Deck 11: Overall Audit Plan and Audit Program

Question 1

Tests of controls address each of the following objectives EXCEPT:

A) accuracy.
B) realisable value.
C) completeness.
D) timing.

Answer 1

B

Question 2

Which of the following is(are) a type(s) of evidence collected during substantive tests of transactions?

A) Documentation
B) Reperformance
C) Inquiries of the client
D) All of the above

Answer 2

D

Question 3

Tests to determine whether the accounting transactions have been properly authorised, correctly recorded and summarised in the journals and correctly posted to subsidiary ledgers and the general ledger are:

A) tests of controls.
B) substantive tests of transactions.
C) analytical procedures.
D) substantive tests of balances.

Answer 3

B

Question 4

The timing of phase IV audit procedures are typically:

A) before the balance sheet date.
B) on or after the balance sheet date.
C) anytime.
D) at the end of fieldwork.

Question 5

ASA 520 states that analytical procedures can be used as:

A) helpful procedures not possessing the validity of other tests available to the auditor.
B) substantive tests.
C) compliance tests.
D) tests of controls.

Question 6

At interim dates, an auditor evaluates a client's internal accounting control procedures and finds them to be effective. The auditor then performs a substantial part of the audit engagement on a continuous basis throughout the year. At a minimum, the auditor's year- end audit procedures must include:

A) comparison of the responses to the auditor's internal control questionnaire with a detailed flowchart at year- end.
B) tests of compliance with internal control in the same manner as those tests made at the interim dates.
C) determination that the client's internal accounting control procedures are still effective at year end.
D) confirmation of year- end accounts that were examined at interim dates.

Question 7

Extended performance of tests of controls is most likely when:

A) controls are ineffective and assessed control risk is high.
B) the auditor is doing a 'fraud audit'.
C) controls are effective and assessed control risk is low.
D) it is a first- year audit.

Question 8

Substantive tests of transactions affect the auditor's assessments of:

A) both control risk and planned detection risk.
B) both acceptable audit risk and control risk.
C) both inherent risk and control risk.
D) both inherent risk and planned detection risk.

Question 9

The highest cost audit will be incurred when the auditor expected that the internal control system would:

A) have few effective controls, but client's personnel were well- trained and knowledgeable.
B) be effective, but the auditor found extensive control test deviations and significant errors during tests of transactions.
C) have few effective controls, and tests of balances found many errors.
D) be very sophisticated, and the tests of controls confirmed this.

Question 10

In the context of an audit of financial statements, substantive tests are audit procedures that:

A) assess the control risk for each audit objective.
B) assess the detection risk of each audit objective.
C) test for dollar misstatements.
D) test whether transactions are correct.

Question 11

A listing of all the things which the auditor will do to gather sufficient, competent evidence is the:

A) audit program.
B) audit procedure.
C) audit plan.
D) audit risk model.

Question 12

When controls are effectively designed, the auditor assesses control risk:

A) results in additional tests of controls being conducted.
B) at a reduced level, as the controls are effective.
C) at a level that reflects the effectiveness of those controls.
D) all of the above

Question 13

Which one of the following types of evidence would NOT be obtained in tests of controls?

A) Reperformance
B) Inquiry of the client
C) Documentation
D) Physical examination

Question 14

For efficiency, tests of controls are frequently done at the same time as:

A) substantive tests of transactions.
B) substantive tests of balances.
C) analytical procedures.
D) compliance tests.

Question 15

Which one of the following steps is NOT performed at the completion phase of an audit?

A) Review for contingent liabilities
B) Review for subsequent events
C) Final review of the auditor's working papers
D) Final adjustments to the audit program

Question 16

Substantive tests of transactions are high cost because:

A) calculations are more difficult and complicated.
B) they require re- calculations and tracing.
C) they involve inquiry, observation and inspection.
D) a greater extent of testing is required.

Question 17

Which one of the following audit tests is usually the MOST costly to perform?

A) Analytical procedures
B) Tests of balances
C) Substantive tests of transactions
D) Tests of controls

Question 18

Phase II of the audit primarily relies on which type/s of audit evidence?

A) Analytical procedures
B) Physical examination
C) Documentation
D) All of the above

Question 19

Phase I of the audit primarily relies on which type/s of audit evidence?

A) Inquiries of client
B) Documentation
C) Analytical procedures
D) All of the above

Question 20

Auditors follow a four- step approach to reduce assessed control risk. Which is NOT one of them?

A) Identify key controls that should reduce control risk for each transaction- related audit objective.
B) Apply the transaction- related objectives to the class of transactions being tested.
C) Develop appropriate tests of controls for all internal controls that are used to reduce the preliminary assessment of control risk below maximum (key controls).
D) Perform analytical procedures on the transaction cycle tested.

Question 21

After finishing the review phase of the study and evaluation of internal control in an audit engagement, the auditor should perform tests of controls on:

A) those controls in which significant deficiencies were identified.
B) a random sample of the controls that were reviewed.
C) those controls that the auditor plans to rely upon.
D) those controls that have a material effect upon the financial statement balances.

Question 22

When the auditor plans to use analytical procedures to provide substantive assurance about an account balance, the data used in the calculations must be considered:

A) reasonable.
B) sufficiently reliable.
C) absolutely reliable.
D) sufficiently appropriate.

Question 23

Which of the following is NOT a type of audit test?

A) Analytical procedures
B) Substantive tests of transactions
C) Tests of controls
D) Authorisation of transactions

Question 24

The actual operation of an internal control system may be most objectively evaluated by:

A) completing a questionnaire and flowchart related to the accounting system in the year under audit.
B) substantive tests of accounts balances based on the auditor's assessment of internal control strength.
C) selection of items processed by the system and determination of the presence or absence of errors and control test deviations.
D) review of the previous year's audit work papers to update the report of internal control evaluation.

Question 25

The timing of phase II audit procedures are typically:

A) before the balance sheet date.
B) on or after the balance sheet date.
C) anytime.
D) at the end of fieldwork.

Question 26

Phase IV of the audit primarily relies on which type/s of audit evidence?

A) Analytical procedures
B) Inquiries of client
C) Documentation
D) All of the above

Question 27

If an auditor performs substantive tests of final balances before the year end, he or she must check activities in the period between the date of this work and the year- end. This period is known as the:

A) continuous period.
B) roll forward.
C) pre- balance date period.
D) interim period.

Question 28

In which stage(s) of an audit can analytical procedures be performed?

A) In conjunction with tests of transactions and tests of details of balances
B) During all three stages
C) In the completion stage
D) In the planning stage

Question 29

Events occurring after the date of the balance sheet but before the issuance of the financial statements and auditor's report are referred to as:

A) interim events.
B) post- closing events.
C) subsequent events.
D) preaudit events.

Question 30

Phase III of the audit primarily relies on which type/s of audit evidence?

A) Physical examination
B) Documentation
C) Analytical procedures
D) All of the above

Question 31

Where a significant amount of evidence is in electronic form:

A) audit risk decreases.
B) acceptable assurance usually increases.
C) it may not be possible to reduce detection risk to an acceptable level by performing only substantive tests.
D) it is usually impractical to evaluate controls.

Question 32

Analytical procedures performed during substantive testing are typically those done as part of planning.

A) less focused than
B) about the same as
C) less extensive than
D) more focused than

Question 33

Substantive tests of balances are sometimes done before the year- end. This can only be done if:

A) internal controls are effective.
B) substantive tests have to be increased.
C) more reliable evidence is needed.
D) none of the above.

Question 34

With respect to the auditor's planning of a year- end examination, which one of the following statements is ALWAYS true?

A) An engagement should not be accepted after the financial year ends.
B) The client's audit committee should not be told of the specific audit procedures that will be performed.
C) It is an acceptable practice to carry out substantial parts of the examination at interim dates.
D) An inventory count must be observed at the balance sheet date.

Question 35

The primary emphasis in most tests of details of balances is on the:

A) cash flow statement account.
B) income statement accounts.
C) balance sheet accounts.
D) three statements above.

Question 36

The timing of phase III audit procedures are typically:

A) before the balance sheet date.
B) on or after the balance sheet date.
C) anytime.
D) at the end of fieldwork.

Question 37

If no material differences are found using analytical procedures, and the auditor concludes that misstatements are not likely to have occurred:

A) the number or extent of tests of details of balances may be reduced.
B) it will be necessary to increase the tests of transactions.
C) it will be necessary to increase the tests of balances.
D) it will not be necessary to perform tests of balances.

Question 38

The timing of phase I audit procedures are typically:

A) before the balance sheet date.
B) on or after the balance sheet date.
C) anytime.
D) at the end of fieldwork.

Question 39

Which one of the following documentation is required for an audit in accordance with generally accepted auditing standards?

A) A client representation letter
B) A client engagement letter
C) A planning memorandum or checklist
D) An internal control questionnaire

Question 40

Which one of the following statements is NOT correct?

A) When controls are not considered effective, or when control deviations are discovered, substantive tests will be eliminated.
B) Tests of transactions are often performed several months prior to the balance sheet date.
C) Tests of details of balances are normally the last tests performed.
D) It is common to use analytical procedures at any time during the audit.

Question 41

Which one of the following is ordinarily designed to detect possible material dollar errors in the financial statements?

A) Analytical review
B) Post- audit working paper review
C) Computer controls
D) Tests of controls

Question 42

An exception that is uncovered in a test of control is:

A) evidence that the financial statements are materially misstated.
B) justification for issuing the qualified opinion.
C) a financial statement misstatement.
D) an indication of the likelihood of misstatements in the financial statements.

Question 43

Which one of the following is NOT a direct outcome of performing analytical procedures?

A) Understand the client's business
B) Reduce detailed audit tests
C) Identify specific errors in the accounts
D) Assess the entity's ability to continue as a going concern

Question 44

A complete audit program for an engagement generally should be developed:

A) during phase II of the audit process.
B) prior to beginning phase III of the audit process.
C) prior to beginning phase I of the audit process.
D) by the end of phase I of the audit process.

Question 45

After performing a study and evaluation of the client's system of internal control, an auditor has concluded that the system is well designed and is functioning as anticipated. Under these circumstances the auditor would most likely:

A) not increase the extent of predetermined substantive tests.
B) increase the extent of anticipated analytical review procedures.
C) cease to perform further substantive tests.
D) perform all tests of controls to the extent outlined in the preplanned audit program.

Question 46

Shown below (1- 5) are the five types of tests which auditors use to determine whether financial statements are fairly stated. Which three are substantive tests? 1. Procedures to obtain an understanding of internal control
2) Tests of controls
3) Tests of transactions
4) Analytical procedures
5) Tests of balances

A) 2, 3 and 4
B) 1, 2 and 3
C) 2, 3 and 5
D) 3, 4 and 5

Question 47

Even when all transaction- related audit objectives are met, the auditor will still rely primarily on substantive tests of balances to meet the following balance- related audit objective(s):

A) realisable value.
B) rights and obligations.
C) both A and B
D) none of the above

Question 48

Which of the following is NOT part of the methodology used in designing substantive tests of balances?

A) Assess client business risks
B) Assess inherent risk
C) Design and perform analytical procedures
D) Assess control risk

Question 49

Which one of the following statements is FALSE?

A) Tests of details of balances emphasise the ending balances in the general ledger.
B) Tests of controls are concerned with evaluating whether controls are sufficiently effective to justify reducing control risk and thereby reducing analytical review procedures.
C) Analytical procedures emphasise the overall reasonableness of transactions and the general ledger balances.
D) Substantive tests of transactions emphasise the verification of transactions recorded in the journals and then posted in the general ledger.

Question 50

Which one of the following audit tests is usually the LEAST costly to perform?

A) Analytical procedures
B) Tests of balances
C) Tests of controls
D) Substantive tests of transactions

Question 51

Audit procedures regarding presentation and disclosure are performed:

A) at balance sheet date.
B) shortly before the audit report is issued.
C) throughout the audit.
D) on the last day of fieldwork.

Question 52

Auditors follow a four- step approach to reduce assessed control risk. Which order do these four steps go in? 1. Identify key controls that should reduce control risk for each transaction- related audit objective.
2) Apply the transaction- related objectives to the class of transactions being tested.
3) Develop appropriate tests of controls for all internal controls that are used to reduce the preliminary assessment of control risk below maximum (key controls).
4) For potential types of misstatements related to each transaction- related audit objective, design appropriate substantive tests of transactions.

A) 4, 1, 2, 3
B) 1, 3, 2, 4
C) 2, 1, 3, 4
D) 1, 2, 3, 4

Question 53

The purpose of tests of controls is to provide reasonable assurance that the:

A) entity has complied with disclosure requirements of generally accepted accounting principles.
B) accounting treatment of transactions and balances is valid and proper.
C) entity has complied with requirements of quality control.
D) accounting control procedures are operating effectively.

Question 54

Tests of controls are directed toward the control's:

A) efficiency and effectiveness.
B) effectiveness.
C) cost benefit ratio.
D) efficiency.

Question 55

The evidence mix which the auditor chose in each of four different audits is shown below: where: E = extensive amount of testing M = medium amount of testing S = small amount of testing N = no testing.
In which of the audits does the client company have sophisticated internal controls and in which audit does the client have insufficient controls?

A) Sophisticated in #4 and insufficient in #2
B) Sophisticated in #1 and insufficient in #2
C) Sophisticated in #2 and insufficient in #3
D) Sophisticated in #1 and insufficient in #3

Question 56

A procedure designed to test for monetary errors or irregularities directly affecting the correctness of financial statement balances is a:

A) test of control.
B) monetary- unit sampling test.
C) substantive test.
D) test of attributes.

Question 57

If the results of the tests of controls, substantive tests of transactions and analytical procedures are not consistent with the prediction, the tests of details of balances will be:

A) increased.
B) changed.
C) unaffected.
D) eliminated.

Question 58

When controls are effective and assessed control risk is low:

A) there will be heavy emphasis on tests of controls.
B) some substantive tests of transactions will still be performed.
C) only substantive tests of transactions will be used.
D) both A and B

Question 59

An auditor evaluates the client's system of internal control in order to:

A) ascertain whether irregularities are probable.
B) determine the extent of tests of controls which must be performed.
C) determine the extent of substantive tests which must be performed.
D) ascertain whether any employees have incompatible functions.

Question 60

Many auditors perform extensive analytical procedures on all audits because:

A) they pinpoint errors in accounts.
B) they are relatively inexpensive.
C) it is required by the auditing standards.
D) all of the above

Question 61

Under normal circumstances, there should be no variation in the audit evidence mix from cycle to cycle for a given audit engagement.

Question 62

Presentation- and disclosure- related objectives are more important in phase IV of the audit.

Question 63

The results of tests of controls and substantive tests of transactions affect the design of the tests of details of balances.

Question 64

If inherent risk is increased from low to medium, tests of details of balances can be reduced.

Question 65

The reliance placed on substantive tests in relation to the reliance placed on internal control varies in a relationship that is ordinarily:

A) parallel.
B) inverse.
C) equal.
D) direct.

Question 66

What factors should the auditor consider when assessing whether to perform substantive tests of final balances before the balance sheet date?

Question 67

Contingent liabilities must be:

A) material and imminent, or they should not even be mentioned.
B) disclosed in the footnotes.
C) recorded on the balance sheet between current and long- term liabilities.
D) recorded in the ledger, or no disclosure is required.

Question 68

The audit procedure, reperformance, always simultaneously provides evidence about both internal control effectiveness and monetary correctness.

Question 69

Analytical procedures are relatively inexpensive, so many auditors perform them on all audits.

Question 70

When analytical procedures are performed during substantive testing, they are typically less focused and less extensive than when performed as part of audit planning.

Question 71

If the auditor's preliminary assessment of control risk is decreased from high to medium, tests of controls can be reduced.

Question 72

Contrast the circumstances in which the auditor would choose not to test controls with those in which he or she would perform tests of controls.

Question 73

There are seven methods of obtaining audit evidence: physical examination, confirmation, documentation, observation, inquiries of the client, reperformance and analytical procedures. For each of the following types of audit tests, indicate the type(s) of evidence gathering procedures that can be used during the test: (1) tests of controls, (2) substantive tests of transactions, (3) analytical procedures and (4) tests of details of balances.

Question 74

When designing an audit program for tests of details of balances, the auditor should make assumptions about inherent risk and control risk and predictions concerning the outcome of tests of controls, substantive tests of transactions and analytical procedures.

Question 75

The auditor is required to communicate material deficiencies in internal control to the audit committee or senior management.

Question 76

Even when all transaction- related audit objectives are met, the auditor will still rely primarily on substantive tests of balances to meet the following balance- related audit objective:

A) realisable value.
B) presentations and disclosure.
C) rights and obligations.
D) A and C

Question 77

Describe the five types of audit tests used to determine whether financial statements are stated fairly. Identify which of the five types are substantive tests and which are used to reduce assessed control risk.

Question 78

Discuss the assumptions and predictions an auditor needs to make when designing an audit program for tests of details of balances. Why are these assumptions and predictions necessary?

Question 79

The audit client is a medium size business with some controls and a few inherent risks. Discuss the audit evidence mix appropriate for this client.

Question 80

The tests of controls and substantive tests of transactions section of the audit program normally includes a descriptive section documenting the understanding obtained about internal control.