Question 1

Which of the following statements is generally correct about the appropriateness of audit evidence?
A)The more effective the internal control, the more assurance it provides about the reliability of the accounting data and financial statements.
B)Appropriateness of audit evidence refers to the amount of corroborative evidence obtained.
C)Information obtained indirectly from independent outside sources is more persuasive than the auditor's direct personal knowledge obtained through observation and inspection.
D)Appropriateness of audit evidence refers only to audit evidence obtained from outside the entity.

Accepted Answer

A is generally correct as stronger internal controls provide more assurance about the reliability of financial information, leading to more appropriate audit evidence. B is incorrect as the appropriateness of audit evidence refers to its quality and relevance, not the amount obtained. C is incorrect as information obtained directly from the entity is generally more reliable and persuasive than information from outside sources. D is incorrect as appropriateness of audit evidence refers to all audit evidence, regardless of its source.

Question 2

Which of the following procedures would an auditor most likely perform to verify management's assertion of completeness?
A)Compare a sample of shipping documents to related sales invoices.
B)Observe the entity's distribution of payroll checks.
C)Confirm a sample of recorded receivables by direct communication with the debtors.
D)Review standard bank confirmations for indications of kiting.

Accepted Answer

Comparing shipping documents to related sales invoices helps ensure that all goods shipped are invoiced and recorded as sales, addressing the completeness assertion by verifying that all transactions that should have been recorded have been.

Question 3

Of the following, which is the least reliable type of audit evidence?
A)Documents mailed by outsiders to the auditor.
B)Correspondence between the auditor and third party vendors.
C)Asking the controller about an end of period adjustment.
D)Computations made by the auditor.

Accepted Answer

Asking the controller about an end of period adjustment is considered the least reliable type of audit evidence because it is based on verbal communication and lacks independent verification.

Question 4

Audit documentation prepared on audits of public entities is the property of the:
A)Shareholders.
B)Auditor.
C)Management of the entity being audited.
D)SEC.

Accepted Answer

Audit documentation prepared on audits of public entities is the property of the auditor. This is in accordance with the auditing standards issued by the American Institute of Certified Public Accountants (AICPA). The auditor should retain the audit documentation for a period of time in accordance with the relevant legal and regulatory requirements. The audit documentation should be made available to third parties only with the permission of the auditor or as required by law.

Question 5

An example of audit evidence with a medium level of reliability is:
A)Scanning.
B)Recalculation.
C)Observation.
D)All of these.

Accepted Answer

The answer of An example of audit evidence with a...

Question 6

Of the following, the most reliable type of evidence typically is:
A)Confirmation.
B)Inspection of records and documents.
C)Reperformance.
D)Observation.

Accepted Answer

The answer of Of the following, the most reliable type...

Question 7

All of the following are typically in the current file except:
A)adjusting journal entries.
B)copies of the audit report.
C)chart of accounts.
D)lead schedules.

Accepted Answer

The chart of accounts is typically found in the permanent file, not the current file. The current file contains documents related to the current year's audit, such as adjusting journal entries, copies of the audit report, and lead schedules.

Question 8

To test for unsupported entries in the ledger, the direction of audit testing should start from the:
A)Ledger entries.
B)Sales invoices or shipping documents.
C)Externally generated documents.
D)Original source documents.

Accepted Answer

The answer of To test for unsupported entries in the...

Question 9

Each of the following might, by itself, form a valid basis for an auditor to reduce substantive testing except for the:
A)difficulty and expense involved in testing a particular item.
B)assessment of control risk at a low level.
C)low inherent risk involved.
D)high quality of the evidence gathered.

Accepted Answer

The difficulty and expense involved in testing a particular item is not a valid basis for an auditor to reduce substantive testing. Auditors should base their decisions on risk assessments and the quality of evidence, not on the cost or difficulty of obtaining evidence.

Question 10

Which of the following presumptions is correct about the reliability of audit evidence?
A)Information obtained indirectly from outside sources is the most reliable audit evidence.
B)To be reliable, audit evidence should be convincing rather than persuasive.
C)Reliability of audit evidence refers to the amount of corroborative evidence obtained.
D)An effective internal control system provides more reliable audit evidence.

Accepted Answer

An effective internal control system provides more reliable audit evidence as it reduces the risk of errors and fraud, and ensures that financial information is accurate and complete. Direct and firsthand evidence is generally more reliable than indirect or hearsay evidence. The persuasiveness of evidence relates to the degree to which it proves or disproves a particular assertion, while reliability refers to the dependability of the evidence. Corroboration of evidence enhances its reliability, but it is not the sole determinant of reliability. Therefore, options A, B, and C are incorrect presumptions about the reliability of audit evidence.

Question 11

Which of the following show the detailed general ledger accounts that make up a financial statement category on the auditor's working trial balance?
A)Account analyses.
B)Supporting schedules.
C)Control accounts.
D)Lead schedules.

Accepted Answer

Lead schedules are used to show the detailed general ledger accounts that make up a financial statement category on the auditor's working trial balance. Account analyses are more detailed explanations of specific accounts, supporting schedules summarize information that would be too voluminous to include in the financial statements, and control accounts are used to ensure the accuracy of transactions and account balances.

Question 12

You are auditing a manufacturing company that has a large production facility. Some of the production equipment is held through lease agreements. Which of the following is the account balance assertion you would be most concerned about?
A)Existence or occurrence.
B)Completeness.
C)Rights and obligations.
D)Accuracy.

Accepted Answer

When auditing leased equipment, the auditor needs to ensure that the company has the right to use the equipment (rights and obligations) and that the lease agreement is appropriately recorded and disclosed in the financial statements. Therefore, the account balance assertion of most concern would be rights and obligations.

Question 13

Following are several statements regarding accounting records or audit documentation. Which of the statements is correct?
A)Accounting records belong to the auditee.
B)Documentation of an auditor's understanding of the entity's internal control system is not necessary.
C)Audit documents may be regarded as a substitute for the company's accounting records.
D)The independent auditor may discard audit documents after two years.

Accepted Answer

Accounting records belong to the auditee and are the property of the organization. The auditor has the right to access them in relation to the audit, but does not own them. B is incorrect as documentation of the auditor's understanding of internal control system is necessary. C is incorrect as audit documents are not a substitute for company's accounting records. D is incorrect as the independent auditor is required to retain audit documents for a minimum of five to seven years.

Question 14

Which of the following types of audit evidence is the most persuasive?
A)Prenumbered internal purchase order forms.
B)Auditee worksheets supporting cost allocations.
C)Bank statements obtained from the auditee.
D)Auditee personnel responses to auditor inquiries.

Accepted Answer

Bank statements obtained from the auditee are the most persuasive type of audit evidence as they are impartial and objective. They provide reliable information as they are prepared independently of the auditee and serve as a check against the accuracy of information provided by the auditee. Prenumbered internal purchase order forms, auditee worksheets supporting cost allocations, and auditee personnel responses to auditor inquiries are all types of evidence that can be altered or manipulated by the auditee, making them less persuasive.

Question 15

You are auditing a store that sells merchandise. Some of the store merchandise is held on consignment. Which account balance assertion for inventory should you be most concerned about verifying?
A)Existence or occurrence.
B)Completeness.
C)Rights and obligations.
D)Valuation or allocation.

Accepted Answer

Rights and obligations are crucial in the context of consigned goods because the store does not own these items. The auditor needs to ensure that the inventory recorded reflects only the items the store has the right to sell, distinguishing owned inventory from consigned goods.

Question 16

Which of the following presumptions does not relate to the appropriateness of audit evidence?
A)The more effective the internal control system, the more assurance it provides about the accounting data and financial statements.
B)An auditor's opinion, to be economically useful, is formed within a reasonable time and based on evidence obtained at a reasonable cost.
C)Evidence obtained from independent sources outside the entity is more reliable than evidence secured solely within the entity.
D)The independent auditor's direct personal knowledge, obtained through observation and inspection, is more persuasive than information obtained indirectly.

Accepted Answer

This presumption relates to the timeliness and cost-effectiveness of audit evidence, but not its appropriateness or reliability. The other three presumptions listed all relate to the appropriateness and reliability of audit evidence, such as the reliability of independent sources and the importance of direct personal knowledge.

Question 17

Audit documentation is the principal record of the audit and provides the principal support for the representations in the auditor's report. Because of this, audit documentation should do all of the following except for:
A)demonstrate how the audit complied with auditing and related professional practice standards.
B)support the audit firm's human resource department in employee retention decisions.
C)support the basis for the auditor's conclusions concerning each material financial statement assertion.
D)demonstrate that the underlying accounting records agreed or reconciled with the financial statements.

Accepted Answer

Audit documentation is not intended to support employee retention decisions. Its purpose is to provide evidence of the audit work performed and to support the auditor's conclusions and representations in the auditor's report. Choices A, C, and D are all valid purposes of audit documentation.

Question 18

The permanent (continuing)file of an auditor's working papers most likely would include copies of the:
A)Bank statements.
B)Organizational chart.
C)Lead schedules.
D)Audit plan.

Accepted Answer

The organizational chart is a document that would be included in the permanent (continuing) file of an auditor's working papers because it provides essential information about the structure of the company, which remains relevant across multiple audit periods. Other documents like bank statements, lead schedules, and audit plans are more specific to a single audit period and would typically be included in the current audit file rather than the permanent file.

Question 19

Which of the following types of documentary evidence should the auditor consider to be the most reliable?
A)A sales invoice issued by the entity and supported by a delivery receipt from an outside trucker.
B)Confirmation of an account payable balance mailed by and returned directly to the auditor.
C)A check issued by the company and bearing the payee's endorsement that is included with the bank statement mailed directly to the auditor.
D)A working paper prepared by the entity's controller and reviewed by the entity's treasurer.

Accepted Answer

Confirmation of an account payable balance mailed by and returned directly to the auditor is considered the most reliable documentary evidence as it comes from an external source and is not influenced by the entity. The other options involve documentation or working papers generated by the entity or may not provide sufficient evidence to support the assertion being tested.

Question 20

Which of the following is the least persuasive documentation in support of an auditor's opinion?
A)Schedules of details of physical inventory counts conducted by the entity.
B)Notation of auditor's inferences drawn from ratios and trends.
C)Notation of an independent appraiser's conclusions documented in the auditor's working papers.
D)Lists of negative confirmation requests for which no response was received by the auditor.

Accepted Answer

The answer of Which of the following is the least...

Quiz 5: Evidence and Documentation

Which of the following statements is generally correct about the appropriateness of audit evidence?

Which of the following procedures would an auditor most likely perform to verify management's assertion of completeness?

Of the following, which is the least reliable type of audit evidence?

Audit documentation prepared on audits of public entities is the property of the:

An example of audit evidence with a medium level of reliability is:

Of the following, the most reliable type of evidence typically is:

All of the following are typically in the current file except:

To test for unsupported entries in the ledger, the direction of audit testing should start from the:

Each of the following might, by itself, form a valid basis for an auditor to reduce substantive testing except for the:

Which of the following presumptions is correct about the reliability of audit evidence?

Which of the following show the detailed general ledger accounts that make up a financial statement category on the auditor's working trial balance?

You are auditing a manufacturing company that has a large production facility. Some of the production equipment is held through lease agreements. Which of the following is the account balance assertion you would be most concerned about?

Following are several statements regarding accounting records or audit documentation. Which of the statements is correct?

Which of the following types of audit evidence is the most persuasive?

You are auditing a store that sells merchandise. Some of the store merchandise is held on consignment. Which account balance assertion for inventory should you be most concerned about verifying?

Which of the following presumptions does not relate to the appropriateness of audit evidence?

Audit documentation is the principal record of the audit and provides the principal support for the representations in the auditor's report. Because of this, audit documentation should do all of the following except for:

The permanent (continuing) file of an auditor's working papers most likely would include copies of the:

Which of the following types of documentary evidence should the auditor consider to be the most reliable?

Which of the following is the least persuasive documentation in support of an auditor's opinion?