Question 1

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

Accepted Answer

Auditors test the adequacy of the provision for doubtful debts by assessing if the amount is correctly valued and allocated. This includes reviewing the company's methods for estimating bad debts and determining if the techniques used are appropriate and consistent with accounting standards. Auditors may also perform tests of the provision to ensure that it adequately covers expected losses from customers who are unlikely to repay their debts.

Question 2

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

Accepted Answer

Analytical procedures are a common audit technique used to gain an understanding of a company's financial performance by examining relationships among financial and non-financial data. These procedures are used for both planning and substantive audit procedures.

Question 3

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

Accepted Answer

False

Question 4

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

Accepted Answer

The cut-off assertion primarily concerns whether transactions and events have been recorded in the correct accounting period. It does not directly relate to whether the entity holds or controls the rights to assets or whether liabilities are the obligations of the entity; those are related to the rights and obligations assertion.

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.

Accepted Answer

Internally generated evidence is generally considered less persuasive than evidence obtained from independent external sources because it may not be as reliable or free from bias associated with the client's interests.

Question 6

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

Accepted Answer

Experts are expected to be objective and impartial, regardless of whether or not they are associated with the client. Being unaffiliated with the client may help ensure objectivity, but it is not a guarantee of it.

Question 7

Completeness is an assertion used:

Accepted Answer

Completeness is an assertion used for presentation and disclosure, when testing balance sheet items, and for transactions and events. It ensures that all transactions and events that should have been recorded and disclosed in the financial statements have been included. Therefore, option D is the correct choice.

Question 8

When testing for accuracy,an auditor searches for evidence:

Accepted Answer

Accuracy in auditing refers to ensuring that transactions and events have been recorded at their correct amounts, which is what option D addresses.

Question 9

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

Accepted Answer

Existence is an assertion used for account balances and asset ownership, not for transactions and events. Occurrence, cut-off, and classification are assertions related to transactions and events, ensuring they have occurred, are recorded in the correct accounting period, and are properly classified, respectively.

Question 10

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

Accepted Answer

Correspondence with the client's lawyers is a type of external evidence that can be obtained by the auditor directly from the source. This information can provide valuable insights into legal disputes, pending litigation, or other matters that may impact the financial statements. Therefore, it is an example of externally generated evidence sent directly to the auditor.

Question 11

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

Accepted Answer

The group engagement partner is responsible for setting out the work to be conducted by the component auditors, not the other way around.

Question 12

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

Accepted Answer

An auditor verifies amounts recorded in their client's records using various types of evidence, including verbal evidence (such as inquiries of management), electronic evidence (such as electronic transactions and records), and confirmations (such as letters sent to third parties to confirm account balances). Therefore, "all of the above" is the correct choice as it encompasses all these types of evidence.

Question 13

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 tests.

Accepted Answer

The group engagement partner may use the evidence provided by a component auditor when drawing a final conclusion on the true and fair view, but they must be satisfied that the work of the component auditor is adequate for their purposes and that they have reviewed and evaluated the component auditor's work. They may also need to conduct additional tests if they determine that the work of the component auditor is not sufficient.

Question 14

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.

Accepted Answer

When there is a higher risk of material misstatement, an auditor may rely on the expertise of an outside specialist to obtain additional information or to assist in evaluating the item under consideration. This helps the auditor to obtain sufficient and appropriate evidence to support their opinion.

Question 15

When assigning work to a component auditor,the group engagement partner will consider the capacity of the other auditor to undertake the work.

Accepted Answer

The group engagement partner must consider the capacity of other auditors when assigning work to them. This includes considering factors such as their expertise, availability, and workload. This ensures that the work is assigned appropriately and that the audit is performed effectively and efficiently.

Question 16

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.

Accepted Answer

Audit evidence is a crucial component in the audit process, and it includes information obtained from various sources like client documents, physical inspection, inquiries from management, analytical procedures, and other external sources. The auditor uses this evidence to support their opinion on the financial statements' fairness and accuracy.

Question 17

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

Accepted Answer

Observation is actually a method of collecting evidence by directly observing and verifying the activities being performed, rather than checking mathematical accuracy of client records.

Question 18

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:

Accepted Answer

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, the auditor should set detection risk as low. This means the auditor will need to gather more persuasive evidence through substantive testing to reduce audit risk to an acceptable level. Setting detection risk as high implies a low level of evidence gathering, which is not appropriate in this scenario.

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.

Accepted Answer

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

Question 20

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

Accepted Answer

Negative confirmations are used to confirm information where the recipient is only required to reply if they disagree with the information provided.

Quiz 5: Audit Evidence