Deck 7: Audit Evidence

Question 1

When can audit procedures be performed?

A)
B)
C)
D)

Answer 1

A

Question 2

An ________ 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

Answer 2

B

Question 3

An example of less persuasive evidence to an auditor is the observation of the physical inventory taken by an audit client.

Answer 3

False

Question 4

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

Question 5

It is important for the auditor to standardize the sample size from client to client and from audit to audit.

Question 6

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 7

Auditors use evidence to help them draw conclusions.

Question 8

________ often incorporate sample size, items to select, and timing into the procedure.

A) Audit objectives
B) Audit procedures
C) Audit assertions
D) Audit programs

Question 9

An example of highly persuasive evidence to an auditor is the responses to questions on a questionnaire by audit client employees.

Question 10

After deciding on the sample size for a particular audit procedure, the auditor is then restricted in deciding which items in the population to test.

Question 11

Examine the cash receipts journal in the accounting system and compare the amounts received to the corresponding amounts invoiced in the revenue accounting system and to the bank statement evidencing the deposit. This is an example of which of the following?

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

Question 12

Name three characteristics of evidence from the perspective of a scientist doing an experiment, a lawyer prosecuting an accused thief, and an auditor of financial statements. For the three characteristics that you name, describe briefly the similarities and the differences among these three professions.

Question 13

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

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 14

The ________ always includes a list of the ________, and it usually includes sample sizes, items to select, and the timing of the tests.

A) audit program; audit objectives
B) audit program; audit procedures
C) audit assertion; audit programs
D) audit assertion; audit objectives

Question 15

After deciding on the sample size for a particular audit procedure, the auditor has a choice of several different methods to select the specific population items to test.

Question 16

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 17

All evidence must have the same level of persuasiveness.

Question 18

The sample size generally does not depend on client circumstances such as the extent of automated controls in place in the client's accounting information system.

Question 19

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

A) Responses to the auditor's questions by client employees are 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.

Question 20

Timing is an important factor for the auditor to take into consideration in gathering audit evidence. For example, auditors often prefer to do test counts of the inventory as close as possible to the date of the audit opinion.

Question 21

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 22

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 23

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 24

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 25

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 26

The audit program for inventories should be the same as the audit program for account receivables.

Question 27

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 28

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 29

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 30

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 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

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 33

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 34

Determine which of the following is the 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 35

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 36

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

A)
B)
C)
D)

Question 37

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 38

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 39

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 40

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 41

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 42

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 43

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 44

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 45

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

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

Question 46

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 47

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

Question 48

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

Question 49

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 50

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 51

Most auditors usually consider samples sufficient that contain only the largest dollar items from the population.

Question 52

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

Question 53

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 54

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 copy of a check.

Question 55

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

Question 56

In addition to sample size, the individual population items tested affect the sufficiency of audit evidence gathered by the auditor.

Question 57

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 58

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 59

Assume the auditor determines that verifying marketable securities is a major and material item to the financial statements of an audit client. The auditor must therefore obtain a sufficient amount of relevant and reliable evidence about marketable securities for this audit client. The audit must also result in gathering sufficiently persuasive evidence satisfying the auditor that marketable securities are materially correct.

Question 60

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

A)
B)
C)
D)

Question 61

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

A)
B)
C)
D)

Question 62

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

A)
B)
C)
D)

Question 63

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) confirming accounts payable recorded amounts
D) reconciling the accounts payable subsidiary ledger to the accounts payable account

Question 64

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 65

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 66

"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 67

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 68

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 69

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 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

When the auditor uses the audit procedure vouching, he or 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 72

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

A)
B)
C)
D)

Question 73

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 74

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

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

Question 75

________ 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 76

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 77

________, generally, provide the most reliable evidence.

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

Question 78

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 79

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

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

Question 80

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.