Chapter 6 TB Flashcards
(99 cards)
1
Q
Audit evidence used to support an audit opinion is obtained solely from audit procedures.
T or F?
A
False
2
Q
The amount of evidence gathered is not important to an auditor since the quality of the evidence is of primary importance.
T or F?
A
False
3
Q
The auditor uses professional judgment to determine which audit procedures to perform.
T or F?
A
True
4
Q
Audit evidence consists of both information that corroborates management’s assertions and information that contradicts such assertions.
T or F?
A
True
5
Q
The reliability of audit evidence relates to the connection between the audit procedure being performed and the assertion being audited.
T or F?
A
False
The relevance of audit evidence relates to the connection between the audit procedure being performed and the assertion being audited.
6
Q
The type of audit procedure known as inquiry does not ordinarily provide sufficient audit evidence of the absence of a material misstatement, nor is it alone sufficient to test the operating effectiveness of controls.
T or F?
A
True
7
Q
A limitation of observation is that observing a process on one day does not necessarily indicate how the transactions were processed on a different day or over a relevant period of time.
T or F?
A
True
8
Q
Relevance and reliability of evidence make up the appropriateness of audit evidence.
T or F?
A
True
9
Q
Evidence can be directly or indirectly relevant to an assertion.
T or F?
A
True
10
Q
Internal documentation is more reliable to the auditor if the internal control surrounding the documentation is considered strong than if it is considered weak.
T or F?
A
True
11
Q
Internal documentation is generally less reliable than external documentation.
T or F?
A
True
12
Q
Confirmation statements from banks are an example of third-party external documents.
T or F?
A
True
13
Q
Inspection of tangible assets generally provides reliable evidence with respect to the completeness of the assets, but not necessarily about the existence of the assets.
T or F?
A
False
Inspection of tangible assets generally provides reliable evidence with respect to the existence of the assets, but not necessarily about the rights to the assets or the completeness of the assets.
14
Q
Vouching recorded transactions involves taking a sample entry from a journal and obtaining the original source documents to ensure the transaction occurred.
T or F?
A
True
15
Q
Tracing is a process that helps establish that recorded transactions are valid.
T or F?
A
False
Tracing is a process that helps establish that recorded transactions are complete.
16
Q
One strategy used by auditors in testing assertions is to perform directional testing to find overstatements or understatements.
T or F?
A
True
17
Q
The direction of testing from recorded amounts toward supporting documentation provides evidence as to existence of assets and revenues.
T or F?
A
True
Vouching
18
Q
The direction of testing from the source documents to recorded amounts provides evidence regarding the completeness of
liabilities and expenses.
T or F?
A
True
Tracing
19
Q
For an auditor to test the existence assertion of assets, testing will be performed beginning with the recorded asset and ending with the source documents.
T or F?
A
True
20
Q
Ulanda and Mudana, CPAs, are performing an audit on McArnee, Inc. Ulanda selects a sample from certain source documents and traces them forward to the accounts payable ledger. The purpose of this test is to determine the possibility of understated liabilities.
T or F?
A
True
Vouching
21
Q
The auditor’s concern for potential fraud in the financial statements will most likely result in increased testing for the overstatement of revenues.
T or F?
A
True
22
Q
While inspecting documents, auditors should use original documents rather than copies, because copies are easy for management to falsify.
T or F?
A
True
23
Q
Auditors should mail third-party confirmations through the client’s mailroom.
T or F?
A
False
24
Q
Inspection of an asset generally provides reliable evidence about the rights and obligations assertion related to that asset.
T or F?
A
False
25
Audit documentation serves as support for the financial statements.
| T or F?
False
## Footnote
Audit documentation serves as support for the auditor's opinion on the financial statements.
26
The greatest risk of recording transactions in the incorrect period occurs during the roll-forward period.
| T or F?
False
## Footnote
Cutoff period
27
The primary importance of the audit program is its guidance of the overall conduct of the audit.
| T or F?
True
28
Inquiries of client personnel are not a frequent means of evidence gathering by an auditor.
| T or F?
False
29
The purpose of performing analytical procedures in the planning stage of an audit is to gather audit evidence and make conclusions about account balances.
| T or F?
False
30
An example of physical observation is the auditor's testing of inventory by counting it to substantiate the existence assertion.
| T or F?
True
31
The auditor multiplies the quantity of inventory on the inventory ledger by the cost of the inventory to arrive at total inventory balance per product number. This is an example of recalculation by footing.
| T or F?
False
## Footnote
Testsof extensions involves recomputing items involving multiplication.
32
Some audit procedures may be performed prior to the end of the year under audit.
| T or F?
True
33
The audit program specifies what the client must do to perform the audit in accordance with generally accepted accounting procedures.
| T or F?
False
## Footnote
The audit program specifies what the auditor must do to perform the audit in accordance with generally accepted auditing procedures.
34
The auditor utilizes the same audit program and the same procedures each year for each client in order to ensure that nothing is missed in the current year audit.
| T or F?
False
35
In a reasonableness test, the auditor develops an expected value of an account by using data wholly or partly independent of the client’s accounting information system.
| T or F?
True
36
Audit planning workpapers are prepared to support the foundation of the audit and are prepared for the client to assist in their understanding of the specific audit procedures that will be performed.
| T or F?
False
37
An outside specialist may assist the auditor in obtaining sufficient, appropriate evidence concerning the analysis of complex tax compliance issues.
| T or F?
True
38
Audit documentation should generally be retained for at least seven years.
| T or F?
True
39
Audit documentation should include the initials or electronic signature in order to identify the audit personnel responsible for the work and the managers and partners reviewing the work.
| T or F?
True
40
The reliability of audit evidence is a measure of the quality of the underlying evidence and is influenced by risk, potential management bias associated with the evidence, and the quality of the internal control system underlying the preparation of the evidence.
| T or F?
True
41
The client’s verbal evidence is more reliable than evidence from independent outside sources.
| T or F?
False
42
Underlying accounting records consist of evidence of controls as well as supporting records such as checks, invoices, the general and subsidiary ledger and journal entries.
| T or F?
True
43
The relevance of audit evidence depends on the audit assertion being tested.
| T or F?
True
44
Analytical procedures are a type of substantive evidence.
| T or F?
True
45
While inspecting documents, the reliability depends on the nature and source of the documentation.
| T or F?
True
46
The auditor’s job is to gather sufficient appropriate audit evidence on which to base an opinion.
| T or F?
True
47
Appropriateness deals with the quantity of evidence the auditor collects, whereas sufficiency deals with the quality of evidence the auditor collects.
| T or F?
False
## Footnote
Appropriateness deals with the *quality* of evidence the auditor collects, whereas sufficiency deals with the *quantity* of evidence the auditor collects.
48
Audit findings represent a summary of incorrect transactions detected during the audit.
| T or F?
False
49
Liabilities and expenses are most often tested for overstatements.
| T or F?
False
## Footnote
Liabilities and expenses are most often tested for *understatements*.
50
Many related-party transactions have no higher risk of material misstatement than similar transactions between unrelated parties.
| T or F?
True
51
Appropriateness of evidence is a measure of which of the following?
a. Quantity of evidence.
b. Quality of evidence.
c. Sufficiency of evidence.
d. Meaning of evidence.
b
52
Two determinants of the persuasiveness of evidence include which of the following?
a. Competence and sufficiency.
b. Relevance and reliability.
c. Appropriateness and sufficiency.
d. Independence and effectiveness.
c
53
Directional testing involves testing transactions or balances for which type of error?
a. Overstatement.
b. Understatement.
c. Either overstatement or understatement.
d. Neither overstatement nor understatement.
c
54
Which one of the following would be considered the most reliable type of audit evidence?
a. Purchase orders from vendors.
b. Customer accounts receivable files.
c. Computerized general ledger.
d. Confirmations from banks
d
55
Which one of the following would be the most reliable type of evidence?
a. Photocopies.
b. Indirectly obtained evidence.
c. Observation of assets.
d. Inquiry with the in-house attorney.
c
56
Which one of the following would be the least reliable type of evidence?
a. Confirmations returned by bank directly to the auditor.
b. Letters of communication from the Securities Exchange Commission.
c. Physical examination of perpetual inventory.
d. Evidence from an easily overridden information system.
d
57
An example of an external document would include which of the following?
a. Vendor invoices.
b. Customer orders.
c. Confirmation replies from customers.
d. All the above
d
58
Which of the following is an example of inspection of documentation?
a. Review shipping documents.
b. Estimate the expected amount of interest income.
c. Observe controls.
d. Recalculate the total amount include on a sales invoice
a
59
The process of vouching helps establish which of the following regarding recorded transactions?
a. Transactions have been recorded.
b. Transactions are complete.
c. Transactions are valid.
d. Transactions are presented properly.
c
60
Footing, cross-footing, and tests of extensions are examples of which approach to gathering evidence?
a. Reprocessing.
b. Recalculation.
c. Vouching.
d. Examination of documentation.
b
61
Reprocessing of transactions helps establish that all valid items have been recorded. Reprocessing tests which of the following assertions?
a. Occurrence.
b. Rights.
c. Existence.
d. Completeness.
d
62
Sufficient evidence gathered by the auditor involves which of the following?
a. The quantity of evidence to be obtained.
b. The type of evidence to be obtained.
c. Obtaining limited evidence to achieve efficiency.
d. The use of an audit program to obtain evidence.
a
63
An audit program provides an effective means for which of the following?
a. Reviewing the completeness and persuasiveness of procedures performed.
b. Recording the audit work performed and those responsible for performing the work.
c. Organizing and distributing the work.
d. All of the above
d
64
The reliability of a client's internal documentation is most affected by which of the following?
a. The auditor's independence.
b. Management's motivation to misstate accounts.
c. The type of audit report that will be issued.
d. Management's ability to understand generally accepted audit standards.
b
65
External documentation may lack reliability. Which of the following is the most probable reason for that?
a. The external party may be competent in performing duties.
b. The documentation may be properly understood by the client in the response.
c. The auditor may decide not to use the documentation and replace it with other documents.
d. The documentation may have been altered if the process is not controlled from inception.
d
66
When may audit procedures be performed?
I - on the balance sheet date.
II- prior to the balance sheet date.
III- subsequent to the balance sheet date.
a. I only
b. I and III only
c. II only
d. I, II, and III
d
67
An auditor selects a sample of items recorded and traces them back to the supporting documentation. This is an example of which of the following?
a. Directional testing for existence.
b. Directional testing for completeness.
c. Direct testing for valuation.
d. Direct testing for rights.
a
68
Directional testing is important to an auditor because of which of the following factors?
a. Certain accounts are more prone to be misstated by overstatement than others.
b. The auditor must remain organized when conducting an audit.
c. The primary concern of the auditor is the understatement of asset and revenue accounts.
d. It tests for existence and completeness simultaneously.
a
69
Which of the following assertions is the primary assertion that is satisfied by physically observing the client's count of inventory?
a. Rights.
b. Valuation.
c. Completeness.
d. Existence
d
70
When using the audit procedure vouching, the auditor is primarily concerned with which of the following assertions?
a. Completeness.
b. Existence.
c. Authorization.
d. Classification.
b
71
Observation suffers from which of the following limitations?
a. Observation of processing is rarely unobtrusive.
b. Observation of processing on one day does not necessarily indicate how transactions were processed on a different day.
c. All the above.
d. None of the above.
b
72
The extent of procedures is affected mostly by which of the following factors?
a. The sheer volume of procedures to be applied by the auditor.
b. The time of year in which the client takes a physical inventory in the warehouse.
c. The auditor's judgment that misstatements are probable in certain balances.
d. The availability of the client's staff at or near the balance sheet date.
c
73
An audit program is created to specify which of the following?
a. The type of audit opinion to be rendered based upon procedures performed.
b. The audit procedures that will be performed every year for the client.
c. How an auditor should think while performing audit procedures.
d. Audit objectives and procedures to be followed during the audit process.
d
74
Which one of the following is the primary reason for documenting audit work?
a. To prevent litigation by other parties that question the audit performance.
b. To provide a stand-alone medium that gives audit conclusions and supports the opinion.
c. To give the client a full reporting of all work performed on their behalf.
d. To supply a point of reference for all auditors performing the work subsequently.
b
75
To be considered reliable evidence, confirmations must be controlled by which of the following parties?
a. A client employee responsible for accounts receivable.
b. An external auditor.
c. A client’s internal audit department.
d. A client’s controller or CFO.
b
76
Conclusions are typically documented by auditors in which type of work paper?
a. Audit planning memo.
b. Audit program.
c. Audit memoranda.
d. Representation letter
c
77
Which of the following is not a characteristic of quality audit documentation?
a. Clear communication as to how testing was performed, the results of testing, and conclusions.
b. Organization and assembly of documentation in an orderly fashion.
c. Headings that include the name and signature of the client representative that the auditor interacted with while performing testing.
d. Authenticated identification of the person responsible for completing the procedure and conclusions.
c
78
The processes used by management in developing estimates include which of the following?
a. Controls over the process.
b. The reliability of underlying data in developing the estimate.
c. Use of outside experts by management (for example, how they were used and their expertise).
d. All of the above.
d
79
Which of the following is the primary source for evidence to corroborate the existence of pending litigation?
a. Vendor confirmations.
b. Disclosures in financial statements.
c. Management representation letters.
d. Attorney confirmations.
d
80
Performance of audit procedures at an interim date causes the risk of material misstatement occurring between the interim date and the end of the year to do which of the following?
a. Decrease.
b. Increase.
c. Remain the same.
d. Become more difficult to ascertain.
b
81
What is determined to be appropriate and sufficient will be affected by which of the following?
a. The client’s risk of material misstatement.
b. The risk of material weakness in internal controls.
c. Either a or b.
d. None of the above.
c
82
Audit documentation should contain which of the following?
a. A heading that includes the name of the audit client, an explanatory title, and the balance sheet date.
b. The initials or electronic signature of the auditor performing the audit test and the date the test was completed.
c. The initials or electronic signature of the manager or partner who reviewed the documentation and the date the review was completed.
d. All of the above.
d
83
Which of the following is not an estimate that requires significant auditor judgment and skepticism?
a. Obligations for pension plans.
b. Valuation of goodwill.
c. Allowance for bad debt.
d. Common stock and related additional paid-in capital.
d
84
Which of the following is not a type of internal documentation?
a. Legal documents.
b. Business documents.
c. Third-party documents.
d. Accounting documents.
c
85
Which of the following is a factor that the auditor should consider as they affect the reliability and relevance of information produced by a management’s specialist?
a. Competence, capabilities, and objectivity of that specialist.
b. Work performed by that specialist.
c. Appropriateness of that specialist’s work as audit evidence for the relevant assertion.
d. All of the above
d
86
When using confirmations with outside parties, the auditor must assure which of the following about the outside party?
a. The outside party exists.
b. The outside party is able to respond objectively and independently.
c. The outside party is unbiased in responding.
d. All the above.
d
87
Each of the audit procedures that an auditor could select possesses which of the following characteristics?
a. Audit procedures take time, effort, and money.
b. Audit procedures are difficult to perform.
c. Audit procedures require multiple people from the firm to perform.
d. All of the above
a
88
Which of the following types of audit evidence is the most reliable?
a. Evidence from the client’s organization.
b. Evidence from a poorly controlled system.
c. Directly observable evidence.
d. Facsimiles of documents.
c
89
Which of the following types of audit evidence is the least reliable?
a. Evidence from the client’s organization.
b. Evidence derived from a well-controlled system.
c. Evidence from independent outside sources.
d. Original documents.
a
90
In evaluating cost of evidence, which of the following evidence qualities of the audit usually has the lowest cost?
a. High quality.
b. Medium quality.
c. Low quality.
d. All cost the same
c
91
Recalculations of the client’s computations would not include which of the following procedures?
a. Cutoff.
b. Footing.
c. Extension.
d. Cross-footing.
a
92
Vouching of transactions deals with which of the following?
a. Testing forward.
b. Testing backward.
c. Testing at a point in time.
d. Directional testing either forward or backward.
b
93
Reprocessing of transactions involves which of the following?
a. Testing forward.
b. Testing backward.
c. Testing at a point in time.
d. Directional testing either forward or backward.
a
94
Which of the following characteristics are not normally included in quality audit documentation?
a. Initials of the person preparing and reviewing the document.
b. An assessment of whether the test indicates the possibility of material misstatement in an account.
c. A cross-reference.
d. All are included in quality audit documentation.
d
95
A date at which audit evidence is collected earlier than the balance sheet date is referred to as what?
a. Subsequent date.
b. Cutoff period.
c. Significant date.
d. Interim date.
d
96
The auditor normally considers both underlying accounting records and corroborating information in the audit process. Underlying accounting records do not include which of the following items?
a. Evidence of controls.
b. Minutes of meetings.
c. Checks, invoices, and contracts.
d. General and subsidiary ledgers.
b
97
The written record that forms the basis for the auditor’s conclusions is referred to as what?
a. Audit documentation.
b. Audit adjustment.
c. Accounting records.
d. Footing.
a
98
The auditor may use analytical procedures during which phase of the audit?
a. Planning the audit.
b. Substantive testing.
c. Completing the audit.
d. All of the above.
d
99
Which of the following is not a factor that would impact the effectiveness of a substantive analytical procedure?
a. Nature of the assertion being tested.
b. Plausibility and predictability of the relationships in the data.
c. Excessive disaggregation of the relevant data.
d. Rigor of the analytical procedure employed
c
