Deck 6: Audit Evidence, Audit Objectives,

Question 1

Relevance is the measure of the quality or reliability of the audit evidence, whereas competence relates to whether the evidence is pertinent to the assertion being tested.

Answer 1

False

Question 2

Tracing produces primarily analytical evidence.

Answer 2

False

Question 3

The second standard of fieldwork requires the auditor to obtain sufficient competent evidence through audit procedures to afford a reasonable basis for an opinion on the financial statements.

Answer 3

False

Question 4

Observing relates to watching or witnessing the performance of an activity or process.

Question 5

In practice, the terms "working paper schedule" and "working paper analysis" are used interchangeably.

Question 6

Confirmations provide important evidence and are used in auditing because the evidence is usually objective and comes from an internal source.

Question 7

Industry trade associations are not usually good sources of information about the key competitiveness factors in an industry.

Question 8

Inquiring involves only written inquiry by the auditor.

Question 9

Much of the audit planning, including obtaining an understanding of internal control, assessing control risk, and the application of substantive tests of transactions can be conducted prior to the balance sheet date.

Question 10

The extent of audit procedures does not relate to the auditor's decision about how much audit evidence to obtain.

Question 11

Valuation is generally considered to be the same as existence by practicing auditors.

Question 12

Vouching and tracing are synonyms.

Question 13

The knowledge, skill and ability of personnel assigned engagement responsibilities should be commensurate with the auditor's assessment of the level of risk related to those responsibilities.

Question 14

Auditing procedures are the methods or techniques used by the auditor to gather and evaluate sufficient, competent evidential matter.

Question 15

The Sarbanes-Oxley Act requires the auditor to keep workpapers for at least seven years.

Question 16

Recalculation consists of checking the mathematical accuracy of workpapers.

Question 17

When the auditor examines the revenue cycle, he or she must attend to four major transaction streams.

Question 18

Analytical procedures consist of the study and comparison of relationships among data.

Question 19

Inspecting tangible resources provides the auditor with direct personal knowledge of their existence and physical condition.

Question 20

Evidence need not be relevant to management's financial statement assertions.

Question 21

Reperformance consists of client personnel repeating the execution of procedures or controls while being observed by auditor.

Question 22

If a client uses an image processing system to scan documents and original documents are not retained, the auditor will want to consider the implications for the timing of tests of transactions.

Question 23

If a client maintains records in electronic form, and the auditor can indirectly access electronic records, it may have significant implications for the extent of audit procedures.

Question 24

If a client uses an image processing system to scan documents and original documents are not retained, the auditor will want to consider the implications for the timing of procedures related to material account balances and transaction cycles.

Question 25

Tracing looks primarily for understatements, while vouching looks primarily for overstatements.

Question 26

Choices about audit evidence are influenced by all of the following except:

A) the auditor's understanding of the business and industry.
B) decisions about inherent risk and control risk.
C) comparisons of the auditor's expectations of the financial statements with the client's books and records.
D) decisions about immaterial risk factors.
E) decisions about assertions that are material to the financial statements.

Question 27

Accounting records generally include:

A) contracts.
B) minutes of meetings.
C) internal control manuals.
D) confirmations from third parties.
E) Analysts' reports

Question 28

With respect to audit objectives, the term validity relates to which of the assertions below?

A) existence and occurrence
B) completeness
C) valuation or allocation
D) presentation and disclosure
E) rights and obligations

Question 29

Organization charts are typically found in the current file.

Question 30

The auditor is primarily concerned about the implications of electronic documentation in account balances and transaction classes related to significant business processes.

Question 31

Working papers provide the principal support for the financial statements.

Question 32

Working papers belong to the client, who is responsible for their safekeeping.

Question 33

If a client maintains important documentation and evidence in electronic form for a material account balance or transaction class it will have several implications for the nature of audit tests.

Question 34

The auditor need not consider the implications of electronic data processing on material account balances and transaction classes.

Question 35

The five management assertions outlined in generally accepted auditing standards include all of the following except:

A) rights and obligations.
B) materiality.
C) existence and occurrence.
D) presentation and disclosure.
E) valuation or allocation.

Question 36

An important function of working papers is to document audit decisions.

Question 37

The working trial balance serves as the connecting link between the client's general ledger and the financial statements.

Question 38

A common member of today's audit team is a computer audit specialist.

Question 39

When planning the audit, the auditor must make the following important decisions except the:

A) assignment of staff to perform audit tests.
B) nature of tests to be performed.
C) characteristics of tests to be performed.
D) extent of tests to be performed.
E) timing of tests to be performed.

Question 40

The form of the audit program will vary with the circumstances of the audit.

Question 41

Reclassifying entries pertain primarily to the assertion:

A) existence or occurrence.
B) completeness.
C) valuation or allocation.
D) rights and obligations.
E) presentation and disclosure.

Question 42

Working papers provide all of the following except:

A) a means for coordinating the audit.
B) the principal support for the financial statements.
C) evidence that the audit was made in accordance with GAAS.
D) the principal support for the auditor's report.
E) a means for supervising the audit.

Question 43

Which of the following auditing procedures is least likely to disclose an understatement?

A) vouching
B) tracing
C) inquiring
D) counting
E) confirming

Question 44

An auditor can use computer audit software to do all of the following except:

A) select a sample of accounts receivable for confirmation.
B) reperform a variety of calculations such as totaling the accounts receivable subsidiary ledger or inventory file.
C) perform the calculations and comparisons used in tracing procedures.
D) submit test data to the client's programs to determine that computer aspects of internal controls are functioning.
E) scan a file to determine that all documents in a series have been accounted for.

Question 45

The title of a certain working paper is "Proposed Adjusting Entries." The use of the word "proposed" indicates that:

A) these are reclassifying entries.
B) the listed adjustments are not considered necessary.
C) the auditor should not adjust the accounting records.
D) the listed adjustments are not considered material.
E) the client disagrees with the adjustments listed.

Question 46

Generally accepted auditing standards recognize two categories of evidential matter: underlying accounting data and corroborating information. In making an audit in accordance with GAAS:

A) corroborating information is always required, while underlying accounting data may be gathered under certain circumstances.
B) underlying accounting data must always be gathered, while corroborating information need only be obtained when the accounting records are not reliable.
C) both categories are required.
D) the auditor may choose the category to use, and omit the other.
E) neither category is required.

Question 47

Use of the auditing procedure confirming should normally involve all of the following except:

A) direct evidence being obtained from outsiders.
B) client initiation of the request.
C) written request and an oral response.
D) auditor control of the mailing.
E) responses received by the auditor.

Question 48

The types of tests included in an audit program include all of the following except tests of:

A) extensions.
B) balances.
C) accounting estimates.
D) controls.
E) presentation and disclosure.

Question 49

Which of the following would not be considered an analytical procedure?

A) calculate the gross profit ratio and compare it to the industry figure
B) compare current year's operating expenses to prior year's
C) compare current year's working capital to prior year's
D) divide sales commissions by sales and compare the results to the established
Commission rate
E) compare the per unit price on a sales invoice to the master price list

Question 50

The auditing procedure reperforming relates to which one of the following types of audit evidence?

A) mathematical
B) documentary
C) physical
D) analytical
E) oral

Question 51

Specific audit objectives are normally:

A) the same as the categories of management's financial statement assertions.
B) developed for each item in the financial statements and derived from the categories of management's financial statement assertions.
C) derived from the categories of management's financial statement assertions.
D) developed for each item in the financial statements.
E) developed for material items in the financial statements.

Question 52

Because of the effects of circulation, some audit evidence is more reliable than other audit evidence. Which of the following is generally considered to be the most reliable?

A) Purchase requisitions.
B) Suppliers' invoices.
C) Receipted bank deposit slips.
D) Cutoff bank statements.
E) Paid checks.

Question 53

Making sure that the detail of and accounts receivable file agrees with the general ledger before the file is used to produce confirmations is an example of which of the following audit procedures?

A) Confirmation.
B) Recalculation.
C) Reperformance.
D) Vouching.
E) Tracing.

Question 54

The auditing procedure vouching relates to which one of the following types of audit evidence?

A) mathematical
B) documentary
C) physical
D) analytical
E) oral

Question 55

Which of the following procedures consists of seeking information from knowledgeable persons, both financial and nonfinancial, throughout the entity or outside the entity?

A) Inquiry.
B) Confirmation.
C) Recalculation.
D) Reperformance.
E) Analytical procedures.

Question 56

The subject of the auditing procedure inspecting is least likely to be:

A) documents.
B) physical assets.
C) accounting records.
D) lease agreements.
E) personnel.

Question 57

Account activity for the current period is most likely to appear in which of the following types of audit working papers?

A) working trial balance
B) audit memoranda
C) documentation of corroborating information
D) schedules and analyses
E) adjusting and reclassifying entries

Question 58

The subject of the auditing procedure observing is least likely to be:

A) personnel.
B) procedures.
C) processes.
D) inventory taking.
E) physical assets.

Question 59

Which of the following would not be considered underlying accounting data?

A) sales invoices
B) the general ledger
C) books of original entry
D) accounting manuals
E) accounts receivable ledger

Question 60

Which of the following would not be considered corroborating information?

A) canceled checks held by the client
B) confirmation from vendors
C) oral evidence obtained from client personnel
D) the accountant's work sheet
E) other information obtained by the auditor

Question 61

Identify and briefly describe each of the ten types of audit procedures.

Question 62

You are the senior auditor on a particular engagement. The new staff assistant who has been assigned to work on the cash area is about to begin constructing her first audit work paper.
REQUIRED: Briefly list and discuss the "essential points" used in the preparation of working papers that you would like the staff assistant to follow in completing her assignment.

Question 63

The professional standards identify five categories of assertions made by management that are contained in the financial statements. The categories of assertions identified by the profession are:A.
Existence or occurrence
B.Completeness
C.Rights and obligations
D.Valuation or allocation
E.Presentation and disclosure
REQUIRED: Using the letters given above, indicate the assertion that relates to each listed audit objective.
1.All sales transactions that have been recorded actually occurred during the
period.
2.The details of sales transactions support their presentation in the financial
statements.
3.All sales are correctly valued at their historical cost and correctly journalized,
summarized, and posted.
4.Accounts receivable at the balance sheet date represents legal claims of the entity
on customers for payment.
5.All sales transactions that occurred during the period have been recorded.

Question 64

Listed below are the eight types of corroborating evidence.
A.Analytical Evidence
B.Documentary Evidence
C.Electronic Evidence
D.Confirmations
E.Mathematical Evidence
F.Physical Evidence
G.Written Representations
H.Oral Evidence
Following is a list of examples.
REQUIRED: Using the letters given above, indicate the type of corroborating evidence that relates to each listed example.
1.Client representation letters
2.Cancelled checks
3.Confirmation of lease terms from lessor
4.Explanation of accounting treatment
5.Comparison of client balances with budgets
6.Examination of inventories
7.Evidence created through electronic means
8.Recalculation of journal totals

Question 65

In verifying the balance of Cash in Midtown Bank, Ann Moore began by footing the bank reconciliation prepared by the client. Next, she verified outstanding checks by tracing them to the check register. In addition, she compared the ending bank balance with the balance shown on the bank confirmation obtained directly from the bank. Ann also reviewed the bank statement for any unusual charges or credits. Finally, Ann asked the treasurer if there had been a proper cutoff of bank transactions at the balance sheet date.
REQUIRED: Identify the types of corroborating information obtained by Ann Moore and indicate the action that produced the evidence.

Question 66

Define the term working paper and indicate the purposes served by working papers.

Question 67

The assessed risk of material misstatement influences audit decisions about audit procedures. Which of the following decisions is more appropriate when the risk of material misstatement is assessed as low rather than when it is assessed as high?

A) Performing audit procedures at the balance sheet date.
B) Performing audit procedures on a larger proportion of the population.
C) Obtaining audit evidence primarily with substantive tests.
D) Including the most experienced individuals on the audit team.
E) Choosing substantive audit procedures that provide less persuasive evidence when considering benefits and costs.

Question 68

The auditor wanting to know the files where data are stored and understand how to access the files relates to the effect of electronic data processing on:

A) the timing of audit tests.
B) the extent of audit tests.
C) the nature of audit tests.
D) audit staffing.
E) material account balances and transaction classes.