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CH 9 and 10: Risk Response - Performing Substantive Procedures and Evaluating Audit Data Analytics and Audit Sampling

Terms in this set (20)

In general, an auditor is likely to use audit data analytics (ADA) when which of the ofllowing conditions exist?

A.
All of the choices explain conditions when ADA can be used in an audit.
B.
Evidence to support the audit test is available in electronic form.
C.
Relevant data is clean or can be cleaned up easily.
D.
Relevant data is reliable and internal controls over the reliability of the data are strong.
A.
All of the choices explain conditions when ADA can be used in an audit.
Which of the following procedures would an auditor normally perform first in evaluating management's accounting estimates for reasonableness?
A.
Develop an independent expecation of the estimate
B.
Test the calculations used by management in developing the estimates.
C.
Consider the appropriateness of the key factors or assumption used in preparing the estimates.
D.
Obtain an understanding of how management developed its estimates
D.
Obtain an understanding of how management developed its estimates
Tracing copies of computer prepared sales invoices to the copies of the corresponding computer prepared shipping documents provides evidence that

A.
Shipments to customers were properly billed.

B.
Entries in the accounts receivable subsidiary ledger were for sales actually shipped.

C.
Sales billed to customers were actually shipped.
D.
No duplicate shipments to customers were made.
C.
Sales billed to customers were actually shipped.
During a recent audit of the revenue cycle of a client, a CPA found that the client had $1 million in accounts receivable recorded for fictitious customers. Which of the following tests most likely facilitated the identification of the fraud?
A.
Sending positive confirmations to all of the client's customers with open balances on December 31.
B.
Examining the reconciliation between the subsidiary ledger and the general ledger control account.
C.
Reviewing the support for open sales orders NOT yet shipped as of December 31.
D.
Reviewing the segregation of duties of the staff who had responsibilities for sales, shipping and invoicing.
A.
Sending positive confirmations to all of the client's customers with open balances on December 31.
In auditing accounts payable, an auditor's procedures most likely would focus primarily on management's assertion of
A.
Completeness
B.
Valuation
C.
Existence
D.
Presentation and disclosure
A.
Completeness
If the objective of an auditor's test of details is to detect a possible understatement of sales, the auditor most likely would trace the transactions from the:

A.
Cash receipts journal to the sales journal
B.
Sales journal to the cash receipts journal.
C.
Shipping documents to the sales invoices.
D.
Sales invoices to the shipping documents.
C.
Shipping documents to the sales invoices.
Inquiries to warehouse personnel concerning possible obsolete or slow-moving inventory items provide assurance about management's assertion of
A.
Presentation
B.
Valuation
C.
Existence
D.
Completeness
B.
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 amounts in the client's perpetual inventory records. This situation could best be explained by the client's failure to record ________________________.
A.
Sales
B.
Purchase Discounts
C.
Purchase returns
D.
Sales returns
D.
Sales returns
Which of the following procedures would best detect a liability omission by management?
A.
Review the articles of incorporation and corporate bylaws.

B.
Verify the mathematical accuracy of the financial statements.
C.
Inquiry of senior management about the completeness of the expenses and liabilities in the general ledger.

D.
Review the purchase contracts and other legal contracts.
D.
Review the purchase contracts and other legal contracts.
Scenario: An auditor physically inspects the company's fixed assets and traced the serial numbers on each piece of equipment to the client's fixed asset subledger. Which of the following management assertions is supported by this test?
A.
Valuation
B.
Rights
C.
Existence x
D.
Completeness
...
In testing Property Plant and Equipment balances, an auditor examines new additions listed on the roll-forward for the PPE account. This procedure most likely obtains evidence concerning management's assertion of
A.
Existence
B.
Completeness
C.
Valuation
D.
Accuracy
A.
Existence
Which of the following would most likely give the most assurance concerning the valuation assertion of accounts receivable?
A.
Assessing the allowance for uncollectible accounts for reasonableness.
B.
Comparing receivable turnover ratios to industry statistics for reasonableness.

C.
Inquiring about receivables pledged under loan agreements.
D.
Tracing amounts in the sub-ledger to details on the shipping documents.
A.
Assessing the allowance for uncollectible accounts for reasonableness.
In order to evaluate management's estimation process,
A.
the auditors ask the internal auditors to review and come to a conclusion which can be included in the audit report.

B.
Auditors use the knowledge gained about other industries and the applicable financial reporting framework during risk assessment.
C.
Auditors use the knowledge gained about the client's industry and the applicable financial reporting framework during risk assessment.
D.
Auditors compare management estimates with other management estimates at other companies.
C.
Auditors use the knowledge gained about the client's industry and the applicable financial reporting framework during risk assessment.
Which of the following procedures would be the best procedure to test the EXISTENCE assertion during an audit of accounting receivable?
A.
Trace a sample of invoices to recordings in the general ledger.
B.
Send confirmations to customers.
C.
trace transactions from the subsidiary ledger to the general ledger.

D.
Determine that all shipments before year end are recorded as sales.
B.
Send confirmations to customers.
Which of the following types of audit evidence provides the LEAST assurance of reliability?
A.
Municipal property tax bills prepared in the client's name.

B.
Prior month's bank statements obtained from the client.
C.
Prenumbered receiving reports completed by the client's employees.

D.
Receivable confirmations received from the client's customers.
C.
Prenumbered receiving reports completed by the client's employees.
Which of the following procedures would an auditor most likely perform to obtain the best assurance that slow moving or obsolete items included in the client's inventory is properly identified?

A.
Perform an inventory observation count at year end.

B.
Examine an analysis of the inventory turnover.
C.
Confirm the amount of inventory held at outside locations.

D.
Test the shipping and receiving cutoff procedures.
B.
Examine an analysis of the inventory turnover.
Which of the following explanations would most likely satisfy an auditor who asked management about why there were so many significant debits to the accumulated depreciation account, assuming that the audit can corroborate management's explanation?
A.
Plant assets were retired during the year.
B.
Overall allocations were revised at year end.
C.
The prior year's depreciation expense was incorrectly understated.
D.
The estimated useful lives of plant assets were revised upwards.
A.
Plant assets were retired during the year.
What type of evidence would provide the HIGHEST level of assurance in an attestation engagement?

A.
Evidence obtained from independent sources.

B.
Evidence obtained from the client right at year end.

C.
Evidence obtained internally that was prepared under effective controls.

D.
Evidence received directly from the client.
A.
Evidence obtained from independent sources.
Scenario: An auditor confirmed the accounts receivable balance as of an interim date. All of the confirmations were returned and appeared reasonable. Which of the following additional procedures would the auditor most likely perform at year end over the accounts receivable balance?
A.
Send additional confirmation requests to all new customer balances that appear in the subledger from the interim date to year end.
B.
Review cash collections subsequent to the interim date and the year end date.

C.
Review supporting documentation for new large balances occurring after the interim date and evaluate any significant changes in balances at year end.
D.
Resend the confirmation requests for any significant customer balance remaining at year end.
C.
Review supporting documentation for new large balances occurring after the interim date and evaluate any significant changes in balances at year end.
Roll-forward procedures relate to
A.
Any procedures carried out by the auditor to update their audit findings through the date of the audit report.

B.
Any substantive procedures performed after the balance sheet date.
C.
Auditors updating the audit findings from an interim period through year-end.

D.
Auditor updating their audit findings from year-end through an interim period.
C.
Auditors updating the audit findings from an interim period through year-end.
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