Audit Planning and Documentation Quiz
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Questions and Answers

What is the primary purpose of audit evidence?

  • To evaluate an auditor's performance
  • To provide a justification for the auditor's fees
  • To determine the validity of financial statements according to established criteria (correct)
  • To perform audits as quickly as possible

    • Which of the following is NOT one of the four decisions an auditor must make regarding audit evidence?

  • When to perform the procedures
  • Whether to hire additional staff (correct)
  • What sample size to select
  • Which audit procedures to use

    • How does the sample size impact the audit process?

  • Larger sample sizes are more likely to yield accurate results (correct)
  • A larger sample size decreases the credibility of the audit
  • The sample size has no effect on the audit process
  • Smaller sample sizes always lead to faster audits

    • What is an audit procedure?

    <p>Detailed instructions explaining the evidence to be obtained during the audit</p> Signup and view all the answers

    Which factor does NOT influence the amount and type of audit evidence collected?

    <p>The auditor's personal preferences</p> Signup and view all the answers

    In verifying cash disbursements, what is the auditor required to examine?

    <p>The cash disbursements journal and bank information</p> Signup and view all the answers

    What is a key factor in determining the sample size for an audit procedure?

    <p>The complexity of the financial transactions</p> Signup and view all the answers

    When might an auditor choose to increase the sample size?

    <p>When higher assurance of accuracy is needed in the results</p> Signup and view all the answers

    What is the primary purpose of tracing from duplicate sales invoices to shipping documents?

    <p>To confirm whether shipments have been billed to customers.</p> Signup and view all the answers

    Which statement regarding the relevance of evidence is true?

    <p>Specific evidence can be relevant for one audit objective but irrelevant for another.</p> Signup and view all the answers

    What enhances the reliability of evidence obtained during an audit?

    <p>Communications from external parties like banks or attorneys.</p> Signup and view all the answers

    In assessing the reliability of evidence, which characteristic is NOT considered?

    <p>The auditor’s personal relationship with the client.</p> Signup and view all the answers

    What type of evidence is considered the most reliable during an audit?

    <p>Observations made by the auditor during a physical count.</p> Signup and view all the answers

    How does the effectiveness of a client’s internal controls impact audit evidence?

    <p>More reliable evidence can be obtained if internal controls are effective.</p> Signup and view all the answers

    Which type of evidence would an auditor consider least reliable?

    <p>Documents from clients that have never left the organization.</p> Signup and view all the answers

    Why is evidence obtained through an auditor’s direct knowledge typically more reliable?

    <p>It involves firsthand examination and observation.</p> Signup and view all the answers

    What increases the reliability of evidence in income statement accounts?

    <p>Evidence from a random sample covering the entire period under audit.</p> Signup and view all the answers

    What is primarily measured by the sample size selected by the auditor?

    <p>The sufficiency of evidence obtained.</p> Signup and view all the answers

    Which of the following factors is NOT considered when determining appropriate sample size in an audit?

    <p>Number of transactions in the industry.</p> Signup and view all the answers

    Which type of evidence is defined as the inspection or count of a tangible asset?

    <p>Physical examination.</p> Signup and view all the answers

    Which of the following categories is focused on verifying the existence and condition of an asset?

    <p>Inspection.</p> Signup and view all the answers

    What typically warrants a larger sample size in audits?

    <p>High likelihood of misstatements.</p> Signup and view all the answers

    Which type of evidence is considered one of the most reliable and useful for verifying assets?

    <p>Physical examination.</p> Signup and view all the answers

    In auditing, which method can help ascertain both the quantity and description of an asset?

    <p>Physical examination.</p> Signup and view all the answers

    What is the primary determinant of the appropriateness of audit evidence?

    <p>Its relevance and reliability</p> Signup and view all the answers

    Which factor does not enhance the appropriateness of audit evidence?

    <p>Increasing the sample size</p> Signup and view all the answers

    Why is the relevance of evidence crucial in an audit?

    <p>It must align with the audit objectives being tested</p> Signup and view all the answers

    What does sufficiency of audit evidence refer to?

    <p>The volume of evidence collected to support the audit opinion</p> Signup and view all the answers

    Which of the following statements about audit opinions is true?

    <p>An audit opinion can never be completely assured</p> Signup and view all the answers

    Which auditing procedure would be considered an inappropriate method for testing completeness?

    <p>Verifying sales invoices against payment records</p> Signup and view all the answers

    What is the consequence of using inappropriate evidence in an audit?

    <p>It can lead to a less persuasive audit report</p> Signup and view all the answers

    In an audit, which procedure is more relevant for confirming that shipments were billed?

    <p>Tracing shipping documents to sales invoices</p> Signup and view all the answers

    Why is client inquiry evidence generally not regarded as conclusive?

    <p>It is not from an independent source and may be biased.</p> Signup and view all the answers

    What is the primary purpose of obtaining corroborating evidence?

    <p>To support the original evidence obtained.</p> Signup and view all the answers

    Which of the following best defines recalculation in an audit context?

    <p>Rechecking a sample of calculations made by the client.</p> Signup and view all the answers

    What distinguishes reperformance from recalculation?

    <p>Reperformance checks procedures rather than computations.</p> Signup and view all the answers

    What limitation is associated with observation as a method of obtaining evidence?

    <p>It reflects only a specific point in time.</p> Signup and view all the answers

    Why is proper planning essential for auditors before conducting an audit?

    <p>To ensure sufficient appropriate evidence is obtained.</p> Signup and view all the answers

    How does observation contribute to the audit process?

    <p>It gives insights into processes or procedures performed by others.</p> Signup and view all the answers

    What is one of the reasons for keeping audit costs reasonable during the audit?

    <p>To avoid unnecessary financial burden on clients.</p> Signup and view all the answers

    What is the primary purpose of analytical procedures in audits?

    <p>To identify unusual changes in account balances</p> Signup and view all the answers

    What information is NOT typically included in the current audit files?

    <p>Historical data from previous audits</p> Signup and view all the answers

    Which of the following best describes the audit program in current files?

    <p>A mandated written program for each audit</p> Signup and view all the answers

    What key role does the working trial balance play in the audit process?

    <p>It serves as the basis for preparing the financial statements</p> Signup and view all the answers

    Which of the following documents would you NOT typically find in the general information section of current files?

    <p>Year-end financial statement preparation details</p> Signup and view all the answers

    How do auditors typically ensure that the audit program is being followed during the audit?

    <p>They require signatures for completed procedures</p> Signup and view all the answers

    What are permanent files primarily used for in auditing?

    <p>To maintain critical client information over time</p> Signup and view all the answers

    Which of the following best defines the term 'control risk' in the context of the audit?

    <p>The possibility that internal controls will fail to prevent misstatements</p> Signup and view all the answers

    Study Notes

    Audit Evidence; Audit Planning and Documentation

    • Audit evidence is the information collected by an auditor to determine the accuracy and compliance of a company's financial statements
    • The evidence supports the company's financial statements and their adherence to accounting laws in their jurisdiction
    • Examples of audit evidence include bank accounts, management accounts, payrolls, bank statements, invoices, and receipts
    • Good audit evidence must be sufficient, reliable, and relevant

    Audit Evidence Decisions

    • Auditors need to determine what supporting evidence to gather and how much of it is required.
    • Four important decisions to make include:
      • Which audit procedures to use
      • What sample size to select for a given procedure
      • Which items to select from the population being tested
      • When to perform the procedures

    Audit Procedures

    • An audit procedure details the instructions for obtaining audit evidence.
    • Procedures are very specific to ensure the auditor can follow them to conduct the audit
    • Example procedure: Examining the cash disbursements journal, comparing payee, name, amount, and date with online bank information of checks processed for the account

    Sample Size

    • Auditors can test all items or a sample from a given population.
    • For example, if a cash disbursement journal has 6,600 checks, the auditor might select a sample size of 50 for comparison
    • The sample size chosen depends on the procedure, client characteristics (the extent of automated controls) and the level of assurance required for the audit

    Items to Select

    • After determining the sample size, an auditor must choose the items from the population to be tested.
    • Choices include selecting specific checks from a week, selecting the checks with the largest amounts, selecting checks randomly, or those checks the auditor thinks are most likely to be incorrect.
    • These methods can be used alone or in combination

    Timing

    • An audit period usually covers a year. The audit isn't always completed at the end of the period.
    • Client needs determine timing. Examples include:
      • Public companies are required to file audited financial statements within a specific time period after their fiscal year-end (usually 60-90 days).
      • Auditors often prefer to do counts of inventory close to the balance sheet date for greater reliability.

    Persuasiveness of Evidence

    • Audit standards require sufficient appropriate evidence to support the auditor's opinion.
    • Auditors aim for a high level of assurance that the opinion is correct, but complete conviction isn't always possible.
    • Two factors that affect the persuasiveness of evidence are appropriateness and sufficiency

    Appropriateness of Evidence

    • Appropriateness is a measure of the evidence's quality.
    • It relates to how well the evidence meets the audit objectives for transactions, account balances, and related disclosures to support evidence that financial statements are fairly stated.
    • The quality of the evidence can't be improved by selecting a larger sample size or a different sample. It can be improved by selecting more relevant or reliable procedures

    Relevance of Evidence

    • Evidence must be relevant to the auditor's testing objective.
    • Example: If inventory completeness is questioned, the auditor should trace shipping documents to related sales invoices

    Reliability of Evidence

    • Reliability refers to evidence's trustworthiness in persuading the auditor that financial statements are fairly stated.
    • Six characteristics affect reliability:
      • Independence of the evidence provider
      • Effectiveness of the client's internal controls
      • Auditor's direct knowledge of the evidence
      • Qualifications of the individual providing the information
      • Degree of objectivity
      • Timeliness of the evidence.

    Types of Audit Evidence

    • Physical examination, confirmation, inspection, analytical procedures, inquiries of the client, recalculation, reperformance, observation.

    Supporting Schedules

    • Detailed schedules used as evidence in the audit. Examples are analysis, trial balance, reconciliation of amounts, tests of reasonableness.
    • These schedules provide support for financial statement amounts

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    Related Documents

    Audit Evidence, Audit Planning and Documentation (Week Four) PDF

    Description

    Test your knowledge on audit evidence, planning, and documentation. This quiz covers key concepts of collecting and evaluating audit evidence, as well as important decisions auditors make regarding procedures and sample sizes. Understand the essentials of ensuring the reliability and relevance of audit evidence.

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