Deck 6: A Framework for Audit Evidence

Question 1

The direction of testing from recorded amounts toward supporting documentation provides evidence as to existence of assets and revenues.

Answer 1

True

Question 2

Evidence can be directly or indirectly relevant to an assertion.

Answer 2

True

Question 3

The type of audit evidence known as inquiry does not ordinarily provide sufficient audit evidence of the absence of a material misstatement,nor is it alone sufficient to test the operating effectiveness of controls.

Answer 3

True

Question 4

A limitation of observation is that observing a process on one day does not necessarily indicate how the transactions were processed on a different day or over a relevant period of time.

Question 5

For an auditor to test the existence assertion of assets,testing will be performed beginning with the recorded asset and ending with the source documents.

Question 6

The direction of testing from the source documents to recorded amounts provides evidence regarding the completeness of liabilities and expenses.

Question 7

Confirmation statements from banks are common business documents.

Question 8

Relevance and reliability of evidence make up the appropriateness of audit evidence.

Question 9

Vouching recorded transactions involves taking a sample from the journal and tracing the items back to the source documents to ensure the transactions occurred.

Question 10

Documentation that is produced electronically by the client's internal systems is not considered appropriate to the audit process.

Question 11

One strategy used by auditors in testing assertions is to perform directional testing to find overstatements or understatements.

Question 12

Ulanda and Mudana,CPAs are performing an audit on McArnee,Inc.Ulanda selects a sample from certain source documents and traces them forward to the accounts payable ledger.The purpose of this test is to determine the possibility of understated liabilities.

Question 13

Inspection of tangible assets generally provides reliable evidence with the respect to the completeness of the assets,but not necessarily about the existence of the assets.

Question 14

Audit evidence is also referred to as an audit opinion.

Question 15

Vouching is a process that helps establish that recorded transactions are valid.

Question 16

The amount of evidence gathered is not important to an auditor since the quality of the evidence is of primary importance.

Question 17

Internal documentation is more reliable to the auditor if the internal control surrounding the documentation is considered strong than if it is considered weak.

Question 18

Individuals receiving confirmations from the auditor are asked to respond directly to the client being audited as to whether they agree or disagree with the information.

Question 19

Assertions are not relevant to an audit because they relate to the auditor and financial statements are management's responsibility instead of the auditor's.

Question 20

The auditor uses professional judgment to determine which audit procedures to perform.

Question 21

The audit program specifies what the client must do to perform the audit in accordance with generally accepted accounting procedures.

Question 22

The greatest risk of recording transactions in the incorrect period occurs during the roll-forward period.

Question 23

The auditor multiplies the quantity of inventory on the inventory ledger by the cost of the inventory to arrive at total inventory balance per product number.This is an example of recomputation by footing.

Question 24

In a reasonable test,the auditor develops an expected value of an account by using data wholly or partly independent of the client's accounting information system.

Question 25

The auditor utilizes the same audit program and the same procedures each year for each client in order to ensure that nothing is missed in the current year audit.

Question 26

The reliability of audit evidence is a measure of the quality of the underlying evidence and is influenced by risk,potential management bias associated with the evidence,and the quality of the internal control system underlying the preparation of the evidence.

Question 27

An example of physical observation is the auditor's testing of inventory by counting it to substantiate the existence assertion.

Question 28

Inquiries of client personnel are not an effective means of evidence gathering by an auditor.

Question 29

The performance of analytical procedures is often used by an auditor as a procedure to gather certain types of audit evidence.

Question 30

Audit documentation serves as support for the financial statements.

Question 31

Auditors should mail third party confirmations through the client's mailroom.

Question 32

Some audit procedures may be performed prior to the end of the year under audit.

Question 33

While inspecting documents,auditors should use original documents rather than copies,because copies are easy for management to falsify.

Question 34

The auditor's concern for potential fraud in the financial statements will most likely result in increased testing for the overstatement of revenues.

Question 35

The primary evidence in support of an auditor's conclusions is the auditor's documentation.

Question 36

The quality of electronic evidence depends on the controls built into the information system.

Question 37

Audit documentation should generally be retained for at least seven years.

Question 38

The primary importance of the audit program is its guidance of the overall conduct of the audit.

Question 39

Audit documentation should include the initials or electronic signature in order to identify the audit personnel responsible for the work and the managers and partners reviewing the work.

Question 40

Audit planning workpapers are prepared to support the foundation of the audit and are prepared for the client to assist in their understanding of the specific audit procedures that will be performed.

Question 41

Which one of the following statements is false?

A)Auditing includes the process of gathering evidence to test assertions.
B)No general audit program suits the needs for all situations.
C)Even though all audits are different,they can all be approached in the same manner.
D)All audits involve testing management's assertions contained in written communications to another party and independently gathering evidence to test the relevant assertions.

Question 42

Audit evidence consists of both information that supports and corroborates management's assertions regarding the financial statements or internal control over financial reporting and information that contradicts such assertions.

Question 43

Footing,cross-footing,and tests of extensions are examples of which approach to gathering evidence?

A)Reprocessing.
B)Recalculation.
C)Vouching.
D)Examination of documentation.

Question 44

Which one of the following would be considered the most reliable type of audit evidence?

A)Purchase orders from vendors.
B)Customer accounts receivable files.
C)Computerized general ledger.
D)Confirmations from banks.

Question 45

Analytical procedures are a type of substantive evidence.

Question 46

The auditor's job is to gather sufficient appropriate audit evidence on which to base an opinion.

Question 47

The client's verbal evidence is more reliable than evidence from independent outside sources.

Question 48

Liabilities and expenses are most often tested for overstatements.

Question 49

Which one of the following would be the most reliable type of evidence?

A)Photocopies.
B)Indirectly obtained evidence.
C)Observation of assets.
D)Inquiry with the in-house attorney.

Question 50

Which of the following is an example of inspection of documentation?

A)Review shipping documents.
B)Estimate the expected amount of interest income.
C)Observe controls.
D)Recalculate the total amount include on a sales invoice.

Question 51

While inspecting documents,the reliability depends on the nature and source of the documentation.

Question 52

An example of an external document would include which of the following?

A)Vendor invoices.
B)Customer orders.
C)Confirmation replies from customers.
D)All the above.

Question 53

Appropriateness of evidence is a measure of which of the following?

A)Quantity of evidence.
B)Quality of evidence.
C)Sufficiency of evidence.
D)Meaning of evidence.

Question 54

The relevance of audit evidence depends on the audit assertion being tested.

Question 55

Appropriateness deals with the quantity of evidence the auditor collects,whereas sufficiency deals with the quality of evidence the auditor collects.

Question 56

Directional testing involves testing transactions or balances primarily for which type of error?

A)Overstatement.
B)Understatement.
C)Either overstatement or understatement.
D)Either overstatement nor understatement.

Question 57

Underlying accounting records consist of evidence of controls as well as supporting records such as checks,invoices,the general and subsidiary ledger and journal entries.

Question 58

Two determinants of the persuasiveness of evidence include which of the following?

A)Competence and Sufficiency.
B)Relevance and Reliability.
C)Appropriateness and Sufficiency.
D)Independence and Effectiveness.

Question 59

The process of vouching helps establish which of the following regarding recorded transactions?

A)Transactions have been recorded.
B)Transactions are complete.
C)Transactions are valid.
D)Transactions are presented properly.

Question 60

Which one of the following would be the least reliable type of evidence?

A)Confirmations returned by bank directly to the auditor.
B)Letters of communication from the Securities Exchange Commission.
C)Physical examination of perpetual inventory.
D)Evidence from an easily overridden information system.

Question 61

When may audit procedures be performed? I - on the balance sheet date. II - prior to the balance sheet date. III - subsequent to the balance sheet date.

A)I only.
B)I and III only.
C)II only.
D)I,II,and III.

Question 62

Which of the following is an example of poorly-developed audit documentation?

A)Clear communication as to how testing was performed,the results and conclusions.
B)Organization and assembly of documentation in an orderly fashion.
C)Headings that include the name and signature of the client representative that the auditor interacted with while performing testing.
D)Authenticated identification of the person responsible for completing the procedure and conclusions.

Question 63

Directional testing is important to an auditor because of which of the following factors?

A)Certain accounts are more prone to be misstated by overstatement than others.
B)The auditor must remain organized when conducting an audit.
C)The primary concern of the auditor is the understatement of asset and revenue accounts.
D)It tests for existence and completeness simultaneously.

Question 64

Conclusions are typically documented by auditors in which type of work paper?

A)Audit planning memo.
B)Audit program.
C)Audit memoranda.
D)Representation letter.

Question 65

Reprocessing of transactions helps establish that all valid items have been recorded.Reprocessing tests which of the following assertions?

A)Occurrence.
B)Rights.
C)Existence.
D)Completeness.

Question 66

An audit program is created to specify which of the following?

A)The type of audit opinion to be rendered based upon procedures performed.
B)The audit procedures that will be performed every year for the client.
C)How an auditor should think while performing audit procedures.
D)Audit objectives and procedures to be followed during the audit process.

Question 67

An auditor selects a sample of items recorded and traces them back to the supporting documentation.This is an example of which of the following?

A)Directional testing for existence.
B)Directional testing for completeness.
C)Direct testing for valuation.
D)Direct testing for rights.

Question 68

Which of the following assertions is the primary assertion that is satisfied by physically observing the client's count of inventory?

A)Rights.
B)Valuation.
C)Completeness.
D)Existence.

Question 69

Which one of the following is the primary reason for documenting audit work?

A)To prevent litigation by other parties that question the audit performance.
B)To provide a stand-alone medium that gives audit conclusions and supports the opinion.
C)To give the client a full reporting of all work performed on their behalf.
D)To supply a point of reference for all auditors performing the work subsequently.

Question 70

Performance of audit procedures at an interim date causes the risk of material misstatement occurring between the interim date and the end of the year to do which of the following?

A)Decrease.
B)Increase.
C)Remain the same.
D)Become more difficult to ascertain.

Question 71

The processes used by management in developing estimates include which of the following?

A)Controls over the process.
B)The reliability of underlying data in developing the estimate.
C)Use of outside experts by management (for example,how they were used and their expertise).
D)All of the above.

Question 72

Which of the following is the primary source for evidence to corroborate the existence of pending litigation?

A)Vendor confirmations.
B)Disclosures in financial statements.
C)Management representation letters.
D)Attorney confirmations.

Question 73

When the auditor used the audit procedure vouching she is primarily concerned with which of the following assertions?

A)Completeness.
B)Existence.
C)Authorization.
D)Classification.

Question 74

The reliability of a client's internal documentation is most affected by which of the following?

A)The auditor's independence.
B)Management's motivation to misstate accounts.
C)The type of audit report that will be issued.
D)Management's ability to understand generally accepted audit standards.

Question 75

To be considered reliable evidence,confirmations must be controlled by which of the following individuals?

A)A client employee responsible for accounts receivable.
B)An external auditor.
C)A client's internal audit department.
D)A client's controller or CFO.

Question 76

An audit program provides an effective means for which of the following?

A)Reviewing the completeness and persuasiveness of procedures performed.
B)Recording the audit work performed and those responsible for performing the work.
C)Organizing and distributing the work.
D)All the above.

Question 77

Observation suffers from which of the following limitations?

A)Observation of processing is rarely unobtrusive.
B)Observation of processing on one day does not necessarily indicate how transactions were processed on a different day.
C)All the above.
D)None of the above.

Question 78

External documentation may lack reliability.Which of the following is the most probable reason for that?

A)The external party may be competent in performing duties.
B)The documentation may be properly understood by the client in the response.
C)The auditor may decide not to use the documentation and replace it with other documents.
D)The documentation may have been altered if the process is not controlled from inception.

Question 79

The extent of procedures is affected mostly by which of the following factors?

A)The sheer volume of procedures to be applied by the auditor.
B)The time of year in which the client takes a physical inventory in the warehouse.
C)The auditor's judgment that misstatements are probable in certain balances.
D)The availability of the client's staff at or near the balance sheet date.

Question 80

Sufficient evidence gathered by the auditor involves which of the following?

A)The quantity of evidence to be obtained.
B)The type of evidence to be obtained.
C)Obtaining limited evidence to achieve efficiency.
D)The use of an audit program to obtain evidence.