4 - Substantive Testing and Documentation

12The most reliable form of documentary evidence generally is considered to be documents created by the client. A.
true B. false1. a
2. b
2
CORRECT12multiple choice12Analytical procedures are required at the risk assessment stage and as: A. Tests of internal
control. B. Substantive procedures. C. Procedures near the end of the audit. D. Computer generated procedures.1. a
2. b
3. c
4. d
3
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CORRECT13multiple choice12Which of the following statements is generally correct about audit evidence? A. The
auditor's direct personal knowledge, obtained through observation and inspection, is more persuasive than information
obtained indirectly from independent outside sources. B. To be appropriate, audit evidence must be sufficient. C.
Accounting data alone may be considered sufficient appropriate audit evidence to issue an unqualified opinion on
financial statements. D. Appropriateness of audit evidence refers to the amount of corroborative evidence to be
obtained.1. a
2. b
3. c
4. d
1
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CORRECT14multiple choice12The components of the risk of misstatement are: Inherent Risk Control Risk Detection Risk
A. Yes Yes Yes B. Yes Yes No C. Yes No No D. No Yes Yes1. a
2. b
3. c
4. d
2
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CORRECT15multiple choice12What type of transactions ordinarily have high inherent risk because they involve
management judgments or assumptions in formulating accounting balances? A. Estimation. B. Nonroutine. C. Qualified.
D. Routine.1. a
2. b
3. c
4. d
1
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CORRECT16multiple choice12Which of the following is generally true about the sufficiency of audit evidence? A. The
amount of evidence that is sufficient varies directly with the acceptable risk of material misstatement. B. The amount of
evidence concerning a particular account varies inversely with the materiality of the account. C. The amount of evidence
concerning a particular account varies inversely with the inherent risk of the account. D. When evidence is appropriate
with respect to an account it is also sufficient.1. a
2. b
3. c
4. d
1
CORRECT17multiple choice12Of the following, which is the least persuasive type of audit evidence? A. Documents
mailed by outsiders to the auditor. B. Correspondence between auditor and vendors. C. Copies of sales invoices
inspected by the auditor. D. Computations made by the auditor1. a
2. b
3. c
4. d
3
179_650937_
CORRECT18multiple choice12Which of the following statements relating to audit evidence is the most accurate
statement? 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 unsatisfactory
internal control conditions. C. Oral representations made by management are not valid evidence. D. The auditor must
obtain sufficient appropriate audit evidence1. a
2. b
3. c
4. d
4
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CORRECT19multiple choice12During an audit engagement pertinent data are prepared and included in the audit working
papers. The working papers primarily are considered to be: A. A client-owned record of conclusions reached by the
auditors who performed the engagement. B. Evidence supporting financial statements. C. Support for the auditors'
representations as to compliance with generally accepted auditing standards. D. A record to be used as a basis for the
following year's engagement1. a
2. b
3. c
3
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CORRECT110multiple choice12If planned detection risk is reduced, the amount of evidence the auditor accumulates will:
A. increase. B. decrease. C. remain unchanged. D. be indeterminate.1. a
2. b
3. c
4. d
1
179_621319_
CORRECT111multiple choice12What is the primary means of dealing with risk in planning decisions related to audit
evidence? A. Selection of more effective tests of details of balances. B. Application of the audit risk model. C.
Establishing a lower preliminary judgment about materiality. D. Allocating materiality judgment to segments.1. a
2. b
3. c
4. d
2
179_875244_
CORRECT112multiple choice12During financial statement audits, auditors seek to restrict which type of risk? A. Control
risk. B. Detection risk. C. Inherent risk. D. Account risk.1. a
2. b
3. c
4. d
2
179_515142_
CORRECT113multiple choice12Which of the following statements is not true? A. Inherent risk is inversely related to
detection risk. B. Inherent risk is inversely related to evidence. C. Inherent risk is the susceptibility of the financial
statements to material error, assuming no internal controls. D. Inherent risk is the auditor’s assessment of the likelihood
that errors exceeding a tolerable amount exist in a segment before considering the effectiveness of internal controls.1. a
2. b
3. c
4. d
1
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INCORRECT014multiple choice12Failure to detect material dollar errors in the financial statements is a risk which the
auditors primarily mitigate by: A. Performing substantive procedures. B. Performing tests of controls. C. Assessing
control risk. D. Obtaining a client representation letter1. a
2. b
3. c
4. d
1
179_776887_
CORRECT115multiple choice12Audit documentation should be sufficient to allow which individual to understand the
audit work performed, the evidence obtained, and the significant conclusions? A. A certified public accountant. B. A
partner in a CPA firm. C. An experienced auditor. D. The controller at the company being audited.1. a
2. b
3. c
4. d
3
179_295247_
CORRECT116multiple choice12When the risk of material misstatement for an account is high, the auditors may perform
additional substantive procedures to restrict detection risk to a lower level. A. true B. false1. a
2. b
1
179_703011_
CORRECT117multiple choice12Working papers of continuing audit interest usually are filed with the administrative
working papers. A. true B. false1. a
2. b
2
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CORRECT118multiple choice12Which of the following is not a primary consideration when assessing inherent risk? A.
Nature of client’s business. B. Existence of related parties. C. Frequency and intensity of management’s review of
accounting transactions and records. D. Susceptibility to defalcation.1. a
2. b
3. c
4. d
3
179_618054_
CORRECT119multiple choice12Further audit procedures include: Risk assessment procedures Tests of controls A. Yes Yes
B. Yes No C. No Yes D. No No1. a
2. b
3. c
4. d
3
179_666432_
CORRECT120multiple choice12Which of the following statements relating to the competence of evidential matter is
always true? A. Evidential matter 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 unsatisfactory
conditions. C. Oral representations made by management are not valid. D. Evidence gathered by auditors must be both
valid and relevant to be considered competent.1. a
2. b
3. c
4. d
4
179_640527_
CORRECT121multiple choice12Which of the following is not a primary purpose of audit working papers? A. To
coordinate the examination. B. To assist in preparation of the audit report. C. To support the financial statements. D. To
provide evidence of the audit work performed.1. a
2. b
3. c
4. d
3
179_574049_
CORRECT122multiple choice12An auditor plans to apply substantive tests to the details of asset and liability accounts as
of an interim date rather than as of the balance sheet date. The auditor should be aware that this practice A. Eliminates
the use of certain statistical sampling methods that would otherwise be available. B. Presumes that the auditor will
reperform the tests as of the balance sheet date. C. Should be especially considered when there are rapidly changing
economic conditions. D. Potentially increases the risk that errors which exist at the balance sheet date will not be
detected.1. a
2. b
3. c
4. d
4
179_728598_
CORRECT123multiple choice12In evaluating an entity's accounting estimates, one of the auditor's objectives is to
determine whether the estimates are A. Prepared in a satisfactory control environment. B. Consistent with industry
guidelines. C. Based on verifiable objective assumptions. D. Reasonable in the circumstances1. a
2. b
3. c
4. d
4
179_754381_
CORRECT124multiple choice12Working papers that record the procedures used by the auditor to gather evidence
should be: A. Considered the primary support for the financial statements being examined. B. Viewed as the connecting
link between the books of account and the financial statements. C. Designed to meet the circumstances of the particular
engagement. D. Destroyed when the audited entity ceases to be a client.1. a
2. b
3. c
4. d
3
CORRECT125multiple choice12In the context of an audit of financial statements, substantive tests are audit procedures
that A. May be 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 tests. D. Will increase proportionately with the
auditor's assessment of control risk1. a
2. b
3. c
4. d
3
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CORRECT126multiple choice12The auditor typically does not assess control risk and inherent risk for: A. each audit
objective. B. each cycle. C. each account. D. the overall audit.1. a
2. b
3. c
4. d
4
179_679907_
CORRECT127multiple choice12Which of the following is not a basic procedure used in an audit? A. Risk assessment
procedures. B. Substantive procedures. C. Tests of controls. D. Tests of direct evidence.1. a
2. b
3. c
4. d
4
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CORRECT128multiple choice12Although the quantity, type, and content of working papers will vary with the
circumstances, the working papers generally would include the: A. Copies of those client records examined by the
auditor during the course of the engagement. B. Evaluation of the efficiency and competence of the audit staff assistants
by the partner responsible for the audit. C. Auditor's comments concerning the efficiency and competence of client
management personnel. D. Auditing procedures followed and the testing performed in obtaining audit evidence.1. a
2. b
3. c
4. d
4
179_23838_
CORRECT129multiple choice12Inherent risk is _______ related to detection risk and _______ related to the amount of
audit evidence. A. directly, inversely B. directly, directly C. inversely, inversely D. inversely, directly1. a
2. b
3. c
4. d
1
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INCORRECT030multiple choice12Inherent risk is often low for an account such as: A. inventory. B. marketable securities.
C. cash. D. accounts receivable.1. a
2. b
3. c
4. d
4
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CORRECT1TOTAL POINTS GAINED28