Question 1

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

Accepted Answer

Substantive tests are procedures designed to test for the correctness of the balances in the financial statements, including the details of transactions. They typically include tests of details of transactions and balances, analytical procedures, and tests of details of disclosures. Choices 3, 4, and 5 typically represent these types of tests.

Question 2

Which of the following procedures are frequently performed in response to the auditor's assessment of the risk of material misstatement?
A) Tests of controls.
B) Risk assessment procedures.
C) Tests of details of balances.
D) Ratio analysis.

Accepted Answer

C

Question 3

Tests of controls may include which of the following types of evidence?

Accepted Answer

D

Question 4

Which of the following is not a useful risk assessment procedure for obtaining an understanding of internal controls?
A) Make inquiries of the client's personnel.
B) Examine documents and records.
C) Read industry trade magazines.
D) Observe client activities and operations.

Accepted Answer

Reading industry trade magazines, while useful for gaining industry knowledge and understanding the client's business environment, is not a direct method for assessing a client's internal control system. The other options directly involve evaluating the client's internal processes and controls.

Question 5

Which of the following is not appropriate for purposes of testing the effectiveness of controls?
A) Reperform client procedures.
B) Evaluate prior experience with the client.
C) Observe control- related activities.
D) Make inquiries of client personnel.

Accepted Answer

Evaluating prior experience with the client is not a direct method of testing the current effectiveness of controls. It relies on historical information rather than assessing the current operation of controls. Methods like reperforming client procedures, observing control-related activities, and making inquiries of client personnel directly test how controls are currently functioning.

Question 6

Analytical procedures are defined in the auditing standards as:
A) helpful procedures not possessing the validity of other tests available to the auditor.
B) tests of controls.
C) substantive tests.
D) compliance tests.

Accepted Answer

Analytical procedures are considered substantive tests in auditing. They involve the evaluation of financial information through analysis of plausible relationships among both financial and non-financial data. These procedures are used to identify areas of risk and to understand more about the organization's financial status, rather than testing controls or compliance directly.

Question 7

Tests of transactions are used to determine whether _ ________ have been satisfied.
A) compliance test requirements.
B) transaction- related audit objectives.
C) balance coverage requirements.
D) existence assertions.

Accepted Answer

Transaction-related audit objectives are what tests of transactions aim to determine if they have been satisfied. These objectives relate to the accuracy, completeness, and validity of the transactions recorded during a period.

Question 8

Which of the following audit tests is usually the least costly to perform?
A) Tests of controls.
B) Substantive tests of transactions.
C) Analytical procedures.
D) Tests of balances.

Accepted Answer

Analytical procedures, which involve the analysis of financial information by studying plausible relationships among both financial and nonfinancial data, are generally less costly to perform compared to more detailed tests of controls, substantive tests of transactions, or tests of balances. These procedures can often be conducted through analysis of ratios and trends without the need for detailed transaction testing.

Question 9

Which of the following relationships between types of tests and audit evidence is not correct?
A) Tests of controls and observation.
B) Tests of details and inspection.
C) Substantive tests of transactions and reperformance.
D) Tests of details and observation.

Accepted Answer

Tests of details primarily involve inspection of records or documents and physical examination of assets, not observation. Observation is more commonly associated with tests of controls, where the auditor observes the client's processes or procedures being performed.

Question 10

Which of the following types of procedures will be performed in an audit of internal control over financial reporting?

Accepted Answer

The answer of Which of the following types of procedures...

Question 11

Tests of details of balances focus on:
A) end of the year balances.
B) beginning of the year balances.
C) accounting cycles.
D) transaction details for the period under audit.

Accepted Answer

Tests of details of balances are specifically designed to verify the ending balances of accounts at the end of the fiscal period, ensuring they are accurate and fairly stated.

Question 12

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

Accepted Answer

The answer of When an auditor believes that analytical procedures...

Question 13

When controls are deemed ineffective and assessed control risk is at the maximum for a private company, there will be _ ________ emphasis placed on tests of controls.
A) heavy
B) moderate
C) no
D) relatively little

Accepted Answer

When controls are deemed ineffective and assessed control risk is at the maximum, auditors will place no emphasis on tests of controls, as they would not rely on the controls to reduce the risk of material misstatement. Instead, they would focus on substantive procedures.

Question 14

Tests of controls address each of the following questions except:
A) Why were the procedures performed?
B) Who performed the procedures?
C) Were the necessary procedures performed?
D) How were the procedures performed?

Accepted Answer

Tests of controls are concerned with evaluating the effectiveness of a company's procedures, including who performed them (B), whether they were performed as necessary (C), and how they were performed (D). They do not address the rationale behind why procedures were performed (A), as this pertains more to the design and purpose of the control rather than its operational effectiveness.

Question 15

At what point in the audit are tests of details most appropriately designed?
A) Testing.
B) Communication of material weaknesses.
C) Engagement evaluation.
D) Planning.

Accepted Answer

Tests of details are most appropriately designed during the planning phase of an audit. This allows auditors to identify the specific areas of risk and tailor their testing procedures accordingly to ensure a thorough and efficient audit process.

Question 16

Which of the following is/are performed in an audit of internal control over financial reporting?

Accepted Answer

The answer of Which of the following is/are performed in...

Question 17

Only ________ involve physical examination and confirmation.
A) tests of controls
B) tests of transactions
C) tests of balances
D) analytical procedures

Accepted Answer

Tests of balances involve physical examination and confirmation as they are designed to verify the ending balance of an account. This can include counting cash, weighing inventory, or confirming receivables, which are all physical or external confirmation methods to ensure the accuracy of the financial statements.

Question 18

Inspection is used in every type of test except:
A) analytical procedures.
B) tests of details.
C) tests of transactions.
D) tests of controls.

Accepted Answer

Inspection is a type of audit procedure used to examine records, documents, or tangible assets. It is applicable in tests of details, tests of transactions, and tests of controls, where auditors inspect relevant documents or assets to gather audit evidence. However, analytical procedures involve evaluation of financial information through analysis of plausible relationships among both financial and non-financial data, which does not typically involve inspection as defined in auditing standards.

Question 19

An exception in a test of control indicates the ________ of misstatements.
A) the amount, likelihood, and classification
B) the amount and the classification
C) the amount
D) the likelihood

Accepted Answer

An exception in a test of control indicates the likelihood of misstatements, as it suggests that the control may not be operating effectively to prevent or detect misstatements in the financial statements.

Question 20

Must auditors always perform tests of controls?

Accepted Answer

The answer of Must auditors always perform tests of controls?...

Quiz 5: Overall Audit Strategy, Audit Program, Audit of the Sales and Collection Cycle, Audit Sampling for Tests of Controls and Substantive Tests of Transactions

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?

Which of the following procedures are frequently performed in response to the auditor's assessment of the risk of material misstatement?

Tests of controls may include which of the following types of evidence?

Which of the following is not a useful risk assessment procedure for obtaining an understanding of internal controls?

Which of the following is not appropriate for purposes of testing the effectiveness of controls?

Analytical procedures are defined in the auditing standards as:

Tests of transactions are used to determine whether _ ________ have been satisfied.

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

Which of the following relationships between types of tests and audit evidence is not correct?

Which of the following types of procedures will be performed in an audit of internal control over financial reporting?

Tests of details of balances focus on:

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

When controls are deemed ineffective and assessed control risk is at the maximum for a private company, there will be _ ________ emphasis placed on tests of controls.

Tests of controls address each of the following questions except:

At what point in the audit are tests of details most appropriately designed?

Which of the following is/are performed in an audit of internal control over financial reporting?

Only ________ involve physical examination and confirmation.

Inspection is used in every type of test except:

An exception in a test of control indicates the ________ of misstatements.

Must auditors always perform tests of controls?