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The professional standards consider calculating depreciation expense a "routine" transaction

False

The most reliable form of documentary evidence generally is considered to be documents created by the client

False

A vendor's invoice is an example of documentary evidence created by a third party and held by the client

True

In performing analytical procedures, the auditors may use dollar amounts, physical quantities, or percentages

True

The primary purpose of a letter of representations is to obtain additional evidence about specific accounts

False

The auditors should propose an adjusting journal entry for all material related-party transactions

False

When the risk of material misstatement for an account is high, the auditors may perform additional substantive procedures to restrict detection risk to a lower level

True

Working papers of continuing audit interest usually are filed with the administrative working papers

False

The use of lead schedules is designed to increase the detail of the working trial balance

False

Adjusting journal entries are ordinarily recorded by the client, while reclassifying journal entries need not be recorded

True

To be effective, analytical procedures performed near the end of the audit should be performed by

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

The components of the risk of misstatement are

Inherent risk and control risk

Financial statement assertions are established for classes of transactions

Account balances and disclosures

Further audit procedures include

Tests of controls

Assertions that have a meaningful bearing on whether an account balance, transaction class or disclosure is fairly stated are referred to as

Relevant assertions

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

Sufficiency

Which of the following is required documentation in an audit

A written audit program

Which of the following is not considered to be an analytical procedure

Comparisons of financial statement amounts with source documents

An auditor plans to apply substantive tests to the details of asset and liability accounts as of an interim date rather than as of the balance sheet date. The auditor should be aware that this practice

Potentially increases the risk that errors that exist at the balance sheet date will not be detected

An auditor compared the current-year gross margin with the prior-year gross margin to determine if cost of sales is reasonable. What type of audit procedure was performed

Analytical procedures

The inspection of a vendor's invoice by the auditors is

Documentary evidence about occurrence of a transaction

The auditors of Smith Electronics wish to limit the audit risk of material misstatement in the test of accounts receivable to 5 percent. They believe that inherent risk is 100%, and there is a 40% risk that material misstatement could have bypassed the client's system of internal control. What is the maximum detection risk the auditors should specify in their substantive procedures of details of accounts receivable

12.5%

Analytical procedures are required at the risk assessment stage and as

A part of the final overall review.

During financial statement audits, auditors seek to restrict which type of risk

Detection risk

Which of the following groups are not considered a specialist by AICPA Professional Standards

Internal auditors

CPA wishes to use a representation letter as a substitute for performing other audit procedures. Doing so

Violates professional standards

Which of the following best describes the problem with the use of published industry averages for analytical procedures

Lack of comparability

In auditing an asset valued at fair value, which of the following potentially provides the auditor with the strongest evidence

A price for a similar asset obtained from an active market

An auditor should expect that fair value is the price that would be received to sell an asset in an orderly transaction between the market participants at the

Measurement date (ordinarily the date of the financial statements)

Which of the following best describes the reason that auditors are concerned with the detection of related party transactions

Material related party transactions must be disclosed in the notes to the financial statements

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

Tests of direct evidence

Which of the following is not a financial statement assertion relating to account balances

Recorded value and discounts

Which of the following is generally true about the sufficiency of audit evidence

The amount of evidence that is sufficient varies inversely with the acceptable risk of material misstatement

Used in risk assessment, as a substantive procedure for specific accounts, and near the completion of the audit of the audited financial statements

Analytical procedures

Which of the following is a basic approach often used by auditors to evaluate the reasonableness of accounting estimates

Reviewing subsequent events or transactions

An auditor is performing an analytical procedure that involves comparing a client's account balances over time. This technique is referred to as

Horizontal analysis

An auditor is performing an analytical procedure that involves comparing a client's ratios with other companies in the same industry. This technique is referred to as

Cross-sectional analysis

An auditor is performing an analytical procedure that involves developing common-size financial statements. This technique is referred to as

Vertical analysis

Which of the following is not a basic approach often used by auditors to evaluate the reasonableness of accounting estimates

Confirmation of amounts

The audit time budget is an example of

An administrative working paper

A schedule set up to combine similar general ledger accounts, the total of which appears on the working trial balance as a single amount, is referred to as a

Lead schedule

Which of the following is not a function of working papers

Provide support for the accounting records

A schedule listing account balances for the current and previous years, and columns for adjusting and reclassifying entries proposed by the auditors to arrive at the final mount that will appear in the financial statement, is referred to as a

Working trial balance

The auditors use analytical procedures during the course of an audit. The most important phase of performing these procedures is the

Investigation of significant variations and unusual relationships

The auditors must obtain written client representations that normally should be signed by

The chief executive officer and the chief financial officer

Which of the following ultimately determines the specific audit procedures necessary to provide independent auditors with a reasonable basis for the expression of an opinion

The auditors' judgment

Failure to detect material dollar errors in the financial statements is a risk which the auditors primarily mitigate by

Performing substantive procedures

An independent auditor finds that the Simmer Corporation occupies office space, at no charge, in an office building owned by a shareholder. This finding indicates the existence of

Related party transactions

Which of the following would not necessarily be considered a related party transaction

Payment of a bonus to the president

The date of the management representation letter should coincide with the

Date of the auditor's report

An example of an analytical procedure is the comparison of

Financial information with similar information regarding the industry in which the entity operates

When considering the use of management's written representations as audit evidence about the completeness assertion, an auditor should understand that such representations

Complement, but do not replace, substantive procedures designed to support the assertion

Which of the following expressions is least likely to be included in a client's representation letter

Management acknowledges responsibility for illegal actions committed by employees

The auditor's direct personal knowledge, obtained through observation and inspection, is more persuasive than information obtained indirectly from independent outside sources

audit evidence

Which of the following statements relating to audit evidence is the most accurate statement

The auditor must obtain sufficient appropriate audit evidence

Which of the following is not a typical analytical procedure

Comparison of recorded amounts of major disbursements with appropriate invoices

Which of the following is not a primary purpose of audit working papers

To support the financial statements

Concerning retention of working papers, the Sarbanes-Oxley Act

Requires retention for at least 7 years

During an audit engagement pertinent data are prepared and included in the audit working papers. The working papers primarily are considered to be

Support for the auditors' representations as to compliance with generally accepted auditing standards

Although the quantity, type, and content of working papers will vary with the circumstances, the working papers generally would include the

Auditing procedures followed and the testing performed in obtaining audit evidence.

The permanent file section of the working papers that is kept for each audit client most likely contains

Narrative descriptions of the client's accounting procedures and controls

Working papers that record the procedures used by the auditor to gather evidence should be

Designed to meet the circumstances of the particular engagement

In general, which of the following statements is correct with respect to ownership, possession, or access to working papers prepared by a CPA firm in connection with an audit

The working papers may be obtained by third parties where they appear to be relevant to issues raised in litigation

Confirmation would be most effective in addressing the existence assertion for the

Inventory held on consignment

What type of transactions ordinarily have high inherent risk because they involve management judgments or assumptions in formulating accounting balances

Estimation

Assertions with high inherent risk are least likely to involve

Routine transactions

The date on which no information may be deleted from audit documentation is the

Documentation completion date

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

Reasonable in the circumstances

In obtaining sufficient appropriate audit evidence, the work of which type or types of specialists may be relied upon

Client engaged and auditor engaged

During the physical inventory count, the auditor requested that certain containers of inventory items be opened to ensure they were not empty

Inspection of tangible assets

During a site visit to a branch warehouse, the auditor noted unauthorized personnel have access to the inventory

Observation

The auditor obtained a copy of the company's accounting manual and read the section on inventory to prepare for the physical inventory observation

Inspection of records or documents

The auditor sent a letter to the company's outside attorney accompanied by management's request for information concerning pending or threatened litigation, claims, and assessments

Inquiry

The auditing firm's computer assisted audit specialist obtained an electronic billing file from the company and checked the accuracy of the summarized billings file

Recalculation

The auditor selected a sample of invoices and agreed the vendor to the approved vendor list, as had been required by the client's internal control procedures

Reperformance

The auditor scanned the repairs and maintenance account for unusually large amounts

Analytical Procedures

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