Audit 4- Audit Evidence

Question 1

Examples of Substantive Procedures

Answer 1

1. Observation
2. Inquiry
3. Confirmation
4. Recalculation
5. Reperformance

Question 2

Hierachy of Audit Evidence

Answer 2

Auditor’s Direct Personal Knowledge & Observation
External Evidence
Internal Evidence
Oral Evidence

Question 3

Test of Details - Tracing

Answer 3

Evidence of Completeness

Trace forward from source documents to journal entries

Question 4

Test of Details - Vouching

Answer 4

Evidence of Existence/Occurence

Vouch backwards from journal entries to source documents

Question 5

Audit Risk: Understatement

Answer 5

Related to Expenses & Liabilities

Trace

Question 6

Audit Risk: Overstatement

Answer 6

Related to Revenue & Assets

Vouch

Question 7

Objective of Vouching

Answer 7

To gather evidence regarding possible overstatement errors (existence or occurrence assertions). Vouching backwards.

Question 8

Reconciliation

Answer 8

Substantiates existence and valuation of accounts

Question 9

Objective of Tracing

Answer 9

Gather evidence regarding possible understatement of errors (completeness assertion), tracing forward.

Question 10

Assertion & Auditing Procedure:

Completeness

Answer 10

1. Tracing
2. Analytical Review
3. Observation

Question 11

Assertion & Auditing Procedure:

Valuation, Allocation & Accuracy

Answer 11

1. Inspection
2. Footing
3. Independent recalculation
4. Reconciliation

Question 12

Assertion & Auditing Procedure:

Existence & Occurrence

Answer 12

1. Confirmation- w/ 3rd parties as example
2. Observation, inspection, examination
3. Vouching

Question 13

Assertion & Auditing Procedure:

Rights & Obligations

Answer 13

Inspection

Question 14

Assertion & Auditing Procedure:

*Understandability & Classification”

Answer 14

1. Inspection
2. Review
3. Inquiry of management

Question 15

Most relevant assertion for revenue cycle

Answer 15

Existence - risk a/r and sales will be overstated is high

Question 16

Biggest concern of expenditure cycle

Answer 16

Understatement of expenses & liabilities

Question 17

Inventory cycle- what should be reconciled

Answer 17

Inventory & COGS

Question 18

Investment cycle- what should be reconciled

Answer 18

Interest & Dividends

Question 19

Most significant payroll and personnel cycle risks

Answer 19

Creation of ficticious employees & falsification of hours worked.

Question 20

Auditor’s primary emphasis on auditing related party transactions.

Answer 20

Auditor must determine whether they are adequately disclosed in accordance with GAAP.

Question 21

Assertion for Revenue Transactions

Answer 21

Existence & Occurence Assertion

Question 22

Assertion for Expense Transactions

Answer 22

Completeness Assertion

Question 23

Assertion for Asset Accounts

Answer 23

Existence (ensure not overstated)

Question 24

Assertion for Liability Accounts

Answer 24

Completeness (ensure not understated)

Question 25

What does reconciliation substantiate?

Answer 25

Existence and Valuation of accounts

Question 26

Prime area for recalculation auditing procedure

Answer 26

Related to estimates made by clients.

Question 27

What is observation, inspection, examination mainly used for as auditing procedure

Answer 27

Evidence regarding: Assets, Processes Procedures

Question 28

Segregation of Duties | A.R.C.

Answer 28

A.- Authorization R.- Record Keeping C.- Custody

Question 29

Transaction Cycle - Path to Financial Statements

Answer 29

1. Transaction Approved 2. Execution of Event 3. Source Documents 4. Books of Original Entry 5. Subsidiary Ledger 6. General Ledger 7. Trial Balance 8. Financial Statements

Question 30

When Should a Cutoff Review take place?

Answer 30

Should be performed on year-end transactions, especially inventory, cash, purchases, sales, and accruals.

Question 31

Subsequent Events Review

Answer 31

Evidence becomming available after B/S date should be used in making judgments about valuation of assets and liabilities on B/S date. Ex: decreases in L/T debt, may indicate such debt should be reported as current liability on B/S.

Question 32

Most Relevant Assertion for Account Balances

Answer 32

Completeness Valuation, Allocation, Accuracy Existence & Occurence Rights & Obligations

Question 33

Most Relevant Assertions for Transactions & Events

Answer 33

C.O.V.E.U. ``` Completeness Cutoff Valuation, Allocation, Accuracy Existence & Occurence Understandability and Classification ```

Question 34

Most Relevant Assertion for Presentation & Disclosure

Answer 34

C.V.R.U. Completeness Valuation, Allocation, & Accuracy Rights & Obligations, & Occurrence Understandability & Classification

Question 35

What are cutoff procedures usually performed on?

Answer 35

Year-end transactions: ``` Inventory Cash Purchases Sales Accruals ```