Question 1

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

Detection risk is one of the components of audit risk along with inherent risk and control risk. The auditor assesses inherent risk and control risk separately from detection risk. Detection risk can be defined as the risk that the auditor will not detect material misstatements that are present in the financial statements. When assessed risks of material misstatement (inherent risk and control risk) are higher, the auditor needs to lower detection risk by performing significant substantive procedures. Conversely, lowering the assessed risks of material misstatement reduces the level of detection risk that the auditor can accept. Therefore, there is an inverse relation between the auditor's assessed risk of material misstatement and detection risk.

Question 2

Daniel Morency has performed evaluations of financial information and determined whether the fluctuations of his client's sales figures are 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 procedures called
A) tests of details.
B) computer assisted audit techniques.
C) analytical procedures.
D) none of these.

Accepted Answer

The answer of Daniel Morency has performed evaluations of financial...

Question 3

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, as it provides the auditor with the most up-to-date and relevant information about the financial statements. This helps to ensure that the financial statements are fairly presented and free from material misstatement.

Question 4

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

Accepted Answer

All of the techniques mentioned (preparation of common sized financial statements, break-even analysis, and ratio analysis) can be used to perform analytical procedures as substantive tests. Common sized financial statements can reveal trends and identify significant changes in account balances, while break-even analysis can help determine the point at which revenue equals expenses. Ratio analysis can be used to compare financial information across time or against industry benchmarks, and can help identify potential areas of concern.

Question 5

Jocelyne Yu is performing procedures and 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, which involves verifying individual transactions or account balances to supporting documentation. This is the appropriate procedure to use when vouching the balance in the fixed assets ledger back to supporting documentation. Test of controls refers to testing the effectiveness of the company's internal controls, while risk assessment involves identifying and assessing potential risks to the audit.

Question 6

Which of the following examples of substantive procedures would 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 examples of substantive...

Question 7

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. It is a process of auditing where source documents are examined to verify that the amounts recorded in the accounting records are accurate and complete. Option A is called tracing, while option C is sampling.

Question 8

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 9

The nature of substantive procedures normally 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

The nature of substantive procedures typically involves a combination of techniques, including analytical procedures, representative sampling, and key item testing, among others. Therefore, choice D is the best answer as it includes all of the above-mentioned techniques.

Question 10

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 a material misstatement occurring in the financial statements regardless of any internal controls put in place by management. Even if there are good internal controls, inherent risk can still exist due to the nature of the business or industry, complexity of transactions, or other factors. The auditor's assessment of inherent risk is based on their understanding of the entity and its environment, and is used to determine the nature, timing, and extent of audit procedures.

Question 11

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

Question 12

The purpose of substantive procedures includes obtaining 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 performed to obtain direct evidence about the completeness, accuracy and validity of data in the financial statements, as well as to determine the reasonableness of the estimates and other information provided. Therefore, both options A and B are correct.

Question 13

Umberto Levinson has performed a test of controls of a flower shop. He is trying to determine the timing of substantive procedures at 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 answer of Umberto Levinson has performed a test of...

Question 14

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

The primary purpose of vouching is to ensure that the balances or transactions are not overstated. Vouching involves the examination of supportive evidence such as bills, receipts, and other documents to verify the existence, ownership, and validity of transactions. By doing so, auditors can confirm that the recorded balances or transactions are not exaggerated or inflated. Additionally, vouching also helps to detect errors or frauds that may result in overstated balances or transactions.

Question 15

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

Substantive testing involves testing the balances and transactions in an entity's financial statements to determine whether they are materially correct. Enquiry involves obtaining information from management and staff about transactions and balances. Confirmations involve obtaining direct verification of balances and transactions from external parties. Analytical review involves analyzing the relationships between different accounts and between current and previous periods. All three procedures can be used in substantive testing, and therefore, choice D is the best answer.

Question 16

Jacqueline Martineau was told by her audit senior to ensure that the evidence she provided through analytical procedures was both persuasive and corroborative. Which of the following evidences are 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 17

Which of the following factors should not influence the extent and timing of when substantive procedures are 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, as the auditor's duty is to provide an independent and objective opinion based on the evidence gathered, and not to cater to the preferences of the client. The other factors listed (complexity of data capturing systems, level of assurance necessary, and type of evidence required) may affect the extent and timing of substantive procedures performed.

Question 18

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

The answer of Larry French is trying to determine the...

Question 19

Roll-forward procedures are 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 is necessary because the audit evidence obtained during interim procedures may not be sufficient to support the financial statements at year-end. Roll-forward procedures ensure that the auditors have sufficient and appropriate evidence to support their opinion on the financial statements.

Question 20

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 procedures can 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 both the effectiveness of controls and the correctness of the transactions or balances, thus serving both objectives Tobias Appel has.

Quiz 9: Execution of the Audit Performing Substantive Procedures

Which of the following statements is correct?

Typically, substantive testing tends to be performed:

Stella Zhang has been performing analytical procedures techniques as a substantive test. The techniques that can be used to perform analytical procedures are:

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

Which of the following examples of substantive procedures would often be performed prior to year-end?

Vouching involves:

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

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

Inherent risk is:

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

The purpose of substantive procedures includes obtaining direct evidence as to:

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

The primary purpose of vouching is to ensure that:

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

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

Which of the following factors should not influence the extent and timing of when substantive procedures are 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?

Roll-forward procedures are performed: