Question 1

Which of the following is the best example of objective evidence?

Accepted Answer

A)  a letter written by a client's lawyer discussing the likely outcome of outstanding lawsuits 
B)  the physical count of securities and cash by the auditor 
C)  inquiries of the credit manager about the collectability of noncurrent accounts receivable 
D)  observation of cobwebs on some inventory bins 
A)  a letter written by a client's lawyer discussing the likely outcome of outstanding lawsuits 
B)  the physical count of securities and cash by the auditor 
C)  inquiries of the credit manager about the collectability of noncurrent accounts receivable 
D)  observation of cobwebs on some inventory bins

Question 2

The two most important factors that determine the appropriate sample size in audits are

Accepted Answer

A)  the auditor's expectation of errors and the effectiveness of the client's internal controls. 
B)  the auditor's expectation of errors and materiality. 
C)  the effectiveness of the client's internal controls and materiality. 
D)  materiality and the type of audit procedure to be applied to the population. 
A)  the auditor's expectation of errors and the effectiveness of the client's internal controls. 
B)  the auditor's expectation of errors and materiality. 
C)  the effectiveness of the client's internal controls and materiality. 
D)  materiality and the type of audit procedure to be applied to the population.

Question 3

A major benefit of computerized analytical procedures is the

Accepted Answer

A)  ease of doing the calculations. 
B)  ease of updating the calculations. 
C)  ease of correcting math calculations. 
D)  ability to push the work down to lower levels of the audit staff to do the analysis. 
A)  ease of doing the calculations. 
B)  ease of updating the calculations. 
C)  ease of correcting math calculations. 
D)  ability to push the work down to lower levels of the audit staff to do the analysis.

Question 4

A) Distinguish between internal documentation and external documentation as types of audit evidence. Give two examples of each. Which type is considered more reliable?
B) Below are 10 documents typically examined by auditors. Classify each document as either internal or external.
 $$\begin{array} { | l | l | } 
\hline \begin{array} { l } 
\text { Type of } \
\text { Document }
\end{array} & \text { Documents } \
\hline & \text { 1. Cancelled cheques for payments of accounts payable } \
\hline & \text { 2. Payroll time cards } \
\hline & \text { 3. Duplicate sales invoices } \
\hline & \text { 4. Vendor's invoices } \
\hline & \text { 5. Bank statements } \
\hline & \text { 6. Minutes of the board of directors' meetings } \
\hline & \text { 7. Signed lease agreements } \
\hline & \text { 8. Notes receivable } \
\hline & \text { 9. Subsidiary accounts receivable records } \
\hline & \text { 10. Customer payment remittance advices } \
\hline
\end{array}$$

Accepted Answer

A)Internal documentation involves the au

Question 5

Below are 12 audit procedures. Classify each procedure according to the following types of audit evidence: 1) inspection, 2) external confirmation, 3) recalculation, 4) observation, 5) inquiry of the client, 6) reperformance, and 7) analytical procedure.
 \[\begin{array} { | l | l | } 
\hline \begin{array} { l } 
\text { Type of } \
\text { Evidence }
\end{array} & \text { Audit Procedures } \
\hline & \text { 1. Watch client employees count inventory to determine whether } \
& \text { company procedures are being followed. } \
\hline & \text { 2. Count inventory items and record the amount in the audit } \
& \text { working papers. } \
\hline & \begin{array} { l } 
\text { 3. Stand by the payroll time clock to determine whether any } \
\text { employee "punches in" more than one time. }
\end{array} \
\hline & \begin{array} { l } 
\text { 4. Calculate the ratio of cost of goods sold to sales as a test of } \
\text { overall reasonableness of gross margin relative to the preceding } \
\text { year. }
\end{array} \
\hline & \begin{array} { l } 
\text { 5. Obtain information about the client's internal controls by asking } \
\text { questions of client personnel. }
\end{array} \
\hline & \begin{array} { l } 
\text { 6. Trace totals from the cash disbursements journal to the general } \
\text { ledger. }
\end{array} \
\hline & \begin{array} { l } 
\text { 7. Examine a piece of equipment to make sure a recent purchase } \
\text { of equipment was actually received and is in operation. }
\end{array} \
\hline & \begin{array} { l } 
\text { 8. Review the total of repairs and maintenance for each month to } \
\text { determine whether any month's total was unusually large. }
\end{array} \
\hline & \text { 9. The auditor computes the debt covenant based on the financial } \
\text { information to ensure that the client's calculation was performed } \
\text { correctly. } & \text { 10. Re-foot entries in the sales journal to determine whether they } \
& \text { were correctly totalled by the client. } \
\hline & \begin{array} { l } 
11 . \text { Make a surprise count of petty cash to verify that the amount } \
\text { of the petty cash fund is intact. }
\end{array} \
\hline \begin{array} { l } 
12 . \text { Obtain a written statement from the client's bank stating the } \
\text { client'syear-end balance on deposit. }
\end{array} \
\hline
\end{array}\]

Accepted Answer

1.Observation 7.Inspection
2.Inspection

Question 6

Following are examples of evidence that could be collected during an audit of financial statements.
1. Duplicate copies of sales invoices
2. Inspection of new $100 000 cutting machine
3. Bank confirmation
4. Remittance advices
5. Vendors' invoices
6. Standard letter from lawyer to auditor
7. Auditor inventory count sheets
8. Shipping documents
9. Payroll cheques
10. Long-term debt agreements review notes
11. Auditor interest expense calculation worksheet
12. Observation by auditor of computer error message (invalid supplier number)
13. Gross margin calculation
14. Interview notes from interview with credit manager
Required:
Classify each type of evidence as to its reliability (1 - high, 2 - moderate, 3 - low). Justify your classification.

Accepted Answer

1.Moderate - Internal Documentation if i

Question 7

Identify the characteristics that working papers should have. For each characteristic, briefly explain why it is important.

Accepted Answer

- properly identified: to clearly refere

Question 8

To improve the appropriateness of audit evidence, the auditor should

Accepted Answer

A)  be sure to select a larger sample size for the items being tested. 
B)  add additional population items into the sample to improve sample variety. 
C)  select audit procedures that improve the reliability of the evidence. 
D)  select a smaller sample size that is statistically valid. 
A)  be sure to select a larger sample size for the items being tested. 
B)  add additional population items into the sample to improve sample variety. 
C)  select audit procedures that improve the reliability of the evidence. 
D)  select a smaller sample size that is statistically valid.

Question 9

At the first day of work at a PA firm, staff are given their own laptop computer for use in working with clients and other data.
Required:
A) What is the typical structure of client working paper files?
B) How is client data protected from unauthorized change?

Accepted Answer

A)Client files are organized into folder

Question 10

"Use of comparisons and relationships to determine whether account balances or other data appear reasonable" is a definition of

Accepted Answer

A)  auditing. 
B)  tests of balances. 
C)  tests of controls. 
D)  analytical procedures. 
A)  auditing. 
B)  tests of balances. 
C)  tests of controls. 
D)  analytical procedures.

Question 11

Those procedures specifically outlined in an audit program are primarily designed to

Accepted Answer

A)  prevent litigation. 
B)  detect errors or irregularities. 
C)  test internal controls. 
D)  collect evidence. 
A)  prevent litigation. 
B)  detect errors or irregularities. 
C)  test internal controls. 
D)  collect evidence.

Question 12

Ordinarily, the working papers can be provided to someone else only with the express permission of the client. This is the case even if the papers are

Accepted Answer

A)  subpoenaed by a court. 
B)  used as a part of a provincial institute practice inspection. 
C)  requested as evidence in a provincial institute disciplinary hearing. 
D)  transferred as a result of a public accountant selling his/her practice to another public accounting firm. 
A)  subpoenaed by a court. 
B)  used as a part of a provincial institute practice inspection. 
C)  requested as evidence in a provincial institute disciplinary hearing. 
D)  transferred as a result of a public accountant selling his/her practice to another public accounting firm.

Question 13

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

Accepted Answer

A)  tests of details of balances. 
B)  procedures to obtain an understanding of internal controls. 
C)  specialized audit programs. 
D)  analytical procedures. 
A)  tests of details of balances. 
B)  procedures to obtain an understanding of internal controls. 
C)  specialized audit programs. 
D)  analytical procedures.

Question 14

When a higher than normal ratio of long-term debt to net worth is coupled with a lower than average ratio of profits to total assets, the company

Accepted Answer

A)  is highly successful. 
B)  is comparable with industry standards. 
C)  has a high risk of financial failure. 
D)  has a liquidity problem. 
A)  is highly successful. 
B)  is comparable with industry standards. 
C)  has a high risk of financial failure. 
D)  has a liquidity problem.

Question 15

The most common statistical technique for analytical procedures is

Accepted Answer

A)  analysis of variance. 
B)  bell-curve analysis. 
C)  time-series analysis. 
D)  regression analysis. 
A)  analysis of variance. 
B)  bell-curve analysis. 
C)  time-series analysis. 
D)  regression analysis.

Question 16

Which of the following is an example of subjective evidence?

Accepted Answer

A)  a positive confirmation of an account receivable 
B)  a bank confirmation 
C)  inquiries of the credit manager about the collectability of noncurrent accounts receivable 
D)  the physical count of securities and cash 
A)  a positive confirmation of an account receivable 
B)  a bank confirmation 
C)  inquiries of the credit manager about the collectability of noncurrent accounts receivable 
D)  the physical count of securities and cash

Question 17

The working papers are

Accepted Answer

A)  the property of client. 
B)  prepared by the client's internal auditors. 
C)  the primary means of documenting that an adequate audit was conducted in accordance with GAAS. 
D)  used primarily as a basis for the partners to review and reward the work of the managers, seniors, and staff. 
A)  the property of client. 
B)  prepared by the client's internal auditors. 
C)  the primary means of documenting that an adequate audit was conducted in accordance with GAAS. 
D)  used primarily as a basis for the partners to review and reward the work of the managers, seniors, and staff.

Question 18

Which of the following audit techniques would the auditor use to test the completeness of sales (i.e., test whether shipments have been billed to customers)?

Accepted Answer

A)  trace shipping documents to duplicate sales invoices 
B)  trace duplicate sales invoices to shipping documents 
C)  match data file versions of sales invoices to paper records 
D)  look at subsequent payments after the year end for payments for outstanding invoices 
A)  trace shipping documents to duplicate sales invoices 
B)  trace duplicate sales invoices to shipping documents 
C)  match data file versions of sales invoices to paper records 
D)  look at subsequent payments after the year end for payments for outstanding invoices

Question 19

There are six factors that affect the reliability of audit evidence. One factor is the independence of the provider (i.e., evidence obtained from a source outside the client company is more reliable than that obtained within). Identify and discuss the remaining five factors that affect the reliability of evidence.

Accepted Answer

The remaining five factors that affect t

Question 20

How frequently does the auditor make a decision with respect to the sample size to be selected?

Accepted Answer

A)  once for the entire audit 
B)  for each transaction cycle 
C)  once for each type of audit procedure 
D)  for each audit procedure 
A)  once for the entire audit 
B)  for each transaction cycle 
C)  once for each type of audit procedure 
D)  for each audit procedure

Which of the following is the best example of objective evidence?

The two most important factors that determine the appropriate sample size in audits are

A major benefit of computerized analytical procedures is the

Identify the characteristics that working papers should have. For each characteristic, briefly explain why it is important.

To improve the appropriateness of audit evidence, the auditor should

At the first day of work at a PA firm, staff are given their own laptop computer for use in working with clients and other data. Required: A) What is the typical structure of client working paper files? B) How is client data protected from unauthorized change?

"Use of comparisons and relationships to determine whether account balances or other data appear reasonable" is a definition of

Those procedures specifically outlined in an audit program are primarily designed to

Ordinarily, the working papers can be provided to someone else only with the express permission of the client. This is the case even if the papers are

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

When a higher than normal ratio of long-term debt to net worth is coupled with a lower than average ratio of profits to total assets, the company

The most common statistical technique for analytical procedures is

Which of the following is an example of subjective evidence?

The working papers are

Which of the following audit techniques would the auditor use to test the completeness of sales (i.e., test whether shipments have been billed to customers)?

How frequently does the auditor make a decision with respect to the sample size to be selected?

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Legal Liability

Professional Judgment and Ethics

Audit Responsibilities and Objectives

Client Acceptance and Planning the Audit

Materiality and Risk

Internal Controls and Control Risk

Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Human Resources and Payroll Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters

Exam 9: Audit Evidence

Which of the following is the best example of objective evidence?

The two most important factors that determine the appropriate sample size in audits are

A major benefit of computerized analytical procedures is the

Identify the characteristics that working papers should have. For each characteristic, briefly explain why it is important.

To improve the appropriateness of audit evidence, the auditor should

At the first day of work at a PA firm, staff are given their own laptop computer for use in working with clients and other data. Required: A) What is the typical structure of client working paper files? B) How is client data protected from unauthorized change?

"Use of comparisons and relationships to determine whether account balances or other data appear reasonable" is a definition of

Those procedures specifically outlined in an audit program are primarily designed to

Ordinarily, the working papers can be provided to someone else only with the express permission of the client. This is the case even if the papers are

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

When a higher than normal ratio of long-term debt to net worth is coupled with a lower than average ratio of profits to total assets, the company

The most common statistical technique for analytical procedures is

Which of the following is an example of subjective evidence?

The working papers are

Which of the following audit techniques would the auditor use to test the completeness of sales (i.e., test whether shipments have been billed to customers)?

How frequently does the auditor make a decision with respect to the sample size to be selected?

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Legal Liability

Professional Judgment and Ethics

Audit Responsibilities and Objectives

Client Acceptance and Planning the Audit

Materiality and Risk

Internal Controls and Control Risk

Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Human Resources and Payroll Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters