Question 1

Reliability relates to the source of the evidence and the nature of the evidence.

Accepted Answer

Reliability refers to whether the source of the evidence is trustworthy and the evidence itself is consistent and accurate.

Question 2

Sufficient audit evidence relates to the quantity of audit evidence gathered.

Accepted Answer

Sufficient audit evidence refers to the amount (quantity) of evidence gathered to form a reasonable basis for an auditor's opinion on the financial statements.

Question 3

What do you call a statement or representation, explicit or implied, made by management regarding the recognition, measurement, presentation, and disclosure of items included in the financial statements and notes?

Accepted Answer

This is referring to management's assertions in relation to the financial statements, which can include assertions about their recognition, measurement, presentation, and disclosure. The other options listed (inspection, tracing, and vouching) are all audit procedures, but do not refer specifically to management's statements or representations.

Question 4

Auditors gathering evidence to verify that recorded assets are owned by the entity and recorded liabilities represent commitments of the entity consider ________.

Accepted Answer

The concept of rights and obligations focuses on whether assets recorded in the financial statements actually belong to the entity and whether the recorded liabilities represent the commitments of the entity. This is the most relevant concept for auditors when verifying ownership of assets and commitments of liabilities. Completeness relates to whether all transactions and balances have been recorded, occurrence relates to whether transactions recorded in the financial statements actually occurred, and valuation and allocation relate to whether assets and liabilities are recorded at appropriate values.

Question 5

A specialist is an individual or an organization with expertise in a field other than accounting or auditing.

Accepted Answer

A specialist is a person or entity with specialized knowledge or expertise in a particular field, such as law, engineering, medicine, or technology, among others. This expertise is distinct from accounting or auditing, which are financial services that deal with the recording, analyzing, and reporting of financial transactions and data.

Question 6

Inquiry involves asking verbal questions only.

Accepted Answer

Inquiry can involve other forms of questioning, such as written or nonverbal.

Question 7

The current file includes extracts from the minutes of meetings, such as the board of directors' meetings, which pertain to the current audit.

Accepted Answer

The current file includes extracts from the minutes of meetings related to the current audit, such as the board of directors' meetings.

Question 8

In the context of assertions about classes of transactions and events for the period under audit, auditors considering occurrence gather evidence to verify that _______.

Accepted Answer

When auditors are considering occurrence, they are gathering evidence to verify that a recorded transaction or event actually took place and is related to the entity. This is done to ensure that the financial statements are not misstated due to fictitious transactions or events being recorded. Options B, C, and D are related to completeness, accuracy, and classification of transactions respectively, and are not directly related to the occurrence assertion.

Question 9

Audit risk affects the quantity and quality of evidence gathered by an auditor during the risk response phase.

Accepted Answer

This statement is true. Audit risk, which is the risk that the financial statements are materially misstated even though the audit opinion is unqualified, affects the auditor's planned approach and the amount and type of evidence required during the risk response phase. Higher audit risk requires more extensive evidence-gathering procedures.

Question 10

Which of the following is a listing of details of the audit procedures to be used when testing controls and when conducting detailed substantive audit procedures?

Accepted Answer

Audit program is a listing of details of the audit procedures to be used when testing controls and when conducting detailed substantive audit procedures. Options A, B, and C refer to specific audit techniques, but not the actual listing of procedures in an audit program.

Question 11

Examples of assertions include: accuracy, cutoff and valuation and allocation.

Accepted Answer

Assertions are statements made by management regarding the financial statements. Accuracy, cutoff, and valuation and allocation are examples of assertions.

Question 12

What do auditors do when considering rights and obligations?

Accepted Answer

Auditors gather evidence to verify that recorded assets are owned by the entity and recorded liabilities represent commitments of the entity. This is done to ensure that the financial statements present a true and fair view of the entity's financial position, which includes its rights and obligations. The other choices, B, C, and D, all relate to different aspects of the audit process but do not specifically address the consideration of rights and obligations.

Question 13

Inspection of documents can only be used as a test of controls.

Accepted Answer

Inspection of documents can be used both as a test of controls and a substantive procedure. As a test of controls, it helps to evaluate the effectiveness of the controls in place that ensure the completeness and accuracy of transactions and data recorded in the documents. As a substantive procedure, it helps to gather evidence about the accuracy and completeness of the transactions and data recorded in the documents themselves.

Question 14

Auditors who are searching for evidence that assets, liabilities, and equity items have been recorded at appropriate amounts and allocated to the correct general ledger accounts consider ________.

Accepted Answer

Auditors concerned with the accuracy of the financial statements will focus on the valuation and allocation of assets, liabilities, and equity items to ensure they have been recorded at appropriate amounts and assigned to the correct accounts. Existence relates to whether the assets and liabilities exist and whether transactions occurred during the reporting period. Classification involves the appropriate categorization of transactions into the appropriate general ledger accounts. Rights and obligations relate to whether the company has legal ownership or responsibility for the assets and liabilities.

Question 15

It is management's responsibility to ensure that financial statements are fairly and truthfully presented.

Accepted Answer

The management of a company is responsible for preparing its financial statements in accordance with applicable accounting standards and ensuring that they are fairly and truthfully presented. This responsibility is known as management's responsibility for financial reporting. However, it is important to note that external auditors also play a crucial role in reviewing and verifying the accuracy of financial statements.

Question 16

Which assertion is common to both (i) classes of transactions and events for the period under audit and (ii) account balances at the period-end?

Accepted Answer

Completeness is a common assertion for both classes of transactions and events for the period under audit and account balances at the period-end, as it concerns ensuring all transactions and account balances that should have been recorded are indeed recorded.

Question 17

When reporting inventory, management claims that the items exist, are owned by the entity, represent a complete list of the inventory owned, and are valued appropriately.These are examples of _______.

Accepted Answer

These statements are examples of assertions, which are the claims made by management about the accuracy and completeness of financial statements. Accounting records are the documents used to record financial transactions, while negative and positive confirmation are methods of gathering audit evidence.

Question 18

What term signifies assertions that have a reasonable possibility of containing a material misstatement that would cause the financial statements to be materially misstated?

Accepted Answer

Relevant assertions are those that have a reasonable possibility of containing a material misstatement that would cause the financial statements to be materially misstated. This term is used in the context of auditing, where auditors assess the risk of material misstatement in the financial statements and design appropriate audit procedures to address those risks. Rights and obligations, valuation and allocation, and accuracy and valuation are other financial statement assertions that auditors consider in their work, but they do not specifically relate to the risk of material misstatement.

Question 19

What do auditors do when considering existence?

Accepted Answer

When auditors consider existence, they are searching for evidence to verify that the asset, liability, and equity items on the balance sheet actually exist. This means they are looking for tangible items such as inventory, equipment, and buildings, as well as intangible items such as patents and trademarks. The goal is to ensure that these items are not simply fictitious entries on the balance sheet, but are real assets or liabilities that can be verified through physical inspection or other objective evidence.

Question 20

The permanent file includes client information and documentation that applies to the most recent year's audit.

Accepted Answer

The permanent file includes information and documentation that is relevant and useful for more than one year's audit, such as contracts, articles of incorporation, and important agreements, rather than just the most recent year's audit.

Quiz 5: Audit Evidence