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Audit Evidence and Audit Programs (Reviewer in Auditing Theory)

Audit Evidence and Audit Programs (Reviewer in Auditing Theory)

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Published by Charlene Mae Bornea

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Published by: Charlene Mae Bornea on Jun 26, 2012
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Audit Evidence and Audit Programs (Reviewer in Auditing Theory)Audit Evidence and Audit Programs
 1. The permanent file section of the working papers that is kept for each audit client most likely containsa. 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 internal control policies and procedures
Of the following procedures, which is not considered part of “obtaining an understanding of the client’s environment?”
 a. Examining trade publications to gain a better understanding of the client's industry.
b. Confirming customer accounts receivable for existence and valuation.
c. Touring the client's manufacturing and warehousing facilities to gain a clearer understanding of operations.d. Studying the internal controls over cash receipts and disbursements.ANSWER: B3. If working papers are to have the characteristics that will ensure that they achieve their primary purposes, which of thefollowing is the most important?a. Working papers must be of standard format and standard content.b. Working papers must be properly indexed and cross-referenced to the draft audit report.
c. Working papers must provide sufficient, competent, and useful information to support the audit report.
d. Working papers must be arranged in logical order following the audit program sequence.ANSWER: C4. Which of the following is not an example of analytical evidence?a.
inventory turnover by major class with the prior year on a monthly and quarterly basis.b.
gross profit percentages by major product classes with the prior year.c.
Examined invoices for plant asset additions to determine whether the client had erroneously recorded ordinaryrepairs as plant assets.
d. Examined monthly performance reports and investigated
significant variations
from budgeted amounts.ANSWER: C5. Choose the best illustration of objective audit evidence from the following
a. The paid invoice file containing invoices matched with receiving reports and purchase orders.
b. Management's assertion that payment procedures require matching of invoice with receiving report andpurchase order. c. Clerical staff assurances that management policy regarding payment of invoices--matching of invoice with receiving report and purchase order--is always followed.d. The treasurer's statement of not remembering any exceptions in which an invoice was submittedfor payment that was not accompanied by a matching receiving report and purchase order.ANSWER: A6. An initial (first-time) audit requires more audit time to complete than a recurring audit. One of the reasons for this isthata. New auditors are usually assigned to an initial audit.b. Predecessor auditors need to be consulted.
c. The client's business, industry, and internal control are unfamiliar to the auditor and need to be carefully studied.
d. A larger proportion of customer accounts receivable need to be confirmed on an initial audit.ANSWER: C7. Which of the following is a basic tool used by the auditor to control the audit work and review the progress of theaudit?a. Time and expense summary.b. Engagement letter.c. Progress flowchart.
d. Audit program.
ANSWER: D8. An auditor wants to develop an audit test to evaluate the reasonableness of the quantity of scrap materialresulting from a certain production process compared to industry standards. Which would bethe most competent type of evidence available to satisfy this objective?
a. Documentary. b. Hearsay. c. Physical.
d. Analytical.
ANSWER: D9. As part of audit planning, CPAs should design audit programs for each individual audit and should include auditsteps and procedures toa. Detect and eliminate fraud.b. Increase the amount of management information available.c
. Provide assurances that the objectives of the audit are met.
d. Ensure that only materialitems are audited.ANSWER: C10. Of the following audit procedures, which best supports the valuation objective?
a. Performing a lower of cost or market test of the client's inventories.
b. Reviewing a contingent liability footnote for properwording.c. Searching for unrecorded liabilities.d. Observing the client's year-end physical inventory taking.ANSWER: A11. An assumption underlying analytical procedures is thata. These procedures cannot replace tests of balances and transactions. b. Statistical tests of financial information may lead to the discovery of material errors in the financial statements. c.The study of financial ratios is an acceptable alternative to the investigation of unusualfluctuations.
d. Relationships among data may reasonably be expected to exist and continue in the absence of knownconditions to the contrary.
ANSWER: D12. An auditor is examining accounts receivable. What is the most competent type of evidence in thissituation?a. Interviewing the personnel who record accounts receivable. b. Verifying that postingsto the receivable account from journals have been made.
c. Receipt by the auditor of a positive confirmation.
d. No response received for a request for anegative confirmation.ANSWER: C13. With respect to the auditor's planning of a year-end examination, which of the following statements is always true?a. An engagement should not be accepted after the fiscal year-end. b. An inventory countmust be observed at the balance sheet date.c. The client's audit committee should not be told of the specific audit procedures that will beperformed.
d. It is an acceptable practice to carry out substantial parts of the examination at interimdates.
ANSWER: D14. A letter to the auditor in response to an inquiry is an example of a. Physical evidence.
b. Confirmation evidence.
c. Documentary evidence.d. Analytical evidence.ANSWER: B15. Which of the following statements about working papers is correct?a. Working papers are not permitted to be used as a reference source by the client.b. The auditor should document the understanding of the client's internal control obtained to plan the auditc. Working papers may be regarded as a substitute for the client's accounting records.d. When reporting on comparative financial statements, the independent auditor may discard working papers after two years.ANSWER: B16. Which of the following factors is most important in determining the competence of auditevidence?a. The reliability of the evidence in meeting the audit objective. b. The objectivity of theauditor gathering the evidence. c. The quantity of the evidence obtained.
d. The independence of the source of evidence.ANSWER: A17. The procedures specifically outlined in an audit program are primarily designed toa. Protect the auditor in the event of litigation. b. Detect errors or fraud.c. Test internal evidence.d. Gather evidence.ANSWER: D18. When reviewing audit working papers, the primary responsibility of an audit supervisor isto determine that:a. Each worksheet is properly identified with a descriptive heading.b. Working papers are properly referenced and kept in logical groupings.c. Standard departmental procedures are adhered to with regard to work paper preparation and technique. d.Working papers adequately support the audit findings, conclusions, and report.ANSWER: D19. Auditors apply analytical procedures to the client'soperations in order to identifya. Improper separation of accounting and other financial duties. b. Weaknesses of a materialnature in the client's internal control.c. Unusual transactions.d. Noncompliance with prescribed control procedures.ANSWER: C20. Which of the following workpapers would one normally expect to find in the permanent file?a. A copy of a long-term bond indenture.b. The working trial balance.c. An analysis of additions and disposals relating to marketable securities.d. A workpaper analyzing customer replies to confirmation requests.ANSWER: A21. The in-charge auditor decides that work papers are completea. When satisfied that the audit objectives have been met and the working papers support theconclusions. b. When working papers make reference to the steps outlined in the auditprogram.c. Only after the auditor who prepared the working papers has signed and dated them.d. When proper cross-references to other working papers are noted.ANSWER: A22. Of the following procedures, which does not produce analytical evidence?a. Compare revenue, cost of sales, and gross profit with the prior year and investigate significant variations.b. Examine monthly performance reports and investigate significant revenue and expense variances.c. Confirm customers' accounts receivable and clear all material exceptions.d. Compare sales trends and profit margins with industry averages and investigate significant differences.ANSWER: C23. Audit evidence can come in different forms with different degrees of persuasiveness. Which of the following isthe least persuasive type of evidence?a. Documents mailed by outsiders to the auditor. b. Correspondence between the auditor and vendors.c. Sales invoices inspected by the auditor.d. Computations made by the auditor.ANSWER: C24. Analytical procedures area. Substantive tests designed to evaluate a system of internal control.b. Tests of control procedures designed to evaluate the validity of management's representation letter. c.Substantive tests designed to evaluate the reasonableness of financial information.d. Tests of control procedures designed to detect errors in reported financial information.ANSWER: C25. Which of the following statements relating to thecompetence of evidential matter is always true?

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