Question 1

After finishing the review phase of the study and evaluation of internal control in an audit engagement, the auditor should perform tests of controls on:
A) those controls in which significant deficiencies were identified.
B) a random sample of the controls that were reviewed.
C) those controls that the auditor plans to rely upon.
D) those controls that have a material effect upon the financial statement balances.

Accepted Answer

The auditor should perform tests of controls on those controls that the auditor plans to rely upon. This will allow the auditor to determine if the controls are operating effectively and can be relied upon to detect or prevent material misstatements in the financial statements. Testing a random sample or only those controls with significant deficiencies or material effect may not provide sufficient assurance about the overall effectiveness of the internal control system.

Question 2

When the auditor plans to use analytical procedures to provide substantive assurance about an account balance, the data used in the calculations must be considered:
A) reasonable.
B) sufficiently reliable.
C) absolutely reliable.
D) sufficiently appropriate.

Accepted Answer

The data used in analytical procedures must be sufficiently reliable to provide assurance for the account balance. This means that the data must be complete, accurate, and relevant to the account being analyzed. While the data may not be absolutely reliable, it must be sufficiently reliable to support the auditor's conclusions. Choice A is incorrect because "reasonable" is not the appropriate term to describe the reliability of the data. Choice C is incorrect because there is no such thing as absolutely reliable data. Choice D could be correct, but "sufficiently appropriate" does not fully capture the reliability aspect that is key to using analytical procedures as a substantive test.

Question 3

Which of the following is NOT a type of audit test?
A) Analytical procedures
B) Substantive tests of transactions
C) Tests of controls
D) Authorisation of transactions

Accepted Answer

Authorization of transactions is not a type of audit test. The other options (analytical procedures, substantive tests of transactions, and tests of controls) are all common types of audit tests.

Question 4

The actual operation of an internal control system may be most objectively evaluated by:
A) completing a questionnaire and flowchart related to the accounting system in the year under audit.
B) substantive tests of accounts balances based on the auditor's assessment of internal control strength.
C) selection of items processed by the system and determination of the presence or absence of errors and control test deviations.
D) review of the previous year's audit work papers to update the report of internal control evaluation.

Accepted Answer

The most objective evaluation of an internal control system would involve testing the system in action by selecting items processed by the system and determining the presence or absence of errors and control test deviations. This allows the auditor to directly observe the effectiveness of the internal control system rather than relying solely on questionnaires, flowcharts, or the results of previous audits. Substantive tests and reviewing previous audit work papers may provide some insight into the strength of internal controls, but they do not provide a direct evaluation of the current system in action.

Question 5

The timing of phase II audit procedures are typically:
A) before the balance sheet date.
B) on or after the balance sheet date.
C) anytime.
D) at the end of fieldwork.

Accepted Answer

The answer of The timing of phase II audit procedures...

Question 6

Phase IV of the audit primarily relies on which type/s of audit evidence?
A) Analytical procedures
B) Inquiries of client
C) Documentation
D) All of the above

Accepted Answer

Phase IV of the audit involves the evaluation of audit evidence gathered in the previous phases, including analytical procedures, inquiries of the client, and documentation. Therefore, all of the above are relied upon during this phase.

Question 7

If an auditor performs substantive tests of final balances before the year end, he or she must check activities in the period between the date of this work and the year- end. This period is known as the:
A) continuous period.
B) roll forward.
C) pre- balance date period.
D) interim period.

Accepted Answer

The period between the date of substantive testing and the year-end is known as the "roll forward" period, where auditors ensure that no significant changes have occurred.

Question 8

In which stage(s) of an audit can analytical procedures be performed?
A) In conjunction with tests of transactions and tests of details of balances
B) During all three stages
C) In the completion stage
D) In the planning stage

Accepted Answer

Analytical procedures can be performed during all three stages of an audit: planning, substantive testing, and completion.

Question 9

Events occurring after the date of the balance sheet but before the issuance of the financial statements and auditor's report are referred to as:
A) interim events.
B) post- closing events.
C) subsequent events.
D) preaudit events.

Accepted Answer

These events are referred to as subsequent events. They are divided into two categories: (1) recognized subsequent events, where the event provides additional evidence about conditions that existed at the balance sheet date and (2) nonrecognized subsequent events, where the event provides evidence about conditions that did not exist at the balance sheet date. The auditor should evaluate both types of subsequent events to assess their impact on the financial statements and the disclosure required in the financial statements.

Question 10

Phase III of the audit primarily relies on which type/s of audit evidence?
A) Physical examination
B) Documentation
C) Analytical procedures
D) All of the above

Accepted Answer

Phase III of the audit primarily relies on all types of audit evidence, including physical examination, documentation, and analytical procedures. This phase involves gathering sufficient evidence to support the auditor's opinion and ensure that the financial statements are free from material misstatements. Therefore, all of the above choices are important in providing the necessary evidence for Phase III of the audit.

Question 11

Where a significant amount of evidence is in electronic form:
A) audit risk decreases.
B) acceptable assurance usually increases.
C) it may not be possible to reduce detection risk to an acceptable level by performing only substantive tests.
D) it is usually impractical to evaluate controls.

Accepted Answer

When a significant amount of evidence is in electronic form, it may not be possible to reduce detection risk to an acceptable level by performing only substantive tests. This is because substantive tests may not detect all material misstatements, particularly those caused by a breakdown in internal controls over electronic data. Therefore, additional testing of controls may be necessary to reduce detection risk to an acceptable level.

Question 12

Analytical procedures performed during substantive testing are typically those done as part of planning.
A) less focused than
B) about the same as
C) less extensive than
D) more focused than

Accepted Answer

Analytical procedures performed during substantive testing are more focused than those done as part of planning. This is because substantive testing involves obtaining evidence to support the financial statement assertions, while planning involves obtaining a general understanding of the client's business and identifying areas of potential risk. Therefore, the analytical procedures performed during substantive testing are more tailored to specific aspects of the financial statements that management has identified as significant.

Question 13

Substantive tests of balances are sometimes done before the year- end. This can only be done if:
A) internal controls are effective.
B) substantive tests have to be increased.
C) more reliable evidence is needed.
D) none of the above.

Accepted Answer

Substantive tests of balances can be performed before year-end if internal controls are effective. This is because the reliance on internal controls provides evidence about the accuracy and completeness of the financial information. If internal controls are effective, the auditor can assess the risk of material misstatement as low, and may perform substantive procedures earlier in the audit.

Question 14

With respect to the auditor's planning of a year- end examination, which one of the following statements is ALWAYS true?
A) An engagement should not be accepted after the financial year ends.
B) The client's audit committee should not be told of the specific audit procedures that will be performed.
C) It is an acceptable practice to carry out substantial parts of the examination at interim dates.
D) An inventory count must be observed at the balance sheet date.

Accepted Answer

It is an acceptable practice to carry out substantial parts of the examination at interim dates. This allows the auditor to gather information and perform testing throughout the year, rather than just at the end of the financial year. However, it is important for the auditor to assess the risks associated with this approach and determine the appropriate extent of testing at the interim date versus the year-end. Choices A, B, and D are not always true and are dependent on the specific circumstances of the audit engagement.

Question 15

The primary emphasis in most tests of details of balances is on the:
A) cash flow statement account.
B) income statement accounts.
C) balance sheet accounts.
D) three statements above.

Accepted Answer

Tests of details of balances focus primarily on balance sheet accounts, such as assets, liabilities, and equity. These tests aim to verify the accuracy of the balances reported in the financial statements and ensure that they are fairly presented. While cash flow statement and income statement accounts may also be tested, the primary focus is on the balance sheet accounts.

Question 16

The timing of phase III audit procedures are typically:
A) before the balance sheet date.
B) on or after the balance sheet date.
C) anytime.
D) at the end of fieldwork.

Accepted Answer

Phase III audit procedures are performed on or after the balance sheet date, as they are designed to obtain sufficient, appropriate evidence to support the balances and disclosures of the financial statements at the end of the reporting period. These procedures may include testing of significant account balances, performing analytical procedures, and conducting final reviews of the financial statements.

Question 17

If no material differences are found using analytical procedures, and the auditor concludes that misstatements are not likely to have occurred:
A) the number or extent of tests of details of balances may be reduced.
B) it will be necessary to increase the tests of transactions.
C) it will be necessary to increase the tests of balances.
D) it will not be necessary to perform tests of balances.

Accepted Answer

If no material differences are found using analytical procedures, and the auditor concludes that misstatements are not likely to have occurred, the auditor can reduce the number or extent of tests of details of balances. This is because analytical procedures provide evidence on the reasonableness of account balances and transactions, and if they are effective in detecting material misstatements, then fewer tests of details are needed.

Question 18

The timing of phase I audit procedures are typically:
A) before the balance sheet date.
B) on or after the balance sheet date.
C) anytime.
D) at the end of fieldwork.

Accepted Answer

Phase I audit procedures are typically done before the balance sheet date to ensure that the financial statements are fairly presented as of that date.

Question 19

Which one of the following documentation is required for an audit in accordance with generally accepted auditing standards?
A) A client representation letter
B) A client engagement letter
C) A planning memorandum or checklist
D) An internal control questionnaire

Accepted Answer

A client representation letter is required for an audit in accordance with generally accepted auditing standards. It provides written evidence of management's acknowledgement of responsibility for the financial statements, disclosures, and internal controls.

Question 20

Which one of the following statements is NOT correct?
A) When controls are not considered effective, or when control deviations are discovered, substantive tests will be eliminated.
B) Tests of transactions are often performed several months prior to the balance sheet date.
C) Tests of details of balances are normally the last tests performed.
D) It is common to use analytical procedures at any time during the audit.

Accepted Answer

When controls are not considered effective, or when control deviations are discovered, substantive tests will be increased, not eliminated. The purpose of substantive tests is to obtain assurance about the completeness, accuracy, and validity of the financial statement amounts when controls are not effective or have not been relied upon.

Quiz 11: Overall Audit Plan and Audit Program

After finishing the review phase of the study and evaluation of internal control in an audit engagement, the auditor should perform tests of controls on:

When the auditor plans to use analytical procedures to provide substantive assurance about an account balance, the data used in the calculations must be considered:

Which of the following is NOT a type of audit test?

The actual operation of an internal control system may be most objectively evaluated by:

The timing of phase II audit procedures are typically:

Phase IV of the audit primarily relies on which type/s of audit evidence?

If an auditor performs substantive tests of final balances before the year end, he or she must check activities in the period between the date of this work and the year- end. This period is known as the:

In which stage(s) of an audit can analytical procedures be performed?

Events occurring after the date of the balance sheet but before the issuance of the financial statements and auditor's report are referred to as:

Phase III of the audit primarily relies on which type/s of audit evidence?

Where a significant amount of evidence is in electronic form:

Analytical procedures performed during substantive testing are typically those done as part of planning.

Substantive tests of balances are sometimes done before the year- end. This can only be done if:

With respect to the auditor's planning of a year- end examination, which one of the following statements is ALWAYS true?

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

The timing of phase III audit procedures are typically:

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

The timing of phase I audit procedures are typically:

Which one of the following documentation is required for an audit in accordance with generally accepted auditing standards?

Which one of the following statements is NOT correct?