Question 1

Vouching is used primarily to test which of the following assertions about classes of transaction?

Accepted Answer

A)  Occurrence. 
B)  Completeness. 
C)  Authorisation. 
D)  Classification.

Question 2

All of the following are typically in the current file except:

Accepted Answer

A)  adjusting journal entries. 
B)  copies of the auditor's report. 
C)  chart of accounts. 
D)  copies of mins of important committee meetings.

Question 3

Which of the following presumptions is correct about the reliability of audit evidence?

Accepted Answer

A)  Information obtained indirectly from outside sources is the most reliable audit evidence. 
B)  To be reliable, audit evidence should be convincing rather than persuasive. 
C)  Reliability of audit evidence refers to the amount of corroborative evidence obtained. 
D)  An effective internal control system provides more reliable audit evidence than does an ineffective internal control system.

Question 4

This is your first audit of XYZ Ltd. During the initial planning you have discovered that the client lacks receiving reports and a policy as to the timing within which to record purchases. You have also observed that there are many adjusting entries to accounts payable, which is a material balance. The audit assertion most at risk when auditing accounts payable is:

Accepted Answer

A)  existence. 
B)  valuation and allocation. 
C)  completeness. 
D)  rights and obligations.

Question 5

Which of the following audit risk components may be assessed in non-quantitative terms? Control risk
Detection risk
Inherent risk

Accepted Answer

A)  Yes
Yes
Yes 
B)  Yes
No
Yes 
C)  Yes
Yes
No 
D)  No
Yes
Yes

Question 6

An auditor's decision either to apply analytical procedures as substantive tests or to perform tests of details usually is determined by the:

Accepted Answer

A)  availability of data aggregated at a high level. 
B)  relative effectiveness and efficiency of the tests. 
C)  timing of tests performed after the balance date. 
D)  auditor's familiarity with industry trends.

Question 7

Auditors can eliminate engagement risk:

Accepted Answer

A)  under no circumstances. 
B)  by establishing policies for client acceptance and continuance. 
C)  by lowering audit risk. 
D)  by lowering materiality.

Question 8

In a financial report audit, substantive tests are audit procedures that:

Accepted Answer

A)  a re designed to discover significant subsequent events. 
B)  may be either tests of transactions, tests of balances, tests of disclosure or analytical procedures. 
C)  will decrease proportionately with the auditor's assessed level of control risk. 
D)  may be eliminated under certain conditions.

Question 9

To be appropriate, evidence must be both:

Accepted Answer

A)  reliable and well documented. 
B)  reliable and relevant. 
C)  useful and independent. 
D)  extensive and timely.

Question 10

As the acceptable level of detection risk increases, an auditor may change the:

Accepted Answer

A)  assessed level of control risk from less than high to high. 
B)  assurance provided by tests of controls by using a larger sample size than planned. 
C)  timing of substantive tests from year-end to an interim date. 
D)  nature of substantive tests from less effective to more effective procedures.

Question 11

Your audit client is a shop that sells some of its own merchandise and some merchandise held on consignment.Which account balance assertion for inventory would you be most concerned about verifying?

Accepted Answer

A)  Existence. 
B)  Completeness. 
C)  Rights and obligations. 
D)  Valuation and allocation.

Question 12

As part of accounts payable testing, an auditor reviews cash payments made post balance date. This is done mainly to gain evidence about the:

Accepted Answer

A)  valuation and allocation assertion. 
B)  rights and obligations assertion. 
C)  completeness assertion. 
D)  existence assertion.

Question 13

The current file of an auditor's working papers is most likely to include a copy of the:

Accepted Answer

A)  superannuation fund contract. 
B)  constitution. 
C)  flowcharts of the internal control activities. 
D)  bank reconciliation.

Question 14

When reviewing a loan agreement to ascertain whether the bank's security over any of the client's assets has been included in the financial report, the audit assertion being achieved is:

Accepted Answer

A)  valuation and allocation. 
B)  completeness. 
C)  presentation and disclosure- accuracy and valuation. 
D)  presentation and disclosure -completeness.

Question 15

Evidence is reliable if it:

Accepted Answer

A)  signals the true state of an assertion. 
B)  applies to the period being audited. 
C)  relates to the audit objective being tested. 
D)  corroborates management's assertions.

Question 16

An auditor's working papers will generally be least likely to include documentation showing how the:

Accepted Answer

A)  client's schedules were prepared. 
B)  engagement had been planned. 
C)  client's internal control had been understood and the level of control risk assessed. 
D)  unusual matters were resolved.

Question 17

Which of the following is not a financial report assertion?

Accepted Answer

A)  Inspection. 
B)  Rights and obligations. 
C)  Valuation and allocation. 
D)  Existence.

Question 18

Which of the following factors will least affect the independent auditor's judgment as to the quantity, type and content of working papers desirable for a particular engagement?

Accepted Answer

A)  Nature of the auditor's report. 
B)  Nature of the financial report, schedules, or other information upon which the auditor is reporting. 
C)  Need for supervision and review. 
D)  Number of personnel assigned to the audit.

Question 19

Your audit client is under intense pressure to meet an earnings target. Which transaction assertion for purchases are you most concerned with?

Accepted Answer

A)  Occurrence. 
B)  Completeness. 
C)  Classification. 
D)  Accuracy.

Question 20

Which of the following is an essential factor in evaluating the sufficiency of evidence? The evidence must:

Accepted Answer

A)  be well documented and cross-referenced in the audit documents. 
B)  be based on sources that are considered reliable. 
C)  bear a direct relationship to the audit objective. 
D)  be of a quantity to enable the auditor to form an opinion.

Exam 5: Overview of Elements of the Financial Report Audit Process