AUDIT EVIDENCE, PROCEDURES AND can be used to satisfy the stated engagement objective,

DOCUMENTATION the controller’s assurances are

3. To determine the sufficiency of information regarding a. Sufficient, reliable and relevant
interpretation of a contract, an auditor uses b. Sufficient but not reliable or relevant
a. Logical relationship between information and issue. c. Relevant but not sufficient or reliable
b. Objective evaluation. d. Not sufficient, reliable, and relevant
c. Subjective judgments.
d. The best obtainable information. 9. While performing an engagement relating to an
organization’s cash controls, the auditor observed that
4. Reliable information is cash receipts are not deposited intact daily. A comparison
a. Competent and the best attainable through the use of of a sample of cash receipts listed revealed that each
appropriate engagement techniques. cash receipt list equaled cash journey entry amounts but
b. Factual , adequate , and convincing so that a prudent not daily bank deposits amounts, and cash receipts list
person would reach the same conclusion as the auditor. total equaled bank deposit totals in the long run. This
c. Helpful in assisting the organization in meeting information as support for the auditor’s observation is
prescribed goals. a. Sufficient, reliable and relevant
d. Supportive of the engagement observations and b. Sufficient but not reliable or relevant
consistent with the engagement objectives. c. Relevant but not sufficient or reliable
d. Not sufficient, reliable, and relevant
5. When sampling methods are used, the concept of
sufficiency of information means that the sample selected 10. During an engagement, the auditor should consider
provide the following factor(s) in determining the extent to which
a. Absolute assurance that a sample in representation of analytical procedures should be used during the
the population. engagement:
b. Reasonable assurance that the information has a a. Significance of the area being examined.
logical relationship to the engagement objective. b. Precision with which the results of analytical audit
c. Reasonable assurance that they are representative of procedures can be predicted.
the sampled population. c. Adequacy of the system of internal control.
d. The best information that is reasonably obtainable. d. All of the answers are correct.

6. Which of the following is an essential factor in 11. An inexperienced auditor notified the senior auditor of
evaluating the sufficiency of information? The information a significant variance from the engagement client’s
must budget. The senior told the new auditor not to worry
a. Be based on references that are considered because the senior had heard that there had been an
competent. unauthorized work stoppage that probably accounted for
b. Be convincing enough for a prudent person to reach the difference. Which of the following statements is most
the same decision. appropriate?
c. Be well documented and cross-referenced in the a. The senior used proper judgement in curtailing what
working papers. could have been a wasteful investigation.
d. Bear a direct relationship to the observation and b. The senior should have halted the engagement until
include all of the elements of an observation. the variance was fully explained.
c. The senior should have aided the new auditor in
7. An auditor is evaluating the advertising function. The formulating a plan for accumulating appropriate
organization has engaged a medium-sized local information.
advertising agency to place advertising in magazine d. The new auditor should have investigated the matter
publications. As part of the review of the engagement fully and not bothered the senior.
working papers, the auditing supervisor is as part of the
review of the engagement working papers, the auditing 12. Analytical procedures enable the auditor to predict the
supervisor is evaluating the information collected. The balance or quantity of an item. Information to develop this
auditor reviewed the language in the advertising for its estimate can be obtained by all the following except
legality and compliance with fair trade regulations by a. Comparing financial data with data for comparable
interviewing the organization's advertising manager , the prior periods, anticipated results (e.g., budgets and
product marketing director (who may not have been forecasts), and similar data for the industry in which the
objective) , and five of the organization's largest entity operates m.
customers (who may not have been knowledgeable). The b. Studying the relationships of elements of financial data
supervisor can justifiably conclude that the information is that would be expected to conform to a predictable
a. Conclusive. pattern based upon the entity’s experience.
b. Insufficient. c. Studying the relationship of financial data with relevant
c. Irrelevant. nonfinancial data.
d. Reliable. d. Tracing transactions through the system to determine
8. An auditor has set an engagement objective of whether procedures are being applied as prescribed.
determining whether all cash receipts are deposited intact
daily. To satisfy this objective, the auditor interviewed the 13. A production manager for a moderate-sizes
controller who gave assurances that all cash receipts are manufacturing organization began ordering raw materials
deposited as soon as reasonably possible. As information and had them delivered to a wholesaler that the manager
was running as a side business. The manager falsified 19. Which of the following types of tests is the most
receiving documents and approved the invoices for persuasive if an auditor wants assurance of the existence
payment. Which of the following engagement procedures of inventory stored warehouse?
is most likely to detect this fraud? a. Examining the shipping documents that support
a. Observe the receiving dock and count materials recorded transfers to and form the warehouse.
received; compare the counts with receiving reports b. Examining warehouse receipts contained in the
completed by receiving personnel. engagement client's records.
b. Perform analytical tests, comparing production, c. Obtaining written confirmation from management.
material purchased, and raw materials inventory level; d. Physically observing the inventory in the warehouse.
investigate differences.
c. Take a sample of cash disbursement and confirm the 20. Documents provide information with differing degrees
amount purchased, purchase price, and date of shipment of persuasiveness. If the engagement objective is to
with the vendors. obtain information that payment has actually been made
d. Take a sample of cash disbursements, compare for a specific invoice from a vendor, which of the following
purchase orders, receiving reports, invoices, and check documents ordinarily is the most persuasive?
copies. a. A canceled check, made out to the vendor and
referenced to the invoice, included in a cutoff bank
14. Analytical procedures can best be categorized as statement that the auditor received directly from the bank
a. Budget comparisons. b. A vendor's original invoice stamped “PAID” and
b. Qualitative tests. referenced to a check number.
c. Substantive tests. c. An accounts payable subsidiary ledger that shows
d. Tests of controls. payment of the invoice.
d. An entry in the engagement client’s cash disbursement
15. Analytical procedures in which current financial journal supported by a voucher package containing the
statements are compared with budgets or previous vendor’s invoice.
statements are primarily intended to determine the
a. Use of an erroneous cutoff date. 21. An auditor at a savings and loan concludes that a
b. Overall reasonableness of statement contents. secured real estate loan is collectible. Which of the
c. Existence of specific errors or omission. following engagement procedures provides the most
d. Adequacy of financial statement disclosure. persuasive information about the loan's collectability?
a. Reviewing the loan file for proper authorization by the
16. An adequately documented working paper should credit committee.
a. Not contain copies engagement client records. b. Examining the loan application for appropriate
b. Follow a unique form and arrangement. borrower's signatures.
c. Contain examples of all forms and procedures used by c. Examining documentation of a recent, independent
the engagement client. appraisal of the real estate.
d. Be concise but complete. d. Confirming the loan balance with the borrower.

17. Which of the substantive fieldwork procedures 22. The most persuasive information about the existence
presented below provides the best information about of newly acquired computers for the sales department is
completeness of recorded revenues? a. Physical examination.
a. Reconciling shipping records to recorded sales. b. Observation of engagement client's procedure.
b. Reconciling the sales journal to the ledger control c. Inquiry of management.
account. d. Documentation prepared externally.
c. Vouching charges made to the accounts receivable
subsidiary ledger to supporting shipping records. 23.The most persuasive information regarding the asset
d. Vouching shipping records to the customer order file. value of newly acquired computers is
a. Physical examination.
18. Observation is considered a reliable engagement b. Documentation prepared externally.
procedure, but one that is limited in usefulness. However, c. Observation of engagement client's procedure.
it is used in a number of different engagement situations. d. Inquiry of management.
Which of the following statements is true regarding
observation as an engagement technique? 24. Which of the following does not describe one of the
a. It is the most persuasive technique for determining functions of engagement working papers?
fraud has occurred. a. Provides the principal support for engagement
b. It is the most persuasive methodology to learn how communications
transactions are really processed during the period under b. Facilitates third-party reviews.
review. c. Aids in the professional development of the operating
c. It is the most effective engagement methodology to use staff.
in filling out internal control questionnaires. d. Aids in the planning, performance, and review of
d. It is most persuasive about the performance of a engagements.
process but is limited to the moment in time at which the
observation takes place. 25. Which of the following represents the general order of
persuasiveness, from most to least, for the types of
information listed below:
I. Inquiry of management. 31. Each individual working paper should, at a minimum,
II. Observation of engagement client's procedure. contain
III. Physical examination. a. An expression of the auditor’s overall opinion.
IV. Documentation prepared externally. b. A descriptive heading.
a. IV, III, I, II. c. A tick mark legend.
b. IV, I, II, III. d. A complete flowchart of the system of internal controls
c. III, IV, II, I. for the area being reviewed.
d. II, IV, I, III.
32. Engagement working paper are indexed by means of
26. The primary purpose of an auditor's working papers is a reference numbers. The primary purpose of indexing is
to to
a. Serve as a means with which to prepare the financial a. Support the final engagement communication.
statements. b. Permit cross-referencing and simplify supervisory
b. Provide documentation of the planning and execution review
of engagement procedures performed. c. Determine that working papers adequately support
c. Document weaknesses in internal control with observations, conclusions, and recommendations.
recommendations to management for improvement. d. Eliminate the need for follow up reviews.
d. Comply with the Standards.
33. When engagement conclusions re challenged, the
27. Which of the following is the most important if working auditor’s factual rebuttal is best facilitated by
papers are to have the characteristics that will ensure that a. Cross-referencing of the working papers.
they achieve their primary purposes? b. Explicit procedures in the engagement work program.
a. Working papers must provide sufficient, reliable, and c. Pro forma working papers.
useful information to support the final engagement d. Summaries in the engagement work program.
communication.
b. Working papers must be properly indexed and cross- 34. Which of the following conditions constitute
referenced to the draft final engagement communication. inappropriate working-paper presentation?
c. Working papers must be of standard format and a. All forms and directives used by the engagement client
standard content. are included in the working papers.
d. Working papers must be arranged in logical order b. Engagement observations are cross-referenced to
following the engagement work program sequence. supporting documentation.
c. Flowcharts are included in the working papers.
28. The primary purpose of an engagement working d. Tick marks are explained in notes.
paper prepared in connection with payroll expense is to
a. Verify the work done by the auditor. 35. Which of the following engagement procedures
b. Record the names of all employees. provides the best information about the collectibility of
c. Record payroll data and analyses to support reported notes receivable?
documentations. a. Confirmation of the note receivable balances with the
d. Provide documentation to support payroll taxes due. debtors.
b. Examination of the cash receipts records to determine
29. Engagement working paper should include promptness of interest and principal payments.
a. All working papers prepared during a previous c. Examination of notes for appropriate debtor’s
engagement performed in the same area. signatures.
b. Documentation in the examination and evaluation of d. Reconciliation of the details of notes receivable and the
the adequacy and effectiveness of the system of internal provision for the uncollectible amounts to the general
control. ledger control.
c. Copies of all procedures that were reviewed during the
engagement. 36. Ordinarily, what source of information should most
d. Copies of all source documents examined in the affect the auditor's conclusions?
course of the engagement. a. Oral
b. Inquiry
30. Which of the following is an unnecessary feature of a c. Informal
working paper prepared in connection with maintenance d. External
costs?
a. The auditor has initiated and dated the working paper 37. An auditor's objective is to determine the cause of
as of the date completed even though the working paper inventory shortages shown by the physical inventory
was prepared over preceding 4 working days. taken by independent service organization that use some
b. Total acquisition cost of the property, plant, and and engagement client personnel. The auditor addresses
equipment for the preceding month is shown. this objective by reviewing the count sheet, inventory print
c. Total repair expense for the month preceding the outs, and memos from the last inventory. The source of
engagement is shown. information and the sufficiency of this information are
d. The supervisor has initiated the working paper as a. Both external and internal and not sufficient
reviewer although the working paper was prepared by b. Both external and internal and sufficient
another person. c. External and sufficient
d. Internal and not sufficient
 c. Evidence obtained form independent sources outside
38. The most conclusive information to support supplier the entity is more reliable than evidence secured solely
account balances is obtained by within the entity.
a. Reviewing the vendor statement obtained from the d. The independent auditor's direct personal knowledge,
accounts payable clerk obtained through observation and inspection, is more
b. Performing analytical account analysis persuasive than information obtained indirectly.
c. Obtaining confirmations of balances from the suppliers
d. Interviewing the accounts payable manager to 45. Which of the following types of audit evidence is the
determine the internal controls maintained over accounts least persuasive?
payable processing a. Prenumbered purchase order forms.
b. Bank statements obtained from the client.
39. The supervisor is reviewing the working papers c. Test counts of inventory performed by the auditor.
produced by a staff auditor during the fraud investigation. d. Correspondence from the client's attorney about
Among the items contained in the working papers is a litigation.
description of an item of physical information. Which of
the following is the most probable source of this item of 46. Which of the following types of audit evidence is the
information? most persuasive
a. Computing variances a. Prenumbered purchase order forms.
b. Examining records b. Clients worksheets supporting cost allocation
c. Interviewing people c. Bank statements obtained from the client.
d. Observing condition d. Client represented letter.

40. An auditor takes a photograph of a engagement 47. During the initial planning phase of audit, a CPA most
client's workplace. The photograph is a form of what kind likely would
of information? a. Identity specific internal control activities that are likely
a. Testimonial to prevent fraud.
b. Physical b. Evaluate the reasonableness of the client's accounting
c. Documentary estimates.
d. Analytical c. Discuss the timing of the audit procedures with the
client's management.
41. Which of the following is an example of documentary d. Inquire of the client's attorney as to wonder any
information? unrecorded claims are probable of assertion.
a. A photograph of an engagement client's workplace
b. A page of a general ledger containing irregularities 48. An auditor should design the written audit program so
placed there by perpetrator of a fraud that
c. A page of auditor's working papers containing the a. All material transactions will be selected for substantive
computations that demonstrate the existence of an error testing.
or irregularity b. Substantive test prior to the balances sheet date will be
d. A letter from a former employee alleging of fraud minimized.
c. The audit procedures selected will achieve specific
42. In an engagement to review travel expenses, the audit objectives.
auditor calculates average expenses per day travel for all d. Each account balance will be tested under either tests
sales personnel and then examines detailed receipts for of control or tests of transactions.
those with high averages. These procedures represent
the identification of which types of information? 49. Which of the following circumstances most likely
a. Analytical and physical would cause an auditor to consider whether material
b. Documentary and analytical misstatements exist in an entity's financial statements?
c. Documentary and physical a. Management places little emphasis on meeting
d. Physical and testimonial earnings projections.
b. The board of directors makes all major financing
43. Of the following which is the least perspective type of decisions.
the audit evidence? c. Reportable conditions previously communicated to
a. Documents mailed by outsiders to the auditor. management are not corrected.
b. Correspondence between auditor and vendors. d. Transactions selected for testing are not supported by
c. Copies of invoices inspected by the auditor. proper documentation
d. Copies of bank statement. 50. The in-charge auditor most likely would have a
supervisory responsibility to explain to the staff assistants
44. Which of the following presumptions does not relate a. That immaterial irregularity is not be reported to the
to the competence pf audit evidence? client’s audit committee
a. The more effective the internal control structure, the b. How the results of various auditing procedures
more assurance it provides about the accounting data performed by the assistants should be evaluated
and financial statements. c. What benefits may be attained by the assistants’
b. An auditor's opinion, to be economically useful, is adherence to established time budgets
formed within reasonable time and based on evidence d. Why certain documents are being transferred from, the
obtained at reasonable cost. current file to the permanent file.