Chapter 13: Overall Audit Strategy and Audit Program Flashcards
Shown below (1 through 5) are the five types of tests which auditors use to determine whether financial statements are fairly stated. Which three are substantive tests?
- risk assessment procedures
- tests of controls
- substantive tests of transactions
- substantive analytical procedures
- tests of details of balances
A) 1, 2, and 3
B) 3, 4, and 5
C) 2, 3, and 5
D) 2, 3, and 4
B) 3, 4, and 5
Collectively, procedures performed to obtain an understanding of the entity and its environment, including internal controls, represent the auditor’s
A) audit strategy.
B) tests of controls.
C) risk assessment procedures.
D) tests of transactions.
C) risk assessment procedures.
Which of the following would notbe considered further audit procedures?
A) tests of controls
B) analytical procedures
C) tests of details of balances
D) risk assessment procedures
D) risk assessment procedures
Which of the following procedures would most likely be performed in response to the auditor’s assessment of the risk of monetary misstatements in the financial statements?
A) ratio analysis
B) tests of controls
C) tests of details of balances
D) risk assessment procedures
C) tests of details of balances
Which of the following further audit procedures are used to determine whether all six transaction-related audit objectives have been achieved for each class of transactions?
A) tests of controls
B) risk assessment procedures
C) substantive tests of transactions
D) preliminary analytical procedures
C) substantive tests of transactions
You are auditing Rodgers and Company. After performing substantive analytical procedures you conclude that, for the accounts tested, the client’s balance appears reasonable. This may indicate that
A) details test of balances can be eliminated for those accounts.
B) certain tests of details of balances may be eliminated for those accounts.
C) control tests may be eliminated for those accounts.
D) control tests may be reduced for those accounts.
B) certain tests of details of balances may be eliminated for those accounts.
The purpose of tests of controls is to provide reasonable assurance that the
A) accounting treatment of transactions and balances is valid and proper.
B) internal control procedures are functioning as intended.
C) entity has complied with GAAP disclosure requirements.
D) entity has complied with requirements of quality control.
B) internal control procedures are functioning as intended.
In the context of an audit of financial statements, substantive tests are audit procedures that
A) may be eliminated under certain conditions.
B) are designed to discover significant subsequent events.
C) are designed to test for dollar misstatements.
D) will increase proportionately with the auditor’s reliance on internal control.
C) are designed to test for dollar misstatements.
Which of the following is true?
A) Tests of details of balances focus on the ending general ledger balances for both balance sheet and income statement accounts.
B) Tests of details of balances focus on the transactions during the period for both balance sheet and income statement accounts.
C) Tests of details of balances focus on the auditor’s understanding of internal controls.
D) Tests of details of balances focus on comparisons of recorded amounts to expectations developed by the auditor.
A) Tests of details of balances focus on the ending general ledger balances for both balance sheet and income statement accounts.
A system walkthrough is primarily used to help the auditor
A) test the ending account balances.
B) test the details of transactions.
C) determine whether internal controls have been properly implemented.
D) determine whether the audit engagement should be accepted.
C) determine whether internal controls have been properly implemented.
Risk assessment procedures are performed by auditors during an audit in order to
A) determine the risk of material misstatement in the financial statements.
B) determine the amount of testing of internal control.
C) determine the extent of testing of details of balances.
D) determine the extent of testing of transactions.
A) determine the risk of material misstatement in the financial statements.
Tests of controls are directed toward the control’s
A) efficiency.
B) effectiveness.
C) cost and effectiveness.
D) cost benefit ratio.
B) effectiveness.
A procedure designed to test for monetary misstatements directly affecting the correctness of financial statement balances is a
A) test of controls.
B) substantive test.
C) test of attributes.
D) monetary unit sampling test.
B) substantive test.
Analytical procedures
A) focus on the ending balances for income statement accounts.
B) are only performed during the planning stage of the audit.
C) are required to be performed when auditing an account balance.
D) provide substantive evidence.
D) provide substantive evidence.
The primary emphasis in most tests of details of balances is on the
A) balance sheet accounts.
B) revenue accounts.
C) cash flow statement accounts.
D) expense accounts.
A) balance sheet accounts.
Which of the following statements is nottrue?
A) Analytical procedures emphasize the overall reasonableness of transactions and balances.
B) Tests of controls are concerned with evaluating whether controls are sufficiently effective to justify reducing control risk and thereby reducing analytical review procedures.
C) Substantive tests of transactions emphasize the verification of transactions recorded in the journals and then posted in the general ledger.
D) Tests of details of balances emphasize the ending balances in the general ledger.
B) Tests of controls are concerned with evaluating whether controls are sufficiently effective to justify reducing control risk and thereby reducing analytical review procedures.
Many auditors perform extensive analytical procedures because
A) they are required by GAAS.
B) they pinpoint errors in accounts.
C) they indicate areas of potential risk and misstatement.
D) they are required for tests of controls.
C) they indicate areas of potential risk and misstatement.
The auditor has determined that a key control in the audit of the sales and collection cycle is that recorded sales are supported by authorized shipping documents and approved customer orders. What typical test of controls should be used in this situation?
A) Examine a sample of duplicate sales invoices to determine that each on is supported by an authorized shipping document and approved customer order.
B) Observe whether shipping documents are forwarded daily to billing and observe when they are billed.
C) Examine a sample of sales invoices and agree prices to the authorized computer price list.
D) Use audit software to trace postings from the batch of sales transactions to the subsidiary and general ledgers.
A) Examine a sample of duplicate sales invoices to determine that each on is supported by an authorized shipping document and approved customer order.
Which of the following is ordinarily designed to detect material dollar errors on the financial statements?
A) tests of controls
B) analytical review procedures
C) computer controls
D) tests of details of balances
D) tests of details of balances
List each of the five types of audit tests.
- risk assessment procedures
- tests of controls
- substantive tests of transactions
- substantive analytical procedures
- tests of details of balances
For automated controls, the auditor’s procedures to determine whether the automated control has been implemented cannot also serve as the test of that control.
TRUE OR FALSE
FALSE
Procedures to obtain an understanding of internal control generally provide sufficient appropriate evidence that a control is operating effectively.
TRUE OR FALSE
FALSE
Substantive tests are procedures designed to test for dollar misstatements that directly affect the correctness of financial statement balances.
TRUE OR FALSE
TRUE
Risk assessment procedures are performed to assess the risk of material misstatement in the financial statements.
TRUE OR FALSE
TRUE