Deck 7: Evidence

Question 1

Which two of the following substantive procedures provide evidence over the existence of trade receivables?
(1) Agreeing a sample of goods despatched notes to sales invoices and to the sales ledger
(2) Undertaking a receivables circularisation
(3) Review of post year-end cash receipts. If these relate to year-end receivables follow through to the sales ledger
(4) Recalculating the allowance for uncollectible accounts

A) 1 and 3
B) 2 and 4
C) 2 and 3
D) 1 and 4

Answer 1

2 and 3

Question 2

Which of the following audit procedures for obtaining audit evidence is correctly described?

A) Recalculation involves the auditor's independent execution of procedures or controls which were originally performed as part of the entity's internal control.
B) Confirmation consists of seeking information of knowledgeable persons, within the company or outside the company.
C) Reperformance consists of checking the mathematical accuracy of documents or records.
D) Observation consists of looking at a procedure or process being performed by others.

Answer 2

Observation consists of looking at a procedure or process being performed by others.

Question 3

Complete the description of auditing procedures by filling in the gaps with terms from the following list:
sufficient
statements
relevant
sample
truth
inquiry
sampling
confirmations
observation
reliable
vouching
-Auditors must gather ________________reliable evidence in order to support their conclusions as to the ________________and fairness of financial reporting. They use various techniques for gathering evidence including ________________, re-performance, re-calculation, ________________, analytical procedures, third party ________________ and ________________. Audit evidence must be ________________ and capable of evidencing the effectiveness of internal controls and the ___________ relating to classes of transactions.

Answer 3

sufficient , truth , inquiry , sampling , confirmations , observation, reliable, assertions.

Question 4

Re-performance is a way of gathering evidence. It involves watching staff repeat a task they have already carried out

Question 5

Evidence should be appropriate which means it should be sufficient and reliable

Question 6

Limited assurance assignments require a negative auditor's report

Question 7

Evidence gathered as a result of the auditor's own procedures is the most reliable

Question 8

Which one of the following factors would lead an auditor to question the appropriateness of audit evidence obtained?

A) When interviewed, a payroll manager states that receipts are always issued to staff collecting expense payments in cash.
B) The validity of payroll payments has been tested by checking that all staff on the client's staff list have received a payment for a particular period.
C) There is no link in the audit schedule between the risks of material misstatement and the amount of audit testing undertaken.
D) Audit matters classified as highly material are not subject to more types of audit testing than those classified as of average materiality.

Question 9

Confirmation is a form of audit evidence which involves seeking information from knowledgeable people within the company.

Question 10

The higher the assessment of audit risk the more evidence is required in order to support the audit opinion.

Question 11

Assertions about account balances at the period end include Existence, Rights & Obligations, Completeness and Valuation & allocation.

Question 12

The business risk approach to gathering audit evidence can result in a threat to audit independence.