CH 4 - Audit Evidence

Question 1

Regarding TOD - If the account has many transactions and internal control is strong, where will the focus testing?

Answer 1

Focus testing on the ending balance of the account

Question 2

Regarding TOD - where is focus of testing if the account has few transactions?

Answer 2

Focus will be individual transactions

Question 3

What is a W-3?

Answer 3

W-3 is an annual reconciliation of all employee W-2 forms an contains the total gross payroll for the new year.

Question 4

Define Analytical procedures

Answer 4

Involve comparison of recorded amounts, or ratio developed from recorded amounts, to expectations developed by the independent auditor

Question 5

What is the primary source of evidence for litigation claims and assessment?

Answer 5

Clients management

Question 6

What is the relationship of sufficiency and quality of audit evidence?

Answer 6

Sufficient refers to the quality of evidence where appropriate refers to the quality of evidence in terms of its relevance an reliability

Question 7

What is the result if an entity fails to distinguish between sales and consignment shipments?

Answer 7

Overstatement of Net income and understatement of inventory

Question 8

What assertion is accomplished by determining the last check written for the period and tracing the effect to the accounting records?

Answer 8

Completeness

Question 9

What is performed by the cash disbursement department? (3)

Answer 9

1. Treasurer will sign and mail the check
2. Pay the bill
3. perforate “cancel” the voucher so the bill wont be paid twice

Question 10

What is a bond trust indenture and what is included in it?

Answer 10

Definition - contractual agreement between the bondholders an bond issuers

Contains

1. Date of issue an date of maturity of bond issue
2. amount of the bonds
3. stated interest rate
4. int payment date
5. sinking funds requirements
6. any restrictions on the borrower

Question 11

How would an auditor assess the valuation assertion when auditing an investment account?

Answer 11

Examine the audited FS of the investee company

Question 12

What is the auditor’s primary concern with regard to occurrence assertion for classes of transactions and events (IS accounts)?

Answer 12

Validity

Question 13

What is the report release date?

Answer 13

Date the auditor grants the entity permission to use the auditors report on the entity’s audited FS

Question 14

In regards to fixed assets - what assertion would be accomplished by obtaining and inspecting the title documents of fixed assets?

Answer 14

Rights and obligation

Question 15

When would the auditor request the lawyer’s letter?

Answer 15

usually after year end

Question 16

What procedure would an auditor perform to obtain assurance slow-moving and obsolete items included in inventories are properly identified?

Answer 16

Examining an analysis of inventory turnover

Question 17

Define reperformance

Answer 17

Auditor’s independent performance of a procedure or control originally performed by the company (verification of AR schedule)