Audit Evidence

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 b. Audit risk c. Audit opinion d. Audit program

2. Which of the following best describes the primary purpose of audit procedures?
a. To detect fraud
b. To verify the accuracy of account balances
c. To comply with generally accepted accounting principles
d. To gather corroborative evidence to support the audit opinion

3. 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. Statements 2 and 3 only
b. Statements 1 and 3 only d. All statements are correct

4. All of the following are underlying accounting data, except:

a. Minutes of meetings c. Records of initial entries and supporting documents
b. General and subsidiary ledgers d. Worksheets and spreadsheets for cost allocations

5. Accounting records least likely include

a. General and subsidiary ledgers c. Work sheets and supporting cost allocations
b. Comparable data about competitors d. Records of initial entries and supporting records

6. Other information that the auditor may use as audit evidence least likely includes
a. Minutes of meetings.
b. Confirmations from third parties.
c. Adjustments to the financial statements that are not reflected in formal journal entries.
d. Information obtained by the auditor from such audit procedures as inquiry, observation, and inspection.

7. An evidence to be considered appropriate must be:

a. Relevant b. Reliable c. Relevant and reliable d. Relevant or reliable

8. 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

9. 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
10. 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.

11. 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 controls 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.

12. 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.

13. 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 at one time
d. Assessed level of inherent risk to a higher amount

14. 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 re-performance. c. Inquiry and inspection
b. Observation and inquiry. d. Inquiry and analytical procedures.

15. “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

Confirmation and Analytical Procedures

1. 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 b. Classification c. Existence d. Completeness

2. 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. Fixed asset additions.
b. Bank balances and accounts receivables.
c. Individual transactions between organizations, such as sales transactions.
d. All three of the above.

3. Who signs the confirmation requests:

 a. The appropriate level of management c. The audit partner
b. The CEO/CFO of the client d. Both management and the auditor

4. 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

5. Positive confirmation requests is not used when:

a. A large number of small balances is involved.
b. The entity’s information systems and internal controls are unreliable or ineffective
c. The information available to corroborate management’s assertion(s) is only available outside the entity
d. Specific fraud risk factors, such as risk of management override of internal controls, prevent the auditor from
relying on evidence from the entity.

6. Negative confirmation requests may be used when:

a. A substantial number of errors is expected
b. A large number of large balances is involved
c. The assessed levels of inherent and control risks are high
d. The auditor has no reason to believe that respondents will disregard these requests

7. Where no response is received to a positive confirmation request, the auditor should

a. Contact the recipient/respondent in order to force a response from such recipient
b. Issue a qualified opinion or a disclaimer of opinion on grounds of a scope limitation
c. Issue a qualified opinion or an adverse opinion, depending on the materiality involved
d. Contact the recipient to elicit a response and perform alternative procedures as necessary

8. If management refuses to allow the auditor to send confirmation request, the auditor ordinarily performs the
following audit procedure, except:
a. Report the management to the House of Representatives and to the Senate, as necessary.
b. Where possible, perform alternative procedures designed to obtain relevant and reliable audit evidence.
c. Evaluate the possible effect on the auditor’s opinion when the auditor concludes that the management’s
refusal is unreasonable and no alternative procedures can be performed.
d. Evaluate the reasonableness of management’s refusal on the assessment of the relevant risks of material
misstatements, including risk of fraud, and on the nature, timing and extent of other audit procedures.

9. Analytical procedures are required:

A B C D
 As a risk assessment procedure performed during planning Yes Yes Yes Yes
 As a substantive test procedure during evidence gathering Yes Yes No No
 As an overall review at audit completion No Yes No Yes

10. Analytical procedures used in planning an audit should focus on identifying:

a. Material weaknesses in the internal control system
b. The predictability of financial data from individual transactions
c. The various assertions that are embodied in the financial statements
d. Areas that may represent specific risks relevant to the audit

11. The objective of performing analytical procedures in planning an audit engagement is to identify the
existence of:
 a. Unusual transactions and events
b. Illegal acts that went undetected because of internal control weaknesses
c. Related party transactions
d. Recorded transactions that were not properly authorized

12. Which of the following procedures would an auditor most likely perform in planning an audit of financial
statements?
a. Inquiring of the client’s legal counsel concerning pending litigation.
b. Comparing the financial statements to anticipated results.
c. Examining computer generated exception reports to verify the effectiveness of internal controls.
d. Searching for unauthorized transactions that may aid in detecting unrecorded liabilities.

13. Analytical procedures used in planning an audit should focus on

a. Reducing the scope of tests of controls and substantive tests.
b. Providing assurance that potential misstatements will be identified.
c. Enhancing the auditor’s understanding of the client’s business.
d. Assuming the adequacy of the available evidential matter.

14. In performing analytical procedures, set the following procedures in proper order.
i. Calculate predictions and compare them to recorded amount
ii. Develop an expectation
iii. Define a significant difference
iv. Investigate significant difference
a. i, ii, iii, iv b. ii, i, iii, iv c. i, ii, iv, iii d. ii, i, iv, iii

15. An auditor compares expenses as a percent of sales to expectations. This is an example of

a. Ratio analysis b. Crease analysis c. Trend analysis d. Vertical analysis

16. Which of the following results from analytical procedures might indicate inventory obsolescence?
a. A decline in inventory turnover c. A decline in the gross margin ratio
b. A decline in days’ sales in inventory d. An increase in operating margin

17. 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 designed to evaluate the reasonableness of financial information.

18. A basic premise underlying the application of analytical procedures is that

a. The study of financial ratios is an acceptable alternative to the investigation of unusual fluctuations
b. Statistical tests of financial information may lead to the discovery of material errors in the financial
statements
c. Plausible relationships among data may reasonably be expected to exist and continue in the absence of
known conditions to the contrary
d. These procedures cannot replace tests of balances and transactions

19. 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.

20. 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 Yes Yes No No
the results of management inquiries