Question 1

1 / 1 pts
Evidential matter supporting the financial statements consists of the underlying accounting data and all corroborating
information available to the auditor. Which of the following is an example of corroborating information?
Correct!

Minutes of meetings of the board of directors

Worksheets supporting cost allocations

General and subsidiary ledgers

Accounting manuals

Question 2
1 / 1 pts
The auditor is concerned that a client usually fails to bill customers for shipments. An audit procedure that would gather
relevant evidence would be to

select a sample of duplicate sales invoices and trace each to related shipping documents.

compare the total of the Schedule of Accounts Receivable with the balance of the Accounts Receivable account in the
general ledger.

trace a sample of Sales Journal entries to Accounts Receivable subsidiary ledger.

Correct!

trace a sample of shipping documents to related duplicate sales invoices.

Question 3
1 / 1 pts
Which of the following is a false statement about audit objectives?

The auditor should resolve any substantial doubt about any of management’s material financial statement assertions.

Correct!

There should be a one-to-one relationship between audit objectives and procedures.

Audit objectives should be developed in light of management assertions about the financial statement components.

Selection of tests to meet audit objectives should depend upon the understanding of internal control.

Question 4
1 / 1 pts
In testing the existence assertion for an asset, an auditor ordinarily works from the

financial statements to the potentially unrecorded items.

potentially unrecorded items to the financial statements.

Correct!
accounting records to the supporting evidence.

supporting evidence to the accounting records.

Question 5
1 / 1 pts
You have been assigned to audit the maintenance department of an organization. Which of the following is likely to
produce the least reliable audit evidence?
Correct!

Notes on discussions with mechanics in the maintenance operation.

An analysis of changes in certain maintenance department ratios.

A schedule comparing actual maintenance expenses with budgeted expenses and those of the prior period and
disclosing important differences.

A narrative covering review of user reports on maintenance service.

Question 6
0 / 1 pts
In which of the following circumstances would the use of the negative form of accounts receivable confirmation most
likely be justified?
Correct Answer

A small number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers
with small balances.

You Answered

A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to many
customers with small balances.

A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to a few
major customers.

A small number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major
customers.

Question 7
1 / 1 pts
Which of the following best explains the difference between audit objectives and audit procedures?

Audit objectives are tailor-made for each assignment; audit procedures are generic in application.

Correct!

Audit objectives define specific desired accomplishments; audit procedures provide the means of achieving audit
objectives.

Audit procedures and audit objectives are essentially the same.

Audit procedures establish broad general goals; audit objectives specify the detailed work to be performed.

Question 8
1 / 1 pts
The decision on the part of the auditor to perform substantive tests during the interim period will be based upon

the auditor's time convenience.

the cooperation extended by the client staff.

Correct!

audit risk control and cost effectiveness.

the approach followed in the past.

Question 9
1 / 1 pts
Audit sampling involves the
Correct!

Application of audit procedures to less than 100% of items within a class of transactions or an account balance such
that all items have a chance of selection.

Application of audit procedures to all items over a certain amount and those that are unusual or have a history of error.

Selection of all items over a certain amount.

Application of audit procedures to all items that comprise a class of transactions or an account balance.

Question 10
1 / 1 pts
If an auditor conducts an audit of financial statements in accordance with generally accepted auditing standards, which
of the following will the auditor most likely detect?

Collusive fraud

Unrecorded transactions

Forgery

Correct!

Misposting of recorded transactions

Question 11
1 / 1 pts
Each of the following might, by itself, form a valid basis for an auditor to decide to omit a test except for the
Correct!

Difficulty and expense involved in testing a particular item.

Relationship between the cost of obtaining evidence and its usefulness.

Assessment of control risk at a low level.

Inherent risk involved.

Question 12
1 / 1 pts
Which of the following is not an appropriate auditing procedure supporting the fairness of financial-statement
presentation?

Recalculating accrued interest on notes payable

Examining invoices in support of legal fees recorded during the fiscal year

Inspecting plant asset additions for existence

Correct!

Reviewing the client's production quality control program

Question 13
1 / 1 pts
Which of the following audit procedures best supports the valuation objective?

Searching for unrecorded liabilities

Correct!

Performing a lower of cost or market test of the client's inventories

Reviewing a contingent liability disclosure for proper wording

Observing the client's year-end physical inventory taking

Question 14
1 / 1 pts
Statement 1: The quantity of audit evidence needed is affected by the risk of misstatement and also by the quality of
such audit evidence.
Statement 2: The reliability of audit evidence is influenced by its source and by its nature and is dependent on the
individual circumstances under which it is obtained.

False; True.

True; False.

Both statements are false.

Correct!

Both statements are true.

Question 15
1 / 1 pts
Which of the following is not an audit procedure that the independent auditor would perform with respect to litigation,
claims, and assessments?

Obtain assurance from management that if has disclosed all unasserted claims that the lawyer has advised are probable
of assertion and must be disclosed.

Correct!

Confirm directly with the client's lawyer that all claims have been recorded in the financial statements.

Obtain from management a description and evaluation of litigation, claims, and assessments that existed at the balance
sheet date.

Inquire of and discuss with management the policies and procedures adopted for litigation, claims, and assessments.

Question 16
1 / 1 pts
Confirmation is the process of obtaining and evaluating a direct communication from a third party in response to a
request for information about a particular item affecting financial statement assertions. Two assertions for which
confirmation of accounts receivable balances provides primary evidence are

Valuation and rights and obligations

Existence and completeness

Completeness and valuation

Correct!

Rights and obligations and existence

Question 17
1 / 1 pts
The auditor will not ordinarily initiate discussion with the audit committee concerning the

extent to which the work of internal auditors will affect the scope of the examination.

extent to which a change in the company’s organization will influence the scope of the examination.

Correct!

details of the procedures that the auditor intends to apply.

details of potential problems that the auditor believes might cause a qualified opinion.

Question 18
1 / 1 pts
Audit documentation may be recorded on paper or on electronic or other media. The following are examples of audit
documentation, except

Correspondence (including e-mail) concerning significant matters

Correct!

The entity's accounting records

Letters of confirmation and representation

Audit programs

Question 19
0 / 1 pts
Before applying substantive tests to the details of asset accounts at an interim date, an auditor should assess
Correct Answer

the difficulty in controlling the incremental audit risk.

inherent risk at the maximum level.

You Answered

control risk at below the maximum level.

materiality for the accounts tested as insignificant.

Question 20
1 / 1 pts
Which of the following statements concerning evidential matter is true?

The cost of obtaining evidence is not an important consideration to an auditor in deciding what evidence should be
obtained.

Appropriate evidence supporting management’s assertions should be convincing rather than merely persuasive.

Correct!

A client's accounting records cannot be considered sufficient evidence to support the financial statements.

Effective internal control contributes little to the reliability of the evidence created within the entity.

Question 21
1 / 1 pts
Which of the following most likely would give the most assurance concerning the valuation and allocation assertion of
accounts receivable?

Vouching amounts in the subsidiary ledger to details on shipping documents.

Comparing receivable turnover ratios with industry statistics for reasonableness.

Correct!

Assessing the allowance for uncollectible accounts for reasonableness.

Inquiring about receivables pledged under loan agreements.

Question 22
1 / 1 pts
Which of the following best illustrates the concept of sampling risk?

An auditor may fail to recognize errors in the documents examined for the chosen sample.

The documents related to the chosen sample may not be available for inspection.

An auditor may select audit procedures that are not appropriate to achieve the specific objective.

Correct!

A randomly chosen sample may not be representative of the population as a whole on the characteristic of interest.

Question 23
1 / 1 pts
The completion of the assembly of the final audit file after the date of the auditor's report does not ordinarily involve

Sorting, collating and cross-referencing working papers.

Correct!

The performance of new audit procedures or the drawing of new conclusions.

Deleting or discarding superseded documentation.

Signing off on completion checklists relating to the file assembly process.

Question 24
1 / 1 pts
To test for unsupported entries in the ledger, the direction of audit testing should be from the

journal entries.

Correct!

ledger entries.

externally generated documents.

original source documents.

Question 25
1 / 1 pts
Which of the following statements is correct concerning the use of negative confirmation requests?
Negative confirmation requests are effective when detection risk is low.

Correct!

Unreturned negative confirmation requests rarely provide significant explicit evidence.

Unreturned negative confirmation requests indicate that alternative procedures are necessary.

Negative confirmation requests are effective when understatements of account balances are suspected.

Question 26
1 / 1 pts
WB Industries has significant information that is 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 number of financial statement assertions. The auditor's alternative strategy is to

increase the acceptable audit risk.

require management to change its information system to provide appropriate evidence.

Correct!

perform tests of controls to gather evidential matter to be used as basis of assessing control risk related to those
assertions.

focus audit tests on other assertions for which substantive tests prove to be effective.

Question 27
1 / 1 pts
Population, as defined in PSA 530, means the entire set of data from which a sample is selected and about which the
auditor wishes to draw conclusions. It is important for the auditor to ensure that the population is
I. Appropriate to the objective of the audit procedure.
II. Complete.
Correct!

Both I and II

II only

Neither I nor II

I only

Question 28
1 / 1 pts
The most reliable forms of documentary evidence are those documents that are

prenumbered.

easily duplicated.
internally generated.

Correct!

authorized by a responsible official.

Question 29
1 / 1 pts
Most of the independent auditor's work in formulating an opinion on the financial statements consists of
Correct!

obtaining and examining evidential matter.

comparing recorded accountability with assets.

studying and evaluating internal control.

examining cash transactions.

Question 30
1 / 1 pts
Which of the following is not a distinguishing feature of risk-based auditing?

Analysis of internal control

Concentrating audit resources in those areas presenting the highest risk of financial statement errors

Correct!

Collecting and evaluating evidence

Identifying areas posing the highest risk of financial statement errors

Question 31
1 / 1 pts
The auditor is performing substantive tests several months before the end of the year. This most likely means that

detection risk is set at low to very low.

Correct!

detection risk is set at moderate to high.

control risk is set at maximum.

inherent risk is set at moderate to high.

Question 32
1 / 1 pts
As the acceptable level of detection risk decreases, an auditor may change the
timing of tests of controls by performing them at several dates rather than at one time.

Correct!

nature of substantive tests from a less effective to a more effective procedure.

timing of substantive tests by performing them at an interim date rather than at yearend.

assessed level of inherent risk to a higher amount.

Question 33
1 / 1 pts
Choose the best illustration of objective audit evidence from the following:

Management's assertion that payment procedure requires matching of invoice with receiving report and purchase order.

The treasurer's statement of not remembering any exceptions in which an invoice was submitted for payment that is not
accompanied by a covering receiving report and purchase order.

Clerical staff assurances that management policy regarding payment of invoices-- matching of invoice with receiving
report and purchase order--is always followed.

Correct!

The paid invoice file containing invoices matched with receiving reports and purchase orders.

Question 34
1 / 1 pts
Which of the following types of audit evidence is the most persuasive?

Prenumbered purchase order forms.

Correct!

Bank statements obtained from the client.

Client representation letter.

Client worksheets supporting cost allocations.

Question 35
1 / 1 pts
Which of the following statistical selection techniques is least desirable for use by an auditor?

Stratified selection

Correct!

Block selection

Sequential selection
Systematic selection

Question 36
1 / 1 pts
The auditor would unlikely perform early substantive testing of account balances when:

The taking of the client’s inventory is performed at an early date.

The client uses a natural business year.

Correct!

A number of significant deviations from control policies and procedures were detected during tests of controls.

Due to economic factors, the fourth quarter activity this year is expected to be somewhat sluggish.

Question 37
1 / 1 pts
Which of the following generalizations does not relate to the appropriateness of evidence?

Audit evidence from external sources (for example, confirmation received from a third party) is more reliable than that
generated internally.

Audit evidence obtained directly by the auditor is more reliable than that obtained from the entity.

Correct!

An auditor's opinion, to be economically useful, is formed within reasonable time and based on evidence obtained at a
reasonable cost.

Audit evidence generated internally is more reliable when the related accounting and internal control systems are
effective.

Question 38
1 / 1 pts
Which of the following should be considered by the auditor in deciding which means (or combination of means) to use in
selecting items for testing?
I. The risk of material misstatement related to the assertion being tested.
II. Audit efficiency.

Neither I nor II

Correct!

Both I and II
II only
I only

Question 39
1 / 1 pts
Evidential matter is generally considered sufficient when
it is competent.

it has the qualities of being relevant, objective, and free from known bias.

Correct!

there is enough of it to afford a reasonable basis for an opinion on the financial statements.

it has been obtained through random selection.

Question 40
1 / 1 pts
The extent of testing normally applies

exclusively to the number of substantive tests performed.

exclusively to the number of items to be tested.

to both the nature of items tested and the number of tests performed.

Correct!

to both the number of items tested and the number of tests performed.

Question 41
1 / 1 pts
In gathering audit evidence in the performance of substantive tests, the auditor

should use the test month approach.

Correct!

relies on persuasive rather than convincing evidence in the majority of cases.

would express an adverse opinion if he has substantial doubt as to any significant assertion.

would consider the client’s documentary evidence more competent than evidence gathered from observation and
physical inspection.

Question 42
0 / 1 pts
Before applying principal substantive tests to the details of accounts at an interim date, an auditor should

determine that the accounts selected for interim testing are not material to the financial statements taken as a whole.

obtain written representations from management that all financial records and related data will be made available.

Correct Answer

consider whether the amounts of the year-end balances selected for interim testing are reasonably predictable.
You Answered

assess control risk as below the maximum for the assertions embodied in the accounts selected for interim testing.

Question 43
1 / 1 pts
The least costly form of testing is usually

tests of controls.

tests of details of transactions.

Correct!

analytical procedures.

tests of details of balances.

Question 44
1 / 1 pts
Audit procedures are normally performed

within one to three months after the close of the accounting period.

throughout the accounting period being examined, but with emphasis on the transactions near the end.

Correct!

During all three of the above periods

early in the accounting period being examined.

Question 45
1 / 1 pts
To gain assurance that all inventory items in a client's inventory listing schedule are valid, an auditor most likely would
vouch

Inventory tags noted during the auditor’s observation to items listed in receiving reports and vendors' invoices.

Items listed in receiving reports and vendors’ invoices to the inventory listing schedule.

Inventory tags noted during the auditor’s observation to items listed in the inventory listing schedule.

Correct!

Items listed in the inventory listing schedule to inventory tags and the auditor's recorded count sheets.

Question 46
1 / 1 pts
Which of the following procedures would provide the auditor the most reliable audit evidence?
Analytical procedures performed by the auditor on the entity's trial balance.

Inquiries of the client’s internal audit staff held in private.

Correct!

Inspection of bank statements obtained directly from the client's financial institution.

Inspection of prenumbered client purchase orders filed in the vouchers payable department.

Question 47
1 / 1 pts
In making decisions about evidence for a given audit, the auditor's goal is to obtain a sufficient amount of timely,
reliable evidence that is relevant to the information being verified, and to do so

no matter what the cost involved in obtaining such evidence.

at any cost because the costs are billed to the client.

only if the cost is reasonable.

Correct!

at the lowest possible total cost.

Question 48
1 / 1 pts
The competence of evidence available to an auditor is least likely affected by

the relevance of such evidence to the financial statement assertion being investigated.

the timeliness of the audit evidence obtained.

Correct!

the sampling method employed by the auditor to obtain a number of samples as evidence.

the relationship of the source of such an evidence to the entity being audited.

Question 49
1 / 1 pts
An advantage of statistical over nonstatistical sampling methods in tests of controls is that the statistical methods

Eliminate the need to use judgment in determining appropriate sample sizes.

Can more easily convert the sample into a dual-purpose test useful for substantive testing.

Correct!

Provide an objective basis for quantitatively evaluating sampling risks.

Afford greater assurance than a nonstatistical sample of equal size.

Question 50
1 / 1 pts
Tracing from source documents to journals most directly addresses which financial statement assertion?

Existence

Correct!
Completeness
Rights
Valuation