Deck 9: Execution of the Audit Performing Substantive Procedures

Question 1

The lack of significant change in an account balance from one year to the next does not necessarily mean that the auditor can assume the balance is reasonable.

Answer 1

True

Question 2

Which of the following statements is ?

A)There is no relation between the auditor's assessed risk of material misstatement and detection risk.
B)If detection risk is high,significant substantive procedures are necessary to reduce detection risk.
C)There is an inverse relation between the auditor's assessed risk of material misstatement and detection risk.
D)If detection risk is low,only a small number of substantive procedures are necessary to reduce the detection risk.

Answer 2

C

Question 3

Audit sampling is the application of audit procedures to less than 100 per cent of items within a population.

Answer 3

True

Question 4

Analytical procedures may not be useful when they are used on a company with significantly diverse operations and geographical segments.

Question 5

Performing substantive procedures prior to year-end,in the absence of specific effective controls,may be acceptable when:

A)the likelihood of errors or fraud is high.
B)the likelihood of errors or fraud is low.
C)the auditor is able to conclude overall that the client's control environment is effective.
D)Both a and c

Question 6

Performing substantive procedures prior to year-end,in the absence of specific effective controls,may be acceptable when:

A)the likelihood of errors or fraud is low.
B)the auditor is able to conclude overall that the client's control environment is effective.
C)the likelihood of errors or fraud is high.
D)Both a and c

Question 7

Normally,it is more efficient to carry out substantive procedures than to test and rely on controls.

Question 8

Substantive testing can be conducted using which of the following procedures?

A)Analytical review
B)Enquiry
C)Confirmation
D)All of the above

Question 9

A significant account is one that could contain material misstatements based upon their materiality and/or relationship to identified inherent and financial report risks.

Question 10

Corroborative evidence confirms audit findings from other procedures.

Question 11

Analytical procedures that provide persuasive or corroborative evidence contribute minimal support for the audit conclusion.

Question 12

Control risk is assessed to be low when there are no internal controls tested or relied upon by the auditor.

Question 13

The timing of substantive procedures is directly influenced by the level of control risk.

Question 14

Vouching involves tracking a source document back to the underlying accounting records.

Question 15

Inherent risk is:

A)the risk of a misstatement occurring irrespective of any internal controls put in place by management.
B)assessed as high when there are no internal controls tested or relied upon by the auditor.
C)assessed as low when there are good internal controls in place.
D)the risk that the auditor's testing procedures will not detect a material misstatement.

Question 16

Key item testing is an example of a technique used when conducting substantive procedures.

Question 17

Misstatements can only arise from fraud.

Question 18

The audit program serves as the instructions for the audit team members to complete the required testing.

Question 19

Roll-forward procedures are performed during the period between the end of the financial year and the date of the audit report.

Question 20

Comparing the number of day's purchases in trade payable with prior years would provide persuasive evidence of accounts payable.

Question 21

The nature of substantive procedures normally consists of one or a combination of which of the following techniques?

A)Key item testing
B)Analytical procedures
C)Representative sampling
D)All of the above

Question 22

Comparing sales commissions or bonuses with related sales provides what level of evidence?

A)Minimal
B)Corroborative
C)Absolute
D)Persuasive

Question 23

There are certain audit procedures that are required to be performed according to various auditing standards.Identify specific examples of such procedures and explain why the procedures are mandatory.

Question 24

Discuss the factors that influence the extent and timing of substantive procedures.

Question 25

Identify the steps used by the auditor when performing analytical procedures.

Question 26

Analytical procedures that provide persuasive evidence include:

A)comparing the number of days purchases in trade payables with prior years.
B)reviewing the cash accounts in the general ledger for unusual items.
C)relating average amounts invested to an average interest rate.
D)reviewing the property,plant and equipment account in the general ledger for unusual items.

Question 27

Typically,substantive testing tends to be performed:

A)half way through the financial year.
B)at the start of the financial year.
C)at or near year-end.
D)only when the client's management allows the auditor to conduct the tests.

Question 28

Explain the difference between vouching and tracing.

Question 29

Explain the four different levels of evidence obtained when performing substantive procedures.

Question 30

Which of the following is not a type of analytical procedure?

A)Break-even analysis
B)Confirmation analysis
C)Ratio analysis
D)Trend analysis

Question 31

Roll-forward procedures are performed:

A)after the end of the financial year.
B)to update the audit findings from the time of the interim procedures through to year-end.
C)to detect fraud in various balance sheet accounts.
D)None of the above

Question 32

Vouching involves:

A)the application of audit procedures to less than 100 per cent of items within a population.
B)tracking a source document through to the underlying accounting records.
C)agreeing the details of a transaction to supporting evidence outside of the company's accounting records.
D)None of the above

Question 33

Variables estimation sampling The auditor uses this technique if they expect more than a few errors in an account balance.This technique can be used when the concern is both understatement and overstatement,and is therefore different to representative sampling.Variables estimation sampling is usually applied to detect misstatements of the book values (carrying amounts or recorded values)of populations.

Question 34

The primary purpose of vouching is to ensure that:

A)the balances or transactions are not overstated.
B)the balances or transactions are not understated.
C)sufficient information is disclosed in the notes to the financial statements.
D)all transactions have been recorded.

Question 35

Which of the following is the first step an auditor performs when performing analytical procedures?

A)Identify the computation,comparison or relationship to be made or investigated
B)Determine appropriate procedures for investigating the reasons for differences if they are significant
C)Draw conclusions
D)Assess the reliability of any data to be used

Question 36

Variables estimation sampling is used:

A)when the auditor conducts tests of controls.
B)when the auditor does not expect any errors in an account balance.
C)to obtain a level of confidence that key attributes for the sample tested can be inferred to be in existence for the entire population.
D)if the auditor expects more than a few errors in an account balance.

Question 37

Tracing is primarily directed towards verifying which of the following assertions?

A)Occurrence
B)Completeness
C)Existence
D)Valuation

Question 38

The levels of evidence obtained when performing substantive procedures includes:

A)general
B)minimal
C)persuasive
D)All of the above

Question 39

Analytical procedures may not be used:

A)to provide at least some minimal level of support for the conclusion.
B)as primary tests of an account balance.
C)in testing internal controls.
D)as corroborative tests in combination with other procedures.

Question 40

Overall significant account conclusion statements are captured on:

A)confirmation requests.
B)audit programs.
C)lead sheets.
D)minutes of board of directors' meetings.

Question 41

Analytical procedures are evaluations of financial information made by a study of plausible relationships among both financial and non-financial data.Discuss why analytical procedures are used by an auditor and explain several of the common types of analytical procedures.

Question 42

Explain and evaluate the 'fuzzy logic' approach to assessing materiality.