Question 1

Reading the terms of lease agreement for lessee is an example of analysis.

Accepted Answer

False

Question 2

In preparing for a repeat engagement, the first thing an audit team should do is ________.

Accepted Answer

Reviewing prior-year working papers and permanent file documents would provide the audit team with a good understanding of the previous audit and the client's business. This would allow the team to identify areas of concern, potential risks, and any lingering issues that need to be addressed in the current audit. While interviewing client management and touring physical facilities may be necessary steps, they should come after a review of prior-year working papers to ensure that the team has a comprehensive understanding of the client and its operations. Obtaining the current year-end financial statements would also be important but would be done after the review of prior-year working papers.

Question 3

Substantive procedures give direct evidence about the financial amounts reported in the financial statements.

Accepted Answer

Substantive procedures are audit procedures that are performed to obtain direct evidence about the financial amounts and disclosures that are reported in the financial statements. These procedures are designed to detect material misstatements in the financial statements, and they may include testing of account balances, transactions, and disclosures, as well as analytical procedures and inquiry. By obtaining direct evidence, the auditor can provide a higher level of assurance about the accuracy, completeness, and validity of the financial statements.

Question 4

Where would a copy of an auditee's long-term lease for a building most likely be kept?

Accepted Answer

The long-term lease for a building is a significant legal document and therefore it should be kept in the permanent file. The permanent file contains important documents related to the auditee's financial records that could be required for future reference. The planning file contains the audit plan and procedures, and the administration file contains administrative documents. The audit evidence file contains the documents the auditor collected during the audit process.

Question 5

The audit evidence gathering technique known as computation or recalculation refers to ________.

Accepted Answer

Computation or recalculation involves verifying the accuracy of mathematical calculations performed by the client, such as recalculating depreciation expenses or interest payments. Therefore, option C is the correct choice. The other options involve different audit evidence gathering techniques, such as confirmation (option A), observation (option B), and inspection (option D).

Question 6

Oral evidence from inquiry is considered to be very important.

Accepted Answer

Oral evidence from inquiry allows individuals to provide firsthand information and provide context that may not be present in written or documentation evidence. It also allows for better communication and clarification of certain points. Therefore, it is considered to be very important.

Question 7

The overall audit strategy is documented in the ________.

Accepted Answer

The overall audit strategy is documented in the planning memorandum. The engagement letter outlines the terms of the audit engagement, the management letter is a report written by the auditor as a result of the audit, and the audit program lists the specific procedures to be followed during the audit.

Question 8

Loan application documents are considered authoritative evidence.

Accepted Answer

The answer of Loan application documents are considered authoritative evidence....

Question 9

A combination of evidence gathering techniques provides more persuasive than evidence gathered from a single technique.

Accepted Answer

This is because using multiple techniques enables the researcher to corroborate the findings and account for any weaknesses in a particular technique. This strengthens the overall argument and makes it more persuasive. Additionally, using multiple sources of evidence can increase the generalizability and validity of the findings.

Question 10

Analysis is most useful in providing evidence of ________.

Accepted Answer

The answer of Analysis is most useful in providing evidence...

Question 11

Working papers should be clear, concise, and complete. They communicate ________.

Accepted Answer

Working papers serve as a record of the work done by the auditor and the conclusions reached, providing evidence of the quality of the audit. They are not solely indicative of the degree of planning or the amount of time spent by the auditor, although those factors may be reflected in the working papers.

Question 12

To provide efficient, reliable evidence, confirmations should be ________.

Accepted Answer

Confirmations should be created by the auditor and sent to third parties to be returned to the auditor. This ensures that the auditor is receiving reliable evidence directly from a third party source, rather than relying solely on information provided by the client. Option A and D are incorrect because confirmations should not be created by the client. Option B is incorrect because the auditor should be the recipient of confirmations, not the client.

Question 13

An auditor selects audit procedures that will provide ________.

Accepted Answer

The auditor's choice of audit procedures should be based on obtaining the most reliable evidence that can be obtained in a cost-effective manner. While obtaining the most evidence or persuasive evidence may be desirable, it may not be the most efficient or cost-effective approach, and obtaining relevant information is necessary for an effective audit. However, the primary consideration should be obtaining reliable evidence in a cost-effective manner.

Question 14

An auditor should re-perform calculations on a random basis to check for accuracy. Usually, if one component has been calculated properly, the auditor can rely that the other components have also been computed properly.

Accepted Answer

Auditors re-perform calculations to verify accuracy, but they cannot assume that if one component is correct, all others are too. Each component may have different variables and errors, so independent verification is necessary.

Question 15

The audit program prepared by the independent auditors prior to the start of fieldwork is considered appropriate documentation of ________.

Accepted Answer

The audit program prepared by the independent auditors before commencing fieldwork details the planning phase of the audit, which includes establishing the audit objectives, gathering information about the audited entity, and designing procedures to achieve the audit objectives. It serves as appropriate documentation of planning, and not of supervision, information evaluation, or quality assurance.

Question 16

In considering the effectiveness of evidence gathering procedures, it was found that most companies have adjustments. Research also shows that ________.

Accepted Answer

Receivables are often overstated due to uncollectible accounts not being written off, while payables are understated due to liabilities not being fully recorded.

Question 17

What is the strongest form of audit evidence?

Accepted Answer

The auditor's direct personal knowledge is considered the strongest form of audit evidence because it is obtained through the auditor's own observations, inspections, or calculations, reducing the risk of misrepresentation or error.

Question 18

Which of the following is true about specialists?

Accepted Answer

Specialists are not members of the audit team; they are external experts consulted for their expertise in specific areas.

Question 19

One example of a formal authoritative document is a ________.

Accepted Answer

The answer of One example of a formal authoritative document...

Question 20

For good form, each audit evidence paper should be indexed using a standard system of letters and numbers. The main purpose of this practice is to allow ________.

Accepted Answer

Indexing working papers using a standard system of letters and numbers allows for easy cross-referencing, which is useful in following connections among accounts. This helps ensure that all relevant information has been considered and included in the audit report. While it may also aid in checking the completeness of working papers and re-filing them, these are not the main purposes of this practice. The primary goal is to support the auditor's opinion by providing sufficient audit evidence.

Quiz 8: Audit Evidence and Assurance