Deck 5: Audit Evidence

Question 1

An expert is expected to be less objective if they are not associated with the client.

Answer 1

False

Question 2

The decision of what constitutes sufficient appropriate audit evidence is a matter for professional judgment.

Answer 2

True

Question 3

Internally generated evidence is considered the most persuasive when the source of the evidence is considered to be reliable, trustworthy and independent of the client.

Answer 3

True

Question 4

The cut-off assertion means that the entity holds or controls the rights to assets and liabilities are the obligations of the entity.

Question 5

Dean Tomaszczyk was training junior audit staff and mentioned the importance of third party documentation. Which of the following are not external confirmations?

A) supplier invoices
B) bank confirmations
C) payable confirmations
D) receivable confirmations

Question 6

The component partner sets out the work to be conducted by the group engagement partner.

Question 7

Andy Szypula, the audit manager, was explaining to his new audit team how management assertions work when assessing the risk of material misstatements. He made two statements to his audit team: Auditors use assertions for account balances.
Auditors use assertions for presentations and disclosures.
Which of these statements were true?

A) (i) only
B) (ii) only
C) both (i) and (ii)
D) neither (i) nor (ii)

Question 8

Audit evidence is the information that an auditor uses when arriving at their opinion on the fair presentation of their client's financial statements.

Question 9

Olga Chevalier, CGA was reviewing presentation and disclosure assertions for Athabasca Oil Sands. Which one of the following would not be a presentation and disclosure assertion?

A) completeness
B) classification and valuation
C) accuracy and valuation
D) occurrence

Question 10

A component auditor is an auditor who, at the request of the group engagement team, performs work on financial information related to a component for the group audit.

Question 11

The permanent file includes detailed descriptions of evidence gathered for a particular year's audit.

Question 12

Observation is an evidence gathering procedure that involves checking the mathematical accuracy of client records.

Question 13

The greater the risk of material misstatement of the item under consideration, the more likely an auditor will turn to an expert for their advice.

Question 14

The permanent file includes client information and documentation that apply to more than one audit.

Question 15

Correspondence with the client's lawyers is an example of externally generated evidence sent directly to the auditor.

Question 16

When preparing the financial statements, auditors make assertions about each account and related disclosures in the notes.

Question 17

Analytical procedures involve an evaluation of financial information by studying plausible relationships among both financial and non-financial data.

Question 18

Negative confirmations ask the recipient to reply only if they disagree with the information provided.

Question 19

Mike Noseworthy, CA was excited to see his audit manager and blurted out: (i) It is our responsibility as auditors to arrive at an audit opinion by gathering sufficient appropriate evidence.
(ii) Appropriateness is the quantity and sufficiency is the quality of audit evidence gathered.
Which of these statements were true?

A) (i) only
B) (ii) only
C) both (i) and (ii)
D) neither (i) nor (ii)

Question 20

Donna Hum was explaining the importance of documentary evidence. Which assertion was she referring to when she obtained details of the price paid for inventory and traced it to the supplier's invoice to verify the amount recorded?

A) completeness
B) accuracy
C) classification and understandability
D) none of the above

Question 21

An auditor verifies amounts recorded in their client's records using:

A) electronic evidence.
B) verbal evidence.
C) confirmations.
D) all of the above.

Question 22

Lucy Wong's work at Axcan Pharma consisted of reading lease agreements to ensure that leases were disclosed accurately in the notes to the financial statements. Which assertion was she fulfilling?

A) completeness
B) persuasiveness
C) accuracy
D) classification and understandability

Question 23

External confirmations can be sent to:

A) third parties holding the client's inventory.
B) the client's audit committee.
C)
C) the client's lawyers.
D) both a and

Question 24

Which assertion do auditors test when they test for the adequacy of the provision for doubtful debts?

A) valuation and allocation
B) rights and obligations
C) classification
D) occurrence

Question 25

Evan Contador was reviewing ways of obtaining electronic evidence at Enbridge Inc. He was considering the different sources of evidence that might qualify and be defined as electronic evidence. Which elements are considered electronic evidence?

A) physical evidence gathered through inspection
B) computational evidence
C) files sent via email to the auditor
D) none of these

Question 26

Which of the following statements regarding a legal representation letter is incorrect?

A) The letter can include a request to provide details of any legal matters that the lawyer is in disagreement with the client.
B) The letter is sent by the auditor to its lawyers asking them to complete the letter and send it directly to the client.
C) The letter is sent by the client to its lawyers asking them to complete the letter and send it directly to the auditor.
D) The letter can include any legal matters involving the client.

Question 27

Marianne Gilespie, the senior auditor at Manulife Financial was sorting out several sources of internally generated evidence. Which one of the following would not qualify as internally generated evidence?

A) minutes of meetings
B) journals and ledgers
C) the annual operating plan presented to the Board of Directors
D) bank confirmations

Question 28

When testing for accuracy, an auditor searches for evidence:

A) to verify that a recorded transaction or event took place and relates to the entity.
B) that all disclosures that should have been included in the financial statements have been included.
C) that transactions and events have been recorded at appropriate amounts.
D) to verify that recorded assets are owned by the entity.

Question 29

Nicholas Doulas, the partner-in-charge of the Fairfax Financial Holdings audit wrote a management representation letter. It would have included:

A) written details of verbal representations made by management during the audit.
B)
B) a representation that there have been no material frauds and errors.
C) a and
D) none of the above.

Question 30

Which of the following is not an assertion used for transactions and events?

A) cut-off
B) existence
C) classification
D) occurrence

Question 31

Fran Zora has been auditing Manitoba Telecom Services for the past five years. She has gathered a lot of externally generated evidence because of its persuasiveness and reliability as evidence. Which one of the following evidences lacks trustworthiness and independence from the client?

A) purchase requisitions
B) bank confirmations
C) correspondence with the client's lawyers
D) none of these

Question 32

Which broad category of corroborating evidence is the least persuasive to an auditor?

A) externally generated evidence sent directly to the auditor
B) internally generated evidence
C) externally generated evidence held by the client
D) none of the above

Question 33

When there is a significant risk that an account will be misstated and the client's system of internal controls is not considered effective at reducing that risk:

A) less high quality evidence is gathered when conducting substantive tests.
B) detection risk is set as high.
C) detection risk is set as low.
D) none of the above.

Question 34

Internally generated evidence held by the client includes:

A) bank statements.
B) correspondence with the client's lawyers.
C) copies of invoices sent to customers.
D) expert valuations.

Question 35

Abe Freed, a struggling public accountant was being coached by his father. His father told him that he was using a poor form of evidence as a basis for his conclusions. What type of evidence was he referring to?

A) computational evidence
B) verbal evidence
C) physical evidence through inspection
D) all of the above

Question 36

Steven Marinaro, CGA is performing complex calculations to help him determine reserves in the Alberta Oil Sands. Which of the following evidence gathering procedures will Steve use when using the work of another auditor?

A) recalculation
B) observation
C) confirmations
D) all of the above

Question 37

Lilia Hussey made two statements to Sami Moneymaker about cut-off procedures: Testing cut-off transactions is particularly important for transactions close to year end.
Cut-off procedures help determine whether transactions have been recorded in the correct accounting period.
Which of these statements were true?

A) (i) only
B) (ii) only
C) both (i) and (ii)
D) neither (i) nor (ii)

Question 38

Irvin Schatz, CGA had his client Brown Boveri, send out a legal letter to their lawyers. The legal letter would have contained requests for:

A) the lawyer's opinion on the client's legal matters.
B)
B) legal matters that the lawyer is in disagreement with the client.
C) both a and
D) none of the above matters are included in legal letters.

Question 39

Which of the following forms of evidence is used when gaining an understanding of the client and its internal control systems?

A) verbal
B) computational
C) physical
D) external confirmations

Question 40

Completeness is an assertion used:

A) when testing balance sheet items.
B) for transactions and events.
C) for presentation and disclosure.
D) all of the above.

Question 41

During the execution stage of the audit, an auditor will document:

A) details of audit tests undertaken.
B) their understanding of their client.
C) related parties identified.
D) analytical procedures used to aid in risk identification.

Question 42

An audit working paper generally includes:

A) the client's name.
B) cross-referencing between working papers.
C) a file reference.
D) all of the above.

Question 43

When an auditor uses the work of an expert, who has the responsibility for arriving at an overall conclusion regarding the fair presentation of a client's financial statements?

A) the auditor
B) the expert
C) the client's management
D) the client's audit committee

Question 44

Observation involves an auditor:

A) asking questions to gain an understanding of various matters throughout the audit.
B) watching a procedure being carried out by another party.
C) checking the mathematical accuracy of client records.
D) redoing processes conducted by the client.

Question 45

Indicate whether you agree or disagree with the following statements and explain your reasoning.
a) Mona Harmon has just completed a risk assessment and has identified key risk factors at Bonavista Emergis. When asked by one of her staff members "What's next?", she replies: "Now that we have identified the risks, its time to perform some planning in order to obtain sufficient appropriate audit evidence."
b) Teresa Dziuba was assigned to the Heathcliff Energy audit. She was ensuring that when recognizing revenues, all transactions and events that should have been recorded have been recorded. She was testing the occurrence assertion.
c) Steve Slopak, the group partner was reviewing the work of Manny Fernandez on the Lake Shore Gold account. Manny asked Steve for an explanation on how audit risk would affect his work. Steve answered: "Audit risk affects the quantity and quality of evidence gathering."
d) Frank Tutino, CA made the following true statement: "The appropriateness of audit evidence refers to its relevance and reliability." He then added:
"Reliable information is logically connected to an assertion"
"Relevant information reflects the true state of the information"

Question 46

The first stage when an auditor considers the use of an expert is:

A) assessing the objectivity of the expert.
B) assessing the need to use an expert.
C) assessing the expert's report.
D) determining the scope of the work to be carried out.

Question 47

Which of the following is an example of a situation where an auditor may use the work of an expert?

A) A geologist engaged to evaluate the quantity and quality of mineral deposits
B) An actuary engaged to verify insurance premiums
C) Both a and b
D) None of the above

Question 48

Explain the three broad categories of corroborating evidence.

Question 49

Explain the purpose of working papers and the difference between the permanent file and current file.

Question 50

The group engagement partner is:

A) requested by the component auditor to perform certain audit work on behalf of the group engagement team.
B) not responsible for providing an opinion on the fair presentation of the client's financial statements.
C) not the auditor responsible for signing the audit report.
D) the auditor responsible for signing the audit report.

Question 51

Describe the purpose and examples of external confirmations.

Question 52

Why do auditors inspect records and documents?

A) to check the dates of transactions
B) for evidence that management have authorized significant purchases
C) to check that a transaction occurred
D) all of the above

Question 53

If an auditor decides that a client has internal controls that can reduce the likelihood of a material misstatement for an identified risk, the auditor will:

A) test those controls.
B) qualify the audit report.
C) adopt a predominantly substantive approach.
D) not test those controls.

Question 54

Identify and explain the key assertions used for transactions and events, including income statement items, for an accounting period.

Question 55

Auditors use a re-performance procedure:

A) only when testing controls.
B) only during the audit planning stage.
C) only when conducting substantive testing.
D) when testing controls and when conducting substantive testing.

Question 56

Describe the major evidence gathering procedures most often used by auditors.

Question 57

Assessing an expert's report involves the auditor:

A) setting the nature, timing and extent of work to be completed by the expert.
B) assessing the consistency of information included in the expert's report with their understanding of the client.
C) evaluating the expert's qualifications as a member of a relevant professional body.
D) deciding that they do not have the expertise necessary to test and evaluate the accuracy of reported information.

Question 58

Which of the following would not be included in an auditor's permanent file?

A) the client's organizational chart
B) copies of long-term contracts
C) copies of accounts receivable confirmation letters
D) prior years' audit reports

Question 59

If the component auditor cannot access sufficient evidence, the engagement partner will:

A) consider issuing an adverse audit opinion.
B) always issue an unqualified audit opinion.
C) consider issuing a modified audit opinion due to a scope limitation.
D) none of the above.

Question 60

Which of the following statements regarding using the work of another auditor is correct?

A) The group engagement partner will spend more time reviewing the component auditor's work when the component is at risk of material misstatement.
B) The group engagement partner will spend more time reviewing the component auditor's work if the component auditor has a good reputation.
C) The group engagement partner will spend less time reviewing the component auditor's work when the component is at risk of material misstatement.
D) The component auditor sets out the work to be conducted by the group engagement partner.

Question 61

Henry Nowakowski, the auditor-in-charge of Vinacomin, a Vietnamese mining company, was reviewing the expert's report on the valuation of reserves for the world's largest bauxite deposits. The mining plans of Vinacomin have met with strong criticism from scientists, environmentalists, and the Vietnamese population.
The bauxite operations had required the use of local auditors of another international public accounting firm. The group engagement partner, Judith Wooden, met with Henry to discuss the reliance their firm would be placing on the component auditors. She was concerned that the component auditors conclusions were not based on adequate evidence. The financial statements being audited by the component auditors are a material part of the consolidated statements of Vinacomin.
Required:
a) What role does Henry have in assessing the expert's report on the bauxite deposits?
b) What role does Henry and his firm have before they make a decision to use the work of another auditor?
c) What is the engagement partner's role once her firm has assigned the work to a component auditor?