Deck 6: A Framework for Audit Evidence

Question 1

The direction of testing from the source documents to recorded amounts provides evidence regarding the completeness of liabilities and expenses.

Answer 1

True

Question 2

The amount of evidence gathered is not important to an auditor since the quality of the evidence is of primary importance.

Answer 2

False

Question 3

Relevance and reliability of evidence make up the appropriateness of audit evidence.

Answer 3

True

Question 4

The direction of testing from recorded amounts toward supporting documentation provides evidence as to existence of assets and revenues.

Question 5

The reliability of audit evidence relates to the connection between the audit procedure being performed and the assertion being audited.

Question 6

Tracing is a process that helps establish that recorded transactions are valid.

Question 7

The type of audit evidence known as inquiry does not ordinarily provide sufficient audit evidence of the absence of a material misstatement, nor is it alone sufficient to test the operating effectiveness of controls.

Question 8

Inspection of tangible assets generally provides reliable evidence with the respect to the completeness of the assets, but not necessarily about the existence of the assets.

Question 9

Internal documentation is generally less reliable than external documentation.

Question 10

A limitation of observation is that observing a process on one day does not necessarily indicate how the transactions were processed on a different day or over a relevant period of time.

Question 11

Internal documentation is more reliable to the auditor if the internal control surrounding the documentation is considered strong than if it is considered weak.

Question 12

Audit evidence consists of both information that corroborates management's assertions and information that contradicts such assertions.

Question 13

Confirmation statements from banks are an example of third-party external documents.

Question 14

One strategy used by auditors in testing assertions is to perform directional testing to find overstatements or understatements.

Question 15

Audit evidence used to support an audit opinion is obtained soley from audit procedures.

Question 16

Evidence can be directly or indirectly relevant to an assertion.

Question 17

For an auditor to test the existence assertion of assets, testing will be performed beginning with the recorded asset and ending with the source documents.

Question 18

Ulanda and Mudana, CPAs are performing an audit on McArnee, Inc. Ulanda selects a sample from certain source documents and traces them forward to the accounts payable ledger. The purpose of this test is to determine the possibility of understated liabilities.

Question 19

Vouching recorded transactions involves taking a sample entry from a journal and obtaining the original source documents to ensure the transaction occurred.

Question 20

The auditor uses professional judgment to determine which audit procedures to perform.

Question 21

An example of physical observation is the auditor's testing of inventory by counting it to substantiate the existence assertion.

Question 22

The purpose of performing analytical procedures in the planning stage of an audit is to gather audit evidence and make conclusions about account balances.

Question 23

Auditors should mail third party confirmations through the client's mailroom.

Question 24

An outside specialist may assist the auditor in obtaining sufficient, appropriate evidence concerning the analysis of complex tax compliance issues.

Question 25

The reliability of audit evidence is a measure of the quality of the underlying evidence and is influenced by risk, potential management bias associated with the evidence, and the quality of the internal control system underlying the preparation of the evidence.

Question 26

The auditor utilizes the same audit program and the same procedures each year for each client in order to ensure that nothing is missed in the current year audit.

Question 27

While inspecting documents, auditors should use original documents rather than copies, because copies are easy for management to falsify.

Question 28

The audit program specifies what the client must do to perform the audit in accordance with generally accepted accounting procedures.

Question 29

Audit documentation should include the initials or electronic signature in order to identify the audit personnel responsible for the work and the managers and partners reviewing the work.

Question 30

Audit planning workpapers are prepared to support the foundation of the audit and are prepared for the client to assist in their understanding of the specific audit procedures that will be performed.

Question 31

Audit documentation should generally be retained for at least seven years.

Question 32

Inquiries of client personnel are not a frequent means of evidence gathering by an auditor.

Question 33

In a reasonableness test, the auditor develops an expected value of an account by using data wholly or partly independent of the client's accounting information system.

Question 34

The auditor multiplies the quantity of inventory on the inventory ledger by the cost of the inventory to arrive at total inventory balance per product number. This is an example of recalculation by footing.

Question 35

The auditor's concern for potential fraud in the financial statements will most likely result in increased testing for the overstatement of revenues.

Question 36

Audit documentation serves as support for the financial statements.

Question 37

Some audit procedures may be performed prior to the end of the year under audit.

Question 38

The primary importance of the audit program is its guidance of the overall conduct of the audit.

Question 39

The greatest risk of recording transactions in the incorrect period occurs during the roll-forward period.

Question 40

Inspection of an asset generally provides reliable evidence about the rights and obligations assertion related to that asset.

Question 41

Which one of the following would be considered the most reliable type of audit evidence?

A) Purchase orders from vendors.
B) Customer accounts receivable files.
C) Computerized general ledger.
D) Confirmations from banks.

Question 42

Footing, cross-footing, and tests of extensions are examples of which approach to gathering evidence?

A) Reprocessing.
B) Recalculation.
C) Vouching.
D) Examination of documentation.

Question 43

Liabilities and expenses are most often tested for overstatements.

Question 44

Which of the following is an example of inspection of documentation?

A) Review shipping documents.
B) Estimate the expected amount of interest income.
C) Observe controls.
D) Recalculate the total amount include on a sales invoice.

Question 45

Two determinants of the persuasiveness of evidence include which of the following?

A) Competence and Sufficiency.
B) Relevance and Reliability.
C) Appropriateness and Sufficiency.
D) Independence and Effectiveness.

Question 46

The relevance of audit evidence depends on the audit assertion being tested.

Question 47

Appropriateness deals with the quantity of evidence the auditor collects, whereas sufficiency deals with the quality of evidence the auditor collects.

Question 48

Which one of the following statements is false?

A) Auditing includes the process of gathering evidence to test assertions.
B) No general audit program suits the needs for all situations.
C) Even though all audits are different, they can all be approached in the same manner.
D) All audits involve testing management's assertions contained in written communications to another party and independently gathering evidence to test the relevant assertions.

Question 49

Analytical procedures are a type of substantive evidence.

Question 50

Which one of the following would be the most reliable type of evidence?

A) Photocopies.
B) Indirectly obtained evidence.
C) Observation of assets.
D) Inquiry with the in-house attorney.

Question 51

The client's verbal evidence is more reliable than evidence from independent outside sources.

Question 52

An example of an external document would include which of the following?

A) Vendor invoices.
B) Customer orders.
C) Confirmation replies from customers.
D) All the above.

Question 53

Underlying accounting records consist of evidence of controls as well as supporting records such as checks, invoices, the general and subsidiary ledger and journal entries.

Question 54

Which one of the following would be the least reliable type of evidence?

A) Confirmations returned by bank directly to the auditor.
B) Letters of communication from the Securities Exchange Commission.
C) Physical examination of perpetual inventory.
D) Evidence from an easily overridden information system.

Question 55

Directional testing involves testing transactions or balances primarily for which type of error?

A) Overstatement.
B) Understatement.
C) Either overstatement or understatement.
D) Either overstatement nor understatement.

Question 56

While inspecting documents, the reliability depends on the nature and source of the documentation.

Question 57

The process of vouching helps establish which of the following regarding recorded transactions?

A) Transactions have been recorded.
B) Transactions are complete.
C) Transactions are valid.
D) Transactions are presented properly.

Question 58

The auditor's job is to gather sufficient appropriate audit evidence on which to base an opinion.

Question 59

Appropriateness of evidence is a measure of which of the following?

A) Quantity of evidence.
B) Quality of evidence.
C) Sufficiency of evidence.
D) Meaning of evidence.

Question 60

Audit findings represent a summary of incorrect transactions detected during the audit.

Question 61

The reliability of a client's internal documentation is most affected by which of the following?

A) The auditor's independence.
B) Management's motivation to misstate accounts.
C) The type of audit report that will be issued.
D) Management's ability to understand generally accepted audit standards.

Question 62

Sufficient evidence gathered by the auditor involves which of the following?

A) The quantity of evidence to be obtained.
B) The type of evidence to be obtained.
C) Obtaining limited evidence to achieve efficiency.
D) The use of an audit program to obtain evidence.

Question 63

External documentation may lack reliability. Which of the following is the most probable reason for that?

A) The external party may be competent in performing duties.
B) The documentation may be properly understood by the client in the response.
C) The auditor may decide not to use the documentation and replace it with other documents.
D) The documentation may have been altered if the process is not controlled from inception.

Question 64

An audit program is created to specify which of the following?

A) The type of audit opinion to be rendered based upon procedures performed.
B) The audit procedures that will be performed every year for the client.
C) How an auditor should think while performing audit procedures.
D) Audit objectives and procedures to be followed during the audit process.

Question 65

An auditor selects a sample of items recorded and traces them back to the supporting documentation. This is an example of which of the following?

A) Directional testing for existence.
B) Directional testing for completeness.
C) Direct testing for valuation.
D) Direct testing for rights.

Question 66

Conclusions are typically documented by auditors in which type of work paper?

A) Audit planning memo.
B) Audit program.
C) Audit memoranda.
D) Representation letter.

Question 67

When may audit procedures be performed.
I - on the balance sheet date.
II - prior to the balance sheet date.
III - subsequent to the balance sheet date.

A) I only.
B) I and III only.
C) II only.
D) I, II, and III.

Question 68

Reprocessing of transactions helps establish that all valid items have been recorded. Reprocessing tests which of the following assertions?

A) Occurrence.
B) Rights.
C) Existence.
D) Completeness.

Question 69

When the auditor used the audit procedure vouching she is primarily concerned with which of the following assertions?

A) Completeness.
B) Existence.
C) Authorization.
D) Classification.

Question 70

An audit program provides an effective means for which of the following?

A) Reviewing the completeness and persuasiveness of procedures performed.
B) Recording the audit work performed and those responsible for performing the work.
C) Organizing and distributing the work.
D) All the above.

Question 71

Which of the following is the primary source for evidence to corroborate the existence of pending litigation?

A) Vendor confirmations.
B) Disclosures in financial statements.
C) Management representation letters.
D) Attorney confirmations.

Question 72

Which of the following is an example of poorly-developed audit documentation?

A) Clear communication as to how testing was performed, the results and conclusions.
B) Organization and assembly of documentation in an orderly fashion.
C) Headings that include the name and signature of the client representative that the auditor interacted with while performing testing.
D) Authenticated identification of the person responsible for completing the procedure and conclusions.

Question 73

Performance of audit procedures at an interim date causes the risk of material misstatement occurring between the interim date and the end of the year to do which of the following?

A) Decrease.
B) Increase.
C) Remain the same.
D) Become more difficult to ascertain.

Question 74

Observation suffers from which of the following limitations?

A) Observation of processing is rarely unobtrusive.
B) Observation of processing on one day does not necessarily indicate how transactions were processed on a different day.
C) All the above.
D) None of the above.

Question 75

The processes used by management in developing estimates include which of the following?

A) Controls over the process.
B) The reliability of underlying data in developing the estimate.
C) Use of outside experts by management (for example, how they were used and their expertise).
D) All of the above.

Question 76

To be considered reliable evidence, confirmations must be controlled by which of the following individuals?

A) A client employee responsible for accounts receivable.
B) An external auditor.
C) A client's internal audit department.
D) A client's controller or CFO.

Question 77

Which one of the following is the primary reason for documenting audit work?

A) To prevent litigation by other parties that question the audit performance.
B) To provide a stand-alone medium that gives audit conclusions and supports the opinion.
C) To give the client a full reporting of all work performed on their behalf.
D) To supply a point of reference for all auditors performing the work subsequently.

Question 78

The extent of procedures is affected mostly by which of the following factors?

A) The sheer volume of procedures to be applied by the auditor.
B) The time of year in which the client takes a physical inventory in the warehouse.
C) The auditor's judgment that misstatements are probable in certain balances.
D) The availability of the client's staff at or near the balance sheet date.

Question 79

Directional testing is important to an auditor because of which of the following factors?

A) Certain accounts are more prone to be misstated by overstatement than others.
B) The auditor must remain organized when conducting an audit.
C) The primary concern of the auditor is the understatement of asset and revenue accounts.
D) It tests for existence and completeness simultaneously.

Question 80

Which of the following assertions is the primary assertion that is satisfied by physically observing the client's count of inventory?

A) Rights.
B) Valuation.
C) Completeness.
D) Existence.