Question 1

Inherent risk is:
A) assessed as high when there are no internal controls tested or relied upon by the auditor.
B) assessed as low when there are good internal controls in place.
C) the risk of a misstatement occurring irrespective of any internal controls put in place by management.
D) the risk that the auditor's testing procedures will not detect a material misstatement.

Accepted Answer

Inherent risk is the risk of material misstatement arising due to the nature of the business, economic conditions, or other external factors, regardless of whether or not internal controls are in place. Therefore, it is not affected by the quality of internal controls or the auditor's testing procedures, making choice C the correct answer.

Question 2

Stella Zhang has been performing analytical procedurtechniquas a substantive test. The techniquthat can be used to perform analytical procedurare:
A) preparation of common sized financial statements.
B) breakeven analysis.
C) ratio analysis.
D) all of the above.

Accepted Answer

All three techniques mentioned (preparation of common-sized financial statements, breakeven analysis, and ratio analysis) can be used to perform analytical procedures as substantive tests. Each technique provides valuable insights into the financial health and operations of a company, helping auditors identify potential issues or areas of concern. Therefore, the best choice is D, all of the above.

Question 3

Roll-forward procedurare performed:
A) to update the audit findings from the time of the interim procedures through to year-end.
B) to detect fraud in various balance sheet accounts.
C) before the end of the financial year.
D) none of the above.

Accepted Answer

Roll-forward procedures are performed to update the audit findings from the time of the interim procedures through to year-end. This helps the auditor ensure that the financial statements are reflecting the most up-to-date and accurate information. The other options given are not the primary purposes of roll-forward procedures.

Question 4

Which of the following examplof substantive procedurwould often be performed prior to year-end?
A) confirming the client's bank balance
B) attending the client's annual inventory count
C) testing additions and disposals to the fixed asset register
D) performing confirmations of accounts receivable

Accepted Answer

The answer of Which of the following examplof substantive procedurwould...

Question 5

Performing substantive procedurprior to year-end, in the absence of specific effective controls, may be acceptable when:
A) the auditor is able to conclude overall that the client's control environment is effective.
B) the likelihood of errors or fraud is high.
C) the likelihood of errors or fraud is low.
D) both a and c.

Accepted Answer

Performing substantive procedures prior to year-end is acceptable when the control environment is effective (A) and the likelihood of errors or fraud is low (C), as this reduces the risk of material misstatement.

Question 6

Which of the following factors should not influence the extent and timing of when substantive procedurare performed?
A) the type of audit opinion that the client would like the auditor to issue
B) the complexity of the client's data capturing systems
C) the level of assurance necessary
D) the type of evidence required

Accepted Answer

The type of audit opinion that the client would like the auditor to issue should not influence the extent and timing of when substantive procedures are performed. The auditor's responsibility is to gather sufficient and appropriate evidence to form an independent opinion on the financial statements, regardless of the client's preference for the audit opinion. The other factors listed (B, C, and D) are relevant factors that could influence the extent and timing of substantive procedures.

Question 7

The nature of substantive procedurnormally consists of one or a combination of which of the following techniques?
A) analytical procedures
B) representative sampling
C) key item testing
D) all of the above

Accepted Answer

Substantive procedures can consist of one or a combination of techniques such as analytical procedures, representative sampling, and key item testing. Therefore, all of the above options (A, B, and C) are included in the nature of substantive procedures.

Question 8

Vouching involves:
A) tracking a source document through to the underlying accounting records.
B) agreeing the details of a transaction to supporting evidence outside of the company's accounting records.
C) the application of audit procedures to less than 100 per cent of items within a population.
D) none of the above.

Accepted Answer

Vouching involves agreeing the details of a transaction to supporting evidence outside of the company's accounting records. Choice A refers to tracing, while choice C refers to sampling. Choice D is incorrect as it does not provide any relevant information.

Question 9

Typically, substantive testing tends to be performed:
A) at the start of the financial year.
B) at or near year-end.
C) half way through the financial year.
D) only when the client's management allows the auditor to conduct the tests.

Accepted Answer

Substantive testing is typically performed at or near year-end when the financial statements are being prepared. This allows the auditor to obtain evidence about the accuracy and completeness of the financial statements as of the balance sheet date. Performing substantive testing at the start of the financial year or half way through may not provide relevant and reliable evidence. The auditor should always conduct substantive testing as part of their audit procedures, regardless of management's permission.

Question 10

Larry French is trying to determine the extent of testing his team will have to perform in order to determine whether controls are working. How will he decide how much testing to perform?
A) He will utilize statistical sampling.
B) He will use his professional judgment.
C) He will use last year's results as a basis for this year's tests.
D) None of the above.

Accepted Answer

Larry French will use his professional judgment to determine the extent of testing his team will have to perform. This is because the decision on the amount of testing required is dependent on various factors such as the nature and complexity of controls, the risk associated with them, and the importance of the control in achieving the organization's objectives. Therefore, professional judgment is the best approach for making such a decision. The use of statistical sampling and last year's results can be used as supporting information, but should not be the sole basis for determining the extent of testing required.

Question 11

Umberto Levinson has performed a test of controls of a flower shop. He is trying to determine the timing of substantive procedurat year-end. Which factor will determine the timing of his audit procedures?
A) timing of the year-end work
B) audit risk
C) inherent risk
D) control risk

Accepted Answer

The timing of the year-end work is a major factor that determines the timing of substantive procedures in an audit. As Umberto Levinson has already done the test of controls, it is important for him to determine the timing of substantive procedures in order to complete the audit in timely manner.

Question 12

Daniel Morency has performed evaluations of financial information and determined whether the fluctuations of his client's salfigurare consistent with other data he has gathered. He has used this information to predict year-end amounts of sales. This is an example of substantive procedurcalled
A) tests of details.
B) computer assisted audit techniques.
C) analytical procedures.
D) none of these.

Accepted Answer

The scenario describes the use of analytical procedures, which involve the comparison of financial information to expectations or benchmarks in order to identify significant fluctuations or relationships that may indicate potential misstatements.Tests of details involve verifying individual transactions or account balances, while computer assisted audit techniques involve using technology tools to improve the efficiency or effectiveness of audit procedures.

Question 13

Jocelyne Yu is performing procedurand has decided to vouch the balance in the fixed assets ledger of a furniture manufacturing company back to supporting documentation. She is performing a
A) test of details.
B) test of controls.
C) risk assessment.
D) none of the above.

Accepted Answer

Jocelyne Yu is performing a test of details as she is verifying the balance in the fixed assets ledger with supporting documentation. A test of details involves verifying the accuracy of individual transactions or account balances with supporting documentation. Test of controls involves testing the effectiveness of internal controls to prevent or detect errors or fraud. Risk assessment involves identifying and assessing the risks of material misstatement in the financial statements. None of the above is not applicable here as Jocelyne Yu is performing a specific audit procedure.

Question 14

The purpose of substantive procedurincludobtaining direct evidence as to:
A) the reasonableness of the estimates and other information in the financial statements.
B) the completeness, accuracy and validity of data.
C) both a and b.
D) none of the above.

Accepted Answer

Substantive procedures are designed to obtain sufficient and appropriate evidence to reduce detection risk to an acceptably low level. This includes obtaining direct evidence as to the reasonableness of estimates and other information in the financial statements, as well as the completeness, accuracy, and validity of data. Therefore, both options A and B are correct.

Question 15

Tobias Appel is trying to ensure that he can review controls over purchasing transactions. In addition he would like to substantiate the dollar amounts he is reviewing. What type of procedurcan he perform that will provide evidence as to whether a control is effective as well as if an item is being recorded properly?
A) statistical sampling
B) dual purpose tests
C) test of balances
D) test of controls

Accepted Answer

Dual purpose tests are designed to evaluate the effectiveness of controls and substantiate the dollar amounts of transactions simultaneously.

Question 16

Tracing is primarily directed towards verifying which of the following assertions?
A) completeness
B) existence
C) occurrence
D) valuation

Accepted Answer

Tracing is an audit procedure used to test the completeness assertion. It involves selecting source documents and following them through to the accounting records to ensure that all transactions and events have been recorded.

Question 17

Jacqueline Martineau was told by her audit senior to ensure that the evidence she provided through analytical procedurwas both persuasive and corroborative. Which of the following evidencare persuasive?
A) When reviewing accruals for commissions refer to terms of agreements and payment dates.
B) When reviewing trade receivables or sales review the volatility of the customer base and compare with expectations.
C) When reviewing sales and commissions expense compare sales commissions or bonuses with related sales.
D) When reviewing payroll expense compare payroll tax expenses to the annual payroll times the statutory tax rates.

Accepted Answer

The answer of Jacqueline Martineau was told by her audit...

Question 18

Which of the following statements is correct?
A) If detection risk is high, significant substantive procedures are necessary to reduce detection risk.
B) There is an inverse relation between the auditor's assessed risk of material misstatement and detection risk.
C) There is no relation between the auditor's assessed risk of material misstatement and detection risk.
D) If detection risk is low, only a small number of substantive procedures are necessary to reduce the detection risk.

Accepted Answer

This statement is known as the "audit risk model" and is a fundamental concept in auditing. As the auditor's assessed risk of material misstatement (inherent risk and control risk) increases, the acceptable level of detection risk decreases. This means that more substantive procedures are necessary to achieve the desired level of audit assurance. Conversely, if the auditor assesses a lower risk of material misstatement, then a higher level of detection risk may be acceptable, and fewer substantive procedures may be necessary.

Question 19

The primary purpose of vouching is to ensure that:
A) the balances or transactions are not understated.
B) sufficient information is disclosed in the notes to the financial statements.
C) the balances or transactions are not overstated.
D) all transactions have been recorded.

Accepted Answer

Vouching involves checking individual transactions to the underlying source documents to ensure the accuracy and completeness of recorded transactions. The primary purpose of vouching is to ensure that the balances or transactions are not overstated, meaning that all recorded transactions are valid and backed by proper documentation.

Question 20

Substantive testing can be conducted using which of the following procedures?
A) enquiry
B) confirmation
C) analytical review
D) all of the above

Accepted Answer

All of the above procedures (enquiry, confirmation, and analytical review) can be used for substantive testing. Enquiry involves asking questions to relevant parties, confirmation involves obtaining third-party verification, and analytical review involves examining relationships and trends in financial data.

Quiz 8: Execution of the Audit Performing Substantive Procedur

Inherent risk is:

Stella Zhang has been performing analytical procedurtechniquas a substantive test. The techniquthat can be used to perform analytical procedurare:

Roll-forward procedurare performed:

Which of the following examplof substantive procedurwould often be performed prior to year-end?

Performing substantive procedurprior to year-end, in the absence of specific effective controls, may be acceptable when:

Which of the following factors should not influence the extent and timing of when substantive procedurare performed?

The nature of substantive procedurnormally consists of one or a combination of which of the following techniques?

Vouching involves:

Typically, substantive testing tends to be performed:

Larry French is trying to determine the extent of testing his team will have to perform in order to determine whether controls are working. How will he decide how much testing to perform?

Umberto Levinson has performed a test of controls of a flower shop. He is trying to determine the timing of substantive procedurat year-end. Which factor will determine the timing of his audit procedures?

Daniel Morency has performed evaluations of financial information and determined whether the fluctuations of his client's salfigurare consistent with other data he has gathered. He has used this information to predict year-end amounts of sales. This is an example of substantive procedurcalled

Jocelyne Yu is performing procedurand has decided to vouch the balance in the fixed assets ledger of a furniture manufacturing company back to supporting documentation. She is performing a

The purpose of substantive procedurincludobtaining direct evidence as to:

Tracing is primarily directed towards verifying which of the following assertions?

Jacqueline Martineau was told by her audit senior to ensure that the evidence she provided through analytical procedurwas both persuasive and corroborative. Which of the following evidencare persuasive?

Which of the following statements is correct?

The primary purpose of vouching is to ensure that:

Substantive testing can be conducted using which of the following procedures?