Evidence - Objects and Nature

Question 1

What does an auditor use a working trial balance resembling the financial statements without notes for?

Answer 1

FOR Reclassifications and adjustments

i.e. Adjustments correct client misstatements and affect balances to be reported

Question 2

What is the primary difference between an audit of the balance sheet and an audit of the income statement?

Answer 2

The income statement audit deals with the verification of transactions

Question 3

What document most likely would be in the permanent file section of the audit documentation?

Answer 3

Narrative descriptions of the client’s accounting procedures and internal control

Question 4

What two assertions do confirmation of accounts receivable balances provide primary evidence of?

Answer 4

Rights and obligations and existence

i.e. confirmation provides less relevant evidence about the valuation assertion and the completeness assertion than about the existence and rights and obligations assertions

Question 5

What is the primary purpose of audit procedures?

Answer 5

To gather evidence

Question 6

What direction of audit testing should be used to test for unsupported entries in the ledger?

Answer 6

From the ledger entries to the books of original entry

i.e. The direction of testing is from the ledger entries to the books of original entry, then to the source documents.

Question 7

Why would the blank form of accounts receivable confirmations be inefficient?

Answer 7

Because more nonresponses to the requests are likely to occur

i.e. a lower response rate because of the additional effort required

Question 8

What task could be achieved using generalized audit software?

Answer 8

Filtering data based on accounts receivable data recording

Question 9

What audit working paper reflects the major components of an amount reported in the financial statements?

Answer 9

The Lead Schedule

i.e. Lead schedules help to eliminate detail from the auditor’s working trial balance by classifying and summarizing similar or related items

Question 10

What is an example of a circumstance in which the blank form confirmation of accounts accounts receivable would be preferable?

Answer 10

When recipients are likely to sign the confirmations without devoting proper attention to them.

i.e. Blank confirmation requests are used to reduce the risk that recipients will respond without verifying the information

Question 11

What field would an auditor using audit software be least interested in involving the computerized perpetual inventory file?

Answer 11

Economic Order Quantity

Why? - Because this is a management decision with little effect on the fairness of the inventory balance on the financial statements

Question 12

How long is an auditor required to retain audit documentation?

Answer 12

For a period to satisfy applicable legal or regulatory requirements

NOTE: Under PCAOB standards, audit documentation retention is for 7 years from the audit report release date

Question 13

What is one procedure that would be effective in reducing attestation risk?

Answer 13

Examination of evidence

i.e. To express an opinion, the practitioner must gather sufficient evidence to reduce attestation risk to an acceptably low level

Question 14

What documents in a predecessor’s audit documentation is the auditor least likely to be interested in reviewing?

Answer 14

Analysis of income statement accounts

Why? - Because income statement accounts have less significance for an initial audit because they have no beginning balances

Question 15

What are two requirements crucial to achieving audit efficiency and effectiveness with a personal computer?

Answer 15

Selecting appropriate audit tasks for personal computer applications and the appropriate software to perform the selected audit tasks

i.e. the auditor must have the appropriate hardware and software