AT.M-1415 AUDIT EVIDENCE AND DOCUMENTATION AUDIT EVIDENCE-MULTIPLE CHOICE PART I 1. All the information used by the auditor in arriving at the conclusion on which the audit opinion is based. It includes the information contained in the accounting records underlying the financial statements (underlying accounting data) and other information (corroborating information). A. Audit evidence C. Audit opinion B. Audit risk D. Audit program 2. Which of the following statements is/are correct? Statement 1: Audit evidence comprises source documents and accounting records, underlying the financial statements and corroborating information from other sources. Statement 2: Audit evidence is obtained to form an appropriate mix of tests of control and substantive procedures. Statement 3: The auditor should obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion. A. Statements 1 and 2 only C. Statement 2 and 3 only B. Statements 1 and 3 only D. All statements are correct 3. All of the following are underlying accounting data, except: A. Records of initial entries and supporting documents B. General and subsidiary ledgers C. Worksheets and spreadsheets for cost allocations D. Minutes of meetings 4. The measure of the quantity of audit evidence is: A. Sufficiency C. Appropriateness B. Competence D. Relevance 5. The measure of the quality of audit evidence is: A. Sufficiency C. Appropriateness B. Competence D. Relevance 6. An evidence to be considered appropriate must be: A. Relevant C. Reliable B. Relevant and reliable D. Relevant or reliable 7. The following statements are correct, except: A. The greater the risk of misstatement, the more audit evidence is likely to be required. B. The higher the quality of audit evidence, the less may be required. C. Obtaining more audit evidence will compensate for its poor quality. D. The sufficiency and appropriateness of audit evidence are interrelated. 8. The appropriateness of audit evidence available to an auditor is least likely to be affected by: A. The relationship of the source or prepare of the evidence to the entity being audited. B. The relevance of the evidence to the financial statement assertion being investigated. C. The timeliness of the audit evidence. D. The sampling method employed by the auditor to obtain a sample of the evidence. 9. The most reliable form of documentary evidence are those documents that are: A. Internally generated C. Authorized by a responsible official B. Pre-numbered D. Easily duplicated 10. Which of the following procedures would provide the most reliable audit evidence? A. Inquiries of the client’s internal audit staff held in private B. Inspection of prenumbered client purchase orders filed in the vouchers payable department C. Analytical procedures performed by the auditor on the entity’s trial balance D. Inspection of bank statements obtained directly from the client’s financial institution 11. Ultimately, what is sufficient appropriate audit evidence depends on: A. The users of the financial statements under audit. B. The professional judgment of the client’s management and those charged with governance. C. The professional judgment of the auditor. D. A combination of the professional judgment of the auditor and the client’s management. 12. The auditor’s judgment as to what is sufficient appropriate audit evidence is influenced by such factors as: A. The auditor’s assessment of the nature and level of inherent risk at both the financial statement level and the account balance or class of transaction level. B. The nature of the internal control structure and the assessment of control risk. C. The materiality of the item being examined. D. The experience gained during previous audits. E. The results of the audit procedures, including fraud or error which may have been found. F. The source and reliability of information available. A. A, B, D, F, G C. A, B, F B. A, B, D, E, F D. A, B, C, D, E, F 13. Which of the following statements regarding reliability of evidence is incorrect? A. Audit evidence is more reliable when it is obtained from independent sources outside the entity. B. The condition of internal control of the entity does not contribute to the reliability of audit evidence. C. Audit evidence that is generated internally is more reliable when the related controls are effective. D. Audit evidence obtained directly by the auditor is more reliable than audit evidence obtained indirectly. 14. Which of the following is the least reliable evidence? A. Confirmation from third parties C. Documentary form evidence B. Observation of the inventory count D. Photocopies and facsimiles 15. Which of the following statement is/are correct? Statement 1: The auditor considers the relationship between the cost of obtaining audit evidence and the usefulness of the information obtained. Statement 2: The difficulty and the expense involved are valid basis of omitting an audit procedure for which there is no alternative. Statement 3: The auditor relies on audit evidence that is persuasive rather than conclusive. Statement 4: The auditor uses professional judgment and exercise professional scepticism to determine the sufficiency and appropriateness of evidence. A. Only one statement is correct C. Only three statements are correct B. Only two statements are correct D. All statements are correct 16. Assertions used by the auditor fall into the following categories, except: A. Assertions about the faithful representations B. Assertions about account balances C. Assertions about classes of transactions and events D. Assertions about presentation and disclosure 17. Management assertions are: A. Stated in the footnotes to the financial statements B. Implied or express representations about the accounts in the financial statements. C. Explicitly expressed representations about the financial statements. D. Provided to the auditor in the assertions letter, but are not disclosed in the financial statements. 18. Management assertions are: A. Directly related to PSAs C. Directly related to GAAP B. Indirectly related to PSAs D. Indirectly related to GAAP 19. Assertions about account balances at the period-end include valuation and allocation, which means that A. Assets, liabilities and equity interest exist. B. All assets, liabilities and equity interests that should have been recorded have been recorded. C. Assets, liabilities and equity interests are included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded. D. The entity holds or controls the rights to assets, liabilities are the obligations of the entity. 20. The assertion of cut-off means that: A. All transactions and events that should have been recorded B. Amounts and other data relating to recorded transactions and events have been recorded appropriately C. Transactions and events have been recorded in the correct accounting period D. Transactions and events have been recorded in the proper accounts. 21. The assertion of occurrence means that: A. All transactions and events that should have been recorded are recorded B. Amounts and other data relating to recorded transactions and events have been recorded appropriately C. Transactions and events that have been recorded have occurred, and pertain to the entity D. Transactions and events have been recorded in the proper accounts 22. Which description refers to the completeness assertion? A. All disclosures that should have been included in the financial statements have been included. B. Disclosed events, transactions and other matters have occurred and pertain to the entity, C. Financial information is appropriately presented and described, and disclosures are clearly expressed. D. Financial and other information are disclosed fairly and at appropriate amounts. 23. Confirming proper title to equipment supports which of the following assertions? A. Existence or occurrence C. Presentation and disclosure B. Insurance or coverage D. Rights and obligations 24. Which of the following ultimately determines the auditing procedures necessary in an audit engagement? A. Auditor judgment C. Relative risk B. Materiality D. Reasonable assurance 25. The completeness assertion addresses whether A. All of the assets on the balance sheet exist. B. All recorded transactions occurred. C. The entity has property rights to all assets on the balance sheet. D. All of the transactions, which occurred during the period, were recorded. 26. The auditor notices that a client’s cash basis financial statements are prepared with accrual basis financial titles. This situation bears on which financial statement assertion? A. Valuation or allocation C. Rights and obligations B. Presentation and disclosure D. Completeness 27. When vouching, A. The direction of the test is from recorded item back to the underlying support. B. A complete examination of the transactions in the account is performed. C. Recomputations are performed. D. The auditor selects a transaction and follows it forward to recording in the accounting records. 28. Which of the following statements relating to the competence of evidential matter is always true? A. Evidence gathered by auditors must be both valid and relevant to be considered competent. B. Properly designed analytical procedures will detect material misstatements. C. Evidential matter gathered by an auditor from outside a client is reliable. D. Oral representations made by management are not valid. 29. The process of vouching helps establish that all recorded transactions A. Have been completed C. Are valid B. Are complete D. Are presented properly 30. Acts to be performed in order to obtain audit evidence A. Audit standards C. Audit program B. Audit procedures D. Audit strategy 31. Which of the following best describes the primary purpose of audit procedures? A. To detect fraud B. To comply with generally accepted accounting principles C. To gather corroborative evidence to support the audit opinion D. To verify the accuracy of account balances 32. Audit procedures performed to obtain an understanding of the entity and its environment, including its internal control. A. Risk assessment procedures C. Substantive procedures B. Tests of control D. Analytical procedures 33. Audit procedures to test the operating effectiveness in preventing or detecting and correcting material misstatements at the assertion level. A. Risk assessment procedures C. Substantive procedures B. Tests of control D. Analytical procedures 34. Audit procedures to detect material misstatements at the assertion level. A. Risk assessment procedures C. Substantive procedures C. Tests of control D. Analytical procedures 35. Which of the following procedures is not required to be performed by the auditor? A. Risk assessment procedures C. Substantive procedures B. Tests of control D. Analytical procedures 36. It includes test of details of classes of transactions, account balances, and disclosures and analytical procedures. A. Risk assessment procedures C. Substantive procedures B. Tests of control D. Analytical procedures 37. Test of controls are necessary to be performed: A. When auditor’s risk assessment includes an expectation of the operating effectiveness of controls. B. When substantive procedures alone do not provide sufficient appropriate audit evidence. C. Both a and b D. No circumstance will require tests of controls. 38. Examining records or documents, whether internal or external, in paper form, electronic form, or other media. A. Inspection of records or documents C. Observation B. Inspection of tangible assets D. Inquiry 39. Physical examination of the assets. A. Inspection of records or documents C. Observation B. Inspection of tangible assets D. Inquiry 40. Consists of looking at a process or procedures being performed by others. A. Inspection of records or documents C. Observation B. Inspection of tangible assets D. Inquiry 41. Consists of seeking information from knowledgeable persons, both financial and nonfinancial, within the entity or outside the entity. A. Inspection of records or documents C. Observation B. Inspection of tangible assets D. Inquiry 42. The process of obtaining a representation of information or of an existing condition directly from third party. It is a specific type of inquiry. A. Reperformance C. Reconciliation B. Confirmation D. Recomputation 43. Consists of checking the mathematical accuracy of documents or records. A. Reperformance C. Reconciliation B. Recalculation D. Recomputation 44. Auditor’s independent execution of procedures or controls that were originally performed as part of the entity’s internal control. A. Reperformance C. Reconciliation B. Confirmation D. Recomputation 45. Evaluation of financial information made by study of plausible relationships among both financial and non-financial data. A. Reperformance C. Reconciliation B. Confirmation D. Analytical procedures 46. Which statement is incorrect regarding the nature of further audit procedures? A. The nature of further audit procedures refers to their purpose and type. B. Certain audit procedures may be more appropriate for some assertions than others. C. The auditor is required to obtain audit evidence about the accuracy and completeness of information produced by the entity’s information system when that information is used in performing audit procedures. D. The higher the auditor’s assessment of inherent and control risks, the less reliable and relevant is the audit evidence sought by the auditor from substantive procedures. 47. The more the planned reliance of the auditor on the operating effectiveness of internal controls, A. The more the extent of the auditor’s tests of controls. B. The less the extent of the auditor’s tests of controls. C. The more the reliance of the auditor on information generated by the entity. D. The less the reliance of the auditor on information generated by the entity. 48. In the context of an audit of financial statements, substantive tests are audit procedures that A. May be eliminated under certain conditions. B. Are designed to discover significant subsequent events. C. May be either tests of transactions, direct tests of financial balances, or analytical tests. D. Will increase proportionately with the auditor’s reliance on internal control. 49. Which of the following methods is considered the best combination in obtaining audit evidence assuming documentary evidence is available to the auditor? A. Inspection and reperformance C. Inquiry and inspection B. Observation and inquiry D. Inquiry and analytical procedures 50. As required by PSA 500, the auditor’s substantive procedures should include the following: A. Agreeing the financial statements to the underlying accounting records. B. Examining material journal entries and other adjustments made during the course of preparing the financial statements. C. Both a and b. D. Neither a nor b. 51. “Physical examination” is the inspection or count by the auditor of assets such as: A. Cash or inventory only B. Cash, inventory, cancelled checks, and sales documents C. Cash, inventory, securities, notes receivable, and tangible assets D. Cash, inventory, cancelled checks, and tangible fixed assets 52. Physical examination of tangible assets is not a sufficient form of evidence when the auditor wants to determine the: A. Existence of the asset C. Condition or quality of the asset B. Quantity and description of the asset D. Ownership of the asset 53. Which of the following audit procedures is used extensively throughout the audit but does not, by itself, provide sufficient appropriate evidence? A. Inspection of records or documents C. Inquiry B. Observation D. Inspection of tangible assets 54. Evidence obtained directly by the auditor is more reliable than information obtained indirectly. Which of the following is not an example of the auditor’s direct knowledge? A. Inspection C. Computation B. Observation D. Inquiry 55. Confirmation is most likely to be the relevant form of evidence with regard to assertions about accounts receivable when the auditor has concerns about the receivables’ A. Valuation C. Existence B. Classification D. Completeness 56. Confirmation is the process of obtaining a representation of information or of an existing condition directly from a third party. Traditionally, confirmation is used to verify: A. Individual transactions between organizations, such as sales transactions. B. Fixed asset additions. C. Bank balances and accounts receivables. D. All three of the above. 57. Who signs the confirmation requests: A. The appropriate level of management C. The CEO/CFO of the client B. The audit partner D. Both management and the auditor 58. A confirmation requests letter should always be sent under the control of: A. The client C. The recipient B. The auditor D. Both a and b 59. Negative confirmation requests may be used when: A. The assessed levels of inherent and control risks are high B. A large number of large balances is involved C. A substantial number of errors is expected D. The auditor has no reason to believe that the respondents will disregard these requests 60. When the recipient has accomplished the confirmation request, replies should be: A. Sent directly to the auditor B. Sent directly to the client, after which the client gives the replies to the auditor C. Sent directly to the auditor, with another copy of the reply going to the client D. Not sent back since a confirmation request does not necessitate replies 61. Where no response is received to a positive confirmation request, the auditor should A. Contact the recipient to elicit a response and perform alternative procedures as necessary B. Issue a qualified opinion or an adverse opinion, depending on the materiality involved C. Issue a qualified opinion or a disclaimer of opinion on grounds of a scope limitation D. Contact the recipient/respondent in order to force a response from such recipient 62. The primary source for evidence to corroborate the existence of pending litigation is: A. Vendor confirmations C. management representation letters B. Disclosures in financial statements D. attorney confirmations 63. The following are purposes of analytical procedures, except: A. Assist the auditor in planning the nature, timing and extent of other audit procedures B. As a test to obtain audit evidence about the suitability of design and effective operation of internal controls. C. As a substantive procedure when their use can be more effective or efficient that tests of details in reducing detection risk for specific financial statement assertions D. As an overall review of the financial statements in the final review stage of the audit. 64. Where there are unusual fluctuations and relationships ordinarily begins with inquiries of management, followed by A B C D Corroboration of management’s responses Yes No Yes No Consideration of the need to apply other audit procedures based on the results of management Yes Yes No No inquiries 65. Evidential matter consists of both underlying accounting data and corroborating information, which support the accounting data. Which of the following is considered corroborating information? A. Data files C. Subsidiary ledgers B. Records of electronic fund transfers D. General ledger 66. As the acceptable level of detection risk decreases, an auditor may change the A. Timing of substantive tests by performing them at an interim date rather than at year- end B. Nature of substantive tests from a less effective to a more effective procedure C. Timing of tests of controls by performing them at several dates rather than one time D. Assessed level of inherent risk to a higher amount 67. Analytical procedures are A. Substantive tests designed to evaluate a system of internal control B. Tests of controls designed to evaluate the validity of management’s representation letter C. Substantive tests designed to evaluate the reasonableness of financial information. D. Tests of controls to evaluate the reasonableness of financial information. 68. Which of the following is designed to detect possible material peso misstatements in the financial statements? A. Tests of controls C. Computer controls B. Analytical procedures D. Post audit working paper review 69. In testing for lower-of-cost-or-net realizable value, the auditor is gathering evidence to support which of the following assertions? A. Pricing C. Valuation B. Accuracy D. Rights and obligations 70. When performing trend analysis, A. Profitability ratios are required C. Comparison to budget may be performed B. Expected values are calculated D. Solvency ratios are computed AUDIT EVIDENCE-MULTIPLE CHOICE PART II 1. Which of the following statements concerning audit evidence is correct? A. To be appropriate, audit evidence should be either reliable or relevant, but it need not be both. B. The measure of validity of audit evidence lies in the auditor's judgment. C. The difficulty and expense of obtaining audit evidence concerning an account balance is a valid basis for omitting the test. D. A client's accounting records can be sufficient audit evidence to support the financial statements. 2. Which of the following statements concerning audit evidence is correct? Statement 1: The quantity of audit evidence is affected by the risk of misstatement and also by the quality of such audit evidence. Statement 2: The reliability of audit evidence is influenced by its source and by its nature and is dependent on the individual circumstances under which it is obtained. A. Both statements are true C. True; False B. Both statements are false D. False; True 3. Management makes certain assertions that are embodied in financial statement components; for example, two such categories of assertions are completeness and valuation and allocation. Which of the following is not a broad category of management assertions? A. Rights and obligations C. Existence B. Completeness D. Error or fraud 4. The objective of tests of details of transactions performed as substantive tests is to A. Comply with generally accepted auditing standards B. Attain assurance about the reliability of the accounting s system C. Detect material misstatements in the financial statements D. Evaluate whether management's policies and procedures operated effectively 5. In testing the existence assertion for an asset, an auditor ordinarily works from the A. Financial statements to the potentially unrecorded items B. Potentially unrecorded items to the financial statements C. Accounting records to the supporting evidence D. Supporting evidence to the accounting records 6. In determining whether transactions have been recorded, the direction of the audit testing should be from the A. General ledger balance C. Original source documents B. Adjusted trial balance D. General journal entries 7. Which of the following statements concerning evidential matter is true? A. Appropriate evidence supporting management's assertions should be convincing rather than merely persuasive. B. Effective internal control contributes little to the reliability of the evidence created within the entity C. The cost of obtaining evidence is not an important consideration to an auditor in deciding what evidence should be obtained D. A client's accounting records cannot be considered sufficient evidence to support the financial statements 8. Which of the following is an example of "other information” that could be used by an auditor as evidential matter supporting financial statements A. Worksheet supporting cost allocations C. Special journals B. Confirmation of accounts receivable D. Accounting manuals 9. Audit evidence can come in different forms with different degrees of persuasiveness. Which of the following is the least persuasive type of evidence? A. Bank statement obtained from the client B. Test counts of inventory made by the auditor C. Prenumbered purchase order forms D. Correspondence from the client's attorney about litigation 10. Which of the following statements concerning audit evidence is correct? A. An audit usually involves the authentication of documentation B. A given set of procedures may provide audit evidence that is relevant to certain assertions, but not others C. Audit evidence obtained from an independent external source is always reliable D. An entity's accounting records can be sufficient audit evidence to support the financial statements 11. In which of the following circumstances would be the use of the negative form of accounts receivable confirmation most likely be justified? A. A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers B. A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances C. A small number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers D. A small number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances 12. Which of the following might be detected by an auditor's review of the client's sale cut-off? A. Excessive goods returned for credit B. Unrecorded sales discounts C. Lapping of year-end accounts receivable D. Inflated sales for the year 13. Which of the following most likely would give the most assurance concerning the valuation and allocation assertion of accounts receivable? A. Vouching amounts of accounts subsidiary ledger to details on shipping documents B. Comparing receivable turnover ratios with industry statistics for reasonableness C. Inquiring about receivables pledged under loan agreements D. Assessing the allowance for uncollectible accounts for reasonableness 14. Confirmation is "the process of obtaining and evaluating a direct communication from a third party in response to a request about a particular item affecting financial statement assertions." Two assertions for which confirmation of accounts receivable balances provides primary evidence are A. Completeness and valuation C. Rights and obligations and existence B. Valuation and rights and obligations D. Existence and completeness 15. Which of the following procedures would an auditor most likely perform for year-end accounts receivable confirmations when the auditor did not receive replies to second requests A. Review the cash receipts journal for the month prior to year-end B. Intensity the study of internal control concerning the revenue cycle C. Increase the assessed level of detection risk for the existence assertion D. Inspect the shipping records documenting the merchandise sold to the debtors 16. Which of the following is an essential control procedure to ensure the accuracy of the recorded inventory quantities? A. Calculating unit costs and valuing obsolete or damaged inventory items in accordance with inventory policy. B. Testing inventory extensions. C. Performing a gross profit test D. Established a cutoff for goods received and shipped. 17. Effective internal controls over inventories are designed and implemented for the following reasons, except A. Inventories typically represent a large component of an entity's current tasks. B. Inventories are the most liquid asset. C. Inventories directly affect the financial directly affect the financial performance of an entity. D. Inventories typically represent a large portion of an entity's total assets. 18. Your client, a merchandise concern, has annual sales of P30,000,000 and a 40% gross profit rate. Test reveals that 2% of the peso amount of purchases does not get into inventory because of breakage and inventory pilferage by employees. The company estimates that these losses could be reduced to 0.5% of purchases by designing and implementing certain controls costing approximately P350,000. Should the controls be designed and implemented? A. Yes, regardless of cost-benefit considerations, because the situation involves employee theft. B. Yes, because the ideal system of internal control is the most extensive one. C. No, because the cost of designing and implementing the added controls exceeds the projected savings. D. Yes, because the expected benefits to be derived exceed the cost of the added controls. 19. The primary source of information to be reported about litigation, claims, and assessments is the A. Client's lawyer C. Client's management B. Courts records D. Independent auditor 20. Which of the following is an audit procedure that an auditor most likely would perform concerning litigation, claims and assessments? A. Request the clients lawyer to evaluate whether the client's pending litigations, claims and assessment indicate a going concern problem B. Examine the legal documents in the client's lawyer's possession concerning litigations, claims and assessment to which the lawyer has devoted substantive attention C. Discuss with management its policies and procedures adopted for evaluating and accounting for litigations, claims and assessments D. Confirm directly with the client's lawyer that all litigations, claims and assessment have been recorded or disclosed in the financial statements 21. Which of the following statements is generally correct about the competence of evidential matter? A. Competence of evidential matter refers to the amount corroborative evidence obtained. B. The more effective the internal control, the more assurance it provides about the reliability of the accounting data and financial statements. C. Information obtained indirectly from independent sources is more persuasive than the auditor's direct personal knowledge obtained through observation and inspection. D. Competence of evidential matter refers to the audit evidence obtained from outside the entity. 22. Although the validity of evidential matter is dependent on the circumstances under which it is obtained, there are three general presumptions that have some usefulness. The situations given below indicate the relative reliability a CPA has placed on two types of evidence obtained in different situations. Which of these is an exception to one of the general presumptions? A. The CPA places more reliance on the balance in the scrap sales account at Plant A, where the CPA has made limited tests of transactions because of effective controls, than at Plant B, where the CPA has made extensive tests of transactions because of ineffective controls. B. The CPA places more reliance on the CPAs computation of interest payable on outstanding bonds than on the amount confirmed by the trustee. C. The CPA places more reliance on the report of an expert on an inventory of precious gems than on the CPA's physical observation of the gems. D. The CPA places more reliance on a schedule of insurance coverage obtained from the company's insurance agent than on one prepared by the internal audit staff. 23. In testing the existence assertion for an asset, an auditor ordinarily works from the A. Financial statements to the potentially unrecorded items B. Potentially unrecorded items to the financial statements C. Accounting records to the supporting evidence D. Supporting evidence to the accounting records 24. An auditor audits an accounting estimate by any of the following means except A. Testing the process used by management to develop the estimate. B. Obtaining a confirmation from an independent source. C. Developing an independent expectation. D. Reviewing subsequent events or transactions. 25. When analytical procedures are used as substantive tests, some account relationships are more predictable than others. For which of the following accounts is the prior-year balance likely to be the best predictor of the current year-end balance? A. Accounts payable C. Revenues B. Cash D. Inventory 26. Which of the following best describes the most important stage of an auditor's statistical analysis of significant ratios and trends? A. Computation of significant ratios and trends. B. Reconciliation of statistical data to the client's accounting ratios. C. Interpretation of significant variations and unusual relationships. D. Comparison of statistical data to prior-year statistics and to similar data published by government and private sources. 27. In the audit of accounts receivable an auditor sends confirmations to all customers with balances of P50,000 or more and to a sample of 25% of the customers with balances of less than P50,000. Overstatement errors of P12,000 were found in the accounts of P50,000 or more, and understatement errors of P3,000 were found in the sample. Likely misstatements for accounts receivable is A. P0 B. P15,000 C. P9,000 D. P24,000 28. An auditor would least likely initiate a discussion with a client's audit committee concerning A. The methods used to account for significant unusual transactions. B. The maximum peso amount of misstatements that could exist without causing the financial statements to be materially misstated. C. Indications of fraud and illegal acts committed by a corporate officer that were discovered by the auditor. D. Disagreements with management as to accounting principles that were resolved during the current year's audit. ACCOUNTING ESTIMATES 1. Which of the following statements is incorrect about accounting estimates? A. Management is responsible for making accounting estimates included in the financial statements. B. When evaluating accounting estimates, the auditor should pay particular attention to assumptions that are objective and are consistent with industry patterns. C. The risk of material misstatement is greater when accounting estimates are involved. D. The evidence available to support an accounting estimate will often be more difficult to obtain and less conclusive than evidence available to support other items in the financial statements. 2. In evaluating the reasonableness of an entity's accounting estimates, an auditor normally would be concerned about assumptions that are A. Susceptible to bias B. Consistent with prior periods C. Insensitive to variations D. Similar to industry guidelines 3. Which of the following would an auditor ordinarily perform first in evaluating management's accounting estimates for reasonableness? A. Develop independent expectations of management's estimates. B. Consider the appropriateness of the key factors or assumptions used in preparing the estimates. C. Test the calculations used by management in developing the estimates. D. Obtain an understanding of how management developed its estimates 4. Which of the following would an auditor generally perform to obtain assurance that accounting estimates are properly accounted for and disclosed? A. Inquiry of management B. Make an independent estimate for comparison with client's estimate C. Review subsequent events D. Obtain knowledge about the applicable financial reporting standards related to the accounting estimate 5. Which of the following procedures would an auditor least likely perform when evaluating the reasonableness of management's estimates? A. Make independent estimates for comparison with management estimates B. Read minutes of board of director’s meetings C. Review and test the process used by management D. Review subsequent events and confirm the estimate made 6. In evaluating an entity's accounting estimates, one of an auditor's objectives is to determine whether the estimates are A. Not subject to bias B. Consistent with industry guidelines C. Based on objective assumptions D. Reasonable in the circumstances 7. In evaluating the reasonableness of an accounting estimate, an auditor most likely would concentrate on key factors and assumption that are A. Consistent with prior periods B. Similar to industry guidelines C. Objective and not susceptible to bias D. Deviations from historical patterns 8. When auditing the fair value of an asset or liability, valuation issues ordinarily arise at the point of Initial recording Subsequent to initial recording A. Yes Yes B. Yes No C. No Yes D. No No 9. Which of the following is least likely to be an approach followed when auditing the fair values of assets and liabilities? A. Review and test management's process of valuation. B. Confirm valuation with audit committee members. C. Independently develop an estimate of the value of the account. D. Review subsequent events relating to the account. 10. Which of the following is not a specialist upon whose an auditor may rely? A. Actuary C. Appraiser B. Internal auditor D. Engineer AUDIT DOCUMENTATION 11. According to PSA 230 ''Documentation'', working papers do not A. Assist in the planning and performance of the audit. B. Assist in the supervision and review of the audit work. C. Record the audit evidence resulting from the audit work performed to support an auditor's opinion. D. Prove the independence of the auditor. 12. Statement 1: Working papers are the property of the auditor. Statement 2: Although portions of or extracts from the working papers maybe made available to the entity at the discretion of the auditor, they may be substitute for the entity's accounting records. A. Only statement one is correct C. Both statements are correct B. Only statement two is correct D. Both statements are incorrect 13. Statement 1: The auditor should prepare working papers which are sufficiently complete and detailed to provide an overall understanding of the audit. Statement 2: The auditor should record in the working papers information on planning the audit work, the nature, timing and extent of the audit procedures performed, the results thereof, and the conclusions drawn from the audit evidence obtained. A. Only statement one is correct B. Only statement two is correct C. Both statements are correct D. Both statements are incorrect 14. The form and content of working papers are affected by matters such as the following except: A. Nature of the engagement B. Type of opinion to be rendered by the auditor C. Nature and complexity of the business D. Needs in the particular circumstances for the direction, supervision and review of work performed by assistants. 15. Audit working papers are used to record the results of the auditor's evidence gathering work. When preparing working papers, the auditor should remember that A. Working papers should be designed to meet the circumstances and the auditor's need for each engagement B. Working papers should be kept on the client's premises so as to provide ready access to them by the client. C. Working papers should be at the primary support for the financial statements being examined. D. Working papers should be considered as a substitute for the client's accounting records. 16. The primary purpose of audit working papers is to A. Provide evidence of compliance with auditing standards B. Provide management with an independent copy of financial records. C. Provide protection against litigation D. Document deficiencies in client policies and procedures 17. Which of the following is incorrect? A. Documentation prepared at the time the work is performed is likely to be more accurate than documentation prepared subsequently. B. The auditor ordinarily includes from audit documentation superseded drafts of working papers and financial statements, notes that reflect incomplete or preliminary thinking, previous copies of documents corrected for typographical or other errors, and duplicates of documents. C. It is neither necessary nor practicable to document every matter the auditor considers during the audit. D. Oral explanations by the auditor, on their own, do not represent adequate support for the work the auditor performed or conclusions the auditor reached, but may be used to explain or clarify information contained in the audit documentation. 18. During an audit engagement, pertinent data are compiled and included in the audit working papers. The working papers primarily are considered to be A. A client-owned record of conclusions reached by the auditors who performed the engagement B. Evidence supporting financial statements C. Support for the auditor’s representations as to compliance with generally accepted auditing standards. D. A record to be used as a basis for the following year’s engagement. 19. Audit working papers should not A. Include any client-prepared papers or documents other than those prepared by the CPA or his assistant. B. Be kept by the CPA after review and completion of the audit except for items required for the income tax return or the permanent file. C. Be submitted to the client to support the financial statements and to provide evidence of the audit work performed. D. Be themselves be expected to provide sufficiency support for the auditor’s opinion. 20. An auditor’s working papers will generally be least likely to include documentation showing how the A. Client’s schedules were prepared B. Engagement had been planned C. Client’s system of internal control had been reviewed and evaluated D. Unusual matters were resolved 21. Which of the following is not a factor affecting the independent auditor’s judgement about the quantity, type and content of audit working papers? A. The needs for supervision and review of the work performed by assistants. B. The nature and condition of the client’s records and internal control. C. The expertise of the client personnel and their participation in preparing schedules. D. The type of financial statements, schedules, or other information on which the auditor is reporting. 22. Although the quantity, type and content of working paper will vary with the circumstance, the working papers generally include the A. Copies of those client records examined by the auditor during the course of the engagement. B. Evaluation of the efficiency and competence of the audit staff assistants by the partner responsible for the audit. C. Auditor’s comments concerning the efficiency and competence of client management personnel. D. Auditing procedures followed, and the testing performed in obtaining evidential matter. 23. Which of the following is generally included or shown in the auditor’s working papers? A. The procedures used by the auditor to verify the personal financial status of members of the client’s management’s team B. Analysis that are designed to be a part of, or a substitute for, the client’s accounting records. C. Excerpts from the authoritative pronouncements that supports the underlying generally accepted accounting principles used in preparing financial statements. D. The manner in which exceptions and unusual matters disclosed by the auditor’s procedures were resolved or treated. 24. An auditor’s working papers should A. Not be permitted to serve as a reference source for the client. B. Not contain comments critical of management. C. Show that the accounting records agree or reconcile with the financial statements. D. Be considered the primary support for the financial statements being audited. 25. Using laptop computers in auditing may affect the methods used to review the work of staff assistants because. A. Supervisory personnel may not have an understanding of the capabilities and limitations of computers. B. Working paper documentation many not contain observable details of calculations. C. The audit fieldwork standards for supervision may differ. D. Documenting the supervisory review may require assistance of management services personnel. 26. Documentation is a form of evidence A. Used in every financial statement audit B. Used in most financial statement audit C. Used on the rare occasions when it is both readily available and less costly than other procedures. D. Used when nothing is available that is more competent 27. An audit working paper that shows the detailed evidence and procedures regarding the balance in the accumulated depreciation account in the year under audit will be found in the A. Current file of working papers B. Permanent file of working papers C. Other information working papers in the current file D. Planning memorandum in the current file. 28. In the case of recurring audits, some working papers files may be classified as audit files which are updated with new information of continuing importance. This type of audit file is known as: A. Current audit file C. Electronic audit file B. Permanent audit file D. Planning memorandum file 29. The audit working paper that reflects the major components of an amount reported in the financial statements is the A. Inter-bank transfer schedule C. Supporting schedule B. Carry-forward schedule D. Lead schedule 30. A schedule listing account balances for the current and previous years, and columns for adjusting and reclassifying entries proposed by the auditors to arrive at the final amount that will appear in the financial statements, is referred to as a A. Working trial balance C. Summarizing schedule B. Lead schedule D. Supporting schedule 31. What do you call the type of working paper where matters of importance are noted down for further verification? A. Summary sheet C. Agenda Sheet B. Audit program D. Supporting schedules. 32. The current file of the auditor’s working papers generally should include. A. A flowchart of the internal controls C. A copy of the financial statements B. Organization charts D. Copies of bond and note indentures 33. The permanent file portion of the auditor’s working papers generally should include A. A copy of the engagement letter. B. A copy of key customer confirmation C. Names and addresses of audit staff personnel on the engagements. D. Time and expense reports. 34. The permanent (continuing) file of an auditor’s working paper most likely would include copies of the A. Lead schedules C. Banks statements B. Attorney’s letter D. Debt agreements 35. The current file of an auditor’s working paper most likely would include copy of the A. Bank reconciliation C. Articles of incorporation B. Pension plan contract D. Flowchart of the internal control activities 36. The permanent file section of the working papers that is kept for each audit client most likely contains A. Review notes pertaining to questions and comments regarding the audit work performed. B. A schedule of time spent on the engagement by each individual auditor. C. Correspondence with the client’s legal counsel concerning pending litigation. D. Narrative descriptions of the client’s accounting procedures and internal controls. 37. In general, which of the following statements is correct with respect to ownership, possession, or access to working papers prepared by a CPA firm in connection with an audit? A. The working papers may be obtained by third parties where they appear to be relevant to issues raised in litigation. B. The working papers are subject to the privileged communication rule which, in a majority of jurisdictions, prevents third-party access to the working papers. C. The working papers are the property of the client after the client pays the fees. D. The working papers must be retained by the CPA firm for a period of ten years. 38. For what minimum period should audit working papers be retained by the independent CPA? A. For the period during which the entity remains a client of the independent CPA. B. For the period during which an auditor-client relationship exists but not more than six (6) years C. For the statutory period within which legal action may be brought against the independent CPA. D. For as long as the CPA is in public practice. 39. Which of the following documentation is required for an audit in accordance with PSA? A. An internal control questionnaire C. A planning memorandum or checklist B. A client engagement letter D. A client representation letter 40. The auditor should complete the assembly of the financial audit file on a timely basis after the date of the auditor’s report. As PSQC 1 indicates, ___ days after the date of the auditor’s report is ordinarily an appropriate time limit within which to complete the assembly of the financial audit file. A. 30 B. 60 C. 90 D. 120 41. After the assembly of the final audit file has been completed, the auditor not delete or discard audit documentation before the end of its retention period. As PSQC 1 indicates, the retention period for audit engagement ordinarily is no shorter than ___ years from the date of the auditor’s report. A. 5 B. 3 C. 7 D. 10 42. In documenting the nature, timing and extent of audit procedures performed, the auditor should record I. Who performed the audit work and the date such work papers was completed II. Who reviewed the audit work and the date and extent of such review A. I only C. Both I and II B. II Only D. Neither I nor II 43. Which of the following statements concerning working papers is incorrect? A. An auditor may support an opinion by other means in addition to working papers. B. The form of working papers should be designed to meet the circumstances. C. An auditor’s working papers may not serve as reference source for the client D. Working papers should show that the internal accounting control system has been studied and evaluated to the degree necessary. 44. The main advantage of properly indexed working papers is to A. Reduce the size of the file C. Better organize the working papers B. Allow division of labor within the audit team D. Facilitate the efficient use of audit staff 45. During the working paper review, an audit supervisor finds that the auditor’s reported findings are not adequately cross-referenced to supporting documentation. The supervisor will most likely instruct the auditor to A. Prepare working paper to indicate that the full scope of the audit was carried out. B. Familiarize him/herself with the sequence of working papers so that he/she will be able to answer questions about the conclusions stated in the report. C. Eliminate any cross-references to other working papers since the system is unclear. D. Provide a working paper indexing system that shows the relationship between findings, conclusions and the related facts.
Report "339059216 CERTS Audit Evidence and Documentation"