Deck 7: Audit Evidence

Question 1

Auditors use evidence to help them draw conclusions.

Answer 1

True

Question 2

Which of the following is an accurate statement regarding audit evidence?

A)Responses to the auditor's questions by client employees is considered highly persuasive evidence.
B)Audit evidence should provide an absolute level of assurance.
C)The auditor uses evidence to determine whether the statements are fairly presented.
D)All evidence must be highly persuasive.

Answer 2

C

Question 3

An audit program is the list of audit procedures for an audit area or an entire audit.

Answer 3

True

Question 4

When making audit evidence decisions,

A)the auditor decides which items in the population to test before determining the sample size.
B)the sample size for any given procedure must remain constant from audit to audit.
C)audit engagement software can assist the auditor in making evidence decisions.
D)the auditor is required to use the sample sizes that are determined by the PCAOB.

Question 5

Which of the following statements regarding the relevance of evidence is correct?

A)To be relevant,evidence must pertain to the audit objective of the evidence.
B)To be relevant,evidence must be persuasive.
C)To be relevant,evidence must relate to multiple audit objectives.
D)To be relevant,evidence must be derived from a system including effective internal controls.

Question 6

Which of the following is not one of the four decisions about what evidence to gather and how much of it to accumulate?

A)which audit procedures to use
B)which accounts must agree to the general ledger
C)when to perform the procedures
D)what sample size to select for a given procedure

Question 7

Which of the following forms of evidence would be least persuasive in forming the auditor's opinion about marketable securities and other investments held by the company?

A)responses to auditor's questions by the president and controller regarding the investments account
B)correspondence with a stockbroker regarding the quantity of client's investments held in street name by the broker
C)minutes of the board of directors authorizing the purchase of stock as an investment
D)the auditor's count of marketable securities

Question 8

All evidence must have the same level of persuasiveness.

Question 9

The two characteristics of the appropriateness of evidence are

A)relevance and timeliness.
B)relevance and accuracy.
C)relevance and reliability.
D)reliability and accuracy.

Question 10

Two determinants of the persuasiveness of evidence are

A)competence and sufficiency.
B)relevance and reliability.
C)appropriateness and sufficiency.
D)independence and effectiveness.

Question 11

Audit evidence has two primary qualities for the auditor;relevance and reliability.Given the choices below,which provides the auditor with the most reliable audit evidence?

A)general ledger account balances
B)confirmation of accounts receivable balance received from a customer
C)internal memo explaining the issuance of a credit memo
D)copy of month-end adjusting entries

Question 12

Appropriateness of evidence is a measure of the

A)quantity of evidence.
B)quality of evidence.
C)sufficiency of evidence.
D)meaning of evidence.

Question 13

Audit evidence obtained directly by the auditor will not be reliable if

A)the auditor lacks the competence to evaluate the evidence.
B)it is provided by the client's attorney.
C)the client denies its veracity.
D)it is impossible for the auditor to obtain additional corroboratory evidence.

Question 14

For audit evidence to be compelling to the auditor it must be sufficient and appropriate.Which statement below is not correct regarding the appropriateness of audit evidence?

A)The more effective the internal control system,the more assurance it provides the auditor about the reliability of financial reporting by the client.
B)An auditor's opinion,to be economically useful and profitable to the auditing firm needs to be formed within a reasonable time and based on evidence obtained that assures profits for the auditing firm.
C)Evidence obtained from independent sources outside the entity is generally more reliable than evidence secured solely within the entity.
D)The independent auditor's direct personal knowledge,obtained through inquiry,observation and inspection,is generally more persuasive than information obtained indirectly.

Question 15

Auditors must make decisions regarding what evidence to gather and how much to accumulate.Which of the following is a decision that must be made by auditors related to evidence?

A)
B)
C)
D)

Question 16

The auditor must gather sufficient and appropriate evidence during the course of the audit.Sufficient evidence must

A)be well documented and cross-referenced in the audit documents.
B)be based on sources that are external to company.
C)provide evidence that prove or disprove an audit objective/assertion.
D)be persuasive enough to enable the auditor to issue an audit report.

Question 17

When can audit procedures be performed?

A)
B)
C)
D)

Question 18

Which of the following is not a characteristic of the reliability of evidence?

A)effectiveness of client internal controls
B)education of auditor
C)independence of information provider
D)timeliness

Question 19

Which of the following statements is not correct?

A)It is possible to vary the sample size from one unit to 100% of the items in the population.
B)Cost is an adequate justification for not gathering an adequate sample size.
C)The decision of how many items to test must be made by the auditor for each audit procedure.
D)The sample size for any given procedure is likely to vary from audit to audit.

Question 20

A(n)________ is the detailed instruction that explains the audit evidence to be obtained during the audit.

A)audit objective
B)audit procedure
C)audit assertion
D)audit program

Question 21

Which of the following statements is not a correct statement regarding audit evidence?

A)Evidence obtained from an independent source outside the client organization is more reliable than that obtained from within.
B)Documentary evidence is more reliable when it is received by the auditor indirectly rather than directly.
C)Documents that originate outside the company are considered more reliable than those that originate within the client's organization.
D)External evidence,such as communications from banks,is generally regarded as more reliable than answers obtained from inquiries of the client.

Question 22

Why is the appropriateness of audit evidence obtained by the auditor important in forming an audit opinion?
Describe the qualities information should have to be considered appropriate by the auditor.

Question 23

When the auditor uses supporting evidence for amounts posted to account balances with documentary evidence,that process is called

A)inquiry.
B)confirmation.
C)vouching.
D)physical examination.

Question 24

Evidence is generally considered appropriate when

A)it has been obtained by random selection.
B)there is enough of it to afford a reasonable basis for an opinion on financial statements.
C)it is relevant to the audit objective being tested.
D)it consists of written statements made by managers of the company under audit.

Question 25

Which items affect the sufficiency of evidence when choosing a sample?

A)
B)
C)
D)

Question 26

Inquiries of the client are usually sufficient to provide appropriate evidence to satisfy an audit objective.

Question 27

The two most important factors when determining the appropriate sample size in an audit are the auditor's expectation of misstatements and the objectivity of the evidence.

Question 28

Which of the following statements relating to the competence of evidential matter is always True?

A)Evidence from outside an enterprise is always reliable.
B)Accounting data developed under satisfactory conditions of internal control is not reliable.
C)Oral representations made by management are not reliable evidence.
D)Evidence must be both reliable and relevant to be considered appropriate.

Question 29

Evidence is usually more persuasive for balance sheet accounts when it is obtained

A)as close to the balance sheet date as possible.
B)only from transactions occurring on the balance sheet date.
C)from various times throughout the client's year.
D)from the time period when transactions in that account were most numerous during the fiscal period.

Question 30

The relevance of audit evidence depends on the audit objective being tested.

Question 31

Which of the following is a correct statement regarding audit evidence?

A)A large sample of evidence provided by an independent party is always considered persuasive evidence.
B)A small sample of only one or two pieces of highly appropriate evidence is always considered persuasive evidence.
C)The auditor must obtain a sufficient amount of relevant and reliable evidence to form an opinion on the fairness of the financial statements.
D)Evidence is usually more reliable for balance sheet accounts when it is obtained within six months of the balance sheet date.

Question 32

Discuss three of the following characteristics of relevant evidence.
1. Independence of provider
2. Effectiveness of client's internal controls
3. Auditor's direct knowledge
4. Qualification of individuals providing the information
5. Degree of objectivity
6. Timeliness

Question 33

Objective evidence is more reliable,and hence more persuasive,than subjective evidence.

Question 34

Calculating the gross margin for the current audit year as a percent of sales and comparing it with previous years is what type of evidence?

A)physical examination
B)analytical procedures
C)observation
D)inquiry

Question 35

Audit evidence to support an opinion about the fairness of a client's financial statements consists entirely of written information.

Question 36

Which of the following statements is True?

A)Evidence must be relevant to all of the audit objectives.
B)If evidence is subjective,it cannot be reliable.
C)Evidence obtained directly by the auditor may not be reliable if the auditor lacks the qualifications to evaluate the evidence.
D)The persuasiveness of evidence can be evaluated after considering its sufficiency.

Question 37

Given the economic and time constraints in which auditors can collect evidence regarding management assertions about the financial statements,the auditor normally gathers evidence that is

A)irrefutable.
B)conclusive.
C)persuasive.
D)completely convincing.

Question 38

Which of the following is the most objective type of evidence?

A)a letter written by the client's attorney discussing the likely outcome of outstanding lawsuits
B)the physical count of securities and cash
C)inquiries of the credit manager about the collectability of noncurrent accounts receivable
D)observation of cobwebs on some inventory bins

Question 39

Determine which of the following is most correct statement regarding the reliability of audit evidence.

A)Information that is indirectly obtained from external sources is the most reliable audit evidence.
B)Reliability of audit evidence is dependent upon the evidence being subjective.
C)Reliability of evidence refers to the amount of evidence obtained.
D)If internal controls are effective,evidence obtained is more reliable than when the controls are not effective.

Question 40

The reliability of evidence refers to the degree to which evidence is considered believable or trustworthy.There are six factors that affect the reliability of audit evidence.One factor is the independence of the provider;i.e.,evidence obtained from a source outside the client company is more reliable than that obtained within.Identify and discuss any two of the remaining five factors.

Question 41

When the auditor uses tracing as an audit procedure for tests of transactions,she is primarily concerned with which audit objective?

A)occurrence
B)completeness
C)cutoff
D)classification

Question 42

________ generally provide the most reliable evidence.

A)Confirmations
B)Recalculations
C)Reperformances
D)Observations

Question 43

When practical and reasonable,U.S.auditing standards require the confirmation of

A)individual transactions between organizations,such as sales transactions.
B)accounts receivable.
C)fixed asset additions.
D)payroll expenses.

Question 44

Indicate whether confirmation of accounts receivable and accounts payable,provided they each are significant accounts,is required or optional.

A)
B)
C)
D)

Question 45

Which of the following is a correct statement regarding confirmations?

A)Confirmations can be in oral or written form.
B)Electronic confirmations are not acceptable under generally accepted auditing standards.
C)Confirmations are generally used in the audit of fixed asset additions.
D)Auditors consider alternative evidence available when determining if confirmations should be used.

Question 46

Physical examination

A)is a direct means of verifying that an asset really exists.
B)is sufficient evidence to verify that the existing assets are owned by the client.
C)can be used for both tangible assets and documents.
D)is not generally a reliable type of audit evidence.

Question 47

"Physical examination" is the inspection or count by the auditor of items such as

A)cash,inventory,and payroll timecards.
B)cash,inventory,canceled checks,and sales documents.
C)cash,inventory,canceled checks,and tangible fixed assets.
D)cash,inventory,securities,notes receivable,and tangible fixed assets.

Question 48

Auditors may decide to replace tests of details with analytical procedures when possible because the

A)analytical procedures are more reliable.
B)analytical procedures are considerably less expensive.
C)analytical procedures are more persuasive.
D)tests of details are more difficult to interpret.

Question 49

When the auditor uses the audit procedure vouching she is primarily concerned with which of the following audit objectives when testing classes of transactions?

A)occurrence
B)completeness
C)authorization
D)classification

Question 50

Which of the following is not a correct combination of terms and related type of audit evidence?

A)inquire - inquiries of client
B)count - physical examination
C)recompute - recalculation
D)read - documentation

Question 51

Analytical procedures must be used during which phase(s)of the audit?

A)
B)
C)
D)

Question 52

Audit procedures can result in significant,unexpected differences.The auditor should investigate further if

A)
B)
C)
D)

Question 53

An example of an external document that provides reliable information for the auditor is: a(n)

A)employees' time report.
B)bank statement.
C)purchase order for company purchases.
D)carbon copies of a check.

Question 54

When auditors use documentation to support recorded transactions and amounts,the process is usually called

A)tracing.
B)confirmations.
C)vouching.
D)reperformance.

Question 55

The auditor is concerned that a client is failing to bill customers for shipments.An audit procedure that would gather relevant evidence would be to

A)select a sample of duplicate sales invoices and trace each to related shipping documents.
B)trace a sample of shipping documents to related duplicate sales invoices.
C)trace a sample of Sales Journal entries to the Accounts Receivable subsidiary ledger.
D)compare the total of the Schedule of Accounts Receivable with the balance of the Accounts Receivable account in the general ledger.

Question 56

Factors that determine the auditor's willingness to accept a document as reliable evidence include

A)whether it is internal or external.
B)whether it was created and processed under conditions of effective internal control.
C)whether it is an original document or a photocopy.
D)all of the above.

Question 57

An example of a document the auditor receives from the client,but which was prepared by someone outside the client's organization is a

A)confirmation.
B)sales invoice.
C)vendor invoice.
D)bank reconciliation.

Question 58

To be considered reliable evidence,confirmations must be controlled by

A)the client's employee responsible for accounts receivable.
B)the external auditor.
C)the client's internal audit department.
D)the client's controller or CFO.

Question 59

The evaluations of financial information through analysis of plausible relationships among financial and nonfinancial data is the definition of

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

Question 60

The primary purpose of audit procedures is to

A)detect all errors or fraudulent activities as well as illegal activities.
B)comply with auditing standards promulgated by the PCAOB for publicly held clients.
C)gather corroborative audit evidence about management's assertions regarding the client's financial statements.
D)determine the amount of errors in the balance sheet accounts in order to adjust the accounts to actual.

Question 61

Distinguish between internal documentation and external documentation as types of audit evidence.Give two examples of each.Which type is considered more reliable?

Question 62

When the auditor scans the sales journal looking for large and unusual transactions,he is gathering what type of evidence?

A)inspection
B)recalculation
C)physical examination
D)analytical procedures

Question 63

Whenever practical and reasonable,the confirmation of accounts receivable is required of CPAs.

Question 64

Below are 12 audit procedures.Classify each procedure according to the following types of audit evidence: (1)physical examination,(2)confirmation,(3)documentation,(4)observation,(5)inquiry of the client,(6)reperformance,and (7)analytical procedure.

Question 65

Define the following terms commonly used in audit procedures:
1. examine
2. scan
3. compute
4. foot
5. compare
6. count
7. vouch

Question 66

The type of audit evidence known as inquiry requires the auditor to obtain oral or written information from the client in response to questions.

Question 67

Confirmations are ordinarily used to verify account balances,but may be used to verify transactions.

Question 68

You are auditing the company's purchasing process for goods and services.You are primarily concerned with the company not recording all purchase transactions.Which audit procedure below would be the most effective audit procedure in this case?

A)vouching from the accounts payable account to the vendor invoices
B)tracing vendor invoices to recorded amounts in the accounts payable account
C)confirmation accounts payable recorded amounts
D)reconciling the accounts payable subsidiary ledger to the accounts payable account

Question 69

When analytical procedures reveal unusual fluctuations in an account balance,the auditor will probably perform fewer tests of details for that account and increase the tests of controls related to the account.

Question 70

Which of the following discoveries through the use of analytical procedures would most likely indicate a relatively high risk of financial failure?

A)a decline in gross margin percentages
B)an increase in the balance in fixed assets
C)an increase in the ratio of allowance for uncollectible accounts to gross accounts receivable,while at the same time accounts receivable turnover also decreased
D)a higher than normal ratio of long-term debt to net worth as well as a lower than average ratio of profits to total assets

Question 71

Which of the following statements is correct regarding the costs involved in obtaining evidence?

A)
B)
C)
D)

Question 72

Analytical procedures must be used in the planning and completion phases of the audit.

Question 73

One purpose of performing analytical procedures in the planning phase of an audit is to assess the client's financial condition.Explain how the assessment of a client's financial condition can affect the auditor's decisions concerning evidence accumulation in later phases of the audit.

Question 74

Confirmations are among the most expensive type of evidence to obtain.

Question 75

Below are 10 documents typically examined during an audit.Classify each document as either internal or external.

Question 76

Auditor judgment is the primary determinant in determining the amount of evidence gathered.

Question 77

________ is the auditor's examination of the client's documents and records to substantiate that the information is included in the financial statements.

A)Inspection
B)Recalculation
C)Observation
D)Verification

Question 78

Inquiries of clients and recalculations normally have a low cost associated with them.

Question 79

A canceled check written by the client,made payable to a local supplier and drawn on the client's bank account is one type of internal document.

Question 80

The usefulness of analytical procedures as audit evidence depends significantly on appropriate comparison data.