Audit Evidence -General

Question 1

Audit evidence is gathered throughout the audit when performing

Answer 1

Risk Assessment Procedure
Tests of Controls
Substantive Procedures
Other Audit Procedures

Question 2

Audit evidence most reliable to least reliable

Answer 2

Auditor’s direct personal knowledge & observation
External Evidence
Internal Evidence
Oral Evidence

Question 3

What are substantive procedures designed to detect?

Answer 3

They are designed to detect material misstatements at the assertion level.

Question 4

When an analytical procedure is used as the principal substantive test of a significant financial statement assertion, the auditor is required to document the:

Answer 4

Auditor’s expectations
Factors considering in the development of expectation
results of the comparison
Additional Audit procedures performed in response to significant unexplained differences
Results of such additional procedures

Question 5

Tracing tests for

Answer 5

Completeness, coverage

Question 6

Vouching tests for

Answer 6

Existence/Occurrence

Question 7

A positive confirmations is when

Answer 7

the customer has to respond to the auditor o whther it agrees or disagrees with the amount.

Question 8

A negative confirmation is when

Answer 8

the customer only responds to the auditor if it disagrees with the amount

Question 9

If the client refuses to allow the auditor to send out the external confirmation

Answer 9

then the auditor should evaluate the situation and speak to those charged with governance regarding the opinion to be issued due to the auditor unable to gather sufficicent audit evidence.

Question 10

What is an exception response?

Answer 10

A response that indicates a difference between information provided by the confirming party and the entity’s records. All of the exception responses are to be investigated. Figure out whther it is fraud, error, material misstatement or deficiencies in iternal control over Financial reporting.

Question 11

What are audit procedures?

Answer 11

Footing, Crossfooting, Recalc
Inquiry
Vouching
Examination
Confirmation
Analytical Procedures
Reperformance
Reconciliation 
Observation
Tracing
Cutoff Review
Auditing Related Accounts Simultaneously
Representation Letter
Subsequent Events Review

Question 12

Review of Relevant Assertion- Account Balances CVER

Answer 12

• Completeness
• Valuation, Allocation, and Accuracy
• Existence & Occurrence
• Rights & Obligations

Question 13

Transactions & Events (CoveU)

Answer 13

• Completeness
• CutOff
• -Valuation, Allocation, and Accuracy
• Existence & Occurrence
• Understandability & Classification

Question 14

Presentation & Disclosure (CVRU)

Answer 14

• Completeness
• -Valuation, Allocation, and Accuracy
• Rights & Obligations, and Occurrence
• Understandability ad classification

Question 15

PCAOB Standars are CEO Approved

Answer 15

-Completeness
-Existence
-Occurrence
-Allocation
-Presentation
-Rights
Obligation
-Valuation
-E
Disclosure

Question 16

Analytical procedures are most appropriate when testing which of the following types of transactions?

Answer 16

Operating Expense Transactions

Question 17

PCAOB standards state that the relevance of audit evidences depends on all but which of the following?

Answer 17

The Auditor’s risk assessment

Question 18

Why may an analytical procedure might be used as a substantive test?

Answer 18

To achieve audit objectives in the most effective and efficient manner possible.

Question 19

How would an auditor of a nonissuer most appropriately respond to a heightened assessed risk of material misstatement?

Answer 19

By assigning more experienced staff or those with specialized skills to high-risk areas.

Question 20

An auditor intends to use the work of an actuary who has a relationship with the client. Under these circumstances, the auditor:`

Answer 20

Should assess the risk that the actuary’s objectivity might be impaired.

Question 21

What is one way an auditor can identify litigation, claims, and assessments?

Answer 21

Read the file of correspondence from taxing authorities.

Question 22

According to PCAOB standards what does not reflect a qualitative standard that should be considered when evaluating the materiality of an uncorrected misstatement?

Answer 22

The dollar amount of the error

Question 23

To satisfy the valuation assertion when auditing an investment accounted for by the equity method, an auditor most likely would:

Answer 23

Examine the audited financial statements of the investee company.

Question 24

Identifying Related Party Transactions

Answer 24

• Compensating Balance arrangements
• Loan guarantees
• Unusual, nonrecurring transactions near year-end
• transactions that differ significantly from normal terms
• Nonmonetary exchanges

Question 25

Auditors resp. regarding to accounting estimates

Answer 25

• Evaluate the degree of estimation uncertainty associated with an accounting estimate.
• Assess management’s written policies and practices regarding the development and use of estimates
• Verify that all material estimates have been developed
• Determine that the accounting estimates are reasonable
• Ensure that the accounting estimates are properly presented & disclosed in conformity with GAAP

Question 26

Procedures to be taken regarding Accounting Estimates

Answer 26

1) Review & test the procedures used by management to develop the estimates
2) Develop an independent estimate of the item for comparative purposes
3) Review subsequent events & transactions (occurring prior to the date of the auditor’s report) that corroborate the value of the estimates.

Question 27

Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities?

Answer 27

Vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor invoices. because you are testing existence

Question 28

During an audit of an entity’s stockholders’ equity accounts, the auditor determines whether there are restrictions on retained earnings resulting from loans, agreements, or state law. This audit procedure most likely is intended to verify management’s assertions related to:

Answer 28

Classification and understandability.

Question 29

What should you do when you find out that Equipment acquisitions that are misclassified as maintenance expense most likely would be detected by an internal control activity that provides for

Answer 29

Investigation of variances within a formal budgeting system.

Question 30

The primary evidence regarding year-end cash balances in the financial statements is documented in the:

Answer 30

Bank recon. Something that the client prepares compared with the bank statement on client file

Question 31

The primary responsibility of a bank acting as registrar of capital stock is to

Answer 31

Verify that stock is issued in accordance with the authorization of the board of directors and the articles of incorporation

Question 32

Which of the following sets of information does an auditor usually confirm on one form?

Answer 32

Cash in bank & collateral for loans

Question 33

An auditor’s purpose in reviewing the renewal of a note payable shortly after the balance sheet date most likely is to obtain evidence concerning management’s assertions about:

Answer 33

understand ability & Classification

Question 34

Caveat means

Answer 34

Warning

Question 35

If the control risk is assessed as low, then

Answer 35

less substantive testing is necessary