Deck 5: Audit Evidence

Question 1

The cut-off assertion means that the entity holds or controls the rights to assets and liabilities are the obligations of the entity.

Answer 1

False

Question 2

Completeness is an assertion used:

A) when testing balance sheet items
B) for transactions and events
C) for presentation and disclosure
D) all of the above

Answer 2

D

Question 3

Observation is an evidence gathering procedure that involves checking the mathematical accuracy of client records.

Answer 3

False

Question 4

When there is a significant risk that an account will be misstated and the client's system of internal controls is not considered effective at reducing that risk:

A) more high quality evidence is gathered when conducting substantive tests
B) detection risk is set as high
C) detection risk is set as low
D) none of the above

Question 5

Internally generated evidence is considered the most persuasive when the source of the evidence is considered to be reliable, trustworthy and independent of the client.

Question 6

Which assertion do auditors test when they test for the adequacy of the provision for doubtful debts?

A) valuation and allocation
B) rights and obligations
C) classification
D) occurrence

Question 7

Analytical procedures involve an evaluation of financial information by studying plausible relationships among both financial and non-financial data.

Question 8

Audit evidence is the information that an auditor uses when arriving at their opinion on the truth and fairness of their client's financial report.

Question 9

Correspondence with the client's lawyers is an example of externally generated evidence sent directly to the auditor.

Question 10

An auditor verifies amounts recorded in their client's records using:

A) electronic evidence
B) verbal evidence
C) confirmations
D) all of the above

Question 11

Negative confirmations ask the recipient to reply only if they disagree with the information provided.

Question 12

The group engagement partner will not use the evidence provided by a component auditor when drawing a final conclusion on the true and fair view without conducting more test.

Question 13

When testing for accuracy, an auditor searches for evidence:

A) to verify that a recorded transaction or event took place and relates to the entity
B) that all disclosures that should have been included in the financial report have been included
C) that transactions and events have been recorded at appropriate amounts
D) to verify that recorded assets are owned by the entity

Question 14

The component partner sets out the work to be conducted by the group engagement partner.

Question 15

An expert is expected to be less objective if they are not associated with the client.

Question 16

The greater the risk of material misstatement of the item under consideration, the more likely an auditor will turn to an expert for their advice.

Question 17

Which of the following is not an assertion used for transactions and events?

A) cut-off
B) existence
C) classification
D) occurrence

Question 18

When preparing the financial report, auditors make assertions about each account and related disclosures in the notes.

Question 19

A component auditor is an auditor who, at the request of the group engagement team, performs work on financial information related to a component for the group audit.

Question 20

External confirmations can be sent to:

A) third parties holding the client's inventory
B) the client's audit committee
C) the client's lawyers
D) both a and c

Question 21

Assessing an expert's report involves the auditor:

A) setting the nature, timing and extent of work to be completed by the expert
B) assessing the consistency of information included in the expert's report with their understanding of the client
C) evaluating the expert's qualifications as a member of a relevant professional body
D) deciding that they do not have the expertise necessary to test and evaluate the accuracy of reported information

Question 22

Observation involves an auditor:

A) asking questions to gain an understanding of various matters throughout the audit
B) watching a procedure being carried out by another party
C) checking the mathematical accuracy of client records
D) redoing processes conducted by the client

Question 23

Auditors use a re-performance procedure:

A) only when testing controls
B) only during the audit planning stage
C) only when conducting substantive testing
D) when testing controls and when conducting substantive testing

Question 24

Describe the purpose and examples of external confirmations.

Question 25

The group engagement partner is:

A) requested by the component auditor to perform certain audit work on behalf of the group engagement team
B) not responsible for providing an opinion on the truth and fairness of the client's financial statements
C) not the auditor responsible for signing the audit report
D) the auditor responsible for signing the audit report

Question 26

When an auditor uses the work of an expert, who has the responsibility for arriving at an overall conclusion regarding the truth and fairness of a client's financial report?

A) the auditor
B) the expert
C) the client's management
D) the client's audit committee

Question 27

If the component auditor cannot access sufficient evidence, the engagement partner will:

A) consider issuing an adverse audit opinion
B) always issue an unqualified audit opinion
C) consider issuing a modified audit opinion due to a scope limitation
D) none of the above

Question 28

Which of the following statements regarding a legal representation letter is in?

A) the letter can include a request to provide details of any legal matters that the lawyer is in disagreement with the client
B) the letter is sent by the auditor to its lawyers asking them to complete the letter and send it directly to the client
C) the letter is sent by the client to its lawyers asking them to complete the letter and send it directly to the auditor
D) the letter can include any legal matters involving the client

Question 29

Explain the three broad categories of corroborating evidence.

Question 30

Identify and explain the key assertions used for transactions and events, including income statement items, for an accounting period.

Question 31

Describe the major evidence gathering procedures most often used by auditors.

Question 32

Internally generated evidence held by the client includes:

A) bank statements
B) correspondence with the client's lawyers
C) copies of invoices sent to customers
D) expert valuations

Question 33

The factors considered by the group engagement partner, when assigning work to a component auditor;

A) Capacity of the component auditor
B) Reputation of the component auditor
C) Membership association
D) All of the above

Question 34

Which of the following forms of evidence is used when gaining an understanding of the client and its internal control systems?

A) verbal
B) computational
C) physical
D) external confirmations

Question 35

Which of the following is an example of a situation where an auditor may use the work of an expert?

A) A geologist engaged to evaluate the quantity and quality of mineral deposits
B) An actuary engaged to verify insurance premiums
C) Both a and b
D) None of the above

Question 36

The first stage when an auditor considers the use of an expert is:

A) assessing the objectivity of the expert
B) assessing the need to use an expert
C) assessing the expert's report
D) determining the scope of the work to be carried out

Question 37

Which broad category of corroborating evidence is the least persuasive to an auditor?

A) externally generated evidence sent directly to the auditor
B) internally generated evidence
C) externally generated evidence held by the client
D) none of the above

Question 38

When assigning work to a component auditor, the group engagement partner will;

A) Give specific details as to the way to conduct the audit
B) Consider the capacity of the other auditor to undertake the audit
C) Review the work if this is the first engagement by the audit firm
D) Separate the component auditor's findings from those of audit firm

Question 39

Which of the following statements regarding using the work of another auditor is ?

A) The group engagement partner will spend more time reviewing the component auditor's work when the component is at risk of material misstatement
B) The group engagement partner will spend more time reviewing the component auditor's work if the component auditor has a good reputation
C) The group engagement partner will spend less time reviewing the component auditor's work when the component is at risk of material misstatement
D) The component auditor sets out the work to be conducted by the group engagement partner

Question 40

The group engagement partner;

A) Provides the evidence required to satisfy the audit committee that the audit has been completed
B) Enlists the assistance of the internal auditors in completing the audit
C) The auditor responsible for signing the audit report
D) The auditor responsible for the engagement of staff to gather evidence

Question 41

ASA620 Using the Work of an Auditor's Expert provides guidelines for auditors when using the work of an expert. Identify examples of situations where auditors may use experts and evaluate the benefits and risks associated in each situation.

Question 42

Audit evidence is the information that an auditor uses when arriving at their opinion on the truth and fairness of their client's financial report. Why is evidence so important to a financial report audit?

Question 43

ASA502 Audit Evidence - Specific Considerations for Litigation and Claims requires an auditor to gather sufficient appropriate audit evidence regarding any legal matters involving their client. How can auditors gather such evidence and what impacts can legal matters have on the client's financial report?

Question 44

Explain the purpose of working papers and the difference between the permanent file and current file.