evidence

Question 1

Audit Evidence

Answer 1

Information used by an auditor to form an opinion with respect to the fairness of financial statements. Audit evidence includes the accounting records and other corroborative evidence.

Question 2

Sufficiency

Answer 2

A measure of the extent or quantity of audit evidence. An auditor must obtain enough audit evidence to be able to rely on evidence that is persuasive rather than conclusive due to the limitations of an audit.

Question 3

Nature of Tests

Answer 3

The purpose and type of tests to gather audit evidence.

Question 3

Timing of Tests

Answer 3

When audit procedures are performed to gather audit evidence or the period to which audit evidence applies.

Question 4

Extent of Tests

Answer 4

Quantity of specific audit procedures to be performed to gather audit evidence.

Question 5

Appropriateness

Answer 5

The value or quality of audit evidence based on a combination of its relevance and its reliability.

Question 6

Relevance

Answer 6

The degree to which evidence pertains to one or more of management’s financial statement assertions.

Question 7

Reliability or Faithful Representation

Answer 7

Persuasiveness of evidence based on the source and nature of the evidence, progressing from the most persuasive to the least:
Evidence developed directly by the auditor.
Evidence obtained exclusively from and through outside sources.
Evidence obtained from outside sources through the client.
Evidence obtained from the client.
Documents are more reliable than oral evidence, and original documents are more reliable than photocopies, etc.

Question 8

AcCorroborative Evidencecounting Records

Answer 8

Audit evidence obtained by the auditor to verify management’s assertions in the form of minutes of meetings, confirmations, and other comparable data that the auditor obtains in developing an understanding of the entity and its environment.

Question 9

Sufficiency

Answer 9

A measure of the extent or quantity of audit evidence. An auditor must obtain enough audit evidence to be able to rely on evidence that is persuasive rather than conclusive due to the limitations of an audit.

Question 10

Sufficiency

Answer 10

A measure of the extent or quantity of audit evidence. An auditor must obtain enough audit evidence to be able to rely on evidence that is persuasive rather than conclusive due to the limitations of an audit.

Question 11

Nature of Tests

Answer 11

The purpose and type of tests to gather audit evidence.

Question 12

Timing of Tests

Answer 12

When audit procedures are performed to gather audit evidence or the period to which audit evidence applies.

Question 13

Timing of Tests

Answer 13

When audit procedures are performed to gather audit evidence or the period to which audit evidence applies.

Question 14

Extent of Tests

Answer 14

Quantity of specific audit procedures to be performed to gather audit evidence.

Question 15

Extent of Tests

Answer 15

Quantity of specific audit procedures to be performed to gather audit evidence.

Question 16

Appropriateness

Answer 16

The value or quality of audit evidence based on a combination of its relevance and its reliability.

Question 16

Appropriateness

Answer 16

The value or quality of audit evidence based on a combination of its relevance and its reliability.

Question 17

Accounting Records

Answer 17

Checks, invoices, contracts, journals, ledgers, and other items that support the numbers and disclosures in financial statements.

Question 18

Management’s Assertions

Answer 18

Representations made by management in financial statements related to events and transactions, account balances, and presentation and disclosure.

Question 19

Management’s Assertions Related to Events and Transactions

Answer 19

Five assertions designed to make certain that all relevant events and transactions have been properly summarized and reported on the financial statements, consisting of (CPA-CO):
Completeness,
Period cutoff,
Accuracy,
Classification and
Occurrence.

Question 20

Management’s Assertions Related to Account Balances

Answer 20

Four assertions designed to make certain that all assets, liabilities, and equity interests are properly reported and fairly presented on the financial statements, consisting of (RACE):
Rights and obligations,
Allocation and valuation,
Completeness, and
Existence.

Question 21

Management’s Assertions Related to Presentation and Disclosure

Answer 21

Five assertions designed to make certain that all accounts are displayed in the proper sections of the financial statements and all appropriate disclosures are provided, consisting of (RACOU-n):
Rights and obligations,
Accuracy and valuation,
Completeness,
Occurrence,
Understandability and classification.

Question 22

Completeness

Answer 22

All transactions and events and all assets, liabilities, and equity interests that should have been recorded have been recorded, and all disclosures that should be provided have been provided

Question 23

Completeness

Answer 23

All transactions and events and all assets, liabilities, and equity interests that should have been recorded have been recorded, and all disclosures that should be provided have been provided

Question 24

Period Cutoff

Answer 24

Amounts related to events and transactions have been reported in the appropriate period.

Question 25

Period Cutoff

Answer 25

Amounts related to events and transactions have been reported in the appropriate period.

Question 26

Accuracy

Answer 26

Information regarding transactions and events have been correctly recorded and disclosures are fair with appropriate amounts.

Question 26

Accuracy

Answer 26

Information regarding transactions and events have been correctly recorded and disclosures are fair with appropriate amounts.

Question 27

Classification

Answer 27

The effects of transactions and events have been reported in appropriate accounts, and disclosures are appropriately characterized.

Question 28

Rights & Obligations

Answer 28

The entity has rights in the assets, and liabilities are the obligations of the entity.

Question 29

Occurrence

Answer 29

All events reported and items disclosed actually occurred and are related to the entity.

Question 30

Existence

Answer 30

All assets, liabilities, and equity interests reported actually exist.

Question 31

Understandability

Answer 31

information is clearly expressed and appropriately described.

Question 32

Substantive Testing

Answer 32

Procedures done by an auditor to gather and analyze audit evidence of misstatements at the assertion level, consisting of tests of details of accounts, transactions and balances and substantive analytical procedures.

Question 33

Substantive Testing

Answer 33

Procedures done by an auditor to gather and analyze audit evidence of misstatements at the assertion level, consisting of tests of details of accounts, transactions and balances and substantive analytical procedures.

Question 34

Tests of Balances

Answer 34

Determining if an item, usually a balance sheet account, is fairly presented by evaluating the balance, such as determining the fairness of inventory by comparing quantities to physical counts.

Question 35

Tests of Balances

Answer 35

Determining if an item, usually a balance sheet account, is fairly presented by evaluating the balance, such as determining the fairness of inventory by comparing quantities to physical counts.

Question 36

Tests of Transactions

Answer 36

An audit approach involving testing a sample of transactions to determine if all transactions processed by the same system or set of procedures can be relied upon.

Question 37

Tests of Details

Answer 37

Tests applied to source information, such as invoices, cancelled checks, or other supporting documents, to test the fairness of items reported on the financial statements.

Question 37

Tests of Details

Answer 37

Tests applied to source information, such as invoices, cancelled checks, or other supporting documents, to test the fairness of items reported on the financial statements.

Question 38

Risk Assessment Procedures

Answer 38

Procedures applied by an auditor in obtaining an understanding of the entity and its environment, including its internal controls, consisting of inquiries, observations, and analytical procedures.

Question 39

Risk Assessment Procedures

Answer 39

Procedures applied by an auditor in obtaining an understanding of the entity and its environment, including its internal controls, consisting of inquiries, observations, and analytical procedures.

Question 40

Analytical Procedures (AP)

Answer 40

Audit procedures consisting of comparing information reported on the financial statements (F/S), or ratios derived from them, to auditor expectations based on knowledge of financial and nonfinancial relationships. AP can be used as a planning tool to determine areas representing higher risk and requiring more than average audit attention, as a substantive test to support amounts reported on the F/S, and in a final review of the F/S near the engagement end.

Question 41

Analytical Procedures—Basic Comparison Types

Answer 41

CRAFT
Client vs. industry
Related accounts
Actual vs. budget
Financial vs. nonfinancial
This year vs. prior year

Question 42

Recalculation

Answer 42

Checking the mathematical accuracy of documents or records.

Question 43

Reperformance

Answer 43

The auditor performs processes to determine the outcome and compares that outcome to information provided by the client.

Question 44

Reperformance

Answer 44

The auditor performs processes to determine the outcome and compares that outcome to information provided by the client.

Question 45

Tracing

Answer 45

Following a transaction forward from the source documents to the books and records to verify completeness.

Question 46

Tracing

Answer 46

Following a transaction forward from the source documents to the books and records to verify completeness.

Question 47

Vouching

Answer 47

Following a transaction backwards from the books and records to the source documents to verify existence or occurrence.

Question 48

Vouching

Answer 48

Following a transaction backwards from the books and records to the source documents to verify existence or occurrence.

Question 49

number of Days’ Sales in Average Inventory

Answer 49

= 365Inventory Turnover

OR
= Average Ending Inventory Average Daily Cost of Goods Sold (COGS)

Average Daily COGS = Cost of Goods Sold365

Used to measure the number of days required to sell the average amount held in inventory.

Question 50

number of Days’ Sales in Average Inventory

Answer 50

= 365Inventory Turnover

OR
= Average Ending Inventory Average Daily Cost of Goods Sold (COGS)

Average Daily COGS = Cost of Goods Sold365

Used to measure the number of days required to sell the average amount held in inventory.

Question 51

Number of Days’ Sales in Average Receivables

Answer 51

= 365/Receivables Turnover

Used to measure the average length of time it takes to collect receivables.

Question 52

Profit Margin on Sales (Gross Margin)

Answer 52

Equal to Net Income ÷ Net Sales, used to measure the amount each dollar of sales contributes toward operating expenses and profit. Gross Profit = Net Sales - Cost of Goods Sold.

Question 53

Negative Confirmation

Answer 53

form of confirmation in which the customer only responds if the information provided to the third party, such as the amount owed, is incorrect (“no news is good news”).

Question 54

Positive Confirmation

Answer 54

A form of confirmation in which the customer must respond whether the information provided, such as the amount owed, is correct or incorrect.

Question 55

Blank Confirmation

Answer 55

A type of positive confirmation in which the customer provides information to the auditor, such as the amount that the customer believes is owed, rather than verifying information supplied on the confirmation form.

Question 56

Lapping of Receivables

Answer 56

A fraud scheme in which collections on accounts receivable are misappropriated and covered up by applying subsequent collections from other customers to the overstated account or accounts and continuing to do so for subsequent collections such that the specific accounts or accounts that are affected change regularly, making the fraud more difficult to detect.

Question 57

Contingent Liabilities

Answer 57

An existing condition that may result in a loss in the future, depending on the occurrence or nonoccurrence of some future event or condition:
Accrued and disclosed if occurrence is probable and the amount is estimable;
Disclosed if either occurrence is probable but the amount is not estimable OR occurrence is reasonably possible but not probable; and
Ignored (neither disclosed nor accrued) if there is only a remote chance that the loss will be incurred.

Question 58

Contingent Liabilities

Answer 58

An existing condition that may result in a loss in the future, depending on the occurrence or nonoccurrence of some future event or condition:
Accrued and disclosed if occurrence is probable and the amount is estimable;
Disclosed if either occurrence is probable but the amount is not estimable OR occurrence is reasonably possible but not probable; and
Ignored (neither disclosed nor accrued) if there is only a remote chance that the loss will be incurred.

Question 59

Reasonably Possible

Answer 59

The probability of occurrence is more than remote but less than probable, in which case disclosure is required, but the amount is not accrued.

Question 60

Reasonably Possible

Answer 60

The probability of occurrence is more than remote but less than probable, in which case disclosure is required, but the amount is not accrued.

Question 61

Probable

Answer 61

There is a high likelihood of occurrence, in which case a loss is accrued and disclosed if reasonably estimable, and only disclosed if probable but not estimable.

Question 62

Subsequent Event

Answer 62

An event occurring after the financial statement date, but prior to the issuance of the financial statements, which might have a material effect on the financial statements.

Question 63

Type I Subsequent Event

Answer 63

An event indicating a condition that existed at the balance sheet date, requiring adjustment to the financial statements, such as the bankruptcy of a customer after year-end, indicating insolvency as of year-end.

Question 64

Type II Subsequent Event

Answer 64

An event indicating a condition that did NOT exist at the balance sheet date, requiring disclosure without adjustment to the financial statements, such as the destruction of property due to a natural disaster occurring after the balance sheet date.

Question 65

Group Audits

Answer 65

Engagements in which one firm, the group auditor, issues a report on the financial statements of an entity taken as a whole, when components of the entity have been audited by others, referred to as component auditors.