Audit Planning and Documentation Quiz
48 Questions
0 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to Lesson

Podcast

Play an AI-generated podcast conversation about this lesson

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 (D)</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 (D)</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 (C)</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 (D)</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 (B)</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. (C)</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. (A)</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. (A)</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. (C)</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. (A)</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. (A)</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. (B)</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. (B)</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. (C)</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. (A)</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. (C)</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. (D)</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. (D)</p> Signup and view all the answers

What typically warrants a larger sample size in audits?

<p>High likelihood of misstatements. (B)</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. (C)</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. (B)</p> Signup and view all the answers

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

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

Which factor does not enhance the appropriateness of audit evidence?

<p>Increasing the sample size (B)</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 (C)</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 (C)</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 (B)</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 (A)</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 (D)</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 (D)</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. (C)</p> Signup and view all the answers

What is the primary purpose of obtaining corroborating evidence?

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

What distinguishes reperformance from recalculation?

<p>Reperformance checks procedures rather than computations. (D)</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. (D)</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. (B)</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. (A)</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. (A)</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 (D)</p> Signup and view all the answers

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

<p>Historical data from previous audits (A)</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 (D)</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 (D)</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 (B)</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 (C)</p> Signup and view all the answers

What are permanent files primarily used for in auditing?

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

Flashcards

Audit Evidence

Information collected by auditors to determine if financial statements comply with established standards.

Audit Procedure

Detailed instruction explaining how to obtain audit evidence during an audit.

Sample Size

Number of items chosen from a total set (population) during an audit procedure.

Population

The complete set of items being audited.

Signup and view all the flashcards

Audit Procedure Example (Cash Disbursements)

Inspecting disbursement journal entries and comparing them to bank records of processed checks.

Signup and view all the flashcards

Evidence Decisions (Auditing)

Critical decisions auditors make about the type and amount of evidence to collect.

Signup and view all the flashcards

Audit Planning

Process of determining procedures and how much evidence is needed.

Signup and view all the flashcards

Documentation

Detailed records of audit procedures & evidence collected.

Signup and view all the flashcards

Persuasiveness of Audit Evidence

The degree of confidence an auditor has in the correctness of an audit opinion.

Signup and view all the flashcards

Appropriateness of Evidence

Quality of evidence; its relevance and reliability related to audit objectives.

Signup and view all the flashcards

Relevance of Evidence

Evidence must connect to the auditor's specific audit objective.

Signup and view all the flashcards

Sufficiency of Evidence

Quantity of evidence needed to support the audit opinion.

Signup and view all the flashcards

Audit Objective

Specific goal the auditor aims to achieve during an audit.

Signup and view all the flashcards

Sample Selection

Choosing a part of a larger group to examine for testing.

Signup and view all the flashcards

Financial Statements

Formal reports summarizing a company's financial status.

Signup and view all the flashcards

Cash Disbursements Journal

Record of cash payments made by a company.

Signup and view all the flashcards

Relevant Evidence

Evidence that supports an audit objective. Evidence may be relevant for one objective but not another.

Signup and view all the flashcards

Occurrence Transaction Objective

An audit objective focused on whether transactions actually occurred.

Signup and view all the flashcards

Reliability of Evidence

The degree to which evidence is trustworthy and believable.

Signup and view all the flashcards

Independent Evidence Provider

Evidence coming from a source outside the company is generally more reliable than evidence from within.

Signup and view all the flashcards

Effective Internal Controls

When a company's internal controls are strong, the evidence obtained is more reliable.

Signup and view all the flashcards

Auditor's Direct Knowledge

Evidence obtained directly by the auditor (e.g., physical inspection, counting) through observation or calculations is more reliable than indirect information.

Signup and view all the flashcards

Unbilled Shipments

Goods shipped that were not recorded as having been sold or billed to a customer.

Signup and view all the flashcards

Duplicate Sales Invoices

Copies of sales invoices used for auditing purposes.

Signup and view all the flashcards

Reliable Evidence

Audit evidence from the entire period under review is considered more reliable than evidence from only a part of the period.

Signup and view all the flashcards

What Determines Evidence Sufficiency?

The quantity of audit evidence collected, primarily measured by the sample size.

Signup and view all the flashcards

Sample Size Factors

Two key factors influencing sample size are the auditor's expectation of misstatements and the effectiveness of the client's internal controls.

Signup and view all the flashcards

Physical Examination

Direct inspection or count of a tangible asset by the auditor.

Signup and view all the flashcards

Physical Examination: What does it confirm?

Verifies the existence of an asset, and to a lesser extent, if existing assets are recorded.

Signup and view all the flashcards

Physical Examination: Reliability

Physical examination is considered highly reliable audit evidence.

Signup and view all the flashcards

Physical Examination: Applications

Commonly used for inventory, cash, securities, notes receivable, and fixed assets.

Signup and view all the flashcards

Physical Examination: What it can reveal

Besides existence and completeness, physical examination can assess asset condition and quality.

Signup and view all the flashcards

Corroborating Evidence

Additional evidence that supports the original evidence, often used to verify information obtained from a client.

Signup and view all the flashcards

Recalculation

Auditors independently rechecking a sample of client calculations to verify accuracy, like extending sales invoices or adding journals.

Signup and view all the flashcards

Reperformance

Auditors independently test client accounting procedures or controls, like comparing invoice prices to approved lists or aging receivables.

Signup and view all the flashcards

Observation

Auditors directly watching a process or procedure being performed by client personnel, like observing inventory counts or accounting tasks.

Signup and view all the flashcards

Why is observation limited?

Observation is a snapshot in time, providing limited evidence about the process overall. Client personnel may change their behavior during observation, so it is rarely enough alone.

Signup and view all the flashcards

Why should auditors properly plan engagements?

  1. To obtain sufficient appropriate evidence for the circumstances. 2. To help keep audit costs reasonable. 3. To avoid misunderstandings with the client.
Signup and view all the flashcards

What are the 3 main reasons for audit planning?

  1. Obtain enough evidence to support conclusions. 2. Minimize audit costs by focusing efforts effectively. 3. Avoid misunderstandings with the client by communicating expectations.
Signup and view all the flashcards

Why is inquiry usually not enough?

Client-provided information may not be objective and could be biased in their favor. Corroboration with independent evidence is essential for reliable results.

Signup and view all the flashcards

Audit Program

A written plan outlining the specific procedures to be performed during an audit. It helps to coordinate and integrate all aspects of the audit.

Signup and view all the flashcards

Working Trial Balance

A list of general ledger accounts and their balances at the end of the accounting period. It's the starting point for the audit process.

Signup and view all the flashcards

Permanent Files

A collection of audit documents that remain relevant for multiple years, such as organizational charts and contracts.

Signup and view all the flashcards

Current Files

Documents specific to the current year's audit, including the audit program, working papers, and evidence collected.

Signup and view all the flashcards

Analytical Procedures

Techniques used to identify unusual changes in account balances by comparing current year's data to previous years' or industry benchmarks.

Signup and view all the flashcards

Internal Control Information

Documents like organization charts, flowcharts, and questionnaires that help understand a company's internal control system.

Signup and view all the flashcards

Control Deficiencies

Weaknesses in a company's internal control system that increase the risk of errors or fraud.

Signup and view all the flashcards

Audit Documentation

Complete and detailed records of the audit procedures performed, evidence collected, and conclusions reached.

Signup and view all the flashcards

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

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Quiz Team

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.

More Like This

Audit Evidence and Examination of Items
18 questions

Audit Evidence and Examination of Items

AchievableSeal avatar
AchievableSeal
Audit Evidence and Procedures Quiz
16 questions

Audit Evidence and Procedures Quiz

PainlessHammeredDulcimer avatar
PainlessHammeredDulcimer
Criminal Evidence and Courtroom Procedures
42 questions

Criminal Evidence and Courtroom Procedures

DetachableLosAngeles1696 avatar
DetachableLosAngeles1696
Criminal Evidence Procedures Quiz
91 questions

Criminal Evidence Procedures Quiz

TimelyDenouement1685 avatar
TimelyDenouement1685
Use Quizgecko on...
Browser
Open
Browser
Browser