PROFESSIONAL REVIEW AND TRAINING CENTER

Auditing Review

AT.03 – Framework of Audit Evidence and Documentation

Suggested Readings:
1. PSA 500, Audit Evidence
2. PSA 230, Audit Documentation
3. Chapter 3, Auditing: A Risk-Based Approach, Part 1-Theory 2019 Issue—1st Edition by
Cabarles/Ocampo/Valdez

DISCUSSION QUESTIONS
Audit Evidence

1. The principal reason for an independent auditor to gather and evaluate audit evidence is to
a. Form an opinion on the financial statements.
b. Detect fraud.
c. Evaluate management.
d. Evaluate internal control.

2. Which statement is incorrect regarding audit evidence?

a. Audit evidence is all the information used by the auditor in arriving at the conclusions on which the audit
opinion is based.
b. Audit evidence includes the information contained in the accounting records underlying the financial
statements and other information.
c. Audit evidence is cumulative in nature.
d. Auditors are expected to address all information that may exist.

3. Accounting records alone cannot constitute sufficient evidence. Thus, the auditor should obtain other
information. Which of the following is considered as other information type of audit evidence?
a. The records of initial entries and supporting records.
b. The general and subsidiary ledgers.
c. Work sheets and spreadsheets supporting cost allocations.
d. Comparable data about competitors (benchmarking) and industry analyses.

4. Underlying accounting records most likely include

a. Minutes of meetings.
b. Confirmation from third parties.
c. Inventory count observation memorandum.
d. Checks and electronic fund transfer records.

Audit Procedures—Means to Obtain Audit Evidence

5. The auditor obtains audit evidence by performing which of the following audit procedures?
a. Risk assessment procedures.
b. Further audit procedures comprising test of controls and substantive procedures.
c. Both a and b.
d. Neither a nor b.

6. The following are considered substantive procedures used to detect material misstatement in the financial
statements, except
a. Test of details of transactions and balances.
b. Test of details of presentation and disclosures.
c. Analytical procedures.
d. Reperformance.

7. External confirmation
a. Consists of seeking information of knowledgeable persons, both financial and non-financial, throughout
the entity or outside the party.

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Auditing Review AT.03 – Framework of Audit Evidence and Documentation
b. Is the process of obtaining a representation of information or of an existing condition directly from a third
party.
c. Is the auditor’s independent execution of procedures or controls that were originally performed as part of
the entity’s internal control.
d. Consists of checking the mathematical accuracy of documents or records.

8. This consists of looking at a process or procedure being performed by others.

a. Reperformance c. Observation
b. Recalculation d. Inspection

9. Generally, which of the following audit procedures is the most costly?

a. Inspection c. Inquiry
b. Observation d. Confirmation

10. Which of the following audit procedures is used extensively throughout the audit and is often complementary
to performing other audit procedures, yet the least reliable?
a. Inspection c. Inquiry
b. Observation d. Recalculation

Sufficiency and Appropriateness of Audit Evidence

11. Which statement is correct regarding the sufficiency and appropriateness of audit evidence?
a. Sufficiency is the measure of the quality of audit service.
b. Appropriateness is the measure of the quantity of audit evidence; that is, its relevance and its reliability in
providing support for or, detecting misstatements in, the classes of transactions, account balances, and
disclosures and related assertions.
c. Merely obtaining more audit evidence may compensate for its poor quality.
d. The quantity of audit evidence needed is affected by the risk of misstatement (the greater the risk, the more
audit evidence is likely to be required) and also by the quality of such audit evidence (the higher the quality,
the less may be required).

12. Which of the following means available to the auditor for selecting items for testing is required under PSA 500?
a. All items or 100% examination.
b. Specific items.
c. Audit sampling.
d. No particular means is required.

13. Ultimately, what is sufficient appropriate audit evidence depends on

a. Auditor’s professional judgment
b. Users’ view
c. Management’s judgment
d. All of the above

Relevance of Audit Evidence

14. The following statements relate to relevance of audit evidence. Which is correct?
a. Relevance deals with the logical connection with, or bearing upon, the purpose of the audit procedure,
direction of testing and, where appropriate, the assertion under consideration.
b. The auditor shall perform tests of control to obtain understanding the entity and its environment, including
internal control.
c. The auditor shall perform substantive procedures to test the operating effectiveness of entity’s internal
control.
d. The auditor shall perform risks assessment procedures to detect material misstatements in the financial
statements.

15. Financial statements implicitly or explicitly include management’s assertions about the fair presentation of
information, that is, about its recognition, measurement, presentation, and disclosure. The auditor uses
management’s assertion in which of the following?
a. Obtaining and evaluating audit evidence.
b. Developing audit programs.
c. Identifying and assessing risks of material misstatement.
d. All of the above.

16. Which statement is incorrect regarding the audit evidence relevance and assertion?
a. A given set of audit procedures may provide audit evidence that is relevant to certain assertions, but not to
others.

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Auditing Review AT.03 – Framework of Audit Evidence and Documentation
b. The auditor often obtains audit evidence from different sources or of a different nature that is relevant to
the same assertion.
c. Obtaining audit evidence relating to a particular assertion is not a substitute for obtaining audit evidence
regarding another assertion.
d. None of the above

17. Which of the following statements regarding the relevance of evidence is correct?
a. To be relevant, evidence must pertain to the audit objective of the evidence.
b. To be relevant, evidence must be persuasive.
c. To be relevant, evidence must relate to multiple audit objectives.
d. To be relevant, evidence must be derived from a system including effective internal controls.

18. Which of the following statements about the existence (testing is from accounting records to the supporting
evidence) and completeness (testing is from supporting evidence to the accounting records) assertions is not
true?
a. The existence and completeness assertions emphasize different audit concerns.
b. The completeness assertion deals with unrecorded transactions.
c. Existence deals with overstatements and completeness deals with understatements.
d. Existence deals with understatements and completeness deals with overstatements.

19. In determining whether transactions have been recorded, the direction of the audit testing should begin from
the
a. General ledger balances.
b. Original source documents.
c. Adjusted trial balance.
d. General journal entries.

Reliability of Audit Evidence

20. Which of the following generalizations in assessing the reliability of audit evidence is incorrect?
a. Audit evidence is more reliable when it is obtained from independent sources outside the entity.
b. Audit evidence obtained directly by the auditor is more reliable than audit evidence obtained indirectly or
by inference.
c. Audit evidence is more reliable when it exists in documentary form.
d. Audit evidence provided by photocopies is more reliable than that provided by facsimiles.

21. Which of the following statements concerning evidence is correct?

a. Appropriate evidence supporting management’s assertions should be convincing rather than merely
persuasive.
b. An effective internal control structure contributes none or 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 audit evidence to support the financial
statements

22. Which one of the following would be considered the most persuasive type of audit evidence?
a. Purchase orders from vendors
b. Customer accounts receivable files
c. Computerized general ledger
d. Confirmations from banks

Audit Documentation

23. An auditor's working papers, which are the record of audit procedures performed, relevant audit evidence
obtained, and conclusions the auditor reached, serve mainly to
a. Provide the principal support for the auditor's report.
b. Satisfy the auditor's responsibilities.
c. Monitor the effectiveness of the CPA firm's quality control procedures.
d. Document the level of independence maintained by the auditor.

24. Working papers least likely

a. Assist in the planning and performance of the audit.
b. Assist in the supervision and review of the audit work.
c. Prevent misunderstandings with respect to the engagement.

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Auditing Review AT.03 – Framework of Audit Evidence and Documentation
d. Record the evidence that the audit was planned and performed in accordance with PSAs and applicable
legal and regulatory requirements.

25. Which of the following is incorrect regarding audit working papers?

a. They show auditor’s accountability.
b. They are a record for reference in future audits.
c. They enable quality control reviews and inspections.
d. They are a part of client’s accounting records used to demonstrate that accounting records agreed with the
financial statements.

26. 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
statement, is referred to as a:
a. Working trial balance.
b. Lead schedule.
c. Summarizing schedule.
d. Supporting schedule.

27. A schedule set up to combine similar general ledger accounts, the total of which appears on the working trial
balance as a single amount, is referred to as a:
a. Supporting schedule.
b. Lead schedule.
c. Corroborating schedule.
d. Reconciling schedule.

28. In creating lead schedules for an audit engagement, a CPA often uses automated audit documentation software.
What client information is needed to begin this process?
a. Interim financial information, such as third quarter sales, net income, and inventory and receivables
balances.
b. Specialized journal information, such as the invoice and purchase order numbers of the last few sales and
purchases of the year.
c. General ledger information, such as account numbers, prior-year account balances, and current-year
unadjusted information.
d. Adjusting entry information, such as deferrals and accruals and reclassification journal entries.

Types of Audit Files

29. The current file of the auditor's working papers generally should include
a. A flowchart of the internal controls.
b. Organization charts.
c. A copy of the financial statements.
d. Copies of bond and note indentures.

30. 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.

Audit File Preparation—Satisfactory to Independent, Experienced Auditor

31. Audit documentation should be prepared in enough detail so that:

a. An experienced auditor who has worked with the client in the past can understand the procedures performed
and the evidence obtained.
b. A reader of the financial statements who has no previous connection with the audit can understand the
procedures performed and the evidence obtained.
c. A reader of the financial statements who has a background in financial analysis can understand the
procedures performed and the evidence obtained.
d. An experienced auditor who has no previous connection with the audit can understand the procedures
performed, the evidence obtained, the conclusions reached, and the reasons of departure from a relevant
PSA requirement and how the alternative audit procedures performed achieve the aim of that requirement.

32. The auditor typically includes which of the following in preparing audit files?
a. A heading that includes client’s name, period covered, and description of contents.
b. A purpose statement.

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c. A conclusion statement.
d. All of the above.

33. Which of the following is used to indicate the audit procedures performed and their results in the preparation
of working papers?
a. Index.
b. Cross-reference.
c. Identifying characteristics of specific items tested, initials of preparer and reviewer, and dates of preparation
and review.
d. Tick mark.

34. Which of the following is least likely to be a factor in the auditor's decision about the extent of the
documentation of a particular audit area?
a. The risk of material misstatement.
b. The extent of the judgment involved in performing the procedures.
c. The nature and extent of exceptions identified.
d. Whether or not the client has an internal audit function.

35. Which of the following is least likely to be a factor in the auditor's decision about the extent of the
documentation of a particular audit area?
a. The size and complexity of the entity.
b. The significance of the audit evidence obtained.
c. The audit methodology and tools used.
d. The medium in which it is recorded and maintained.

Audit File Organization

36. The PSAs have specified how audit files should be organized to facilitate timely review of working papers.

Auditors may organize audit files by audit phase, by financial statements area, or a combination thereof.
a. True, true c. False, true
b. True, false d. False, false

Audit File Assembly, Retention, Ownership, and Confidentiality

37. In accordance with PSAs, the final assembly of audit files should take place on a timely basis ordinarily
a. More than 45 days after the auditor’s report date.
b. More than 60 days after the auditor’s report date.
c. Not more than 45 days after the auditor’s report date.
d. Not more than 60 days after the auditor’s report date.

38. Ignoring any particular legal or regulatory requirement, audit documentation should be retained
a. A minimum of five years.
b. As long as lead schedules have relevance to forthcoming audits.
c. Until 3 years after the client selects another auditor.
d. Working papers must be maintained indefinitely.
39. The following statements pertain to audit working papers:
I. Working papers are owned by the auditors; the rights of ownership are subject to ethical limitations relating
to the confidential relationships with the client.
II. Working papers serve as useful reference source for client and as a substitute for client’s accounting records.
III. Working papers must be permanently kept or retained by the auditors.
The above statements are respectively
a. True, True, True c. True, False, False
b. True, True, False d. False, False, False

40. Which statement is correct concerning the deletion of audit documentation?

a. Superseded audit documentation should always be deleted from the audit file.
b. After the audit file has been completed, the auditor should not delete or discard audit documentation.
c. Auditors should use professional skepticism in determining which audit documentation should be deleted.
d. Audit documentation should never be deleted from the audit file.

END OF MATERIAL

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