Podcast
Questions and Answers
Which audit procedure is typically used for examining records or documents and is considered one of the most reliable sources of audit evidence?
Which audit procedure is typically used for examining records or documents and is considered one of the most reliable sources of audit evidence?
- Inspection (correct)
- Confirmation
- Observation
- Inquiry
Why are tests of controls necessary in an audit?
Why are tests of controls necessary in an audit?
- To assess the risk of material misstatement due to fraud.
- To evaluate the operating effectiveness of internal controls. (correct)
- To identify all misstatements in the financial statements.
- To provide direct evidence about the accuracy of financial statement assertions.
In auditing, which assertion focuses on the accuracy and valuation of account balances at the end of a reporting period?
In auditing, which assertion focuses on the accuracy and valuation of account balances at the end of a reporting period?
- Completeness
- Rights and obligations
- Valuation and allocation (correct)
- Existence
Which audit procedure is commonly used throughout the audit process and complements other procedures?
Which audit procedure is commonly used throughout the audit process and complements other procedures?
When are tests of controls necessary during an audit?
When are tests of controls necessary during an audit?
Which audit procedure involves the physical examination of assets to provide reliable evidence about their existence and the entity's rights and obligations?
Which audit procedure involves the physical examination of assets to provide reliable evidence about their existence and the entity's rights and obligations?
What does the assertion about classes of transactions and events relate to?
What does the assertion about classes of transactions and events relate to?
Which assertion relates to the appropriate inclusion of all assets, liabilities, and equity interests in the financial statements?
Which assertion relates to the appropriate inclusion of all assets, liabilities, and equity interests in the financial statements?
Which of the following is NOT part of the accuracy and valuation assertions about presentation and disclosure?
Which of the following is NOT part of the accuracy and valuation assertions about presentation and disclosure?
Which step is involved in the auditor obtaining audit evidence to draw reasonable conclusions on which to base the audit opinion?
Which step is involved in the auditor obtaining audit evidence to draw reasonable conclusions on which to base the audit opinion?
What is the purpose of the valuation and allocation assertion about account balances at period end?
What is the purpose of the valuation and allocation assertion about account balances at period end?
What does the rights and obligations assertion about account balances at period end relate to?
What does the rights and obligations assertion about account balances at period end relate to?
Which type of audit evidence is considered the most reliable?
Which type of audit evidence is considered the most reliable?
Which statement regarding audit evidence is incorrect?
Which statement regarding audit evidence is incorrect?
Which of the following assertions about classes of transactions and events is least likely to be used by the auditor?
Which of the following assertions about classes of transactions and events is least likely to be used by the auditor?
Which category of assertions does the auditor use to assess risks of material misstatement?
Which category of assertions does the auditor use to assess risks of material misstatement?
Which assertion about account balances at the period end is most important for the auditor to consider?
Which assertion about account balances at the period end is most important for the auditor to consider?
Which assertion about classes of transactions and events is the auditor least likely to focus on?
Which assertion about classes of transactions and events is the auditor least likely to focus on?
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Study Notes
Audit Procedures and Evidence
- Examination of records or documents is known as documentary evidence, a reliable source of audit evidence.
- Tests of controls assess the effectiveness of internal controls, ensuring that financial statements are free from material misstatement.
- The accuracy and valuation assertion pertains to the correct reporting and valuation of account balances at the end of a reporting period.
- Substantive procedures are commonly used throughout the audit to gather evidence and complement other audit strategies.
- Tests of controls are necessary when assessing the reliability of internal controls during the audit process.
- Physical examination of assets provides reliable evidence concerning the existence and entity's rights and obligations over those assets.
Assertions in Auditing
- Classes of transactions and events assertion involves the accuracy, occurrence, and completeness of transactions recorded during the reporting period.
- The assertion regarding the appropriate inclusion of all assets, liabilities, and equity interests is known as the completeness assertion.
- Assertions about presentation and disclosure do not typically include the accuracy and valuation assertions but focus on the proper presentation and clarity of financial information.
Audit Evidence and Conclusions
- The auditor must obtain sufficient appropriate audit evidence to draw reasonable conclusions supporting the audit opinion.
- The valuation and allocation assertion ensures that account balances at the reporting period are properly valued and allocated.
- The rights and obligations assertion assesses whether the entity has rights to the reported assets and obligations for reported liabilities at the period end.
Reliability and Importance of Assertions
- External confirmations are considered the most reliable type of audit evidence due to their independent nature.
- An incorrect statement regarding audit evidence could imply that all evidence holds the same level of reliability, which is not true.
- The occurrence assertion about classes of transactions is least likely to be used by auditors due to its lower relevance compared to other assertions.
Focus and Assessment of Assertions
- The presentation and disclosure assertions are a key category used by auditors to assess risks of material misstatement.
- Among account balance assertions at the period end, the existence assertion is the most crucial for the auditor to consider.
- The assertion about income statement items that is least likely to be a focus point for auditors is often related to cut-off errors.
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