QUIZ 1 - AT MIDTERM

When reviewing audit working papers, the preliminary responsibility of an audit supervisor is to determine that

 

• Each worksheet is properly identified with a descriptive heading.

• Working papers are properly referenced and kept in logical groupings.

• Standard departmental procedures are adhered to with regard to working paper preparation and technique.

• Working papers adequately support the audit findings, conclusions, and report.

A difference of opinion concerning accounting and auditing matters relative to a particular phase of the audit arises between an assistant auditor who is and the senior auditor responsible for the engagement. After appropriate consultation, the assistant auditor asks to be disassociated from the resolution of the matter. The working papers would probably be

• Silent on the matter because it is an internal matter for the auditing firm.

• Expanded to document that the assistant auditor is completely disassociated from responsibility for the auditor’s opinion

• Expanded to document the additional work required because all disagreements of this type will require further substantive testing

• Expanded to document the assistant auditor’s position and the manner in which the difference of opinion and the manner in which the difference of opinion was resolved

During the course of an audit engagement, an auditor prepares and accumulates audit working papers. The primary purpose of audit working papers is to

• Aid the auditor in adequately planning his work

• Serve as a reference for future audit engagements

• Support the underlying concepts included in the preparation of the basic financial statements

• Support the auditor’s opinion

Documentation may not be deleted from the working papers after the

• Audit report delivery date

• Date of the audit report

• Completion of the assembly of the final audit file

• Final day of fieldwork

The reason why the auditors accumulate evidence is to

• Defend themselves in the event of a lawsuit.

• Justify the conclusions they have otherwise reached.

• Satisfy the requirements of the BIR.

• Enable them to reach conclusions about the fairness of the financial statements and issue an appropriate audit report.

To be competent, evidence must be all of the following except

• Sufficient

• Reliable

• Relevant

• Unbiased

Which of the following is not one of the determinants of the persuasiveness of evidence?

•     Competence

• Physical examination

• Relevance

• Sufficiency

Which of the following presumptions does not relate to the competence of audit evidence?

• The more effective the internal control is, the more assurance it provides about the accounting data and financial statements.

• An auditor’s opinion, to be economically useful, is formed within a reasonable time and based on evidence obtained at a reasonable cost.

• Evidence obtained from independent sources outside the entity is more reliable than evidence secured solely within the entity.

• The independent auditor’ direct personal knowledge, obtained through observation and inspection, is more persuasive than information obtained indirectly.

1.    Which of the following statements relating to the competence of evidential matter is always true?

• Evidential matter gathered by an auditor form outside an enterprise is reliable.

• Accounting data developed under satisfactory conditions of internal control are more relevant than data developed under unsatisfactory conditions.

• Oral representations made by management are not valid.

•   Evidence gathered by auditors must be both valid and relevant to be considered competent.

Although the validity of evidential matter is dependent on the circumstances under the which it is obtained, there are three general presumptions that have some usefulness. The situations given below indicate the relative reliability that a CPA has placed on two types of evidence obtained in different situations. Which of these is an exception to one of the general presumptions?

• The CPA places more reliance on the balance in the scrap sales account at Plant A, where the CPA has made limited tests of transactions because of effective controls, than at Plant B, where the CPA has made extensive tests of transactions because of ineffective controls.

• The CPA places more reliance on the CPAs computation of interest payable on outstanding bonds than on the amount confirmed by the trustee.

• The CPA places more reliance on the report of an expert on an inventory of precious gems than on the CPA’s physical observation of the gems.

• The CPA places more reliance on a schedule of insurance coverage obtained from the company’s insurance agents than on one prepared by the internal audit staff.