Deck 7: Audit Evidence

Question 1

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

Answer 1

B

Question 2

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.

Answer 2

A

Question 3

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

Answer 3

B

Question 4

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)The decision of how many items to test should not be influenced by the increased costs of performing the additional tests.
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 5

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 6

All evidence must have the same level of persuasiveness.

Question 7

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 8

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

Question 9

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 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

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 12

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 13

Audit procedures are concerned with the nature, extent, and timing in gathering audit evidence.Which, of the following, is true as to the timing of audit procedures?

A)
B)
C)
D)

Question 14

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 15

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

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

Question 16

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 17

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 18

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 19

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 20

Auditors use evidence to help them draw conclusions.

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

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

Question 23

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

Question 24

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

A)
B)
C)
D)

Question 25

Calculating the gross margin for the current year under audit 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 26

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

Question 27

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

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

Question 28

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 29

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

Question 30

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 31

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 32

Discuss three of the following influences on the persuasiveness of evidence.
1.Relevance
2.Independence of provider
3.Effectiveness of client's internal controls
4.Auditor's direct knowledge
5.Degree of objectivity
6.Timeliness

Question 33

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 34

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 35

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 36

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 37

When the auditor develops 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 38

An example of an external document that provides reliable information for the auditor is:

A)employees' time reports.
B)bank statements.
C)purchase order for company purchases.
D)carbon copies of checks.

Question 39

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 40

Determine which of the following is most correct 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 41

Which of the following statements is most correct regarding the primary purpose of audit procedures?

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

Question 42

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 43

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 44

The Auditing Standards Board has concluded that analytical procedures are so important that they are required during:

A)planning and test of control phases.
B)planning and completion phases.
C)test of control and completion phases.
D)planning, test of control, and completion phases.

Question 45

An important benefit of industry comparisons is as:

A)an aid to understanding the client's business.
B)an indicator of errors.
C)an indicator of fraud.
D)a least-cost indicator for audit procedures.

Question 46

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 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

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

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

Question 49

A benefit obtained from using industry averages is that it provides a(n):

A)benchmark to compare the company's results.
B)indication where errors exist in the statements.
C)benchmark to be used in evaluating a client's budgets.
D)comparison of "what is" with "what should be."

Question 50

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

A)
B)
C)
D)

Question 51

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 52

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

A)
B)
C)
D)

Question 53

Which of the following generally provides the most reliable evidence?

A)Confirmations
B)Recalculation
C)Reperformance
D)Observations

Question 54

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 - documentation
D)Read - documentation

Question 55

When making decisions about evidence for a given audit, the auditor's goal is to obtain a sufficient amount of timely, reliable evidence that is relevant to the information being verified.In addition, the goal of audit efficiency is to gather and evaluate the information:

A)no matter the cost involved in obtaining such evidence.
B)even if cost is irrelevant to the auditor, because they bill the client for costs incurred.
C)at the lowest possible total cost.
D)at the cost suggested in the engagement letter.

Question 56

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 57

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 58

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 59

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 60

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

A)
B)
C)
D)

Question 61

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 62

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 63

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

Question 64

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

Question 65

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 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

There are four important purposes of analytical procedures.Identify three of these four purposes and, for each purpose, give a specific example of an analytical procedure that an auditor might perform.

Question 68

Define the following terms commonly used in audit procedures:
1.Examine
2.Scan
3.Compute
4.Foot
5.Compare
6.Count
7.Vouch

Question 69

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 70

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

A)
B)
C)
D)

Question 71

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

Question 72

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 73

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 74

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

A)The effectiveness of a client's internal control has no influence on the reliability of most types of evidence.
B)Analytical procedures will be reliable evidence even if the client's internal controls are weak.
C)One type of evidence is generally sufficient by itself to provide appropriate evidence.
D)The objectivity of evidence obtained through inspection is high.

Question 75

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

Question 76

When using analytical procedures:

A)unusual fluctuations occur when significant unexpected differences between the current year's data and other data used in comparisons are found.
B)and no unusual fluctuations are noted, the possibility of material misstatement is increased.
C)"attention directing" indicates an area where fraud has occurred.
D)and no unusual fluctuations are noted, tests of details of balances can be eliminated,

Question 77

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

Question 78

________ 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 79

Inspection consists of looking at a process or procedure being performed by others.

Question 80

The SEC requires the auditors of public companies to retain e-mail correspondence related to the audit.