Question 1

Test of transactions,directional testing and substantive analytical procedures are used to provide evidence about management's assertions embedded in the financial statements.

Accepted Answer

These are common auditing procedures used to obtain evidence and support the accuracy and completeness of financial statement assertions.

Question 2

Audit evidence is also referred to as an audit opinion.

Accepted Answer

Audit evidence refers to the information gathered by an auditor to support their audit opinion. The audit opinion is the conclusion reached by the auditor based on the evidence gathered, but it is not synonymous with the evidence itself.

Question 3

The direction of testing from the source documents to recorded amounts provides evidence regarding the completeness of liabilities and expenses.

Accepted Answer

Testing from the source documents to recorded amounts helps to ensure that all liabilities and expenses have been properly recorded and classified in the financial statements, providing evidence of completeness.

Question 4

Evidence is generally of higher quality if it involves a member of the audit team actually going out to physically observe it than if it was obtained from another source.

Accepted Answer

When a member of the audit team physically observes something, they can assess the relevance and reliability of the evidence first-hand. This allows them to gather more complete and accurate information, making the evidence of higher quality.

Question 5

A client's original signed purchase order is higher quality evidence than a confirmation returned from the client's bank.

Accepted Answer

A confirmation returned from the client's bank is considered more reliable because it is an external source, whereas a client's original signed purchase order is an internal document.

Question 6

The amount of evidence gathered is not important to an auditor since the quality of the evidence is of primary importance.

Accepted Answer

While the quality of evidence is indeed of primary importance, the amount of evidence gathered is also crucial as it needs to be sufficient to support the auditor's conclusions and opinions.

Question 7

Assertions are relevant to the audit process because they are the representations of management embodied in the financial statements.

Accepted Answer

Assertions are management's representations of the financial statements and are a key focus of the audit process as the auditor needs to assess their accuracy and reliability.

Question 8

Internal documentation is more reliable to the auditor if the internal control surrounding the documentation is considered strong than if it is considered weak.

Accepted Answer

This statement is true because if the internal control surrounding the documentation is strong, it is more likely that the documentation is accurate, complete, and reliable. On the other hand, if the internal control is weak, there is a greater likelihood of errors, omissions, or fraud in the documentation. Therefore, a strong internal control environment enhances the auditor's reliance on internal documentation.

Question 9

Vouching is a process that helps establish that recorded transactions are valid.

Accepted Answer

Vouching involves examining supporting documents to ensure the validity of recorded transactions.

Question 10

Assertions are not relevant to an audit because they relate to the auditor and financial statements are management's responsibility instead of the auditor's.

Accepted Answer

Assertions are an important part of an audit as they help the auditor to assess the accuracy and completeness of financial statements. While financial statements are indeed management's responsibility, the auditor is responsible for evaluating the reliability of those statements through the use of assertions.

Question 11

An auditor may test an account balance by testing the transactions that comprise the balance,by directly testing the final account balance,or a combination of both.

Accepted Answer

An auditor can choose to test an account balance by testing the transactions comprising the balance, directly testing the final account balance, or using a combination of both methods.

Question 12

Emails and faxes are documents that represent important evidence to the auditor,however,they are sometimes difficult to substantiate as authentic.

Accepted Answer

Emails and faxes can be easily manipulated and fabricated, which makes it difficult for auditors to verify their authenticity. Therefore, while they are important evidence, they should be treated with caution and cross-referenced with other sources to ensure their accuracy.

Question 13

Vouching recorded transactions involves taking a sample from the journal and tracing the items back to the source documents to ensure the transactions occurred.

Accepted Answer

This statement accurately describes the process of vouching recorded transactions.

Question 14

Ulanda and Mudana,CPAs are performing an audit on McArnee,Inc.Ulanda selects a sample from certain source documents and traces them forward to the accounts payable ledger.The purpose of this test is to determine the possibility of understated liabilities.

Accepted Answer

Tracing source documents to the accounts payable ledger is a common test performed to detect understated liabilities.

Question 15

For an auditor to test the existence assertion of assets,testing will be performed beginning with the recorded asset and ending with the source documents.

Accepted Answer

This statement is true because in order to test the existence assertion of assets, the auditor would start with the recorded asset and then trace back to the source documents to verify that the asset actually exists and is owned by the company. This is a common testing procedure used by auditors to ensure the accuracy of financial statements.

Question 16

The direction of testing from recorded amounts toward supporting documentation provides evidence as to existence of assets and revenues.

Accepted Answer

Testing from recorded amounts towards supporting documentation, such as invoices or receipts, provides evidence that the assets and revenues reported in the financial statements exist and are supported by documentation. This helps to ensure the accuracy and completeness of the financial statements.

Question 17

One strategy used by auditors in testing assertions is to perform directional testing to find overstatements or understatements.

Accepted Answer

Directional testing is a strategy used by auditors to find overstatements or understatements in financial statements. This involves evaluating audit evidence in a way that provides evidence of potential misstatements in a particular direction.

Question 18

Based upon the risk of misstatement,the auditor uses judgment to determine which balances and transactions should be tested in the financial statements.

Accepted Answer

This statement is true. The auditor's risk assessment process includes identifying areas of higher risk of misstatement, which informs their decision of which balances and transactions to test during the audit.

Question 19

Presentation and disclosure assertions state that all transactions and balances are properly presented,and the company has disclosed every financial transaction and arrangement it entered into during the year in the footnotes.

Accepted Answer

The answer of Presentation and disclosure assertions state that all...

Question 20

Documentation that is produced electronically by the client's internal systems is not considered appropriate to the audit process.

Accepted Answer

This statement is false. Electronic documentation, such as reports generated by the client's internal systems, can be appropriate for use in the audit process, as long as the auditor determines that the documentation is reliable and relevant to the audit objectives.

Quiz 7: A Framework for Audit Evidence