Question 1

Which of the following is generally not included in the "evidence mix"?
A) tests of controls
B) substantive tests of transactions
C) risk assessment procedures
D) tests of details of balances

Accepted Answer

Risk assessment procedures are used to assess the risk of material misstatement in the financial statements and determine the appropriate response to those risks. While important in planning the audit, they are not typically considered part of the evidence mix. The other options (tests of controls, substantive tests of transactions, and tests of details of balances) are all types of procedures used to gather evidence during an audit.

Question 2

For accounts with small balances and minimal potential for material misstatements, auditors often limit their tests to substantive analytical procedures if they conclude the accounts are reasonably stated.

Accepted Answer

This statement is true. Auditors may limit their testing to substantive analytical procedures for accounts with small balances and minimal potential for material misstatements if they determine that the accounts are reasonably stated. This approach is often more efficient and cost-effective for low-risk accounts.

Question 3

There are eight types of audit evidence: physical examination, confirmation, inspection, observation, inquiries of the client, reperformance, analytical procedures, and recalculation. For each of the following types of audit tests, indicate the type(s) of evidence that can be obtained through the test: (1) tests of controls, (2) substantive tests of transactions, (3) analytical procedures, and (4) tests of details of balances.

Accepted Answer

The answer of There are eight types of audit evidence:...

Question 4

The results of tests of controls and substantive tests of transactions affect the design of tests of details of balances.

Accepted Answer

The results of tests of controls and substantive tests of transactions help in assessing the risk of material misstatement in the financial statements. This assessment, in turn, affects the design of tests of details of balances. Therefore, the statement is true.

Question 5

If the auditor's test of controls supports the control risk assessment, planned detection risk in the audit risk model is decreased, and planned substantive tests should therefore be reduced.

Accepted Answer

If the auditor's test of controls supports the control risk assessment, it means the controls are effective, allowing for a higher detection risk and potentially reducing the extent of substantive tests.

Question 6

A medium-sized, nonpublic company has few effective controls and significant inherent risks. The auditor in this situation should emphasize tests of details and balances and substantive tests of transactions; no substantive analytical procedures should be performed in this situation by the auditor.

Accepted Answer

While the auditor should emphasize tests of details and balances and substantive tests of transactions in situations with few effective controls and significant inherent risks, the auditor should still perform substantive analytical procedures as they can provide valuable evidence and help identify potential misstatements in the financial statements.

Question 7

Auditors follow a four-step approach to reduce assessed control risk. Which of the following is not one of the four?
A) Apply transaction-related audit objectives to a class of transactions.
B) Identify accounts that have high inherent risk.
C) Identify key controls that reduce control risk.
D) For potential misstatements, design appropriate substantive tests of transactions.

Accepted Answer

The four-step approach includes applying transaction-related audit objectives to a class of transactions, identifying key controls that reduce control risk, designing tests of controls to ensure the key controls are operating effectively, and designing appropriate substantive tests of transactions for potential misstatements. Identifying accounts with high inherent risk is not one of the steps.

Question 8

The choice of which types of tests to use and how extensively they need to be performed must be the same for all audits.

Accepted Answer

The choice of which types of tests to use and how extensively they need to be performed may vary depending on the nature and objectives of each audit. Different audits may require different tests and levels of testing to be conducted.

Question 9

The document that details the specific audit procedures for each type of test is the
A) audit strategy.
B) audit program.
C) audit procedure.
D) audit risk model.

Accepted Answer

The document that details the specific audit procedures for each type of test is known as an audit program. The audit program defines the nature, timing and extent of procedures to be performed. It also includes procedures for specific financial statement items or account balances. An audit program is an essential tool for an auditor to ensure that all necessary audit procedures are performed and to facilitate adequate planning, supervision, and communication within the audit team.

Question 10

The evidence mix includes risk assessment procedures.

Accepted Answer

The answer of The evidence mix includes risk assessment procedures....

Question 11

An exception in a test of control provides only an indication of the likelihood of monetary misstatements in the financial statements because tests of controls do not reveal whether monetary misstatements have actually occurred.

Accepted Answer

This statement is true. An exception in a test of control indicates that there is a higher risk that there may be monetary misstatements in the financial statements, but it does not confirm that such misstatements have occurred. Further substantive testing is required to detect whether or not material misstatements actually exist.

Question 12

When designing the audit program and the particular audit tests, the auditor should keep in mind that
A) the audit program is broken down into two parts-the risk assessment procedures and the tests of details of balances.
B) the tests of controls will not vary depending on assessed control risk.
C) analytical procedures performed during substantive testing are generally more focused and more extensive than those done as part of planning.
D) auditing standards require that the tests contained in the audit program must be approved by the PCAOB.

Accepted Answer

Analytical procedures during substantive testing are more focused and extensive to gather sufficient evidence, unlike during planning where they are used for understanding and identifying risks.

Question 13

Which of the following would most likely not be included in the evidence mix for an integrated audit of a public company's financial statements and internal control over financial reporting?
A) sophisticated internal controls
B) extensive substantive analytical procedures
C) extensive tests of details of balances
D) low inherent risk

Accepted Answer

The answer of Which of the following would most likely...

Question 14

Like tests of controls, analytical procedures only indicate the likelihood of misstatements affecting the dollar value of the financial statements.

Accepted Answer

Analytical procedures involve analyzing relationships and trends in financial data to assess the reasonability and accuracy of financial statements. They can provide indications of potential misstatements, but do not provide conclusive evidence of their existence or dollar value. Therefore, they only indicate the likelihood of misstatements affecting the dollar value of financial statements.

Question 15

Analytical procedures are the most expensive type of audit test to perform because of the expertise and training required to properly use them.

Accepted Answer

Analytical procedures are actually one of the least expensive types of audit tests to perform because they rely on data analysis rather than physical or manual activities. However, they do require expertise and training to properly use, which can still make them challenging and time-consuming for auditors.

Question 16

Tests of controls provide evidence about the likelihood for misstatements in a client's financial statements.

Accepted Answer

Tests of controls examine the effectiveness of a client's internal controls and provide evidence about the likelihood of misstatements in the financial statements.

Question 17

The ________ is the combination of the types of tests to obtain sufficient appropriate evidence for a cycle. There are likely to be variations in the mix from cycle to cycle depending on the circumstances of the audit.
A) testing mix
B) evidence mix
C) audit process mix
D) procedures mix

Accepted Answer

The term "evidence mix" refers specifically to the types of tests performed by auditors to obtain sufficient and appropriate evidence for an audit cycle. The other answer choices ("testing mix," "audit process mix," and "procedures mix") do not accurately capture the concept described in the question stem.

Question 18

The auditor's understanding of internal control performed as part of risk assessment procedures provides the basis for the auditor's initial assessment of control risk.

Accepted Answer

The auditor's understanding of internal control is an important factor in determining the risk of material misstatement, and it forms the basis for the auditor's initial assessment of control risk. This understanding is gained through risk assessment procedures carried out as part of the audit planning process.

Question 19

If internal controls are tested and are considered effective, the auditor generally will increase both substantive tests of transactions and tests of details of balances.

Accepted Answer

If internal controls are tested and found to be effective, the auditor may rely on them to reduce substantive testing. Therefore, the statement is false.

Question 20

If the auditor finds extensive control test deviations and significant misstatements while performing substantive tests of transactions and substantive analytical procedures,
A) the cost of the audit should decrease.
B) the auditor will conclude that internal controls are effective.
C) extensive tests of details of balances will need to be performed.
D) all of the above.

Accepted Answer

If the auditor finds extensive control test deviations and significant misstatements while performing substantive tests of transactions and substantive analytical procedures, it indicates that internal controls are not effective. As a result, extensive tests of details of balances will need to be performed to obtain sufficient evidence to support the financial statements. The cost of the audit may increase due to the need for additional testing. Therefore, only option C is correct.

Quiz 13: Overall Audit Strategy and Audit Program

Which of the following is generally not included in the "evidence mix"?

For accounts with small balances and minimal potential for material misstatements, auditors often limit their tests to substantive analytical procedures if they conclude the accounts are reasonably stated.

The results of tests of controls and substantive tests of transactions affect the design of tests of details of balances.

If the auditor's test of controls supports the control risk assessment, planned detection risk in the audit risk model is decreased, and planned substantive tests should therefore be reduced.

A medium-sized, nonpublic company has few effective controls and significant inherent risks. The auditor in this situation should emphasize tests of details and balances and substantive tests of transactions; no substantive analytical procedures should be performed in this situation by the auditor.

Auditors follow a four-step approach to reduce assessed control risk. Which of the following is not one of the four?

The choice of which types of tests to use and how extensively they need to be performed must be the same for all audits.

The document that details the specific audit procedures for each type of test is the

The evidence mix includes risk assessment procedures.

An exception in a test of control provides only an indication of the likelihood of monetary misstatements in the financial statements because tests of controls do not reveal whether monetary misstatements have actually occurred.

When designing the audit program and the particular audit tests, the auditor should keep in mind that

Which of the following would most likely not be included in the evidence mix for an integrated audit of a public company's financial statements and internal control over financial reporting?

Like tests of controls, analytical procedures only indicate the likelihood of misstatements affecting the dollar value of the financial statements.

Analytical procedures are the most expensive type of audit test to perform because of the expertise and training required to properly use them.

Tests of controls provide evidence about the likelihood for misstatements in a client's financial statements.

The ________ is the combination of the types of tests to obtain sufficient appropriate evidence for a cycle. There are likely to be variations in the mix from cycle to cycle depending on the circumstances of the audit.

The auditor's understanding of internal control performed as part of risk assessment procedures provides the basis for the auditor's initial assessment of control risk.

If internal controls are tested and are considered effective, the auditor generally will increase both substantive tests of transactions and tests of details of balances.

If the auditor finds extensive control test deviations and significant misstatements while performing substantive tests of transactions and substantive analytical procedures,