Question 1

In the planning stage, analytical procedures are used to

Accepted Answer

A)  Assess overall reasonableness of the financial statements.
B)  Identify potential problem areas.
C)  Determine the mathematical correctness of the financial statements.
D)  Provide direct evidence about the balances in accounts.

Question 2

This question tests your ability to perceive the place(s) where potential problems may exist and the type of problem (overstatement or understatement) that may exist.
Required:
For each of the items below, identify the account(s) that need(s) to be audited carefully and the reason; for example, "potential overstatement or understatement of ."
A) Current year accounts receivable is larger than last year but the allowance for doubtful accounts is the same.
B) Current year inventory is larger than last year but the current year gross margin (profit) is larger.
C) Current year long-term liabilities are larger than last year but the interest expense is the same.
D) Current year fixed assets total is larger than last year but current amortization expense is the same as last year.

Accepted Answer

A) The collectability of accounts receiv...

Question 3

The detailed audit plan guides development of the overall audit strategy.

Accepted Answer

A) True 
 B)False

Question 4

Materiality levels determined at the planning stage are used to decide how much work to do on each financial statement account.

Accepted Answer

A) True 
 B)False

Question 5

The overall audit strategy typically includes:

Accepted Answer

A)  The detailed audit plan.
B)  Specific procedures for determining inherent and control risk.
C)  Decisions about unusual client accounting principles.
D)  Audit evidence gathering procedures.

Question 6

In a typical audit, testing of internal controls occurs:

Accepted Answer

A)  In the planning stage of the audit.
B)  During the interim audit work.
C)  During the yearend audit work.
D)  As a separate engagement.

Question 7

Generally accepted auditing standards require that analytical procedures:

Accepted Answer

A)  Should be applied in the planning and final review stages of the audit and as a substantive test during the audit.
B)  Should be applied in the planning and final review stages of the audit and can be used as a substantive test during the audit.
C)  Should be applied in the planning stage and can be applied as a substantive test and in the final review stage.
D)  Should be applied in the final review stage, and can be applied as a substantive test in the planning stage.

Question 8

Assume that application of analytical procedures revealed significant unexplained differences between recorded amounts and the auditor's expectations.If management is unable to provide an acceptable explanation, the auditor should

Accepted Answer

A)  Consider the matter a scope limitation.
B)  Perform additional audit procedures to investigate the matter further.
C)  Intensify the audit with the expectation of detecting management fraud.
D)  Withdraw from the engagement.

Question 9

The auditor's objective in obtaining an understanding of the client's business and risks is to design audit procedures that will serve as a basis for their report.

Accepted Answer

A) True 
 B)False

Question 10

A completeness error occurs when an account balance is overstated.

Accepted Answer

A) True 
 B)False

Question 11

Audit planning is an ongoing process where information gained as the audit is performed may result in changes to the plan.

Accepted Answer

A) True 
 B)False

Question 12

Auditors' analytical procedures can include review of prior year adjusting entries, conversations with client personnel, and study of the minutes of board of directors' meetings.

Accepted Answer

A) True 
 B)False

Question 13

Analytical procedures consist of evaluating financial information by studying financial
and non -financial data and looking for plausible or implausible relationships.The procedures can range from making simple comparisons to using complex models involving many relationships and elements of data.They can involve time-series comparisons of recorded amounts, ratios developed from recorded amounts and they always include comparison to expectations developed by the auditors.
Required:
A) Describe the broad purposes of analytical procedures.
B) Identify the sources of information from which an auditor develops expectations.

Accepted Answer

A) Analytical procedures are used for these broad purposes.
i.To assist the auditor in planning the nature, timing, and extent of other auditing procedures.ii.As a substantive test to obtain evidence about particular assertions related to account balances or classes of transactions.
iii.As an overall review of the financial information in the final review stage of the audit.B) An auditor's expectations are developed from the following sources of information.
i.Financial information for comparable prior periods giving consideration to known changes.ii.Anticipated results - for example, budgets, forecasts, and extrapolations.
iii.Relationships among elements of financial information within the period.iv.Information regarding the industry in which the client operates.
v.Relationships of financial information with relevant non-financial information.

Question 14

The audit objective specifying that "all recorded assets, liabilities, and transactions represent real assets, liabilities, revenues, and expenses" is related most closely to which assertion(s) ?

Accepted Answer

A)  Existence or occurrence
B)  Rights and obligations
C)  Completeness
D)  Presentation and disclosure

Question 15

Give some examples of cut off errors and explain what management assertions are affected by such errors.

Accepted Answer

An example of a cut off error would be i...

Question 16

During the preliminary analytical review, the auditor discovered that the auditee forecast sales of 10,000 units but only 5,000 were sold.The auditors should consider performing a careful lower-of-cost-or-market valuation of the year-end inventory.

Accepted Answer

A) True 
 B)False

Question 17

If an auditor were to use 5% of income before taxes as a basis for materiality, it would be an example of judgment based on

Accepted Answer

A)  Absolute size.
B)  Relative size.
C)  Nature of the item.
D)  Cumulative effects. B

Question 18

An auditor should assess a client's business risks:

Accepted Answer

A)  Early in the engagement, based on discussion with management.
B)  At the end of the engagement after all evidence has been assembled.
C)  As part of the year end evidence gathering.
D)  Only if the client requests the auditor to do so in the engagement letter.

Question 19

For audits of financial statements made in accordance with generally accepted auditing standards, the use of analytical procedures is required to some extent:

Accepted Answer

A)  As a substantive test and in the final review stage.
B)  As a substantive test but not in the final review stage.
C)  In the final review stage but not as a substantive test.
D)  Neither in the final review stage nor as a substantive test.

Question 20

Which of the following is likely to be found in the minutes of the board of directors?

Accepted Answer

A)  Approval of customer credit limits.
B)  Approval of a new computer for the controller.
C)  Authorization of employee salaries.
D)  Authorization of executive salaries. D

Exam 6: Preliminary Audit Planning: Understanding the Auditee

In the planning stage, analytical procedures are used to

Correct Answer
verified

Correct Answer
verified
A) The collectability of accounts receiv...
View Answer

The detailed audit plan guides development of the overall audit strategy.

Correct Answer
verified

Materiality levels determined at the planning stage are used to decide how much work to do on each financial statement account.

Correct Answer
verified

The overall audit strategy typically includes:

Correct Answer
verified

In a typical audit, testing of internal controls occurs:

Correct Answer
verified

Generally accepted auditing standards require that analytical procedures:

Correct Answer
verified

Assume that application of analytical procedures revealed significant unexplained differences between recorded amounts and the auditor's expectations.If management is unable to provide an acceptable explanation, the auditor should

Correct Answer
verified

The auditor's objective in obtaining an understanding of the client's business and risks is to design audit procedures that will serve as a basis for their report.

Correct Answer
verified

A completeness error occurs when an account balance is overstated.

Correct Answer
verified

Audit planning is an ongoing process where information gained as the audit is performed may result in changes to the plan.

Correct Answer
verified

Auditors' analytical procedures can include review of prior year adjusting entries, conversations with client personnel, and study of the minutes of board of directors' meetings.

Correct Answer
verified

The audit objective specifying that "all recorded assets, liabilities, and transactions represent real assets, liabilities, revenues, and expenses" is related most closely to which assertion(s) ?

Correct Answer
verified

Give some examples of cut off errors and explain what management assertions are affected by such errors.

Correct Answer
verified
An example of a cut off error would be i...
View Answer

During the preliminary analytical review, the auditor discovered that the auditee forecast sales of 10,000 units but only 5,000 were sold.The auditors should consider performing a careful lower-of-cost-or-market valuation of the year-end inventory.

Correct Answer
verified

If an auditor were to use 5% of income before taxes as a basis for materiality, it would be an example of judgment based on

Correct Answer
verified
B

An auditor should assess a client's business risks:

Correct Answer
verified

For audits of financial statements made in accordance with generally accepted auditing standards, the use of analytical procedures is required to some extent:

Correct Answer
verified

Which of the following is likely to be found in the minutes of the board of directors?

Correct Answer
verified
D

Exam 6: Preliminary Audit Planning: Understanding the Auditee

In the planning stage, analytical procedures are used to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA) The collectability of accounts receiv...View AnswerShow Answer

The detailed audit plan guides development of the overall audit strategy.

Correct AnswerverifiedShow Answer

Materiality levels determined at the planning stage are used to decide how much work to do on each financial statement account.

Correct AnswerverifiedShow Answer

The overall audit strategy typically includes:

Correct AnswerverifiedShow Answer

In a typical audit, testing of internal controls occurs:

Correct AnswerverifiedShow Answer

Generally accepted auditing standards require that analytical procedures:

Correct AnswerverifiedShow Answer

Assume that application of analytical procedures revealed significant unexplained differences between recorded amounts and the auditor's expectations.If management is unable to provide an acceptable explanation, the auditor should

Correct AnswerverifiedShow Answer

The auditor's objective in obtaining an understanding of the client's business and risks is to design audit procedures that will serve as a basis for their report.

Correct AnswerverifiedShow Answer

A completeness error occurs when an account balance is overstated.

Correct AnswerverifiedShow Answer

Audit planning is an ongoing process where information gained as the audit is performed may result in changes to the plan.

Correct AnswerverifiedShow Answer

Auditors' analytical procedures can include review of prior year adjusting entries, conversations with client personnel, and study of the minutes of board of directors' meetings.

Correct AnswerverifiedShow Answer

The audit objective specifying that "all recorded assets, liabilities, and transactions represent real assets, liabilities, revenues, and expenses" is related most closely to which assertion(s) ?

Correct AnswerverifiedShow Answer

Give some examples of cut off errors and explain what management assertions are affected by such errors.

Correct AnswerverifiedAn example of a cut off error would be i...View AnswerShow Answer

During the preliminary analytical review, the auditor discovered that the auditee forecast sales of 10,000 units but only 5,000 were sold.The auditors should consider performing a careful lower-of-cost-or-market valuation of the year-end inventory.

Correct AnswerverifiedShow Answer

If an auditor were to use 5% of income before taxes as a basis for materiality, it would be an example of judgment based on

Correct AnswerverifiedB

An auditor should assess a client's business risks:

Correct AnswerverifiedShow Answer

For audits of financial statements made in accordance with generally accepted auditing standards, the use of analytical procedures is required to some extent:

Correct AnswerverifiedShow Answer

Which of the following is likely to be found in the minutes of the board of directors?

Correct AnswerverifiedD

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A) The collectability of accounts receiv...
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Correct Answer
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An example of a cut off error would be i...
View Answer

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B

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D