Module 4: Responding to Risk Assessment: Evidence Accumulation and Evaluation

Question 1

Presentation and Disclosure

Answer 1

Accounts are described and classified in accordance with generally accepted accounting principles, and financial statements disclosures are complete, appropriate, and clearly expressed.

Question 2

Existence and Occurrence

Answer 2

Assets, liabilities, and equity interest exist, and recorded transactions and events have occurred

Question 3

Rights and Obligations

Answer 3

The company holds rights to the assets, and liabilities are the obligations of the company

Question 4

Completeness and cutoff

Answer 4

All assets, liabilities, equity interests, and transactions that should have been recorded, and all transactions and events are recorded in the appropriate accounting period.

Question 5

Valuation, allocation, and accuracy

Answer 5

All transactions, assets, and liabilities, and equity interests are included in the financial statements at proper amounts.

Question 6

Audit Procedures (acts to be performed)

Answer 6

Audit procedures are used as risk assessment procedures, test of controls, and substantive procedures. The following is a list of types of procedures:

• Inspection of records or documents (e.ge invoice for equipment purchase transaction)
• Inspection of tangible assets (e.g., inventory items)
• Observation (e.g. observation of inventory count, observation of control activities)
• Inquiry (e.g. written inquiries and oral inquiries)
• Confirmation (e.g. accounts receivable)
• Recalculation (e.g. checking the mathematical accuracy of documents or records)
• Reperformance (e.g. reperforming the aging of accounts receivable)
• Analytical procedures (e.g., scanning numbers for reasonableness and calculating rations)

Question 7

Negative Confirmation Request may be used when

Answer 7

a) the combined assessed level of inherent risk and control risk is low,
b) a large number of small balances is involved, and
c) The auditor has no reason to believe that recipients are unlikely to give them adequate consideration

Question 8

Analytical Procedures

Answer 8

consist of evaluations of financial information made by a study of plausible relationships amount financial and non financial data.

Question 9

Risk Assessment (used in analytical procedures)

Answer 9

Identify aspects of the entity of which the auditor was unaware and assist in assessing the risk of material misstatement. As such, these tests help the auditor to determine the nature, timing, and extent of tests.

Question 10

Substantive Procedures (used in analytical procedures)

Answer 10

Obtain relevant and reliable audit evidence to substantiate accounts for which overall comparisons are helpful.

Question 11

Near the end of the audit (used in analytical procedures)

Answer 11

assist the auditor when forming an overall conclusion about weather the financial statements are consistent with the auditors understanding of the entity.