Exam 5: Audit Evidence and Documentation

In preparing for an audit of the retail footwear division of a major retail organization,the auditor gathered the following information about the organization's stores: All Northeast Southwest Mid-Central Stores Region Region Region \ 736,000 \ 840,000 \ 760,000 \ 630,000 Average sales per store \ 375,000 \ 420,000 \ 325,000 \ 395,000 Average cost of goods sold per store 48 13 18 17 Number of stores 1,800 2,200 1,850 1,550 Average square feet per store \ 137,000 \ 152,000 \ 140,000 \ 122,000 Average sales per full-time employee \ 98,000 \ 102,000 \ 82,000 \ 112,000 Average wage related expense per store \ 35,000 \ 285,000 \ 320,000 \ 115,000 Management has centralized purchasing and uses a model based upon previous year's sales with adjustments for trends in the market place,e.g.,the trend to more casual shoes.A staff auditor has suggested that the centralized purchasing may be one of the reasons for the lower level of profitability in the Mid-Central Region.Which of the following would be the best single audit procedure to address the staff auditor's assertion?

Further audit procedures include: Risk assessment procedures Tests of controls A) Yes Yes B) Yes No C) No Yes D) No No

The primary purpose of a letter of representations is to obtain additional evidence about specific accounts.

For each of the audit procedures listed below select the type of audit procedure,if any,that the auditor performed.A type of audit procedure may be selected once or not at all.

The auditors of Smith Electronics wish to limit the audit risk of material misstatement in the test of accounts receivable to 5 percent.They believe that inherent risk is 100%,and there is a 40% risk that material misstatement could have bypassed the client's system of internal control.What is the maximum detection risk the auditors should specify in their substantive procedures of details of accounts receivable?

Which of the following is not a basic approach often used by auditors to evaluate the reasonableness of accounting estimates?

The auditors should propose an adjusting journal entry for all material related-party transactions.

The audit time budget is an example of:

In performing analytical procedures,the auditors may use dollar amounts,physical quantities,or percentages.

A schedule listing account balances for the current and previous years,and columns for adjusting and reclassifying entries proposed by the auditors to arrive at the final amount that will appear in the financial statement,is referred to as a:

Which of the following ultimately determines the specific audit procedures necessary to provide independent auditors with a reasonable basis for the expression of an opinion?

Which of the following is correct concerning a "fraud risk factor"?

As planning materiality is decreased,the auditor should plan more work on individual accounts to.

In auditing an asset valued at fair value,which of the following potentially provides the auditor with the strongest evidence?

Assertions with high inherent risk are least likely to involve:

Which of the following is not a basic procedure used in an audit?

During financial statement audits,auditors seek to restrict which type of risk?

Adjusting journal entries are ordinarily recorded by the client,while reclassifying journal entries need not be recorded.

In evaluating an entity's accounting estimates,one of the auditor's objectives is to determine whether the estimates are

Financial statement assertions are established for classes of transactions, Account Balances Disclosures A) Yes Yes B) Yes No C) No Yes D) No No