Chapt 7 Types of Audit Evidence

Question 1

why is documentation widely used as evidence in audits?

Answer 1

becuase it is usually readily availabe at a relatively low cost

Question 2

why is observation rarely sufficent by itself?

Answer 2

because of the risk of personnel changing their behavior because of the auditors presence

Question 3

what is the broad category of evidence “confirmation”?

Answer 3

describes the receipt of a direct written response from a third party verifying the accuracy of info that was requested by the auditor

Question 4

Would using confirmation for an extraordinarily large sales transaction recorded 3 days before year end be appropriate?

Answer 4

it could be

Question 5

rechecking a sample of calculations made by the client is what category of evidence?

Answer 5

recalculation

Question 6

physical examination evidence is most often associated with what? What is it also applicable to?

Answer 6

inventory and cash verification of securities, notes receivable, and tangible fixed assets

Question 7

What are the assets often confirmed? (7)

Answer 7

1. Cash in bank 2. Marketable securities 3. A/R 4. N/R 5. Owned inventory out on consignment 6. Inventory held in public warehouses 7. Cash surrender value of life insurance

Question 8

evaluations of financial info through analysis of plausible relationships among financial and nonfinancial data is what type of evidence?

Answer 8

analytical procedures

Question 9

what is one possible reason for the unusual fluctuation?

Answer 9

the presence of an accounting misstatement

Question 10

although auditors should consider the reliability of documentation, they rarely verify what?

Answer 10

the authenticity of documentation

Question 11

observation provides evidence about the perfornace of a process or procedure but what is its limiation?

Answer 11

it is limited to the point in time at whcih the observation takes place

Question 12

each of the 8 types of evidence has the potential to be what (2)?

Answer 12

relevant and timely

Question 13

what is the distinction in auditing between the inspection or physical examination of assets such as marketable securities and cash and the inspection of documents such as cancelled checks and sales documents?

Answer 13

if the object being examined, like a sales invoice, has no inherent value, the evidence being inspected is called documentation

Question 14

what is the broad category of evidence “observation”?

Answer 14

looking at a process or procedure being performed by others

Question 15

looking at a process or procedure being performed by others is what category of evidence

Answer 15

observation

Question 16

why is a large volume of inspection evidence usually avialable?

Answer 16

because each transaction in the clients organization is normally supported by at least one document

Question 17

when auditors use documentation to support recorded transactions or amounts, the process is called?

Answer 17

vouching

Question 18

generally, physical examination is an objective means of ascertaining what? (2)

Answer 18

1. the quantity of the asset 2. the description of the asset

Question 19

auditors independent tests of client accounting procedures or controls that were originally done as part of the entitys accounting and internal control system is what type of evidence

Answer 19

reperformance

Question 20

why are confimations not ordinarily used to verify individual transactions between organizations such as sales transactions?

Answer 20

because the auditor can use documents for that purpose

Question 21

what does compute mean?

Answer 21

a calculation done by the auditor independent of the client

Question 22

the auditors examination of the clients documents and records to substantiate the info that is, or should be , included in the FSs is what type of evidence category?

Answer 22

inspection

Question 23

what two types of evidence are likely to be highly reliable if the internal controls are effective?

Answer 23

physical examination and recalculation

Question 24

what is the only account that requires confirmation as the type of audit evidence?

Answer 24

A/R

Question 25

what are the 2 most expensive types of evidence?

Answer 25

physical examination and confirmation

Question 26

what is vouching?

Answer 26

when auditors use documentation to support recorded transactions or amounts

Question 27

what is the broad category of evidence "inquiry"?

Answer 27

the obtaining of written or oral info from the client in response to questions from the auditor

Question 28

what type of document has been prepared and used within the clients organization and is retained without ever going to an outside party

Answer 28

internal document

Question 29

Auditors decide whether or not to use confirmations depending on the _____ needs of the situation as well as the _____ evidence available

Answer 29

reliability alternative

Question 30

unusual fluctuations occur when? (2)

Answer 30

1. significant differences are not expected but exist 2. significant differences are expected but dont exist

Question 31

what does trace mean?

Answer 31

an instruction normally associated with inspection or reperformance. the instruciton should state what the auditor is tracing and where it is being traced from and to. often an audit procedure that includes the term trace will also include a second instruction such as compare or recalculate

Question 32

significant unexpected differences between the current years unaudited financial data and other data used in comparisions

Answer 32

unusual fluctuations

Question 33

if the auditor traces from recieving reports to the acquistions journal to satisfy the completeness objective, the process is called?

Answer 33

tracing

Question 34

What is considered one of the most reliable and useful types of audit evidence?

Answer 34

physical examination

Question 35

what type of document has been handled by someone outside the clients organization who is a party to the transaction being documented, but that is either currently held by the client or readily accessible?

Answer 35

external document

Question 36

when substantive analytical procedures can be performed, the procedure constitutes what?

Answer 36

substantive evidence in support of the related account balances

Question 37

what does an auditor consider if the document is internal when deciding if it is reliable evidence?

Answer 37

whether it was created and processed under conditions of effective internal control

Question 38

what does extending invoices mean?

Answer 38

to take the amount and multiply by price to make sure it is correct

Question 39

what does examine mean?

Answer 39

a reasonably detailed study of a document or record to determine specific facts about it

Question 40

observation is particularly usfule in evaluating the effectivenss of client procedures in what?

Answer 40

counting inventory

Question 41

each of the 8 types of evidence has the potential to be relevant and timely depending on what?

Answer 41

its source and when the eividence is obtained

Question 42

What are liabilities often confirmed (5)

Answer 42

1. A/P 2. N/P 3. Advances from customers 4. Mortgages payable 5. Bonds payable

Question 43

if the unusual fluctuation is large, what must the auditor do?

Answer 43

determine the reason and be satisfied that the cause is a valid economic event and not a misstatment

Question 44

In deciding which audit procedures to use, the auditor can choose from 8 broad categories of evidence which are called types of evidence. what are they?

Answer 44

1. Physical examiniation 2. confirmation 3. inspection 4. analytical procedures 5. Inquires of the client 6. Recalculation 7. Reperformance 8. Observation

Question 45

documents can be classified in what 2 ways

Answer 45

internal and external

Question 46

physical examination is a direct means of what?

Answer 46

verifying that an asset actually exists (existence object)

Question 47

what does read mean?

Answer 47

an exam of written info to determine facts pertinent to the audit

Question 48

when the audito obtains evidence through inquiry, it is normally necessary to alos do what?

Answer 48

obtain corroborating evidence through other procedures

Question 49

the inspection or count by the auditor of a tangible asset is what broad category of evidence?

Answer 49

physical examination

Question 50

Why are confirmations not used in every instance in which they are applicable?

Answer 50

because they are relatively costly to obtain and may cause some inconvenience to those asked to supply them

Question 51

what broad category of evidence describes the receipt of a direct written response from a third party verifying the accuracy of info that was requested by the auditor

Answer 51

confirmation

Question 52

what does compare mean?

Answer 52

a comparison of info in 2 different locations.

Question 53

why is physical examination costly?

Answer 53

requires auditors presence when the client is counting the asset often on the B/S date

Question 54

observation is nornmally done ____ with other audit procedures

Answer 54

concurrently

Question 55

what is the broad category of evidence "reperformance"?

Answer 55

auditors independent tests of client accounting procedures or controls that were originally done as part of the entitys accounting and internal control system ex. compare price on an invoice to an approved price list or reperfrom the aging of A/R. ex. rechecking transfersw of info by tracing info included in more than once place to verify that it is recorded at the same amount each time

Question 56

why is confirmation costly?

Answer 56

auditor must follow careful procedures in the confirmation preparation, transmital, receipt, and in the follow up of nonresponses and exceptions

Question 57

what does scan mean?

Answer 57

a less detailed examn of a document or record to determine whether there is something unusual about it to further investigatw

Question 58

T/F Confirmation of A/R is not required by international auditing standards

Answer 58

T

Question 59

analytical procedures are used extensively in practice and are required during what phases on all audits?

Answer 59

planning and completion phases

Question 60

what is the broad category of evidence "analytical procedures"?

Answer 60

evaluations of financial info through analysis of plausible relationships among financial and nonfinancial data

Question 61

why are external documents considerre more reliable evidence than internal ones?

Answer 61

because external documents have been in the hands of both the client and another party to the transaction so there is some indication that both members are in agreement about the info and the conditions stated on the document

Question 62

what does recompute mean?

Answer 62

a calculations doen to determine whether a clients calculation is correct

Question 63

the obtaining of written or oral info from the client in response to questions from the auditor is what category of evidence

Answer 63

inquiry

Question 64

T/F Proper valuation for FS purposes usually can't be determined by physical examination (accuracy and realizable value objectives)

Answer 64

T

Question 65

what is the p[rimary determinant of the auditors willingness to accept a document as reliable evidence?

Answer 65

whether it is internal or external

Question 66

What part of Owners Equity is often confirmed?

Answer 66

Shares outstanding

Question 67

When practical and reasonable, U.S. auditing standards require the confirmation of a sample of what? why?

Answer 67

A/R because A/R usually represent a significant balance on the FSs and confirmations are a highly reliable type of evidence

Question 68

which evidence alone is usually not sufficient to provide appropriate evidence to satisy any audit objective

Answer 68

inquiry

Question 69

physical examination is not sufficient evidence to verify what?

Answer 69

that existing assets are owned by the client (rights and obligations objective)

Question 70

what is the broad category of evidence "inspection"?

Answer 70

the auditors examination of the clients documents and records to substantiate the info that is, or should be , included in the FSs

Question 71

what is the broad category of evidence " physical examination "

Answer 71

the inspection or count by the auditor of a tangible asset

Question 72

T/F AICPA and PCAOB auditing standards refer to inspection of physical assets and inspection of documents as one type of evidence

Answer 72

T

Question 73

what are the purpose of conducting analytical procedures in which the current years unaudited info is compared with prior years audited info or industry data?

Answer 73

1. understanding the clinets industry and business....because it will highlight changes that can represent important trends or specific events that will influence the audit planning as it points to things to audit more closely 2. its a usefule indicator for determining whether the client has financial problems which can affect the aduit plan and indicate substantial doubt about their ability to continue as a going concern 3. it can indicate the presence of possible misstaements in the FSs- unusual fluctuations 4. it can be used to provide evidence supporting recorded account balances

Question 74

what does foot mean?

Answer 74

addition of a column of numbers to determine whetther the total is the same as the clients

Question 75

Auditing standards provide general guidance in what 3 categories?

Answer 75

1. Qualifications and conduct 2. Reporting 3. Evidence accumulation

Question 76

in some cases, physical examination can be a useful method for evaluating an asset's what? (2)

Answer 76

condition or quality

Question 77

what does count mean?

Answer 77

a dermination of assets on hand at a given time. only used with physical examination

Question 78

when can substantive analyutical procedures be performed?

Answer 78

when a predictable relationship exists and the procedure is based on reliable inputs

Question 79

the documents examined or inspected by the audito are the records used by the client to do what?

Answer 79

provide info for conducting its business in an organized manner

Question 80

what is tracing?

Answer 80

f the auditor traces from recieving reports to the acquistions journal to satisfy the completeness objective

Question 81

T/F Because confirmations come from 3rd party sources instead of the client, they are a highly regarded and often used type of evidence

Answer 81

T

Question 82

what are unusual fluctuations?

Answer 82

significant unexpected differences between the current years unaudited financial data and other data used in comparisions

Question 83

the effectiveness of a clients internal controls has signifcant influence on the ____ of most types of evidence

Answer 83

reliability

Question 84

what are the 3 least costly types of evidence?

Answer 84

observations, inquiry, and recalculation

Question 85

what is the broad category of evidence "recalculation"?

Answer 85

rechecking a sample of calculations made by the client

Question 86

confirmations are seldom used in the audit of fixed asset additions. Why?

Answer 86

they can be verified adequately by inspection and physical examination