AUDIT EVIDENCE

Multiple Choice: Identify the letter that corresponds to the correct answers.

____ 1. Lewi, CPA, is planning the audit of Jen’s Company. Jen verbally asserts to Lewi that all the expenses for the year have
been recorded in the accounts. Jen’s representation in this regard:
A. Is sufficient evidence for Lewi to conclude that the completeness assertion is supported for the expenses.
B. Can enable Lewi to minimize his work on the assessment of control risk for the completeness of expenses.
C. Should be disregarded because it is not in writing.
D. Is not considered a sufficient basis for Lewi to conclude that all expenses have been recorded.

____ 2. Which of the following audit procedures would provide the least reliable evidence that the client has legal title to
inventories?
A. Confirmation of inventories at locations outside the client’s facilities
B. Analytical review of inventory balances compared to purchasing and sales activities
C. Observation of physical inventory counts
D. Examination of paid vendors’ invoices

____ 3. Audit programs should be designed so that

A. Most of the required procedures can be performed as interim work
B. Inherent risk is assessed at a sufficiently low level
C. The auditor can make constructive suggestions to management
D. The audit evidence gathered supports the auditor’s conclusions

____ 4. Which of the following procedures would provide the most reliable audit evidence?
A. Inquiries, held in private, of the client’s internal audit staff
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

____ 5. Which of the following presumptions does not relate to the competence of audit evidence?
A. The more effective internal control is, the more assurance it provides about the accounting data and financial
statements.
B. An auditor’s opinion, to be economically useful, is formed within a reasonable time and based on evidence obtained at
a reasonable cost.
C. Evidence obtained from independent sources outside the entity is more reliable than evidence secured solely from
within the entity.
D. The independent auditor’s direct personal knowledge, obtained through observation and inspection, is more
persuasive than information obtained directly.

____ 6. Which of the following is the best definition? Appropriate evidence is evidence that
A. Is reasonably free of error and bias and faithfully represents what it purports to represent
B. Is obtained by observing people, property, and events
C. Is supplementary to other evidence already given and tends to strengthen or confirm it
D. Proves an intermediate fact, or group of facts, from which one can infer the existence of some other fact that is
significant to the issue under consideration

____ 7. If the control risk is assessed at a maximum level, which of the following statements is correct?
A. The auditor should perform tests of controls to determine the effectiveness of the controls.
B. The auditor should modify the substantive test from analytical procedures which is less effective to test of details
which is more effective.
C. The auditor should perform substantive test by using smaller sample sizes instead of larger sample sizes.
D. The auditor should decide to perform the substantive test during the interim period rather than at year-end.

____ 8. Which of the following statements concerning analytical procedures is incorrect?

A. Analytical procedures performed as substantive tests or during testing stage are intended to detect material
misstatements in the financial statements through identification of unusual or unexpected fluctuations.
B. When intending to perform analytical procedures as substantive tests, the auditor should focus on those accounts
that are predictable accounts such as income statement accounts.
C. Analytical procedures are required to b e performed during the testing stage or as a substantive test in every audit
engagement.
D. Analytical procedures or review involves comparison of financial information with auditor’s expectations to evaluate
the reasonableness of an account balance or transaction balance.

____ 9. Which of the following statements concerning the reliability of audit evidence is incorrect?
A. Audit evidence obtained from the client is more reliable than that obtained from independent outside source.
B. Audit evidence generated internally is more reliable when the related accounting and internal control systems are
effective.
C. Audit evidence obtained directly by the auditor is more reliable than that obtained from the entity.
D. Audit evidence in the form of documents and written representations is more reliable than oral representations.

AUDIT EVIDENCE | 1
____ 10. Who has the responsibility for the design, implementation and maintenance of adequate controls over related party
relationships and transactions so that these are identified and appropriately accounted for and disclosed in accordance
with the framework?
A. Independent external auditor
B. Management and those charged with governance
C. Securities and exchange commission
D. Stockholders

____ 11. The following unusual transactions that may indicate the existence of related parties or related party transactions, except
A. Transactions which have normal terms of trade.
B. Transactions in which substance differs from form.
C. High volume or significant transactions with certain customers or suppliers as compared with others.
D. Unrecorded transactions such as the receipt or provision of management services at no charge.

____ 12. Which of the following statements relating to the appropriateness of audit evidence is always true?
A. Audit evidence gathered by an auditor from outside an enterprise is reliable.
B. Accounting data developed under satisfactory conditions of internal control are more relevant than data developed
under satisfactory internal control conditions.
C. Oral representations made by management are not valid evidence.
D. Evidence gathered by auditors must be both valid and relevant to be considered appropriate.

____ 13. Which of the following statements is correct concerning an auditor’s use of the work of an expert?
A. The work of an expert who is related to the client may be acceptable under certain circumstances.
B. If an auditor believes that the determination made by an expert is unreasonable, only a qualified opinion may be
issued.
C. If there is a material difference between an expert’s findings and the assertions in the financial statements, only an
adverse opinion may be issued.
D. An auditor may not use an expert in the determination of physical characteristics relating to inventories.

____ 14. An entity’s accounting records as audit evidence generally include the records of initial entries and supporting records
including
A. Confirmation from third parties.
B. Information obtained by the auditor from such audit procedures as inquiry, observation and inspection.
C. Worksheets and spreadsheets supporting cost allocation.
D. Other information developed by, or available to, the auditor to permit him/her to reach conclusions through valid
reasoning.

____ 15. 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

____ 16. Accounting records least likely include

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).

____ 17. Other information that the auditor may use as audit evidence least likely includes
A. Minutes of meetings.
B. Confirmation from third parties.
C. Information obtained by the auditor from such audit procedures as inquiry, observation, and inspection.
D. Adjustments to the financial statements that are not reflected in formal journal entries

____ 18. 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. 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)
D. Merely obtaining more audit evidence may compensate for its poor quality.

____ 19. 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 that is generated internally is not affected by the effectiveness of the controls imposed by the
entity.
C. Audit evidence obtained directly by the auditor is more reliable than audit evidence obtained indirectly or by
inference.
D. Audit evidence is more reliable when it exists in documentary form.
AUDIT EVIDENCE | 2
____ 20. Which statement is incorrect regarding audit evidence?
A. The auditor should obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which
to base the audit opinion.
B. Accounting records alone do not provide sufficient audit evidence.
C. The auditor uses professional judgments and exercises professional skepticism in evaluating the quantity and quality
of audit evidence, and thus its sufficiency and appropriateness, to support the audit opinion.
D. The matter of difficulty or expense involved is a valid basis for omitting and audit procedure for which there is no
alternative

____ 21. The auditor obtains audit evidence to draw reasonable conclusions on which to base the audit opinion by performing
audit procedures to:
A. Obtain and understanding of the entity and its environment, including its internal control, to assess the risks of
material misstatement at the financial statement and assertion levels.
B. Test the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the
assertion level.
C. Detect material misstatements at the assertion level.
D. All of the above.

____ 22. The auditor is not always required to perform

A. Risk assessment procedures. D. Both a and c
B. Test of controls.
C. Substantive procedures.

____ 23. Which statement is incorrect regarding inspection as an audit procedure?

A. Inspection consists of examining records or documents or physical examination of assets.
B. Inspection of tangible assets may provide reliable audit evidence with respect to their existence and about the
entity’s rights and obligations on the assets.
C. Inspection of individual inventory items ordinarily accompanies the observation of inventory counting.
D. Some documents represent direct audit evidence of the existence of an asset.

____ 24. Which of the following audit procedures is used extensively throughout the audit and often is complementary to
performing other audit procedures?
A. Inspection D. Confirmation
B. Observation
C. Inquiry

____ 25. Which statement is incorrect regarding inquiry?

A. Responses to inquiries may provide the auditor with information not previously possessed or with corroborative audit
evidence.
B. Responses to inquiries might provide information that differs significantly from other information that the auditor has
obtained.
C. Responses to inquiries may provide a basis for the auditor to modify or perform additional from a third party.
D. Is the auditor’s independent execution of procedures or controls that were originally performed as part of the entity’s
internal control.

____ 26. Observation

A. Consists of looking at a process or procedure being performed by others.
B. Consists of seeking information of knowledgeable persons, both financial and non-financial, throughout the entity or
outside the party.
C. Is the process of obtaining a representation of information or of an existing condition directly from a third party.
D. Is the auditor’s independent execution of procedures or controls that were originally performed as part of the entity’s
internal control.

____ 27. This consists of checking the mathematical accuracy of documents or records.
A. Reperformance D. Inspection
B. Recalculation
C. Confirmation

____ 28. Which of the following is the best explanation of the difference, if any between audit objectives and audit procedures?
A. Audit procedures establish broad general goals, audit objectives specify the detailed work to be performed.
B. Audit objectives are tailor-made for each assignment, audit procedures are generic in application.
C. Audit objectives define specific desired accomplishments; audit procedures provide the means of achieving audit
objectives.
D. Audit procedures and audit objectives are essentially the same.

____ 29. 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 D. Vendor’s invoices
B. Oral representations of client
C. Prenumbered client sales invoices

____ 30. Which of the following statements concerning the management’s experts competence, capabilities, and objectivity is
correct?
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 A. Objectivity relates to the ability of the management’s expert to exercise the competence in the circumstances.
B. Competence relates to the possible effects that bias, conflict of interest or the influence of others may have on the
professional or business judgment of the management’s expert.
C. Capability relates to the nature and level of expertise of the management’s expert.
D. The management’s expert’s competence, capabilities, and objectivity are important factors in relation to the
reliability of any information prepared by the management’s expert.

____ 31. Which of the following generalizations does not relate to the reliability of audit evidence?
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 the audit evidence obtained indirectly or by
inference.
C. Audit evidence that is generated internally is more reliable when the related controls imposed by the entity is
effective.
D. An auditor’s opinion, to be economically useful, is formed within a reasonable time and base on audit evidence
obtained at a reasonable cost.

____ 32. The following are assertions about account balances at the period end, except
A. Existence C. Valuation and Allocation
B. Rights and Obligation D. Cutoff

____ 33. The following are assertions about presentation and disclosure, except
A. Occurrence and rights and obligation D. Existence
B. Accuracy and valuation
C. Classification and understandability

____ 34. Which of the following would least likely affect the appropriateness of evidence available to an auditor?
A. The sampling method employed by the auditor to obtain a sample of such evidence.
B. The relevance of such evidence to the financial statement assertion being verified.
C. The relationship of the preparer of such evidence to the entity being audited.
D. The timeliness of such evidence.

____ 35. The objectives of tests of details of transactions performed as substantive tests is to
A. Attain assurance about the reliability of the accounting system.
B. Evaluate whether management’s policies and procedures operated effectively.
C. Detect material misstatements in the financial statements.
D. Comply with Philippine Standards on Auditing (PSAs).

____ 36. The confirmation of customer’s accounts receivable rarely provides reliable evidence about the valuation assertions
because
A. A customer may not be inclined to report understatement errors in their accounts.
B. Auditors typically select many accounts with low recorded balances to confirmed.
C. It s not practicable to ask the customer to confirm detailed information relating to its ability to pay the account.
D. Recipients usually respond only if they disagree with the information on the request.

____ 37. Auditors may use positive and/or negative forms of confirmation requests. An auditor most likely will use
A. The negative form for small balances.
B. The positive form, when the combined assessed level of inherent and control risk for related assertions is acceptably
low, and the negative form when it is unacceptably high.
C. The positive form to confirm all balances regardless of size.
D. A combination of the two forms, with the positive form used for trade balances and the negative form for other
balances.

____ 38. To reduce the risks associated with accepting fax responses to requests for confirmations of accounts receivable, an
auditor most likely would
A. Inspect the faxes for forgeries or alterations and consider them to be acceptable if none are noted.
B. Consider the faxes to be non-responses and evaluate them as unadjusted differences.
C. Verify the source and contents of the faxes in telephone calls to the sender.
D. Examine the shipping documents that provide evidence for the existence assertions.

____ 39. In the context of audit of financial statements, substantive tests are audit procedures that
A. Maybe 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 procedures.
D. Will increase proportionately with the auditor’s assessment of control risk.

____ 40. Which of the following analytical procedures should be applied to the income statement?
A. Select sales and expense items and trace amounts to related supporting documents.
B. Ascertain that the new income amount in the statement of cash flows agrees with the net income amount in the
income statement.
C. Obtain from the client representatives, the beginning and ending inventory amounts that were used to determine
costs of sales.
D. Compare the actual revenues and expenses with the corresponding figures of the previous year and investigate
significant differences.

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____ 41. The practice of auditing firm to spread work throughout the year by carrying out as many as auditing procedures as
practicable before the balance sheet date, in order to minimize the load during the peak period. This is called
A. Test of recorded transactions. D. Interim work.
B. Confirmation of receivable and payables.
C. Observation and test-check of inventories.

____ 42. The sufficiency and appropriateness of evidential matter ultimately is based on the
A. Availability of corroborating data. D. Judgment of the auditor.
B. Philippine Standards on Auditing.
C. Pertinence of the evidence.

____ 43. Which of the following assertions is correct about the reliability of evidential matter?
A. Information obtained indirectly from outside sources is the most reliable evidential matter.
B. To be reliable, evidential matter should be convincing rather than persuasive.
C. Reliability of evidential matter refers to the amount of corroborative evidence obtained.
D. An effective internal control structure provides more assurance about reliability of evidential matter.

____ 44. Which of the following statements is incorrect about working papers prepared by the auditor?
A. The auditor should record in the working papers, information on planning the audit work, the nature, timing and
extent of audit procedures performed, the results thereof, and the conclusions reached from the audit evidence
obtained.
B. The extent of working paper documentation is a matter of professional judgment.
C. Working papers should be in the form of data stored in paper.
D. Working papers should be designed and organized to meet the circumstances and the auditor’s need for each
individual audit.

____ 45. Which of the following statements is correct about working papers?
A. Working papers should not include documentation prepared by the client.
B. Every matter the auditor considers in an audit must be documented in the working papers.
C. In determining the extent of working paper documentation, it may be useful to consider what would be necessary to
provide another auditor who has no previous experience with the audit an understanding of the detailed aspects of
the audit.
D. The auditor should prepare working papers which are sufficiently complete and detailed to provide an overall
understanding of the audit.

____ 46. Which of the following factors most likely affects the auditor’s judgment about the quantity, type, and content of working
papers?
A. The nature and condition of the client’s accounting and internal control systems.
B. The content of the client’s representation letter.
C. The timing of substantive tests completed prior to balance sheet date.
D. The usefulness of the working papers as a reference for the client.

____ 47. Which of the following audit procedures is most likely to assist an auditor in identifying related party transactions?
A. Retesting ineffective internal control previously reported to the audit committee.
B. Sending second request for an unanswered positive confirmations of receivable.
C. Reviewing information provided by management in identifying related parties and being alert for other material
related party transactions.
D. Inspecting communications with law firms for evidence of unreported contingent liabilities.

____ 48. During an audit, the auditor may need the assistance of an expert in obtaining sufficient appropriate evidence. A
common example is
A. Evaluating the potential financial statement effect of an employee fraud.
B. Determination of the amounts using actuarial computations.
C. Evaluating the integrity of management.
D. Determining the sufficiency and appropriateness of evidential matter obtained.

____ 49. Each of the following procedures requires the assistance of an expert except
A. Determining the physical condition or quantity of underground mineral.
B. Determining the value of works of arts.
C. Interpreting major contracts.
D. Determining the adequacy of disclosure in the notes to the financial statements.

____ 50. When determining the need to use the work of an expert, the auditor would consider the following, except
A. The materiality of the financial statement item being considered.
B. The risk of misstatement based on the nature and complexity of the matter being considered.
C. The quantity and quality of other audit evidence available.
D. The professional certification or licensing by, or membership in, an appropriate professional body.

AUDIT EVIDENCE | 5
AUDIT EVIDENCE
Answer Section

MULTIPLE CHOICE

1. ANS: D PTS: 1 REF: MEBC C5 MC1

2. ANS: C PTS: 1 REF: MEBC C5 MC3
3. ANS: D PTS: 1 REF: MEBC C5 M6
4. ANS: D PTS: 1 REF: MEBC C5 MC7
5. ANS: B PTS: 1 REF: MEBC C5 MC8
6. ANS: A PTS: 1 REF: MEBC C5 MC11
7. ANS: B PTS: 1 REF: DLSL AT07 MC2
8. ANS: C PTS: 1 REF: DLSL AT07 MC3
9. ANS: A PTS: 1 REF: DLSL AT07 MC6
10. ANS: B PTS: 1 REF: DLSL AT07 MC13
11. ANS: A PTS: 1 REF: DLSL AT07 MC14
12. ANS: D PTS: 1 REF: DLSL AT07 MC21
13. ANS: A PTS: 1 REF: DLSL AT07 MC26
14. ANS: C PTS: 1 REF: DLSL AT07 MC27
15. ANS: D PTS: 1 REF: ReSA AT06 MC1
16. ANS: D PTS: 1 REF: ReSA AT06 MC2
17. ANS: D PTS: 1 REF: ReSA AT06 MC3
18. ANS: C PTS: 1 REF: ReSA AT06 MC4
19. ANS: B PTS: 1 REF: ReSA AT06 MC5
20. ANS: D PTS: 1 REF: ReSA AT06 MC6
21. ANS: D PTS: 1 REF: ReSA AT06 MC7
22. ANS: B PTS: 1 REF: ReSA AT06 MC8
23. ANS: B PTS: 1 REF: ReSA AT06 MC9
24. ANS: C PTS: 1 REF: ReSA AT06 MC10
25. ANS: D PTS: 1 REF: ReSA AT06 MC11
26. ANS: A PTS: 1 REF: ReSA AT06 MC12
27. ANS: B PTS: 1 REF: ReSA AT06 MC13
28. ANS: C PTS: 1 REF: ReSA AT06 MC14
29. ANS: B PTS: 1 REF: ReSA AT06 MC15
30. ANS: D PTS: 1 REF: ROQUE C7 MC6
31. ANS: D PTS: 1 REF: ROQUE C7 MC10
32. ANS: D PTS: 1 REF: ROQUE C7 MC14
33. ANS: D PTS: 1 REF: ROQUE C7 MC15
34. ANS: A PTS: 1 REF: ROQUE C7 MC19
35. ANS: C PTS: 1 REF: ROQUE C7 MC21
36. ANS: C PTS: 1 REF: ROQUE C7 MC47
37. ANS: A PTS: 1 REF: ROQUE C7 MC48
38. ANS: C PTS: 1 REF: ROQUE C7 MC55
39. ANS: C PTS: 1 REF: SALOSAGCOL C8 MC1
40. ANS: D PTS: 1 REF: SALOSAGCOL C8 MC5
41. ANS: D PTS: 1 REF: SALOSAGCOL C8 MC12
42. ANS: D PTS: 1 REF: SALOSAGCOL C8 MC21
43. ANS: D PTS: 1 REF: SALOSAGCOL C8 MC22
44. ANS: C PTS: 1 REF: SALOSAGCOL C8 MC27
45. ANS: D PTS: 1 REF: SALOSAGCOL C8 MC28
46. ANS: A PTS: 1 REF: SALOSAGCOL C8 MC32
47. ANS: C PTS: 1 REF: SALOSAGCOL C8 MC54
48. ANS: B PTS: 1 REF: SALOSAGCOL C8 MC57
49. ANS: D PTS: 1 REF: SALOSAGCOL C8 MC58
50. ANS: D PTS: 1 REF: SALOSGACOL C8 MC60

AUDIT EVIDENCE | 6