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
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?