Deck 11: Designing Substantive Procedures

Question 1

Which of these is not normally a distinct phase involved in using generalised audit software?

A)Using the primarily substantive approach in planning the audit.
B)Identification of the relevant audit objective and tests to be performed.
C)Designing the application and form of the output.
D)Processing the application and reviewing the results.

Answer 1

A

Question 2

If the predominantly substantive approach preliminary audit strategy is used, the planned level of substantive procedures will be:

A)at the lower level.
B)moderate or high.
C)at the higher level.
D)low or very low.

Answer 2

C

Question 3

For small clients, it is often more efficient to adopt the predominantly substantive approach.Which of the following is a reason for this?

A)They may not have adequate resources to implement all appropriate controls.
B)Controls may not be effective.
C)The size of the entity may make it inefficient for the auditor to rely on these controls.
D)All of the above.

Answer 3

D

Question 4

Tests of details of transactions generally use evidence from:

A)documents found in the entity's files.
B)documents obtained directly from external sources.
C)direct observation on the part of the auditor.
D)inquiry directed to top management personnel.

Question 5

Which of these would not necessarily be considered to be a risk factor for potential misstatements?

A)Segregation of duties is not practiced.
B)An employee in the cash office was passed over for a promotion.
C)There is intense price competition in the industry of operation.
D)Profit margin has increased and inventory turnover days has decreased.

Question 6

If the lower assessed level of control risk approach preliminary audit strategy is used, planned detection risk will be:

A)at the lower level.
B)moderate or high.
C)at the higher level.
D)high or very high.

Question 7

Which of these is not compatible with a high level of inherent and control risk?

A)Detection risk is low.
B)A larger sample should be used.
C)Substantive procedures are less effective.
D)Year-end tests are preferable.

Question 8

Which of these would be a reason for adopting a predominantly substantive approach?

A)Accounts are affected by more than one transaction class.
B)Detection risk has been assessed as high.
C)There are no significant control procedures that pertain to the assertion.
D)Control risk has been assessed as low.

Question 9

Tests of details of transactions primarily involve:

A)confirmation with outsiders.
B)tracing and vouching.
C)observation and inquiry.
D)balance sheet accounts.

Question 10

The least costly form of testing is usually:

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

Question 11

Which of these would not be considered to be a test of details of balances?

A)Accounts receivable confirmations.
B)Tracing an invoice to the sales journal.
C)Observing the entity's stocktake.
D)Inspecting plant assets.

Question 12

Which of these is not considered a substantive procedure?

A)Tests of controls.
B)Tests of details of balances.
C)Analytical procedures.
D)Tests of details of transactions.

Question 13

Tests of details of balances focus on obtaining evidence:

A)in the least costly manner.
B)directly about an account balance.
C)to refute instead of support an assertion.
D)directly from an outside source.

Question 14

If the predominantly substantive approach preliminary audit strategy is used, planned detection risk will be:

A)low or very low.
B)high or very high.
C)moderate or high.
D)at the higher level.

Question 15

The auditor is performing substantive procedures several months before the end of the year.This most likely means that:

A)inherent risk is set at high.
B)detection risk is set at high.
C)control risk is set at maximum.
D)none of the above are correct.

Question 16

If the lower assessed level of control risk approach preliminary audit strategy is used, the planned level of substantive procedures will be:

A)high or very high.
B)at the lower level.
C)moderate or high.
D)at the higher level.

Question 17

Extensive tests of details for an income statement account is least likely to be required when:

A)analytical procedures reveal some unexpected fluctuations.
B)detection risk is high.
C)control risk is high.
D)inherent risk is high.

Question 18

For a particular account balance assertion, the auditor is most likely to be able to avoid substantive tests of details with which of these sets of risk assessments?

A)A.
B)B.
C)C.
D)D.

Question 19

Confirmation and direct knowledge by the auditor are most associated with:

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

Question 20

The auditor would be least likely to perform early substantive tests of details of balances when:

A)a number of significant deviations from control policies and procedures were detected during tests of controls.
B)variance reports do not distinguish between price and quantity variances.
C)the client uses a financial business year instead of the calendar year.
D)the taking of the client's inventory is performed at an early date.

Question 21

A procedure the auditor would employ in identifying related party transactions is:

A)reviewing previous period working papers.
B)reviewing shareholder records.
C)reviewing minutes of shareholders and directors meetings.
D)all of the above.

Question 22

Each income statement account is linked to at least one balance sheet account.Which of the following would be the related income statement account for the balance sheet account of inventories?

A)Sales.
B)Cost of sales.
C)Depreciation expense.
D)None of the above.

Question 23

Which of the following is not true in relation to external confirmations?

A)They are highly reliable.
B)They are expensive to perform.
C)They are time-consuming to collect.
D)It is mainly liabilities that require external confirmation.

Question 24

Why are related party transactions a risk area for auditors? They:

A)have minimal disclosure requirements.
B)have a higher than average risk of irregularities.
C)have a direct impact on profit.
D)are difficult to assess.

Question 25

The nature of substantive procedures refers to the type and effectiveness of the auditing procedures to be performed.
Identify and discuss the three types of substantive procedures, addressing the relative effectiveness and cost of each.

Question 26

An audit program should be sufficiently detailed to provide all of the following except:

A)evidential support for the audit opinion.
B)an outline of the work to be done.
C)a basis for controlling the audit.
D)a basis for supervising the audit.

Question 27

The following is a list of balance sheet accounts.For each balance sheet account, indicate its related income statement account.

Question 28

In which of these accounts would you not expect the use of estimates?

A)Allowance for bad and doubtful debts.
B)Accounts receivable.
C)Warranty expense.
D)All of the above involve the use of estimates.

Question 29

Describe the contents and purpose of an audit program.

Question 30

Compared to balance sheet accounts, the audit of income statement accounts generally relies more heavily on:

A)analytical procedures.
B)tests of detail of balances.
C)tests of detail of transactions.
D)both tests of detail of balances and of transactions.

Question 31

When substantive procedures are performed before the balance sheet date the auditor should, at or after the balance sheet date:

A)obtain a letter from management stating that no significant changes occurred in the account balances between the two dates.
B)perform a comparison of the account balances at the two dates.
C)confirm all balances that were not confirmed at interim.
D)perform tests of reasonableness on all balances that were not confirmed at interim.

Question 32

The audit program is basically a list of:

A)account balances and their related assertions.
B)control policies and procedures to be tested.
C)audit procedures to be performed.
D)detailed audit objectives.