Question 1

Where would a copy of an auditee's long-term lease for a building most likely be kept?

Accepted Answer

Long-term leases are considered important documents that may affect an auditee's financial statements over an extended period. Therefore, a copy of a long-term lease for a building is most likely to be kept in the permanent file, which is intended to store records of continuing importance. The permanent file includes documentation that has lasting value, such as legal agreements, organizational charts, and historical financial information.

Question 2

Rank the following forms of audit evidence from most to least reliable: observation,inquiry,confirmation,and external-internal documentation

Accepted Answer

Confirmation is generally considered the most reliable form of audit evidence as it involves obtaining a response from a third party who has direct knowledge of the matter being audited. External-internal documentation is next as it involves examining reliable and relevant documents which can provide support for the audit conclusion. Observation is useful but can be unreliable as it may not provide a complete understanding of the process being observed. Inquiry is considered the least reliable form of audit evidence as it relies on information provided by the client and may not be independently verifiable.

Question 3

The degree of reliability that can be obtained from documents like sales invoice copies,employee time cards,and receiving report,is most dependent on which factor?

Accepted Answer

The degree of reliability obtained from documents like sales invoice copies, employee time cards, and receiving report is dependent on the quality of the internal control system that produced them. This is because a good internal control system ensures that the information recorded in these documents is accurate and reliable. Sequential numbering, multiple copies, and circulation within the auditee can also increase the reliability of these documents, but these factors are not as important as the quality of the internal control system.

Question 4

Analysis is most useful in providing evidence of ________.

Accepted Answer

The answer of Analysis is most useful in providing evidence...

Question 5

Using audit software to re-compute the amount of depreciation expense is an example of what form of audit evidence?

Accepted Answer

Using audit software to re-compute the amount of depreciation expense falls under the category of recalculation/reperformance, which involves the independent re-computation of financial data.

Question 6

An important planning decision made by the auditor is called the audit approach decision.With this decision,the auditor decides

Accepted Answer

The audit approach decision involves deciding whether a combined or substantive approach will be used for the audit. The other choices are important planning decisions for the audit, but they are not specifically related to the audit approach decision.

Question 7

A key determinant of the objectivity of the work of an internal audit team is _____.

Accepted Answer

Direct reporting to the audit committee helps ensure that internal auditors can operate independently and objectively, without undue influence from management.

Question 8

An audit program lists the procedure "select a sample of 20 entries in the sales journal and trace to duplicate sales invoices and related shipping documents" as a test of the completeness assertion for inventory.This procedure:

Accepted Answer

This procedure is more relevant to testing the occurrence assertion rather than completeness. Completeness would involve ensuring all transactions that should be recorded are recorded, not tracing recorded transactions to supporting documents.

Question 9

Which of the following statements concerning the experts an auditor consults in the audit of financial statements is false?

Accepted Answer

The statement that the expert consulted must be unrelated to the company or organization under audit is false. In fact, the expert may be a member of the company under audit, but must still possess specialized knowledge or expertise relevant to the audit in order to qualify as an expert.

Question 10

You are using analytical procedures to verify direct labour costs.Which of these information sources would be considered the least reliable to use to establish an expected amount?

Accepted Answer

The production manager's personal forecast may not be based on reliable or objective data and therefore may not be accurate for establishing an expected amount of direct labour costs. The other options are more reliable sources of information for establishing an expected amount.

Question 11

One example of a formal authoritative document is a ________.

Accepted Answer

A loan agreement is a formal authoritative document that outlines the terms and conditions of a loan between a lender and a borrower. It is legally binding and typically requires signatures from both parties. The other options listed are important documents in business transactions, but they do not carry the same level of authority as a loan agreement.

Question 12

The audit procedure "vouch a sample of capital asset additions to supporting vendor invoices" is an example of what audit technique?

Accepted Answer

The audit procedure of "vouching a sample of capital asset additions to supporting vendor invoices" involves the inspection of vendor invoices to support capital asset additions. This is an example of the inspection audit technique, which involves the examination of documents or records to obtain evidence to support audit assertions.

Question 13

What is the most reliable form of audit evidence?

Accepted Answer

Evidence obtained through the auditor's direct personal knowledge is considered the most reliable because it is firsthand and not subject to manipulation or bias from other sources.

Question 14

In preparing for a repeat engagement,the first thing an audit team should do is ________.

Accepted Answer

In preparing for a repeat engagement, the audit team should review prior-year working papers and permanent file documents to understand the client's business and the previous audit procedures performed. This will help the team plan the current year's audit and identify any changes or risks that need to be addressed. While interviewing client management and taking a tour of physical facilities may also be helpful, they should come after the review of prior-year working papers and files. Obtaining a copy of the year-end financial statements may also be important, but it can be done concurrently with the review of prior-year working papers.

Question 15

Working papers that meet the requirements of Canadian Audit Standards provide ________.

Accepted Answer

Working papers that meet the requirements of Canadian Audit Standards provide evidence supporting the auditors' conclusions as well as a record of compliance with Generally Accepted Auditing Standards (GAAS). They are not conclusive evidence that the financial statements are free of material misstatement, which is the responsibility of the auditor. The information kept on file to support management's assertions is part of the auditee's records, not the auditor's working papers. The amount of time spent by the auditor is important for billing purposes but not relevant to the quality of the working papers.

Question 16

The audit program prepared by the independent auditors prior to the start of fieldwork is considered appropriate documentation of ________.

Accepted Answer

The audit program prepared by the independent auditors prior to the start of fieldwork is considered appropriate documentation of planning, as it outlines the procedures and steps that will be followed during the audit.

Question 17

An auditor selects audit procedures that will provide ________.

Accepted Answer

An auditor selects audit procedures that will provide the most reliable and relevant evidence that can be obtained in a cost-effective manner. The other options, such as the most evidence or the most persuasive evidence, may not be the most efficient or effective in achieving the audit objectives. The goal of audit procedures is to obtain sufficient and appropriate evidence to support the audit assertion.

Question 18

To provide efficient,reliable evidence,confirmations should be ________.

Accepted Answer

Confirmations should be created by the auditor and sent to third parties to be returned directly to the auditor to ensure independence and reliability of the evidence. Option A and D suggest involvement of the client which may compromise the reliability of the evidence. Option B suggests creating confirmations by the auditor but sending them to the client, which is not an appropriate approach.

Question 19

The two primary forms of audit evidence used during the risk assessment phase are:

Accepted Answer

During the risk assessment phase, auditors typically gather evidence through inquiries of management and analytical procedures. Inquiries involve asking questions and seeking explanations from management or other relevant parties. Analytical procedures involve comparing financial information to expected results and investigating significant differences. These two methods of obtaining evidence are most applicable during the risk assessment phase, as they allow auditors to gain a broad understanding of the organization and its operations. Inspection and observation, confirmation, and recalculation/reperformance are more commonly used during the substantive testing phase, when the auditor is focused on obtaining more specific evidence to support the financial statements.

Question 20

The overall audit strategy is documented in the ________.

Accepted Answer

The overall audit strategy is documented in the planning memorandum, which outlines the scope and objectives of the audit, the materiality thresholds, the staffing requirements, and the timeline for completion. The engagement letter establishes the contractual relationship between the auditor and the client, while the management letter communicates the audit findings and recommendations to management. The audit program is a detailed blueprint of the procedures to be performed during the audit.

Quiz 8: Audit Evidence and Assurance