Question 1

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

Accepted Answer

By testing from the source documents to recorded amounts, auditors can ensure that all liabilities and expenses have been properly recorded in the financial statements. This provides evidence regarding the completeness of these account balances.

Question 2

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

Accepted Answer

While the quality of evidence is indeed of primary importance, the amount of evidence gathered is also crucial as it needs to be sufficient to support the auditor's conclusions and opinions.

Question 3

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

Accepted Answer

Relevance and reliability are both important factors in determining the appropriateness of audit evidence. Relevant evidence is evidence that pertains to the audit objective and supports the audit conclusion, while reliable evidence is evidence that can be trusted to be accurate and complete. Therefore, the statement is true.

Question 4

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

Accepted Answer

The direction of testing from recorded amounts toward supporting documentation is known as vouching. This process helps provide evidence of the 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.

Accepted Answer

The reliability of audit evidence relates to the quality and trustworthiness of the information obtained during an audit, not directly to the connection between the audit procedure and the assertion being audited.

Question 6

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

Accepted Answer

The answer of Tracing is a process that helps establish...

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.

Accepted Answer

Inquiry is a type of audit evidence that involves obtaining information from knowledgeable parties within or outside the entity being audited. However, since it is based on verbal or written responses from individuals, it may not provide sufficient evidence of the absence of material misstatements. Inquiry alone is also not sufficient to test the operating effectiveness of controls, as other types of evidence such as observation and inspection may be needed.

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.

Accepted Answer

Inspection of tangible assets can provide evidence about both the completeness and existence of the assets.

Question 9

Internal documentation is generally less reliable than external documentation.

Accepted Answer

The answer of Internal documentation is generally less reliable than...

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.

Accepted Answer

This is because the process and circumstances surrounding the process can vary from day to day or over a given period of time, leading to potential inconsistencies in the observations made. Therefore, it is important to exercise caution when drawing conclusions based solely on a single observation or snapshot in 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.

Accepted Answer

Strong internal controls increase the reliability of internal documentation, making it more trustworthy for auditors. In contrast, weak controls decrease the reliability of the documentation and make it less useful for auditors in assessing the organization's operations and financial performance.

Question 12

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

Accepted Answer

This statement is true. Audit evidence can support or contradict management's assertions, and it is the job of the auditor to consider and evaluate all evidence obtained.

Question 13

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

Accepted Answer

Confirmation statements from banks are provided by an external third-party, in this case, the bank. They are not generated by the company itself, making them third-party external documents.

Question 14

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

Accepted Answer

This statement is true. Directional testing involves testing for either overstatements or understatements in the financial statements, depending on the nature of the assertion being tested. This helps auditors detect potential misstatements and assess the risk of material misstatement in the financial statements.

Question 15

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

Accepted Answer

Audit evidence is obtained not only from audit procedures but also from other sources such as previous audits, the entity's internal controls, and external confirmations.

Question 16

Evidence can be directly or indirectly relevant to an assertion.

Accepted Answer

Evidence can be directly relevant if it provides direct proof or support for an assertion, or indirectly relevant if it provides circumstantial or contextual support for 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.

Accepted Answer

This statement is true because in order to test the existence assertion of assets, the auditor would start with the recorded asset and then trace back to the source documents to verify that the asset actually exists and is owned by the company. This is a common testing procedure used by auditors to ensure the accuracy of financial statements.

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.

Accepted Answer

Ulanda's test is a substantive procedure commonly used to detect understated liabilities in the financial statements.

Question 19

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

Accepted Answer

Vouching recorded transactions involves obtaining original source documents to ensure the transactions were properly recorded in the journal. This helps to verify the accuracy and completeness of the company's financial records.

Question 20

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

Accepted Answer

The auditor uses their professional judgment to determine the nature, timing, and extent of audit procedures required to achieve the audit objectives. It is the responsibility of the auditor to assess the risks and determine which audit procedures are appropriate in the circumstances of the specific audit engagement.

Quiz 6: A Framework for Audit Evidence