Chapter 4

Question 1

Most reliable type of audit evidence is

Answer 1

auditor’s direct and personal knowledge which often comes from OBSERVATION

Question 2

During the fixed asset cycle, the auditor scanned the repair and maintenance account for unusually large expenditures. What type of procedure is this?

Answer 2

This is an example of ANALYTICAL PROCEDURES being used as a substantive test.

Question 3

What things should vouchers payable do?

Answer 3

• Match the receiving report to the purchase invoice
• Approve the invoice for payment
• Record the payment after it is made

DO NOT sign and mail check

Question 4

Which of the following is not likely to be performed prior to the b/s date?

• Testing controls
• Observing inventory
• Confirming receivables
• Mgmt rep letter

Answer 4

• Testing controls (usually done before)
• Observing inventory (as long as risks are low)
• Confirming receivables (can if risks are low)
• Mgmt rep letter (NO, this is the final piece of audit evidence)

Question 5

Can the auditor add documentation after the documentation completion date?

Answer 5

YES. The auditor may add documentation, but must document any materials added.

Question 6

Copies of meeting minutes - PERM or CURRENT file?

Answer 6

current

Question 7

Documentation of the auditor’s understanding of internal control for the major transaction cycles would be in the PERM or CURRENT file?

Answer 7

PERM file (ongoing significance)

Question 8

Which of the following controls would alleviate the auditor’s concern regarding the VALUATION AND ACCURACY assertion for cash?

• Cash receipts are recorded as they are received by the company and at the end of the day, an employee totals all cash receipts to compare the cumulative number
• A bank reconciliation is performed each month to compare cash amounts recorded by the company with those recorded by the bank

Answer 8

Cash receipts are recorded as they are received by the company and at the end of the day, an employee totals all cash receipts to compare the cumulative number

BANK REC relates would prove EXISTENCE and test for overstatement.

Question 9

When an auditor sends a letter to the client’s outside attorney accompanied by management’s request for information concerning pending litigation connected with the company, this is an example of an audit procedure known as

Answer 9

INQUIRY

Question 10

The REPORT RELEASE DATE is the date that

Answer 10

The auditor grants the entity the permission to use the auditor’s report on the audited f/s