Chapter 6 Deck 3

Question 1

Factors affecting the nature and extent of audit documentation include:

Answer 1

The risk of material misstatement;
The extent to which judgment was required in performing the work and evaluating the results;
The nature of the specific auditing procedure;
The significance of the evidence obtained;
The nature and extent of any problems identified; and
The need to document conclusions that may not be obvious.

Question 2

Which of the following documentation is required for an audit in accordance with generally accepted auditing standards?

Answer 2

The quantity, type, and content of audit documentation vary with the circumstances, but it should be sufficient to show that the accounting records agree or reconcile with the financial statements.

Question 3

Audit documentation should be prepared in enough detail so that:

Answer 3

An experienced auditor who has no previous connection with the audit can understand the procedures performed and the evidence obtained.

Question 4

According to PCAOB standards, the documentation completion date is?

Answer 4

forty-five days following the report release date. Also note it is the date after which existing documentation must not be deleted, and additions to the documentation file must be documented as such.

Question 5

Which of the following would not be considered a significant audit finding that should be included in audit documentation?

Answer 5

Significant audit findings do not include staffing changes at the client.

Question 6

Which of the following is the primary reason that many auditors hesitate to use embedded audit modules?

Answer 6

Embedded audit modules are sections of the application program code that collect transaction data for the auditor. Embedded audit modules are usually built into the application program when the program is developed. This would require that the auditors be involved in the system design of the application to be monitored.

Question 7

Embedded audit modules are?

Answer 7

are sections of an application program code that collect transaction data for the auditor. Such modules allow the auditor to capture specific data as transactions are being processed.

Question 8

When an auditor tests a computerized accounting system, which of the following is true of the test data approach?

Answer 8

Test data consists of “dummy” data run through the client’s computer system. The data should be processed under the auditor’s control.

Question 9

What does the test data approach allow the auditor to do?

Answer 9

Test data allows the auditor to determine whether adequate controls exist over data processing. Test data consists of fictitious entries or inputs that are processed through the client’s computer system under the control of the auditor. The client’s computerized payroll system should have adequate controls to prevent input of invalid employee I.D. numbers.

Question 10

Using computers in auditing may affect the methods used to review the work of staff assistants because:

Answer 10

When using computers in an auditing task, audit documentation may not contain readily observable details of calculations (e.g., present value calculations). In order to review assistants’ work, a supervisor may have to examine the formulas used on the computer rather than simply examining the audit documentation.

Question 11

What is a true statement about the test data approach?

Answer 11

The test data approach refers to a technique in which the client’s application program is used to process a set of test data, the results of which are already known by the auditor. If the client’s program is operating effectively, it should generate the same results determined by the auditor.

Question 12

In computer audit applications, efficient and effective system usage requires:

Answer 12

Identification of the appropriate audit tasks and

Appropriate software to perform the selected audit tasks

Question 13

An auditor who is testing IT controls in a payroll system would most likely use test data that contain conditions such as:

Answer 13

Test data often contains invalid information (such as invalid job numbers) that is used to test EDP controls.
NOTEWhile approvals and authorizations should all be tested, they are NOT IT controls and would not be tested through use of test data.

Question 14

Processing data through the use of simulated files provides an auditor with information about the operating effectiveness of controls. One of the techniques involved in this approach makes use of:

Answer 14

An integrated test facility runs test transactions through the “live” system and posts to simulated (dummy) files to provide an auditor with information about the operating effectiveness of controls.

Question 15

Which of the following computer-assisted auditing techniques processes client input data on a controlled program under the auditor’s control to test controls in the computer system?

Answer 15

Parallel simulation is a technique in which the auditor reprocesses the client’s data using the auditor’s own software. The auditor then compares his or her results to those obtained by the client.

Question 16

A primary advantage of using generalized audit software packages to audit the financial statements of a client that uses an EDP system is that the auditor may:

Answer 16

One of the primary benefits of using generalized audit software is the ability to access client data stored in computer files without having a detailed understanding of the client’s hardware and software features.

Question 17

Which of the following is a computer-assisted audit technique that permits an auditor to insert the auditor’s version of a client’s program to process data and compare the output with the client’s output?

Answer 17

This is the definition of parallel simulation. The client’s input data is processed through both the auditor’s version of the client’s program and the client’s program and the output is compared.

Question 18

Which of the following tasks can be achieved using generalized audit software?

Answer 18

Generalized audit software may select items meeting specified criteria, such as filtering data based on accounts receivable data recording.

Question 19

The auditor’s report on compliance and internal control over compliance designed to meet the requirements of Government Auditing Standards (the Yellow Book), should include:

Answer 19

The scope of the auditor’s testing of internal controls is required to be included in the auditor’s report on internal controls and compliance with laws and regulations in accordance with Government Auditing Standards (the Yellow Book).

Question 20

In performing an audit in accordance with Generally Accepted Government Auditing Standards (the “Yellow Book”), the auditor:

Answer 20

An auditor’s reporting requirements under Generally Accepted Government Auditing Standards (GAGAS or the Yellow Book) are expanded to include reports on the audited entity’s compliance with laws, rules, and regulations that have a material impact on the financial statements and on internal controls over financial reporting.