Question 1

Dean Tomaszczyk was training junior audit staff and mentioned the importance of third party documentation. Which of the following are not external confirmations?

Accepted Answer

Supplier invoices are not external confirmations as they are generated by the clients themselves and are not independently verified by a third party.

Question 2

When preparing the financial statements, auditors make assertions about each account and
related disclosures in the notes.

Accepted Answer

Auditors do not make assertions; management makes assertions about the financial statements, and auditors evaluate these assertions for accuracy and compliance.

Question 3

The component partner sets out the work to be conducted by the group engagement
partner.

Accepted Answer

The group engagement partner is responsible for setting out the work to be conducted by the component auditors, not the other way around.

Question 4

Negative confirmations ask the recipient to reply only if they disagree with the information
provided.

Accepted Answer

Negative confirmations are designed to elicit a response only if the recipient disagrees with the information provided. If the recipient does not respond, it is assumed that they have understood and agree with the information.

Question 5

Correspondence with the client's lawyers is an example of externally generated evidence
sent directly to the auditor.

Accepted Answer

Correspondence with the client's lawyers is an example of externally generated evidence, as it comes from a source outside of the company being audited. It is sent directly to the auditor for review and consideration as part of the audit process.

Question 6

An expert is expected to be less objective if they are not associated with the client.

Accepted Answer

An expert is expected to be objective regardless of their association with the client. Their role is to provide unbiased, professional opinions based on their expertise and knowledge.

Question 7

The greater the risk of material misstatement of the item under consideration, the more likely
an auditor will turn to an expert for their advice.

Accepted Answer

This statement is true. When an auditor encounters a high risk of material misstatement for a particular accounting item, they may seek the assistance of an expert to gain a better understanding of the related risks and controls. This can help them to obtain sufficient and appropriate audit evidence to support their opinion on the financial statements.

Question 8

Olga Chevalier, CPA was reviewing presentation and disclosure assertions for Athabasca Oil Sands. Which one of the following would not be a presentation and disclosure assertion?

Accepted Answer

Occurrence is not a presentation and disclosure assertion, it falls under the transaction assertion category. The other three choices (completeness, classification and valuation, accuracy and valuation) are all presentation and disclosure assertions.

Question 9

Andy Szypula, the audit manager, was explaining to his new audit team how management assertions work when assessing the risk of material misstatements. He made two statements to
His audit team:
Auditors use assertions for account balances.
Auditors use assertions for presentations and disclosures.
Which of these statements were true?

Accepted Answer

Both statements are true. Auditors do use management assertions to assess the risk of material misstatements for both account balances and presentations/disclosures.

Question 10

The cut-off assertion means that the entity holds or controls the rights to assets and liabilities
are the obligations of the entity.

Accepted Answer

The cut-off assertion primarily concerns whether transactions and events have been recorded in the correct accounting period. It does not directly relate to whether the entity holds or controls the rights to assets or whether liabilities are the obligations of the entity; those are related to the rights and obligations assertion.

Question 11

A component auditor is an auditor who, at the request of the group engagement team,
performs work on financial information related to a component for the group audit.

Accepted Answer

A component auditor is responsible for conducting audit work related to a specific component of a group financial statement audit at the request of the group engagement team.

Question 12

Delaney Humphrey was explaining the importance of documentary evidence. Which assertion was she referring to when she obtained details of the price paid for inventory and
Traced it to the supplier's invoice to verify the amount recorded?

Accepted Answer

By tracing the price paid for inventory to the supplier's invoice to verify the amount recorded, Delaney is checking for accuracy of the financial information.

Question 13

Internally generated evidence is considered the most persuasive when the source of the
evidence is considered to be reliable, trustworthy and independent of the client.

Accepted Answer

Internally generated evidence is generally considered less persuasive than evidence obtained from independent external sources because it may not be as reliable or free from bias associated with the client's interests.

Question 14

Mike Noseworthy, CPA was excited to see his audit manager and blurted out: (i) It is our responsibility as auditors to arrive at an audit opinion by gathering sufficient appropriate evidence.
(ii) Appropriateness is the quantity and sufficiency is the quality of audit evidence gathered.
Which of these statements were true?

Accepted Answer

The answer of Mike Noseworthy, CPA was excited to see...

Question 15

Analytical procedures involve an evaluation of financial information by studying plausible
relationships among both financial and non-financial data.

Accepted Answer

Analytical procedures do involve the evaluation of financial information by studying plausible relationships among both financial and non-financial data.

Question 16

The permanent file includes detailed descriptions of evidence gathered for a particular
year's audit.

Accepted Answer

The permanent file includes information of continuing audit significance, such as contracts or agreements, not detailed descriptions of evidence for a specific year's audit.

Question 17

Audit evidence is the information that an auditor uses when arriving at their opinion on the fair
presentation of their client's financial statements.

Accepted Answer

This statement accurately describes audit evidence and how it is used by auditors to form their opinion on a client's financial statements.

Question 18

The permanent file includes client information and documentation that apply to more than
one audit.

Accepted Answer

The permanent file is a collection of information that is relevant to multiple audits and can include client information, historical financial statements, legal documents, and other information that is relevant to the client's business operations. It is distinct from the current file, which contains the documentation and information specific to the current audit.

Question 19

The decision of what constitutes sufficient appropriate audit evidence is a matter for
professional judgment.

Accepted Answer

The decision of what constitutes sufficient appropriate audit evidence is indeed a matter for professional judgment, as stated in auditing standards. The auditor must use their experience and expertise to evaluate the relevance and reliability of the evidence obtained during the audit. This judgment must be exercised with due care and skepticism, considering the nature, timing, and extent of audit procedures required to achieve the audit objective.

Question 20

Observation is an evidence gathering procedure that involves checking the mathematical
accuracy of client records.

Accepted Answer

Observation is a evidence gathering procedure that involves directly observing or watching a situation or activity to gather information, rather than checking the mathematical accuracy of client records.

Quiz 5: Audit Evidence

Dean Tomaszczyk was training junior audit staff and mentioned the importance of third party documentation. Which of the following are not external confirmations?

When preparing the financial statements, auditors make assertions about each account and related disclosures in the notes.

The component partner sets out the work to be conducted by the group engagement partner.

Negative confirmations ask the recipient to reply only if they disagree with the information provided.

Correspondence with the client's lawyers is an example of externally generated evidence sent directly to the auditor.

An expert is expected to be less objective if they are not associated with the client.

The greater the risk of material misstatement of the item under consideration, the more likely an auditor will turn to an expert for their advice.

Olga Chevalier, CPA was reviewing presentation and disclosure assertions for Athabasca Oil Sands. Which one of the following would not be a presentation and disclosure assertion?

The cut-off assertion means that the entity holds or controls the rights to assets and liabilities are the obligations of the entity.

A component auditor is an auditor who, at the request of the group engagement team, performs work on financial information related to a component for the group audit.

Delaney Humphrey was explaining the importance of documentary evidence. Which assertion was she referring to when she obtained details of the price paid for inventory and Traced it to the supplier's invoice to verify the amount recorded?

Internally generated evidence is considered the most persuasive when the source of the evidence is considered to be reliable, trustworthy and independent of the client.

Analytical procedures involve an evaluation of financial information by studying plausible relationships among both financial and non-financial data.

The permanent file includes detailed descriptions of evidence gathered for a particular year's audit.

Audit evidence is the information that an auditor uses when arriving at their opinion on the fair presentation of their client's financial statements.

The permanent file includes client information and documentation that apply to more than one audit.

The decision of what constitutes sufficient appropriate audit evidence is a matter for professional judgment.

Observation is an evidence gathering procedure that involves checking the mathematical accuracy of client records.