Question 1

The additional opportunities for influencing the timing of the work include:
A) reviewing provisions prior to year-end.
B) leveraging off the activities of the internal audit function.
C) reviewing activity in the period to date.
D) All of the above

Accepted Answer

All of the above options provide opportunities for influencing the timing of the work. By reviewing provisions prior to year-end, auditors can identify any potential issues and address them before the financial statements are finalized. Leveraging off the activities of the internal audit function allows auditors to better understand the organization’s risks and controls, which can inform the timing and scope of their work. Finally, reviewing activity in the period to date can help auditors identify any unusual trends or events that may require additional testing or attention.

Question 2

A pledge is something delivered as security for the payment of a debt or the fulfilment of a promise.

Accepted Answer

A pledge is a type of security that is given to guarantee the payment of a debt or the fulfilment of a promise. This can be any type of asset or property that is considered valuable enough to serve as collateral. If the debt or promise is not fulfilled, the pledge can be seized by the creditor as a means of satisfying the debt.

Question 3

Accounting for the numerical sequence of cheques issued during a specific period is a substantive test relating to the purchases process.

Accepted Answer

Accounting for the numerical sequence of cheques issued during a specific period is considered a test of control, not a substantive test, as it aims to verify the completeness and accuracy of the transactions recorded, rather than directly testing the transactions' monetary amounts.

Question 4

When trade receivables is a significant account in an entity's balance sheet, the two audit assertions that are considered most important are existence and valuation and allocation.

Accepted Answer

When trade receivables are significant, the auditor should focus on verifying the existence of the receivables (i.e. ensuring that the recorded amounts represent valid transactions with customers) and the valuation and allocation (i.e. ensuring that the receivables are recorded at their net realizable value and are properly classified).

Question 5

The timing of substantive testing is dependent on the risk assessment of the significant account in question.

Accepted Answer

The timing of substantive testing is indeed dependent on the risk assessment of the significant account in question. This helps auditors to focus their testing efforts on areas with higher risks of material misstatement.

Question 6

Testing the mathematical accuracy of the cash payment ledger relates to the existence assertion.

Accepted Answer

Testing the mathematical accuracy of the cash payment ledger relates to the accuracy assertion, not the existence assertion. The existence assertion concerns whether assets, liabilities, and transactions exist, while accuracy deals with whether amounts and other data relating to recorded transactions and events have been recorded appropriately.

Question 7

Prepayments are audited by vouching the balance to the supporting invoices.

Accepted Answer

Prepayments should be supported by invoices, therefore auditors will vouch the prepaid balance to the invoices to ensure accuracy and validity of the amount.

Question 8

Physically sighting fixed assets enables the auditor to test the rights and obligations assertion.

Accepted Answer

Physically sighting fixed assets primarily tests the existence assertion, ensuring the assets are present and owned by the entity, not directly testing rights and obligations. Rights and obligations are often verified through documents such as invoices, titles, or lease agreements.

Question 9

Which of the following substantive tests of cash account balances are always performed?
A) Test cut-off of cash receipts, cash payments and transfers at year-end
B) Confirm cash held by others
C) Examine the client's bank reconciliations
D) All of the above

Accepted Answer

All of the listed substantive tests of cash account balances are necessary to obtain sufficient and appropriate audit evidence to support the cash account balance. Testing cut-off ensures transactions are recorded in the correct period, confirming cash held by others provides evidence that the client's balances are accurate and complete, and examining the client's bank reconciliations ensures the accuracy of the recorded cash balances.

Question 10

The two key assertions for inventory are completeness and rights and obligations.

Accepted Answer

The two key assertions for inventory are existence and rights and obligations. Completeness is another important assertion but is not paired with rights and obligations as the two key assertions specifically for inventory.

Question 11

Which of the following is not an example of a substantive test of cash payments transactions?
A) Test the account classifications of cash payments
B) Account for the numerical sequence of cheques issued during a specified period
C) Test the mathematical accuracy of the cash receipts ledger
D) Determine whether the signatures on paid cheques are authorised

Accepted Answer

Testing the mathematical accuracy of the cash receipts ledger is not an example of a substantive test of cash payments transactions because accuracy of receipts ledger is related to cash receipts, not payments.

Question 12

Evaluating the adequacy of the allowance for doubtful debts account is an example of a substantive test of trade receivables that is always performed.

Accepted Answer

The answer of Evaluating the adequacy of the allowance for...

Question 13

Provisions can be easily audited by controls testing alone.

Accepted Answer

Provisions require a significant amount of judgment and estimation, which means that controls testing alone cannot guarantee accuracy. Auditors often use a combination of substantive testing and controls testing to audit provisions. Substantive testing involves reviewing supporting documentation, such as contracts or invoices, to ensure that the provisions are correctly calculated and recorded. Controls testing involves reviewing the internal control processes that manage provision calculations and recording to ensure that they are operating effectively.

Question 14

Accounts that are clearly trivial or immaterial are usually ignored or only subjected to:
A) tests of controls.
B) analytical procedures.
C) confirmations.
D) observations.

Accepted Answer

Since trivial or immaterial accounts are relatively unimportant to the overall financial statements, auditors typically do not spend a significant amount of time testing them or obtaining confirmations. Instead, they may perform analytical procedures to ensure that the balances appear reasonable and consistent with prior periods. This approach allows auditors to focus their efforts on more significant accounts and areas of the audit. Therefore, the best choice is B, analytical procedures.

Question 15

When the assessment of inherent and control risk is low:
A) the level of substantive procedures is limited.
B) there are lots of controls that have been tested and found to be effective.
C) Both a and b
D) None of the above

Accepted Answer

When inherent and control risks are assessed as low, it implies that the auditor has found effective controls in place (B), and as a result, the level of substantive procedures can be limited (A).

Question 16

A fixed assets register is used to capture additions and disposals of fixed assets, as well as calculating depreciation charges.

Accepted Answer

A fixed assets register is a record-keeping system that tracks all fixed asset transactions, including purchases, sales, and depreciation. It is used to maintain accurate and up-to-date information about the company's fixed assets and their financial impact on the business.

Question 17

Existence of trade receivables is usually verified by:
A) examining copies of sales invoice sent to the client's customers.
B) sending confirmations to the client's customers.
C) calculating changes in the receivables balance from one year to the next.
D) evaluating the adequacy of the provision for doubtful debts.

Accepted Answer

Sending confirmations to the client's customers is the best way to verify the existence of trade receivables, as it directly confirms with the customers whether they owe any money to the client. Examining copies of sales invoice only shows that invoices were issued, but not whether the amounts were actually received. Calculating changes in the receivables balance may indicate if there are issues with collectability, but it doesn't verify the existence of the receivables. Evaluating the adequacy of the provision for doubtful debts is important, but it doesn't directly verify the existence of the trade receivables.

Question 18

Ensuring that accounts payable are stated at the amounts owed at year-end relates to the rights and obligations assertion.

Accepted Answer

Ensuring that accounts payable are stated at the amounts owed at year-end relates to the completeness and accuracy assertions, not the rights and obligations assertion. The rights and obligations assertion concerns whether the entity has the legal right to control the use of all reported assets and whether it is obligated for all reported liabilities.

Question 19

When the assessment of inherent risk and control risk is low, the amount of substantive testing required to reduce the detection risk to an acceptable level is significant.

Accepted Answer

When the assessment of inherent risk and control risk is low, the amount of substantive testing required to reduce the detection risk to an acceptable level is usually low. This is because the combination of a low inherent and control risk reduces the likelihood of material misstatement in the financial statements, meaning that less testing is needed to achieve a reasonable level of assurance.

Question 20

The typical procedures performed to search for unrecorded payables are referred to as subsequent payments testing and cut-off testing.

Accepted Answer

These are indeed the typical procedures performed to search for unrecorded payables.

Quiz 10: Substantive Testing and Balance Sheet Accounts

The additional opportunities for influencing the timing of the work include: