AUD 4 - Audit Evidence

Question 1

What ultimately supports our audit opinion?

Answer 1

Audit evidence

Question 2

What is the objective of substantive testing?

Answer 2

To detect material misstatement in the F/S

Question 3

The auditor should have access to all pertinent accounting data and corroborating audit evidence. If not, what type of limitation is there?

Answer 3

Scope limitation

Question 4

Greater risk implies ________ evidence will be required.

Answer 4

More

Question 5

Less audit evidence may be required when that evidence is of _______ quality.

Answer 5

Higher

Question 6

What is the hierarchy of audit evidence (from most reliable to least reliable)?

Answer 6

AEIO

Auditor’s direct personal knowledge and observation
External evidence
Internal evidence
Oral evidence

Question 7

The use of analytical procedures is required during what two phases of the audit?

Answer 7

• Planning phase

- Final review phase

Question 8

When analytical procedures are used as the principal substantive test of a significant financial statement assertion, what is the auditor required to document?

Answer 8

• Auditor’s expectation

- Factors considered in developing that expectation

Question 9

On receiving a client’s bank cutoff statement, what would an auditor most likely trace?

Answer 9

PY checks listed in the cutoff statement to the year-end outstanding checklist

Question 10

In testing controls over cash disbursements, an auditor most likely would determine that the person who signs checks also is responsible for what?

Answer 10

Mailing the checks

EXPLANATION: Once signed, the check should be mailed to the payee by the check signer or an employee operating under the supervision of the check signer to prevent defalcations of checks. Generally this occurs in the treasurer’s department.

Question 11

The usefulness of the standard bank confirmation request may be limited b/c the bank employee who completes the form may be unaware of what?

Answer 11

All the financial relationships that the bank has with the client

Question 12

In searching for unrecorded liabilities, what procedure would the auditor most likely perform?

Answer 12

Vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor invoices

Question 13

What is the objective of auditing procedures applied to segment info?

Answer 13

To provide auditor w/ a reasonable basis for concluding whether the info is presented in conformity with GAAP rules on segment info

Question 14

Tracing copies of computer-prepared sales invoices to copies of the corresponding computer-prepared shipping documents provides evidence that what?

Answer 14

Sales billed to the customers were actually shipped

Question 15

An auditor observes the mailing of monthly statements to a client’s customers and reviews evidence of follow-up on errors reported by the customers. This test of controls most likely is performed to support what management F/S assertion?

Answer 15

Existence

Question 16

After making inquiries about credit granting policies, an auditor selects a sample of sales transactions and examines evidence of credit approval. This test of controls most likely supports what management F/S assertion?

Answer 16

Allocation and valuation

EXPLANATION: By ensuring that credit approval is obtained before goods are shipped to customers, the auditor is testing management’s assertion that A/R are collectible (allocation and valuation). Ensuring that credit approval is obtained before goods are shipped does not support the rights and obligations assertion.

Question 17

The auditor often traces a sample of shipping documents to sales invoices to test _______ of sales.

Answer 17

Completeness

Question 18

Vouching sales orders to supporting documentation provides evidence of _______ of sales.

Answer 18

Existence

Question 19

Verifying proper approval of credit memos provides evidence regarding the _________ of receivables.

Answer 19

Accuracy

Question 20

Does the following describe a weakness in A/P procedures?

A/P manager issues purchase orders

Answer 20

YES

EXPLANATION: Purchase orders should be issued by the purchasing department, not the A/P department

Question 21

Shipping documents provide evidence that what has occurred?

Answer 21

A sale has occurred

Question 22

If the objective of an auditor’s test of details is to detect a possible understatement of sales, the auditor most likely would trace transactions from what to what?

Answer 22

Shipping docs to sales invoices

EXPLANATION: To test completeness, one needs to start w/ support documentation, such as shipping documents, and trace forward to recording in the accounting records, such as the sales invoices and sales journal. Should the auditor find a shipping document for which there is no entry in the sales journal, an understatement error (or a completeness problem) will have been discovered.

Question 23

In auditing LT bonds payable, what would the auditor most likely do?

Answer 23

Compare interest expense w/ the bond payable amount for reasonableness

Question 24

In performing tests concerning the granting of stock options, what should the auditor do?

Answer 24

Trace the authorization for the transaction to a vote of the BOD

Question 25

To measure how effectively an entity employs its resources, an auditor calculates inventory turnover by dividing average inventory into what?

Answer 25

COGS

Question 26

How do you calculate working capital?

Answer 26

CA - CL

Question 27

How do you calculate the current ratio?

Answer 27

CA / CL

Question 28

How do you calculate inventory turnover?

Answer 28

COGS / Average inventory