Question 1

One purpose of performing analytical procedures in the planning phase of an audit is to assess the client's financial condition.Explain how the assessment of a client's financial condition can affect the auditor's decisions concerning evidence accumulation in later phases of the audit.

Accepted Answer

The answer of One purpose of performing analytical procedures in...

Question 2

The auditor is concerned that a client is failing to bill customers for shipments.An audit procedure that would gather relevant evidence would be to:

Accepted Answer

Tracing a sample of shipping documents to related duplicate sales invoices would provide evidence of whether or not the client is billing customers for shipments. If the client is not billing customers, there would be a lack of corresponding sales invoices for the shipping documents. This procedure would provide direct evidence of the issue raised by the auditor. The other options may also be relevant audit procedures but they are not as directly related to the concern expressed by the auditor.

Question 3

Inquiries of clients and recalculations normally have a low cost associated with them.

Accepted Answer

Inquiries of clients and recalculations typically do not require significant resources or manpower, and thus have a relatively low cost associated with them.

Question 4

Distinguish between internal documentation and external documentation as types of audit evidence.Give two examples of each.Which type is considered more reliable?

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Question 5

When analytical procedures reveal unusual fluctuations in an account balance, the auditor will probably perform fewer tests of details for that account and increase the tests of controls related to the account.

Accepted Answer

When analytical procedures reveal unusual fluctuations in an account balance, the auditor is more likely to perform additional tests of details for that account to understand the reason for the fluctuations, rather than decrease them and increase tests of controls.

Question 6

The type of audit evidence known as inquiry requires the auditor to obtain oral or written information from the client in response to questions.

Accepted Answer

Inquiry involves the auditor obtaining information from the client through asking questions either orally or in writing.

Question 7

There are four important purposes of analytical procedures.Identify three of these four purposes and, for each purpose, give a specific example of an analytical procedure that an auditor might perform.

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Question 8

Define the following terms commonly used in audit procedures:
1.Examine
2.Scan
3.Compute
4.Foot
5.Compare
6.Count
7.Vouch

Accepted Answer

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Question 9

Which of the following discoveries through the use of analytical procedures would most likely indicate a relatively high risk of financial failure?

Accepted Answer

A higher than normal ratio of long-term debt to net worth and a lower than average ratio of profits to total assets indicate financial instability and potential difficulty in meeting financial obligations, suggesting a high risk of financial failure.

Question 10

Which of the following statements is correct regarding the costs involved in obtaining evidence?

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Question 11

Confirmations are among the most expensive type of evidence to obtain.

Accepted Answer

Confirmations require contacting third parties, such as banks or customers, which can be time-consuming and often require payment for the service. Therefore, they can be costly to obtain.

Question 12

You are auditing the company's purchasing process for goods and services.You are primarily concerned with the company not recording all purchase transactions.Which audit procedure below would be the most effective audit procedure in this case?

Accepted Answer

Tracing vendor invoices to recorded amounts in the accounts payable account would be the most effective audit procedure in this case. This procedure ensures that all purchase transactions have been recorded in the accounts payable account. By tracing the vendor invoices, auditors can verify that all purchase transactions have been recorded and included in the accounts payable account. This procedure also helps in identifying any unrecorded purchase transactions.

Question 13

Below are 12 audit procedures.Classify each procedure according to the following types of audit evidence: (1)physical examination, (2)confirmation, (3)documentation, (4)observation, (5)inquiry of the client, (6)reperformance, and (7)analytical procedure.

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Question 14

Which of the following statements regarding the appropriateness of evidence is correct?

Accepted Answer

Inspection involves examining records or tangible assets, which provides objective and reliable evidence.

Question 15

Whenever practical and reasonable, the confirmation of accounts receivable is required of CPAs.

Accepted Answer

The confirmation of accounts receivable is a commonly used audit procedure to obtain external evidence of the existence and accuracy of the recorded amounts. It is considered practical and reasonable to perform this procedure in most cases, although there may be situations where it is not feasible or cost-effective to do so.

Question 16

When using analytical procedures:

Accepted Answer

Unusual fluctuations are a red flag for potential material misstatements and should be investigated further.

Answer: D 
 If no unusual fluctuations are noted in the analytical procedures, it can be a sign that accounts are not materially misstated, and tests of details of balances can be reduced or eliminated.

Question 17

Below are 10 documents typically examined during an audit.Classify each document as either internal or external.

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Question 18

________ is the auditor's examination of the client's documents and records to substantiate that the information is included in the financial statements.

Accepted Answer

Inspection is the auditor's examination of the client's documents and records to substantiate that the information is included in the financial statements. Recalculation is the recheck of mathematical accuracy, observation refers to watching a process or procedure in action, and verification generally refers to confirming that a particular number or amount is correct, which is similar to recalculation. Therefore, only option A, inspection, fits the explanation given.

Question 19

Inspection consists of looking at a process or procedure being performed by others.

Accepted Answer

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Question 20

The SEC requires the auditors of public companies to retain e-mail correspondence related to the audit.

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Quiz 7: Audit Evidence