Question 1

There are eight types of audit evidence:
 physical examination,confirmation,inspection,observation,inquiries of the client,reperformance,analytical procedures,and recalculation.For each of the following types of audit tests,indicate the type(s)of evidence that can be obtained through the test:
 (1)tests of controls,(2)substantive tests of transactions,(3)analytical procedures,and (4)tests of details of balances.

Accepted Answer

The answer of There are eight types of audit evidence:
...

Question 2

Tests of controls should be performed after substantive tests of transactions.

Accepted Answer

Tests of controls should be performed before substantive tests of transactions to assess the reliability of the internal controls.

Question 3

If tests of controls support the control risk assessment,then ________ in the audit risk model is increased.
A) planned detection risk.
B) planned inherent risk.
C) planned fraud risk.
D) planned assurance risk.

Accepted Answer

If tests of controls support the control risk assessment, it means the controls are working effectively and there is less risk of misstatements in the financial statements. As a result, the auditor can increase the planned detection risk, which is the risk that audit procedures will not detect a material misstatement. This allows the auditor to reduce the level of testing that is required and to focus on areas that are deemed to be of higher risk.

Question 4

Substantive tests are procedures designed to test for dollar misstatements that directly affect the correctness of financial statement balances.

Accepted Answer

Substantive tests are designed to specifically test for dollar misstatements that directly impact financial statement balances, as opposed to tests of controls which evaluate the effectiveness of internal controls.

Question 5

In order to promote audit efficiency the auditor considers cost in selecting audit tests to perform.Which of the following audit tests would be the most costly?
A) Analytical procedures
B) Risk assessment procedures
C) Tests of controls
D) Tests of details of balances

Accepted Answer

Tests of details of balances are the most costly audit tests because they involve detailed examination of individual transactions and account balances, which requires significant time and effort from the auditor. Analytical procedures and risk assessment procedures are typically less costly and can provide useful information for the audit. Tests of controls may also be less costly but are only relevant for certain types of audit objectives.

Question 6

Procedures to obtain an understanding of internal control generally provide sufficient appropriate evidence that a a control is operating effectively.

Accepted Answer

While obtaining an understanding of internal control is an important step in evaluating the effectiveness of controls, it does not in itself provide sufficient appropriate evidence that a control is operating effectively. Further testing and evaluation is necessary to draw a conclusion about the effectiveness of a control.

Question 7

Discuss the purposes of (1)substantive tests of transactions,(2)tests of controls,and (3)tests of details of balances.Give an example of each.

Accepted Answer

The answer of Discuss the purposes of (1)substantive tests of...

Question 8

Describe the five types of audit tests.Identify which of the five types are substantive tests,and which are used to reduce assessed control risk.

Accepted Answer

The answer of Describe the five types of audit tests.Identify...

Question 9

An exception or deficiency found in a test of controls:
A) indicates a financial statement misstatement.
B) indicates the likelihood of a misstatement.
C) indicates that the financial statements are fairly stated.
D) indicates that an adverse opinion is warranted on the audit of internal control.

Accepted Answer

An exception or deficiency found in a test of controls indicates the likelihood of a misstatement. It does not necessarily mean that there is a financial statement misstatement, nor does it automatically warrant an adverse opinion on the audit of internal control. However, it does indicate that there is a risk that misstatements could exist in the financial statements, and further audit procedures may be necessary to evaluate the extent and potential impact of the exception.

Question 10

Auditors use analytical procedures and tests of details of balances to satisfy planned detection risk.

Accepted Answer

Auditors use both analytical procedures and tests of details of balances to obtain sufficient evidence and reduce detection risk to an acceptable level.

Question 11

Tests of controls are performed to support a reduced assessment of detection risk.

Accepted Answer

Tests of controls are performed to evaluate the effectiveness of an entity's internal controls, not directly to support a reduced assessment of detection risk. Detection risk relates to the risk that auditors fail to detect material misstatements, and while effective controls can indirectly affect this risk, tests of controls primarily aim to assess control risk.

Question 12

The auditor would design which of the following audit tests to detect possible monetary errors in the financial statements?
A) Control tests
B) Analytical procedures
C) Risk assessment procedures
D) Tests of operating effectiveness of controls over revenue and cash

Accepted Answer

Analytical procedures involve analyzing relationships between financial data to detect possible errors or fraud. This test would help the auditor to detect possible monetary errors in the financial statements. Control tests, risk assessment procedures, and tests of operating effectiveness of controls over revenue and cash are designed to assess the effectiveness of internal controls, rather than to detect monetary errors specifically.

Question 13

An increased extent of tests of controls is most likely to occur when:
A) it is a first-year audit.
B) the auditor is doing a "fraud audit."
C) controls are effective and the preliminary control risk assessment is low.
D) controls are ineffective and the preliminary control risk assessment is high.

Accepted Answer

When controls are effective and the preliminary control risk assessment is low, auditors are more likely to increase the extent of tests of controls. This approach allows them to rely more on the effectiveness of the controls and potentially reduce the extent of substantive testing.

Question 14

A major part of the auditor's risk assessment procedures is done to obtain an understanding of internal control.

Accepted Answer

Obtaining an understanding of internal control is a key component of the auditor's risk assessment procedures.

Question 15

If no material differences are found using analytical procedures and the auditor concludes that misstatements are not likely to have occurred:
A) other substantive tests may be reduced.
B) it will be necessary to increase the tests of balances.
C) it will not be necessary to perform tests of balances.
D) it will be necessary to increase the tests of transactions.

Accepted Answer

When analytical procedures indicate no material differences, it suggests that misstatements are less likely, allowing the auditor to consider reducing other substantive tests due to the lower assessed risk of material misstatement.

Question 16

There are three stages of the audit in which analytical procedures are performed.Identify each of these three stages and,for each stage,discuss the purpose of performing analytical procedures in that stage.Also indicate in which stage(s)analytical procedures are required by current professional auditing standards.

Accepted Answer

The answer of There are three stages of the audit...

Question 17

Analytical procedures are normally designed at the account level,whereas tests of controls and substantive tests of transactions are normally designed at the transaction-related objective level.

Accepted Answer

The answer of Analytical procedures are normally designed at the...

Question 18

Auditors must perform tests of controls separately from substantive tests of transactions.

Accepted Answer

Auditors often perform tests of controls and substantive tests of transactions simultaneously, as the two are not mutually exclusive and can be integrated to assess both the effectiveness of controls and the accuracy of financial transactions.

Question 19

Which of the following audit tests is usually the least costly to perform?
A) Analytical procedures
B) Tests of controls
C) Tests of balances
D) Substantive tests of transactions

Accepted Answer

Analytical procedures are usually the least costly to perform since they involve reviewing financial information and looking for unusual fluctuations or patterns that may indicate potential errors or fraud. This can often be done using software or other tools that are readily available to auditors. Tests of controls, tests of balances, and substantive tests of transactions typically involve more extensive testing and analysis and can be more time-consuming and expensive to perform.

Question 20

When an auditor believes that analytical procedures indicate a reasonable possibility of misstatement,the auditor usually would:
A) 
B) 
C) 
D)

Accepted Answer

The answer of When an auditor believes that analytical procedures...

Quiz 13: Developing the Overall Audit Plan and Audit Program

Tests of controls should be performed after substantive tests of transactions.

If tests of controls support the control risk assessment,then ________ in the audit risk model is increased.

Substantive tests are procedures designed to test for dollar misstatements that directly affect the correctness of financial statement balances.

In order to promote audit efficiency the auditor considers cost in selecting audit tests to perform.Which of the following audit tests would be the most costly?

Procedures to obtain an understanding of internal control generally provide sufficient appropriate evidence that a a control is operating effectively.

Discuss the purposes of (1)substantive tests of transactions,(2)tests of controls,and (3)tests of details of balances.Give an example of each.

Describe the five types of audit tests.Identify which of the five types are substantive tests,and which are used to reduce assessed control risk.

An exception or deficiency found in a test of controls:

Auditors use analytical procedures and tests of details of balances to satisfy planned detection risk.

Tests of controls are performed to support a reduced assessment of detection risk.

The auditor would design which of the following audit tests to detect possible monetary errors in the financial statements?

An increased extent of tests of controls is most likely to occur when:

A major part of the auditor's risk assessment procedures is done to obtain an understanding of internal control.

If no material differences are found using analytical procedures and the auditor concludes that misstatements are not likely to have occurred:

Analytical procedures are normally designed at the account level,whereas tests of controls and substantive tests of transactions are normally designed at the transaction-related objective level.

Auditors must perform tests of controls separately from substantive tests of transactions.

Which of the following audit tests is usually the least costly to perform?

When an auditor believes that analytical procedures indicate a reasonable possibility of misstatement,the auditor usually would: