Question 1

Which one of the following statements is false?
A)Auditing includes the process of gathering evidence to test assertions.
B)No general audit program suits the needs for all situations.
C)Even though all audits are different,they can all be approached in the same manner.
D)All audits involve testing management's assertions contained in written communications to another party and independently gathering evidence to test the relevant assertions.

Accepted Answer

All audits are unique and require tailored audit programs based on the specific risks and circumstances of each engagement. Therefore, it is not possible to approach all audits in the same manner.

Question 2

Management's assertions in the financial statements are of relevance to the audit process because:
A)they are the procedures that will be performed by the audit team.
B)they are utilized by auditors in developing proper tests and procedures.
C)they are direct evidence that management has prepared financial statements in accordance with generally accepted audit standards.
D)they relate more to the audit while the financial statements belong to the auditor.

Accepted Answer

Management's assertions in the financial statements provide a framework for auditors to design their audit approach and develop appropriate audit tests and procedures. These assertions help auditors to assess the completeness, accuracy, and validity of the financial statements, as well as to identify any potential risks of material misstatement. However, management's assertions do not serve as direct evidence that the financial statements are prepared in accordance with generally accepted accounting principles.

Question 3

Direct tests of account balances and of transactions are dual purpose tests.

Accepted Answer

Direct tests of account balances and of transactions are not dual purpose tests; they are substantive tests aimed at verifying the accuracy of financial statement balances and transactions, while dual-purpose tests are designed to test both controls and substantive aspects simultaneously.

Question 4

Dual purpose tests examine both controls and the reasonableness of dollar amounts.A good example is testing a sample of purchase transactions that occurred throughout the year.

Accepted Answer

Dual purpose tests are designed to achieve two objectives simultaneously: to test both controls and substantive procedures. In the case of testing a sample of purchase transactions, controls are tested by examining the authorization, processing, and recording of the purchases, while substantive procedures are used to assess the reasonableness of the recorded dollar amounts.

Question 5

An advantage of directional testing is that it is more efficient by providing evidence on complementary sets of accounts.

Accepted Answer

Directional testing is more efficient because it focuses on specific accounts or financial statements, allowing for a more thorough analysis of those areas. This targeted approach can provide complementary evidence and help auditors identify potential errors or fraudulent activity more easily.

Question 6

Directional testing involves testing transactions or balances primarily for which type of error?
A)overstatement
B)understatement
C)either overstatement or understatement
D)neither overstatement nor understatement

Accepted Answer

Directional testing is focused on identifying potential material misstatements that are caused due to errors or fraud. It involves testing transactions or balances to determine if they are overstated or understated. As a result, directional testing primarily looks for both overstatement and understatement errors, making option C the best choice.

Question 7

In the performance of audit procedures there is a preference by auditors to focus on changes in account balances during the year if the opening balances were audited the previous year.

Accepted Answer

Auditing changes in account balances during the year is a common practice for auditors when the opening balances were audited in the previous year. This approach helps auditors identify any significant changes or discrepancies in the account balances that may require further investigation. Therefore, the statement is true.

Question 8

The process of vouching helps establish that all recorded transactions
A)have been recorded.
B)are complete.
C)are valid.
D)are presented properly.

Accepted Answer

Vouching involves checking the validity of the recorded transactions to ensure that they are supported by appropriate documents and evidence. Therefore, the best choice is C - all recorded transactions are valid. The other options may also be part of the vouching process, but they do not capture the primary purpose of vouching.

Question 9

Which one of the following would be considered the most persuasive type of audit evidence?
A)purchase orders from vendors
B)customer accounts receivable files
C)computerized general ledger
D)confirmations from banks

Accepted Answer

Confirmations from banks are the most persuasive type of audit evidence as they provide direct confirmation from a third party about the accuracy of the financial information being reported by the client. The other options provide useful audit evidence but are not as reliable as confirmations from an external source.

Question 10

Footing,cross-footing,and tests of extensions are examples of which approach to gathering evidence?
A)reprocessing
B)recalculation
C)vouching
D)examination of documentation

Accepted Answer

Recalculation involves verifying the accuracy of figures in financial statements through mathematical calculations, which includes footing (adding up a column of figures), cross-footing (adding up rows and columns to ensure consistency), and test of extensions (multiplying figures to test calculation accuracy).

Question 11

Reliable evidence usually exists more for transactions than for items making up an ending balance.

Accepted Answer

The answer of Reliable evidence usually exists more for transactions...

Question 12

Which one of the following assertions regarding an inventory of ski equipment for Matterhorn,Inc.would be considered an incorrect statement?
A)The inventory exists at the balance sheet date.
B)The inventory is owned by Matterhorn.
C)Footnote disclosures concerning inventory are not required given the objective nature of this account.
D)The inventories are properly valued.

Accepted Answer

Footnote disclosures concerning inventory are required per Generally Accepted Accounting Principles (GAAP) in order to provide additional information about the nature of the inventory, its composition, and valuation methods used.

Question 13

Which one of the following would be the least persuasive type of evidence?
A)Confirmations returned by bank directly to the auditor.
B)Letters of communication from the Securities Exchange Commission.
C)Physical examination of perpetual inventory.
D)General ledger information.

Accepted Answer

General ledger information alone is not very persuasive as it does not provide any external or independent source of verification. It may be subject to errors or even fraud, and therefore needs to be corroborated with other evidence. The other options provide more reliable and verifiable evidence, as confirmations from bank or regulatory authorities, or physical examination of inventory.

Question 14

The client's original signed purchase orders and invoices are a more persuasive type of evidence than evidence directly observed by the auditor.

Accepted Answer

Auditor's direct observations are considered more persuasive because they are obtained firsthand and are less likely to be manipulated compared to documents provided by the client.

Question 15

Which one of the following would be the most persuasive type of evidence?
A)check register
B)bank statement
C)observation of assets
D)inquiry with the in-house attorney

Accepted Answer

Observation of assets is considered the most persuasive type of evidence because it involves direct verification of the existence and condition of the assets, providing tangible and firsthand evidence.

Question 16

Analytical procedures are a type of substantive evidence.

Accepted Answer

Analytical procedures are a type of substantive evidence and involve the evaluation of financial information through analysis of relationships among both financial and non-financial data.

Question 17

Underlying accounting records consists of evidence of controls as well as supporting records such as checks,invoices,the general and subsidiary ledger and journal entries.

Accepted Answer

This statement is true. Underlying accounting records includes evidence of controls and supporting records such as checks, invoices, and general and subsidiary ledgers and journal entries.

Question 18

Taft company only holds cash in the local currency of the country in which it operates.Which one of the following management assertions would require the least amount of audit procedures for the cash account of Taft?
A)existence
B)valuation
C)completeness
D)presentation

Accepted Answer

Since Taft company holds cash only in the local currency, there is no foreign exchange risk, making valuation straightforward and requiring minimal audit procedures.

Question 19

For the financial statements to be presented in accordance with generally accepted accounting principles,the information included must:
A)embody the appropriate assertions of management.
B)be consistent,comparable and fully accurate.
C)have full and adequate disclosure of all transactions.
D)be prepared by an independent auditor.

Accepted Answer

Management's assertions are fundamental to the preparation of financial statements in accordance with generally accepted accounting principles (GAAP), as they reflect the accuracy and completeness of the information presented.

Question 20

Testimonial evidence concerns review of publicly available information about the client.

Accepted Answer

Testimonial evidence refers to evidence obtained from statements made by individuals, such as interviews or written statements, rather than from publicly available information.

Quiz 7: A Framework for Audit Evidence

Which one of the following statements is false?

Management's assertions in the financial statements are of relevance to the audit process because:

Direct tests of account balances and of transactions are dual purpose tests.

Dual purpose tests examine both controls and the reasonableness of dollar amounts.A good example is testing a sample of purchase transactions that occurred throughout the year.

An advantage of directional testing is that it is more efficient by providing evidence on complementary sets of accounts.

Directional testing involves testing transactions or balances primarily for which type of error?

In the performance of audit procedures there is a preference by auditors to focus on changes in account balances during the year if the opening balances were audited the previous year.

The process of vouching helps establish that all recorded transactions

Which one of the following would be considered the most persuasive type of audit evidence?

Footing,cross-footing,and tests of extensions are examples of which approach to gathering evidence?

Reliable evidence usually exists more for transactions than for items making up an ending balance.

Which one of the following assertions regarding an inventory of ski equipment for Matterhorn,Inc.would be considered an incorrect statement?

Which one of the following would be the least persuasive type of evidence?

The client's original signed purchase orders and invoices are a more persuasive type of evidence than evidence directly observed by the auditor.

Which one of the following would be the most persuasive type of evidence?

Analytical procedures are a type of substantive evidence.

Underlying accounting records consists of evidence of controls as well as supporting records such as checks,invoices,the general and subsidiary ledger and journal entries.

Taft company only holds cash in the local currency of the country in which it operates.Which one of the following management assertions would require the least amount of audit procedures for the cash account of Taft?

For the financial statements to be presented in accordance with generally accepted accounting principles,the information included must:

Testimonial evidence concerns review of publicly available information about the client.