Audit A3

Question 1

MCQ-07667
While performing an audit, the auditor compares the client’s inventory turnover ratio for this year to the prior year, and to the client’s main competitor. The above would be most
appropriately considered a:

A. Test of details.
B. Substantive analytical procedure.
C. Standard audit procedure.
D. Substantive recalculation procedure.

Answer 1

Choice “B” is correct. The above procedure performed by the auditor is a substantive analytical procedure. This analytical procedure is used to test relationships among data
(ratios) in the current period and the past period as well as the client’s main competitor.

Choice “A” is incorrect. A test of details is usually performed by an auditor to support
the client’s ending balance or the specific details of transactions.
Choice “C” is incorrect. Standard audit procedures represent a general category of
various audit procedures used to gather audit evidence.
Choice “D” is incorrect. Because the auditor is comparing relationships among data
(ratios) and not recalculating the accuracy of the corresponding data, the procedure
would not be a substantive recalculation procedure.

Question 2

MCQ-04300
If an auditor of an issuer examines purchase orders obtained from the issuer to verify proper authorization of transactions, then the auditor is conducting:

A. An inspection.
B. A confirmation.
C. A reperformance.
D. An observation

Answer 2

Choice “A” is correct. Inspection involves examining records or documents. The terms of inspection and examination are often used interchangeably in audit.

Choice “B” is incorrect. Confirmation is a specific type of inquiry that involves obtaining
representations from independent third parties about account balances and
transactions or events.
Choice “C” is incorrect. Reperformance occurs when an auditor independently performs
procedures or controls that were originally performed as part of an entity’s internal
control.
Choice “D” is incorrect. Observation occurs when an auditor looks at a process or
procedure performed by others.

Question 3

MCQ-11038
In selecting an appropriate sample for a substantive test, the auditor most likely would stratify the population if the:

A. Auditor plans to give greater representation to large recorded amounts.
B. Auditor suspects that management fraud has occurred during the year.
C. Technique to be used is attribute sampling.
D. Desired assessed level of control risk is less than the prior year

Answer 3

Choice “A” is correct. In selecting an appropriate sample for a substantive test, the auditor most likely would stratify the population if the auditor plans to give greater representation to large recorded amounts. Stratification is often used when the population has highly variable recorded amounts and involves grouping the population into similar groups, such as grouping large recorded items as a group.

Choice “B” is incorrect. Stratification is commonly used when a population has highly
variable recorded amounts. The decision to stratify is typically not based on suspicion
of fraud committed by management.
Choice “C” is incorrect. For substantive testing, variable (dollar balance) sampling is
used rather than attribute (control testing) sampling.
Choice “D” is incorrect. An auditor’s substantive procedures do not help achieve a
desired lower-assessed control risk. Assessment of control risk is independent of the
audit.