Question 1

Determine which of the following is the most correct statement regarding the reliability of audit evidence.

Accepted Answer

A)  Information that is indirectly obtained from external sources is the most reliable audit evidence. 
B)  Reliability of audit evidence is dependent upon the evidence being subjective. 
C)  Reliability of evidence refers to the amount of evidence obtained. 
D)  If internal controls are effective, evidence obtained is more reliable than when the controls are not effective. 
A)  Information that is indirectly obtained from external sources is the most reliable audit evidence. 
B)  Reliability of audit evidence is dependent upon the evidence being subjective. 
C)  Reliability of evidence refers to the amount of evidence obtained. 
D)  If internal controls are effective, evidence obtained is more reliable than when the controls are not effective.

Question 2

When comparing client data with similar prior-period data,

Accepted Answer

A)  if there have been no significant changes in the client's operations in the current year, much of the detail making up the totals in the financial statements should remain unchanged. 
B)  comparison of details must take the form of details over time. 
C)  comparing totals with previous years considers growth in the business activity. 
D)  percent relationships fail to consider declines in the business activity. 
A)  if there have been no significant changes in the client's operations in the current year, much of the detail making up the totals in the financial statements should remain unchanged. 
B)  comparison of details must take the form of details over time. 
C)  comparing totals with previous years considers growth in the business activity. 
D)  percent relationships fail to consider declines in the business activity.

Question 3

Examine the cash receipts journal in the accounting system and compare the amounts received to the corresponding amounts invoiced in the revenue accounting system and to the bank statement evidencing the deposit. This is an example of which of the following?

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 4

Financial ratios

Accepted Answer

A)  are used during the planning and final review phases of the audit. 
B)  can be linked to the trial balance so that calculations are automatically updated as adjustments are made. 
C)  should be compared to previous years and industry averages. 
D)  all of the above. 
A)  are used during the planning and final review phases of the audit. 
B)  can be linked to the trial balance so that calculations are automatically updated as adjustments are made. 
C)  should be compared to previous years and industry averages. 
D)  all of the above.

Question 5

When the auditor scans the sales journal looking for large and unusual transactions, he or she is gathering what type of evidence?

Accepted Answer

A)  inspection 
B)  recalculation 
C)  physical examination 
D)  analytical procedures 
A)  inspection 
B)  recalculation 
C)  physical examination 
D)  analytical procedures

Question 6

Analytical procedures must be used in the planning and completion phases of the audit.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is not correct?

Accepted Answer

A)  It is possible to vary the sample size from one unit to 100% of the items in the population. 
B)  Cost is an adequate justification for not gathering an adequate sample size. 
C)  The decision of how many items to test must be made by the auditor for each audit procedure. 
D)  The sample size for any given procedure is likely to vary from audit to audit. 
A)  It is possible to vary the sample size from one unit to 100% of the items in the population. 
B)  Cost is an adequate justification for not gathering an adequate sample size. 
C)  The decision of how many items to test must be made by the auditor for each audit procedure. 
D)  The sample size for any given procedure is likely to vary from audit to audit.

Question 8

Discuss three of the following characteristics of relevant evidence.
1. Independence of provider
2. Effectiveness of client's internal controls
3. Auditor's direct knowledge
4. Qualification of individuals providing the information
5. Degree of objectivity
6. Timeliness

Accepted Answer

1. Independence of provider - Evidence o

Question 9

Which of the following discoveries through the use of analytical procedures would most likely indicate a relatively high risk of financial failure?

Accepted Answer

A)  a decline in gross margin percentages 
B)  an increase in the balance in fixed assets 
C)  an increase in the ratio of allowance for uncollectible accounts to gross accounts receivable, while at the same time accounts receivable turnover also decreased 
D)  a higher than normal ratio of long-term debt to net worth as well as a lower than average ratio of profits to total assets 
A)  a decline in gross margin percentages 
B)  an increase in the balance in fixed assets 
C)  an increase in the ratio of allowance for uncollectible accounts to gross accounts receivable, while at the same time accounts receivable turnover also decreased 
D)  a higher than normal ratio of long-term debt to net worth as well as a lower than average ratio of profits to total assets

Question 10

Whenever practical and reasonable, the confirmation of accounts receivable is required of CPAs.

Accepted Answer

A) True 
 B)False

Question 11

The basis for preparing financial statements for companies is the general ledger. As soon as possible the auditor obtains the general ledger accounts of the client and prepares a working trial balance. Discuss the audit documentation in the current file that relates to the working trial balance. Include a description of lead and support schedules in your answer.

Accepted Answer

Lead Schedules-each line item on the wor

Question 12

Analytical procedures performed during the completion stage of the audit

Accepted Answer

A)  help the auditor understand the client's business and industry. 
B)  are typically performed by a senior partner with extensive knowledge of the client's business. 
C)  help the auditor identify significant matters requiring special attention later in the engagement. 
D)  all of the above. 
A)  help the auditor understand the client's business and industry. 
B)  are typically performed by a senior partner with extensive knowledge of the client's business. 
C)  help the auditor identify significant matters requiring special attention later in the engagement. 
D)  all of the above.

Question 13

Below are 10 documents typically examined during an audit. Classify each document as either internal or external.

Accepted Answer

1. external 6. internal
2. int

Question 14

Audit procedures can result in significant, unexpected differences. The auditor should investigate further if

Accepted Answer

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

Question 15

Which of the following is accurate regarding the comparison of client data?

Accepted Answer

A)  Since budgets are only projections, auditors can ignore the differences between budgeted and actual results. 
B)  One approach to overcome the limitations of industry averages is to compare the client to one or more benchmark firms in the industry. 
C)  It is impractical to relate one account balance to another balance sheet or income statement account. 
D)  It is extremely difficult to get industry data for comparative purposes. 
A)  Since budgets are only projections, auditors can ignore the differences between budgeted and actual results. 
B)  One approach to overcome the limitations of industry averages is to compare the client to one or more benchmark firms in the industry. 
C)  It is impractical to relate one account balance to another balance sheet or income statement account. 
D)  It is extremely difficult to get industry data for comparative purposes.

Question 16

Which account is used in the current ratio but not the quick ratio?

Accepted Answer

A)  marketable securities 
B)  accounts payable 
C)  accounts receivable 
D)  inventory 
A)  marketable securities 
B)  accounts payable 
C)  accounts receivable 
D)  inventory

Question 17

Approved peer reviewers or regulatory inspectors do not have the right to inspect audit documentation prepared during an audit engagement.

Accepted Answer

A) True 
 B)False

Question 18

The use by auditors of drones is not yet acceptable as a form of gathering evidence in an audit.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements is true?

Accepted Answer

A)  Evidence must be relevant to all of the audit objectives. 
B)  If evidence is subjective, it cannot be reliable. 
C)  Evidence obtained directly by the auditor may not be reliable if the auditor lacks the qualifications to evaluate the evidence. 
D)  The persuasiveness of evidence can be evaluated after considering its sufficiency. 
A)  Evidence must be relevant to all of the audit objectives. 
B)  If evidence is subjective, it cannot be reliable. 
C)  Evidence obtained directly by the auditor may not be reliable if the auditor lacks the qualifications to evaluate the evidence. 
D)  The persuasiveness of evidence can be evaluated after considering its sufficiency.

Question 20

Evidence is usually more persuasive for balance sheet accounts when it is obtained

Accepted Answer

A)  as close to the balance sheet date as possible. 
B)  only from transactions occurring on the balance sheet date. 
C)  from various times throughout the client's year. 
D)  from the time period when transactions in that account were most numerous during the fiscal period. 
A)  as close to the balance sheet date as possible. 
B)  only from transactions occurring on the balance sheet date. 
C)  from various times throughout the client's year. 
D)  from the time period when transactions in that account were most numerous during the fiscal period.

Exam 7: Audit Evidence

Determine which of the following is the most correct statement regarding the reliability of audit evidence.

When comparing client data with similar prior-period data,

Examine the cash receipts journal in the accounting system and compare the amounts received to the corresponding amounts invoiced in the revenue accounting system and to the bank statement evidencing the deposit. This is an example of which of the following?

Financial ratios

When the auditor scans the sales journal looking for large and unusual transactions, he or she is gathering what type of evidence?

Analytical procedures must be used in the planning and completion phases of the audit.

Which of the following statements is not correct?

Discuss three of the following characteristics of relevant evidence. 1. Independence of provider 2. Effectiveness of client's internal controls 3. Auditor's direct knowledge 4. Qualification of individuals providing the information 5. Degree of objectivity 6. Timeliness

Which of the following discoveries through the use of analytical procedures would most likely indicate a relatively high risk of financial failure?

Whenever practical and reasonable, the confirmation of accounts receivable is required of CPAs.

Analytical procedures performed during the completion stage of the audit

Below are 10 documents typically examined during an audit. Classify each document as either internal or external.

Audit procedures can result in significant, unexpected differences. The auditor should investigate further if

Which of the following is accurate regarding the comparison of client data?

Which account is used in the current ratio but not the quick ratio?

Approved peer reviewers or regulatory inspectors do not have the right to inspect audit documentation prepared during an audit engagement.

The use by auditors of drones is not yet acceptable as a form of gathering evidence in an audit.

Which of the following statements is true?

Evidence is usually more persuasive for balance sheet accounts when it is obtained

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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