Auditing & Assurance Services A Systematic Approach William Messier Jr 10e - Test Bank Instant Download - Complete Test Bank With Answers Sample Questions Are Posted Below Chapter 05 Evidence and Documentation True / False Questions 1. Audit evidence includes only written information used by the auditor in arriving at …
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Auditing & Assurance Services A Systematic Approach William Messier Jr 10e – Test Bank
Instant Download – Complete Test Bank With Answers
Sample Questions Are Posted Below
Chapter 05
Evidence and Documentation
True / False Questions
| 1. | Audit evidence includes only written information used by the auditor in arriving at an opinion about the fairness of financial statements.
True False |
| 2. | The auditor gathers audit evidence to test management’s assertions.
True False |
| 3. | Management assertions fall into four main categories.
True False |
| 4. | The classification assertion refers to transactions and events being recorded in the correct accounting period.
True False |
| 5. | The completeness assertion refers to ensuring that transactions and events that should have been recorded actually have been recorded.
True False |
| 6. | The cutoff assertion relates to whether transactions and events have been recorded in the correct accounting period.
True False |
| 7. | Audit procedures are designed to test management assertions.
True False |
| 8. | The relevance of audit evidence or specific audit procedures depends on the assertion being tested.
True False |
| 9. | The auditor must use his or her professional judgment to determine the amount of audit evidence to be gathered.
True False |
| 10. | The sufficiency of evidence refers to the quality of audit evidence.
True False |
Multiple Choice Questions
| 11. | A confirmation is used to
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| 12. | Which of the following elements ultimately determines the amount of audit work that is necessary in the circumstances to afford a reasonable basis for an opinion?
|
| 13. | Which of the following is an essential factor in evaluating the sufficiency of evidence? The evidence must
|
| 14. | Which set of assertions is tested when, during completion of the audit, the audit partner conducts a final review of the format of the entity’s balance sheet?
|
| 15. | In testing plant and equipment balances, an auditor may physically inspect new additions listed on the summary of plant and equipment transactions for the year. This procedure is designed to obtain evidence concerning management’s assertions about classes of transactions and events, and specifically, which assertion?
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| 16. | Which assertions may be tested for the “account balances” category of management assertions?
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| 17. | Which assertions may be tested for the “transactions and events” category of management assertions?
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| 18. | Which assertions may be tested for the “presentation and disclosure” category of management assertions?
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| 19. | Tracing is used primarily to test which of the following assertions about classes of transactions?
|
| 20. | Vouching is used primarily to test which of the following assertions about classes of transaction?
|
| 21. | In designing written audit programs, an auditor should plan specific audit procedures to test
|
| 22. | Footing is an example of
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| 23. | In determining whether transactions have been recorded, the direction of the audit testing should start from the
|
| 24. | To test for unsupported entries in the ledger, the direction of audit testing should start from the
|
| 25. | Which of the following presumptions does not relate to the appropriateness of audit evidence?
|
| 26. | Of the following, which is the least persuasive type of audit evidence?
|
| 27. | The third general auditing standard requires that due professional care be exercised in the performance of the examination and the preparation of the report. Due professional care deals with what is done by the independent auditor and how well it is done. For example, due care in the matter of audit documents requires that audit documents’
|
| 28. | Which of the following show the detailed general ledger accounts that make up a financial statement category on the auditor’s working trial balance?
|
| 29. | The permanent (continuing) file of an auditor’s working papers most likely would include copies of the
|
| 30. | An example of audit evidence with a medium level of reliability is
|
| 31. | Audit documentation prepared on audits of public entities is the property of the
|
| 32. | All of the following are typically in the current file except:
|
| 33. | You are auditing a store that sells merchandise. Some of the store merchandise is held on consignment. Which account balance assertion for inventory should you be most concerned about verifying?
|
| 34. | You are auditing a manufacturing company that has a large production facility. Some of the production equipment is held through lease agreements. Which of the following is the account balance assertion you would be most concerned about?
|
| 35. | Which of the following procedures would an auditor most likely perform to verify management’s assertion of completeness?
|
| 36. | Which of the following best describes the primary purpose of audit procedures?
|
| 37. | Procedures specifically outlined in an audit program are designed primarily to
|
| 38. | Which statement concerning audit evidence is not valid?
|
| 39. | Each of the following might, by itself, form a valid basis for an auditor to reduce substantive testing except for the:
|
| 40. | Of the following, the most reliable type of evidence typically is:
|
| 41. | Which of the following presumptions is correct about the reliability of audit evidence?
|
| 42. | Which of the following types of documentary evidence should the auditor consider to be the most reliable?
|
| 43. | Which of the following is the least persuasive documentation in support of an auditor’s opinion?
|
| 44. | Which of the following statements is generally correct about the appropriateness of audit evidence?
|
| 45. | Which of the following types of audit evidence is the most persuasive?
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| 46. | Following are several statements regarding accounting records or audit documentation. Which of the statements is correct?
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| 47. | Audit documents record the results of the auditor’s evidence-gathering procedures. When preparing audit documents, the auditor should remember that
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| 48. | Audit documents that record the procedures used by the auditor to gather evidence should be
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| 49. | In creating lead schedules for an audit engagement, what financial information is needed to begin?
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| 50. | Audit documentation
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| 51. | Based on conversations with the owner-manager of an audit client, the auditor ascertained that the company’s primary motivation is to avoid paying income taxes. Based on this motivation, which account balance assertion for ending inventory will the auditor be most concerned about verifying?
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| 52. | Your audit client is under intense pressure to meet an earnings target. Which transaction assertion for transactions within the purchasing process are you most concerned with?
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| 53. | You are concerned with unrecorded transactions in the purchasing cycle. Which audit procedure are you most likely to use when auditing purchases?
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| 54. | The following statements were made in a discussion of audit evidence between two CPAs. Which statement is not valid concerning audit evidence?
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| 55. | Which of the following statements concerning audit evidence is correct?
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| 56. | The permanent audit file usually includes
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| 57. | The current audit file usually includes
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| 58. | All audit documentation should have a heading, which includes
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| 59. | The audit working papers belong to
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| 60. | Which of the following are ordinarily designed to detect possible material monetary errors in the financial statements?
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| 61. | An auditor’s decision either to apply analytical procedures as substantive procedures or to perform tests of transactions and account balances usually is determined by
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| 62. | A company sells a particular product only in the last month of its fiscal year. The company uses commission agents for such sales and pays them 6% of their net sales 30 days after the sales are made. The agents’ sales were $10 million. Experience indicates that 10% of the sales are usually not collected and 2% are returned in the first month of the new year. The auditor would expect the year-end balance in the accrued commissions payable account to be
|
| 63. | Which of the following nonfinancial information would an auditor most likely consider in performing analytical procedures during the planning phase of an audit?
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| 64. | A not-for-profit organization published a monthly magazine that had 15,000 subscribers on January 1, 2013. The number of subscribers increased steadily throughout the year and at December 31, 2013, there were 16,200 subscribers. The annual magazine subscription cost was $10 on January 1, 2013 and was increased to $12 for new members on April 1, 2013. Subscriptions are paid in full at the beginning of the member term. An auditor should expect that the revenue from subscriptions for the year ended December 31, 2013, would be approximately
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| 65. | Analytical procedures performed in the overall review stage of an audit suggest that several accounts have unexpected relationships. The results of these procedures most likely would indicate that
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| 66. | Which of the following is not a typical analytical procedure?
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| 67. | Analytical procedures may be classified as being primarily which of the following?
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| 68. | An abnormal fluctuation in gross profit that might suggest the need for extended audit procedures for sales and inventories would most likely be identified in the planning phase of the audit by the use of
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| 69. | An example of an analytical procedure is the comparison of
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| 70. | Analytical procedures used in planning an audit should focus on identifying
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| 71. | Analytical procedures are
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| 72. | As a result of analytical procedures conducted during the planning phase, the independent auditor determines that the gross profit percentage has declined from 30% in the preceding year to 20% in the current year. The auditor should
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| 73. | The auditor generally gives most emphasis to ratio and trend analysis in the examination of the
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| 74. | The auditor notices significant fluctuations in key elements of the company’s financial statements. If management is unable to provide an acceptable explanation, the auditor should
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| 75. | Which of the following tends to be most predictable for purposes of analytical procedures applied as substantive procedures?
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| 76. | Analytical procedures enable the auditor to predict the balance or quantity of an item under audit. Information to develop this estimate can be obtained from all of the following except:
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| 77. | An auditor’s analytical procedures performed during the overall review stage indicated that the entity’s accounts receivable balance had doubled since the end of the prior year. However, the allowance for doubtful accounts as a percentage of accounts receivable remained about the same. Which of the following explanations most likely would satisfy the auditor?
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| 78. | Which of the following would be least likely to be comparable between similar corporations in the same industry or line of business?
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| 79. | Which of the following ratios would an engagement partner most likely calculate when reviewing the balance sheet in the overall review stage of an audit?
|
Short Answer Questions
| 80. | Explain the occurrence and completeness assertions. How does failure to meet each assertion affect the financial statements?
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| 81. | Name two management assertions pertaining to the inventory account balance and explain why they are considered in an audit.
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| 82. | For an auditor, how are management assertions useful?
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| 83. | The text discusses three main purposes for performing audit procedures. List and describe these three main categories of audit procedures and describe their purpose.
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| 84. | Why is appropriateness important for audit evidence? What qualities must evidence have to be considered appropriate?
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| 85. | Several factors may influence the reliability of evidence. Identify and describe two of these factors.
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| 86. | Sarah is auditing the sales of a new client. In one procedure Sarah performs, she begins with the original sales documents and then searches the accounting records to find the corresponding entry. What test is Sarah performing and what management assertion is she testing?
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| 87. | Auditors obtain evidence about the inventory account through, among other procedures, observing the counting of inventory. What are some limitations “observation” has as an audit procedure?
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| 88. | The audit testing hierarchy is considered to be more effective and more efficient. Why?
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| 89. | According to the text, what are the two functions of working papers?
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| 90. | Who is responsible for the financial statements? What does the term “assertions” mean? Identify the assertion categories and the specific assertions for each category.
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| 91. | Discuss the reliability of the types of audit evidence and identify the level of reliability for each type of evidence.
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| 92. | For each of the following categories of analytical procedures, indicate (a) whether an auditor is required to use the procedure and (b) the purpose(s) of the procedure. Preliminary analytical procedures (risk assessment procedures) Substantive analytical procedures Final analytical procedures
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| 93. | When using analytical procedures, the auditor first needs to develop an expectation with which to compare recorded results. What is meant by “precision of the expectation,” and what factors affect the precision of analytical procedures?
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| 94. | In deciding to implement analytical procedures, what are some factors the auditor will consider in determining a tolerable difference between the expectation and the recorded amount?
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| 95. | Stan is auditing First Financial Services and would like to use financial ratios to test the ability of First Financial Services to meet its current obligations. Identify two ratios that would help Stan in this task. Indicate how each ratio is calculated and what a high ratio would signify to Stan.
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Chapter 05 Evidence and Documentation Answer Key
True / False Questions
| 1. | Audit evidence includes only written information used by the auditor in arriving at an opinion about the fairness of financial statements.
FALSE |
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-01 Understand the relationship between audit evidence and the auditor’s report. Topic: Audit Evidence and the Auditor’s Report |
| 2. | The auditor gathers audit evidence to test management’s assertions.
TRUE |
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-01 Understand the relationship between audit evidence and the auditor’s report. Topic: Audit Evidence and the Auditor’s Report |
| 3. | Management assertions fall into four main categories.
FALSE |
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Know management assertions about classes of transactions; account balances; and presentation and disclosure. Topic: Management Assertions |
| 4. | The classification assertion refers to transactions and events being recorded in the correct accounting period.
FALSE |
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Know management assertions about classes of transactions; account balances; and presentation and disclosure. Topic: Management Assertions |
| 5. | The completeness assertion refers to ensuring that transactions and events that should have been recorded actually have been recorded.
TRUE |
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Know management assertions about classes of transactions; account balances; and presentation and disclosure. Topic: Management Assertions |
| 6. | The cutoff assertion relates to whether transactions and events have been recorded in the correct accounting period.
TRUE |
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Know management assertions about classes of transactions; account balances; and presentation and disclosure. Topic: Management Assertions |
| 7. | Audit procedures are designed to test management assertions.
TRUE |
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-02 Know management assertions about classes of transactions; account balances; and presentation and disclosure. Topic: Management Assertions |
| 8. | The relevance of audit evidence or specific audit procedures depends on the assertion being tested.
TRUE |
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Learn the basic concepts of audit evidence. Topic: The Concepts of Audit Evidence |
| 9. | The auditor must use his or her professional judgment to determine the amount of audit evidence to be gathered.
TRUE |
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Learn the basic concepts of audit evidence. Topic: The Concepts of Audit Evidence |
| 10. | The sufficiency of evidence refers to the quality of audit evidence.
FALSE |
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Learn the basic concepts of audit evidence. Topic: The Concepts of Audit Evidence |
Multiple Choice Questions
| 11. | A confirmation is used to
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-04 Know the audit procedures used for obtaining audit evidence. Topic: Audit Procedures for Obtaining Audit Evidence |
| 12. | Which of the following elements ultimately determines the amount of audit work that is necessary in the circumstances to afford a reasonable basis for an opinion?
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-01 Understand the relationship between audit evidence and the auditor’s report. Learning Objective: 05-04 Know the audit procedures used for obtaining audit evidence. Topic: Audit Evidence and the Auditor’s Report Topic: Audit Procedures for Obtaining Audit Evidence |
| 13. | Which of the following is an essential factor in evaluating the sufficiency of evidence? The evidence must
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 1 Easy Learning Objective: 05-01 Understand the relationship between audit evidence and the auditor’s report. Learning Objective: 05-03 Learn the basic concepts of audit evidence. Learning Objective: 05-05 Understand the reliability of the types of evidence. Topic: Audit Evidence and the Auditor’s Report Topic: Reliability of the Types of Evidence Topic: The Concepts of Audit Evidence |
| 14. | Which set of assertions is tested when, during completion of the audit, the audit partner conducts a final review of the format of the entity’s balance sheet?
|
| AACSB: Communication AICPA: BB Critical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-02 Know management assertions about classes of transactions; account balances; and presentation and disclosure. Topic: Management Assertions |
| 15. | In testing plant and equipment balances, an auditor may physically inspect new additions listed on the summary of plant and equipment transactions for the year. This procedure is designed to obtain evidence concerning management’s assertions about classes of transactions and events, and specifically, which assertion?
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-02 Know management assertions about classes of transactions; account balances; and presentation and disclosure. Topic: Management Assertions |
| 16. | Which assertions may be tested for the “account balances” category of management assertions?
|
| AACSB: Communication AICPA: BB Legal AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-02 Know management assertions about classes of transactions; account balances; and presentation and disclosure. Topic: Management Assertions |
| 17. | Which assertions may be tested for the “transactions and events” category of management assertions?
|
| AACSB: Communication AICPA: BB Legal AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-02 Know management assertions about classes of transactions; account balances; and presentation and disclosure. Topic: Management Assertions |
| 18. | Which assertions may be tested for the “presentation and disclosure” category of management assertions?
|
| AACSB: Communication AICPA: BB Legal AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-02 Know management assertions about classes of transactions; account balances; and presentation and disclosure. Topic: Management Assertions |
| 19. | Tracing is used primarily to test which of the following assertions about classes of transactions?
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 Know the audit procedures used for obtaining audit evidence. Topic: Audit Procedures for Obtaining Audit Evidence |
| 20. | Vouching is used primarily to test which of the following assertions about classes of transaction?
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 Know the audit procedures used for obtaining audit evidence. Topic: Audit Procedures for Obtaining Audit Evidence |
| 21. | In designing written audit programs, an auditor should plan specific audit procedures to test
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Know management assertions about classes of transactions; account balances; and presentation and disclosure. Learning Objective: 05-04 Know the audit procedures used for obtaining audit evidence. Topic: Audit Procedures for Obtaining Audit Evidence Topic: Management Assertions |
| 22. | Footing is an example of
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 Know the audit procedures used for obtaining audit evidence. Topic: Audit Procedures for Obtaining Audit Evidence |
| 23. | In determining whether transactions have been recorded, the direction of the audit testing should start from the
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-04 Know the audit procedures used for obtaining audit evidence. Topic: Audit Procedures for Obtaining Audit Evidence |
| 24. | To test for unsupported entries in the ledger, the direction of audit testing should start from the
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-04 Know the audit procedures used for obtaining audit evidence. Topic: Audit Procedures for Obtaining Audit Evidence |
| 25. | Which of the following presumptions does not relate to the appropriateness of audit evidence?
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-05 Understand the reliability of the types of evidence. Topic: Reliability of the Types of Evidence |
| 26. | Of the following, which is the least persuasive type of audit evidence?
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 1 Easy Learning Objective: 05-04 Know the audit procedures used for obtaining audit evidence. Learning Objective: 05-05 Understand the reliability of the types of evidence. Topic: Audit Procedures for Obtaining Audit Evidence Topic: Reliability of the Types of Evidence |
| 27. | The third general auditing standard requires that due professional care be exercised in the performance of the examination and the preparation of the report. Due professional care deals with what is done by the independent auditor and how well it is done. For example, due care in the matter of audit documents requires that audit documents’
|
| AACSB: Ethics AICPA: BB Legal AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-07 Understand the functions of audit documentation. Learning Objective: 05-08 Develop an understanding of the content; types; organization; and ownership of audit documentation. Topic: Audit Documentation |
| 28. | Which of the following show the detailed general ledger accounts that make up a financial statement category on the auditor’s working trial balance?
|
| AACSB: Communication AICPA: BB Industry AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-07 Understand the functions of audit documentation. Learning Objective: 05-08 Develop an understanding of the content; types; organization; and ownership of audit documentation. Topic: Audit Documentation |
| 29. | The permanent (continuing) file of an auditor’s working papers most likely would include copies of the
|
| AACSB: Communication AICPA: BB Industry AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-07 Understand the functions of audit documentation. Learning Objective: 05-08 Develop an understanding of the content; types; organization; and ownership of audit documentation. Topic: Audit Documentation |
| 30. | An example of audit evidence with a medium level of reliability is
|
| AACSB: Communication AICPA: BB Industry AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 Know the audit procedures used for obtaining audit evidence. Topic: Audit Procedures for Obtaining Audit Evidence |
| 31. | Audit documentation prepared on audits of public entities is the property of the
|
| AACSB: Ethics AICPA: BB Legal AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-08 Develop an understanding of the content; types; organization; and ownership of audit documentation. Topic: Audit Documentation |
| 32. | All of the following are typically in the current file except:
|
| AACSB: Communication AICPA: BB Industry AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-07 Understand the functions of audit documentation. Learning Objective: 05-08 Develop an understanding of the content; types; organization; and ownership of audit documentation. Topic: Audit Documentation |
| 33. | You are auditing a store that sells merchandise. Some of the store merchandise is held on consignment. Which account balance assertion for inventory should you be most concerned about verifying?
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 05-02 Know management assertions about classes of transactions; account balances; and presentation and disclosure. Topic: Management Assertions |
| 34. | You are auditing a manufacturing company that has a large production facility. Some of the production equipment is held through lease agreements. Which of the following is the account balance assertion you would be most concerned about?
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 05-02 Know management assertions about classes of transactions; account balances; and presentation and disclosure. Topic: Management Assertions |
| 35. | Which of the following procedures would an auditor most likely perform to verify management’s assertion of completeness?
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-02 Know management assertions about classes of transactions; account balances; and presentation and disclosure. Learning Objective: 05-04 Know the audit procedures used for obtaining audit evidence. Topic: Audit Procedures for Obtaining Audit Evidence Topic: Management Assertions |
| 36. | Which of the following best describes the primary purpose of audit procedures?
|
| AACSB: Communication AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 05-04 Know the audit procedures used for obtaining audit evidence. Topic: Audit Procedures for Obtaining Audit Evidence |
| 37. | Procedures specifically outlined in an audit program are designed primarily to
|
| AACSB: Analytical Thinking AICPA: BB Leveraging Technology AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-04 Know the audit procedures used for obtaining audit evidence. Topic: Audit Procedures for Obtaining Audit Evidence |
| 38. | Which statement concerning audit evidence is not valid?
|
| AACSB: Communication AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-03 Learn the basic concepts of audit evidence. Topic: The Concepts of Audit Evidence |
| 39. | Each of the following might, by itself, form a valid basis for an auditor to reduce substantive testing except for the:
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 05-03 Learn the basic concepts of audit evidence. Topic: The Concepts of Audit Evidence |
| 40. | Of the following, the most reliable type of evidence typically is:
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-05 Understand the reliability of the types of evidence. Topic: Reliability of the Types of Evidence |
| 41. | Which of the following presumptions is correct about the reliability of audit evidence?
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-03 Learn the basic concepts of audit evidence. Topic: The Concepts of Audit Evidence |
| 42. | Which of the following types of documentary evidence should the auditor consider to be the most reliable?
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 05-05 Understand the reliability of the types of evidence. Topic: Reliability of the Types of Evidence |
| 43. | Which of the following is the least persuasive documentation in support of an auditor’s opinion?
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 05-05 Understand the reliability of the types of evidence. Topic: Reliability of the Types of Evidence |
| 44. | Which of the following statements is generally correct about the appropriateness of audit evidence?
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 05-03 Learn the basic concepts of audit evidence. Topic: The Concepts of Audit Evidence |
| 45. | Which of the following types of audit evidence is the most persuasive?
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 05-05 Understand the reliability of the types of evidence. Topic: Reliability of the Types of Evidence |
| 46. | Following are several statements regarding accounting records or audit documentation. Which of the statements is correct?
|
| AACSB: Communication AICPA: BB Legal AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-07 Understand the functions of audit documentation. Learning Objective: 05-08 Develop an understanding of the content; types; organization; and ownership of audit documentation. Topic: Audit Documentation |
| 47. | Audit documents record the results of the auditor’s evidence-gathering procedures. When preparing audit documents, the auditor should remember that
|
| AACSB: Communication AICPA: BB Legal AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-07 Understand the functions of audit documentation. Learning Objective: 05-08 Develop an understanding of the content; types; organization; and ownership of audit documentation. Topic: Audit Documentation |
| 48. | Audit documents that record the procedures used by the auditor to gather evidence should be
|
| AACSB: Communication AICPA: BB Legal AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-07 Understand the functions of audit documentation. Learning Objective: 05-08 Develop an understanding of the content; types; organization; and ownership of audit documentation. Topic: Audit Documentation |
| 49. | In creating lead schedules for an audit engagement, what financial information is needed to begin?
|
| AACSB: Technology AICPA: BB Leveraging Technology AICPA: FN Leveraging Technology Accessibility: Keyboard Navigation Blooms: Evaluate Difficulty: 2 Medium Learning Objective: 05-07 Understand the functions of audit documentation. Learning Objective: 05-08 Develop an understanding of the content; types; organization; and ownership of audit documentation. Topic: Audit Documentation |
| 50. | Audit documentation
|
| AACSB: Technology AICPA: BB Leveraging Technology AICPA: FN Leveraging Technology Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-07 Understand the functions of audit documentation. Learning Objective: 05-08 Develop an understanding of the content; types; organization; and ownership of audit documentation. Topic: Audit Documentation |
| 51. | Based on conversations with the owner-manager of an audit client, the auditor ascertained that the company’s primary motivation is to avoid paying income taxes. Based on this motivation, which account balance assertion for ending inventory will the auditor be most concerned about verifying?
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 05-02 Know management assertions about classes of transactions; account balances; and presentation and disclosure. Topic: Management Assertions |
| 52. | Your audit client is under intense pressure to meet an earnings target. Which transaction assertion for transactions within the purchasing process are you most concerned with?
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-02 Know management assertions about classes of transactions; account balances; and presentation and disclosure. Topic: Management Assertions |
| 53. | You are concerned with unrecorded transactions in the purchasing cycle. Which audit procedure are you most likely to use when auditing purchases?
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-04 Know the audit procedures used for obtaining audit evidence. Topic: Audit Procedures for Obtaining Audit Evidence |
| 54. | The following statements were made in a discussion of audit evidence between two CPAs. Which statement is not valid concerning audit evidence?
|
| AACSB: Communication AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-03 Learn the basic concepts of audit evidence. Topic: The Concepts of Audit Evidence |
| 55. | Which of the following statements concerning audit evidence is correct?
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 3 Hard Learning Objective: 05-04 Know the audit procedures used for obtaining audit evidence. Learning Objective: 05-05 Understand the reliability of the types of evidence. Topic: Audit Procedures for Obtaining Audit Evidence Topic: Reliability of the Types of Evidence |
| 56. | The permanent audit file usually includes
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-08 Develop an understanding of the content; types; organization; and ownership of audit documentation. Topic: Audit Documentation |
| 57. | The current audit file usually includes
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-08 Develop an understanding of the content; types; organization; and ownership of audit documentation. Topic: Audit Documentation |
| 58. | All audit documentation should have a heading, which includes
|
| AACSB: Communication AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-08 Develop an understanding of the content; types; organization; and ownership of audit documentation. Topic: Audit Documentation |
| 59. | The audit working papers belong to
|
| AACSB: Communication AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-08 Develop an understanding of the content; types; organization; and ownership of audit documentation. Topic: Audit Documentation |
| 60. | Which of the following are ordinarily designed to detect possible material monetary errors in the financial statements?
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-09 Learn the purposes and types of analytical procedures. Topic: Advanced Module 1: Analytical Procedures |
| 61. | An auditor’s decision either to apply analytical procedures as substantive procedures or to perform tests of transactions and account balances usually is determined by
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-09 Learn the purposes and types of analytical procedures. Topic: Advanced Module 1: Analytical Procedures |
| 62. | A company sells a particular product only in the last month of its fiscal year. The company uses commission agents for such sales and pays them 6% of their net sales 30 days after the sales are made. The agents’ sales were $10 million. Experience indicates that 10% of the sales are usually not collected and 2% are returned in the first month of the new year. The auditor would expect the year-end balance in the accrued commissions payable account to be
$10,000,000 × 98% = $9,800,000 Net Sales × 6% commission percentage = $588,000 estimated accrued commissions payable. |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-09 Learn the purposes and types of analytical procedures. Topic: Advanced Module 1: Analytical Procedures |
| 63. | Which of the following nonfinancial information would an auditor most likely consider in performing analytical procedures during the planning phase of an audit?
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-09 Learn the purposes and types of analytical procedures. Topic: Advanced Module 1: Analytical Procedures |
| 64. | A not-for-profit organization published a monthly magazine that had 15,000 subscribers on January 1, 2013. The number of subscribers increased steadily throughout the year and at December 31, 2013, there were 16,200 subscribers. The annual magazine subscription cost was $10 on January 1, 2013 and was increased to $12 for new members on April 1, 2013. Subscriptions are paid in full at the beginning of the member term. An auditor should expect that the revenue from subscriptions for the year ended December 31, 2013, would be approximately
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-09 Learn the purposes and types of analytical procedures. Topic: Advanced Module 1: Analytical Procedures |
| 65. | Analytical procedures performed in the overall review stage of an audit suggest that several accounts have unexpected relationships. The results of these procedures most likely would indicate that
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 05-09 Learn the purposes and types of analytical procedures. Topic: Advanced Module 1: Analytical Procedures |
| 66. | Which of the following is not a typical analytical procedure?
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-09 Learn the purposes and types of analytical procedures. Learning Objective: 05-10 Be familiar with financial ratios that are useful as analytical procedures. Topic: Advanced Module 1: Analytical Procedures Topic: Advanced Module 2: Selected Financial Ratios Useful as Analytical Procedures |
| 67. | Analytical procedures may be classified as being primarily which of the following?
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-09 Learn the purposes and types of analytical procedures. Learning Objective: 05-10 Be familiar with financial ratios that are useful as analytical procedures. Topic: Advanced Module 1: Analytical Procedures Topic: Advanced Module 2: Selected Financial Ratios Useful as Analytical Procedures |
| 68. | An abnormal fluctuation in gross profit that might suggest the need for extended audit procedures for sales and inventories would most likely be identified in the planning phase of the audit by the use of
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-09 Learn the purposes and types of analytical procedures. Learning Objective: 05-10 Be familiar with financial ratios that are useful as analytical procedures. Topic: Advanced Module 1: Analytical Procedures Topic: Advanced Module 2: Selected Financial Ratios Useful as Analytical Procedures |
| 69. | An example of an analytical procedure is the comparison of
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-09 Learn the purposes and types of analytical procedures. Learning Objective: 05-10 Be familiar with financial ratios that are useful as analytical procedures. Topic: Advanced Module 1: Analytical Procedures Topic: Advanced Module 2: Selected Financial Ratios Useful as Analytical Procedures |
| 70. | Analytical procedures used in planning an audit should focus on identifying
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-09 Learn the purposes and types of analytical procedures. Learning Objective: 05-10 Be familiar with financial ratios that are useful as analytical procedures. Topic: Advanced Module 1: Analytical Procedures Topic: Advanced Module 2: Selected Financial Ratios Useful as Analytical Procedures |
| 71. | Analytical procedures are
|
| AACSB: Analytical Thinking AICPA: BB Legal AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-09 Learn the purposes and types of analytical procedures. Learning Objective: 05-10 Be familiar with financial ratios that are useful as analytical procedures. Topic: Advanced Module 1: Analytical Procedures Topic: Advanced Module 2: Selected Financial Ratios Useful as Analytical Procedures |
| 72. | As a result of analytical procedures conducted during the planning phase, the independent auditor determines that the gross profit percentage has declined from 30% in the preceding year to 20% in the current year. The auditor should
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-09 Learn the purposes and types of analytical procedures. Learning Objective: 05-10 Be familiar with financial ratios that are useful as analytical procedures. Topic: Advanced Module 1: Analytical Procedures Topic: Advanced Module 2: Selected Financial Ratios Useful as Analytical Procedures |
| 73. | The auditor generally gives most emphasis to ratio and trend analysis in the examination of the
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Evaluate Difficulty: 3 Hard Learning Objective: 05-09 Learn the purposes and types of analytical procedures. Learning Objective: 05-10 Be familiar with financial ratios that are useful as analytical procedures. Topic: Advanced Module 1: Analytical Procedures Topic: Advanced Module 2: Selected Financial Ratios Useful as Analytical Procedures |
| 74. | The auditor notices significant fluctuations in key elements of the company’s financial statements. If management is unable to provide an acceptable explanation, the auditor should
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 05-09 Learn the purposes and types of analytical procedures. Learning Objective: 05-10 Be familiar with financial ratios that are useful as analytical procedures. Topic: Advanced Module 1: Analytical Procedures Topic: Advanced Module 2: Selected Financial Ratios Useful as Analytical Procedures |
| 75. | Which of the following tends to be most predictable for purposes of analytical procedures applied as substantive procedures?
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-09 Learn the purposes and types of analytical procedures. Learning Objective: 05-10 Be familiar with financial ratios that are useful as analytical procedures. Topic: Advanced Module 1: Analytical Procedures Topic: Advanced Module 2: Selected Financial Ratios Useful as Analytical Procedures |
| 76. | Analytical procedures enable the auditor to predict the balance or quantity of an item under audit. Information to develop this estimate can be obtained from all of the following except:
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-09 Learn the purposes and types of analytical procedures. Learning Objective: 05-10 Be familiar with financial ratios that are useful as analytical procedures. Topic: Advanced Module 1: Analytical Procedures Topic: Advanced Module 2: Selected Financial Ratios Useful as Analytical Procedures |
| 77. | An auditor’s analytical procedures performed during the overall review stage indicated that the entity’s accounts receivable balance had doubled since the end of the prior year. However, the allowance for doubtful accounts as a percentage of accounts receivable remained about the same. Which of the following explanations most likely would satisfy the auditor?
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 05-09 Learn the purposes and types of analytical procedures. Learning Objective: 05-10 Be familiar with financial ratios that are useful as analytical procedures. Topic: Advanced Module 1: Analytical Procedures Topic: Advanced Module 2: Selected Financial Ratios Useful as Analytical Procedures |
| 78. | Which of the following would be least likely to be comparable between similar corporations in the same industry or line of business?
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 05-10 Be familiar with financial ratios that are useful as analytical procedures. Topic: Advanced Module 2: Selected Financial Ratios Useful as Analytical Procedures |
| 79. | Which of the following ratios would an engagement partner most likely calculate when reviewing the balance sheet in the overall review stage of an audit?
|
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 05-10 Be familiar with financial ratios that are useful as analytical procedures. Topic: Advanced Module 2: Selected Financial Ratios Useful as Analytical Procedures |
Short Answer Questions
| 80. | Explain the occurrence and completeness assertions. How does failure to meet each assertion affect the financial statements?
The occurrence assertion relates to whether all recorded transactions and events have occurred and pertain to the entity. The completeness assertion relates to whether all transactions and events that occurred during the period have been recorded. Failure to meet the completeness assertion results in an understatement in the related account, while invalid recorded amounts result in an overstatement in the related account. |
| AACSB: Communication AICPA: BB Critical Thinking AICPA: FN Reporting Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-02 Know management assertions about classes of transactions; account balances; and presentation and disclosure. Topic: Management Assertions |
| 81. | Name two management assertions pertaining to the inventory account balance and explain why they are considered in an audit.
Answers should include two of the following: Existence: A company has an incentive to overstate inventory to improve the appearance of its balance sheet. Auditors can perform procedures, such as physical examination, to test that the company’s stated liabilities actually exist. |
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-02 Know management assertions about classes of transactions; account balances; and presentation and disclosure. Topic: Management Assertions |
| 82. | For an auditor, how are management assertions useful?
The assertions provide a framework within which the auditor plans the audit, designs audit procedures, obtains relevant evidence, and evaluates the appropriateness and sufficiency of the evidence. The management assertions help the auditor focus his or her attention on all the various aspects of transactions, account balances, and required disclosures that ought to be considered to ascertain fair presentation of financial statements to users. |
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-02 Know management assertions about classes of transactions; account balances; and presentation and disclosure. Learning Objective: 05-04 Know the audit procedures used for obtaining audit evidence. Topic: Audit Procedures for Obtaining Audit Evidence Topic: Management Assertions |
| 83. | The text discusses three main purposes for performing audit procedures. List and describe these three main categories of audit procedures and describe their purpose.
Risk assessment procedures: Risk assessment procedures are performed to obtain an understanding of the entity and its environment, including its internal control, in order to assess the risks of material misstatement at the financial statement and assertion levels. |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Decision Making Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 Know the audit procedures used for obtaining audit evidence. Topic: Audit Procedures for Obtaining Audit Evidence |
| 84. | Why is appropriateness important for audit evidence? What qualities must evidence have to be considered appropriate?
Appropriateness is a measure of the quality of audit evidence. Evidence is considered appropriate when it provides information that is both relevant and reliable. Relevant evidence should be related to the assertion being tested. Reliable evidence can be relied upon to signal the true state of an assertion. |
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-04 Know the audit procedures used for obtaining audit evidence. Learning Objective: 05-05 Understand the reliability of the types of evidence. Topic: Audit Procedures for Obtaining Audit Evidence Topic: Reliability of the Types of Evidence |
| 85. | Several factors may influence the reliability of evidence. Identify and describe two of these factors.
Answer should include two of the following: Evidence obtained directly by the auditor from an independent source outside the entity is usually viewed as more reliable than evidence obtained solely from within the entity. |
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-05 Understand the reliability of the types of evidence. Topic: Reliability of the Types of Evidence |
| 86. | Sarah is auditing the sales of a new client. In one procedure Sarah performs, she begins with the original sales documents and then searches the accounting records to find the corresponding entry. What test is Sarah performing and what management assertion is she testing?
Sarah is tracing, which refers to first selecting an accounting transaction (a source document) and then following it into the journal or ledger. The management assertion being tested is completeness. Testing in this direction ensures that transactions that occurred are recorded in the accounting records. |
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-02 Know management assertions about classes of transactions; account balances; and presentation and disclosure. Learning Objective: 05-04 Know the audit procedures used for obtaining audit evidence. Topic: Audit Procedures for Obtaining Audit Evidence Topic: Management Assertions |
| 87. | Auditors obtain evidence about the inventory account through, among other procedures, observing the counting of inventory. What are some limitations “observation” has as an audit procedure?
Observation is limited to the point in time at which the observation takes place. In addition, entity personnel may act differently when the auditor is not observing them. |
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-04 Know the audit procedures used for obtaining audit evidence. Learning Objective: 05-05 Understand the reliability of the types of evidence. Topic: Audit Procedures for Obtaining Audit Evidence Topic: Reliability of the Types of Evidence |
| 88. | The audit testing hierarchy is considered to be more effective and more efficient. Why?
Effectiveness: The auditor’s understanding and testing of controls will enhance the auditor’s ability to hone in on areas where misstatements are more likely to be found. |
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-06 Understand the audit testing hierarchy. Topic: The Audit Testing Hierarchy |
| 89. | According to the text, what are the two functions of working papers?
Working papers provide support for the auditor’s report and aid in the conduct and supervision of the audit. The working papers are the focal point for reviewing the work of subordinates and quality control reviewers. As support for the auditor’s report, the working papers also document that the scope of the audit was adequate. In particular, working papers document the auditor’s compliance with the standards of fieldwork. |
| AACSB: Communication AICPA: BB Critical Thinking AICPA: FN Reporting Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-07 Understand the functions of audit documentation. Topic: Audit Documentation |
| 90. | Who is responsible for the financial statements? What does the term “assertions” mean? Identify the assertion categories and the specific assertions for each category.
Management is responsible for the fair presentation of its financial statements. 1. Assertions about classes of transactions and events for the period under audit. Specific assertions for this category include: (1) occurrence, (2) completeness, (3) authorization, (4) accuracy, (5) cutoff, and (6) classification. |
| AACSB: Communication AICPA: BB Critical Thinking AICPA: FN Reporting Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-02 Know management assertions about classes of transactions; account balances; and presentation and disclosure. Topic: Management Assertions |
| 91. | Discuss the reliability of the types of audit evidence and identify the level of reliability for each type of evidence.
Inspection of the tangible assets, reperformance, and recalculation are generally considered of high reliability because the auditor has direct knowledge about them. High Reliability Medium Reliability Low Reliability 1. Observation |
| AACSB: Communication AICPA: BB Critical Thinking AICPA: FN Reporting Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-05 Understand the reliability of the types of evidence. Topic: Reliability of the Types of Evidence |
| 92. | For each of the following categories of analytical procedures, indicate (a) whether an auditor is required to use the procedure and (b) the purpose(s) of the procedure. Preliminary analytical procedures (risk assessment procedures) Substantive analytical procedures Final analytical procedures The auditor is required to use preliminary analytical procedures to better understand the business and to help in planning the nature, timing, and extent of audit procedures. |
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-09 Learn the purposes and types of analytical procedures. Topic: Advanced Module 1: Analytical Procedures |
| 93. | When using analytical procedures, the auditor first needs to develop an expectation with which to compare recorded results. What is meant by “precision of the expectation,” and what factors affect the precision of analytical procedures?
The quality of an expectation is referred to as the precision of the expectation. Precision is a measure of the potential effectiveness of an analytical procedure; it represents the degree of reliance that can be placed on the procedure. Precision is affected by disaggregation, the plausibility and predictability of the relationship being studied, data reliability, and the type of analytical procedure used to form an expectation. |
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-09 Learn the purposes and types of analytical procedures. Topic: Advanced Module 1: Analytical Procedures |
| 94. | In deciding to implement analytical procedures, what are some factors the auditor will consider in determining a tolerable difference between the expectation and the recorded amount?
The size of the tolerable difference depends on the significance of the account, the desired degree of reliance on the substantive analytical procedure, the level of disaggregation in the amount being tested, and the precision of the expectation. |
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Decision Making Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-09 Learn the purposes and types of analytical procedures. Topic: Advanced Module 1: Analytical Procedures |
| 95. | Stan is auditing First Financial Services and would like to use financial ratios to test the ability of First Financial Services to meet its current obligations. Identify two ratios that would help Stan in this task. Indicate how each ratio is calculated and what a high ratio would signify to Stan.
Answer should include two of the following: The current ratio is calculated as current assets divided by current liabilities. A high ratio indicates an entity’s ability to pay current obligations. |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Decision Making Blooms: Analyze Difficulty: 2 Medium Learning Objective: 05-10 Be familiar with financial ratios that are useful as analytical procedures. Topic: Advanced Module 2: Selected Financial Ratios Useful as Analytical Procedures |
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Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
