Ch 5 Evidence and Documentation

Question 1

Management assertions

Answer 1

Representations

with respect to the recognition, measurement, presentation, and disclosure of information in the FS,

which are inherent in management,

representing that the FS are prepared in accordance with the applicable financial reporting framework.

Assertions are used by the auditor to consider the different types of potential misstatements that may occur when identifying, assessing, and responding to the risks of material misstatement.

Question 2

Management assertions fall into 2 categories:

Answer 2

Assertions about classes of transactions and events, and related disclosures, for the period under audit
-occurrence
-completeness
- authorization
- accuracy
- cutoff
-classification
-presentation

Assertions about account balances, and related disclosures, at the period end
-existence
-rights and obligations
-completeness
-accuracy, valuation, allocation
- classification
-presentation

Question 3

Audit evidence

Answer 3

info used by auditor in arriving at the conclusions on which the auditors opinion is based

info to which audit procedures have been applied and consists of info that corroborates or contradicts assertions in the FS

Question 4

3 categories important to understanding conduct of audit

Answer 4

Information used as audit evidence

Sufficiency and appropriateness of audit evidence

Evaluation of audit evidence

Question 5

Sufficiency & Appropriateness

Answer 5

measure of the quantity of audit evidence

measure of the quality of audit evidence

Sufficiency and appropriateness of audit evidence are interrelated, and they affect the persuasiveness of audit evidence

Question 6

Persuasiveness

Answer 6

relates to the auditor obtaining appropriate audit evidence that is sufficient for the auditor to draw a reasonable conclusion about the entity’s FS

Question 7

Relevance & Reliability

Answer 7

of info used as audit evidence refers to its relationship to the assertion or to the objective of the control being tested

of evidence refers to whether a particular type of evidence can be relied upon to signal the true state of an assertion

Question 8

Risk assessment procedures

Answer 8

used to obtain an understanding of the entity and its environment, including its internal control, to assess the risks of MM at the FS and relevant assertion levels

Question 9

Further audit procedures

Test of Controls

Substantive Procedures

Answer 9

Test of controls- used to test the operating effectives of controls in preventing, or detecting and correcting, MM at the relevant assertion level.

Substantive procedures- used to detect MM at the relevant assertion level. Substantive procedures include test of details and substantive analytical procedures

Question 10

Audit Program

Answer 10

A set of audit procedures prepared to test assertions for a component of the financial statements is usually referred to as an audit program.

Question 11

Audit procedures

Answer 11

Specific acts performed by the auditor in gathering evidence to determine if specific assertions are being met.

Question 12

Audit Procedures for Obtaining Audit Evidence

Answer 12

types of evidence obtained

inspection
- vouching
-tracing

observation

inquiry

confirmation

recalculation

reperformance

analytical procedures

Question 13

Vouching

Answer 13

Refers to selecting an item for testing from the accounting journals or ledgers and then examining the underlying source document.

Question 14

Tracing

Answer 14

Refers to selecting a source document and testing that it is included in the accounting journal or ledger.

Question 15

Analytical procedures used by auditor to accomplish 3 purposes

Answer 15

Risk assessment procedures
Substantive analytical procedures
Final analytical procedures

Question 16

Audit documentation has 3 purposes

Answer 16

To provide principal support for the representation in the auditor’s report that the audit was conducted in accordance w GAAS

To aid in the planning, performance, and supervision of the audit

To provide basis for the review of the quality of the work by providing a written documentation of the evidence supporting the auditors significant conclusions

Question 17

Types of Analytical Procedures

Answer 17

Trend analysis
analysis of changes in an account over time

Ratio analysis
comparison, across time or to a benchmark, of relationships between FS accounts or between an account and nonfinancial data

Reasonableness analysis
involves forming an expectation using a model

Question 18

The best primary audit evidence regarding year-end bank balances is documented in the

Answer 18

Standard bank confirmations

Question 19

Which of the following procedures would provide the most reliable audit evidence?

Answer 19

Inspection of bank statements obtained directly from the client’s financial institution

Question 20

Which of the following presumptions is correct about the reliability of audit evidence?

Answer 20

An effective internal control structure provides more assurance about the reliability of audit evidence.

Question 21

Which of the following types of audit evidence is the most persuasive?

Answer 21

Bank statements obtained from the client

Question 22

According to the third standard of fieldwork, which of the following terms identifies a requirement for audit
evidence?

Answer 22

Appropriate

Question 23

Which of the following would not be considered an analytical procedure?

Answer 23

Projecting an error rate by comparing the results of a statistical sample with the actual population characteristics

Question 24

Analytical procedures used in planning an audit should focus on

Answer 24

Enhancing the auditor’s understanding of the client’s business

Question 25

An auditor discovered that a client’s accounts receivable turnover is substantially lower for the current
year than for the prior year. This may indicate that

Answer 25

There was an improper cutoff of sales at the end of the year.

Question 26

Which of the following nonfinancial information would an auditor most likely consider in performing analytical
procedures during the planning phase of an audit?

Answer 26

Square footage of selling space

Question 27

An auditor’s analytical procedures most likely would be facilitated if the entity

Answer 27

Uses a standard cost system that produces variance reports

Question 28

Which of the following comparisons would an auditor most likely make in evaluating an entity’s costs and
expenses?

Answer 28

The current year’s payroll expense with the prior year’s payroll expense

Question 29

Which of the following is not required documentation in an audit in accordance with generally accepted
auditing standards?

Answer 29

. A flowchart depicting the segregation of duties and authorization of transactions

Question 30

In creating lead schedules for an audit engagement, a CPA often uses automated workpaper software.
What client information is needed to begin this process?

Answer 30

. General ledger information such as account numbers, prior-year account balances, and current-year unadjusted information

Question 31

Which of the following factors would least likely affect the quantity and content of an auditor’s working
papers?

Answer 31

The content of the representation letter

Question 32

The permanent (continuing) file of an auditor’s working papers most likely would include copies of the

Answer 32

Debt agreements

Question 33

An auditor ordinarily uses a working trial balance resembling the financial statements without footnotes,
but containing columns for

Answer 33

Reclassifications and adjustments

Question 34

Which of the following procedures would an auditor most likely rely on to verify management’s assertion of completeness?

Answer 34

comparing a sample of shipping documents to related sales invoices

Question 35

In testing the existence assertion for an asset, an auditor ordinarily works from the:

Answer 35

accounting records to the supporting documents.

Question 36

Which of the following statements concerning audit evidence is correct?

Answer 36

The measure of the reliability of audit evidence lies in the auditor’s judgment.

Question 37

Audit evidence can come in different forms with different degrees of reliability. Which of the following is the most persuasive type of evidence?

Answer 37

computations made by the auditor

Question 38

An auditor would be least likely to use confirmations in connection with the examination of

Answer 38

refundable income taxes.

Question 39

The current file of the auditor’s working papers should generally include:

Answer 39

a copy of the financial statements.

Question 40

The permanent file section of the working papers that is kept for each audit client most likely contains:

Answer 40

narrative descriptions of the entity’s accounting system and control procedures.

Question 41

An audit document that reflects the major components of an amount reported in the financial statements is referred to as a(n):

Answer 41

lead schedule.

Question 42

The primary objective of final analytical procedures is to:

Answer 42

assist the auditor in assessing the validity of the conclusions reached on the audit.

Question 43

The substantive analytical procedure known as trend analysis is best described by:

Answer 43

the examination of changes in an account over time.