Deck 5: Audit evidence

Question 1

Evidence is usually more persuasive for balance sheet accounts when it is obtained:

A) from the time period when transactions in that account were most numerous during the financial period.
B) as close to the balance sheet date as possible.
C) from various times throughout the client's year.
D) only from transactions occurring on the balance sheet date.

Answer 1

B

Question 2

The evidence used by auditors has which feature?

A) Various types of audit evidence are used.
B) A high level of assurance is required from the evidence.
C) The evidence is used to determine whether statements are fairly presented.
D) All of the above

Answer 2

D

Question 3

An audit program:

A) normally exists for each component of the audit.
B) always includes a list of the audit procedures.
C) usually includes sample sizes, items to select, and the timing of the tests.
D) all of the above

Answer 3

D

Question 4

Which is the least reliable form of evidence?

A) a letter from the client's solicitor stating that there are no known lawsuits pending against the client
B) the client's file copy of a purchase requisition
C) a positive confirmation of a customer's balance
D) a monthly bank statement

Question 5

For a given audit procedure, the evidence obtained from a sample of 200 would ordinarily be:

A) more sufficient than from a sample of 100.
B) less competent than from a sample of 100.
C) less sufficient than from a sample of 100.
D) more competent than from a sample of 100.

Question 6

The audit program usually states all four of the choices below, but it always includes the:

A) sample sizes.
B) audit procedures.
C) timing of the tests.
D) particular items to select.

Question 7

The list of audit procedures for an audit area or an entire audit is known as:

A) the audit conclusion
B) the audit program.
C) audit objectives.
D) all of the above

Question 8

ASA 500 requires auditors to accumulate sufficient appropriate evidence to support the opinion issued.Because of the nature of audit evidence, it is:

A) likely the auditor will be completely convinced that the opinion is correct.
B) unlikely the auditor will arrive at a conclusion.
C) unlikely the auditor will be completely convinced that the opinion is correct.
D) likely that the auditor would change his or her mind about the opinion if he or she took the time to gather additional evidence.

Question 9

The evidence used by auditors is different from that used by scientists in that:

A) scientists use results of repeated experiments.
B) the certainty of conclusions drawn from the evidence can vary.
C) the party evaluating the evidence is a scientist.
D) all of the above

Question 10

What is the common rationale in the performance of audit procedures?

A) to enable auditors to collect evidence at some time during the audit
B) to justify the conclusions auditors have otherwise reached
C) to defend auditors in the event of a lawsuit
D) to satisfy the requirements of the Corporations Act

Question 11

Not accumulating the appropriate evidence has the effect of:

A) a failure to meet the standards expected of the profession.
B) a failure to use evidence in performing the audit.
C) the auditor being found negligent in his or her audit.
D) all of the above

Question 12

Those procedures specifically outlined in an audit program are primarily designed to:

A) prevent litigation.
B) gather evidence.
C) test internal systems.
D) detect errors or irregularities.

Question 13

An auditor has determined that the appropriate sample size for a particular audit procedure is 50.Which of the following methods can the auditor use to select the 50 items?

A) Select the 50 items with the largest dollar amounts.
B) Select the 50 items randomly.
C) Select one week and examine the first 50 items.
D) Use any combination of the above three methods.

Question 14

Which of the following is NOT relevant in determining what types of evidence to accumulate?

A) timing
B) objectivity
C) sample size
D) audit procedures

Question 15

According to ASA 500, what is required of the auditor?

A) appropriate evidence to support the opinion issued
B) appropriately qualified evidence to support the opinion issued
C) sufficiently qualified evidence to support the opinion issued
D) sufficiently appropriate evidence to support the opinion issued

Question 16

'The detailed description of the results of the four evidence decisions for a specific audit is called an:

A) audit program.
B) audit procedure.
C) audit plan.
D) audit guide.

Question 17

When will the validity of audit evidence be called into question?

A) The client denies its veracity.
B) The auditor lacks the qualifications to evaluate the evidence.
C) It is provided by the client's solicitor.
D) It is impossible for the auditor to obtain additional corroborative evidence.

Question 18

What are the two determinants of the persuasiveness of evidence?
A) appropriateness and sufficiency
B) cost and efficiency

A) cost and sufficiency
D) appropriateness and efficiency

Question 19

The evidence used by auditors is different from that used in cases of law in that:

A) the nature of the conclusion is to decide guilt or innocence.
B) the judge and jury evaluate the evidence.
C) the only evidence relied on is direct evidence and testimony by witnesses.
D) all of the above

Question 20

The timing of audit procedures depends on:

A) when the client needs the audit to be completed.
B) when audit staff is available.
C) when the auditor believes the audit evidence will be most effective.
D) all of the above

Question 21

Which of the following statements is correct?

A) A specific type of evidence is sufficient by itself to provide reliable evidence to satisfy any audit objective.
B) Since the auditor performs the analytical procedures, these will be competent evidence even if internal controls provide inaccurate data.
C) The effectiveness of the client's internal control has a significant effect on the competence of most types of evidence.
D) Both physical examination and mechanical accuracy are likely to be highly reliable if the internal control structure is ineffective.

Question 22

Which of the statements regarding persuasiveness of audit evidence is correct?

A) The auditor must measure the degree to which evidence is either appropriate or sufficient.
B) A large sample of evidence from an independent source is always persuasive.
C) A large sample of evidence that is relevant but not objective is not persuasive.
D) A small sample of a small number of highly appropriate evidence is persuasive.

Question 23

Rank the reliability of the following items of audit evidence:
1)a sales invoice issued by the company
2)confirmation of an account receivable balance mailed by and returned directly to the auditor
3)minutes of a board meeting
4)a copy of a signed lease agreement

A) 2, 3, 4, 1
B) 3, 4, 2, 1
C) 2, 4, 1, 3
D) 4, 3, 2, 1

Question 24

Which two characteristics of audit evidence comprise its appropriateness?

A) the independence of the provider and reliability
B) persuasiveness and independence
C) relevance and reliability
D) persuasiveness and relevance

Question 25

Bank balances and receivables are commonly associated with which type of audit evidence?

A) confirmation
B) physical examination
C) confirmation
D) inquiries of the client

Question 26

How can the appropriateness of audit evidence be improved?

A) by selecting different population items
B) by selecting more relevant audit procedures
C) by selecting a larger sample size
D) all of the above

Question 27

The distinction between physical examination of assets and examination of documents is dependent on the item being examined.If the object being examined has no inherent value, the evidence is called:

A) documentation.
B) confirmation.
C) physical examination.
D) observation.

Question 28

Rank the reliability of the following items of audit evidence:
1)schedules of details of physical inventory counts conducted by the client
2)the auditor's notation of inferences drawn from ratios and trends
3)copies of bank statements held by the client
4)copies of bank statements obtained directly from the bank

A) 2, 3, 4, 1
B) 3, 4, 2, 1
C) 4, 2, 3, 1
D) 4, 1, 2, 3

Question 29

Confirmations are a highly regarded and often-used type of evidence because they:

A) come from an independent source.
B) are inexpensive.
C) cause no inconvenience for the auditor or third party.
D) all of the above

Question 30

The degree to which evidence can be considered believable or trustworthy is known as its:

A) relevance.
B) completeness.
C) reliability.
D) adequacy.

Question 31

In determining the quantity and quality of evidence to gather, the auditor will be satisfied when the evidence is:

A) conclusive.
B) completely convincing.
C) highly persuasive.
D) irrefutable.

Question 32

Samples are considered to be insufficient if they contain only:

A) items with a high likelihood of misstatement.
B) items that are representative of the population.
C) largest dollar items from a population, even though these items make up a large portion of the total population.
D) largest dollar items from the population.

Question 33

Which of the following statements is NOT correct?

A) The decision of how many items to test will not be influenced by the increased costs of performing the additional tests.
B) The decision of how many items to test must be made by the auditor for each audit procedure.
C) The sample size for any given procedure is likely to vary from audit to audit.
D) It is possible to vary the sample size from one unit to 100% of the items in the population.

Question 34

When the auditor is gathering evidence, if the source of the evidence is independent of the client, the auditor will conclude that the evidence is:

A) not reliable.
B) reliable if the provider has no reason to be biased.
C) reliable.
D) not reliable unless the provider is qualified to provide the evidence.

Question 35

What is the procedure referred to when the auditor examines the client's documents and records to substantiate the information in the financial statements?

A) confirmation
B) inquiry
C) physical examination
D) vouching

Question 36

Which one of the following is NOT one of the characteristics of reliable evidence?

A) effectiveness of the client's internal controls
B) degree of objectivity
C) independence of the provider
D) size of the sample

Question 37

When making decisions about evidence for a given audit, the auditor's goal is to obtain a sufficient amount of timely, reliable evidence that is relevant to the information being verified, and to do so:

A) at the lowest possible cost.
B) no matter what the cost involved in obtaining such evidence.
C) only if the cost is reasonable.
D) at any cost because the costs are billed to the client.

Question 38

Factors affecting the persuasiveness of an audit sample size and items to select relate to:

A) proper selection of the items in the sample.
B) adequate sample size.
C) sufficiency of the evidence.
D) all of the above

Question 39

Which one of the following forms of evidence would be most reliable?

A) the file copy of a purchase requisition
B) the file copy of a receiving room report
C) an insurance policy in the client's file
D) the file copy of a sales invoice

Question 40

Which one of the following forms of evidence would be LEAST persuasive in forming the auditor's opinion?

A) the auditor's count of marketable securities
B) responses to auditor's questions by the president and controller regarding the investments account
C) minutes of the board of directors authorising the purchase of shares as an investment
D) correspondence with a stockbroker regarding the quantity of the client's investments held by the broker

Question 41

Which type of audit evidence can the auditor use in support of the 'ownership of noncurrent assets' audit objective?

A) examine invoice from vendor
B) examine title for ownership of asset
C) physical examination
D) direct confirmation with vendor

Question 42

Which type of audit evidence can the auditor use in support of the 'existence of inventory' audit objective?

A) direct confirmation with vendor
B) physical examination
C) examine title for ownership of asset
D) examine invoice from vendor

Question 43

The Auditing and Assurance Standards Board has concluded that analytical procedures are so important that they are required during:

A) testing and completion phases.
B) planning and testing phases.
C) planning and completion phases.
D) planning, testing, and completion phases.

Question 44

A document that the auditor receives from the client, but which was prepared by someone outside the client's organisation, is:

A) an inquiry.
B) an external document.
C) an internal document.
D) a confirmation.

Question 45

The auditor is concerned that a client is failing to bill customers for shipments.An audit procedure that would gather relevant evidence would be to:

A) compare the total of the schedule of accounts receivable with the balance of the accounts receivable account in the general ledger.
B) trace a sample of sales journal entries to the accounts receivable subsidiary ledger.
C) trace a sample of shipping documents to related duplicate sales invoices.
D) select a sample of duplicate sales invoices and trace each to related shipping documents.

Question 46

An example of vouching would be to trace from:

A) duplicate bank deposit slips to the cash receipts journal.
B) the acquisitions journal to supporting vendors' invoices.
C) receiving reports to the acquisitions journal.
D) cancelled cheques to the cash disbursement journal.

Question 47

'Evaluations of financial information made through analysis of plausible relationships among both financial and nonfinancial data' is a definition of:

A) tests of transactions.
B) tests of balances.
C) auditing.
D) analytical procedures.

Question 48

When an auditor calculates return on assets and compares it with previous periods, this type of evidence is an example of:

A) observation.
B) physical examination.
C) inquiry.
D) analytical procedures.

Question 49

An auditor would be LEAST likely to use confirmations in connection with the examination of:

A) shareholders' equity.
B) property, plant, and equipment.
C) long-term debt.
D) inventories.

Question 50

Unusual fluctuations occur when:

A) fluctuations or relationships are inconsistent with other relevant information.
B) fluctuations or relationships differ from expected values by a significant amount.
C) significant differences are expected and do exist.
D) either A or B is true.

Question 51

Which of the following statements is NOT true? The evidence-gathering technique of inquiry:

A) is the auditor's principal method of evaluating the client's internal control.
B) cannot be regarded as conclusive.
C) does not provide evidence from an independent source.
D) requires the gathering of corroborative evidence.

Question 52

Which of the following types of evidence commonly serve alone to provide reliable evidence to satisfy any audit objective?

A) analytical procedures
B) observation
C) inquiries of client
D) all of the above

Question 53

Negative confirmations of accounts receivable are less effective than positive confirmations because when using negative confirmations:

A) the auditor cannot infer that all nonrespondents have verified their account information.
B) they do not produce evidential matter that is statistically quantifiable.
C) some recipients may report incorrect balances that require extensive follow-up.
D) a majority of recipients usually lacks the willingness to respond objectively.

Question 54

Which of the following is NOT audit evidence?

A) cancelled cheques
B) written confirmations from accounts receivable
C) collecting a sample of 200 sales invoices
D) comparison of prices of an invoice to an approved price list

Question 55

An example of an internal document is a:

A) receiving report.
B) bank statement.
C) bill of lading for a purchase.
D) cancelled cheque.

Question 56

Physical examination of assets is NOT a sufficient form of evidence when the auditor wants to determine the:

A) quantity and description of the asset.
B) ownership of the asset.
C) condition or quality of the asset.
D) existence of the asset.

Question 57

Physical inspection or count by the auditor is performed on items such as:

A) cash, inventory, cancelled cheques, and tangible fixed assets.
B) cash or inventory only.
C) cash, inventory, securities, notes receivable, and tangible fixed assets.
D) cash, inventory, cancelled cheques, and sales documents.

Question 58

Which one of the following statements is NOT correct?

A) Analytical procedures use comparisons and relationships to determine which account balances are in error.
B) In some instances, other types of evidence may be reduced when analytical procedures indicate that an account balance appears reasonable.
C) Analytical procedures are used to isolate accounts or transactions that should be investigated more extensively.
D) For certain immaterial accounts, analytical procedures may be the only evidence needed.

Question 59

Evidence obtained directly by the auditor is more competent than information obtained indirectly.Which of the following is NOT an example of the auditor's direct knowledge?

A) physical examination
B) inquiry
C) computation
D) observation

Question 60

Which type of audit evidence can the auditor use in support of the 'accuracy of accounts receivable' audit objective?

A) direct confirmation with customer
B) examination of title for ownership of asset
C) physical examination
D) examination of invoice from vendor

Question 61

If most companies in the industry use FIFO inventory valuation and straight-line depreciation, and the audit client uses weighted average and double-declining balance, comparisons of client and industry data:

A) will be a meaningful highlight of the result of these differences in accounting methods.
B) may not be meaningful.
C) will enable the auditor to spot irregularities but not errors.
D) will enable the auditor to spot errors but not irregularities.

Question 62

The most important difference between the 'quick' and 'current' ratios in assessing an entity's short-term debt-paying ability is the inclusion of:

A) cash at bank in one and not the other.
B) inventory in one and not the other.
C) current receivables in one and not the other.
D) prepayments in one and not the other.

Question 63

The absence of no fluctuations when applying analytical procedures implies:

A) there are no material irregularities.
B) there are no material errors.
C) there are no material errors or irregularities.
D) the possibility of a material error or irregularity is minimised.

Question 64

Which one of the following is NOT a liquidity activity ratio?

A) days to collect receivables ratio
B) inventory turnover ratio
C) days to sell inventory ratio
D) time interest earned ratio

Question 65

Which of the following is NOT one of the major types of analytical procedures? Compare the client with the

A) budget.
B) industry average.
C) prior year.
D) ASIC averages.

Question 66

Cost should never be a consideration when making decisions about evidence for a given audit.

Question 67

Analytical procedures are referred to as 'attention-direction' when they highlight:

A) areas that need more detailed procedures.
B) errors.
C) irregularities.
D) areas of improvement.

Question 68

One feature common to all computer-based audit software is:

A) the ability to input auditor's software into a client's computer system.
B) the inclusion of an industry database to facilitate analytical review procedures.
C) DOS-based command systems.
D) the ability to input a client's general ledger into the auditor's computer system.

Question 69

Comparing the client's data with industry averages provides:

A) an indication of the likelihood of financial failure.
B) a benchmark to be used in evaluating client's budgets.
C) an indication where errors exist in the statements.
D) a comparison of 'what is' with 'what should be'.

Question 70

ASA 500 requires the auditor to obtain sufficient or appropriate evidence to support the opinion issued.

Question 71

For analytical review procedures, the most commonly used statistical technique is:

A) mean and standard deviation calculations.
B) regression analysis.
C) summarisation.
D) batching.

Question 72

A common comparison occurs when the auditor calculates the expected balance and compares it with the actual balance.The auditor's expected account balance may be determined by:

A) using ABS data.
B) using industry standards.
C) relating it to some other balance sheet or income statement account or accounts.
D) inquiry of client.

Question 73

When the current year's unaudited trial balance is compared to the prior year's audited trial balance, what becomes apparent?

A) irregularities
B) errors
C) discrepancies
D) changes

Question 74

The primary purpose of performing analytical procedures in the testing phase of an audit is to:

A) assess the going concern assumption.
B) reduce detailed tests.
C) help the auditor obtain an understanding of the client's industry and business.
D) indicate possible misstatements (attention directing).

Question 75

Which of the following, when discovered through the use of analytical procedures, would indicate a relatively high risk of financial failure?

A) an increase in the balance in fixed assets
B) a decline in gross margin percentages
C) an increase in the ratio of allowance for uncollectible accounts to gross accounts receivable, while at the same time accounts receivable turnover decreases
D) a higher than normal ratio of long-term debt to net worth, as well as a lower than average ratio of profits to total assets

Question 76

Appropriateness of audit evidence can be improved by selecting a larger sample size or different population items.

Question 77

Most auditors prefer to replace tests of details with analytical procedures whenever possible because the:

A) analytical procedures are more reliable.
B) tests of details are more difficult to interpret.
C) tests of details are more expensive.
D) analytical procedures are more persuasive.

Question 78

The most common analytical procedure to assess liquidity is the:

A) debt to equity ratio.
B) net profit margin.
C) inventory turnover ratio.
D) quick ratio.

Question 79

The reliability of audit evidence cannot be improved by testing a larger sample of items.

Question 80

Industry comparisons provide an important benefit as:

A) an aid to understanding the client's business.
B) an indicator of errors.
C) a least-cost indicator for audit procedures.
D) an indicator of irregularities.