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Audit Evidence
A. TRUE OR FALSE STATEMENTS Indicate in the space provided whether each of the following statements is true or false. _____ 1. Audit evidence includes corroborating information, but not client records. _____ 2. The third standard of field work requires the auditor to obtain sufficient competent evidence to afford a reasonable basis for an opinion on the financial statements. _____ 3. The nature of audit tests is affected by cost/benefit concerns. _____ 4. An auditor may never test an account balances at a date prior to year end. _____ 5. Assigning staff to audit areas depends on the knowledge, skill and ability of the staff. _____ 6. Validity refers to the existence of a recorded transaction. _____ 7. Testing proper cutoff of transactions is a major part of the rights and obligations assertion. _____ 8. The combination of the clients underlying accounting data and the auditor =s corroborating information comprise evidential matter. _____ 9. Sufficiency of evidence is affected by materiality, risk of misstatement, and size and characteristics of the population. _____10. Externally generated documents are generally more reliable then internally generated documents. _____11. Selecting a recorded sale transaction and then inspecting the supporting sales invoice is an example of tracing.

_____12. Physical evidence provides the auditor with direct personal knowledge of the existence of an asset. _____13. Confirmations are especially useful in verifying existence or occurrence. _____14. Documentary evidence is infrequently used in auditing. _____15. Verbal representations are a form of documentary evidence. _____16. Information obtained by the auditor directly is more reliable than information obtained second hand.

Audit Evidence

_____17. The auditor obtains corroborating information through the application of auditing procedures. _____18. Tracing is an important procedure in obtaining evidence about the existence or occurrence assertion. _____19. Vouching is an important procedure in obtaining evidence about the completeness assertion. _____20. The Sarbanes-Oxley Act requires auditors to retain workpapers for at least five years. _____21. To have a reasonable basis for an opinion on the financial statements, the auditor needs conclusive evidence about each financial statement assertion that is material. _____22. Cross-referencing helps to organize the audit evidence. _____23. Working papers provide the principal support for the auditors report. _____24. A lead schedule summarizes working paper data pertaining to a several accounts combined for reporting purposes. _____25. Custody of working papers rests with the auditor who is responsible for their safekeeping.

B. COMPLETION STATEMENTS Fill in the blanks with the word or words that correctly complete the following statements. 17384.Important decisions about audit evidence are the _______________, ________________, and _________________ of tests and the __________________ of personnel. 17385.Evidence must be both _________________ and ________________ in order to be competent. 17386.Audit procedures may be performed at an _____________ date for certain accounts depending on ________________ and _______________ risk factors. 4. 5. 6. 7. 8. 9. 10. 11. 12. Analytical procedures involve comparing client balances with __________________, or___________________, or ____________________, or ____________________. The two categories of evidential matter are and .

_______________________ documents are more reliable than ____________________ documents or _______________________. The highest level of reliability for documentary evidence is _________________ generated documents obtained directly by the __________________. Notations on workpapers called _______________ provide evidence of audit procedures performed. Mathematical evidence provides the auditor with the of an account balance. Auditing procedures are the the Inspecting involves careful scrutiny of of tangible resources. knowledge about or and

utilized by the auditor during the audit.

_____________________ is a form of inquiry that obtains information directly from _____________________ sources ________________ the client=s organization.

13. To organize workpapers, a system of ________________________ is used. 14. Working papers that summarize several accounts reported together on financial statements are schedules, which are followed by __________________ schedules. 15. Working papers are generally filed under two categories: (a) (b) . and

C. MULTIPLE CHOICE

Audit Evidence

Choose the best answer for each of the following questions and enter the identifying letter in the space provided. _____ 1. In the performing audit tests phase of an audit engagement, the following GAAS apply: a. General standards only. b. Field work standards only. c. General and field work standards. d. General, field work, and reporting standards. _____ 2. Which of these is not a decision made by the auditor in determining what audit evidence to gather? a. The nature of the tests b. The timing of the tests c. The extent of testing d. Staffing of the tests e. All are decisions made _____ 3. Which of these is an example of vouching? a. Recalculating depreciation expense b. Comparing inventory turnover ratio to industry averages c. Comparing recorded purchases to vendor invoices and purchase orders d. Comparing daily purchase totals to postings in the general ledger _____ 4. Which of these is the set of working papers that affect the current year and future audits? a. Current file b. Carryover file c. Permanent file d. Update file _____ 5. Tic-marks are added to workpapers to a. Cross reference audit procedures b. Document audit procedures performed c. Validate workpaper ownership d. Confuse senior level auditors _____ 6. Due professional care requires: a. A critical review of the work done at every level of supervision. b. The examination of all corroborating evidence available. c. The exercise of error-free judgment. d. A study of internal controls that includes tests of controls.

_____ 7. Evidential matter supporting the financial statements consists of the underlying accounting data and all corroborating information available to the auditor. Which of the following is an example of corroborating information? a. Journals. b. General and subsidiary ledgers. c. Accounting manuals. d. Client-prepared worksheets supporting cost allocations among jobs. _____ 8. The strongest criticism of the reliability of audit evidence which the auditor physically observes is that: a. The client may conceal items from the auditor. b. The auditor may not be qualified to evaluate the items he or she is observing. c. Such evidence is too costly in relation to its reliability. d. The observation must occur at a specific time, which is often difficult to arrange. _____ 9. Audit evidence can come in different forms with different degrees of persuasiveness. Which of the following is the least persuasive type of evidence? a. Vendors invoices. b. Bank statement obtained from client. c. Computations made by the auditor. d. Prenumbered client invoices. _____ 10. Which of the following types of documentary evidence should the auditor consider to be the most reliable? a. A sales invoice issued by the client and supported by a delivery receipt from an outside trucker. b. Confirmation of an account-payable balance mailed by and returned directly to the auditor. c. A check issued by the company and bearing the payees endorsement which is included with the bank statement mailed directly to the auditor. d. A working paper prepared by the clients controller and reviewed by the treasurer. _____ 11. To test the completeness assumption about the clients recorded sales, which would be the appropriate direction of testing and terminology? a. Trace recorded sales in the sales register to supporting invoices. b. Vouch recorded sales in the sales register to supporting invoices. c. Trace sales invoices to postings in the sales register. d. Vouch sales invoices to postings in the sales register. _____ 12. Which of the following best describes the primary purpose of gathering audit evidence? a. To detect errors or irregularities. b. To comply with generally accepted accounting principles. c. To gather corroborative information. d. To verify the accuracy of account balances.

_____ 13. The validity of evidential matter is dependent on its relevance and reliability. The situations given below indicate the relative reliability a CPA has placed on two

Audit Evidence

types of evidence obtained in different situations. Which of these is not an appropriate reliability judgment? a. 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 good internal control than at plant B where the CPA has made extensive tests of transactions because of poor internal control. b. The CPA places more reliance on the CPAs computation of interest payable on outstanding bonds than on the amount confirmed by the trustee. c. The CPA places more reliance on the clients report from an expert on an inventory of precious gems than on the CPAs physical observation of the gems. d. The CPA places more reliance on a schedule of insurance coverage obtained from the companys insurance agent rather than one prepared by the internal audit staff. _____ 14. The sufficiency and competency of evidential matter ultimately is based on the: a. Availability of corroborating data. b. Generally accepted auditing standards. c. Pertinence of the evidence. d. Judgment of the auditor. _____ 15. Preliminary audit programs a. document the final audit procedures performed b. document the planned audit procedures c. are verified using computer assisted audit techniques d. are software developed by the CPA to test client files _____ 16. An auditor ordinarily uses a working trial balance resembling the financial statements without footnotes, but containing columns for: a. Reclassifications and adjustments. b. Reconciliations and tickmarks. c. Accruals and deferrals. d. Expense and revenue summaries. _____ 17. The current file of an auditors working papers most likely would include a copy of the: a. Bank reconciliation. b. Pension plan contract. c. Articles of incorporation. d. Flowchart of the internal control procedures.

_____ 18. The auditor designs audit procedures to obtain evidence about whether all sales transactions are recorded in the proper time period. The specific management assertion to which this relates is: a. Existence or occurrence. b. Rights and obligations. c. Valuation or allocation. d. Cutoff. _____ 19. Which of these is true about the competence of audit evidence? a. The auditors direct personal knowledge obtained through observation and inspection is more competent than evidence obtained indirectly from outside sources. b. To be competent, evidence must be either reliable or relevant. c. Accounting data alone may be considered sufficient competent evidence. d. Competence refers to the amount of information collected. _____ 20. Working papers are used to record the results of the auditors evidence-gathering procedures. When preparing working papers the auditor should remember that a. Working papers should be kept on the clients premises so that the client can have access to them for reference purposes. b. Working papers should be the primary support for the financial statements being examined. c. Working papers should be considered as a substitute for the clients accounting records. d. Working papers should be designed to meet the circumstances and the auditors needs on each engagement.