Question 1

Auditors use trends in the accounts receivable turnover ratio to assess the reasonableness of the allowance for doubtful accounts.

Accepted Answer

A) True 
 B)False

Question 2

Distinguish between internal documentation and external documentation as types of audit evidence. Give two examples of each. Which type is considered more reliable?

Accepted Answer

Internal documentation involves the audi

Question 3

State the three phases of the audit where analytical procedures can be performed and describe the specific procedures performed in each phase.

Accepted Answer

Analytical procedures: can be performed

Question 4

Auditors may decide to replace tests of details with analytical procedures when possible because the

Accepted Answer

A)  analytical procedures are more reliable. 
B)  analytical procedures are considerably less expensive. 
C)  analytical procedures are more persuasive. 
D)  tests of details are more difficult to interpret. 
A)  analytical procedures are more reliable. 
B)  analytical procedures are considerably less expensive. 
C)  analytical procedures are more persuasive. 
D)  tests of details are more difficult to interpret.

Question 5

To be considered reliable evidence, confirmations must be controlled by

Accepted Answer

A)  the client's employee responsible for accounts receivable. 
B)  the external auditor. 
C)  the client's internal audit department. 
D)  the client's controller or CFO. 
A)  the client's employee responsible for accounts receivable. 
B)  the external auditor. 
C)  the client's internal audit department. 
D)  the client's controller or CFO.

Question 6

The evaluations of financial information through analysis of plausible relationships among financial and nonfinancial data is the definition of

Accepted Answer

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

Question 7

Confirmations are ordinarily used to verify account balances, but may be used to verify transactions.

Accepted Answer

A) True 
 B)False

Question 8

A company's long-term solvency

Accepted Answer

A)  can be measured by the gross profit percentage. 
B)  depends on the success of its operations and on its ability to raise capital for expansion. 
C)  can be measured by the days to collect receivables ratio. 
D)  depends on its ability to generate cash for the payment of dividends. 
A)  can be measured by the gross profit percentage. 
B)  depends on the success of its operations and on its ability to raise capital for expansion. 
C)  can be measured by the days to collect receivables ratio. 
D)  depends on its ability to generate cash for the payment of dividends.

Question 9

Auditor judgment is the primary determinant in determining the amount of evidence gathered.

Accepted Answer

A) True 
 B)False

Question 10

Audit documentation

Accepted Answer

A)  should identify the items tested when the audit procedures involve sampling of transactions or balances. 
B)  does not aid in the preparation of the tax return since accounting and tax rules differ. 
C)  is another term for the audit program. 
D)  should not be given to anyone outside the audit firm, even if a subpoena has been issued. 
A)  should identify the items tested when the audit procedures involve sampling of transactions or balances. 
B)  does not aid in the preparation of the tax return since accounting and tax rules differ. 
C)  is another term for the audit program. 
D)  should not be given to anyone outside the audit firm, even if a subpoena has been issued.

Question 11

Audit documentation should possess certain characteristics. Which of the following is true regarding those characteristics?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 12

Most auditors usually consider samples sufficient that contain only the largest dollar items from the population.

Accepted Answer

A) True 
 B)False

Question 13

Auditors may download all transactions from the general ledger into the working trial balance file for subsequent audit testing and analysis.

Accepted Answer

A) True 
 B)False

Question 14

The permanent audit file would usually include the

Accepted Answer

A)  client's working trial balance. 
B)  summary of the risk assessment procedures performed. 
C)  organizational chart of the company's employees. 
D)  summary of the auditor's test of controls for the current years audit. 
A)  client's working trial balance. 
B)  summary of the risk assessment procedures performed. 
C)  organizational chart of the company's employees. 
D)  summary of the auditor's test of controls for the current years audit.

Question 15

An ________ is the detailed instruction that explains the audit evidence to be obtained during the audit.

Accepted Answer

A)  audit objective 
B)  audit procedure 
C)  audit assertion 
D)  audit program 
A)  audit objective 
B)  audit procedure 
C)  audit assertion 
D)  audit program

Question 16

Confirmations are among the most expensive type of evidence to obtain.

Accepted Answer

A) True 
 B)False

Question 17

When the auditor uses tracing as an audit procedure for tests of transactions, he or she is primarily concerned with which audit objective?

Accepted Answer

A)  occurrence 
B)  completeness 
C)  cutoff 
D)  classification 
A)  occurrence 
B)  completeness 
C)  cutoff 
D)  classification

Question 18

The reliability of evidence refers to the degree to which evidence is considered believable or trustworthy. 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 any two of the remaining five factors.

Accepted Answer

The remaining four factors that affect t

Question 19

The audit program for inventories should be the same as the audit program for account receivables.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is an accurate statement regarding a company's ability to meet its long-term debt obligations?

Accepted Answer

A)  If the debt-to-equity ratio is too high, it may indicate that the company has used up its borrowing capacity. 
B)  If the debt-to-equity ratio is too high, it may mean that available leverage is not being used to the owners' benefit. 
C)  The times interest earned ratio indicates if a company can make its principal and interest payments. 
D)  The key ratios that are used to measure a long-term solvency are debt to equity, return on assets, and times interest earned. 
A)  If the debt-to-equity ratio is too high, it may indicate that the company has used up its borrowing capacity. 
B)  If the debt-to-equity ratio is too high, it may mean that available leverage is not being used to the owners' benefit. 
C)  The times interest earned ratio indicates if a company can make its principal and interest payments. 
D)  The key ratios that are used to measure a long-term solvency are debt to equity, return on assets, and times interest earned.

Exam 7: Audit Evidence

Auditors use trends in the accounts receivable turnover ratio to assess the reasonableness of the allowance for doubtful accounts.

Distinguish between internal documentation and external documentation as types of audit evidence. Give two examples of each. Which type is considered more reliable?

State the three phases of the audit where analytical procedures can be performed and describe the specific procedures performed in each phase.

Auditors may decide to replace tests of details with analytical procedures when possible because the

To be considered reliable evidence, confirmations must be controlled by

The evaluations of financial information through analysis of plausible relationships among financial and nonfinancial data is the definition of

Confirmations are ordinarily used to verify account balances, but may be used to verify transactions.

A company's long-term solvency

Auditor judgment is the primary determinant in determining the amount of evidence gathered.

Audit documentation

Audit documentation should possess certain characteristics. Which of the following is true regarding those characteristics?

Most auditors usually consider samples sufficient that contain only the largest dollar items from the population.

Auditors may download all transactions from the general ledger into the working trial balance file for subsequent audit testing and analysis.

The permanent audit file would usually include the

An ________ is the detailed instruction that explains the audit evidence to be obtained during the audit.

Confirmations are among the most expensive type of evidence to obtain.

When the auditor uses tracing as an audit procedure for tests of transactions, he or she is primarily concerned with which audit objective?

The audit program for inventories should be the same as the audit program for account receivables.

Which of the following is an accurate statement regarding a company's ability to meet its long-term debt obligations?

The Demand for Audit and Other Assurance Services

The CPA Profession

Audit Reports

Professional Ethics

Legal Liability

Audit Responsibilities and Objectives

Audit Planning and Materiality

Assessing the Risk of Material Misstatement

Fraud Auditing

Internal Control and Coso Framework

Assessing Control Risk and Reporting on Internal Controls

Overall Audit Strategy and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details of Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

Audit of the Payroll and Personnel Cycle

Audit of the Inventory and Warehousing Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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