Question 1

What type of test is used to obtain the most types of evidence?
A) substantive tests of transactions
B) tests of controls
C) risk assessment tests
D) tests of details of balances

Accepted Answer

Tests of details of balances involve obtaining evidence about the various components of an account balance, including existence, completeness, accuracy, valuation, and allocation. This type of testing can reveal a wide range of evidence, including physical or documentary evidence, confirmations, analytical procedures, and inquiries of management or third parties. The other types of tests (substantive tests of transactions, tests of controls, and risk assessment tests) are more limited in scope and may not reveal as much evidence as tests of details of balances.

Question 2

Which of the following types of evidence is not available when using substantive tests of transactions?
A) inspection
B) confirmation
C) inquiries of the client
D) reperformance

Accepted Answer

Confirmation is a type of evidence that is typically only available when performing tests of details for account balances, rather than substantive tests of transactions. Substantive tests of transactions typically rely on inspection, inquiries of the client, and reperformance as the primary types of evidence.

Question 3

Inherent risk can be extended to individual balance-related audit objectives.

Accepted Answer

Inherent risk can be extended to individual balance-related audit objectives as it reflects the susceptibility of the account balance to material misstatement before considering the effectiveness of the internal control. This may inform the auditor's assessment of the risk of material misstatement for each balance-related audit objective.

Question 4

The auditor performs tests of controls and substantive procedures to obtain assurance that all audit objectives are achieved for information and amounts included in those disclosures.

Accepted Answer

The statement is true. The auditor performs both tests of controls and substantive procedures to obtain reasonable assurance that audit objectives related to disclosures are achieved.

Question 5

An example of auditor using disaggregated data to increase the precision of the auditor's expectations using substantive analytical procedures in the audit of inventories would be to calculate gross margin by product line, rather than calculating the total gross margin for total sales in the planning stage of the audit.

Accepted Answer

By calculating gross margin by product line, the auditor can have a more precise expectation of the inventory balance, detect potential misstatements or errors, and even identify areas of risk.

Question 6

The auditor obtained an aged list of receivables and traced the accounts to the master file, footed the schedule, and traced the amounts to the general ledger. Which balance-related audit objective was met?
A) existence
B) cutoff
C) detail tie-in
D) all of the above

Accepted Answer

The auditor's actions of tracing accounts to the master file, footing the schedule, and tracing amounts to the general ledger directly support the detail tie-in objective, ensuring that details of accounts receivable accurately tie into the general ledger.

Question 7

Once set during the planning phase, the audit program cannot be revised.

Accepted Answer

The audit program can be revised if necessary during the course of the audit. Changes may be made to address new risks or issues that arise, or to improve the efficiency or effectiveness of the audit process. Any revisions to the audit program should be documented and approved by relevant parties.

Question 8

Presentation and disclosure objectives are primarily addressed in the tests of details of balances phase of the audit.

Accepted Answer

Presentation and disclosure objectives are primarily addressed during the review of the financial statements to ensure that all financial information is presented accurately and disclosures are complete and understandable, not specifically during the tests of details of balances phase, which focuses on the accuracy and validity of account balances.

Question 9

Auditing standards require a written audit program.

Accepted Answer

Auditing standards require a written audit program as it serves as an essential guide for the auditor's work and helps ensure that all necessary procedures are followed. The audit program outlines the nature, timing, and extent of the audit procedures to be performed, and it is reviewed and approved by the audit supervisor or manager.

Question 10

When designing tests of controls and substantive tests an auditor is gathering evidence to satisfy the transaction-related audit objectives. What are the four steps the auditor would normally follow to reduce assessed control risk?

Accepted Answer

The answer of When designing tests of controls and substantive...

Question 11

When controls are effective and control risk is assessed as low, auditors put heavy emphasis on tests of balances.

Accepted Answer

When controls are effective and control risk is assessed as low, auditors are more likely to rely on the controls and perform fewer substantive tests of balances, instead focusing on tests of controls.

Question 12

Presentation and disclosure related audit objectives would be performed in which phase of the audit process?
A) plan and design audit approach
B) perform audit tests for controls and transactions
C) perform analytical procedures and tests of balances
D) complete the audit and issue the audit report

Accepted Answer

Presentation and disclosure related audit objectives are typically addressed in the final phase of the audit process, which involves completing the audit and issuing the audit report. This phase includes ensuring that all financial statements and disclosures are presented fairly in accordance with the applicable financial reporting framework.

Question 13

Which audit tests involve physical examination and confirmation?
A) tests of controls
B) tests of transactions
C) tests of details of balances
D) analytical procedures

Accepted Answer

Tests of details of balances involve physical examination and confirmation of account balances and related transactions. Tests of controls and analytical procedures generally do not involve physical examination, and tests of transactions may involve physical examination but typically do not involve confirmation.

Question 14

There is a direct relationship between the ________ transaction-related audit objective and the ________ balance-related audit objective.
A) occurrence; existence
B) timing; cutoff
C) posting and summarization; detail tie-in
D) all of the above

Accepted Answer

All the pairs mentioned (occurrence and existence, timing and cutoff, posting and summarization and detail tie-in) have direct relationships in the context of transaction-related and balance-related audit objectives, respectively.

Question 15

When designing an audit program for tests of details of balances, the auditor should make assumptions about inherent risk and control risk, and predictions concerning the outcome of tests of controls, substantive tests of transactions, and analytical procedures.

Accepted Answer

When designing an audit program, the auditor should make reasonable assumptions and predictions about the risks and the expected outcome of other audit procedures. This helps in designing an effective and efficient audit plan.

Question 16

One of the most challenging parts of auditing is properly applying the factors that affect tests of details of balances.

Accepted Answer

This statement is true. Auditors must carefully consider various factors such as the risk of material misstatement, the complexity of the account balance, and the characteristics of the population being tested in order to design effective and efficient tests of details of balances. Failure to properly apply these factors can result in ineffective testing and increased audit risk.

Question 17

If control risk is assessed at maximum, only substantive tests of transactions will be used by the auditor, assuming the audit is of a smaller public company, a nonpublic company, or other type of entity.

Accepted Answer

When control risk is assessed at maximum, it means that the auditor believes that the client's internal controls are not effective in preventing or detecting material misstatements. Consequently, the auditor will rely less on tests of controls and more on substantive tests of transactions and balances to obtain sufficient audit evidence. This approach is appropriate for audits of smaller public companies, nonpublic companies, or other types of entities where the nature and extent of controls are limited.

Question 18

If all transaction-related audit objectives are met, the auditor does not need to perform substantive test of balances to meet the realizable value audit objective.

Accepted Answer

The realizable value audit objective requires the auditor to obtain sufficient appropriate audit evidence regarding whether accounts receivable, inventory, investments, or other assets are recorded at realistic amounts that are expected to be realized in the normal course of business. Even if all transaction-related audit objectives are met, the auditor still needs to perform substantive test of balances to assess whether the recorded balances for these assets are fairly stated and in accordance with the applicable financial reporting framework.

Question 19

Which phase(s) of the audit uses inquiries of clients as a type of evidence?
A) plan and design
B) tests of controls and substantive tests of transactions
C) completion of the audit and issuance of the audit report
D) all of the above

Accepted Answer

Inquiries of clients are used throughout all phases of an audit as a form of evidence gathering. This includes the planning and design phase to understand the client's environment, the testing phase to assess the effectiveness of controls and the accuracy of transactions, and the completion phase to finalize opinions before issuing the audit report.

Question 20

Analytical procedures performed during substantive testing, such as those for the audit of inventories, are typically more focused and more extensive than those done as part of the audit planning.

Accepted Answer

Substantive testing involves more focused and extensive procedures as compared to the analytical procedures done during audit planning. This is because substantive procedures are carried out to obtain evidence about the completeness, accuracy, and validity of the financial statement balances or transactions, while analytical procedures performed during audit planning are more preliminary in nature and used for risk assessment purposes.

Quiz 13: Overall Audit Strategy and Audit Program

What type of test is used to obtain the most types of evidence?

Which of the following types of evidence is not available when using substantive tests of transactions?