Question 1

Which of the following factors would most likely influence an auditor's consideration of the reliability of data when performing analytical procedures?
A) if the data were developed in a computerized accounting system
B) if the data were prepared in conformity with GAAP
C) if the data were developed under a system with adequate controls
D) if the data were processed in an online system

Accepted Answer

The reliability of the data is most likely to be influenced if the data were developed under a system with adequate controls. This ensures that the data is accurate, complete, and free from material misstatements. Although factors such as computerized accounting systems, conformity with GAAP, and processing in an online system may affect the reliability of the data, they do not have as much impact as having adequate controls in place.

Question 2

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 prior to year end can be acceptable when the auditor concludes that the client's control environment is effective (indicating a lower risk of material misstatement) and when the likelihood of errors or fraud is low. Both conditions suggest that earlier testing may not compromise the quality of the audit evidence obtained.

Question 3

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

Testing additions and disposals to the fixed asset register can be done before year-end as these transactions occur throughout the year and can be verified as they happen.

Question 4

An auditor's ability to perform substantive procedures at an interim date is dependent on
A) the evaluation of audit risk.
B) convenience.
C) the materiality of the account to be tested.
D) an effective control environment.

Accepted Answer

The answer of An auditor's ability to perform substantive procedures...

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

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 typically performed after interim procedures but before the end of the financial year to update the audit findings and ensure they are still accurate at year-end. This helps ensure that the audit is comprehensive and up-to-date. Roll-forward procedures are not primarily designed to detect fraud or performed before the end of the financial year.

Question 7

Roll-forward procedures are conducted to
A) update findings from the previous year's audit to the current year.
B) update findings from an interim date to year end.
C) adjust accounts at year end for prepayments.
D) none of the above

Accepted Answer

Roll-forward procedures are used to update findings from an interim date to the year-end, ensuring that the audit conclusions remain appropriate up to the balance sheet date.

Question 8

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.

Question 9

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 the above

Accepted Answer

The described procedure is a type of substantive analytical procedures, which involve comparing financial information with other data to assess the reasonableness and consistency of reported amounts. This type of procedure is commonly used in auditing to gather evidence about the financial statements and detect potential misstatements. Tests of details refer to specific tests performed on individual transactions or account balances, while computer assisted audit techniques (CAATs) are tools that help auditors process large amounts of data efficiently. Therefore, choices A and B are not the best options.

Question 10

A substantive test that an auditor would conduct at year end is
A) physical inspection of assets on hand.
B) review of the audit client's credit procedures.
C) testing the mathematical accuracy of invoices.
D) confirmation of accounts receivable.

Accepted Answer

Confirmation of accounts receivable is a substantive test that provides evidence of the existence and accuracy of the balances. Physical inspection of assets on hand, review of the audit client's credit procedures, and testing the mathematical accuracy of invoices are also important audit procedures, but they may not be classified as substantive tests.

Question 11

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

The purpose of substantive procedures is to obtain direct evidence as to both the reasonableness of the estimates and other information in the financial statements and the completeness, accuracy, and validity of data. Therefore, Choice C is the correct answer. Choice A represents an aspect of the reasonableness of the financial statements, while Choice B is an aspect of the completeness, accuracy, and validity of the underlying data.

Question 12

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

Larry French will use his professional judgment to determine how much testing to perform. This may include considering the level of risk associated with the controls, the complexity of the controls, and the extent of changes to the controls since they were last tested. Statistical sampling and last year's results could be used as supporting factors, but they should not be the sole basis for determining the extent of testing.

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 timing of the year-end work will determine the timing of the audit procedures because the auditor needs to ensure that the procedures are performed at a time when the controls are operating effectively.

Question 14

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 15

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 16

Which of the following factors do not influence the extent and timing of substantive procedures to be undertaken?
A) the audit risk assessment
B) the nature of the procedures
C) complexity of the audit client's data capturing system
D) the level of assistance received from the internal auditor who responds directly to management

Accepted Answer

The level of assistance received from the internal auditor who responds directly to management is not a factor that should influence the extent and timing of substantive procedures to be undertaken. The other options, namely, audit risk assessment, nature of procedures, and complexity of the audit client's data capturing system, are crucial factors in determining the extent and timing of substantive procedures.

Question 17

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 18

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 19

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) break-even 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 20

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.

Quiz 8: Execution of the Audit Performing Substantive Procedures

Which of the following factors would most likely influence an auditor's consideration of the reliability of data when performing analytical procedures?

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

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

An auditor's ability to perform substantive procedures at an interim date is dependent on

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

Roll-forward procedures are performed

Roll-forward procedures are conducted to

A substantive test that an auditor would conduct at year end is

The purpose of substantive procedures includes obtaining direct evidence as to

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?

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?

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

Which of the following statements is correct?

Which of the following factors do not influence the extent and timing of substantive procedures to be undertaken?

Typically, substantive testing tends to be performed

Inherent risk is

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

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