Auditing - Exam 2

Created by ccarver2 

Upgrade to
remove ads

Which of the following is not an assertion relating to classes of transactions?

a. Accuracy.
b. Consistency.
c. Cutoff.
d. Occurrence.

b. Consistency

Which of the following is a general principle relating to the reliability of audit evidence?

a. Audit evidence obtained from indirect sources rather than directly is more reliable than evidence obtained directly by the auditor.
b. Audit evidence provided by copies is more reliable than that provided by facsimiles.
c. Audit evidence obtained from knowledgeable independent sources outside the client company is more reliable than audit evidence obtained from non-independent sources.
d. Audit evidence provided by original documents is more reliable than audit evidence generated through a system of effective controls.

c. Audit evidence obtained from knowledgeable independent sources outside the client company is more reliable than audit evidence obtained from non-independent sources.

Which of the following types of audit evidence is the most persuasive?

a. Prenumbered client purchase order forms.
b. Client work sheets supporting cost allocations.
c. Bank statements obtained from the client.
d. Client representation letter.

c. Bank statements obtained from the client.

Which of the following presumptions is correct about the reliability of audit evidence?

a. Information obtained indirectly from outside sources is the most reliable audit evidence.
b. To be reliable, audit evidence should be convincing rather than persuasive.
c. Reliability of audit evidence refers to the amount of corroborative evidence obtained.
d. Effective internal control provides more assurance about the reliability of audit evidence.

d. Effective internal control provides more assurance about the reliability of audit evidence.

Which of the following statements relating to the appropriateness of audit evidence is always true?

a. Audit evidence gathered by an auditor from outside an enterprise is reliable.
b. Accounting data developed under satisfactory conditions of internal control are more relevant than data developed under unsatisfactory internal control conditions.
c. Oral representations made by management are not reliable evidence.
d. Evidence gathered by auditors must be both reliable and relevant to be considered appropriate.

d. Evidence gathered by auditors must be both reliable and relevant to be considered appropriate.

Which of the following types of audit evidence is the least persuasive?

a. Prenumbered purchase order forms.
b. Bank statements obtained from the client.
c. Test counts of inventory performed by the auditor.
d. Correspondence from the client's attorney about litigation.

a. Prenumbered purchase order forms.

In evaluating the reasonableness of an entity's accounting estimates, an auditor normally would be concerned about assumptions that are

a. Susceptible to bias.
b. Consistent with prior periods.
c. Insensitive to variations.
d. Similar to industry guidelines.

a. Susceptible to bias.

Which of the following is not a basic procedure used in an audit?

a. Risk assessment procedures.
b. Substantive procedures.
c. Tests of controls.
d. Tests of direct evidence.

d. Tests of direct evidence.

Which of the following procedures would an auditor ordinarily perform first in evaluating management's accounting estimates for reasonableness?

a. Develop independent expectations of management's estimates.
b. Consider the appropriateness of the key factors or assumptions used in preparing the estimates.
c. Test the calculation used by management in developing the estimates.
d. Obtain an understanding of how management developed its estimates.

d. Obtain an understanding of how management developed its estimates.

In evaluating the reasonableness of an accounting estimate, an auditor most likely would concentrate on key factors and assumptions that are

a. Consistent with prior periods.
b. Similar to industry guidelines.
c. Objective and not susceptible to bias.
d. Deviations from historical patterns.

d. Deviations from historical patterns.

In evaluating an entity's accounting estimates, one of an auditor's objectives is to determine whether the estimates are

a. Not subject to bias.
b. Consistence with industry guidelines.
c. Based on objective assumptions.
d. Reasonable in the circumstances.

d. Reasonable in the circumstances.

In testing the existence assertion for an asset, an auditor ordinarily works from the

a. Financial statements to the potentially unrecorded items.
b. Potentially unrecorded items to the financial statements.
c. Accounting records to the supporting evidence.
d. Supporting evidence to the accounting records.

d. Supporting evidence to the accounting records.

Which of the following would not be considered an analytical procedure?

a. Estimating payroll expense by multiplying the number of employees by the average hourly wage rate and the total hours worked.
b. Projecting an error rate by comparing the results of a statistical sample with the actual population characteristics.
c. Computing accounts receivable turnover by dividing credit sales by the average net receivables.
d. Developing the expected current year sales based on the sales trend of the prior five years.

b. Projecting an error rate by comparing the results of a statistical sample with the actual population characteristics.

What type of analytical procedure would an auditor most likely use in developing relationships among balance sheet accounts when reviewing the financial statements of a nonpublic entity?

a. Trend analysis.
b. Regression analysis.
c. Ratio analysis.
d. Risk analysis.

c. Ratio analysis.

An auditor may achieve audit objectives related to particular assertions by

a. Performing analytical procedures.
b. Adhering to a system of quality control.
c. Preparing auditor working papers.
d. Increasing the level of detection risk.

a. Performing analytical procedures.king papers.

An entity's income statements were misstated due to the recording of journal entries that involved debits and credits to an unusual combination of expense and revenue accounts. The auditor most likely could have detected this fraudulent financial reporting by

a. Tracing a sample of journal entries to the general ledger.
b. Evaluating the effectiveness of internal control.
c. Investigating the reconciliations between controlling accounts and subsidiary records.
d. Performing analytical procedures designed to disclose differences from expectations.

d. Performing analytical procedures designed to disclose differences from expectations.

Auditors try to identify predictable relationships when using analytical procedures. Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence?

a. Accounts receivable.
b. Interest expense.
c. Accounts payable.
d. Travel and entertainment expense.

b. Interest expense.

Analytical procedures used in the overall review stage of an audit generally include

a. Gathering evidence concerning account balances that have not changed from the prior year.
b. Retesting control procedures that appeared to be ineffective during the assessment of control risk.
c. Considering unusual or unexpected account balances that were not previously identified.
d. Performing tests of transactions to corroborate management's financial statement assertions.

c. Considering unusual or unexpected account balances that were not previously identified.

Which of the following tends to be most predictable for purposes of analytical procedures applied as substantive tests?

a. Relationships involving balance sheet accounts.
b. Transactions subject to management discretion.
c. Relationships involving income statement accounts.
d. Data subject to audit testing in the prior year.

c. Relationships involving income statement accounts.

A basic premise underlying the application of analytical procedures is that

a. The study of financial ratios is an acceptable alternative to the investigation of unusual fluctuations.
b. Statistical tests of financial information may lead to the discovery of material misstatements in the financial statements.
c. Plausible relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary.
d. These procedures cannot replace tests of balances and transactions.

c. Plausible relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary.

For all audits of financial statements made in accordance with generally accepted auditing standards, the use of analytical procedures is required to some extent
In the As a In the
Planning stage substantive test review stage
a. Yes No Yes
b. No Yes No
c. No Yes Yes
d. Yes No No

a. Yes No Yes

An auditor's analytical procedures most likely would be facilitated if the entity

a. Segregates obsolete inventory before the physical inventory count.
b. Uses a standard cost system that produces variance reports.
c. Corrects material weaknesses in internal control before the beginning of the audit.
d. Develops its data from sources solely within the entity.

b. Uses a standard cost system that produces variance reports.

Analytical procedures performed in the overall review stage of an audit suggest that several accounts have unexpected relationships. The results of these procedures most likely would indicate that

a. Irregularities exist among the relevant account balances.
b. Internal control activities are not operating effectively.
c. Additional tests of details are required.
d. The communication with the audit committee should be revised.

c. Additional tests of details are required.

Which of the following comparisons would an auditor most likely make in evaluating an entity's costs and expenses?

a. The current year's accounts receivable with the prior year's accounts receivable.
b. The current year's payroll expense with the prior year's payroll expense.
c. The budgeted current year's sales with the prior year's sales.
d. The budgeted current year's warranty expense with the current year's contingent liabilities.

b. The current year's payroll expense with the prior year's payroll expense.

To be effective, analytical procedures in the overall review stage of an audit engagement should be performed by

a. The staff accountant who performed the substantive auditing procedures.
b. The managing partner who has responsibility for all audit engagements at that practice office.
c. A manager or partner who has a comprehensive knowledge of the client's business and industry.
d. The CPA firm's quality control manager or partner who has responsibility for the firm's peer review program.

c. A manager or partner who has a comprehensive knowledge of the client's business and industry.

Which of the following is the best example of a substantive test?

a. Examining a sample of cash disbursements to test whether expenses have been properly approved.
b. Confirmation of balances of accounts receivable.
c. Comparison of signatures on checks to a list of authorized signers.
d. Flowcharting of the client's cash receipts system.

b. Confirmation of balances of accounts receivable.

The objective of tests of details of transactions performed as substantive tests is to

a. Comply with generally accepted auditing standards.
b. Attain assurance about the reliability of the accounting system.
c. Detect material misstatements in the financial statements.
d. Evaluate whether management's policies and procedures operated effectively.

c. Detect material misstatements in the financial statements.

In the context of an audit of financial statements, substantive tests are audit procedures that

a. May be eliminated under certain conditions.
b. Are designed to discover significant subsequent events.
c. May be either tests of transactions, direct tests of financial balances, or analytical tests.
d. Will increase proportionately with the auditor's reliance on internal control.

c. May be either tests of transactions, direct tests of financial balances, or analytical tests.

The auditor will most likely perform extensive tests for possible understatement of

a. Revenues.
b. Assets.
c. Liabilities.
d. Capital.

c. Liabilities.

Which of the following procedures would an auditor most likely perform in auditing the statement of cash flows?

a. Compare the amounts included in the statement of cash flows to similar amounts in the prior year's statement of cash flows.
b. Reconcile the cutoff bank statements to verify the accuracy of the year-end bank balances.
c. Vouch all bank transfers for the last week of the year and first week of the subsequent year.
d. Reconcile the amounts included in the statement of cash flows to the other financial statements' balances and amounts.

d. Reconcile the amounts included in the statement of cash flows to the other financial statements' balances and amounts.

In determining whether transactions have been recorded, the direction of the audit testing should be from the

a. General ledger balances.
b. Adjusted trial balance.
c. Original source documents.
d. General journal entries.

c. Original source documents.

Which statement is correct concerning the deletion of audit documentation?

a. Superseded audit documentation should always be deleted from the audit file.
b. After the audit has been completed, the auditor should not delete or discard audit documentation.
c. Auditors should use professional skepticism in determining which audit documentation should be deleted.
d. Audit documentation should never be deleted from the audit file.

b. After the audit has been completed, the auditor should not delete or discard audit documentation.

For audits of non-issuer clients, ignoring any particular legal or regulatory requirement audit documentation should be retained

a. A minimum of five years.
b. As long as lead schedules have relevance to forthcoming audits.
c. Until 3 years after the client selects another auditor.
d. Working papers must be maintained indefinitely.

a. A minimum of five years.

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

a. Notes receivable and interest income.
b. Accrued interest receivable and accrued interest payable.
c. Notes payable and notes receivable.
d. Interest income and interest expense.

a. Notes receivable and interest income.

An auditor's working papers serve mainly to

a. Provide the principal support for the auditor's report.
b. Satisfy the auditor's responsibilities concerning the Code of Professional Conduct.
c. Monitor the effectiveness of the CPA firm's quality control procedures.
d. Document the level of independence maintained by the auditor.

a. Provide the principal support for the auditor's report.

The permanent file of an auditor's working papers generally would not include

a. Bond indenture agreements.
b. Lease agreements.
c. Working trial balance.
d. Flowchart of internal control.

c. Working trial balance.

An auditor ordinarily uses a working trial balance resembling the financial statements without footnotes, but containing columns for

a. Cash flow increases and decreases.
b. Audit objectives and assertions.
c. Reclassifications and adjustments.
d. Reconciliations and tick marks.

c. Reclassifications and adjustments.

Which of the following is least likely to be a factor in the auditor's decision about the extent of the documentation of a particular audit area?

a. The risk of material misstatement.
b. The extent of the judgment involved in performing the procedures.
c. The nature and extent of misstatements identified.
d. Whether or not the client has an internal audit function.

d. Whether or not the client has an internal audit function.

Which of the following is required documentation in an audit in accordance with generally accepted auditing standards?

a. A flowchart or narrative of the accounting system describing the recording and classification of transactions for financial reporting.
b. An audit program setting forth in detail the procedures necessary to accomplish the engagement's objectives.
c. A planning memorandum establishing the timing of the audit procedures and coordinating the assistance of entity personnel.
d. An internal control questionnaire identifying controls that assure specific objectives will be achieved.

b. An audit program setting forth in detail the procedures necessary to accomplish the engagement's objectives.

Which of the following factors most likely would affect an auditor's judgment about the quantity, type, and content of the auditor's working paper?

a. The assessed level of control risk.
b. The likelihood of a review by a concurring (second) partner.
c. The number of personnel assigned to the audit.
d. The content of the management representation letter.

a. The assessed level of control risk.

The audit working paper that reflects the major components of an amount reported in the financial statements is the

a. Interbank transfer schedule.
b. Carry-forward schedule.
c. Supporting schedule.
d. Lead schedule.

d. Lead schedule.

Which of the following documentation is required for an audit in accordance with generally accepted auditing standards?

a. A flowchart or an internal control questionnaire that evaluates the effectiveness of the entity's controls.
b. A client engagement letter that summarizes the timing and details of the auditor's planned fieldwork.
c. An indication in the working papers that the accounting records agree or reconcile with the financial statements.
d. The basis for the auditor's conclusions when the assessed level of control risk is at the maximum level for all financial statement assertions.

c. An indication in the working papers that the accounting records agree or reconcile with the financial statements.

No deletions of audit documentation are allowed after the

a. Client's year-end.
b. Documentation completion date.
c. Last date of significant fieldwork.
d. Report release date.

b. Documentation completion date.

Under the requirements of the PCAOB, audit documentation must contain sufficient information to allow what type of auditor to understand the nature, timing, extent, and results of procedures performed?

a. An experienced audit team member.
b. An experienced auditor having no previous connection with engagement.
c. Any certified public accountant.
d. An auditor qualified as a peer review specialist

b. An experienced auditor having no previous connection with engagement.

Audit documentation for audits performed under the requirements of the Public Company Accounting Oversight Board should be retained for

a. The shorter of five years, or the period required by law.
b. 7 years.
c. The longer of 7 years, or the period required by law.
d. Indefinitely.

c. The longer of 7 years, or the period required by law.

An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete or slow-moving inventory to support management's financial statement assertion of

a. Valuation.
b. Rights.
c. Existence.
d. Presentation.

a. Valuation.

While observing a client's annual physical inventory, an auditor recorded test counts for several items and noticed that certain test counts were higher than the recorded quantities in the client's perpetual records. This situation could be the result of the client's failure to record

a. Purchase discounts.
b. Purchase returns.
c. Sales.
d. Sales returns.

d. Sales returns.

To gain assurance that all inventory items in a client's inventory listing schedule are valid, an auditor most likely would trace

a. Inventory tags noted during the auditor's observation to items listed in the inventory listing schedule.
b. Inventory tags noted during the auditor's observation to items listed in receiving reports and vendor's invoices.
c. Items listed in the inventory listing schedule to inventory tags and the auditor's recorded count sheets.
d. Items listed in receiving reports and vendors' invoices to the inventory listing schedule.

c. Items listed in the inventory listing schedule to inventory tags and the auditor's recorded count sheets.

To measure how effectively an entity employs its resources, an auditor calculates inventory turnover by dividing average inventory into

a. Net sales.
b. Cost of goods sold.
c. Operating income.
d. Gross sales.

b. Cost of goods sold.

Which of the following auditing procedures most likely would provide assurance about a manufacturing entity's inventory valuation?

a. Testing the entity's computation of standard overhead rates.
b. Obtaining confirmation of inventories pledged under loan agreements.
c. Reviewing shipping and receiving cutoff procedures for inventories.
d. Tracing test counts to the entity's inventory listing.

a. Testing the entity's computation of standard overhead rates.

A client maintains perpetual inventory records in both quantities and dollars. If the assessed level of control risk is high, an auditor would probably

a. Increase the extent of tests of controls of the inventory cycle.
b. Request the client to schedule the physical inventory count at the end of the year.
c. Insist that the client perform physical counts of inventory items several times during the year.
d. Apply gross profit tests to ascertain the reasonableness of the physical counts.

b. Request the client to schedule the physical inventory count at the end of the year.

An auditor concluded that no excessive costs for idle plant were charged to inventory. This conclusion most likely related to the auditor's objective to obtain evidence about the financial statement assertions regarding inventory, including presentation and disclosure and

a. Valuation.
b. Completeness.
c. Existence.
d. Rights.

a. Valuation.

An auditor selected items for test counts while observing a client's physical inventory. The auditor then traced the test counts to the client's inventory listing. This procedure most likely obtained evidence concerning management's assertion of

a. Rights.
b. Completeness.
c. Existence.
d. Valuation.

b. Completeness.

An auditor most likely would analyze inventory turnover rates to obtain evidence concerning management's assertions about

a. Existence.
b. Rights.
c. Presentation.
d. Valuation.

d. Valuation.

An auditor usually examines receiving reports to support entries in the

a. Voucher register and sales returns journal.
b. Sales journal and sales returns journal.
c. Voucher register and sales journal.
d. Check register and sales journal.

a. Voucher register and sales returns journal.

When auditing inventories, an auditor would least likely verify that

a. The financial statement presentation of inventories is appropriate.
b. Damaged goods and obsolete items have been properly accounted for.
c. All inventory owned by the client is on hand at the time of the count.
d. The client has used proper inventory pricing.

c. All inventory owned by the client is on hand at the time of the count.

Please allow access to your computer’s microphone to use Voice Recording.

Having trouble? Click here for help.

We can’t access your microphone!

Click the icon above to update your browser permissions above and try again

Example:

Reload the page to try again!

Reload

Press Cmd-0 to reset your zoom

Press Ctrl-0 to reset your zoom

It looks like your browser might be zoomed in or out. Your browser needs to be zoomed to a normal size to record audio.

Please upgrade Flash or install Chrome
to use Voice Recording.

For more help, see our troubleshooting page.

Your microphone is muted

For help fixing this issue, see this FAQ.

Star this term

You can study starred terms together

NEW! Voice Recording

Create Set