AUD 3.6 - Procedures To Obtain Evidene

Question 1

The following standard procedures are used in audits as risk assessment procedures, test of controls, or substantive tests:

Answer 1

Confirmation
Footing
Inquiry
Vouching
Inspection/examination
Cutoff review
Analytical procedures
Reperformance
Reconciliation
Observation
Tracing
Walk-through
Auditing related accounts simultaneously
Representation letter
Subsequent event review

Question 2

Involves obtaining representations rom independent external third parties about account balances and transactions or events:

Answer 2

Confirmation

Question 3

Confirmations are considered what type of audit evidence?

Answer 3

External evidence

Question 4

Involves verifying the mathematical accuracy of statements and schedules by adding down, across, or recalculating amounts.

Answer 4

Footing, cross footing and recalculation

Question 5

What type of audit evidence is footing

Answer 5

Auditors knowledge

Question 6

Involves requesting information from knowledgeable parties both internally and externally

Answer 6

Inquiry

Question 7

What type of audit evidence is inquiry?

Answer 7

Oral evidence

Question 8

Involves examining support for what has been recorded in the records ad statements, going from the financials back to supporting documents to gather evidence regarding possible overstatement of errors.

Answer 8

Vouching

Question 9

What type of audit evidence is vouching?

Answer 9

Internal evidence

Question 10

What assertion does vouching achieve?

Answer 10

Existence and occurrence

Question 11

Involves inspecting records, documents, etc. that may be internal or external and may be in paper or electronic form

Answer 11

Examination/inspection

Question 12

What type of audit evidence is examination/inspection?

Answer 12

Auditors knowledge

Question 13

What assertion does examination/inspection provide evidence for?

Answer 13

Existence

Question 14

Involves review of year-end transactions especially inventory, cash, purchases, sales, and accruals.

Answer 14

Cutoff review

Question 15

What type of audit evidence is cutoff review?

Answer 15

Internal evidence

Question 16

Involves evaluations of financial information by a study of meaningful relationships among data to help highlight unusual fluctuations that could be the result of errors or fraudulent omissions or overstatement

Answer 16

Analytical procedures

Question 17

What type of audit evidence is analytical procedures?

Answer 17

Auditors knowledge and internal evidence

Question 18

Involves independently performing procedures or controls that were originally performed as part of an entity’s internal controls

Answer 18

Reperformance

Question 19

What type of audit evidence is reperformance?

Answer 19

Auditors knowledge

Question 20

Involves comparing financial amounts from two independent sources or agreement such as reconciling the physical inventory count with the perpetual inventory records

Answer 20

Reconciliation

Question 21

What type of audit evidence is reconciliation?

Answer 21

Internal evidence

Question 22

What assertions does reconciliation substantiate?

Answer 22

Existence and valuation

Question 23

Involves the auditor looking a t a process or procedure that has been performed by others

Answer 23

Observation

Question 24

What type of audit evidence is observation?

Answer 24

Auditors knowledge

Question 25

Involves starting with the source documents and following them forward to provide assurance that the event is being given proper recognition in the books and records and provides evidence regarding possible understatement of errors.

Answer 25

Tracing

Question 26

What type of audit evidence is tracing?

Answer 26

Internal evidence

Question 27

Involves questioning an entity’s personnel about their understanding and may include a combination of inquiry, observation, inspection, recalculation, and reperformance.

Answer 27

Walk-through

Question 28

What type of audit evidence is walk-through

Answer 28

Auditors knowledge and oral evidence

Question 29

Involves auditing two accounts at the same time:

Answer 29

Auditing related accounts simultaneously

Question 30

What accounts can be audited at the same time?

Answer 30

Long term liabilities and interest expense Capital additions to PP&E and repairs and maintenance expense Investments and dividend and interest income

Question 31

What type of audit evidence is auditing related accounts simultaneously?

Answer 31

Internal evidence

Question 32

Involves obtaining this from the client at the conclusion of fieldwork

Answer 32

Representation letter from management

Question 33

What type of audit evidence is the representation letter?

Answer 33

Internal evidence

Question 34

Involves performing certain procedures for the period after the balance sheet date through the date of the auditors report

Answer 34

Subsequent events review

Question 35

What type of audit evidence is subsequent events review?

Answer 35

All of them (AEIO)

Question 36

Compares the financial statement item for the current period with the prior period

Answer 36

Trend analysis

Question 37

When is trend analysis best used?

Answer 37

When the amount or relationship is fairly predictable and operations are stable

Question 38

What level of assertion does trend analysis provide?

Answer 38

Low

Question 39

Calculated based on known relationships among accounts or nonfinancial informatio and compared with the same for the prior periods with comparable entities:

Answer 39

Ratio analysis

Question 40

Ratio analysis is best used when?

Answer 40

Analyzing data by segment, product, or location

Question 41

What level of assurance does ratio analysis provide?

Answer 41

Low

Question 42

Uses predictive model to estimate financial statement amounts

Answer 42

No statistical predictive modeling

Question 43

Nonstatistical predictive modeling is best used when?

Answer 43

When creating expectation based on simple variables

Question 44

What level of assurance does no statistical predictive modeling provide?

Answer 44

Could provide a very high level of precision and may be used as the principle substantive procedure

Question 45

Advanced statistical technique that often uses data from prior periods to develop a model to predict future periods

Answer 45

Regression analysis

Question 46

Regression analysis is best used when?

Answer 46

Creating expectations based on several independent variables

Question 47

What level of assurance does regression analysis provide?

Answer 47

May provide a very high level of precision and my be used as the principle substantive procedure

Question 48

What are several advantages that regression analysis has over other methods to develop auditors expectations?

Answer 48

Provides a precise method for forming an expectation Includes a large number of independent variables Provides direct and quantitative measures of the precision of the expectation

Question 49

What is a limitation to analytical procedures?

Answer 49

That differences do not necessarily indicate errors or fraud, but that further investigation is needed

Question 50

A type of directional testing that moves forward from source documents to journal entries to provide evidence of completeness:

Answer 50

Tracing

Question 51

Type of directional testing that moves backward from journal entries to source documents providing evidence for existence:

Answer 51

Vouching

Question 52

If a test started with items in the financial statements, the proper assertion is most likely to be:

Answer 52

Existence (The auditor searches for evidence indicating that the item truly exists and has not been created by management)

Question 53

If a test starts with source documents, the proper assertion is most likely to be:

Answer 53

Completeness (The auditor is to make sure all transactions have been included in the financial statements)

Question 54

The confirming party responds directly to the auditor by stating that the party agrees or disagrees with the information in the request

Answer 54

Positive confirmation

Question 55

The confirming party respond directly to the auditor only if the confirming party disagrees with the information in the request

Answer 55

Negative confirmation

Question 56

When audit procedures relate to asset, liability, and equity account balances (balance sheet accounts), the most relevant assertions are:

Answer 56

Completeness Valuation, allocation, accuracy Existence and occurrence Rights and obligations

Question 57

When testing income statement transactions, the most relevant assertions are:

Answer 57

Completeness Cutoff Valuation, allocation, accuracy Existence and occurrence Understandability and classification

Question 58

When auditing revenue transactions, the auditor generally focuses on testing what assertions?

Answer 58

Existence/occurence assertion rather than completeness because revenue is more likely to be overstated than understated

Question 59

What audit procedures correlate to the completeness assertion?

Answer 59

Tracing Analytical review Observation

Question 60

What audit procedures relate to the cutoff assertion?

Answer 60

Cutoff procedures

Question 61

What audit procedures relate tot eh valuation, allocation, and accuracy assertion?

Answer 61

Inspection Footing Independent recalculation Reconciliation

Question 62

What audit procedures relate tot he existence and occurrence assertion?

Answer 62

Confirmation Observation, inspection, and examination Vouching

Question 63

What audit procedures relate tot eh rights and obligations assertion?

Answer 63

Inspection

Question 64

What audit procedures relate to the understandability and classification assertion?

Answer 64

Inspection Review Inquiry of management