Auditing Chapter 7
Quiz based on Auditing and Assurance Services 14e by Arens
- 1.Which of the following forms of evidence is most reliable?
- A.
General ledger account balances.
- B.
Confirmation of accounts receivable balance received from a customer.
- C.
Internal memo explaining the issuance of a credit memo.
- D.
Copy of month-end adjusting entries.
- 2.Which of the following is not a characteristic of the reliability of evidence?
- A.
Effectiveness of client internal controls.
- B.
Education of auditor.
- C.
Independence of information provider.
- D.
Timeliness.
- 3.Which of the following is not a characteristic of the reliability of evidence?
- A.
Qualification of individual providing information.
- B.
Auditor’s direct knowledge.
- C.
Degree of subjectivity.
- D.
Degree of objectivity.
- 4.Audit evidence obtained directly by the auditor will not be reliable if:
- A.
The auditor lacks the qualifications to evaluate the evidence.
- B.
It is provided by the client’s attorney.
- C.
The client denies its veracity.
- D.
The client denies its veracity.
- 5.Appropriateness of evidence is a measure of the:
- A.
Quantity of evidence.
- B.
Quality of evidence.
- C.
Sufficiency of evidence.
- D.
Meaning of evidence.
- 6.Calculating the gross margin as a percent of sales and comparing it with previous periods is what type of evidence?
- A.
Physical examination.
- B.
Analytical procedures.
- C.
Observation.
- D.
Inquiry
- 7.Auditors must make decisions regarding what evidence to gather and how much to accumulate. Which of the following is a decision that must be made by auditors related to evidence? Sample size Timing of audit procedures
- A.
Yes Yes
- B.
No No
- C.
Yes No
- D.
No Yes
- 8.Which of the following statements regarding the relevance of evidence is correct?
- A.
To be relevant, evidence must pertain to the audit objective of the evidence.
- B.
To be relevant, evidence must be persuasive.
- C.
To be relevant, evidence must relate to multiple audit objectives.
- D.
To be relevant, evidence must be derived from a system including effective internal controls.
- 9.Two determinants of the persuasiveness of evidence are:
- A.
Competence and sufficiency.
- B.
Relevance and reliability.
- C.
Appropriateness and sufficiency.
- D.
Independence and effectiveness.
- 10.Three common types of confirmations used by auditors are (1) negative confirmations, (2) blank form positive confirmations, and (3) positive confirmations with information included. Place the confirmations in order of reliability from highest to lowest.
- A.
1, 2, 3.
- B.
3, 2, 1.
- C.
2, 3, 1.
- D.
3, 1, 2.
- 11.When auditors use documents to support recorded transactions, the process is often called:
- A.
Inquiry
- B.
Confirmation
- C.
Vouching
- D.
Physical examination.
- 12.An example of an external document is:
- A.
Employees’ time reports.
- B.
Bank statements.
- C.
Purchase order for company purchases.
- D.
Carbon copies of checks.
- 13.An example of a document the auditor receives from the client, but which was prepared by someone outside the client’s organization, is a(n):
- A.
Confirmation
- B.
Sales invoice.
- C.
Vendor invoice.
- D.
Bank reconciliation.
- 14.“Evaluations of financial information made by a study of plausible relationships among financial and nonfinancial data involving comparisons of recorded amounts to expectations developed by the auditor” is a definition of:
- A.
Analytical procedures.
- B.
Tests of transactions.
- C.
Tests of balances.
- D.
Auditing
- 15.Often, auditor procedures result in significant differences being discovered by the auditor. The auditor should investigate further if: Significant differences are not expected but do exist Significant differences are expected but do not exist
- A.
Yes No No Yes Yes No No Yes Yes No No Yes Yes Yes
- B.
No No
- C.
Yes No
- D.
No Yes
- 16.Which of the following is not a purpose of analytical procedures?
- A.
Understand the client’s industry.
- B.
Assess the client’s ability to continue as a going concern.
- C.
Evaluate internal controls.
- D.
Reduce detailed audit tests.
- 17.Which of the following statements is not true? “The evidence-gathering technique of inquiry:
- A.
Cannot be regarded as conclusive.”
- B.
Requires the gathering of corroborative evidence.”
- C.
Is the auditor’s principal method of evaluating the client’s internal control.”
- D.
Does not provide evidence from an independent source.”
- 18.Which of the following forms of evidence would be least persuasive in forming the auditor’s opinion?
- A.
Which of the following forms of evidence would be least persuasive in forming the auditor’s opinion?
- B.
Correspondence with a stockbroker regarding the quantity of client’s investments held in street name by the broker.
- C.
Minutes of the board of directors authorizing the purchase of stock as an investment.
- D.
The auditor’s count of marketable securities.
- 19.Analytical procedures must be used during which phase(s) of the audit? Test of Controls Planning Completion
- A.
Yes Yes Yes
- B.
No Yes Yes
- C.
Yes No No
- D.
No No No
- 20.Which of the following statements is not correct?
- A.
It is possible to vary the sample size from one unit to 100% of the items in the population.
- B.
It is possible to vary the sample size from one unit to 100% of the items in the population.
- C.
The decision of how many items to test must be made by the auditor for each audit procedure.
- D.
The sample size for any given procedure is likely to vary from audit to audit.
- 21.Auditors will replace tests of details with analytical procedures when possible because the:
- A.
Analytical procedures are more reliable.
- B.
Tests of details are more expensive.
- C.
Analytical procedures are more persuasive.
- D.
Tests of details are more difficult to interpret.
- 22.Which of the following statements is not correct?
- A.
Persuasiveness of evidence is partially determined by the reliability of evidence.
- B.
The quantity of evidence obtained determines its sufficiency.
- C.
The auditor need not consider the independence of an information source when obtaining evidence.
- D.
Evidence obtained directly by the auditor is ordinarily more reliable than evidence obtained from other sources.
- 23.Which of the following is the most objective type of evidence?
- A.
A letter written by the client’s attorney discussing the likely outcome of outstanding lawsuits.
- B.
The physical count of securities and cash.
- C.
Inquiries of the credit manager about the collectability of noncurrent accounts receivable.
- D.
Observation of cobwebs on some inventory bins.
- 24.Which of the following statements regarding documentation is not correct?
- A.
Documentation includes examining client records such as general ledgers and supporting journals.
- B.
Internal documents are documents that are generated within the company and used to communicate with external parties
- C.
External documents are documents that are generated outside of the company and are used to communicate the results of a transaction.
- D.
External documents are considered more reliable than internal documents.
- 25.When 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:
- A.
No matter the cost involved in obtaining such evidence.
- B.
At any cost because the costs are billed to the client.
- C.
At the lowest possible total cost.
- D.
At the cost suggested in the engagement letter.
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