Question 1

In some audits, the auditor may elect to use analytical procedures as the only direct test of some income statement balances.

Accepted Answer

A) True 
 B)False

Question 2

In practice, the use of analytical procedures has proven to be:

Accepted Answer

A)  totally ineffective in detecting misstatements. 
B)  quite effective in detecting the largest of misstatements. 
C)  useful in the planning phase, but not in the testing phase of the audit. 
D)  too costly to apply in most audit situations. 
E)  moderately effective in detecting most misstatements.

Question 3

The balance sheet account Inventories is related to which one of the following income statement accounts?

Accepted Answer

A)  Investment Income 
B)  Cost of Sales 
C)  Interest Expense 
D)  Depreciation Expense 
E)  Sales

Question 4

When the preliminary audit strategy calls for the primarily substantive approach, planned detection risk should be set at moderate or high.

Accepted Answer

A) True 
 B)False

Question 5

The use of generalized audit software enables the auditor to deal effectively with large quantities of data.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is not an example of an initial procedure to be performed before other substantive tests are performed?

Accepted Answer

A)  Tracing beginning balances in the general ledger to the closing balances in the prior year's trial balance. 
B)  Summing and agreeing detail balances in subsidiary ledgers to the general ledger. 
C)  Referring to prior year's workpapers. 
D)  Understanding the economic substance of transactions. 
E)  Ascertaining the accounting principals used in the preceding period.

Question 7

The auditor would prepare a bank reconciliation using the bank statement obtained from the client and verify major reconciling items and mathematical accuracy when detection risk is:

Accepted Answer

A)  very high. 
B)  high. 
C)  moderate. 
D)  very low. 
E)  low.

Question 8

The auditor is performing substantive tests several months before the end of the year. This most likely means that:

Accepted Answer

A)  inherent risk is set at moderate to high. 
B)  detection risk is set at low to very low. 
C)  control risk is set at slightly below maximum to maximum. 
D)  control risk is set at maximum. 
E)  detection risk is set at moderate to high.

Question 9

In practice, extent of testing applies:

Accepted Answer

A)  exclusively to the number of items tested. 
B)  to both the number of items tested and the number of tests performed. 
C)  exclusively to the number of substantive tests performed. 
D)  to both the number of items tested and the nature of the tests performed. 
E)  to both the nature of items tested and the number of tests performed.

Question 10

In obtaining evidence concerning the cash balance, the auditor performs the following procedures: Scan client-prepared bank reconciliations and verify the mathematical accuracy of the reconciliation. In this case, it is likely that:

Accepted Answer

A)  detection risk is set at moderate to high. 
B)  detection risk is set at low to very low. 
C)  control risk is set at slightly below maximum to maximum. 
D)  control risk is set at moderate to high. 
E)  control risk is set at minimum to high.

Question 11

Which of the following income statement accounts is least likely to be subjected to extensive detailed tests of balances?

Accepted Answer

A)  legal and professional fees 
B)  officers' salaries 
C)  employees' wages 
D)  cost of sales 
E)  contributions

Question 12

Who is responsible for establishing the process and controls for preparing accounting estimates?

Accepted Answer

A)  the independent auditor 
B)  the internal auditor 
C)  management 
D)  the audit committee 
E)  the controller

Question 13

An auditor must always an independent expectation in the process of obtaining evidence of reasonableness for every material estimate.

Accepted Answer

A) True 
 B)False

Question 14

Measuring the amount of monetary errors in transactions and balances is a primary purpose of substantive tests.

Accepted Answer

A) True 
 B)False

Question 15

Analytical procedures are usually the most costly tests to perform.

Accepted Answer

A) True 
 B)False

Question 16

Substantive tests must be designed to tests specific audit objectives.
REQUIRED: For the following specific audit procedures, indicate the assertion that is being tested. Use the following letters, placing your response in the space provideD.
-Trace beginning balance for accounts payable to prior year's working papers.

Accepted Answer

A) Existence or occurrence 
B) Completeness 
C) Valuation or allocation 
D) Rights and obligations 
E) Presentation and disclosure

Question 17

The primary means by which the auditor meets the requirements of the third field work standard is through:

Accepted Answer

A)  designing substantive tests. 
B)  gathering evidence to support the assessed level of control risk. 
C)  preparing a detailed audit program. 
D)  evaluating the results of substantive tests. 
E)  performing substantive tests.

Question 18

Substantive tests must be designed to tests specific audit objectives.
REQUIRED: For the following specific audit procedures, indicate the assertion that is being tested. Use the following letters, placing your response in the space provideD.
-Inspect major new additions to plant assets during the current period.

Accepted Answer

A) Existence or occurrence 
B) Completeness 
C) Valuation or allocation 
D) Rights and obligations 
E) Presentation and disclosure

Question 19

An inaccurate form of the audit risk model would show that:

Accepted Answer

A)  detection risk can be determined from audit risk, inherent risk, and control risk. 
B)  detection risk is inversely related to audit risk. 
C)  increases in control risk will cause decreases in detection risk. 
D)  audit risk is directly related to all other risks in the model. 
E)  detection risk is inversely related to inherent risk.

Question 20

AU 342.09 explains that the auditor should normally concentrate on the key factors and assumptions used by management including all of the following except those that are:

Accepted Answer

A)  insignificant to the accounting estimate. 
B)  sensitive to variations. 
C)  subject to misstatement and bias. 
D)  deviations from historical patterns. 
E)  susceptible to misstatement and bias.

Exam 12: Audit Procedures in Response to Assessed Risks: Substantive Tests

In some audits, the auditor may elect to use analytical procedures as the only direct test of some income statement balances.

In practice, the use of analytical procedures has proven to be:

The balance sheet account Inventories is related to which one of the following income statement accounts?

When the preliminary audit strategy calls for the primarily substantive approach, planned detection risk should be set at moderate or high.

The use of generalized audit software enables the auditor to deal effectively with large quantities of data.

Which of the following is not an example of an initial procedure to be performed before other substantive tests are performed?

The auditor would prepare a bank reconciliation using the bank statement obtained from the client and verify major reconciling items and mathematical accuracy when detection risk is:

The auditor is performing substantive tests several months before the end of the year. This most likely means that:

In practice, extent of testing applies:

In obtaining evidence concerning the cash balance, the auditor performs the following procedures: Scan client-prepared bank reconciliations and verify the mathematical accuracy of the reconciliation. In this case, it is likely that:

Which of the following income statement accounts is least likely to be subjected to extensive detailed tests of balances?

Who is responsible for establishing the process and controls for preparing accounting estimates?

An auditor must always an independent expectation in the process of obtaining evidence of reasonableness for every material estimate.

Measuring the amount of monetary errors in transactions and balances is a primary purpose of substantive tests.

Analytical procedures are usually the most costly tests to perform.

The primary means by which the auditor meets the requirements of the third field work standard is through:

An inaccurate form of the audit risk model would show that:

AU 342.09 explains that the auditor should normally concentrate on the key factors and assumptions used by management including all of the following except those that are: