Question 1

Analytical procedures are evaluations of financial information made by a study of plausible relationships among both financial and non-financial data. Discuss why analytical procedures are used by an auditor and explain several of the common types of analytical procedures.

Accepted Answer

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Question 2

Discuss the factors that influence the extent and timing of substantive procedures.

Accepted Answer

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Question 3

There are certain audit procedures that are required to be performed according to various auditing standards. Identify specific examples of such procedures and explain why the procedures are mandatory.

Accepted Answer

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Question 4

Before they can complete an audit, auditors need to evaluate the causes of any unexpected fluctuations in a client's financial statements detected by the use of analytical procedures. Explain how auditors interpret the results of analytical procedures and why it is done.

Accepted Answer

The answer of Before they can complete an audit, auditors...

Question 5

Judgmental misstatements can arise from
A) the auditor conducting substantive tests inappropriate to the account being tested.
B) differences in the interpretation or application of accounting policies.
C) selecting a sample that is not representative of the population.
D) none of the above

Accepted Answer

Judgmental misstatements can arise from differences in the interpretation or application of accounting policies. They can also arise from errors in judgment by the entity, including estimates and assumptions made in preparing financial statements. The other options may result in other types of misstatements, but not necessarily judgmental misstatements.

Question 6

Identify the steps used by the auditor when performing analytical procedures.

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Question 7

Fluctuations in financial data identified by the auditor when planning the audit may be caused by
A) dependent relationships.
B) seasonal patterns.
C) external decisions directly impacting the business.
D) all of the above

Accepted Answer

Fluctuations in financial data can be caused by a variety of factors, including dependent relationships (such as between the company and its suppliers or customers), seasonal patterns, and external decisions (such as changes in regulations or economic conditions) that directly impact the business. Therefore, all of the above options are possible causes of fluctuations in financial data identified by the auditor during audit planning.

Question 8

Explain the four different levels of evidence obtained when performing substantive procedures.

Accepted Answer

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Question 9

Explain the three common sampling strategies that can be applied when the auditor applies representative sampling.

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Question 10

Raisa Alexseev was getting ready to perform analytical procedures at Vulcan Spice Mills. She had made the following notes in her audit file:
1. Review allowance for doubtful accounts.
2. Don't forget to bring calculator to work.
3. Figure out the probability of $5,000,000 sales commissions threshold of last year.
4. Perform variance analysis.
Instructions
Can you summarize the steps Raisa will have to go through using analytical procedures before she can draw any conclusions about the subject matter?

Accepted Answer

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Question 11

Explain the difference between vouching and tracing.

Accepted Answer

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Question 12

Overall significant account conclusion statements are captured on
A) audit programs.
B) lead sheets.
C) confirmation requests.
D) minutes of board of directors' meetings.

Accepted Answer

Lead sheets are used by auditors to summarize and conclude on the significant accounts and aspects of an audit. They serve as a bridge between the detailed audit work and the financial statements, capturing overall conclusions on significant accounts.

Question 13

Indicate whether you agree or disagree with the following statements and explain your reasoning.
a) Svetlana Petrova was reviewing the risk profile of Gaz Prom Industries in order to determine detection risk. She concluded: "Both my inherent and control risks are low. I guess I should be willing to accept high detection risk."
b) Boris Ivanov had performed an assessment of the accounts payable system at Magnitogirsk Iron and Steel Works Operations in the Urals. His focus was on the completeness assertion for accounts payable balances. Inherent risk and control risk were both high. He decided that because the overall risk assessment was high he would have to set his detection risk high.
c) Jana Novotna, the auditor in charge of the Mosenergo petroleum giant, was explaining to Valentin Titov the importance of the timing of substantive procedures: "Although we associate examinations of internal controls with interim work and substantive procedures with year-end work, we can perform substantive procedures before year end if there exists an effective control environment."
d) Susan Martin, the audit senior at Canadian National Railways, was explaining to the junior auditor how vouching works: "We take a balance or a transaction from the underlying accounting records and agree it to the supporting evidence inside the company."
e) Larisa McCarthy, the auditor in charge of the Firestone audit, feels that the large population of sales transactions warrants the use of representative sampling. She mentions to her staff: "Representative sampling using audit risk tables is especially useful when a lot of errors exist in an accounting system and the auditor perceives the risk of understatement to be high."

Accepted Answer

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Question 14

Which of the following statements is correct?
A) Misstatements can only arise from fraud.
B) Misstatements can only arise from error.
C) Misstatements can arise from error or fraud.
D) none of the above

Accepted Answer

Misstatements can arise from both error and fraud. Errors can occur due to mistakes or inaccuracies in financial reporting, while fraud involves intentional deception or misrepresentation. Both can result in misstatements in financial statements.

Question 15

When an auditor identifies unexpected misstatements or errors, he/she will
A) re-evaluate the effectiveness of internal controls and overall assessment of risk.
B) plan to conduct predominately substantive tests.
C) increase the level of tests of internal controls.
D) none of the above

Accepted Answer

If unexpected misstatements or errors are identified, the auditor will need to re-evaluate the effectiveness of internal controls and overall assessment of risk to understand why such errors exist and identify any underlying risks to the accuracy of the financial statements. This will help the auditor determine whether substantive tests are necessary or not. Increasing the level of tests of internal controls may also be warranted to ensure that the cause of the errors has been adequately addressed.

Quiz 8: Execution of the Audit Performing Substantive Procedures

Analytical procedures are evaluations of financial information made by a study of plausible relationships among both financial and non-financial data. Discuss why analytical procedures are used by an auditor and explain several of the common types of analytical procedures.

Discuss the factors that influence the extent and timing of substantive procedures.

There are certain audit procedures that are required to be performed according to various auditing standards. Identify specific examples of such procedures and explain why the procedures are mandatory.

Before they can complete an audit, auditors need to evaluate the causes of any unexpected fluctuations in a client's financial statements detected by the use of analytical procedures. Explain how auditors interpret the results of analytical procedures and why it is done.

Judgmental misstatements can arise from

Identify the steps used by the auditor when performing analytical procedures.

Fluctuations in financial data identified by the auditor when planning the audit may be caused by

Explain the four different levels of evidence obtained when performing substantive procedures.

Explain the three common sampling strategies that can be applied when the auditor applies representative sampling.

Explain the difference between vouching and tracing.

Overall significant account conclusion statements are captured on

Which of the following statements is correct?

When an auditor identifies unexpected misstatements or errors, he/she will