Deck 13: Overall Audit Plan and Audit Program

Question 1

In the context of an audit of financial statements, substantive tests are audit procedures that:

A) may be eliminated under certain conditions.
B) are designed to discover significant subsequent events.
C) are designed to test for dollar misstatements.
D) will increase proportionately with the auditor's reliance on internal control.

Answer 1

C

Question 2

Risk assessment procedures are performed by auditors during an audit in order to:

A) determine the risk of material misstatement in the financial statements.
B) determine the amount of testing of internal control.
C) determine the extent of testing of details of balances.
D) determine the extent of testing of transactions.

Answer 2

A

Question 3

When controls are deemed ineffective and assessed control risk is at the maximum for a private company, which of the following would normally be true?

A) no emphasis placed on the controls
B) relatively little emphasis placed on the controls
C) moderate emphasis placed on the controls
D) heavy emphasis placed on the controls

Answer 3

A

Question 4

A system walkthrough is primarily used to:

A) test balances.
B) test details of transactions.
C) gain an understanding of internal controls.
D) determine acceptance of the client.

Question 5

A procedure designed to test for monetary misstatements directly affecting the correctness of financial statement balances is a:

A) test of controls.
B) substantive test.
C) test of attributes.
D) monetary-unit sampling test.

Question 6

Which of the following is ordinarily designed to detect material dollar errors on the financial statements?

A) Tests of controls
B) Analytical review procedures
C) Computer controls
D) Tests of details of balances

Question 7

Which of the following is true?

A) tests of details of balances focus on the ending balances for accounts in the client's ending trial balance
B) tests of details of balances focus on the transactions during the period
C) tests of details of balances focus on the auditor's understanding of internal controls
D) tests of details of balances focus on comparisons of recorded amounts to expectations developed by the auditor

Question 8

Tests of controls are directed toward the control's:

A) efficiency.
B) effectiveness.
C) efficiency and effectiveness.
D) cost benefit ratio.

Question 9

Which of the following further audit procedures are used to determine whether all six transaction related audit objectives have been achieved for each class of transactions?

A) tests of controls
B) risk assessment procedures
C) substantive tests
D) preliminary analytical procedures

Question 10

Which of the following would not be considered further audit procedures?

A) tests of controls
B) substantive analytical procedures
C) tests of details of balances
D) risk assessment procedures

Question 11

Many auditors perform extensive analytical procedures on audits because:

A) they are required by GAAS.
B) they pinpoint errors in accounts.
C) they indicate areas of potential risk and misstatement.
D) they are required for tests of controls.

Question 12

Shown below (1 through 5) are the five types of tests which auditors use to determine whether financial statements are fairly stated. Which three are substantive tests?
1) risk assessment procedures
2) tests of controls
3) tests of transactions
4) analytical procedures
5) tests of details of balances

A) 1, 2, and 3.
B) 3, 4, and 5.
C) 2, 3, and 5.
D) 2, 3, and 4.

Question 13

Which of the following is not a direct result of performing analytical procedures?

A) identify areas of potential misstatements
B) reduce detailed audit tests
C) understand the client's business
D) identify specific errors in the accounts

Question 14

The primary emphasis in most tests of details of balances is on the:

A) balance sheet accounts.
B) revenue accounts.
C) cash flow statement accounts.
D) expense accounts.

Question 15

Collectively, procedures performed to obtain an understanding of the entity and its environment, including internal controls, represent the auditor's:

A) audit strategy.
B) tests of controls.
C) risk assessment procedures.
D) tests of transactions.

Question 16

The purpose of tests of controls is to provide reasonable assurance that the:

A) accounting treatment of transactions and balances is valid and proper.
B) internal control procedures are functioning as intended.
C) entity has complied with GAAP disclosure requirements.
D) entity has complied with requirements of quality control.

Question 17

You are auditing Rodgers and Company. After performing substantive analytical procedures you conclude that, for the accounts tested, the client's balance appears reasonable. This may indicate that:

A) details test of balances can be eliminated for those accounts.
B) certain test of balances procedures may be eliminated for those accounts.
C) control tests may be eliminated for those accounts.
D) control tests may be reduced for those accounts.

Question 18

Which of the following procedures would most likely be performed in response to the auditor's assessment of the risk of monetary misstatements in the financial statements?

A) Ratio analysis
B) Tests of controls
C) Tests of details of balances
D) Risk assessment procedures

Question 19

Which of the following statements is not true?

A) Analytical procedures emphasize the overall reasonableness of transactions and balances.
B) Tests of controls are concerned with evaluating whether controls are sufficiently effective to justify reducing control risk and thereby reducing analytical review procedures.
C) Substantive tests of transactions emphasize the verification of transactions recorded in the journals and then posted in the general ledger.
D) Tests of details of balances emphasize the ending balances in the general ledger.

Question 20

List each of the five types of audit tests and list at least two types of evidence that may be obtained from each type of test.

Question 21

Substantive tests of transactions focus on the changes in the beginning and ending of the year balances, particularly for the balance sheet.

Question 22

If no material differences are found using analytical procedures and the auditor concludes that misstatements are not likely to have occurred:

A) other substantive tests may be reduced.
B) it will be necessary to increase the tests of balances.
C) it will not be necessary to perform tests of balances.
D) it will be necessary to increase the tests of transactions.

Question 23

Discuss the purposes of (1) substantive tests of transactions, (2) tests of controls, and (3) tests of details of balances. Give an example of each.

Question 24

Analytical procedures are normally designed at the account level, whereas tests of controls and substantive tests of transactions are normally designed at the transaction-related objective level.

Question 25

Which of the following audit tests is usually the most costly to perform?

A) Analytical procedures
B) Tests of controls
C) Tests of balances
D) Substantive tests of transactions

Question 26

An increased extent of tests of controls is most likely to occur when:

A) it is a first-year audit.
B) the auditor is doing a "fraud audit."
C) controls are effective and the preliminary control risk assessment is low.
D) controls are ineffective and the preliminary control risk assessment is high.

Question 27

An exception in a substantive test of transactions provides an indication of the likelihood of monetary misstatements in the financial statements because substantive tests of transactions do reveal whether monetary misstatements have actually occurred.

Question 28

There are seven types of audit evidence: physical examination, confirmation, documentation, observation, inquiries of the client, reperformance, and analytical procedures. For each of the following types of audit tests, indicate the type(s) of evidence that can be obtained through the test: (1) tests of controls, (2) substantive tests of transactions, (3) analytical procedures, and (4) tests of details of balances.

Question 29

There are three stages of the audit in which analytical procedures are performed. Identify each of these three stages and, for each stage, discuss the purpose of performing analytical procedures in that stage. Also indicate in which stage(s) analytical procedures are required by current professional auditing standards.

Question 30

Tests of controls provide evidence about the likelihood for misstatements in a client's financial statements.

Question 31

When analytical procedures are performed during substantive testing, they are typically more focused and extensive than when performed as part of audit planning.

Question 32

If tests of controls reveal that controls are sufficiently effective to justify reducing control risk, the auditor is justified in reducing substantive audit tests.

Question 33

Describe the five types of audit tests. Identify which of the five types are substantive tests, and which are used to reduce assessed control risk.

Question 34

Tests of controls should be performed after substantive tests of transactions.

Question 35

Procedures to obtain an understanding of internal control may suffice for tests of controls when the auditor is assessing control risk in a well defined transaction cycle that has not contained material misstatements in prior audits.

Question 36

When an auditor believes that analytical procedures indicate a reasonable possibility of misstatement, the auditor usually would:

A)
B)
C)
D)

Question 37

One difference between the procedures used to obtain an understanding of internal control and procedures used to test those controls is that tests of controls are more extensive.

Question 38

An exception in a test of control provides only an indication of the likelihood of monetary misstatements in the financial statements because tests of controls do not reveal whether monetary misstatements have actually occurred.

Question 39

In order to promote audit efficiency the auditor considers cost in selecting audit tests to perform. Which of the following audit tests would be the most costly?

A) Analytical Procedures
B) Risk Assessment Procedures
C) Tests of Controls
D) Tests of Details of Balances

Question 40

An exception or deficiency found in a test of controls:

A) indicates a financial statement misstatement.
B) indicates that a financial statement misstatement may be likely.
C) indicates that the financial statements are misstated.
D) indicates that an adverse opinion is warrarnted on the Audit of Internal Control.

Question 41

Tests of controls and substantive tests of transactions are normally conducted simultaneously on the same transactions.

Question 42

The results of tests of controls and substantive tests of transactions affect the design of tests of details of balances.

Question 43

A deficiency uncovered in the audit of internal control is explained by which of the following in relation to a financial statement misstatement?

A) the amount of the misstatement
B) the likelihood of the misstatement
C) the amount, likelihood, and classification of the misstatement
D) the amount and the classification of the misstatement

Question 44

Analytical procedures are the least costly type of audit test.

Question 45

Under normal circumstances, there should be no variation in the audit evidence mix from cycle to cycle for a given audit engagement.

Question 46

If inherent risk is increased to medium from low, tests of details of balances can be reduced.

Question 47

Which of the following is not a valid basis for omitting an audit test in forming an opinion on the clients financial statements?

A) the difficulty and expense involved in testing a particular item
B) the relative risk involved
C) the degree of reliance on the relevant internal controls
D) the relationship between the cost of obtaining evidence and its usefulness

Question 48

Tests of controls are generally more costly to perform than analytical procedures.

Question 49

Auditing standards recognize that in instances where a significant amount of audit evidence is in electronic form, it may not be possible to reduce detection risk to an acceptable level by performing only substantive tests.

Question 50

The extent of tests of details of balances cannot be reduced when transaction-related audit objectives have been satisfied by tests of controls or substantive tests of transactions.

Question 51

Analytical procedures are the most expensive type of audit test to perform because of the expertise and training required to properly use them.

Question 52

The auditor would design which of the following audit tests to detect possible monetary errors in the financial statements?

A) Control tests
B) Analytical procedures
C) Risk assessment procedures
D) Tests of operating effectives of controls over revenue and cash

Question 53

The reliance the auditor places on substantive tests in relation to the reliance placed on internal control varies in a relationship that is ordinarily:

A) parallel.
B) inverse.
C) direct.
D) equal.

Question 54

In the audit of a public company, computer controls must be tested if they are considered to be key controls for reducing the likelihood of material misstatements in the financial statements.

Question 55

If the auditor's preliminary assessment of control risk is decreased from high to medium, tests of controls can be reduced.

Question 56

The most important consideration in developing the audit plan and audit program is the:

A) client's size.
B) client's industry.
C) audit firm's available personnel.
D) audit risk model used in its planning form.

Question 57

If the results of the tests of controls, substantive tests of transactions, and analytical procedures are not consistent with the predictions, tests of details of balances will be:

A) eliminated.
B) increased.
C) unaffected.
D) changed.

Question 58

Substantive tests of details of balances are the most costly type of audit test to perform.

Question 59

Three factors the auditor considers when assessing control risk are: the auditor's belief concerning the effectiveness of internal controls, the results of tests of controls, and the cost-effectiveness of a reduced assessed control risk. Identify the combination of conditions for these three factors that is required before a reduction in substantive testing is permitted.

Question 60

Auditors who test manual controls that rely on IT-generated reports must consider:

A) the benefits of relying on IT-generated reports.
B) separation of duties related to the IT-generated reports.
C) the controls related to the accuracy of the information in the report.
D) whether the manual controls are approved by the audit committee.

Question 61

Procedures to obtain an understanding of internal control may suffice for tests of controls when the auditor is assessing automated controls.

Question 62

What type of test is used to obtain more types of evidence than any other?

A) Substantive tests of transactions
B) Tests of controls
C) Analytical procedures
D) Tests of details

Question 63

Auditors follow a four step approach to reduce assessed control risk. Which of the following is not one of the four?

A) Apply transaction related audit objectives to a class of transactions.
B) Indentify accounts that have high inherent risk.
C) Identify key controls that reduce control risk.
D) For potential misstatements, design appropriate substantive tests of transactions.

Question 64

Which of the following types of evidence is not available when using substantive tests of transactions?

A) Documentation
B) Confirmation
C) Inquiries of the client
D) Reperformance

Question 65

What are the four steps auditors follow when they plan to reduce assessed control risk?

Question 66

When testing details of balances, most audit procedures satisfy only one balance-related objective, but more than one audit procedure should be used to test each objective.

Question 67

Auditing standards require that tests of controls be performed on every audit engagement.

Question 68

Analytical procedures provide fewer types of evidence than any other type of audit test.

Question 69

Which of the following is generally not included in the "evidence mix"?

A) Tests of Controls
B) Substantive Tests of Transactions
C) Risk Assessment Procedures
D) Tests of details of balances

Question 70

When designing tests of controls and substantive tests an auditor is gathering evidence to satisfy the transaction related audit objectives. What are the four steps the auditor would normally follow to reduce assessed control risk?

Question 71

Which audit tests involve physical examination and confirmation?

A) tests of controls
B) tests of transactions
C) tests of balances
D) analytical procedures

Question 72

Which of the following types of procedures will be performed in an audit of internal control over financial reporting?

A)
B)
C)
D)

Question 73

Discuss the relationship of each of the following to the extent of planned tests of details of balances: (1) tolerable misstatement, (2) inherent risk, (3) control risk, and (4) acceptable audit risk.

Question 74

Auditing standards require a written audit program.

Question 75

Presentation and disclosure related audit objectives would be performed in which phase of the audit process?

A) plan and design audit approach
B) perform audit tests for controls and transactions
C) perform analytical procedures and tests of balances
D) complete the audit and issue the audit report

Question 76

Substantive tests of transactions and control tests are often conducted simultaneously.

Question 77

When designing an audit program for tests of details of balances, the auditor should make assumptions about inherent risk and control risk, and predictions concerning the outcome of tests of controls, substantive tests of transactions, and analytical procedures.

Question 78

A document that details what the auditor will do to gather sufficient, appropriate evidence is the:

A) audit strategy.
B) audit program.
C) audit procedure.
D) audit risk model.

Question 79

Transaction related audit objectives would most likely be performed in which phase of the audit process?

A) plan and design audit approach
B) perform audit tests for controls and transactions
C) perform analytical procedures and tests of balances
D) complete the audit and issue the audit report

Question 80

The evidence mix includes risk assessment procedures.