66710580-12f8-441e-a217-26cca71613b5

Audit Evidence and Audit Programs PSA 500 and 230
Study online at https://quizlet.com/_3ledkw
1. 1. Which statement is incorrect regarding audit evi- D

dence?
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.
2. 2. Accounting records least likely include D

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 (benchmark-
ing).
3. 3. Other information that the auditor may use as audit D

evidence least likely includes
a. Minutes of meetings.
b. Confirmations 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.
4. 4. Which statement is correct regarding the sufficien- C

cy and appropriateness of audit evidence?
a. Sufficiency is the measure of the quality of audit
evidence.
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
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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 com-
pensate for its poor quality.
5. 5. Which of the following statements is incorrect re- C

garding relevance of audit evidence?
a. A given set of audit procedures may provide audit
evidence that is relevant to certain
assertions, but not others.
b. The auditor often obtains audit evidence from dif-
ferent sources or of a different nature that
is relevant to the same assertion.
c. Obtaining audit evidence relating to a particular
assertion is a substitute for obtaining audit evidence
regarding another assertion.
d. None of the above.
6. 6. Which of the following generalizations in assessing B

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.
7. 7. Which statement is incorrect regarding audit evi- D

dence?
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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 judgment and exer-
cises professional skepticism in evaluating the quan-
tity and quality of audit evidence, and thus its suf-
ficiency and appropriateness, to support the audit
opinion.
d. The matter of difficulty or expense involved is a
valid basis for omitting an audit procedure for which
there is no alternative.
8. 8. The auditor uses assertions in assessing risks by A

considering the different types of potential misstate-
ments that may occur, and thereby designing audit
procedures that are responsive to the assessed risks.
Assertions used by the auditor fall into the following
categories:
I. Assertions about classes of transactions and
events for the period under audit.
II. Assertions about account balances at the period
end.
III. Assertions about presentation and disclosure.
a. I, II and III
b. I and II only
c. II and III only
d. II only
9. 9. Assertions about classes of transactions and D

events for the period under audit least likely include
a. Transactions and events that have been recorded
have occurred and pertain to the entity. b. All trans-
actions and events that should have been recorded
have been recorded.
c. Transactions and events have been recorded in the
correct accounting period.
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d. All assets, liabilities and equity interests that
should have been recorded have been recorded.
10. 10. Assertion about account balances at period end D

which means assets, liabilities, and equity interests
are included in the financial statements at appropri-
ate amounts is
a. Existence
c. Completeness
b. Rights and obligations
d. Valuation and allocation
11. 11. Accuracy and valuation assertions about presen- D

tation and disclosure means
a. Disclosed events, transactions, and other matters
have occurred and pertain to the entity. b. All disclo-
sures that should have been included in the financial
statements have been
included.
c. Financial information is appropriately presented
and described, and disclosures are clearly
expressed.
d. Financial and other information are disclosed fairly
and at appropriate amounts.
12. 12. The auditor obtains audit evidence to draw rea- D

sonable conclusions on which to base the audit opin-
ion by performing audit procedures to:
a. Obtain an understanding of the entity and its envi-
ronment, including its internal control, to
assess the risks of material misstatement at the fi-
nancial statement and assertion levels.
b. Test the operating effectiveness of controls in pre-
venting, or detecting and correcting,
material misstatements at the assertion level.
c. Detect material misstatements at the assertion lev-
el.
d. All of the above.
13. B
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13. The auditor is not always required to perform
a. Risk assessment procedures. c. Substantive pro-
cedures. b. Test of controls. d. Both a and c
14. 14. Tests of controls are necessary A

a. When the auditor's risk assessment includes an ex-
pectation of the operating effectiveness of controls.
b. When substantive procedures alone provide suffi-
cient appropriate audit evidence.
c. When risk assessment procedures by themselves
do not provide sufficient appropriate
audit evidence.
d. Under no circumstances.
15. 15. Which statement is incorrect regarding Inspection B

as an audit procedure?
a. Inspection consists of examining records or docu-
ments 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 obliga-
tions 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.
16. 16. Which of the following audit procedures is used C

extensively throughout the audit and often is comple-
mentary to performing other audit procedures?
a. Inspection b. Observation c. Inquiry d. Confirma-
tion
17. 17. Which statement is incorrect regarding Inquiry? D

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.
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c. Responses to inquiries may provide a basis for the
auditor to modify or perform additional audit proce-
dures.
d. Inquiry alone is sufficient to test the operating
effectiveness of controls.
18. 18. Observation A

a. Consists of looking at a process or procedure be-
ing performed by others.
b. Consists of seeking information of knowledgeable
persons, both financial and non-financial, throughout
the entity or outside the entity.
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 proce-
dures or controls that were originally performed as
part of the entity's internal control.
19. 19. This consists of checking the mathematical accu- B

racy of documents or records.
a. Reperformance b. Recalculation c. Confirmation d.
Inspection
20. 20. Which of the following is a false statement about D

audit objectives?
a. Audit objectives should be developed in light of
management assertions about the financial
statement components.
b. Selection of tests to meet audit objectives should
depend upon the understanding of
internal control.
c. The auditor should resolve any substantial doubt
about any of management's material
financial statement assertions
d. There should be a one-to-one relationship between
audit objectives and procedures.
21. 21. Which of the following is the best explanation of C

the difference, if any, between audit objectives and
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audit procedures?
a. Audit procedures establish broad general goals,
audit objectives specify the detailed work to be per-
formed.
b. Audit objectives are tailor-made for each assign-
ment, audit procedures are generic in application.
c. Audit objectives define specific desired accom-
plishments; audit procedures provide the means of
achieving audit objectives.
d. Audit procedures and audit objectives are essen-
tially the same.
22. 22. Walastik, Inc. has significant information that is D

transmitted, processed, maintained, and accessed
electronically. The auditor has concluded that it is not
possible to reduce detection risk to an acceptable
level by performing only substantive tests for a num-
ber of financial statement assertions. The auditor's
alternative strategy is to
a. Increase the acceptable audit risk.
b. Focus audit tests on other assertions for which
substantive tests prove to be effective.
c. Require management to change its information
system to provide appropriate evidence.
d. Perform tests of controls to gather evidential mat-
ter to use in assessing control risk related to those
assertions.
23. The competence of evidence available to an auditor D

is least likely to be affected by
a. The relevance of such evidence to the financial
statement assertion being investigated. b. The rela-
tionship of the preparer of such evidence to the entity
being audited.
c. The timeliness of such audit evidence.
d. The sampling method employed by the auditor to
obtain a sample of such evidence.
24. D
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24. 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
form the client's financial institution.
25. 25. The most reliable form of documentary evidence D

are those documents that are
a. Prenumbered
c. Easily duplicated
b. Internally generated
d. Authorized by a responsible official
26. 26. Which of the following presumptions does not B

relate to the competence of audit evidence?
a. The more effective internal control, the more as-
surance 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 out-
side the entity is more reliable than evidence secured
solely within the entity.
d. The independent auditor's direct personal knowl-
edge, obtained through observation and inspection,
is more persuasive than information obtained indi-
rectly.
27. 27. Assuming a low assessed level of control risk, B

which of the following audit procedures is least likely
to be performed?
a. Physical inspection of a sample of inventory.
b. Search for unrecorded cash receipts.
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c. Obtaining of a client representation letter. d. Con-
firmation of accounts receivable.
28. 28. You have been assigned to audit the maintenance A

department of an organization. Which of the following
is likely to produce the least reliable audit evidence?
a. Notes on discussions with mechanics in the main-
tenance operation.
b. A schedule comparing actual maintenance expens-
es with budgeted expenses and those of the prior
period and disclosing important differences.
c. A narrative covering review of user reports on
maintenance service.
d. An analysis of changes in certain maintenance
department ratios.
29. 29. Which of the following auditing procedures is C

ordinarily performed last? a. Reading of the minutes
of the directors' meetings.
b. Confirming accounts payable.
c. Obtaining a management representation letter.
d. Testing of the purchasing function.
30. 30. Before applying substantive tests to the details of C

asset accounts at an interim date, an auditor should
assess
a. Control risk at below the maximum level.
b. Inherent risk at the maximum level.
c. The difficulty in controlling the incremental audit
risk.
d. Materiality for the accounts tested as insignificant.
31. 31. Before applying principal substantive tests to the C

details of accounts at an interim date prior to the
balance sheet date, an auditor should
a. Assess control risk as below the maximum for
the assertions embodied in the accounts selected for
interim testing.
b. Determine that the accounts selected for interim
testing are not material to the financial statements
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taken as a whole.
c. Consider whether the amounts of the year-end
balances selected for interim testing are reasonably
predictable.
d. Obtain written representations from management
that all financial records and related data will be made
available.
32. 32. If an auditor conducts an audit of financial state- A

ments in accordance with generally accepted audit-
ing standards, which of the following will the auditor
most likely detect?
a. Misposting of recorded transactions
c. Forgery
b. Unrecorded transactions
d. Collusive fraud
33. 1. It means the materials prepared by and for, or ob- A

tained and retained by the auditor in connection with
the performance of the audit.
a. Documentation c. Engagement letter
b. Audit evidence d. Audit report
34. Which of the following is not a purpose of working D

papers?
a. Assist in the planning and performance of the au-
dit.
b. Assist in the supervision and review of the audit
work.
c. Record the audit evidence resulting from the audit
work performed to support the auditor's
opinion.
d. Support the client's financial statements.
35. 3. Why does an auditor document audit evidence? C

a. To comply with the requirements of gathering all
available evidence.
b. To provide client reference for all account balances
and correcting entries.
c. To support audit opinion and to provide evidence
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that the audit was carried out in accordance with PSA.
d. To document all records of misstatements noted in
the financial statements.
36. 4. Working papers that record the procedures used by C

the auditor to gather evidence should be
a. Considered the primary support for the financial
statements being audited.
b. Viewed as the connecting link between the books
of accounts and the financial statements.
c. Designed to meet the circumstances of the partic-
ular engagement.
d. Destroyed when the audited entity ceases to be a
client.
37. 5. Which of the following conditions constitutes inap- D

propriate working paper preparation?
a. Flowcharts are included in the working papers.
b. Findings are cross-referenced to supporting docu-
mentation.
c. Tick marks are explained in working papers.
d. All forms and directives used by the auditee depart-
ment are included in the working papers.
38. 6. An auditor's working papers will ordinarily be least A

likely to include documentation showing how the
a. Client's schedules were prepared.
b. Engagement was planned.
c. Understanding of the client's internal control was
obtained and control risk was assessed.
d. Unusual matters were resolved.
39. 7. Which of the following is usually included or shown D

in the auditor's working papers?
a. The procedures used by the auditor to verify the
personal financial status of members of the client's
management team
b. Analyses that are designed to be a part of, or a
substitute for, the client's accounting records
c. Excerpts from authoritative pronouncements that
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support the underlying generally accepted account-
ing principles used in preparing the financial state-
ments
d. The manner in which exceptions and unusual mat-
ters disclosed by the auditor's procedures were re-
solved or treated
40. 8. The form and content of working papers are affect- A

ed by matters such as the:
I. Nature of the engagement.
II. Form of the auditor's report.
III. Nature and complexity of the business.
IV. Nature and condition of the entity's accounting
and internal control systems.
V. Needs in the particular circumstances for direction,
supervision and review of work
performed by assistants.
VI. Specific audit methodology and technology used
in the course of the audit.
a. All of the above c. I, II and III only

b. All except V and VI d. All except VI
41. 9. Which of the following is not generally included in C

the working papers file?
a. An indication as to who performed the audit proce-
dures and when they were performed.
b. Documentation of the auditor's understanding of
the accounting and internal control
systems.
c. Copy of the internal audit's audit program.
d. Analyses of significant ratios and trends.
42. 10.Although the quantity and content of audit work- D

ing papers vary with each particular engagement, an
auditor's permanent files most likely include
a. Schedules that support the current year's adjusting
entries.
b. Prior years' accounts receivable confirmations that
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were classified as exceptions.
c. Documentation indicating that the audit work was
adequately planned and supervised.
d. Analyses of capital stock and other owners' equity
accounts.
43. 11. Audit working papers are indexed by means of A

reference numbers. The primary purpose of indexing
is to
a. Permit cross-referencing and simplify supervisory
review.
b. Support the audit report.
c. Eliminate the need for follow-up reviews.
d. Determine that working papers adequately support
findings, conclusions, and reports.
44. 12. The audit working paper that reflects the major D
components of an amount reported in the financial
statements is the
a. Interbank transfer schedule c. Supporting schedule
b. Carryforward schedule d. Lead schedule
45. 13. An auditor ordinarily uses a working trial bal- C

ance resembling the financial statements without
footnotes, but containing columns for
a. Cash flow increases and decreases c. Reclassifica-
tions and adjustments
b. Audit objectives and assertions d. Reconciliations
and tickmarks
46. 14. In the course of the audit of financial statements C

for the purpose of expressing an opinion thereon,
the auditor will normally prepare a schedule of un-
adjusted differences for which he did not propose
adjustment when they were uncovered. The primary
purpose served by this schedule is to
a. Point out to the responsible client officials the
errors made by various company personnel.
b. Summarize the adjustments that must be made be-
fore the company can prepare and submit its income
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tax returns.
c. Identify the potential financial statement effects of
errors or disputed items that were considered imma-
terial when discovered.
d. Summarize the errors made by the company so that
corrections can be made after the audited financial
statements are released.
47. 15. Which of the following analyses appearing in a C

predecessor's working papers is the successor audi-
tor least likely to be interested in reviewing?
a. Analysis of noncurrent balance sheet accounts.
c. Analysis of income statement accounts.
b. Analysis of current balance sheet accounts.
d. Analysis of contingencies.
48. 16. In an internal audit, the audit supervisor deter- A

mines that working papers are complete
a. When satisfied that the audit objectives have been
met and the working papers support the conclusions.
b. When working papers refer to the steps outlined in
the audit program.
c. Only after the auditor who prepared the working
papers has signed and dated them.
d. When proper cross-references to other working
papers are noted.
49. 17. Standardized working papers are often used, A

chiefly because they allow working papers to be pre-
pared more
a. Efficiently b. Professionally c. Neatly d. Accurately
50. 18. Ordinarily, the audit may use schedules, analyses D

and other documentation prepared by entity person-
nel in order to:
a. Lessen auditor's responsibility.
b. Eliminate the need to apply any audit procedures
on verifying their correctness.
c. Emphasize that the responsibility on financial
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statements rests with the client management.
d. Improve audit efficiency.
51. 19. Working papers which contain information relat- A

ing primarily to the audit of a single period. a. Current
audit files c. Financial reporting files
b. Permanent audit files d. Correspondence files
52. 20. Which of the following is the least required of the A

audit working papers?
a. Substitute for the entity's accounting records.
b. Confidentiality of information included in the work-
ing papers.
c. Safe custody of the working papers.
d. Retention for a period sufficient to meet the needs
of the practice.
53. 1. All the information used by the auditor in arriving at A

the conclusion on which the audit opinion is based. It
includes the information contained in the accounting
records underlying the financial statements (underly-
ing accounting data) and other information (corrobo-
rating information).
A. Audit evidence C. Audit opinion
B. Audit risk D. Audit program
54. 2. Which of the following statements is/are correct? D
Statement 1: Audit evidence comprises source docu-

ments and accounting records, underlying the finan-
cial 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 ap-

propriate audit evidence to be able to draw reason-
able conclusions on which to base the audit opinion.
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A. Statements 1 and 2 only C. Statement 2 and 3 only

B. Statements 1 and 3 only D. All statements are
correct
55. 3. All of the following are underlying accounting data, D

except:
A. Records of initial entries and supporting docu-
ments
B. General and subsidiary ledgers
C. Worksheets and spreadsheets for cost allocations
D. Minutes of meetings
56. 4. The measure of the quantity of audit evidence is: A

A. Sufficiency C. Appropriateness
B. Competence D. Relevance
57. 5. The measure of the quality of audit evidence is: C

A. Sufficiency C. Appropriateness
B. Competence D. Relevance
58. 6. An evidence to be considered appropriate must be: B

A. Relevant C. Reliable
B. Relevant and reliable D. Relevant or reliable
59. 7. The following statements are correct, except: C

A. The greater the risk of misstatement, the more
audit evidence is likely to be required.
B. The higher the quality of audit evidence, the less
may be required.
C. Obtaining more audit evidence will compensate for
its poor quality.
D. The sufficiency and appropriateness of audit evi-
dence are interrelated.
60. 8. The appropriateness of audit evidence available to D

an auditor is least likely to be affected by:
A. The relationship of the source or prepare of the
evidence to the entity being audited.
B. The relevance of the evidence to the financial state-
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ment assertion being investigated.
C. The timeliness of the audit evidence.
D. The sampling method employed by the auditor to
obtain a sample of the evidence.
61. 11. Ultimately, what is sufficient appropriate audit ev- C

idence depends on:
A. The users of the financial statements under audit.
B. The professional judgment of the client's manage-
ment and those charged with governance.
C. The professional judgment of the auditor.
D. A combination of the professional judgment of the
auditor and the client's management.
62. 12. The auditor's judgment as to what is sufficient ap- D

propriate audit evidence is influenced by such factors
as:
A. The auditor's assessment of the nature and level of

inherent risk at both the financial statement level and
the account balance or class of transaction level.
B. The nature of the internal control structure and the
assessment of control risk.
C. The materiality of the item being examined.
D. The experience gained during previous audits.
E. The results of the audit procedures, including fraud
or error which may have been found.
F. The source and reliability of information available.
A. A, B, D, F, G C. A, B, F
B. A, B, D, E, F D. A, B, C, D, E, F
63. 13. Which of the following statements regarding reli- B

ability 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 control of the entity does
not contribute to the reliability of audit evidence.
C. Audit evidence that is generated internally is more
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reliable when the related controls are effective.
D. Audit evidence obtained directly by the auditor is
more reliable than audit evidence obtained indirectly.
64. 14. Which of the following is the least reliable evi- D

dence?
A. Confirmation from third parties
C. Documentary form evidence
B. Observation of the inventory count
D. Photocopies and facsimiles
65. 15. Which of the following statement is/are correct? C
Statement 1: The auditor considers the relationship

between the cost of obtaining audit evidence and the
usefulness of the information obtained.
Statement 2: The difficulty and the expense involved

are valid basis of omitting an audit procedure for
which there is no alternative.
Statement 3: The auditor relies on audit evidence that

is persuasive rather than conclusive.
Statement 4: The auditor uses professional judgment

and exercise professional skepticism to determine
the sufficiency and appropriateness of evidence.
A. Only one statement is correct

C. Only three statements are correct
B. Only two statements are correct
D. All statements are correct
66. 16. Assertions used by the auditor fall into the follow- A
ing categories, except:
A. Assertions about the faithful representations
B. Assertions about account balances
C. Assertions about classes of transactions and
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events
D. Assertions about presentation and disclosure
67. 17. Management assertions are: B

A. Stated in the footnotes to the financial statements
B. Implied or express representations about the ac-
counts in the financial statements.
C. Explicitly expressed representations about the fi-
nancial statements.
D. Provided to the auditor in the assertions letter, but
are not disclosed in the financial statements.
68. 18. Management assertions are: C

A. Directly related to PSAs
C. Directly related to GAAP
B. Indirectly related to PSAs
D. Indirectly related to GAAP
69. 19. Assertions about account balances at the pe- C

riod-end include valuation and allocation, which
means that
A. Assets, liabilities and equity interest exist.
B. All assets, liabilities and equity interests that
should have been recorded have been recorded.
C. Assets, liabilities and equity interests are included
in the financial statements at appropriate amounts
and any resulting valuation or allocation adjustments
are appropriately recorded.
D. The entity holds or controls the rights to assets,
liabilities are the obligations of the entity.
70. 20. The assertion of cut-off means that: C

A. All transactions and events that should have been
recorded
B. Amounts and other data relating to recorded trans-
actions and events have been recorded appropriately
C. Transactions and events have been recorded in the
correct accounting period
D. Transactions and events have been recorded in the
proper accounts.
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71. 21. The assertion of occurrence means that: C

A. All transactions and events that should have been
recorded are recorded
B. Amounts and other data relating to recorded trans-
actions and events have been recorded appropriately
C. Transactions and events that have been recorded
have occurred, and pertain to the entity
D. Transactions and events have been recorded in the
proper accounts
72. 22. Which description refers to the completeness as- A

sertion?
A. All disclosures that should have been included in
the financial statements have been included.
B. Disclosed events, transactions and other matters
have occurred and pertain to the entity,
C. Financial information is appropriately present-
ed and described, and disclosures are clearly ex-
pressed.
D. Financial and other information are disclosed fairly
and at appropriate amounts.
73. 23. Confirming proper title to equipment supports D

which of the following assertions?
A. Existence or occurrence
C. Presentation and disclosure
B. Insurance or coverage
D. Rights and obligations
74. 25. The completeness assertion addresses whether D

A. All of the assets on the balance sheet exist.
B. All recorded transactions occurred.
C. The entity has property rights to all assets on the
balance sheet.
D. All of the transactions, which occurred during the
period, were recorded.
75. 26. The auditor notices that a client's cash basis fi- B
nancial statements are prepared with accrual basis
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financial titles. This situation bears on which financial
statement assertion?
A. Valuation or allocation
C. Rights and obligations
B. Presentation and disclosure
D. Completeness
76. 27. When vouching, A

A. The direction of the test is from recorded item back
to the underlying support.
B. A complete examination of the transactions in the
account is performed.
C. Recomputations are performed.
D. The auditor selects a transaction and follows it
forward to recording in the accounting records.
77. 28. Which of the following statements relating to the A

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 de-
tect material misstatements.
C. Evidential matter gathered by an auditor from out-
side a client is reliable.
D. Oral representations made by management are not
valid.
78. 29. The process of vouching helps establish that all C

recorded transactions
A. Have been completed
C. Are valid
B. Are complete
D. Are presented properly
79. 30. Acts to be performed in order to obtain audit B

evidence
A. Audit standards C. Audit program
B. Audit procedures D. Audit strategy
80. C
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31. Which of the following best describes the primary
purpose of audit procedures?
A. To detect fraud
B. To comply with generally accepted accounting
principles
C. To gather corroborative evidence to support the
audit opinion
D. To verify the accuracy of account balances
81. 32. Audit procedures performed to obtain an under- A

standing of the entity and its environment, including
its internal control.
A. Risk assessment procedures
C. Substantive procedures
B. Tests of control
D. Analytical procedures
82. 33. Audit procedures to test the operating effective- B

ness in preventing or detecting and correcting mate-
rial misstatements at the assertion level.
B. Tests of control
83. 34. Audit procedures to detect material misstate- C

ments at the assertion level.
B. Tests of control
84. 36. It includes test of details of classes of transac- C

tions, account balances, and disclosures and analyt-
ical procedures.
B. Tests of control
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85. 37. Test of controls are necessary to be performed: C
A. When auditor's risk assessment includes an ex-
pectation of the operating effectiveness of controls.
B. When substantive procedures alone do not provide
sufficient appropriate audit evidence.
C. Both a and b
D. No circumstance will require tests of controls.
86. 38. Examining records or documents, whether inter- A

nal or external, in paper form, electronic form, or other
media.
A. Inspection of records or documents C. Observa-
tion
B. Inspection of tangible assets D. Inquiry
87. 39. Physical examination of the assets. B

tion
88. 40. Consists of looking at a process or procedures C

being performed by others.
tion
89. 41. Consists of seeking information from knowledge- D

able persons, both financial and nonfinancial, within
the entity or outside the entity.
tion
90. 42. The process of obtaining a representation of infor- B

mation or of an existing condition directly from third
party. It is a specific type of inquiry.
A. Reperformance C. Reconciliation
B. Confirmation D. Recomputation
91. A
23 / 58
44. Auditor's independent execution of procedures or
controls that were originally performed as part of the
entity's internal control.
B. Confirmation D. Recomputation
92. 45. Evaluation of financial information made by study D

of plausible relationships among both financial and
non-financial data.
B. Confirmation D. Analytical procedures
93. 46. Which statement is incorrect regarding the nature D

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 proce-
dures.
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 substan-
tive procedures.
94. 47. The more the planned reliance of the auditor on A

the operating effectiveness of internal controls,
A. The more the extent of the auditor's tests of con-
trols.
B. The less the extent of the auditor's tests of con-
trols.
C. The more the reliance of the auditor on information
generated by the entity.
D. The less the reliance of the auditor on information
generated by the entity.
95. C
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48. In 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 re-
liance on internal control.
96. 49. Which of the following methods is considered the C

best combination in obtaining audit evidence assum-
ing documentary evidence is available to the auditor?
A. Inspection and reperformance C. Inquiry and in-
spection
B. Observation and inquiry D. Inquiry and analytical
procedures
97. 50. As required by PSA 500, the auditor's substantive C

procedures should include the following:
A. Agreeing the financial statements to the underly-
ing accounting records.
B. Examining material journal entries and other ad-
justments made during the course of preparing the
financial statements.
C. Both a and b.
D. Neither a nor b.
98. 52. Physical examination of tangible assets is not a D

sufficient form of evidence when the auditor wants to
determine the:
A. Existence of the asset
C. Condition or quality of the asset
B. Quantity and description of the asset
D. Ownership of the asset
99. 53. Which of the following audit procedures is used C

extensively throughout the audit but does not, by
itself, provide sufficient appropriate evidence?
25 / 58
A. Inspection of records or documents C. Inquiry
B. Observation D. Inspection of tangible assets
100. 54. Evidence obtained directly by the auditor is more D

reliable than information obtained indirectly. Which of
the following is not an example of the auditor's direct
knowledge?
A. Inspection C. Computation
B. Observation D. Inquiry
101. 55. Confirmation is most likely to be the relevant form C

of evidence with regard to assertions about accounts
receivable when the auditor has concerns about the
receivables'
A. Valuation C. Existence
B. Classification D. Completeness
102. 56. Confirmation is the process of obtaining a repre- C

sentation of information or of an existing condition
directly from a third party. Traditionally, confirmation
is used to verify:
A. Individual transactions between organizations,
such as sales transactions.
B. Fixed asset additions.
C. Bank balances and accounts receivables.
D. All three of the above.
103. 57. Who signs the confirmation requests: A

A. The appropriate level of management C. The
CEO/CFO of the client
B. The audit partner D. Both management and the
auditor
104. 58. A confirmation requests letter should always be B

sent under the control of:
A. The client C. The recipient
B. The auditor D. Both a and b
105. 59. Negative confirmation requests may be used D

when:
26 / 58
A. The assessed levels of inherent and control risks
are high
B. A large number of large balances is involved
C. A substantial number of errors is expected
D. The auditor has no reason to believe that the re-
spondents will disregard these requests
106. 60. When the recipient has accomplished the confir- A

mation 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
107. 61. Where no response is received to a positive con- A

firmation request, the auditor should
A. Contact the recipient to elicit a response and per-
form alternative procedures as necessary
B. Issue a qualified opinion or an adverse opinion,
depending on the materiality involved
C. Issue a qualified opinion or a disclaimer of opinion
on grounds of a scope limitation
D. Contact the recipient/respondent in order to force
a response from such recipient
108. 62. The primary source for evidence to corroborate D

the existence of pending litigation is:
A. Vendor confirmations C. management representa-
tion letters
B. Disclosures in financial statements D. attorney
confirmations
109. 63. The following are purposes of analytical proce- B

dures, 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 suit-
27 / 58
ability 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 re-
ducing detection risk for specific financial statement
assertions
D. As an overall review of the financial statements in
the final review stage of the audit.
110. 64. Where there are unusual fluctuations and rela- A

tionships ordinarily begins with inquiries of manage-
ment, followed by
ABCD
Corroboration of management's responses Yes No
Yes No
Consideration of the need to apply other audit
procedures based on the results of management Yes
Yes No No
inquiries
111. 65. Evidential matter consists of both underlying ac- B

counting data and corroborating information, which
support the accounting data. Which of the following
is considered corroborating information?
A. Data files C. Subsidiary ledgers
B. Records of electronic fund transfers D. General
ledger
112. 69. In testing for lower-of-cost-or-net realizable value, C

the auditor is gathering evidence to support which of
the following assertions?
A. Pricing C. Valuation
B. Accuracy D. Rights and obligations
113. 70. When performing trend analysis, C

A. Profitability ratios are required C. Comparison to
budget may be performed
B. Expected values are calculated D. Solvency ratios
are computed
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114. 1. Which of the following statements concerning au- B
dit evidence is correct?
A. To be appropriate, audit evidence should be either
reliable or relevant, but it need not be both.
B. The measure of validity of audit evidence lies in the
auditor's judgment.
C. The difficulty and expense of obtaining audit evi-
dence concerning an account balance is a valid basis
for omitting the test.
D. A client's accounting records can be sufficient
audit evidence to support the financial statements.
115. 2. Which of the following statements concerning au- A

dit evidence is correct?
Statement 1: The quantity of audit evidence is affect-

ed by the risk of misstatement and also by the quality
of such audit evidence.
Statement 2: The reliability of audit evidence is influ-

enced by its source and by its nature and is depen-
dent on the individual circumstances under which it
is obtained.
A. Both statements are true C. True; False

B. Both statements are false D. False; True
116. 3. Management makes certain assertions that are D

embodied in financial statement components; for ex-
ample, two such categories of assertions are com-
pleteness and valuation and allocation. Which of the
following is not a broad category of management
assertions?
A. Rights and obligations
C. Existence
B. Completeness
D. Error or fraud
117. C
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4. The objective of tests of details of transactions
performed as substantive tests is to
A. Comply with generally accepted auditing stan-
dards
B. Attain assurance about the reliability of the ac-
counting s system
C. Detect material misstatements in the financial
statements
D. Evaluate whether management's policies and pro-
cedures operated effectively
118. 5. In testing the existence assertion for an asset, an C

auditor ordinarily works from the
A. Financial statements to the potentially unrecorded
items
B. Potentially unrecorded items to the financial state-
ments
C. Accounting records to the supporting evidence
D. Supporting evidence to the accounting records
119. 6. In determining whether transactions have been C

recorded, the direction of the audit testing should be
from the
A. General ledger balance
C. Original source documents
B. Adjusted trial balance
D. General journal entries
120. 7. Which of the following statements concerning evi- D

dential matter is true?
A. Appropriate evidence supporting management's
assertions should be convincing rather than merely
persuasive.
B. Effective internal control contributes 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 con-
30 / 58
sidered sufficient evidence to support the financial
statements
121. 8. Which of the following is an example of "other infor- B

mation" that could be used by an auditor as evidential
matter supporting financial statements
A. Worksheet supporting cost allocations C. Special
journals
B. Confirmation of accounts receivable D. Accounting
manuals
122. 9. Audit evidence can come in different forms with C

different degrees of persuasiveness. Which of the
following is the least persuasive type of evidence?
A. Bank statement obtained from the client
B. Test counts of inventory made by the auditor
C. Prenumbered purchase order forms
D. Correspondence from the client's attorney about
litigation
123. 10. Which of the following statements concerning B

audit evidence is correct?
A. An audit usually involves the authentication of
documentation
B. A given set of procedures may provide audit evi-
dence that is relevant to certain assertions, but not
others
C. Audit evidence obtained from an independent ex-
ternal source is always reliable
D. An entity's accounting records can be sufficient
audit evidence to support the financial statements
124. 11. In which of the following circumstances would be D

the use of the negative form of accounts receivable
confirmation most likely be justified?
A. A substantial number of accounts may be in dis-
pute and the accounts receivable balance arises from
sales to a few major customers
B. A substantial number of accounts may be in dis-
pute and the accounts receivable balance arises from
31 / 58
sales to many customers with small balances
C. A small number of accounts may be in dispute and
the accounts receivable balance arises from sales to
a few major customers
D. A small number of accounts may be in dispute and
the accounts receivable balance arises from sales to
many customers with small balances
125. 12. Which of the following might be detected by an D

auditor's review of the client's sale cut-off?
A. Excessive goods returned for credit
B. Unrecorded sales discounts
C. Lapping of year-end accounts receivable
D. Inflated sales for the year
126. 13. Which of the following most likely would give the D
most assurance concerning the valuation and alloca-
tion assertion of accounts receivable?
A. Vouching amounts of accounts subsidiary ledger
to details on shipping documents
B. Comparing receivable turnover ratios with industry
statistics for reasonableness
C. Inquiring about receivables pledged under loan
agreements
D. Assessing the allowance for uncollectible ac-
counts for reasonableness
127. 14. Confirmation is "the process of obtaining and C

evaluating a direct communication from a third par-
ty in response to a request about a particular item
affecting financial statement assertions." Two asser-
tions for which confirmation of accounts receivable
balances provides primary evidence are
A. Completeness and valuation
C. Rights and obligations and existence
B. Valuation and rights and obligations
D. Existence and completeness
128. 15. Which of the following procedures would an audi- D

tor most likely perform for year-end accounts receiv-
32 / 58
able confirmations when the auditor did not receive
replies to second requests
A. Review the cash receipts journal for the month
prior to year-end
B. Intensity the study of internal control concerning
the revenue cycle
C. Increase the assessed level of detection risk for the
existence assertion
D. Inspect the shipping records documenting the
merchandise sold to the debtors
129. 16. Which of the following is an essential control D

procedure to ensure the accuracy of the recorded
inventory quantities?
A. Calculating unit costs and valuing obsolete or
damaged inventory items in accordance with inven-
tory policy.
B. Testing inventory extensions.
C. Performing a gross profit test
D. Established a cutoff for goods received and
shipped.
130. 17. Effective internal controls over inventories are B

designed and implemented for the following reasons,
except
A. Inventories typically represent a large component
of an entity's current tasks.
B. Inventories are the most liquid asset.
C. Inventories directly affect the financial directly af-
fect the financial performance of an entity.
D. Inventories typically represent a large portion of an
entity's total assets.
131. 19. The primary source of information to be reported C

about litigation, claims, and assessments is the
A. Client's lawyer C. Client's management
B. Courts records D. Independent auditor
132. 20. Which of the following is an audit procedure that C

an auditor most likely would perform concerning liti-
33 / 58
gation, claims and assessments?
A. Request the clients lawyer to evaluate whether the
client's pending litigations, claims and assessment
indicate a going concern problem
B. Examine the legal documents in the client's
lawyer's possession concerning litigations, claims
and assessment to which the lawyer has devoted
substantive attention
C. Discuss with management its policies and pro-
cedures adopted for evaluating and accounting for
litigations, claims and assessments
D. Confirm directly with the client's lawyer that all liti-
gations, claims and assessment have been recorded
or disclosed in the financial statements
133. 22. Although the validity of evidential matter is depen- C

dent on the circumstances under which it is obtained,
there are three general presumptions that have some
usefulness. The situations given below indicate the
relative reliability a CPA has placed on two types of
evidence obtained in different situations. Which of
these is an exception to one of the general presump-
tions?
A. The CPA places more reliance on the balance in
the scrap sales account at Plant A, where the CPA
has made limited tests of transactions because of
effective controls, than at Plant B, where the CPA
has made extensive tests of transactions because of
ineffective controls.
B. The CPA places more reliance on the CPAs compu-
tation of interest payable on outstanding bonds than
on the amount confirmed by the trustee.
C. The CPA places more reliance on the report of an
expert on an inventory of precious gems than on the
CPA's physical observation of the gems.
D. The CPA places more reliance on a schedule of
insurance coverage obtained from the company's in-
surance agent than on one prepared by the internal
audit staff.
34 / 58
134. 24. An auditor audits an accounting estimate by any B
of the following means except
A. Testing the process used by management to devel-
op the estimate.
B. Obtaining a confirmation from an independent
source.
C. Developing an independent expectation.
D. Reviewing subsequent events or transactions.
135. 25. When analytical procedures are used as sub- C

stantive tests, some account relationships are more
predictable than others. For which of the following
accounts is the prior-year balance likely to be the best
predictor of the current year-end balance?
A. Accounts payable C. Revenues
B. Cash D. Inventory
136. 26. Which of the following best describes the most C

important stage of an auditor's statistical analysis of
significant ratios and trends?
A. Computation of significant ratios and trends.
B. Reconciliation of statistical data to the client's
accounting ratios.
C. Interpretation of significant variations and unusual
relationships.
D. Comparison of statistical data to prior-year statis-
tics and to similar data published by government and
private sources.
137. 11. According to PSA 230 ''Documentation'', working D

papers do not
A. Assist in the planning and performance of the
audit.
B. Assist in the supervision and review of the audit
work.
C. Record the audit evidence resulting from the audit
work performed to support an auditor's opinion.
D. Prove the independence of the auditor.
138. A
35 / 58
12. Statement 1: Working papers are the property of
the auditor.
Statement 2: Although portions of or extracts from
the working papers maybe made available to the en-
tity at the discretion of the auditor, they may be sub-
stitute for the entity's accounting records.
A. Only statement one is correct C. Both statements
are correct
B. Only statement two is correct D. Both statements
are incorrect
139. 13. Statement 1: The auditor should prepare working C

papers which are sufficiently complete and detailed
to provide an overall understanding of the audit.
Statement 2: The auditor should record in the working
papers information on planning the audit work, the
nature, timing and extent of the audit procedures
performed, the results thereof, and the conclusions
drawn from the audit evidence obtained.
A. Only statement one is correct
B. Only statement two is correct
C. Both statements are correct
D. Both statements are incorrect
140. 14. The form and content of working papers are af- B
fected by matters such as the following except:
A. Nature of the engagement
B. Type of opinion to be rendered by the auditor
C. Nature and complexity of the business
D. Needs in the particular circumstances for the di-
rection, supervision and review of work performed by
assistants.
141. 15. Audit working papers are used to record the re- A
sults of the auditor's evidence gathering work. When
preparing working papers, the auditor should remem-
ber that
A. Working papers should be designed to meet the
circumstances and the auditor's need for each en-
36 / 58
gagement
B. Working papers should be kept on the client's
premises so as to provide ready access to them by
the client.
C. Working papers should be at the primary support
for the financial statements being examined.
D. Working papers should be considered as a substi-
tute for the client's accounting records.
142. 16. The primary purpose of audit working papers is to A

A. Provide evidence of compliance with auditing stan-
dards
B. Provide management with an independent copy of
financial records.
C. Provide protection against litigation
D. Document deficiencies in client policies and pro-
cedures
143. 17. Which of the following is incorrect? B

A. Documentation prepared at the time the work is
performed is likely to be more accurate than docu-
mentation prepared subsequently.
B. The auditor ordinarily includes from audit docu-
mentation superseded drafts of working papers and
financial statements, notes that reflect incomplete or
preliminary thinking, previous copies of documents
corrected for typographical or other errors, and du-
plicates of documents.
C. It is neither necessary nor practicable to document
every matter the auditor considers during the audit.
D. Oral explanations by the auditor, on their own, do
not represent adequate support for the work the au-
ditor performed or conclusions the auditor reached,
but may be used to explain or clarify information
contained in the audit documentation.
144. 18. During an audit engagement, pertinent data are C

compiled and included in the audit working papers.
The working papers primarily are considered to be
37 / 58
A. A client-owned record of conclusions reached by
the auditors who performed the engagement
B. Evidence supporting financial statements
C. Support for the auditor's representations as to
compliance with generally accepted auditing stan-
dards.
D. A record to be used as a basis for the following
year's engagement.
145. 19. Audit working papers should not C

A. Include any client-prepared papers or documents
other than those prepared by the CPA or his assis-
tant.
B. Be kept by the CPA after review and completion of
the audit except for items required for the income tax
return or the permanent file.
C. Be submitted to the client to support the financial
statements and to provide evidence of the audit work
performed.
D. Be themselves be expected to provide sufficiency
support for the auditor's opinion.
146. 21. Which of the following is not a factor affecting the C

independent auditor's judgement about the quantity,
type and content of audit working papers?
A. The needs for supervision and review of the work
B. The nature and condition of the client's records and
internal control.
C. The expertise of the client personnel and their par-
ticipation in preparing schedules.
D. The type of financial statements, schedules, or oth-
er information on which the auditor is reporting.
147. 22. Although the quantity, type and content of work- D

ing paper will vary with the circumstance, the working
papers generally include the
A. Copies of those client records examined by the
auditor during the course of the engagement.
38 / 58
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 per-
formed in obtaining evidential matter.
148. 26. Documentation is a form of evidence A

A. Used in every financial statement audit
B. Used in most financial statement audit
C. Used on the rare occasions when it is both readily
available and less costly than other procedures.
D. Used when nothing is available that is more com-
petent
149. 27. An audit working paper that shows the detailed A

evidence and procedures regarding the balance in
the accumulated depreciation account in the year
under audit will be found in the
A. Current file of working papers
B. Permanent file of working papers
C. Other information working papers in the current
file
D. Planning memorandum in the current file.
150. 28. In the case of recurring audits, some working B

papers files may be classified as audit files which are
updated with new information of continuing impor-
tance. This type of audit file is known as:
A. Current audit file C. Electronic audit file
B. Permanent audit file D. Planning memorandum file
151. 30. A schedule listing account balances for the cur- A

rent 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 statements, is referred to as a
A. Working trial balance C. Summarizing schedule
B. Lead schedule D. Supporting schedule
39 / 58
152. 31. What do you call the type of working paper where C
matters of importance are noted down for further
verification?
A. Summary sheet C. Agenda Sheet
B. Audit program D. Supporting schedules.
153. 32. The current file of the auditor's working papers C

generally should include.
A. A flowchart of the internal controls
C. A copy of the financial statements
B. Organization charts
D. Copies of bond and note indentures
154. 33. The permanent file portion of the auditor's work- D

ing papers generally should include
A. A copy of the engagement letter.
B. A copy of key customer confirmation
C. Names and addresses of audit staff personnel on
the engagements.
D. Time and expense reports.
155. 34. The permanent (continuing) file of an auditor's D

working paper most likely would include copies of the
A. Lead schedules C. Banks statements
B. Attorney's letter D. Debt agreements
156. 35. The current file of an auditor's working paper most A

likely would include copy of the
A. Bank reconciliation C. Articles of incorporation
B. Pension plan contract D. Flowchart of the internal
control activities
157. 36. The permanent file section of the working papers D

that is kept for each audit client most likely contains
A. Review notes pertaining to questions and com-
ments regarding the audit work performed.
B. A schedule of time spent on the engagement by
each individual auditor.
C. Correspondence with the client's legal counsel
40 / 58
concerning pending litigation.
D. Narrative descriptions of the client's accounting
procedures and internal controls.
158. 37. In general, which of the following statements is B

correct with respect to ownership, possession, or
access to working papers prepared by a CPA firm in
connection with an audit?
A. The working papers may be obtained by third par-
ties where they appear to be relevant to issues raised
in litigation.
B. The working papers are subject to the privileged
communication rule which, in a majority of jurisdic-
tions, prevents third-party access to the working pa-
pers.
C. The working papers are the property of the client
after the client pays the fees.
D. The working papers must be retained by the CPA
firm for a period of ten years.
159. 38. For what minimum period should audit working C

papers be retained by the independent CPA?
A. For the period during which the entity remains a
client of the independent CPA.
B. For the period during which an auditor-client rela-
tionship exists but not more than six (6) years
C. For the statutory period within which legal action
may be brought against the independent CPA.
D. For as long as the CPA is in public practice.
160. 39. Which of the following documentation is required D

for an audit in accordance with PSA?
A. An internal control questionnaire C. A planning
memorandum or checklist
B. A client engagement letter D. A client representa-
tion letter
161. 42. In documenting the nature, timing and extent C

of audit procedures performed, the auditor should
record
41 / 58
I. Who performed the audit work and the date such
work papers was completed
II. Who reviewed the audit work and the date and
extent of such review
A. I only C. Both I and II
B. II Only D. Neither I nor II
162. 1. Of the following, which is the least persuasive type C

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 auditor.
163. 2. Analytical procedures are C

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 reason-
ableness of financial information.
d. Tests of controls designed to evaluate the reason-
ableness of financial information.
164. 3. Which of the following best describes the primary C

purpose of audit procedures?
a. To detect errors or irregularities.
b. To comply with generally accepted accounting
principles.
c. To gather corroborative evidence.
d. To verify the accuracy of account balances.
165. 4. The procedures specifically outlined in an audit D

program are primarily designed to
a. Protect the auditor in the event of litigation.
b. Detect errors or irregularities.
c. Test internal control structure.
d. Gather evidence.
166. B
42 / 58
5. Which of the following is ordinarily designed to
detect possible material dollar errors on the financial
statements?
a. Tests of controls.
b. Analytical procedures.
c. Computer controls.
d. Post audit working paper review.
167. 6. Which of the following statements relating to the D

competence of evidential matter is always true?
a. Evidential matter gathered by an auditor from out-
side 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.
168. 7. In the context of an audit of financial statements, C

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 as-
sessment of control risk.
169. 9. Which of the following factors will least affect the D

independent auditor's judgment as to the quantity,
type, and content of the working papers desirable for
a particular engagement?
a. Nature of the auditor's report.
b. Nature of the financial statements, schedules, or
other information upon which the auditor is report-
ing.
43 / 58
c. Need for supervision and review.
d. Number of personnel assigned to the audit.
170. 11. Which of the following is not a primary purpose of C

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.
171. 12. The understanding between the client and the au- B
ditor as to the degree of responsibility to be assumed
by each is normally set forth in a(n)
a. Representation letter.
b. Engagement letter.
c. Management letter.
d. Comfort letter.
172. 13. Audit evidence takes different forms and varies B

in persuasiveness. Which of the following is the least
persuasive type of evidence?
a. Vendor's invoice.
b. Bank statement obtained from the client.
c. Computations made by the auditor.
d. Canceled checks.
173. 14. The following statements were made in a discus- B

sion of audit evidence by two independent auditors.
Which statement is untrue?
a. "I am seldom convinced beyond all doubt about all
aspects of the financial statements being audited."
b. "I would not undertake that procedure because, at
best, the results would only be persuasive and I'm
looking for convincing evidence."
c. "I evaluate the degree of risk involved in deciding
the kind of evidence I will gather."
d. "I evaluate the usefulness of the evidence I can
obtain against the cost to obtain it."
174. B
44 / 58
15. As the acceptable level of detection risk decreas-
es, 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.
175. 16. When an independent auditor is approached to D

perform an audit for the first time, he or she should
make inquiries of the predecessor auditor. Inquiries
are necessary because the predecessor may be able
to provide the successor with information that will
assist the successor in determining whether
a. The predecessor's work should be used.
b. The company rotates auditors.
c. Control risk is low, in the predecessor's opinion.
d. The engagement should be accepted.
176. 17. The purpose of tests of controls is to provide B

reasonable assurance that
a. The extent of substantive testing is minimized.
b. Evidence will be obtained to determine an as-
sessed level of control risk.
c. Errors and irregularities are prevented or detected
in a timely manner.
d. The auditor has an understanding of the control
environment.
177. 19. Which of the following is not a factor affecting the C

independent auditor's judgment about the quantity,
type, and content of audit working papers?
a. The needs for supervision and review of the work
b. The nature and condition of the client's records and
internal controls.
c. The expertise of client personnel and their partici-
45 / 58
pation in preparing schedules.
d. The type of the financial statements, schedules, or
other information on which the auditor is reporting.
178. 22. Using laptop computers in auditing may affect the B

methods used to review the work of staff assistants
because
a. Supervisory personnel may not have an under-
standing of the capabilities and limitations of com-
puters.
b. Working paper documentation may not contain
readily observable details of calculations.
c. The audit field work standards for supervision may
differ.
d. Documenting the supervisory review may require
assistance of management services personnel.
179. 23. Which of the following persons is not a specialist C

upon whose work an auditor may rely?
a. Actuary.
b. Appraiser.
c. Internal auditor.
d. Engineer.
180. 24. In which of the following instances would an au- B

ditor be least likely to require the assistance of a
specialist?
a. Assessing the value of inventories of works of art.
b. Determining the quantities of materials stored in
piles.
c. Determining the value of unlisted securities.
d. Determining the assessed value of fixed assets.
181. Of the following procedures, which is not considered B

part of "obtaining an understanding of the client's
environment?"
a. Examining trade publications to gain a better un-
derstanding of the client's industry.
b. Confirming customer accounts receivable for exis-
tence and valuation.
46 / 58
c. Touring the client's manufacturing and warehous-
ing facilities to gain a clearer understanding of oper-
ations.
d. Studying the internal controls over cash receipts
and disbursements.
182. If working papers are to have the characteristics that C

will ensure that they achieve their primary purposes,
which of the following is the most important?
a. Working papers must be of standard format and
standard content.
b. Working papers must be properly indexed and
cross- referenced to the draft audit report.
c. Working papers must provide sufficient, compe-
tent, and useful information to support the audit re-
port. d. Working papers must be arranged in logical
order following the audit program sequence.
183. Which of the following is not an example of analytical C

evidence?
a. Compared inventory turnover by major class with
the prior year on a monthly and quarterly basis.
b. Compared gross profit percentages by major prod-
uct classes with the prior year.
c. Examined invoices for plant asset additions to de-
termine whether the client had erroneously recorded
ordinary repairs as plant assets.
d. Examined monthly performance reports and
investigated significant variations from budgeted
amounts.
184. Choose the best illustration of objective audit evi- A

dence from the following
a. The paid invoice file containing invoices matched
with receiving reports and purchase orders.
b. Management's assertion that payment procedures
require matching of invoice with receiving report and
purchase order.
c. Clerical staff assurances that management policy
47 / 58
regarding payment of invoices--matching of invoice
with receiving report and purchase order--is always
followed.
d. The treasurer's statement of not remembering any
exceptions in which an invoice was submitted for
payment that was not accompanied by a matching
receiving report and purchase order.
185. An initial (first-time) audit requires more audit time to C

complete than a recurring audit. One of the reasons
for this is that
a. New auditors are usually assigned to an initial
audit.
b. Predecessor auditors need to be consulted.
c. The client's business, industry, and internal control
are unfamiliar to the auditor and need to be carefully
studied.
d. A larger proportion of customer accounts receiv-
able need to be confirmed on an initial audit.
186. Which of the following is a basic tool used by the D

auditor to control the audit work and review the
progress of the audit?
a. Time and expense summary.
b. Engagement letter.
c. Progress flowchart.
d. Audit program.
187. An auditor wants to develop an audit test to eval- D

uate the reasonableness of the quantity of scrap
material resulting from a certain production process
compared to industry standards. Which would be the
most competent type of evidence available to satisfy
this objective?
a. Documentary.
b. Hearsay.
c. Physical.
d. Analytical.
188. C
48 / 58
As part of audit planning, CPAs should design audit
programs for each individual audit and should in-
clude audit steps and procedures to
a. Detect and eliminate fraud.
b. Increase the amount of management information
available.
c. Provide assurances that the objectives of the audit
are met.
d. Ensure that only material items are audited.
189. Of the following audit procedures, which best sup- A

ports the valuation objective?
a. Performing a lower of cost or market test of the
client's inventories.
b. Reviewing a contingent liability footnote for proper
wording.
c. Searching for unrecorded liabilities.
d. Observing the client's year-end physical inventory
taking.
190. An assumption underlying analytical procedures is D

that
a. These procedures cannot replace tests of balances
and transactions.
b. Statistical tests of financial information may lead
to the discovery of material errors in the financial
statements.
c. The study of financial ratios is an acceptable alter-
native to the investigation of unusual fluctuations.
d. Relationships among data may reasonably be ex-
pected to exist and continue in the absence of known
conditions to the contrary.
191. An auditor is examining accounts receivable. What is C

the most competent type of evidence in this situa-
tion?
a. Interviewing the personnel who record accounts
receivable.
b. Verifying that postings to the receivable account
49 / 58
from journals have been made.
c. Receipt by the auditor of a positive confirmation.
d. No response received for a request for a negative
confirmation.
192. With respect to the auditor's planning of a year-end D

examination, which of the following statements is
always true?
a. An engagement should not be accepted after the
fiscal year-end.
b. An inventory count must be observed at the bal-
ance sheet date.
c. The client's audit committee should not be told of
the specific audit procedures that will be performed.
d. It is an acceptable practice to carry out substantial
parts of the examination at interim dates.
193. Which of the following statements about working pa- B

pers is correct?
a. Working papers are not permitted to be used as a
reference source by the client.
b. The auditor should document the understanding of
the client's internal control obtained to plan the audit
c. Working papers may be regarded as a substitute for
the client's accounting records.
d. When reporting on comparative financial state-
ments, the independent auditor may discard working
papers after two years.
194. Which of the following factors is most important in A

determining the competence of audit evidence?
a. The reliability of the evidence in meeting the audit
objective.
b. The objectivity of the auditor gathering the evi-
dence.
c. The quantity of the evidence obtained.
d. The independence of the source of evidence.
195. When reviewing audit working papers, the primary D

responsibility of an audit supervisor is to determine
50 / 58
that:
a. Each worksheet is properly identified with a de-
scriptive heading.
b. Working papers are properly referenced and kept in
logical groupings.
c. Standard departmental procedures are adhered to
with regard to work paper preparation and technique.
d. Working papers adequately support the audit find-
ings, conclusions, and report.
196. Auditors apply analytical procedures to the client's C

operations in order to identify
a. Improper separation of accounting and other finan-
cial duties.
b. Weaknesses of a material nature in the client's
internal control.
c. Unusual transactions.
d. Noncompliance with prescribed control proce-
dures.
197. Which of the following workpapers would one nor- A

mally 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 confir-
mation requests.
198. Of the following procedures, which does not produce C

analytical evidence?
a. Compare revenue, cost of sales, and gross profit
with the prior year and investigate significant varia-
tions.
b. Examine monthly performance reports and inves-
tigate significant revenue and expense variances.
c. Confirm customers' accounts receivable and clear
all material exceptions.
d. Compare sales trends and profit margins with
51 / 58
industry averages and investigate significant differ-
ences.
199. In evaluating the reasonableness of advertising ex- C

pense, which of the following would be the best evi-
dence?
a. Oral evidence obtained through discussions with
company marketing executives and representatives
of the advertising agency retained.
b. Documentary evidence obtained by vouching
charges to the account and by retracing charges from
source documents to the account.
c. Analytical evidence developed by comparing the
ratio of advertising expenses to sales with historical
data for the company and industry.
d. Arithmetical evidence developed by re-computing
charges submitted by the advertising agency and
paid by the company.
200. Which of the following is not a consideration in the D

development of audit programs?
a. Internal control over the recording of plant asset
additions and repairs and maintenance expenditures
is found to be weak.
b. The client constructed a major addition to its cen-
tral manufacturing facility during the year under au-
dit.
c. The client is a private university located in the
Midwest.
d. The client's board or directors is elected by the
stockholders at the annual meeting.
201. Audit working papers are used to record the results of D

the auditor's evidence-gathering procedures. When
preparing working papers, the auditor should remem-
ber that working papers should be
a. Kept on the client's premises so that the client can
have access to them for reference purposes.
b. The primary support for the financial statements
52 / 58
being examined.
c. Considered as a part of the client's accounting
records that are retained by the auditor.
d. Designed to meet the circumstances and the audi-
tor's needs on each engagement.
202. Which of the following is not a typical analytical pro- C

cedure?
a. Study of relationships of financial information with
relevant nonfinancial information.
b. Comparison of financial information with similar
information regarding the industry in which the entity
operates.
c. Comparison of recorded amounts of major dis-
bursements with appropriate invoices.
d. Comparison of recorded amounts of major dis-
bursements with budgeted amounts.
203. Which of the following is an example of inferential C

evidence?
a. The auditor observes the taking of the client's phys-
ical inventory and performs test counts.
b. The auditor inspects marketable securities for
existence.
c. An auditor, who notes that customer accounts re-
ceivable have increased significantly in the current
year as a percentage of sales, suspects that a larger
proportion of the accounts will prove uncollectible.
d. The auditor counts cash on hand at year-end.
204. Which of the following would be least likely to be com- A

parable between similar corporations in the same
industry line of business?
a. Earnings per share.
b. Return on total assets before interest and taxes.
c. Accounts receivable turnover.
d. Operating cycle.
205. Which of the following is not an example of confirma- B

tion evidence?
53 / 58
a. Requesting the client's outside legal counsel to
evaluate the possible outcome of pending litigation.
b. Questioning the client's employees about existing
internal control policies and procedures.
c. Requesting the client's customers to verify
year-end accounts receivable balances.
d. Requesting payees to respond in writing to the
terms contained in notes payable appearing in the
client's ledger.
206. A CPA, in performing an independent audit, would B

most likely use recalculation as a substantive test for
which of the following expense-related accounts?
a. Purchases of supplies.
b. Interest expense.
c. Advertising expense.
d. Repairs and maintenance expense.
207. During the course of an audit engagement, an auditor D

prepares and accumulates audit working papers. The
primary purpose of the audit working papers is to
a. Aid the auditor in adequately planning his work. b.
Provide a point of reference for future audit engage-
ments.
c. Support the underlying concepts included in the
preparation of the basic financial statements.
d. Support the auditor's opinion.
208. Which of the following is not an appropriate auditing D

procedure supporting fairness of financial presenta-
tion?
a. Inspecting plant asset additions for existence.
b. Recalculating accrued interest on notes payable.
c. Examining invoices in support of legal fees record-
ed during the fiscal year.
d. Reviewing the client's production quality control
program.
209. Sales commissions as a percentage of sales declined D

significantly during the year under audit. Of the fol-
54 / 58
lowing possible causes, the most likely is
a. Sales increased during the year.
b. The sales force was reduced at the end of the year.
c. Sales commission rates were increased at the be-
ginning of the year.
d. Fictitious sales were recorded at year-end to inflate
earnings. Commissions were not recorded on these
sales.
210. Which of the following is responsible for the fairness A

of the representations made in financial statements?
a. Client's management.
b. Independent auditor.
c. Audit committee.
d. AICPA.
211. An audit program provides proof that B

a. Sufficient competent evidential matter was ob-
tained. b. The work was adequately planned.
c. There was compliance with generally accepted
standards of reporting.
d. There was a proper study and evaluation of internal
control.
212. During the working paper review, an audit supervisor D

finds that the auditor's reported findings are not ad-
equately cross-referenced to supporting documen-
tation. The supervisor will most likely instruct the
auditor to
a. Prepare a working paper to indicate that the full

scope of the audit was carried out.
b. Familiarize him/herself with the sequence of work-
ing papers so that he(she) will be able to answer
questions about the conclusions stated in the report.
c. Eliminate any cross-references to other working
papers since the system is unclear.
d. Provide a workpaper indexing system that shows
55 / 58
the relationship between findings, conclusions, and
the related facts.
213. Generally, what source of evidence should most im- A

pact audit conclusions?
a. External
b. Inquiry.
c. Oral.
d. Informal.
214. Most of the independent auditor's work in formulating B

an opinion on the financial statements consists of
a. Studying and evaluating internal control.
b. Obtaining and examining evidential matter.
c. Examining cash transactions.
d. Comparing recorded accountability with assets.
215. During an audit of the accounts receivable function, B

you found that the accounts receivable turnover rate
had fallen from 7.3 to 4.3 over the last three years.
What is the most likely cause of the decrease in the
turnover rate?
a. An increase in the discount offered for early pay-
ment. b. A more liberal credit policy.
c. A change from net 30 to net 25.
d. Greater cash sales.
216. To test for unsupported entries in the ledger, the A

direction of audit testing should be from the
a. Ledger entries.
b. Journal entries.
c. Externally generated documents.
d. Original source documents.
217. Which of the following does not describe one of the D

functions of audit workpapers?
a. Facilitates third-party reviews.
b. Aids in the planning, performance, and review of
audits.
c. Provides the principal evidential support for the
56 / 58
auditor's report.
d. Aids in the professional development of the oper-
ating staff.
218. The principal reason for developing a written audit B

program is to help assure that the
a. Audit work is properly supervised.
b. Audit work is properly planned and documented. c.
Audit report contains only significant findings.
d. Work of different auditors is properly coordinated.
219. One of the primary roles of an audit program is to: A

a. Serve as a tool for planning, directing, and control-
ling audit work.
b. Document an auditor's understanding of the inter-
nal control.
c. Provide for a standardized approach to the audit
engagement.
d. Delineate the audit risk accepted by the auditor.
220. The principal purpose for cross-indexing audit work- D

ing papers is to
a. Give the working papers a professional appear-
ance.
b. Explain the use of tick marks.
c. Provide explanation of the audit steps performed.
d. Provide a trail for the auditor and the reviewer.
221. Audit information is generally considered relevant D

when it is:
a. Derived through valid statistical sampling.
b. Objective and unbiased.
c. Factual, adequate, and convincing.
d. Consistent with the audit objectives.
222. External auditors often confirm assertions contained D

in the organization's financial statements and ac-
counting records with third parties. Which of the fol-
lowing best explains why confirmation produces evi-
dence of high quality?
57 / 58
a. Written assertions from knowledgeable third par-
ties provide sufficient evidence to achieve most audit
objectives.
b. Confirmation by knowledgeable third parties is
usually the most relevant evidence available.
c. Confirmation by knowledgeable third parties is
usually the least costly evidence available.
d. Confirmation by knowledgeable third parties is
highly competent because of its independent source.
223. As a category of evidence, documents may be exter- B

nal or internal. As an auditor reviewing your client's
accounts receivable, which of the following is an ex-
ample of internal documentary evidence?
a. The carrier's bill of lading.
b. Sales invoice copies.
c. A customer's purchase order.
d. A vendor's month-end statement.
58 / 58

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Audit Evidence and Audit Programs PSA 500 and 230

Study online at https://quizlet.com/_3ledkw

1. 1. Which statement is incorrect regarding audit evi- D

2. 2. Accounting records least likely include D

3. 3. Other information that the auditor may use as audit D

4. 4. Which statement is correct regarding the sufficien- C

5. 5. Which of the following statements is incorrect re- C

6. 6. Which of the following generalizations in assessing B

7. 7. Which statement is incorrect regarding audit evi- D

8. 8. The auditor uses assertions in assessing risks by A

9. 9. Assertions about classes of transactions and D

10. 10. Assertion about account balances at period end D

11. 11. Accuracy and valuation assertions about presen- D

12. 12. The auditor obtains audit evidence to draw rea- D

14. 14. Tests of controls are necessary A

15. 15. Which statement is incorrect regarding Inspection B

16. 16. Which of the following audit procedures is used C

17. 17. Which statement is incorrect regarding Inquiry? D

18. 18. Observation A

19. 19. This consists of checking the mathematical accu- B

20. 20. Which of the following is a false statement about D

21. 21. Which of the following is the best explanation of C

22. 22. Walastik, Inc. has significant information that is D

23. The competence of evidence available to an auditor D

25. 25. The most reliable form of documentary evidence D

26. 26. Which of the following presumptions does not B

27. 27. Assuming a low assessed level of control risk, B

28. 28. You have been assigned to audit the maintenance A

29. 29. Which of the following auditing procedures is C

30. 30. Before applying substantive tests to the details of C

31. 31. Before applying principal substantive tests to the C

32. 32. If an auditor conducts an audit of financial state- A

33. 1. It means the materials prepared by and for, or ob- A

34. Which of the following is not a purpose of working D

35. 3. Why does an auditor document audit evidence? C

36. 4. Working papers that record the procedures used by C

37. 5. Which of the following conditions constitutes inap- D

38. 6. An auditor's working papers will ordinarily be least A

39. 7. Which of the following is usually included or shown D

40. 8. The form and content of working papers are affect- A

a. All of the above c. I, II and III only

41. 9. Which of the following is not generally included in C

42. 10.Although the quantity and content of audit work- D

43. 11. Audit working papers are indexed by means of A

45. 13. An auditor ordinarily uses a working trial bal- C

46. 14. In the course of the audit of financial statements C

47. 15. Which of the following analyses appearing in a C

48. 16. In an internal audit, the audit supervisor deter- A

49. 17. Standardized working papers are often used, A

50. 18. Ordinarily, the audit may use schedules, analyses D

51. 19. Working papers which contain information relat- A

52. 20. Which of the following is the least required of the A

53. 1. All the information used by the auditor in arriving at A

54. 2. Which of the following statements is/are correct? D

Statement 1: Audit evidence comprises source docu-

Statement 2: Audit evidence is obtained to form an

Statement 3: The auditor should obtain sufficient ap-

A. Statements 1 and 2 only C. Statement 2 and 3 only

55. 3. All of the following are underlying accounting data, D

56. 4. The measure of the quantity of audit evidence is: A

57. 5. The measure of the quality of audit evidence is: C

58. 6. An evidence to be considered appropriate must be: B

59. 7. The following statements are correct, except: C