Question 1

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 considered externally generated evidence and is sent directly to the auditor.

Question 2

Audit evidence is the information that an auditor uswhen arriving at their opinion on the fair presentation of their client's financial statements.

Accepted Answer

Audit evidence is a crucial part of the audit process as it provides support for the auditor's conclusions on the fairness of the financial statements. It includes both qualitative and quantitative information such as documents, records, observations, and calculations.

Question 3

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

Accepted Answer

An expert is expected to be objective regardless of their association with the client. Objectivity is a key characteristic of expertise and requires the expert to provide unbiased and impartial advice or opinions based on their knowledge and experience. Any personal bias or interest should be disclosed and managed appropriately to maintain objectivity.

Question 4

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 defined as an auditor who is requested by the group engagement team to perform work on financial information related to a component for the group audit.

Question 5

When preparing the financial statements, auditors make assertions about each account and related disclosurin the notes.

Accepted Answer

Auditors do not make assertions; management makes assertions about the financial statements, and auditors evaluate these assertions for accuracy and compliance.

Question 6

Nicholas Doulas, the partner-in-charge of the Fairfax Financial Holdings audit wrote a management representation letter. It would have included:

Accepted Answer

The management representation letter would include both written details of verbal representations made by management during the audit as well as a representation that there have been no material frauds and errors.

Question 7

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

Accepted Answer

Analytical procedures in auditing involve analyzing financial information and evaluating relationships with non-financial information to assess the reasonableness of financial statements. This helps auditors to detect any anomalies or inconsistencies that require further investigation.

Question 8

The permanent file includclient information and documentation that apply to more than one audit.

Accepted Answer

The permanent file contains significant information and documentation that applies to multiple audits. It typically includes information such as the client's articles of incorporation, bylaws, contracts, and prior-year audit reports.

Question 9

Irvin Schatz, CPA had his client Brown Boveri, send out a legal letter to their lawyers. The legal letter would have contained requests for:

Accepted Answer

The answer of Irvin Schatz, CPA had his client Brown...

Question 10

The decision of what constitutsufficient appropriate audit evidence is a matter for professional judgment.

Accepted Answer

The decision of what constitutes sufficient appropriate audit evidence is ultimately dependent on the professional judgment of the auditor. This allows for flexibility and adaptation to unique situations, but also requires a high level of expertise and knowledge in order to make informed and defensible judgments.

Question 11

Lucy Wong's work at Axcan Pharma consisted of reading lease agreements to ensure that leaswere disclosed accurately in the notto the financial statements. Which assertion was she fulfilling?

Accepted Answer

The answer of Lucy Wong's work at Axcan Pharma consisted...

Question 12

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

Accepted Answer

Negative confirmations are designed to receive a response only if the recipient disagrees with the information provided.

Question 13

The permanent file includdetailed descriptions of evidence gathered for a particular year's audit.

Accepted Answer

The permanent file contains information that is relevant to multiple audits over several years, such as organizational charts and accounting policies, rather than detailed descriptions of evidence for a specific year's audit.

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

This is because if an item has a higher risk of material misstatement, it may require specialized knowledge or expertise to properly understand and evaluate. The auditor may turn to an expert in the field to assist in their assessment and reduce the risk of making an incorrect conclusion.

Question 15

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

Accepted Answer

The cut-off assertion relates to the timing of transactions, ensuring they are recorded in the correct accounting period, not about rights or obligations of assets and liabilities.

Question 16

Delaney Humphrey was explaining the importance of documentary evidence. Which assertion was she referring to when she obtained details of the price paid for inventory and traced it to the supplier's invoice to verify the amount recorded?

Accepted Answer

Delaney Humphrey was verifying the accuracy of the recorded amount by tracing it back to the supplier's invoice.

Question 17

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 18

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

Accepted Answer

Observation involves directly watching and gathering information about a client's behavior or performance, not checking the mathematical accuracy of their records.

Question 19

Olga Chevalier, CPA was reviewing presentation and disclosure assertions for AthabasOil Sands. Which one of the following would not be a presentation and disclosure assertion?

Accepted Answer

The assertion of occurrence relates to the occurrence of transactions and events, not to the presentation and disclosure of information in financial statements. Completeness, classification and valuation, accuracy and valuation are all presentation and disclosure assertions.

Question 20

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.

Quiz 5: Audit Evidence