Question 1

Inquiries of the client are usually sufficient to provide appropriate evidence to satisfy an audit objective.

Accepted Answer

A) True 
 B)False  False

Question 2

The reliability of evidence refers to the degree to which evidence is considered believable or trustworthy. There are six factors that affect the reliability of audit evidence. One factor is the independence of the provider; i.e., evidence obtained from a source outside the client company is more reliable than that obtained within. Identify and discuss any two of the remaining five factors:

Accepted Answer

The remaining four factors that affect the reliability of evidence are:
• Effectiveness of client's internal control. When a client's internal controls are effective, evidence obtained from the client is more reliable than when controls are weak.
• Auditor's direct knowledge. Evidence obtained directly by the auditor is more reliable than information obtained indirectly.
• Qualifications of individuals providing the information. Information obtained from persons not familiar with the business world would generally not be considered as reliable as information from an expert in a business-related field.
• Degree of objectivity. Objective evidence is more reliable than evidence that requires considerable judgment to determine whether it is correct.
• Timeliness - The timeliness of audit evidence can refer either to when it is accumulated or to the period covered by the audit. Evidence is usually more reliable for balance sheet accounts when it is obtained as close to the balance sheet date as possible.

Question 3

Audit evidence obtained directly by the auditor will not be reliable if:

Accepted Answer

A)  the auditor lacks the competence to evaluate the evidence. 
B)  it is provided by the client's attorney. 
C)  the client denies its veracity. 
D)  it is impossible for the auditor to obtain additional corroboratory evidence. 
A)  the auditor lacks the competence to evaluate the evidence. 
B)  it is provided by the client's attorney. 
C)  the client denies its veracity. 
D)  it is impossible for the auditor to obtain additional corroboratory evidence. A

Question 4

The auditor must gather sufficient and appropriate evidence during the course of the audit. Sufficient evidence must:

Accepted Answer

A)  be well documented and cross-referenced in the audit documents. 
B)  be based on sources that are external to company. 
C)  provide evidence that prove or disprove an audit objective/assertion. 
D)  be persuasive enough to enable the auditor to issue an audit report. 
A)  be well documented and cross-referenced in the audit documents. 
B)  be based on sources that are external to company. 
C)  provide evidence that prove or disprove an audit objective/assertion. 
D)  be persuasive enough to enable the auditor to issue an audit report.

Question 5

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)  The decision of how many items to test should not be influenced by the increased costs of performing the additional tests. 
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)  The decision of how many items to test should not be influenced by the increased costs of performing the additional tests. 
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 6

Confirmations would almost always be used, assuming all the accounts below are material, for:

Accepted Answer

A)  individual transactions between organizations, such as sales transactions. 
B)  bank balances and accounts receivable. 
C)  fixed asset additions. 
D)  payroll expenses. 
A)  individual transactions between organizations, such as sales transactions. 
B)  bank balances and accounts receivable. 
C)  fixed asset additions. 
D)  payroll expenses.

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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.

Question 9

You are auditing the company's purchasing process for goods and services. You are primarily concerned with the company not recording all purchase transactions. Which audit procedure below would be the most effective audit procedure in this case?

Accepted Answer

A)  Vouching from the accounts payable account to the vendor invoices. 
B)  Tracing vendor invoices to recorded amounts in the accounts payable account. 
C)  Confirmation accounts payable recorded amounts. 
D)  Reconciling the accounts payable subsidiary ledger to the accounts payable account. 
A)  Vouching from the accounts payable account to the vendor invoices. 
B)  Tracing vendor invoices to recorded amounts in the accounts payable account. 
C)  Confirmation accounts payable recorded amounts. 
D)  Reconciling the accounts payable subsidiary ledger to the accounts payable account.

Question 10

Which items affect the sufficiency of evidence when choosing a sample?

Accepted Answer

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

Question 11

Given the economic and time constraints in which auditors can collect evidence about management assertions about the financial statements, the auditor normally gathers evidence that is:

Accepted Answer

A)  irrefutable. 
B)  conclusive. 
C)  persuasive. 
D)  completely convincing. 
A)  irrefutable. 
B)  conclusive. 
C)  persuasive. 
D)  completely convincing.

Question 12

Appropriateness of evidence is a measure of the:

Accepted Answer

A)  quantity of evidence. 
B)  quality of evidence. 
C)  sufficiency of evidence. 
D)  meaning of evidence. 
A)  quantity of evidence. 
B)  quality of evidence. 
C)  sufficiency of evidence. 
D)  meaning of evidence.

Question 13

In performing your audit for a privately-held firm your inquiries have yielded that one of the company's owner's primary motivations is to pay the least amount of income tax that is possible. Based on this observation which audit objective for ending inventory would the auditor be most concerned about ascertaining?

Accepted Answer

A)  Completeness 
B)  Accuracy 
C)  Rights and obligations 
D)  Existence 
A)  Completeness 
B)  Accuracy 
C)  Rights and obligations 
D)  Existence

Question 14

One advantage of using statistical techniques when performing analytical procedures is that they eliminate the need for auditor judgment.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Objective evidence is more reliable, and hence more persuasive, than subjective evidence.

Accepted Answer

A) True 
 B)False

Question 17

When auditors use documentation to support recorded transactions and amounts, the process is usually called:

Accepted Answer

A)  tracing. 
B)  confirmations. 
C)  vouching. 
D)  reperformance. 
A)  tracing. 
B)  confirmations. 
C)  vouching. 
D)  reperformance.

Question 18

Which of the following statements is most correct regarding the primary purpose of audit procedures?

Accepted Answer

A)  to detect all errors or fraudulent activities as well as illegal activities 
B)  to comply with auditing standards promulgated by the PCAOB for publicly held clients 
C)  to gather corroborative audit evidence about management's assertions regarding the client's financial statements 
D)  to determine the amount of errors in the balance sheet accounts in order to adjust the accounts to actual 
A)  to detect all errors or fraudulent activities as well as illegal activities 
B)  to comply with auditing standards promulgated by the PCAOB for publicly held clients 
C)  to gather corroborative audit evidence about management's assertions regarding the client's financial statements 
D)  to determine the amount of errors in the balance sheet accounts in order to adjust the accounts to actual

Question 19

The permanent audit file would usually include the following:

Accepted Answer

A)  client's working trial balance 
B)  summary of the risk assessment procedures performed 
C)  organizational chart of the company's employees 
D)  summary of the auditors test of controls for the current years audit 
A)  client's working trial balance 
B)  summary of the risk assessment procedures performed 
C)  organizational chart of the company's employees 
D)  summary of the auditors test of controls for the current years audit

Question 20

To be considered reliable evidence, confirmations must be controlled by:

Accepted Answer

A)  a client employee responsible for accounts receivable. 
B)  a financial statement auditor. 
C)  a client's internal audit department. 
D)  a client's controller or CFO. 
A)  a client employee responsible for accounts receivable. 
B)  a financial statement auditor. 
C)  a client's internal audit department. 
D)  a client's controller or CFO.

Exam 7: Audit Evidence

Inquiries of the client are usually sufficient to provide appropriate evidence to satisfy an audit objective.

Audit evidence obtained directly by the auditor will not be reliable if:

The auditor must gather sufficient and appropriate evidence during the course of the audit. Sufficient evidence must:

Which of the following statements is not correct?

Confirmations would almost always be used, assuming all the accounts below are material, for:

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

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

You are auditing the company's purchasing process for goods and services. You are primarily concerned with the company not recording all purchase transactions. Which audit procedure below would be the most effective audit procedure in this case?

Which items affect the sufficiency of evidence when choosing a sample?

Given the economic and time constraints in which auditors can collect evidence about management assertions about the financial statements, the auditor normally gathers evidence that is:

Appropriateness of evidence is a measure of the:

One advantage of using statistical techniques when performing analytical procedures is that they eliminate the need for auditor judgment.

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

Objective evidence is more reliable, and hence more persuasive, than subjective evidence.

When auditors use documentation to support recorded transactions and amounts, the process is usually called:

Which of the following statements is most correct regarding the primary purpose of audit procedures?

The permanent audit file would usually include the following:

To be considered reliable evidence, confirmations must be controlled by:

The Demand for Audit and Other Assurance Services

The CPA Profession

Audit Reports

Professional Ethics

Legal Liability

The CPA Profession

Audit Planning and Analytical Procedures

Materiality and Risk

Section 404 Audits of Internal Control and Control Risk

Fraud Auditing

The Impact of Information Technology on the Audit Process

Overall Audit Plan and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

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 and Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls and 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 Balances

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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