Audit Objectives, Procedures, Evidence, and Documentation Flashcards
- Which of the following should be considered by the auditor in deciding which means (or combination of means) to use in selecting items for testing?
I. The risk of material misstatement related to the assertion being tested.
II. Audit efficiency.
A. I only C. Both I and II
B. II only D. Neither I nor II
C. Both I and II
- The quantity of audit evidence needed is affected by the risk of misstatement and also by the quality of such audit evidence.
The reliability of audit evidence is influenced by its source and by its nature and is dependent on the individual circumstances under which it is obtained.
A. Both statements are true. C. True; False.
B. Both statements are false. D. False; True.
A. Both statements are true.
- Which of the following is a false statement about audit objectives?
A. There should be a one-to-one relationship between audit objectives and procedures.
B. Audit objectives should be developed in light of management assertions about the financial statement components.
C. Selection of tests to meet audit objectives should depend upon the understanding of internal control.
D. The auditor should resolve any substantial doubt about any of management’s material financial statement assertions.
A. There should be a one-to-one relationship between audit objectives and procedures.
- Which of the following statements concerning evidential matter is true?
A. Appropriate evidence supporting management’s assertions should be convincing rather than merely persuasive.
B. Effective internal control contributes little to the reliability of the evidence created within the entity.
C. The cost of obtaining evidence is not an important consideration to an auditor in deciding what evidence should be obtained.
D. A client’s accounting records cannot be considered sufficient evidence to support the financial statements.
D. A client’s accounting records cannot be considered sufficient evidence to support the financial statements.
- Which of the following types of audit evidence is the most persuasive?
A. Prenumbered purchase order forms.
B. Client worksheets supporting cost allocations.
C. Bank statements obtained from the client.
D. Client representation letter.
C. Bank statements obtained from the client.
- Which of the following generalizations does not relate to the appropriateness of evidence?
A. Audit evidence from external sources (for example, confirmation received from a third party) is more reliable than that generated internally.
B. An auditor’s opinion, to be economically useful, is formed within reasonable time and based on evidence obtained at a reasonable cost.
C. Audit evidence generated internally is more reliable when the related accounting and internal control systems are effective.
D. Audit evidence obtained directly by the auditor is more reliable than that obtained from the entity.
B. An auditor’s opinion, to be economically useful, is formed within reasonable time and based on evidence obtained at a reasonable cost.
- Each of the following might, by itself, form a valid basis for an auditor to decide to omit a test except for the
A. Difficulty and expense involved in testing a particular item.
B. Assessment of control risk at a low level.
C. Inherent risk involved.
D. Relationship between the cost of obtaining evidence and its usefulness.
A. Difficulty and expense involved in testing a particular item.
- In which of the following circumstances would the use of the negative form of accounts receivable confirmation most likely be justified?
A. A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers.
B. A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances.
C. A small number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers.
D. A small number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances.
D. A small number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances.
- Which of the following statements is correct concerning the use of negative confirmation requests?
A. Unreturned negative confirmation requests rarely provide significant explicit evidence.
B. Negative confirmation requests are effective when detection risk is low.
C. Unreturned negative confirmation requests indicate that alternative procedures are necessary.
D. Negative confirmation requests are effective when understatements of account balances are suspected.
A. Unreturned negative confirmation requests rarely provide significant explicit evidence.
- Which of the following most likely would give the most assurance concerning the valuation and allocation assertion of accounts receivable?
A. Vouching amounts in the subsidiary ledger to details on shipping documents.
B. Comparing receivable turnover ratios with industry statistics for reasonableness.
C. Inquiring about receivables pledged under loan agreements.
D. Assessing the allowance for uncollectible accounts for reasonableness.
D. Assessing the allowance for uncollectible accounts for reasonableness.
- Confirmation is “the process of obtaining and evaluating a direct communication from a third party in response to a request for information about a particular item affecting financial statement assertions.” Two assertions for which confirmation of accounts receivable balances provides primary evidence are
A. Completeness and valuation
B. Valuation and rights and obligations
C. Rights and obligations and existence
D. Existence and completeness
C. Rights and obligations and existence
- To gain assurance that all inventory items in a client’s inventory listing schedule are valid, an auditor most likely would vouch
A. Inventory tags noted during the auditor’s observation to items listed in the inventory listing schedule.
B. Inventory tags noted during the auditor’s observation to items listed in receiving reports and vendors’ invoices.
C. Items listed in the inventory listing schedule to inventory tags and the auditor’s recorded count sheets.
D. Items listed in receiving reports and vendors’ invoices to the inventory listing schedule.
C. Items listed in the inventory listing schedule to inventory tags and the auditor’s recorded count sheets.
- An auditor selected items for test counts while observing a client’s physical inventory. The auditor then traced the test counts to the client’s inventory listing. This procedure most likely obtained evidence concerning management’s assertion of
A. Rights and obligations
B. Completeness
C. Existence
D. Valuation
B. Completeness
- Which of the following is an audit procedure that an auditor most likely would perform concerning litigation, claims, and assessments?
A. Request the client’s lawyer to evaluate whether the client’s pending litigation, claims, and assessments indicate a going concern problem.
B. Examine the legal documents in the client’s lawyer’s possession concerning litigation, claims, and assessments to which the lawyer has devoted substantive attention.
C. Discuss with management its policies and procedures adopted for evaluating and accounting for litigation, claims, and assessments.
D. Confirm directly with the client’s lawyer that all litigation, claims, and assessments have been recorded or disclosed in the financial statements.
C. Discuss with management its policies and procedures adopted for evaluating and accounting for litigation, claims, and assessments.
- Which of the following is not an audit procedure that the independent auditor would perform with respect to litigation, claims, and assessments?
A. Inquire of and discuss with management the policies and procedures adopted for litigation, claims, and assessments.
B. Obtain from management a description and evaluation of litigation, claims, and assessments that existed at the balance sheet date.
C. Obtain assurance from management that if has disclosed all unasserted claims that the lawyer has advised are probable of assertion and must be disclosed.
D. Confirm directly with the client’s lawyer that all claims have been recorded in the financial statements.
D. Confirm directly with the client’s lawyer that all claims have been recorded in the financial statements.
