Deck 8: Audit Evidence and Assurance

Question 1

Where would a copy of an auditee's long-term lease for a building most likely be kept?

A)In the planning file.
B)In the permanent file.
C)In the administration file.
D)In the audit evidence file.

Answer 1

B

Question 2

Rank the following forms of audit evidence from most to least reliable: observation,inquiry,confirmation,and external-internal documentation

A)External-internal documentation,observation,confirmation,and inquiry.
B)Confirmation,external-internal documentation,observation,and inquiry.
C)External-internal documentation,confirmation,inquiry,and observation.
D)Confirmation,internal-external documentation,inquiry,and observation.

Answer 2

B

Question 3

The degree of reliability that can be obtained from documents like sales invoice copies,employee time cards,and receiving report,is most dependent on which factor?

A)The number of copies produced for each document.
B)Whether or not the documents are sequentially numbered.
C)The quality of the internal control system that produced them.
D)The number of individuals to whom the documents are circulated within the auditee.

Answer 3

C

Question 4

Analysis is most useful in providing evidence of ________.

A)existence,completeness,and ownership
B)existence,ownership,and valuation
C)completeness,ownership,and presentation
D)completeness,valuation,and presentation

Question 5

Using audit software to re-compute the amount of depreciation expense is an example of what form of audit evidence?

A)Inspection
B)Confirmation
C)Analysis
D)Recalculation/reperformance

Question 6

An important planning decision made by the auditor is called the audit approach decision.With this decision,the auditor decides

A)The nature,timing,and extent of individual audit procedures.
B)The acceptable level of audit risk and the overall materiality.
C)The experience level of staff needed on the audit engagement.
D)Whether a combined or substantive approach will be used for the audit.

Question 7

A key determinant of the objectivity of the work of an internal audit team is _____.

A)The extent to which the internal auditors will share responsibility for the audit opinion.
B)The number of former members of the audit firm's staff that work on the internal audit team.
C)The internal auditors' quality control system.
D)Whether or not the internal auditors report directly to the audit committee.

Question 8

An audit program lists the procedure "select a sample of 20 entries in the sales journal and trace to duplicate sales invoices and related shipping documents" as a test of the completeness assertion for inventory.This procedure:

A)Provides low reliability evidence due to the small sample size.
B)Provides neither appropriate,nor sufficient audit evidence.
C)Provides relevant and reliable audit evidence.
D)Provides inappropriate audit evidence for assertion being audited.

Question 9

Which of the following statements concerning the experts an auditor consults in the audit of financial statements is false?

A)They have expertise in fields other than accounting and auditing.
B)They are not members of the audit team.
C)They have to be unrelated to the company or organization under audit.
D)The auditor must be able to evaluate the expert's work and assess the reasonableness of the expert's findings.

Question 10

You are using analytical procedures to verify direct labour costs.Which of these information sources would be considered the least reliable to use to establish an expected amount?

A)Prior year's average monthly production hours,obtained from the prior-year audit working papers.
B)Budgeted direct labour hours from the master budget,which was approved by the Board of Directors.
C)The production manager's personal forecast of annual production hours.
D)Industry averages obtained directly from a verified government website.

Question 11

One example of a formal authoritative document is a ________.

A)Customer purchase order
B)loan agreement
C)vendor invoice
D)loan application

Question 12

The audit procedure "vouch a sample of capital asset additions to supporting vendor invoices" is an example of what audit technique?

A)Analysis
B)Inspection
C)Confirmation
D)Observation

Question 13

What is the most reliable form of audit evidence?

A)Evidence obtained through the auditor's direct personal knowledge.
B)Evidence gathered directly from independent third parties.
C)Evidence produced by independent third parties.
D)Comprehensive analysis performed by the auditor.

Question 14

In preparing for a repeat engagement,the first thing an audit team should do is ________.

A)interview client management for any changes in the business and industry
B)take a tour of a client's physical facilities,noting obvious inventory obsolescence or equipment maintenance issues
C)obtain a copy of the year-end financial statements for the current year
D)review prior-year working papers and permanent file documents

Question 15

Working papers that meet the requirements of Canadian Audit Standards provide ________.

A)conclusive evidence the financial statements are free of material misstatement
B)the information the auditee keeps on file to support management's assertions
C)A record of the amount of time spent by the auditor
D)evidence supporting the auditors conclusions and a record of compliance with GAAS

Question 16

The audit program prepared by the independent auditors prior to the start of fieldwork is considered appropriate documentation of ________.

A)planning
B)supervision
C)information evaluation
D)quality assurance

Question 17

An auditor selects audit procedures that will provide ________.

A)the most evidence
B)the most persuasive evidence
C)the most reliable and relevant evidence that can be obtained,in a cost-effective manner
D)the most relevant information to the audit assertion

Question 18

To provide efficient,reliable evidence,confirmations should be ________.

A)created by the client and sent to third parties to be returned to the client
B)created by the auditor and sent to third parties to be returned to the client
C)created by the auditor and sent to third parties to be returned to the auditor
D)created by the client and sent to third parties to be returned to the auditor

Question 19

The two primary forms of audit evidence used during the risk assessment phase are:

A)Inquiry and analysis
B)Inspection and observation
C)Confirmation and analysis
D)Inquiry and recalculation/reperformance

Question 20

The overall audit strategy is documented in the ________.

A)engagement letter
B)management letter
C)audit program
D)planning memorandum

Question 21

For new clients,the auditor can obtain knowledge about the client's business and its industry from the permanent file.

Question 22

There are two kinds of audit programs: (1)balance-audit programs and (2)cycle-audit programs.

Question 23

Control tests give direct evidence about the financial amounts reported in the financial statements.

Question 24

A combination of evidence gathering techniques provides more persuasive evidence than evidence gathered from a single technique.

Question 25

The audit technique of inquiry has advantages and disadvantages.Discuss some of them.

Question 26

Which of the following items would most likely be kept in the permanent file?

A)A signed and completed bank confirmation.
B)The signed engagement letter.
C)Minutes from a special committee meeting outlining the auditee's response to major regulatory changes.
D)The audit plan and specific audit programs.

Question 27

A first audit requires more work than a repeat engagement.

Question 28

The auditor is the legal owner of the working papers related to an auditee's financial statements.

Question 29

Reading the terms of the lease agreement for a lessee is an example of analysis.

Question 30

Prior year audit working papers may indicate misstatements likely to reoccur in the current year.

Question 31

Destroying working papers may prevent auditors from proving due care if they are sued for negligence.

Question 32

An auditor should re-perform calculations on a random basis to check for accuracy.Usually,if one component has been calculated properly,the auditor can rely that the other components have also been computed properly.

Question 33

Evidence that does not relate to one of the management assertions can still be relevant to the auditor.

Question 34

Loan application documents are considered authoritative evidence.

Question 35

Permanent audit files contain such documents as the engagement letter,client organization chart,and internal control system flowcharts.

Question 36

Tracing is a document examination procedure used to test the existence/occurrence assertion.

Question 37

Spoken and written representations given by the auditee's officers,directors,owners,and employees are generally considered reliable enough to stand on their own.

Question 38

A non-response to a negative confirmation indicates agreement with the confirmed balance.

Question 39

Without proper audit working papers the auditor has nothing of substance to support the audit opinion issued.

Question 40

For good form,each audit evidence paper should be indexed using a standard system of letters and numbers.The main purpose of this practice is to allow ________.

A)other papers to be easily cross-referenced so that connections among accounts can be followed
B)a check of the completeness of working papers
C)working papers to be easily re-filed if they are taken out of the file or when the paper is first created
D)auditors to prove that they have performed sufficient work to support their audit opinion

Question 41

Explain the difference between positive and negative confirmations.

Question 42

Contrast the qualitative aspects of evidence in terms of reliability.

Question 43

Identify the three main types of audit programs and indicate the purpose of each.

Question 44

Since audit papers are the property of the auditor,what was fundamentally wrong about Arthur Andersen's decision to shred working papers related to the Enron audit.

Question 45

A first-time audit requires more work than a continuing client.Identify some of the issues involved in the first audit of a company that do not occur in an ongoing engagement.

Question 46

Define and discuss the evidence gathering technique of inspection.

Question 47

GAAS requires the auditor to gather "sufficient,appropriate audit evidence" to support the audit opinion.Explain briefly sufficient and appropriate mean in the context of an audit.