Audit Evidence and Audit Program

The permanent file section of the working papers that is

kept for each audit client most likely contains

• Review notes pertaining to questions and comments

  regarding the audit work performed

• A schedule of time spent on the engagement by each

  individual auditor

• Correspondence with the client's legal counsel

  concerning pending litigation

• Narrative descriptions of the client's internal control

  policies and procedures

Of the following procedures, which is not considered part of

“obtaining an understanding of the client’s environment?”

• Examining trade publications to gain a better

  understanding of the client's industry.

• Confirming customer accounts receivable for existence

  and valuation.

• Touring the client's manufacturing and warehousing

  facilities to gain a clearer understanding of

  operations

• Studying the internal controls over cash receipts and

  disbursements.

If working papers are to have the characteristics that will

ensure that they achieve their primary purposes, which of

the following is the most important?

• Working papers must be of standard format and standard

  content.

• Working papers must be properly indexed and cross-

  referenced to the draft audit report.

• Working papers must provide sufficient, competent, and

  useful information to support the audit report.

• Working papers must be arranged in logical order

  following the audit program sequence.

Which of the following is not an example of analytical

evidence?

• Compared inventory turnover by major class with the

  prior year on a monthly and quarterly basis.

• Compared gross profit percentages by major product

  classes with the prior year.

• Examined invoices for plant asset additions to

  determine whether the client had erroneously recorded

  ordinary repairs as plant assets

• Examined monthly performance reports and investigated

  significant variations from budgeted amounts

Choose the best illustration of objective audit evidence

from the following

• The paid invoice file containing invoices matched with

  receiving reports and purchase orders.

• Management's assertion that payment procedures require

  matching of invoice with receiving report and purchase

  order.

• Clerical staff assurances that management policy

  regarding payment of invoices--matching of invoice with

  receiving report and purchase order--is always

  followed.

• The treasurer's statement of not remembering any

  exceptions in which an invoice was submitted for

  payment that was not accompanied by a matching

  receiving report and purchase order

An initial (first-time) audit requires more audit time to

complete than a recurring audit. One of the reasons for

this is that

• New auditors are usually assigned to an initial audit.

• Predecessor auditors need to be consulted

• The client's business, industry, and internal control

  are unfamiliar to the auditor and need to be carefully

  studied

• A larger proportion of customer accounts receivable

  need to be confirmed on an initial audit

Which of the following is a basic tool used by the auditor

to control the audit work and review the progress of the

audit?

• Time and expense summary

• Engagement letter

• Progress flowchart.

• Audit program

An auditor wants to develop an audit test to evaluate the

reasonableness of the quantity of scrap material resulting

from a certain production process compared to industry

standards. Which would be the most competent type of

evidence available to satisfy this objective?

• Documentary

• Hearsay

• Physical.

• Analytical.

As part of audit planning, CPAs should design audit programs

for each individual audit and should include audit steps and

procedures to

• Detect and eliminate fraud.

• Increase the amount of management information

  available

• Provide assurances that the objectives of the audit are

  met.

• Ensure that only material items are audited

Of the following audit procedures, which best supports the

valuation objective

• Performing a lower of cost or market test of the

  client's inventorie

• Reviewing a contingent liability footnote for proper

  wording

• Searching for unrecorded liabilities

• Observing the client's year-end physical inventory

  taking