Question 1

For new clients, the auditor can obtain knowledge about the client's business and its industry from the permanent file.

Accepted Answer

A) True 
 B)False  False

Question 2

Analytical procedures are one type of evidence-gathering procedure. According to auditing standards, there are five general forms of analytical procedures. Auditing standards also provide examples of five sources of information for analytical procedures.
Required:
A. Describe three of the five general forms of analytical procedures.
B. For each form, describe a typical source of the information for the form.
C. For each source, include any questions or concerns an auditor would have about the reliability or relevancy of the source.

Accepted Answer

A) The five general forms of analytical procedures are:
i. Comparison of current-year account balances to one or more prior periods.
ii. Comparison of the current-year account balances to budgets and forecasts prepared by the company.
iii. Evaluation of the relationships of current-year account balances to other current-year balances to determine if they conform to expectations based on the company's historical experience.
iv. Comparison of current-year account balances and financial ratios with similar information for the industry in which the company operates.
v. Study of the relationships of current-year account balances with relevant nonfinancial information (e.g., physical production statistics).
B) The five sources of information for analytical procedures are:
i. Financial account information for prior period(s).
ii. Company budgets and forecasts.
iii. Financial relationships among accounts in the current period.
iv. Industry statistics.
v. Nonfinancial information, such as physical production statistics.
C) Concerns about relevance and reliability of the sources of information are:
i. Has the financial information from prior period(s) been audited?
ii. Are company budgets or forecasts generally accurate?
iii. What processes does the client go through to develop these?
iv. Are the industry statistics from a reliable source? Are the industry statistics specific enough to the client or the particular segment or division of the client being examined?
v. Has the nonfinancial information been audited? Have the controls over the production of the nonfinancial information been tested?

Question 3

Spoken and written representations given by the auditee's officers, directors, owners, and employees are generally considered reliable enough to stand on their own.

Accepted Answer

A) True 
 B)False  False

Question 4

A combination of evidence gathering techniques provides more persuasive than evidence gathered from a single technique.

Accepted Answer

A) True 
 B)False

Question 5

Permanent audit files contain such documents as the engagement letter, client organization chart, and internal control system flowcharts.

Accepted Answer

A) True 
 B)False

Question 6

Loan application documents are considered authoritative evidence.

Accepted Answer

A) True 
 B)False

Question 7

An auditor should re-perform calculations on a random basis to check for accuracy. Usually, if one component has been calculated properly, the auditor can rely that the other components have also been computed properly.

Accepted Answer

A) True 
 B)False

Question 8

In considering the effectiveness of evidence gathering procedures, it was found that most companies have adjustments. Research also shows that ________.

Accepted Answer

A)  both receivables and payables are usually overstated 
B)  receivables are usually overstated and payables are usually understated 
C)  receivables are usually understated and payables are usually overstated 
D)  both receivables and payables are usually understated 
A)  both receivables and payables are usually overstated 
B)  receivables are usually overstated and payables are usually understated 
C)  receivables are usually understated and payables are usually overstated 
D)  both receivables and payables are usually understated

Question 9

A first audit requires more work than a repeat engagement.

Accepted Answer

A) True 
 B)False

Question 10

Since audit papers are the property of the auditor, what was fundamentally wrong about Arthur Andersen's decision to shred working papers related to the Enron audit.

Accepted Answer

Andersen's reputation declined in Januar

Question 11

Destroying working papers may prevent auditors from proving due care if they are sued for negligence.

Accepted Answer

A) True 
 B)False

Question 12

An auditor selects audit procedures that will provide ________.

Accepted Answer

A)  the most evidence 
B)  the most persuasive evidence 
C)  the most reliable evidence that can be obtained in a cost-effective manner 
D)  the most relevant information to the audit assertion 
A)  the most evidence 
B)  the most persuasive evidence 
C)  the most reliable evidence that can be obtained in a cost-effective manner 
D)  the most relevant information to the audit assertion

Question 13

The audit evidence gathering technique known as computation or recalculation refers to ________.

Accepted Answer

A)  sending letters to independent third parties 
B)  counting inventory 
C)  recalculating depreciation 
D)  checking prices as per the price list 
A)  sending letters to independent third parties 
B)  counting inventory 
C)  recalculating depreciation 
D)  checking prices as per the price list

Question 14

What is the strongest form of audit evidence?

Accepted Answer

A)  The auditor's direct personal knowledge. 
B)  Evidence gathered directly from independent third parties. 
C)  Evidence produced by independent third parties. 
D)  Comprehensive analysis performed by the auditor. 
A)  The auditor's direct personal knowledge. 
B)  Evidence gathered directly from independent third parties. 
C)  Evidence produced by independent third parties. 
D)  Comprehensive analysis performed by the auditor.

Question 15

For good form, each audit evidence paper should be indexed using a standard system of letters and numbers. The main purpose of this practice is to allow ________.

Accepted Answer

A)  other papers to be easily cross-referenced so that connections among accounts can be followed 
B)  a check of the completeness of working papers 
C)  working papers to be easily re-filed if they are taken out of the file or when the paper is first created 
D)  auditors to prove that they have performed sufficient work to support their audit opinion 
A)  other papers to be easily cross-referenced so that connections among accounts can be followed 
B)  a check of the completeness of working papers 
C)  working papers to be easily re-filed if they are taken out of the file or when the paper is first created 
D)  auditors to prove that they have performed sufficient work to support their audit opinion

Question 16

There are two kinds of audit programs: (1) balance-audit programs and (2) cycle-audit programs.

Accepted Answer

A) True 
 B)False

Question 17

Identify the three main types of audit programs and indicate the purpose of each.

Accepted Answer

The three types of audit programs are th

Question 18

A first-time audit requires more work than a continuing client. Identify some of the issues involved in the first audit of a company that do not occur in an ongoing engagement.

Accepted Answer

If an organization has been operating fo

Question 19

Oral evidence from inquiry is considered to be very important.

Accepted Answer

A) True 
 B)False

Question 20

In preparing for a repeat engagement, the first thing an audit team should do is ________.

Accepted Answer

A)  interview client management for any changes in the business and industry 
B)  take a tour of a client's physical facilities, noting obvious inventory obsolescence or equipment maintenance issues 
C)  obtain a copy of the year-end financial statements for the current year 
D)  review prior-year working papers and permanent file documents 
A)  interview client management for any changes in the business and industry 
B)  take a tour of a client's physical facilities, noting obvious inventory obsolescence or equipment maintenance issues 
C)  obtain a copy of the year-end financial statements for the current year 
D)  review prior-year working papers and permanent file documents

For new clients, the auditor can obtain knowledge about the client's business and its industry from the permanent file.

Spoken and written representations given by the auditee's officers, directors, owners, and employees are generally considered reliable enough to stand on their own.

A combination of evidence gathering techniques provides more persuasive than evidence gathered from a single technique.

Permanent audit files contain such documents as the engagement letter, client organization chart, and internal control system flowcharts.

Loan application documents are considered authoritative evidence.

An auditor should re-perform calculations on a random basis to check for accuracy. Usually, if one component has been calculated properly, the auditor can rely that the other components have also been computed properly.

In considering the effectiveness of evidence gathering procedures, it was found that most companies have adjustments. Research also shows that ________.

A first audit requires more work than a repeat engagement.

Since audit papers are the property of the auditor, what was fundamentally wrong about Arthur Andersen's decision to shred working papers related to the Enron audit.

Destroying working papers may prevent auditors from proving due care if they are sued for negligence.

An auditor selects audit procedures that will provide ________.

The audit evidence gathering technique known as computation or recalculation refers to ________.

What is the strongest form of audit evidence?

For good form, each audit evidence paper should be indexed using a standard system of letters and numbers. The main purpose of this practice is to allow ________.

There are two kinds of audit programs: (1) balance-audit programs and (2) cycle-audit programs.

Identify the three main types of audit programs and indicate the purpose of each.

A first-time audit requires more work than a continuing client. Identify some of the issues involved in the first audit of a company that do not occur in an ongoing engagement.

Oral evidence from inquiry is considered to be very important.

In preparing for a repeat engagement, the first thing an audit team should do is ________.

Introduction to Auditing

Auditors Professional Roles and Responsibilities

Auditors Ethical and Legal Responsibilities

Reports on Audited Financial Statements

Preliminary Audit Planning: Understanding the Auditees Business

Assessing Risks in an Audit Engagement

Internal Control Over Financial Reporting

Control Assessment and Testing

Audit Sampling

The Revenues, Receivables, and Receipts Process and Cash Account Balance

The Purchases, Payables, and Payments Process

Payroll and Production Processes

The Finance and Investment Process

Completing the Audit Work

Applying Professional Judgment to Form the Audit Opinion and Issue Theaudit Report

Other Public Accounting Services and Reportsreviews and Compilations

Professional Rules of Conduct Details and Auditor Responsibilities

Part I the Audit of Accounting Estimates: Basic Material Relating to Accountingestimates

Legal Liability Cases

Other Professional Accounting Services and Reports, Including Fraud

Filters

Exam 8: Audit Evidence and Assurance

For new clients, the auditor can obtain knowledge about the client's business and its industry from the permanent file.

Spoken and written representations given by the auditee's officers, directors, owners, and employees are generally considered reliable enough to stand on their own.

A combination of evidence gathering techniques provides more persuasive than evidence gathered from a single technique.

Permanent audit files contain such documents as the engagement letter, client organization chart, and internal control system flowcharts.

Loan application documents are considered authoritative evidence.

An auditor should re-perform calculations on a random basis to check for accuracy. Usually, if one component has been calculated properly, the auditor can rely that the other components have also been computed properly.

In considering the effectiveness of evidence gathering procedures, it was found that most companies have adjustments. Research also shows that ________.

A first audit requires more work than a repeat engagement.

Since audit papers are the property of the auditor, what was fundamentally wrong about Arthur Andersen's decision to shred working papers related to the Enron audit.

Destroying working papers may prevent auditors from proving due care if they are sued for negligence.

An auditor selects audit procedures that will provide ________.

The audit evidence gathering technique known as computation or recalculation refers to ________.

What is the strongest form of audit evidence?

For good form, each audit evidence paper should be indexed using a standard system of letters and numbers. The main purpose of this practice is to allow ________.

There are two kinds of audit programs: (1) balance-audit programs and (2) cycle-audit programs.

Identify the three main types of audit programs and indicate the purpose of each.

A first-time audit requires more work than a continuing client. Identify some of the issues involved in the first audit of a company that do not occur in an ongoing engagement.

Oral evidence from inquiry is considered to be very important.

In preparing for a repeat engagement, the first thing an audit team should do is ________.

Introduction to Auditing

Auditors Professional Roles and Responsibilities

Auditors Ethical and Legal Responsibilities

Reports on Audited Financial Statements

Preliminary Audit Planning: Understanding the Auditees Business

Assessing Risks in an Audit Engagement

Internal Control Over Financial Reporting

Control Assessment and Testing

Audit Sampling

The Revenues, Receivables, and Receipts Process and Cash Account Balance

The Purchases, Payables, and Payments Process

Payroll and Production Processes

The Finance and Investment Process

Completing the Audit Work

Applying Professional Judgment to Form the Audit Opinion and Issue Theaudit Report

Other Public Accounting Services and Reportsreviews and Compilations

Professional Rules of Conduct Details and Auditor Responsibilities

Part I the Audit of Accounting Estimates: Basic Material Relating to Accountingestimates

Legal Liability Cases

Other Professional Accounting Services and Reports, Including Fraud

Filters