Question 1

Testing the balance sheet substantively will provide reasonable assurance on the income statement accounts.

Accepted Answer

A) True 
 B)False  True

Question 2

Ensuring that all costs and expenses in the income statement are properly supported as charges against the entity relates to the classification assertion.

Accepted Answer

A) True 
 B)False  False

Question 3

Discuss the importance of the completeness assertion as it relates to auditing sales revenue.

Accepted Answer

Completeness is generally not a significant assertion as the risk with sales revenue is that the client has overstated the balance. Completeness testing focuses on ensuring all sales revenue that occurred has been recorded to ensure sales revenue has not been understated. Understatement of sales revenue is not a risk for most clients; however, in certain industries and circumstances, this may be a key concern, and may therefore require substantive procedures to be developed to address this risk. For example, sometimes entities that have already achieved their budgeted results (and therefore may have earned substantial bonuses) may defer the recognition of sales until after year-end to give them a 'head start' on meeting the following year's budgeted sales. In this instance, testing is performed to ensure revenue in the current year is not understated. During difficult economic times, however, this risk is low.

Question 4

Substantive tests of costs and expenses that are always performed include:

Accepted Answer

A)  reviewing interim financial reports and investigating fluctuations or the absence of expected changes. 
B)  comparing the current year's expenses to the prior years actual and the current years budgeted amounts. 
C)  obtaining detailed analysis of selected costs and expense accounts and trace the details to the source data. 
D)  All of the above 
A)  reviewing interim financial reports and investigating fluctuations or the absence of expected changes. 
B)  comparing the current year's expenses to the prior years actual and the current years budgeted amounts. 
C)  obtaining detailed analysis of selected costs and expense accounts and trace the details to the source data. 
D)  All of the above

Question 5

The completeness assertion relates to the audit objective that sales and other revenues are stated in the profit and loss at the appropriate amounts.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following are examples of substantive procedures in auditing revenue that are always performed?

Accepted Answer

A)  Testing the cut-off of revenues 
B)  Comparing the monthly income statements to budget and investigating any unexpected fluctuations 
C)  Both a and b 
D)  None of the above 
A)  Testing the cut-off of revenues 
B)  Comparing the monthly income statements to budget and investigating any unexpected fluctuations 
C)  Both a and b 
D)  None of the above

Question 7

Which of the following substantive tests of payroll transactions does not relate to the accuracy assertion?

Accepted Answer

A)  Reconciling the accrued payroll balance to the amount in the payroll ledger for the corresponding balance 
B)  Testing the postings of totals in the payroll ledger to the general ledger 
C)  Testing the extensions of wage rates times the hours worked 
D)  Comparing the hours paid with the record of hours worked 
A)  Reconciling the accrued payroll balance to the amount in the payroll ledger for the corresponding balance 
B)  Testing the postings of totals in the payroll ledger to the general ledger 
C)  Testing the extensions of wage rates times the hours worked 
D)  Comparing the hours paid with the record of hours worked

Question 8

Explain the nature of the accounting fraud that was committed by the Sunbeam Corporation in the 1990s. What procedures can auditors use to detect such fraud?

Accepted Answer

The accounting fraud committed by the Su

Question 9

The level of substantive procedures will be limited when:

Accepted Answer

A)  the inherent and control risk assessment is low. 
B)  there are no controls tested or relied upon. 
C)  the inherent and control risk assessment is high. 
D)  the client requests the auditor to perform limited procedures. 
A)  the inherent and control risk assessment is low. 
B)  there are no controls tested or relied upon. 
C)  the inherent and control risk assessment is high. 
D)  the client requests the auditor to perform limited procedures.

Question 10

Sales revenue is typically significant due to:

Accepted Answer

A)  the overall inherent risk associated with revenue. 
B)  the volume of transactions that flow through the account. 
C)  its size. 
D)  All of the above 
A)  the overall inherent risk associated with revenue. 
B)  the volume of transactions that flow through the account. 
C)  its size. 
D)  All of the above

Question 11

Which type of substantive procedure do auditors ordinarily use when testing income statement accounts?

Accepted Answer

A)  Confirmations 
B)  recalculations 
C)  Analytical procedures 
D)  Observations 
A)  Confirmations 
B)  recalculations 
C)  Analytical procedures 
D)  Observations

Question 12

The three audit assertions that are important to ensure the auditor has gained sufficient and appropriate audit evidence for sales revenue are:

Accepted Answer

A)  completeness, accuracy and occurrence. 
B)  occurrence, accuracy and cut-off. 
C)  cut-off, accuracy and completeness. 
D)  classification, accuracy and completeness. 
A)  completeness, accuracy and occurrence. 
B)  occurrence, accuracy and cut-off. 
C)  cut-off, accuracy and completeness. 
D)  classification, accuracy and completeness.

Question 13

When the inherent risk and control risk assessment is high:

Accepted Answer

A)  there are no controls tested or relied upon. 
B)  minimal substantive tests are performed. 
C)  the amount of substantive testing is significant. 
D)  Both a and c 
A)  there are no controls tested or relied upon. 
B)  minimal substantive tests are performed. 
C)  the amount of substantive testing is significant. 
D)  Both a and c

Question 14

The occurrence assertion for sales relates to which of the following audit objectives?

Accepted Answer

A)  Sales and other revenues are properly classified, described and disclosed in the financial report 
B)  Sales and other revenues are stated in the profit and loss at the appropriate amounts 
C)  All sales and other revenues that accrued to the entity during the period are included in the income statement 
D)  All sales included in the income statement represent the exchange of goods or services with customers during the period 
A)  Sales and other revenues are properly classified, described and disclosed in the financial report 
B)  Sales and other revenues are stated in the profit and loss at the appropriate amounts 
C)  All sales and other revenues that accrued to the entity during the period are included in the income statement 
D)  All sales included in the income statement represent the exchange of goods or services with customers during the period

Question 15

The key audit assertions for cost of sales and expenses are rights and obligations and occurrence.

Accepted Answer

A) True 
 B)False

Question 16

Explain the various components of risk in the audit risk model and the interrelationship between the various components.

Accepted Answer

AUDIT RISK IS A FUNCTION OF INHERENT RIS

Question 17

When inherent risk and control risk are assessed to be low, the level of substantive procedures required to address any remaining detection risk is limited.

Accepted Answer

A) True 
 B)False

Question 18

Testing the account classification of credit memos tests the accuracy assertion for the sales returns process.

Accepted Answer

A) True 
 B)False

Question 19

Control risk is:

Accepted Answer

A)  the susceptibility of an assertion to a misstatement that could be material assuming there are no related controls. 
B)  the risk that a client's system of internal controls will not prevent or detect a material misstatement. 
C)  the risk that the auditor's testing procedures will not be effective in detecting a material misstatement. 
D)  the risk that fraud has occurred. 
A)  the susceptibility of an assertion to a misstatement that could be material assuming there are no related controls. 
B)  the risk that a client's system of internal controls will not prevent or detect a material misstatement. 
C)  the risk that the auditor's testing procedures will not be effective in detecting a material misstatement. 
D)  the risk that fraud has occurred.

Question 20

The auditor uses their professional judgement, knowledge of the client and risk assessment for each significant account to determine the timing and extent of testing.

Accepted Answer

A) True 
 B)False

Testing the balance sheet substantively will provide reasonable assurance on the income statement accounts.

Ensuring that all costs and expenses in the income statement are properly supported as charges against the entity relates to the classification assertion.

Discuss the importance of the completeness assertion as it relates to auditing sales revenue.

Substantive tests of costs and expenses that are always performed include:

The completeness assertion relates to the audit objective that sales and other revenues are stated in the profit and loss at the appropriate amounts.

Which of the following are examples of substantive procedures in auditing revenue that are always performed?

Which of the following substantive tests of payroll transactions does not relate to the accuracy assertion?

Explain the nature of the accounting fraud that was committed by the Sunbeam Corporation in the 1990s. What procedures can auditors use to detect such fraud?

The level of substantive procedures will be limited when:

Sales revenue is typically significant due to:

Which type of substantive procedure do auditors ordinarily use when testing income statement accounts?

The three audit assertions that are important to ensure the auditor has gained sufficient and appropriate audit evidence for sales revenue are:

When the inherent risk and control risk assessment is high:

The occurrence assertion for sales relates to which of the following audit objectives?

The key audit assertions for cost of sales and expenses are rights and obligations and occurrence.

Explain the various components of risk in the audit risk model and the interrelationship between the various components.

When inherent risk and control risk are assessed to be low, the level of substantive procedures required to address any remaining detection risk is limited.

Testing the account classification of credit memos tests the accuracy assertion for the sales returns process.

Control risk is:

The auditor uses their professional judgement, knowledge of the client and risk assessment for each significant account to determine the timing and extent of testing.

Introduction and Overview of Audit and Assurance

Ethics, Legal Liability and Client Acceptance

Risk Assessment 1

Risk Assessment II

Audit Evidence

Gaining an Understanding of the Clients System of Internal Controls

Sampling and Overview of the Risk Response Phase of the Audit

Execution of the Audit Testing of Controls

Execution of the Audit Performing Substantive Procedures

Substantive Testing and Balance Sheet Accounts

Completing and Reporting on the Audit

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Exam 11: Substantive Testing and Income Statement Accounts

Testing the balance sheet substantively will provide reasonable assurance on the income statement accounts.

Ensuring that all costs and expenses in the income statement are properly supported as charges against the entity relates to the classification assertion.

Discuss the importance of the completeness assertion as it relates to auditing sales revenue.

Substantive tests of costs and expenses that are always performed include:

The completeness assertion relates to the audit objective that sales and other revenues are stated in the profit and loss at the appropriate amounts.

Which of the following are examples of substantive procedures in auditing revenue that are always performed?

Which of the following substantive tests of payroll transactions does not relate to the accuracy assertion?

Explain the nature of the accounting fraud that was committed by the Sunbeam Corporation in the 1990s. What procedures can auditors use to detect such fraud?

The level of substantive procedures will be limited when:

Sales revenue is typically significant due to:

Which type of substantive procedure do auditors ordinarily use when testing income statement accounts?

The three audit assertions that are important to ensure the auditor has gained sufficient and appropriate audit evidence for sales revenue are:

When the inherent risk and control risk assessment is high:

The occurrence assertion for sales relates to which of the following audit objectives?

The key audit assertions for cost of sales and expenses are rights and obligations and occurrence.

Explain the various components of risk in the audit risk model and the interrelationship between the various components.

When inherent risk and control risk are assessed to be low, the level of substantive procedures required to address any remaining detection risk is limited.

Testing the account classification of credit memos tests the accuracy assertion for the sales returns process.

Control risk is:

The auditor uses their professional judgement, knowledge of the client and risk assessment for each significant account to determine the timing and extent of testing.

Introduction and Overview of Audit and Assurance

Ethics, Legal Liability and Client Acceptance

Risk Assessment 1

Risk Assessment II

Audit Evidence

Gaining an Understanding of the Clients System of Internal Controls

Sampling and Overview of the Risk Response Phase of the Audit

Execution of the Audit Testing of Controls

Execution of the Audit Performing Substantive Procedures

Substantive Testing and Balance Sheet Accounts

Completing and Reporting on the Audit

Filters