Deck 5: Audit Evidence

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

Delaney Humphrey 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
D) none of the above

Answer 3

B

Question 4

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

Question 5

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

Question 6

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 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:
Which of these statements were true?

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

Question 8

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

Question 9

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

Question 10

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) presentation

Question 11

Olga Chevalier, CPA was reviewing account balance assertion for Athabasca Oil Sands. Which one of the following would not be an account balance assertion?

A) completeness
B) rights and obligations
C) accuracy, valuation, and allocation
D) occurrence

Question 12

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

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 detailed descriptions of evidence gathered for a particular
year's audit.

Question 15

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 16

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

Question 17

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.

Question 18

Lilia Hussey made two statements to Sami Moneymaker about cut-off procedures: Which of these statements were true?

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

Question 19

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

Question 20

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

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

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 23

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

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

Question 24

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 the above

Question 25

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 26

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 27

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 28

Irvin Schatz, CPA 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) legal matters that the lawyer is in disagreement with the client.
C) both a and b
D) none of the above

Question 29

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 30

Which assertion do auditors test when they test for the adequacy of the allowance for doubtful accounts?

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

Question 31

Mike Noseworthy, CPA 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 32

External confirmations can be sent to

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

Question 33

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 34

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) a representation that there have been no material frauds and errors.
C) both a and b
D) none of the above

Question 35

Completeness is an assertion used

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

Question 36

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 37

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 38

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 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

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 the above

Question 41

The services of an expert may be engaged

A) to check the accuracy of the auditor's valuation of an account.
B) when the auditor does not have the required skills and knowledge to assess the validity of an account.
C) to provide an opinion on the fair presentation of the financial statements.
D) to provide assistance to the auditor to prove the validity of an account.

Question 42

The auditor may use the work of another auditor

A) when there is insufficient time to complete the audit engagement.
B) when the client operates from a number of locations.
C) to assist in forming an opinion in circumstances where there are large volumes of audit evidence.
D) none of the above

Question 43

An audit gathering procedure undertaken by an auditor to verify the balance of inventory on hand is

A) observation.
B) inquiry.
C) re-performance.
D) analytical procedures.

Question 44

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 45

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 46

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 47

The type of audit evidence used to test the value of the allowance for doubtful accounts is

A) re-calculation.
B) analytical procedures.
C) re-performance.
D) inquiry.

Question 48

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 49

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

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

Question 50

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 51

Which of the following is not a method of collecting audit evidence?

A) observation
B) inquiry
C) disclosure
D) analytical procedures

Question 52

The auditor searches for evidence to

A) ensure the absence of fraud.
B) maintain their independence.
C) prove that management representations are accurate.
D) prove that recorded amounts are accurate.

Question 53

Auditors use a re-performance procedure

A) only when testing controls.
B) only during the risk assessment phase.
C) only when conducting substantive testing.
D) when testing controls and when conducting substantive testing.

Question 54

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 55

Steven Marinaro, CPA 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 56

Which of the following provides the least reliable audit evidence?

A) internally generated audit evidence
B) original documents
C) externally generated documentary evidence held by the client
D) externally generated evidence held by the auditor

Question 57

If an auditor believes that the audit client's internal controls are effective, the approach she/he would take in the conduct of the audit is

A) to place emphasis on testing account balances.
B) to place her/his focus on tests of controls and further tests of transactions and balances.
C) a substantive approach.
D) none of the above

Question 58

Which of the following is a category of corroborating evidence?

A) externally generated evidence sent directly to the auditor
B) internally generated evidence
C) externally generated evidence held by the client
D) all of the above

Question 59

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 60

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 61

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 62

During the risk response phase 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 63

Which statement regarding audit working papers is correct?

A) Working papers are used to document the details of each audit.
B) Working papers may be in paper or electronic format.
C) Working papers provide evidence of the work completed and the evidence obtained to support the auditor's opinion.
D) all of the above

Question 64

Explain the three broad categories of corroborating evidence.

Question 65

Describe the purpose and examples of external confirmations.

Question 66

CAS 501 Audit Evidence - Specific Considerations for Specific Items requires an auditor to gather sufficient appropriate audit evidence regarding any legal matters involving their client. How can auditors gather such evidence and what impacts can legal matters have on the client's financial statements?

Question 67

Indicate whether you agree or disagree with the following statements and explain your reasoning.
a) Paula Faconi has just completed a risk assessment and has identified key risk factors at Darwin Industries. 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) Roni Khali was assigned to the Inglis Glass Company 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) Harvey Jarvis, the group partner was reviewing the work of Jacob Barnes on the Bazzle Gold account. Jacob asked Harvey for an explanation on how audit risk would affect his work. Harvey answered: "Audit risk affects the quantity and quality of evidence gathering."
d) Benoit Chausson, CPA made the following true statement: "The appropriateness of audit evidence refers to its relevance and reliability." He then added:

Question 68

Nazim Kali, the auditor-in-charge of Valo, a Brazilian mining company, was reviewing the expert's report on the valuation of reserves for the world's largest bauxite deposits. The mining plans of Valo have met with strong criticism from scientists, environmentalists, and the Brazilian population.
The bauxite operations had required the use of local auditors of another international public accounting firm. The group engagement partner, Lori Lake, met with Nazim 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 Valo.
Required:
a) What role does Nazim have in assessing the expert's report on the bauxite deposits?
b) What role does Nazim 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?

Question 69

CAS 620 Using the Work of an Auditor's Expert provides guidelines for auditors when using the work of an expert. Identify examples of situations where auditors may use experts and evaluate the benefits and risks associated in each situation.

Question 70

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 71

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

Question 72

Audit evidence is the information that an auditor uses when arriving at their opinion on the fair presentation of their client's financial statements. Why is evidence so important to a financial statement audit?

Question 73

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

Question 74

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

Question 75

The current file of the auditor's working papers does not include

A) management letters detailing weaknesses in internal controls identified in the previous audit.
B) extracts from the Board of Directors meetings.
C) documentation of testing of subsequent events.
D) details of the audit process.