Question 1

To test for unsupported entries in the ledger, the direction of audit testing should start from the

Accepted Answer

A)  Ledger entries. 
B)  Journal entries. 
C)  Externally generated documents. 
D)  Original source documents. 
A)  Ledger entries. 
B)  Journal entries. 
C)  Externally generated documents. 
D)  Original source documents.

Question 2

The auditor gathers audit evidence to test management's assertions.

Accepted Answer

A) True 
 B)False

Question 3

Following are several statements regarding accounting records or audit documentation. Which of the statements is correct?

Accepted Answer

A)  Accounting records belong to the auditee. 
B)  Documentation of an auditor's understanding of the entity's internal control system is not necessary. 
C)  Audit documents may be regarded as a substitute for the company's accounting records. 
D)  The independent auditor may discard audit documents after two years. 
A)  Accounting records belong to the auditee. 
B)  Documentation of an auditor's understanding of the entity's internal control system is not necessary. 
C)  Audit documents may be regarded as a substitute for the company's accounting records. 
D)  The independent auditor may discard audit documents after two years.

Question 4

When using analytical procedures, the auditor first needs to develop an expectation with which to compare recorded results. What is meant by "precision of the expectation," and what factors affect the precision of analytical procedures?

Accepted Answer

The quality of an expectation is referre

Question 5

Audit procedures are designed to test management assertions.

Accepted Answer

A) True 
 B)False

Question 6

Analytical procedures used in planning an audit should focus on identifying

Accepted Answer

A)  Material weaknesses in internal control. 
B)  The predictability of financial data from individual transactions. 
C)  The various assertions that are embodied in the financial statements. 
D)  Areas that may represent specific risks relevant to the audit. 
A)  Material weaknesses in internal control. 
B)  The predictability of financial data from individual transactions. 
C)  The various assertions that are embodied in the financial statements. 
D)  Areas that may represent specific risks relevant to the audit.

Question 7

Management assertions fall into four main categories.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements is generally correct about the appropriateness of audit evidence?

Accepted Answer

A)  The more effective the internal control, the more assurance it provides about the reliability of the accounting data and financial statements. 
B)  Appropriateness of audit evidence refers to the amount of corroborative evidence obtained. 
C)  Information obtained indirectly from independent outside sources is more persuasive than the auditor's direct personal knowledge obtained through observation and inspection. 
D)  Appropriateness of audit evidence refers only to audit evidence obtained from outside the entity. 
A)  The more effective the internal control, the more assurance it provides about the reliability of the accounting data and financial statements. 
B)  Appropriateness of audit evidence refers to the amount of corroborative evidence obtained. 
C)  Information obtained indirectly from independent outside sources is more persuasive than the auditor's direct personal knowledge obtained through observation and inspection. 
D)  Appropriateness of audit evidence refers only to audit evidence obtained from outside the entity.

Question 9

Explain the occurrence and completeness assertions. How does failure to meet each assertion affect the financial statements?

Accepted Answer

The occurrence assertion relates to whet

Question 10

An example of an analytical procedure is the comparison of

Accepted Answer

A)  Financial information with similar information regarding the industry in which the entity operates. 
B)  Recorded amounts of major disbursements with appropriate invoices. 
C)  Results of a statistical sample with the expected characteristics of the actual population. 
D)  EDP generated data with similar data generated by a manual accounting system. 
A)  Financial information with similar information regarding the industry in which the entity operates. 
B)  Recorded amounts of major disbursements with appropriate invoices. 
C)  Results of a statistical sample with the expected characteristics of the actual population. 
D)  EDP generated data with similar data generated by a manual accounting system.

Question 11

Which of the following is an essential factor in evaluating the sufficiency of evidence? The evidence must

Accepted Answer

A)  Be well documented and cross-referenced in the audit documents. 
B)  Be based on sources that are considered reliable. 
C)  Bear a direct relationship to the audit assertion. 
D)  Be persuasive enough to enable the auditor to form an opinion. 
A)  Be well documented and cross-referenced in the audit documents. 
B)  Be based on sources that are considered reliable. 
C)  Bear a direct relationship to the audit assertion. 
D)  Be persuasive enough to enable the auditor to form an opinion.

Question 12

Procedures specifically outlined in an audit program are designed primarily to

Accepted Answer

A)  Assess risk for planning purposes. 
B)  Detect all errors or fraudulent activities. 
C)  Test internal control systems. 
D)  Gather evidence about management's assertions. 
A)  Assess risk for planning purposes. 
B)  Detect all errors or fraudulent activities. 
C)  Test internal control systems. 
D)  Gather evidence about management's assertions.

Question 13

Tracing is used primarily to test which of the following assertions about classes of transactions?

Accepted Answer

A)  Occurrence. 
B)  Completeness. 
C)  Cutoff. 
D)  Classification. 
A)  Occurrence. 
B)  Completeness. 
C)  Cutoff. 
D)  Classification.

Question 14

Audit evidence includes only written information used by the auditor in arriving at an opinion about the fairness of financial statements.

Accepted Answer

A) True 
 B)False

Question 15

As a result of analytical procedures conducted during the planning phase, the independent auditor determines that the gross profit percentage has declined from 30% in the preceding year to 20% in the current year. The auditor should

Accepted Answer

A)  Express an opinion that is qualified due to the inability of the company to continue as a going concern. 
B)  Evaluate management's performance in causing this decline. 
C)  Require footnote disclosure. 
D)  Consider the possibility of an error in the financial statements. 
A)  Express an opinion that is qualified due to the inability of the company to continue as a going concern. 
B)  Evaluate management's performance in causing this decline. 
C)  Require footnote disclosure. 
D)  Consider the possibility of an error in the financial statements.

Question 16

Which of the following presumptions does not relate to the appropriateness of audit evidence?

Accepted Answer

A)  The more effective the internal control system, the more assurance it provides about the accounting data and financial statements. 
B)  An auditor's opinion, to be economically useful, is formed within a reasonable time and based on evidence obtained at a reasonable cost. 
C)  Evidence obtained from independent sources outside the entity is more reliable than evidence secured solely within the entity. 
D)  The independent auditor's direct personal knowledge, obtained through observation and inspection, is more persuasive than information obtained indirectly. 
A)  The more effective the internal control system, the more assurance it provides about the accounting data and financial statements. 
B)  An auditor's opinion, to be economically useful, is formed within a reasonable time and based on evidence obtained at a reasonable cost. 
C)  Evidence obtained from independent sources outside the entity is more reliable than evidence secured solely within the entity. 
D)  The independent auditor's direct personal knowledge, obtained through observation and inspection, is more persuasive than information obtained indirectly.

Question 17

The auditor generally gives most emphasis to ratio and trend analysis in the examination of the

Accepted Answer

A)  Statement of Changes in Stockholders' Equity and Retained Earnings. 
B)  Income Statement. 
C)  Balance Sheet. 
D)  Statement of Cash Flows. 
A)  Statement of Changes in Stockholders' Equity and Retained Earnings. 
B)  Income Statement. 
C)  Balance Sheet. 
D)  Statement of Cash Flows.

Question 18

All audit documentation should have a heading, which includes

Accepted Answer

A)  Name of the company under audit. 
B)  Title of the working paper. 
C)  Company's year-end date. 
D)  All of these. 
A)  Name of the company under audit. 
B)  Title of the working paper. 
C)  Company's year-end date. 
D)  All of these.

Question 19

Which of the following would be least likely to be comparable between similar corporations in the same industry or line of business?

Accepted Answer

A)  Earnings per share. 
B)  Return on total assets before interest and taxes. 
C)  Accounts receivable turnover. 
D)  Operating cycle. 
A)  Earnings per share. 
B)  Return on total assets before interest and taxes. 
C)  Accounts receivable turnover. 
D)  Operating cycle.

Question 20

The audit working papers belong to

Accepted Answer

A)  The company under audit. 
B)  The government. 
C)  The audit firm. 
D)  They are public record documents. 
A)  The company under audit. 
B)  The government. 
C)  The audit firm. 
D)  They are public record documents.

Exam 5: Evidence and Documentation

To test for unsupported entries in the ledger, the direction of audit testing should start from the

The auditor gathers audit evidence to test management's assertions.

Following are several statements regarding accounting records or audit documentation. Which of the statements is correct?

When using analytical procedures, the auditor first needs to develop an expectation with which to compare recorded results. What is meant by "precision of the expectation," and what factors affect the precision of analytical procedures?

Audit procedures are designed to test management assertions.

Analytical procedures used in planning an audit should focus on identifying

Management assertions fall into four main categories.

Which of the following statements is generally correct about the appropriateness of audit evidence?

Explain the occurrence and completeness assertions. How does failure to meet each assertion affect the financial statements?

An example of an analytical procedure is the comparison of

Which of the following is an essential factor in evaluating the sufficiency of evidence? The evidence must

Procedures specifically outlined in an audit program are designed primarily to

Tracing is used primarily to test which of the following assertions about classes of transactions?

Audit evidence includes only written information used by the auditor in arriving at an opinion about the fairness of financial statements.

As a result of analytical procedures conducted during the planning phase, the independent auditor determines that the gross profit percentage has declined from 30% in the preceding year to 20% in the current year. The auditor should

Which of the following presumptions does not relate to the appropriateness of audit evidence?

The auditor generally gives most emphasis to ratio and trend analysis in the examination of the

All audit documentation should have a heading, which includes

Which of the following would be least likely to be comparable between similar corporations in the same industry or line of business?

The audit working papers belong to

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Audit Planning, Types of Audit Tests, and Materiality

Risk Assessment

Internal Control in a Financial Statement Audit

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Overview and Application to Tests of Controls

Audit Sampling: An Application to Substantive Tests of Account Balances

Auditing the Revenue Process

Auditing the Purchasing Process

Auditing the Human Resource Management Process

Auditing the Inventory Management Process

Auditing the Financing Investing Process: Prepaid Expenses Intangible Assets and Property Plant and Equipment

Auditing the Financing Investing Process: Long-Term Liabilities Stockholders Equity and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Completing the Audit Engagement

Reports on Audited Financial Statements

Professional Conduct, Independence, and Quality Control

Legal Liability

Assurance, Attestation, and Internal Auditing Services

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