Activity 4

Multiple Choice.

1. Which statement is incorrect regarding audit evidence?

a. Audit evidence is all the information used by the auditor in arriving at the conclusions on
which the audit opinion is based.
b. Audit evidence includes the information contained in the accounting records underlying the
financial statements and other information.
c. Audit evidence is cumulative in nature.
d. Auditors are expected to address all information that may exist.

2. Accounting records least likely include

a. The records of initial entries and supporting records.
b. The general and subsidiary ledgers.
c. Work sheets and spreadsheets supporting cost allocations.
d. Comparable data about competitors (benchmarking).

3. Other information that the auditor may use as audit evidence least likely includes
a. Minutes of meetings.
b. Confirmations from third parties.
c. Information obtained by the auditor from such audit procedures as inquiry, observation, and
inspection.
d. Adjustments to the financial statements that are not reflected in formal journal entries.

4. Which statement is correct regarding the sufficiency and appropriateness of audit evidence?
a. Sufficiency is the measure of the quality of audit evidence.
b. Appropriateness is the measure of the quantity of audit evidence; that is, its relevance and its
reliability in providing support for, or detecting misstatements in, the classes of transactions,
account balances, and disclosures and related assertions.
c. The quantity of audit evidence needed is affected by the risk of misstatement (the greater the
risk, the more audit evidence is likely to be required) and also by the quality of such audit
evidence (the higher the quality, the less may be required).
d. Merely obtaining more audit evidence may compensate for its poor quality.

5. Which of the following statements is incorrect regarding relevance of audit evidence?

a. A given set of audit procedures may provide audit evidence that is relevant to certain
assertions, but not others.
b. The auditor often obtains audit evidence from different sources or of a different nature that is
relevant to the same assertion.
c. Obtaining audit evidence relating to a particular assertion is a substitute for obtaining audit
evidence regarding another assertion.
d. None of the above.

6. Which of the following generalizations in assessing the reliability of audit evidence is

incorrect?
a. Audit evidence is more reliable when it is obtained from independent sources outside the
entity.
b. Audit evidence that is generated internally is not affected by the effectiveness of the controls
imposed by the entity.
c. Audit evidence obtained directly by the auditor is more reliable than audit evidence obtained
indirectly or by inference.
d. Audit evidence is more reliable when it exists in documentary form.

7. Which statement is incorrect regarding audit evidence?

a. The auditor should obtain sufficient appropriate audit evidence to be able to draw reasonable
conclusions on which to base the audit opinion.
b. Accounting records alone do not provide sufficient audit evidence.
c. The auditor uses professional judgment and exercises professional skepticism in evaluating the
quantity and quality of audit evidence, and thus its sufficiency and appropriateness, to support
the audit opinion.
d. The matter of difficulty or expense involved is a valid basis for omitting an audit procedure for
which there is no alternative.

8. The auditor uses assertions in assessing risks by considering the different types of potential
misstatements that may occur, and thereby designing audit procedures that are responsive to the
assessed risks. Assertions used by the auditor fall into the following categories:
I. Assertions about classes of transactions and events for the period under audit.
II. Assertions about account balances at the period end.
III. Assertions about presentation and disclosure.

a. I, II and III
b. I and II only
c. II and III only
d. II only

9. Assertions about classes of transactions and events for the period under audit least likely
include
a. Transactions and events that have been recorded have occurred and pertain to the entity.
b. All transactions and events that should have been recorded have been recorded.
c. Transactions and events have been recorded in the correct accounting period.
d. All assets, liabilities and equity interests that should have been recorded have been recorded.

10. Assertion about account balances at period end which means assets, liabilities, and equity
interests are included in the financial statements at appropriate amounts is
a. Existence c. Completeness
b. Rights and obligations d. Valuation and allocation

11. Accuracy and valuation assertions about presentation and disclosure means
a. Disclosed events, transactions, and other matters have occurred and pertain to the entity.
b. All disclosures that should have been included in the financial statements have been included.
c. Financial information is appropriately presented and described, and disclosures are clearly
expressed.
d. Financial and other information are disclosed fairly and at appropriate amounts.

12. The auditor obtains audit evidence to draw reasonable conclusions on which to base the audit
opinion by performing audit procedures to:
a. Obtain an understanding of the entity and its environment, including its internal control, to
assess the risks of material misstatement at the financial statement and assertion levels.
b. Test the operating effectiveness of controls in preventing, or detecting and correcting, material
misstatements at the assertion level.
c. Detect material misstatements at the assertion level.
d. All of the above.

13. The auditor is not always required to perform

a. Risk assessment procedures. c. Substantive procedures.
b. Test of controls. d. Both a and c

14. Tests of controls are necessary

a. When the auditor’s risk assessment includes an expectation of the operating effectiveness of
controls.
b. When substantive procedures alone provide sufficient appropriate audit evidence.
c. When risk assessment procedures by themselves do not provide sufficient appropriate audit
evidence.
d. Under no circumstances.

15. Which statement is incorrect regarding Inspection as an audit procedure?

a. Inspection consists of examining records or documents or physical examination of assets.
b. Inspection of tangible assets may provide reliable audit evidence with respect to their
existence and about the entity’s rights and obligations on the assets.
c. Inspection of individual inventory items ordinarily accompanies the observation of inventory
counting.
d. Some documents represent direct audit evidence of the existence of an asset.

16. Which of the following audit procedures is used extensively throughout the audit and often is
complementary to performing other audit procedures?
a. Inspection
b. Observation
c. Inquiry
d. Confirmation

17. Which statement is incorrect regarding Inquiry?

a. Responses to inquiries may provide the auditor with information not previously possessed or
with corroborative audit evidence.
b. Responses to inquiries might provide information that differs significantly from other
information that the auditor has obtained.
c. Responses to inquiries may provide a basis for the auditor to modify or perform additional
audit procedures.
d. Inquiry alone is sufficient to test the operating effectiveness of controls.

18. Observation
a. Consists of looking at a process or procedure being performed by others.
b. Consists of seeking information of knowledgeable persons, both financial and non-financial,
throughout the entity or outside the entity.
c. Is the process of obtaining a representation of information or of an existing condition directly
from a third party.
d. Is the auditor’s independent execution of procedures or controls that were originally
performed as part of the entity’s internal control.

19. This consists of checking the mathematical accuracy of documents or records.

a. Reperformance
b. Recalculation
c. Confirmation
d. Inspection

20. Which of the following is a false statement about audit objectives?

a. Audit objectives should be developed in light of management assertions about the financial
statement components.
b. Selection of tests to meet audit objectives should depend upon the understanding of internal
control.
c. The auditor should resolve any substantial doubt about any of management’s material financial
statement assertions
d. There should be a one-to-one relationship between audit objectives and procedures.

21. Which of the following is the best explanation of the difference, if any, between
auditobjectives
and audit procedures?
a. Audit procedures establish broad general goals, audit objectives specify the detailed work to
be performed.
b. Audit objectives are tailor-made for each assignment, audit procedures are generic in
application.
c. Audit objectives define specific desired accomplishments; audit procedures provide the means
of achieving audit objectives.
d. Audit procedures and audit objectives are essentially the same.

22. Walastik, Inc. has significant information that is transmitted, processed, maintained, and
accessed electronically. The auditor has concluded that it is not possible to reduce detection
risk to an acceptable level by performing only substantive tests for a number of financial
statement assertions. The auditor’s alternative strategy is to
a. Increase the acceptable audit risk.
b. Focus audit tests on other assertions for which substantive tests prove to be effective.
c. Require management to change its information system to provide appropriate evidence.
d. Perform tests of controls to gather evidential matter to use in assessing control risk related to
those assertions.

23. The competence of evidence available to an auditor is least likely to be affected by

a. The relevance of such evidence to the financial statement assertion being investigated.
b. The relationship of the preparer of such evidence to the entity being audited.
c. The timeliness of such audit evidence.
d. The sampling method employed by the auditor to obtain a sample of such evidence.

24. Which of the following procedures would provide the most reliable audit evidence?
a. Inquiries of the client’s internal audit staff held in private.
b. Inspection of prenumbered client purchase orders filed in the vouchers payable department.
c. Analytical procedures performed by the auditor on the entity’s trial balance.
d. Inspection of bank statements obtained directly form the client’s financial institution.

25. The most reliable form of documentary evidence are those documents that are
a. Prenumbered c. Easily duplicated
b. Internally generated d. Authorized by a responsible official