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.

Accepted Answer

While the balance appearing reasonable based on substantive analytical procedures is a positive indication, it doesn't fully eliminate the need for thorough testing. Certain tests of details of balances may still be necessary to provide sufficient evidence for the audit. Control testing may also still be required depending on the assessed level of control risk. Therefore, option B is the best choice.

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

Accepted Answer

Tests of details of balances are used to obtain evidence about the completeness and accuracy of individual transactions and account balances. They are typically performed in response to the auditor's assessment of the risk of monetary misstatements in the financial statements. Ratio analysis may provide some insights into the financial performance of an entity, but it does not necessarily address the risk of monetary misstatements. Tests of controls are used to obtain evidence about the effectiveness of controls in preventing or detecting material misstatements, but they may not provide sufficient evidence about the accuracy of balances at the assertion level. Risk assessment procedures are used to obtain an understanding of the entity and its environment, and to identify areas of heightened risk, but they are not specific audit procedures for testing monetary misstatements.

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

Accepted Answer

Substantive tests include substantive tests of transactions, substantive analytical procedures, and tests of details of balances. These are directly aimed at detecting material misstatements in the financial statements.

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

Accepted Answer

Substantive tests of transactions are used to determine whether all six transaction-related audit objectives have been achieved for each class of transactions. These tests involve checking the accuracy, completeness, validity, and authorization of individual transactions. Tests of controls are used to evaluate the effectiveness of controls in preventing or detecting material misstatements, while risk assessment procedures and preliminary analytical procedures are used to identify areas of higher risk and potential misstatements in the financial statements.

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.

Accepted Answer

Tests of controls are designed to test the effectiveness of internal control procedures that have been implemented by the entity. The purpose is to provide reasonable assurance that these procedures are functioning as intended to ensure the validity and reliability of the accounting treatment of transactions and balances. Tests of controls do not focus on compliance with GAAP disclosure requirements or 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.

Accepted Answer

A system walkthrough is used to determine whether internal controls have been properly implemented, as it involves tracing a transaction through the accounting information system to identify control weaknesses and ensure that controls are functioning as intended. It is not primarily used to test ending account balances or details of transactions, nor is it used to determine whether an 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.

Accepted Answer

A Substantive test is designed to test for monetary misstatements directly affecting the correctness of financial statement balances. Test of controls and test of attributes focus on the effectiveness of controls, and monetary unit sampling test is a sampling technique used in auditing.

Question 8

Tests of controls are directed toward the control's
A)efficiency.
B)effectiveness.
C)cost and effectiveness.
D)cost benefit ratio.

Accepted Answer

Tests of controls are designed to determine whether the control is effective in preventing or detecting material misstatements in the financial statements. Tests of controls are concerned with the design and implementation of controls to prevent or detect material misstatements in the financial statements. The efficiency, cost and effectiveness, and cost benefit ratio of controls may also be considered, but the primary focus of tests of controls is on their effectiveness in achieving their intended purpose.

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.

Accepted Answer

Substantive tests are designed to test for dollar misstatements in the financial statements, which means they focus on detecting material misstatements in the financial statements. These tests provide additional evidence to support the auditor's opinion on the fairness of the financial statements. While substantive tests can be performed in conjunction with tests of controls, they are distinct from them and do not 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.

Accepted Answer

The answer of Analytical procedures
A)focus on the ending balances for...

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.

Accepted Answer

Analytical procedures are an important part of risk assessment during the planning phase of an audit. These procedures involve comparing current year financial information with prior year financial information and industry benchmarks to identify significant fluctuations or deviations that may indicate potential misstatements or areas of risk. Therefore, choice C is the best answer as performing extensive analytical procedures indicates areas of potential risk and misstatement.

Question 12

List each of the five types of audit tests.

Accepted Answer

The answer of List each of the five types of...

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.

Accepted Answer

Tests of details of balances focus on verifying the ending general ledger balances for both balance sheet and income statement accounts. These tests include reconciliations, confirmations, and analytical procedures. Option B is incorrect because tests of details of balances are not focused on transactions during the period, which is the domain of tests of transactions. Option C is incorrect because tests of details of balances do not primarily focus on the auditor's understanding of internal controls, although this understanding may be relevant in selecting the appropriate test procedures. Option D is incorrect because tests of details of balances do not primarily focus on comparing recorded amounts to the auditor's expectations, although the latter may be a factor in assessing the likelihood of misstatements.

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.

Accepted Answer

Procedures performed to obtain an understanding of the entity and its environment, including internal controls, represent the risk assessment procedures. The auditor's risk assessment procedures are designed to obtain an understanding of the entity and its environment, including internal control, to assess the risks of material misstatement of the financial statements, whether due to fraud or error. The auditor's audit strategy, tests of controls, and tests of transactions are performed after the risk assessment procedures to obtain sufficient appropriate audit evidence to support the auditor's opinion on the financial statements.

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

Accepted Answer

Risk assessment procedures are performed at the planning stage of the audit to identify and assess the risks of material misstatement in the financial statements. They are not considered further audit procedures as they are conducted before any substantive testing is performed. Tests of controls, analytical procedures, and tests of details of balances are all examples of further audit procedures that are performed after the planning stage.

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.

Accepted Answer

Tests of controls are concerned with evaluating whether controls are operating effectively to prevent, detect, and correct material misstatements in the financial statements, and the results of these tests help the auditor assess control risk. They are not directly related to reducing the extent of substantive procedures, including analytical review procedures.

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.

Accepted Answer

Risk assessment procedures are performed to determine the risk of material misstatement in the financial statements. This helps auditors plan the nature, timing, and extent of their audit procedures. The amount of testing for internal control, testing of details of balances, and testing of transactions are determined as a result of the risk assessment procedures.

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

Accepted Answer

Tests of details of balances are specifically designed to detect material dollar errors on the financial statements. These tests involve examining individual transactions and account balances to ensure accuracy and completeness. The other options listed may not necessarily focus on detecting dollar errors on the financial statements.

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.

Accepted Answer

Details of balances tests primarily focus on balance sheet accounts, as these accounts provide important information about a company's financial position and overall health. Revenue, cash flow statement, and expense accounts may be important as well, but they are not typically the primary focus of these types of tests.

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.

Accepted Answer

Examining a sample of duplicate sales invoices and verifying that each one is supported by an authorized shipping document and approved customer order allows the auditor to test the control in question directly. Option B relates to the control over billing of customers and is not directly related to the control over sales documentation. Option C is related to price accuracy and not to the control over sales documentation, and option D relates to the use of audit software to perform substantive testing rather than to test of controls. Therefore, option A is the best choice.

Quiz 13: Overall Audit Strategy and Audit Program

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

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?

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?

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

A system walkthrough is primarily used to help the auditor

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

Tests of controls are directed toward the control's

In the context of an audit of financial statements,substantive tests are audit procedures that

Analytical procedures

Many auditors perform extensive analytical procedures because

List each of the five types of audit tests.

Which of the following is True?

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

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

Which of the following statements is not True?

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

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

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

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?