Question 1

An auditor analyses the repairs and maintenance expense account primarily to obtain evidence that:

Accepted Answer

The auditor analyzes the repairs and maintenance expense account to ensure that expenditures for property, plant, and equipment are not incorrectly charged as expenses, which would understate assets and overstate expenses.

Question 2

One of the primary reasons for preparing a reconciliation between interest-bearing obligations outstanding during the year and interest expense presented in the financial report is to:

Accepted Answer

The answer of One of the primary reasons for preparing...

Question 3

Auditors often make use of computer programs that perform routine processing functions such as sorting and merging.These programs are made available by IT companies and others and are specifically referred to as:

Accepted Answer

Utility programs are specifically designed to perform routine processing functions, such as sorting and merging, which are commonly used by auditors. These programs are often made available by IT companies and other vendors. Other choices do not accurately describe the specific programs used by auditors for routine processing functions.

Question 4

Which of the following is an exception report that the auditor would generate using generalised audit software in order to test the valuation and allocation assertion for accounts receivable?

Accepted Answer

This report outlines those balances that are greater than three months overdue, which is an exception to the normal accounts receivable balances that would be expected. This report would help the auditor test the valuation and allocation assertion for accounts receivable by identifying balances that may be overstated or allocated to the wrong period. The other options listed are not exception reports specific to testing the valuation and allocation assertion for accounts receivable.

Question 5

The auditor is most likely to verify the liability account 'accrued comissions payable' in conjunction with the:

Accepted Answer

Accrued commissions payable is a liability account related to sales transactions. Therefore, the auditor is most likely to verify this account in conjunction with the review of sales transactions. A is incorrect because contingent liabilities are not related to this account. C is incorrect because trade accounts payable are a different type of liability account that is not related to commissions. D is incorrect because disbursements after year-end are not relevant to verifying this account.

Question 6

The auditor is least likely to use generalised audit software to:

Accepted Answer

Generalised audit software is primarily used for accessing client data, performing analytical procedures, and testing the accuracy of computations. It is not specifically designed to identify weaknesses in a client's IT controls; this task typically requires a different approach, such as manual inspection or specialized IT audit software.

Question 7

Which of the following audit procedures is least likely to detect an unrecorded liability?

Accepted Answer

Analysis and re-computation of depreciation expense is primarily concerned with the allocation of the cost of tangible assets over their useful lives, rather than the identification of unrecorded liabilities.

Question 8

When a client company does not maintain its own share records, the auditor should obtain written confirmation from the share registrar concerning:

Accepted Answer

When a company does not maintain its own share records, the auditor should obtain written confirmation from the share registrar concerning the number of shares issued and outstanding. This information is essential to confirm the accuracy of the company's financial statements and disclosures related to share capital. Therefore, option D is the correct choice. Options A, B, and C may also be relevant, but they are not directly related to the verification of share capital in the absence of share records.

Question 9

Which of the following analytical procedures should be applied to the income statement?

Accepted Answer

Comparing actual revenues and expenses with the corresponding figures of the previous year and investigating significant differences is a common analytical procedure applied to the income statement. This helps to identify any potential issues or changes in the company's performance that should be investigated further.

Option A is incorrect because it pertains to comparing the income statement with the statement of cash flow, which is a separate financial statement.

Option B is incorrect because it pertains to verifying the accuracy of individual transactions, rather than analyzing the overall performance of the income statement.

Option D is incorrect because it pertains to obtaining information about inventory, which is not directly related to the income statement.

Question 10

In the audit of Cassie Ltd, a medium-sized manufacturing company, which one of the following areas would be expected to require the least amount of audit time?

Accepted Answer

Owners' equity is typically a straightforward area that requires relatively little audit time compared to areas such as revenue, liabilities, and assets, which involve more complex transactions and require closer scrutiny by auditors.

Question 11

Which of the following is the most effective audit procedure for verification of dividends earned on investments in marketable equity securities?

Accepted Answer

Reconciling amounts received with published dividend records is the most effective audit procedure for verification of dividends earned on investments in marketable equity securities. This procedure involves comparing the amount of dividend received by the client with the published dividend rates and records, which provides a higher level of assurance regarding the accuracy of the recorded dividend income. Tracing deposits and comparing with the previous year's dividend earned do not provide strong evidence that the dividend income recorded is accurate. Re-computing selected extensions and footings of dividend schedules and comparing totals to the general ledger also do not provide strong evidence of the accuracy of the recorded dividend income.

Question 12

Substantive testing is typically used to audit shareholders' equity because:

Accepted Answer

Substantive testing is often used for auditing shareholders' equity due to the relatively small number of transactions involved, making it more efficient to directly test these transactions rather than rely heavily on the assessment of controls.

Question 13

An auditor using audit software would probably be least interested in which of the following fields in a computerised perpetual inventory file?

Accepted Answer

An auditor using audit software would be least interested in the economic order quantity field in a computerised perpetual inventory file, as this field pertains to the optimal amount of inventory to order, rather than actual inventory levels or transactions. The other three fields (quantity sold, date of last purchase, and warehouse location) are all pertinent to monitoring and verifying inventory levels and transactions.

Question 14

Which of the following is necessary to audit balances in an on-line IT system in an environment where updated information is written over existing information?

Accepted Answer

A well-documented audit trail is necessary to track changes to the information in an on-line IT system where updated information is written over existing information. This will help auditors trace any discrepancies and perform an accurate audit. Options A, B, and D can also be helpful in auditing on-line IT systems, but they are not necessary in this scenario.

Question 15

Reviewing interest expense to identify payments to debt-holders not listed on the debt analysis schedule is a procedure that can be used to provide evidence for which audit assertion for loans payable:

Accepted Answer

Reviewing interest expense to identify payments to debt-holders not listed on the debt analysis schedule is a procedure that can provide evidence for the completeness assertion for loans payable, since it helps to ensure that all debt obligations have been included in the financial statements.

Question 16

For which of the following tests would the auditor use generalised audit softwareto test the completeness assertion of inventory?

Accepted Answer

Generalised audit software can be used for a sequence check to identify missing purchase invoice numbers, which helps in testing the completeness assertion by ensuring all inventory purchases are recorded.

Question 17

The auditor is least likely to use generalised audit software to:

Accepted Answer

Generalised audit software is typically not used to directly test weaknesses in the client's programmed controls. This is usually done by specialised audit software or by manual testing methods. However, generalised audit software can be used for the other options listed, such as accessing information stored on the client's IT files, performing analytical procedures on the client's data, and testing the accuracy of the client's computations.

Question 18

Which of the following pairs of accounts would an auditor most likely analyse on the same working paper?

Accepted Answer

Notes receivable and interest income are directly related as the interest income is generated from the notes receivable, making them logical to analyze together on the same working paper.

Question 19

While undertaking the audit of the debtors' balance, you use your audit software to extract from the accounts receivable master file a report that shows those debtors with a positive balance owing that is overdue by more than 30 days.At which of the following account balance assertions is this report aimed?

Accepted Answer

This report is aimed at the valuation and allocation assertion, as it is used to identify any potentially overstated accounts receivable balances that may not be collectable or have been overdue for an extended period of time.

Question 20

Which of the following audit procedures would an auditor be least likely to perform using generalised audit software?

Accepted Answer

Generalised audit software is typically used for analyzing large volumes of data, searching for specific criteria, and selecting samples. Inputting test transactions to ensure that the check digit control is operating is more of a manual testing procedure or specific application control testing, not ideally suited for generalized audit software, which is more about data analysis and extraction.

Quiz 9: Substantive Tests of Transactions and Balances

An auditor analyses the repairs and maintenance expense account primarily to obtain evidence that:

One of the primary reasons for preparing a reconciliation between interest-bearing obligations outstanding during the year and interest expense presented in the financial report is to:

Auditors often make use of computer programs that perform routine processing functions such as sorting and merging.These programs are made available by IT companies and others and are specifically referred to as:

Which of the following is an exception report that the auditor would generate using generalised audit software in order to test the valuation and allocation assertion for accounts receivable?

The auditor is most likely to verify the liability account 'accrued comissions payable' in conjunction with the:

The auditor is least likely to use generalised audit software to:

Which of the following audit procedures is least likely to detect an unrecorded liability?

When a client company does not maintain its own share records, the auditor should obtain written confirmation from the share registrar concerning:

Which of the following analytical procedures should be applied to the income statement?

In the audit of Cassie Ltd, a medium-sized manufacturing company, which one of the following areas would be expected to require the least amount of audit time?

Which of the following is the most effective audit procedure for verification of dividends earned on investments in marketable equity securities?

Substantive testing is typically used to audit shareholders' equity because:

An auditor using audit software would probably be least interested in which of the following fields in a computerised perpetual inventory file?

Which of the following is necessary to audit balances in an on-line IT system in an environment where updated information is written over existing information?

Reviewing interest expense to identify payments to debt-holders not listed on the debt analysis schedule is a procedure that can be used to provide evidence for which audit assertion for loans payable:

For which of the following tests would the auditor use generalised audit softwareto test the completeness assertion of inventory?

The auditor is least likely to use generalised audit software to:

Which of the following pairs of accounts would an auditor most likely analyse on the same working paper?

Which of the following audit procedures would an auditor be least likely to perform using generalised audit software?