Deck 13: Overall Audit Strategy and Audit Program

Question 1

You are auditing Rodgers and Company.After performing substantive analytical procedures you conclude that,for the accounts tested,the client's balance appears reasonable.This may indicate that

A)details test of balances can be eliminated for those accounts.
B)certain tests of details of balances may be eliminated for those accounts.
C)control tests may be eliminated for those accounts.
D)control tests may be reduced for those accounts.

Answer 1

B

Question 2

Which of the following procedures would most likely be performed in response to the auditor's assessment of the risk of monetary misstatements in the financial statements?

A)ratio analysis
B)tests of controls
C)tests of details of balances
D)risk assessment procedures

Answer 2

C

Question 3

Shown below (1 through 5)are the five types of tests which auditors use to determine whether financial statements are fairly stated.Which three are substantive tests?
1) risk assessment procedures
2) tests of controls
3) substantive tests of transactions
4) substantive analytical procedures
5) tests of details of balances

A)1,2,and 3
B)3,4,and 5
C)2,3,and 5
D)2,3,and 4

Answer 3

B

Question 4

Which of the following further audit procedures are used to determine whether all six transaction-related audit objectives have been achieved for each class of transactions?

A)tests of controls
B)risk assessment procedures
C)substantive tests of transactions
D)preliminary analytical procedures

Question 5

The purpose of tests of controls is to provide reasonable assurance that the

A)accounting treatment of transactions and balances is valid and proper.
B)internal control procedures are functioning as intended.
C)entity has complied with GAAP disclosure requirements.
D)entity has complied with requirements of quality control.

Question 6

A system walkthrough is primarily used to help the auditor

A)test the ending account balances.
B)test the details of transactions.
C)determine whether internal controls have been properly implemented.
D)determine whether the audit engagement should be accepted.

Question 7

A procedure designed to test for monetary misstatements directly affecting the correctness of financial statement balances is a

A)test of controls.
B)substantive test.
C)test of attributes.
D)monetary unit sampling test.

Question 8

Tests of controls are directed toward the control's

A)efficiency.
B)effectiveness.
C)cost and effectiveness.
D)cost benefit ratio.

Question 9

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)are designed to test for dollar misstatements.
D)will increase proportionately with the auditor's reliance on internal control.

Question 10

Analytical procedures

A)focus on the ending balances for income statement accounts.
B)are only performed during the planning stage of the audit.
C)are required to be performed when auditing an account balance.
D)provide substantive evidence.

Question 11

Many auditors perform extensive analytical procedures because

A)they are required by GAAS.
B)they pinpoint errors in accounts.
C)they indicate areas of potential risk and misstatement.
D)they are required for tests of controls.

Question 12

List each of the five types of audit tests.

Question 13

Which of the following is True?

A)Tests of details of balances focus on the ending general ledger balances for both balance sheet and income statement accounts.
B)Tests of details of balances focus on the transactions during the period for both balance sheet and income statement accounts.
C)Tests of details of balances focus on the auditor's understanding of internal controls.
D)Tests of details of balances focus on comparisons of recorded amounts to expectations developed by the auditor.

Question 14

Collectively,procedures performed to obtain an understanding of the entity and its environment,including internal controls,represent the auditor's

A)audit strategy.
B)tests of controls.
C)risk assessment procedures.
D)tests of transactions.

Question 15

Which of the following would not be considered further audit procedures?

A)tests of controls
B)analytical procedures
C)tests of details of balances
D)risk assessment procedures

Question 16

Which of the following statements is not True?

A)Analytical procedures emphasize the overall reasonableness of transactions and balances.
B)Tests of controls are concerned with evaluating whether controls are sufficiently effective to justify reducing control risk and thereby reducing analytical review procedures.
C)Substantive tests of transactions emphasize the verification of transactions recorded in the journals and then posted in the general ledger.
D)Tests of details of balances emphasize the ending balances in the general ledger.

Question 17

Risk assessment procedures are performed by auditors during an audit in order to

A)determine the risk of material misstatement in the financial statements.
B)determine the amount of testing of internal control.
C)determine the extent of testing of details of balances.
D)determine the extent of testing of transactions.

Question 18

Which of the following is ordinarily designed to detect material dollar errors on the financial statements?

A)tests of controls
B)analytical review procedures
C)computer controls
D)tests of details of balances

Question 19

The primary emphasis in most tests of details of balances is on the

A)balance sheet accounts.
B)revenue accounts.
C)cash flow statement accounts.
D)expense accounts.

Question 20

The auditor has determined that a key control in the audit of the sales and collection cycle is that recorded sales are supported by authorized shipping documents and approved customer orders.What typical test of controls should be used in this situation?

A)Examine a sample of duplicate sales invoices to determine that each on is supported by an authorized shipping document and approved customer order.
B)Observe whether shipping documents are forwarded daily to billing and observe when they are billed.
C)Examine a sample of sales invoices and agree prices to the authorized computer price list.
D)Use audit software to trace postings from the batch of sales transactions to the subsidiary and general ledgers.

Question 21

If no material differences are found using analytical procedures,and the auditor concludes that misstatements are not likely to have occurred,

A)other substantive tests may be reduced.
B)it will be necessary to increase the tests of balances.
C)it will not be necessary to perform tests of balances.
D)it will be necessary to increase the tests of transactions.

Question 22

Tests of controls should be performed after substantive tests of transactions.

Question 23

Auditors must perform tests of controls separately from substantive tests of transactions.

Question 24

Substantive tests are procedures designed to test for dollar misstatements that directly affect the correctness of financial statement balances.

Question 25

Which of the following audit tests is usually the least costly to perform?

A)substantive analytical procedures
B)tests of controls
C)tests of balances
D)substantive tests of transactions

Question 26

Describe the five types of audit tests.Identify which of the five types are substantive tests,and which are used to reduce assessed control risk.

Question 27

Risk assessment procedures are performed to assess the risk of material misstatement in the financial statements.

Question 28

If tests of controls support the control risk assessment,then ________ in the audit risk model is increased.

A)planned detection risk
B)planned inherent risk
C)planned fraud risk
D)planned assurance risk

Question 29

Procedures to obtain an understanding of internal control generally provide sufficient appropriate evidence that a control is operating effectively.

Question 30

When an auditor believes that analytical procedures indicate a reasonable possibility of misstatement,the auditor usually would

A)
B)
C)
D)

Question 31

An increased extent of tests of controls is most likely to occur when

A)it is a first-year audit.
B)the auditor is doing a "fraud audit."
C)controls are effective and the preliminary control risk assessment is low.
D)controls are ineffective and the preliminary control risk assessment is high.

Question 32

Discuss the purposes of (1)substantive tests of transactions,(2)tests of controls,and (3)tests of details of balances.Give an example of each.

Question 33

An exception or deficiency found in a test of controls

A)indicates a financial statement misstatement.
B)indicates the likelihood of a misstatement.
C)indicates that the financial statements are fairly stated.
D)indicates that an adverse opinion is warranted on the audit of internal control.

Question 34

There are three stages of the audit in which analytical procedures are performed.Identify each of these three stages and,for each stage,discuss the purpose of performing analytical procedures in that stage.Also indicate in which stage(s)analytical procedures are required by current professional auditing standards.

Question 35

For automated controls,the auditor's procedures to determine whether the automated control has been implemented cannot also serve as the test of that control.

Question 36

Tests of details of balances emphasize the overall reasonableness of transactions and the general ledger balances.

Question 37

In order to promote audit efficiency the auditor considers cost in selecting audit tests to perform.Which of the following audit tests would be the most costly?

A)substantive analytical procedures
B)risk assessment procedures
C)tests of controls
D)tests of details of balances

Question 38

One factor that determines the amount of additional evidence required for tests of controls is the planned reduction in control risk.

Question 39

Tests of controls are performed to support a reduced assessment of detection risk.

Question 40

The auditor would design which of the following audit tests to detect possible monetary errors in the financial statements?

A)control tests
B)substantive analytical procedures
C)risk assessment procedures
D)tests of operating effectiveness of controls over revenue and cash

Question 41

Because of the high cost of tests of details of balances,auditors do not perform this type of testing unless fraud is suspected.

Question 42

If the auditor finds extensive control test deviations and significant misstatements while performing substantive tests of transactions and substantive analytical procedures,

A)the cost of the audit should decrease.
B)the auditor will conclude that internal controls are effective.
C)extensive tests of details of balances will need to be performed.
D)all of the above

Question 43

In a computerized environment,the auditor can often perform substantive tests of transactions quickly for a large sample of transactions.

Question 44

The auditor's understanding of internal control performed as part of risk assessment procedures provides the basis for the auditor's initial assessment of control risk.

Question 45

Analytical procedures are the most expensive type of audit test to perform because of the expertise and training required to properly use them.

Question 46

There are eight types of audit evidence: physical examination,confirmation,inspection,observation,inquiries of the client,reperformance,analytical procedures,and recalculation.For each of the following types of audit tests,indicate the type(s)of evidence that can be obtained through the test: (1)tests of controls,(2)substantive tests of transactions,(3)analytical procedures,and (4)tests of details of balances.

Question 47

A deficiency uncovered in the audit of internal control is explained by which of the following in relation to a financial statement misstatement?

A)the amount of the misstatement
B)the likelihood of the misstatement
C)the amount,likelihood,and classification of the misstatement
D)the amount and the classification of the misstatement

Question 48

The reliance the auditor places on substantive tests in relation to the reliance placed on internal control varies in a relationship that is ordinarily

A)parallel.
B)inverse.
C)direct.
D)equal.

Question 49

Several factors influence the auditor's choice of the types of tests to select,including

A)the availability of the types of evidence.
B)the relative costs of each type of test.
C)the effectiveness of the internal controls.
D)all of the above.

Question 50

The cost of each type of evidence does not vary in different situations.

Question 51

Which of the following would most likely not be included in the evidence mix for an integrated audit of a public company's financial statements and internal control over financial reporting?

A)sophisticated internal controls
B)extensive substantive analytical procedures
C)extensive tests of details of balances
D)low inherent risk

Question 52

Tests of controls are generally more costly to perform than analytical procedures.

Question 53

Only tests of details of balances involve physical examination and confirmation.

Question 54

If internal controls are tested and are considered effective,the auditor generally will increase both substantive tests of transactions and tests of details of balances.

Question 55

Tests of controls provide evidence about the likelihood for misstatements in a client's financial statements.

Question 56

Which of the following is generally not included in the "evidence mix"?

A)tests of controls
B)substantive tests of transactions
C)risk assessment procedures
D)tests of details of balances

Question 57

Analytical procedures are the least costly type of audit test.

Question 58

An exception in a test of control provides only an indication of the likelihood of monetary misstatements in the financial statements because tests of controls do not reveal whether monetary misstatements have actually occurred.

Question 59

The ________ is the combination of the types of tests to obtain sufficient appropriate evidence for a cycle.There are likely to be variations in the mix from cycle to cycle depending on the circumstances of the audit.

A)testing mix
B)evidence mix
C)audit process mix
D)procedures mix

Question 60

The results of tests of controls and substantive tests of transactions affect the design of tests of details of balances.

Question 61

Which phase(s)of the audit uses inquiries of clients as a type of evidence?

A)plan and design
B)tests of controls and substantive tests of transactions
C)completion of the audit and issuance of the audit report
D)all of the above

Question 62

The document that details the specific audit procedures for each type of test is the

A)audit strategy.
B)audit program.
C)audit procedure.
D)audit risk model.

Question 63

The choice of which types of tests to use and how extensively they need to be performed must be the same for all audits.

Question 64

One of the most challenging parts of auditing is properly applying the factors that affect tests of details of balances.

Question 65

There is a direct relationship between the ________ transaction-related audit objective and the ________ balance-related audit objective.

A)occurrence;existence
B)timing;cutoff
C)posting and summarization;detail tie-in
D)all of the above

Question 66

When designing an audit program for tests of details of balances,the auditor should make assumptions about inherent risk and control risk,and predictions concerning the outcome of tests of controls,substantive tests of transactions,and analytical procedures.

Question 67

Inherent risk can be extended to individual balance-related audit objectives.

Question 68

Auditors follow a four step approach to reduce assessed control risk.Which of the following is not one of the four?

A)Apply transaction-related audit objectives to a class of transactions.
B)Identify accounts that have high inherent risk.
C)Identify key controls that reduce control risk.
D)For potential misstatements,design appropriate substantive tests of transactions.

Question 69

The evidence mix includes risk assessment procedures.

Question 70

Which of the following types of evidence is not available when using substantive tests of transactions?

A)inspection
B)confirmation
C)inquiries of the client
D)reperformance

Question 71

What type of test is used to obtain the most types of evidence?

A)substantive tests of transactions
B)tests of controls
C)risk assessment tests
D)tests of details of balances

Question 72

The auditor performs tests of controls and substantive procedures to obtain assurance that all audit objectives are achieved for information and amounts included in those disclosures.

Question 73

Once set during the planning phase,the audit program cannot be revised.

Question 74

When controls are effective and control risk is assessed as low,auditors put heavy emphasis on tests of balances.

Question 75

If all transaction-related audit objectives are met,the auditor does not need to perform substantive test of balances to meet the realizable value audit objective.

Question 76

The auditor obtained an aged list of receivables and traced the accounts to the master file,footed the schedule,and traced the amounts to the general ledger.Which balance-related audit objective was met?

A)existence
B)cutoff
C)detail tie-in
D)all of the above

Question 77

When designing tests of controls and substantive tests an auditor is gathering evidence to satisfy the transaction-related audit objectives.What are the four steps the auditor would normally follow to reduce assessed control risk?

Question 78

Which audit tests involve physical examination and confirmation?

A)tests of controls
B)tests of transactions
C)tests of details of balances
D)analytical procedures

Question 79

When designing the audit program and the particular audit tests,the auditor should keep in mind that

A)the audit program is broken down into two parts-the risk assessment procedures and the tests of details of balances.
B)the tests of controls will not vary depending on assessed control risk.
C)analytical procedures performed during substantive testing are generally more focused and more extensive than those done as part of planning.
D)auditing standards require that the tests contained in the audit program must be approved by the PCAOB.

Question 80

Auditing standards require a written audit program.