audit engagement. 
D) Whether a combined or substantive approach will be used for the audit. 
A) The nature,timing,and extent of individual audit procedures. 
B) The acceptable level of audit risk and the overall materiality. 
C) The experience level of staff needed on the audit engagement. 
D) Whether a combined or substantive approach will be used for the audit.

Question 12

The audit procedure "vouch a sample of capital asset additions to supporting vendor invoices" is an example of what audit technique?

Accepted Answer

A) Analysis 
B) Inspection 
C) Confirmation 
D) Observation 
A) Analysis 
B) Inspection 
C) Confirmation 
D) Observation

Question 13

Using audit software to re-compute the amount of depreciation expense is an example of what form of audit evidence?

Accepted Answer

A) Inspection 
B) Confirmation 
C) Analysis 
D) Recalculation/reperformance 
A) Inspection 
B) Confirmation 
C) Analysis 
D) Recalculation/reperformance

Question 14

Evidence that does not relate to one of the management assertions can still be relevant to the auditor.

Accepted Answer

A) True 
 B)False

Question 15

You are using analytical procedures to verify direct labour costs.Which of these information sources would be considered the least reliable to use to establish an expected amount?

Accepted Answer

A) Prior year's average monthly production hours,obtained from the prior-year audit working papers. 
B) Budgeted direct labour hours from the master budget,which was approved by the Board of Directors. 
C) The production manager's personal forecast of annual production hours. 
D) Industry averages obtained directly from a verified government website. 
A) Prior year's average monthly production hours,obtained from the prior-year audit working papers. 
B) Budgeted direct labour hours from the master budget,which was approved by the Board of Directors. 
C) The production manager's personal forecast of annual production hours. 
D) Industry averages obtained directly from a verified government website.

Question 16

Rank the following forms of audit evidence from most to least reliable: observation,inquiry,confirmation,and external-internal documentation

Accepted Answer

A) External-internal documentation,observation,confirmation,and inquiry. 
B) Confirmation,external-internal documentation,observation,and inquiry. 
C) External-internal documentation,confirmation,inquiry,and observation. 
D) Confirmation,internal-external documentation,inquiry,and observation. 
A) External-internal documentation,observation,confirmation,and inquiry. 
B) Confirmation,external-internal documentation,observation,and inquiry. 
C) External-internal documentation,confirmation,inquiry,and observation. 
D) Confirmation,internal-external documentation,inquiry,and observation.

Question 17

Spoken and written representations given by the auditee's officers,directors,owners,and employees are generally considered reliable enough to stand on their own.

Accepted Answer

A) True 
 B)False

Question 18

Working papers that meet the requirements of Canadian Audit Standards provide ________.

Accepted Answer

A) conclusive evidence the financial statements are free of material misstatement 
B) the information the auditee keeps on file to support management's assertions 
C) A record of the amount of time spent by the auditor 
D) evidence supporting the auditors conclusions and a record of compliance with GAAS 
A) conclusive evidence the financial statements are free of material misstatement 
B) the information the auditee keeps on file to support management's assertions 
C) A record of the amount of time spent by the auditor 
D) evidence supporting the auditors conclusions and a record of compliance with GAAS

Question 19

For good form,each audit evidence paper should be indexed using a standard system of letters and numbers.The main purpose of this practice is to allow ________.

Accepted Answer

A) other papers to be easily cross-referenced so that connections among accounts can be followed 
B) a check of the completeness of working papers 
C) working papers to be easily re-filed if they are taken out of the file or when the paper is first created 
D) auditors to prove that they have performed sufficient work to support their audit opinion 
A) other papers to be easily cross-referenced so that connections among accounts can be followed 
B) a check of the completeness of working papers 
C) working papers to be easily re-filed if they are taken out of the file or when the paper is first created 
D) auditors to prove that they have performed sufficient work to support their audit opinion

Question 20

GAAS requires the auditor to gather "sufficient,appropriate audit evidence" to support the audit opinion.Explain briefly sufficient and appropriate mean in the context of an audit.

Accepted Answer

Sufficiency refers to the quantity of au

Exam 8: Audit Evidence and Assurance

Reading the terms of the lease agreement for a lessee is an example of analysis.

The degree of reliability that can be obtained from documents like sales invoice copies,employee time cards,and receiving report,is most dependent on which factor?

The audit technique of inquiry has advantages and disadvantages.Discuss some of them.

The two primary forms of audit evidence used during the risk assessment phase are:

A non-response to a negative confirmation indicates agreement with the confirmed balance.

For new clients,the auditor can obtain knowledge about the client's business and its industry from the permanent file.

Explain the difference between positive and negative confirmations.

Loan application documents are considered authoritative evidence.

Permanent audit files contain such documents as the engagement letter,client organization chart,and internal control system flowcharts.

What is the most reliable form of audit evidence?

An important planning decision made by the auditor is called the audit approach decision.With this decision,the auditor decides

The audit procedure "vouch a sample of capital asset additions to supporting vendor invoices" is an example of what audit technique?

Using audit software to re-compute the amount of depreciation expense is an example of what form of audit evidence?

Evidence that does not relate to one of the management assertions can still be relevant to the auditor.

You are using analytical procedures to verify direct labour costs.Which of these information sources would be considered the least reliable to use to establish an expected amount?

Rank the following forms of audit evidence from most to least reliable: observation,inquiry,confirmation,and external-internal documentation

Spoken and written representations given by the auditee's officers,directors,owners,and employees are generally considered reliable enough to stand on their own.

Working papers that meet the requirements of Canadian Audit Standards provide ________.

For good form,each audit evidence paper should be indexed using a standard system of letters and numbers.The main purpose of this practice is to allow ________.

GAAS requires the auditor to gather "sufficient,appropriate audit evidence" to support the audit opinion.Explain briefly sufficient and appropriate mean in the context of an audit.

Introduction to Auditing

Auditors Professional Roles and Responsibilities

Auditors Ethical and Legal Responsibilities

Reports on Audited Financial Statements

Preliminary Audit Planning: Understanding the Auditees Business

Assessing Risks in an Audit Engagement

Internal Control Over Financial Reporting

Control Assessment and Testing

Audit Sampling

The Revenues, receivables, and Receipts Process and Cash Account Balance

The Purchases, payables, and Payments Process

Payroll and Production Processes

The Finance and Investment Process

Completing the Audit Work

Applying Professional Judgment to Form the Audit Opinion and Issue the Audit Report

Other Public Accounting Services and Reportsreviews and Compilations

Professional Rules of Conduct Details and Auditor Responsibilities

The Audit of Accounting Estimates: Basic Material Relating to Accounting Estimates

Legal Liability Cases

Other Professional Accounting Services and Reports, including Fraud Auditing

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