AUD 4 - Audit Evidence Flashcards
What ultimately supports our audit opinion?
Audit evidence
What is the objective of substantive testing?
To detect material misstatement in the F/S
The auditor should have access to all pertinent accounting data and corroborating audit evidence. If not, what type of limitation is there?
Scope limitation
Greater risk implies ________ evidence will be required.
More
Less audit evidence may be required when that evidence is of _______ quality.
Higher
What is the hierarchy of audit evidence (from most reliable to least reliable)?
AEIO
Auditor’s direct personal knowledge and observation
External evidence
Internal evidence
Oral evidence
The use of analytical procedures is required during what two phases of the audit?
- Planning phase
- Final review phase
When analytical procedures are used as the principal substantive test of a significant financial statement assertion, what is the auditor required to document?
- Auditor’s expectation
- Factors considered in developing that expectation
On receiving a client’s bank cutoff statement, what would an auditor most likely trace?
PY checks listed in the cutoff statement to the year-end outstanding checklist
In testing controls over cash disbursements, an auditor most likely would determine that the person who signs checks also is responsible for what?
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.
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?
All the financial relationships that the bank has with the client
In searching for unrecorded liabilities, what procedure would the auditor most likely perform?
Vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor invoices
What is the objective of auditing procedures applied to segment info?
To provide auditor w/ a reasonable basis for concluding whether the info is presented in conformity with GAAP rules on segment info
Tracing copies of computer-prepared sales invoices to copies of the corresponding computer-prepared shipping documents provides evidence that what?
Sales billed to the customers were actually shipped
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?
Existence
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?
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.
The auditor often traces a sample of shipping documents to sales invoices to test _______ of sales.
Completeness
Vouching sales orders to supporting documentation provides evidence of _______ of sales.
Existence
Verifying proper approval of credit memos provides evidence regarding the _________ of receivables.
Accuracy
Does the following describe a weakness in A/P procedures?
A/P manager issues purchase orders
YES
EXPLANATION: Purchase orders should be issued by the purchasing department, not the A/P department
Shipping documents provide evidence that what has occurred?
A sale has occurred
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?
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.
In auditing LT bonds payable, what would the auditor most likely do?
Compare interest expense w/ the bond payable amount for reasonableness
In performing tests concerning the granting of stock options, what should the auditor do?
Trace the authorization for the transaction to a vote of the BOD
To measure how effectively an entity employs its resources, an auditor calculates inventory turnover by dividing average inventory into what?
COGS
How do you calculate working capital?
CA - CL
How do you calculate the current ratio?
CA / CL
How do you calculate inventory turnover?
COGS / Average inventory
