Question 1

Which of the following statements is correct regarding the costs involved in obtaining evidence?

Accepted Answer

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

Question 2

Evidence is generally considered appropriate when:

Accepted Answer

A)  it has been obtained by random selection. 
B)  there is enough of it to afford a reasonable basis for an opinion on financial statements. 
C)  it has the qualities of being relevant, objective, and free from known bias. 
D)  it consists of written statements made by managers of the enterprise under audit. 
A)  it has been obtained by random selection. 
B)  there is enough of it to afford a reasonable basis for an opinion on financial statements. 
C)  it has the qualities of being relevant, objective, and free from known bias. 
D)  it consists of written statements made by managers of the enterprise under audit.

Question 3

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 4

Audit evidence has two primary qualities for the auditor; relevance and reliability. Given the choices below which provides the auditor with the most reliable audit evidence?

Accepted Answer

A)  general ledger account balances 
B)  confirmation of accounts receivable balance received from a customer 
C)  internal memo explaining the issuance of a credit memo 
D)  copy of month-end adjusting entries 
A)  general ledger account balances 
B)  confirmation of accounts receivable balance received from a customer 
C)  internal memo explaining the issuance of a credit memo 
D)  copy of month-end adjusting entries

Question 5

Auditors may decide to replace tests of details with analytical procedures when possible because the:

Accepted Answer

A)  analytical procedures are more reliable. 
B)  analytical procedures are considerably less expensive. 
C)  analytical procedures are more persuasive. 
D)  tests of details are more difficult to interpret. 
A)  analytical procedures are more reliable. 
B)  analytical procedures are considerably less expensive. 
C)  analytical procedures are more persuasive. 
D)  tests of details are more difficult to interpret.

Question 6

Two determinants of the persuasiveness of evidence are:

Accepted Answer

A)  competence and sufficiency. 
B)  relevance and reliability. 
C)  appropriateness and sufficiency. 
D)  independence and effectiveness. 
A)  competence and sufficiency. 
B)  relevance and reliability. 
C)  appropriateness and sufficiency. 
D)  independence and effectiveness.

Question 7

Auditor judgment is the primary determinant in determining the amount of evidence gathered.

Accepted Answer

A) True 
 B)False

Question 8

One purpose of performing analytical procedures in the planning phase of an audit is to assess the client's financial condition. Explain how the assessment of a client's financial condition can affect the auditor's decisions concerning evidence accumulation in later phases of the audit.

Accepted Answer

The use of analytical procedures is ofte

Question 9

Distinguish between internal documentation and external documentation as types of audit evidence. Give two examples of each. Which type is considered more reliable?

Accepted Answer

Internal documentation involves the audi

Question 10

When making decisions about evidence for a given audit, the auditor's goal is to obtain a sufficient amount of timely, reliable evidence that is relevant to the information being verified. In addition, the goal of audit efficiency is to gather and evaluate the information:

Accepted Answer

A)  no matter the cost involved in obtaining such evidence. 
B)  even if cost is irrelevant to the auditor, because they bill the client for costs incurred. 
C)  at the lowest possible total cost. 
D)  at the cost suggested in the engagement letter. 
A)  no matter the cost involved in obtaining such evidence. 
B)  even if cost is irrelevant to the auditor, because they bill the client for costs incurred. 
C)  at the lowest possible total cost. 
D)  at the cost suggested in the engagement letter.

Question 11

Analytical procedures can be used to provide reliable substantive evidence for all balance-related audit objectives.

Accepted Answer

A) True 
 B)False

Question 12

Indicate whether confirmation of accounts receivable and accounts payable, provided they each are significant accounts, is required or optional:

Accepted Answer

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

Question 13

Cost is never an adequate justification for omitting a necessary procedure or not gathering an adequate sample size.

Accepted Answer

A) True 
 B)False

Question 14

When analytical procedures reveal unusual fluctuations in an account balance, the auditor will probably perform fewer tests of details for that account and increase the tests of controls related to the account.

Accepted Answer

A) True 
 B)False

Question 15

Calculating the gross margin for the current year under audit as a percent of sales and comparing it with previous years is what type of evidence?

Accepted Answer

A)  physical examination 
B)  analytical procedures 
C)  observation 
D)  inquiry 
A)  physical examination 
B)  analytical procedures 
C)  observation 
D)  inquiry

Question 16

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 17

Often, auditor procedures result in significant differences being discovered by the auditor. The auditor should investigate further if:

Accepted Answer

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

Question 18

The relevance of audit evidence depends on the audit objective being tested.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is the most objective type of evidence?

Accepted Answer

A)  A letter written by the client's attorney discussing the likely outcome of outstanding lawsuits. 
B)  The physical count of securities and cash. 
C)  Inquiries of the credit manager about the collectability of noncurrent accounts receivable. 
D)  Observation of cobwebs on some inventory bins. 
A)  A letter written by the client's attorney discussing the likely outcome of outstanding lawsuits. 
B)  The physical count of securities and cash. 
C)  Inquiries of the credit manager about the collectability of noncurrent accounts receivable. 
D)  Observation of cobwebs on some inventory bins.

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 7: Audit Evidence

Which of the following statements is correct regarding the costs involved in obtaining evidence?

Evidence is generally considered appropriate when:

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

Audit evidence has two primary qualities for the auditor; relevance and reliability. Given the choices below which provides the auditor with the most reliable audit evidence?

Auditors may decide to replace tests of details with analytical procedures when possible because the:

Two determinants of the persuasiveness of evidence are:

Auditor judgment is the primary determinant in determining the amount of evidence gathered.

One purpose of performing analytical procedures in the planning phase of an audit is to assess the client's financial condition. Explain how the assessment of a client's financial condition can affect the auditor's decisions concerning evidence accumulation in later phases of the audit.

Distinguish between internal documentation and external documentation as types of audit evidence. Give two examples of each. Which type is considered more reliable?

When making decisions about evidence for a given audit, the auditor's goal is to obtain a sufficient amount of timely, reliable evidence that is relevant to the information being verified. In addition, the goal of audit efficiency is to gather and evaluate the information:

Analytical procedures can be used to provide reliable substantive evidence for all balance-related audit objectives.

Indicate whether confirmation of accounts receivable and accounts payable, provided they each are significant accounts, is required or optional:

Cost is never an adequate justification for omitting a necessary procedure or not gathering an adequate sample size.

When analytical procedures reveal unusual fluctuations in an account balance, the auditor will probably perform fewer tests of details for that account and increase the tests of controls related to the account.

Calculating the gross margin for the current year under audit as a percent of sales and comparing it with previous years is what type of evidence?

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

Often, auditor procedures result in significant differences being discovered by the auditor. The auditor should investigate further if:

The relevance of audit evidence depends on the audit objective being tested.

Which of the following is the most objective type of evidence?

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

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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