Deck 8: Audit Evidence and Assurance

Question 1

Reading the terms of lease agreement for lessee is an example of analysis.

Answer 1

False

Question 2

In preparing for a repeat engagement, the first thing an audit team should do is ________.

A) interview client management for any changes in the business and industry
B) take a tour of a client's physical facilities, noting obvious inventory obsolescence or equipment maintenance issues
C) obtain a copy of the year-end financial statements for the current year
D) review prior-year working papers and permanent file documents

Answer 2

D

Question 3

Substantive procedures give direct evidence about the financial amounts reported in the financial statements.

Answer 3

True

Question 4

Where would a copy of an auditee's long-term lease for a building most likely be kept?

A) In the planning file.
B) In the permanent file.
C) In the administration file.
D) In the audit evidence file.

Question 5

The audit evidence gathering technique known as computation or recalculation refers to ________.

A) sending letters to independent third parties
B) counting inventory
C) recalculating depreciation
D) checking prices as per the price list

Question 6

Oral evidence from inquiry is considered to be very important.

Question 7

The overall audit strategy is documented in the ________.

A) engagement letter
B) management letter
C) audit program
D) planning memorandum

Question 8

Loan application documents are considered authoritative evidence.

Question 9

A combination of evidence gathering techniques provides more persuasive than evidence gathered from a single technique.

Question 10

Analysis is most useful in providing evidence of ________.

A) existence, completeness, and ownership
B) existence, ownership, and valuation
C) completeness, ownership, and presentation
D) completeness, valuation, and presentation

Question 11

Working papers should be clear, concise, and complete. They communicate ________.

A) the degree of planning in the audit
B) the amount of work performed by the auditor
C) the amount of time spent by the auditor
D) the quality of the audit

Question 12

To provide efficient, reliable evidence, confirmations should be ________.

A) created by the client and sent to third parties to be returned to the client
B) created by the auditor and sent to third parties to be returned to the client
C) created by the auditor and sent to third parties to be returned to the auditor
D) created by the client and sent to third parties to be returned to the auditor

Question 13

An auditor selects audit procedures that will provide ________.

A) the most evidence
B) the most persuasive evidence
C) the most reliable evidence that can be obtained in a cost-effective manner
D) the most relevant information to the audit assertion

Question 14

An auditor should re-perform calculations on a random basis to check for accuracy. Usually, if one component has been calculated properly, the auditor can rely that the other components have also been computed properly.

Question 15

The audit program prepared by the independent auditors prior to the start of fieldwork is considered appropriate documentation of ________.

A) planning
B) supervision
C) information evaluation
D) quality assurance

Question 16

In considering the effectiveness of evidence gathering procedures, it was found that most companies have adjustments. Research also shows that ________.

A) both receivables and payables are usually overstated
B) receivables are usually overstated and payables are usually understated
C) receivables are usually understated and payables are usually overstated
D) both receivables and payables are usually understated

Question 17

What is the strongest form of audit evidence?

A) The auditor's direct personal knowledge.
B) Evidence gathered directly from independent third parties.
C) Evidence produced by independent third parties.
D) Comprehensive analysis performed by the auditor.

Question 18

Which of the following is true about specialists?

A) They are persons skilled in accounting and auditing.
B) They are not members of the audit team.
C) They have to be unrelated to the company or organization under audit.
D) They are relied on to verify all significant information on which they base their conclusions.

Question 19

One example of a formal authoritative document is a ________.

A) purchase order
B) bank statement
C) vendor invoice
D) loan application

Question 20

For good form, each audit evidence paper should be indexed using a standard system of letters and numbers. The main purpose of this practice is to allow ________.

A) other papers to be easily cross-referenced so that connections among accounts can be followed
B) a check of the completeness of working papers
C) working papers to be easily re-filed if they are taken out of the file or when the paper is first created
D) auditors to prove that they have performed sufficient work to support their audit opinion

Question 21

Evidence that does not relate to one of the management assertions can still be relevant to the auditor.

Question 22

A first-time audit requires more work than a continuing client. Identify some of the issues involved in the first audit of a company that do not occur in an ongoing engagement.

Question 23

Define and discuss the evidence gathering technique of inspection.

Question 24

Destroying working papers may prevent auditors from proving due care if they are sued for negligence.

Question 25

Spoken and written representations given by the auditee's officers, directors, owners, and employees are generally considered reliable enough to stand on their own.

Question 26

Analytical procedures are one type of evidence-gathering procedure. According to auditing standards, there are five general forms of analytical procedures. Auditing standards also provide examples of five sources of information for analytical procedures.
Required:
A. Describe three of the five general forms of analytical procedures.
B. For each form, describe a typical source of the information for the form.
C. For each source, include any questions or concerns an auditor would have about the reliability or relevancy of the source.

Question 27

A first audit requires more work than a repeat engagement.

Question 28

There are two kinds of audit programs: (1) balance-audit programs and (2) cycle-audit programs.

Question 29

Identify the three main types of audit programs and indicate the purpose of each.

Question 30

Permanent audit files contain such documents as the engagement letter, client organization chart, and internal control system flowcharts.

Question 31

Contrast the qualitative aspects of evidence in terms of reliability.

Question 32

For new clients, the auditor can obtain knowledge about the client's business and its industry from the permanent file.

Question 33

Since audit papers are the property of the auditor, what was fundamentally wrong about Arthur Andersen's decision to shred working papers related to the Enron audit.

Question 34

The auditor is the legal owner of the working papers related to an auditee's financial statements.

Question 35

The audit technique of inquiry has advantages and disadvantages. Discuss some of them.