Question 1

Audit documentation of the evidence gathered by the auditor should meet which of the following criteria?

Accepted Answer

A)  Workpapers are prepared in sufficient detail so that they can be given to the client for future reference. 
B)  The content is sufficient to provide support for the auditor's opinion, including the auditor's representation as to compliance with auditing standards. 
C)  Audit evidence is principally gathered to determine if the client's financial statements, as prepared by management, can be relied upon to make managerial decisions about the firm. 
D)  Audit evidence as displayed in the workpapers is primarily performed to protect the auditing firm in the case of a lawsuit by investors. 
A)  Workpapers are prepared in sufficient detail so that they can be given to the client for future reference. 
B)  The content is sufficient to provide support for the auditor's opinion, including the auditor's representation as to compliance with auditing standards. 
C)  Audit evidence is principally gathered to determine if the client's financial statements, as prepared by management, can be relied upon to make managerial decisions about the firm. 
D)  Audit evidence as displayed in the workpapers is primarily performed to protect the auditing firm in the case of a lawsuit by investors.

Question 2

The two most important factors when determining the appropriate sample size in an audit are the auditor's expectation of misstatements and the objectivity of the evidence.

Accepted Answer

A) True 
 B)False

Question 3

Inspection consists of looking at a process or procedure being performed by others.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following forms of evidence would be least persuasive in forming the auditor's opinion about marketable securities and other investments held by the company?

Accepted Answer

A)  responses to auditor's questions by the president and controller regarding the investments account 
B)  correspondence with a stockbroker regarding the quantity of client's investments held in street name by the broker 
C)  minutes of the board of directors authorizing the purchase of stock as an investment 
D)  the auditor's count of marketable securities 
A)  responses to auditor's questions by the president and controller regarding the investments account 
B)  correspondence with a stockbroker regarding the quantity of client's investments held in street name by the broker 
C)  minutes of the board of directors authorizing the purchase of stock as an investment 
D)  the auditor's count of marketable securities

Question 5

When the auditor uses supporting evidence for amounts posted to account balances with documentary evidence, that process is called

Accepted Answer

A)  inquiry. 
B)  confirmation. 
C)  vouching. 
D)  physical examination. 
A)  inquiry. 
B)  confirmation. 
C)  vouching. 
D)  physical examination.

Question 6

After deciding on the sample size for a particular audit procedure, the auditor has a choice of several different methods to select the specific population items to test.

Accepted Answer

A) True 
 B)False

Question 7

An audit program is the list of audit procedures for an audit area or an entire audit.

Accepted Answer

A) True 
 B)False

Question 8

Substantive analytical procedures performed in all phases of the audit generally use aggregate data to help understand where misstatements are more likely to occur.

Accepted Answer

A) True 
 B)False

Question 9

Assume the auditor determines that verifying marketable securities is a major and material item to the financial statements of an audit client. The auditor must therefore obtain a sufficient amount of relevant and reliable evidence about marketable securities for this audit client. The audit must also result in gathering sufficiently persuasive evidence satisfying the auditor that marketable securities are materially correct.

Accepted Answer

A) True 
 B)False

Question 10

Which ratio is computed by dividing operating income by net sales?

Accepted Answer

A)  gross profit percent 
B)  profit margin 
C)  return on sales 
D)  return on assets 
A)  gross profit percent 
B)  profit margin 
C)  return on sales 
D)  return on assets

Question 11

Which type of supporting schedule is designed to show the activity in a general ledger account during the entire period under audit?

Accepted Answer

A)  trial balance 
B)  reconciliation of amounts 
C)  summary of procedures 
D)  analysis 
A)  trial balance 
B)  reconciliation of amounts 
C)  summary of procedures 
D)  analysis

Question 12

All evidence must have the same level of persuasiveness.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is not a weakness of using industry averages for auditing?

Accepted Answer

A)  The industry data are broad averages. 
B)  Different companies follow different accounting methods. 
C)  They can be helpful in identifying potential misstatements. 
D)  All of the above are weaknesses. 
A)  The industry data are broad averages. 
B)  Different companies follow different accounting methods. 
C)  They can be helpful in identifying potential misstatements. 
D)  All of the above are weaknesses.

Question 14

Which ratio do auditors find useful for assessing misstatements in sales, cost of goods sold, accounts receivable, and inventory?

Accepted Answer

A)  earnings per share 
B)  profit margin 
C)  gross profit percent 
D)  current ratio 
A)  earnings per share 
B)  profit margin 
C)  gross profit percent 
D)  current ratio

Question 15

Supporting schedules

Accepted Answer

A)  must be prepared by the auditor. 
B)  make up the largest portion of audit documentation. 
C)  must consist of either reconciliation of amounts or substantive analytical procedures. 
D)  all of the above. 
A)  must be prepared by the auditor. 
B)  make up the largest portion of audit documentation. 
C)  must consist of either reconciliation of amounts or substantive analytical procedures. 
D)  all of the above.

Question 16

A benefit obtained from using industry averages is that it provides a(n)

Accepted Answer

A)  benchmark to compare the company's results. 
B)  indication where errors exist in the statements. 
C)  benchmark to be used in evaluating a client's budgets. 
D)  comparison of "what is" with "what should be." 
A)  benchmark to compare the company's results. 
B)  indication where errors exist in the statements. 
C)  benchmark to be used in evaluating a client's budgets. 
D)  comparison of "what is" with "what should be."

Question 17

When determining sufficient and appropriate audit evidence in order to form an opinion on the client's financial statements the auditor compiles audit documentation to support the opinion. The largest portion of audit documentation will include detailed supporting schedules prepared by the client or the auditor in support of specific accounts on the financial statements. Two types of supporting schedules are analysis and reconciliation of amounts. Discuss those two schedules and give an example for each schedule.

Accepted Answer

Analysis: designed to show the activity

Question 18

The times interest ratio helps the auditor determine if the client can comfortably make its interest payments required in the future on its long-term debts.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following ratios is not a measure of a company's short-term debt paying ability?

Accepted Answer

A)  accounts receivable turnover 
B)  cash ratio 
C)  current ratio 
D)  quick ratio 
A)  accounts receivable turnover 
B)  cash ratio 
C)  current ratio 
D)  quick ratio

Question 20

Inquiries of clients and recalculations normally have a low cost associated with them.

Accepted Answer

A) True 
 B)False

Exam 7: Audit Evidence

Audit documentation of the evidence gathered by the auditor should meet which of the following criteria?

The two most important factors when determining the appropriate sample size in an audit are the auditor's expectation of misstatements and the objectivity of the evidence.

Inspection consists of looking at a process or procedure being performed by others.

Which of the following forms of evidence would be least persuasive in forming the auditor's opinion about marketable securities and other investments held by the company?

When the auditor uses supporting evidence for amounts posted to account balances with documentary evidence, that process is called

After deciding on the sample size for a particular audit procedure, the auditor has a choice of several different methods to select the specific population items to test.

An audit program is the list of audit procedures for an audit area or an entire audit.

Substantive analytical procedures performed in all phases of the audit generally use aggregate data to help understand where misstatements are more likely to occur.

Which ratio is computed by dividing operating income by net sales?

Which type of supporting schedule is designed to show the activity in a general ledger account during the entire period under audit?

All evidence must have the same level of persuasiveness.

Which of the following is not a weakness of using industry averages for auditing?

Which ratio do auditors find useful for assessing misstatements in sales, cost of goods sold, accounts receivable, and inventory?

Supporting schedules

A benefit obtained from using industry averages is that it provides a(n)

The times interest ratio helps the auditor determine if the client can comfortably make its interest payments required in the future on its long-term debts.

Which of the following ratios is not a measure of a company's short-term debt paying ability?

Inquiries of clients and recalculations normally have a low cost associated with them.

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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