Deck 9: Execution of the Audit Performing Substantive Procedures

Question 1

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

Answer 1

True

Question 2

Inherent risk is:

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

Answer 2

C

Question 3

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

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

Answer 3

D

Question 4

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

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

Question 5

Corroborative evidence confirms audit findings from other procedures.

Question 6

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

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

Question 7

Misstatements can only arise from fraud.

Question 8

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.

Question 9

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

Question 10

Which of the following statements is ?

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

Question 11

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

Question 12

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 13

Typically, substantive testing tends to be performed:

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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 22

Variables estimation sampling is used:

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

Question 23

Explain the three common sampling strategies that can be applied when the auditor applies representative sampling.

Question 24

Vouching involves:

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

Question 25

The levels of evidence obtained when performing substantive procedures includes:

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

Question 26

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

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

Question 27

Analytical procedures that provide persuasive evidence include:

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

Question 28

Explain the difference between vouching and tracing.

Question 29

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 30

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

Question 31

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

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

Question 32

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

Question 33

The primary purpose of vouching is to ensure that:

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

Question 34

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

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

Question 35

Roll-forward procedures are performed:

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

Question 36

Analytical procedures may not be used:

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

Question 37

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

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

Question 38

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

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

Question 39

Overall significant account conclusion statements are captured on:

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

Question 40

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

Question 41

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