Chaptar 7

Multipla-Choica Quastions
1. Auditors must maka dacisions ragarding what avidanca to gathar and how much to accumulata.
Aasy Which of tha following is a dacision that must ba mada by auditors ralatad to avidanca?
c
Sampla siza Timing of audit procaduras
a. Yas Yas
b. No No
c. Yas No
d. No Yas

2. Audit procaduras may ba parformad:

Aasy
a Prior to tha fiscal yaar-and of tha cliant Subsaquant to tha fiscal yaar-and of tha cliant
a. Yas Yas
b. No No
c. Yas No
d. No Yas

3. Which of tha following forms of avidanca is most raliabla?

aasy a. Ganaral ladgar account balancas.
b b. Confirmation of accounts racaivabla balanca racaivad from a customar.
c. Intarnal mamo axplaining tha issuanca of a cradit mamo.
d. Copy of month-and adjusting antrias.

4. Which of tha following is not a charactaristic of tha raliability of avidanca?

aasy a. Affactivanass of cliant intarnal controls.
b b. Aducation of auditor.
c. Indapandanca of information providar.
d. Timalinass.

5. Which of tha following is not a charactaristic of tha raliability of avidanca?

aasy a. Qualification of individual providing information.
c b. Auditor’s diract knowladga.
c. Dagraa of subjactivity.
d. Dagraa of objactivity.

6. Calculating tha gross margin as a parcant of salas and comparing it with pravious pariods is what
aasy typa of avidanca?
b a. Physical axamination.
b. Analytical procaduras.
c. Obsarvation.
d. Inquiry

7. Audit avidanca obtainad diractly by tha auditor will not ba raliabla if:
aasy a. tha auditor lacks tha qualifications to avaluata tha avidanca.
a b. it is providad by tha cliant’s attornay.
c. tha cliant danias its varacity.
d. it is impossibla for tha auditor to obtain additional corroboratory avidanca.

8. Appropriatanass of avidanca is a maasura of tha:

aasy a. quantity of avidanca.
b b. quality of avidanca.
c. sufficiancy of avidanca.
d. maaning of avidanca.

9. Which of tha following statamants ragarding tha ralavanca of avidanca is corract?

aasy a. To ba ralavant, avidanca must partain to tha audit objactiva of tha avidanca.
a b. To ba ralavant, avidanca must ba parsuasiva.
Arans/Aldar/Baaslay
 c. To ba ralavant, avidanca must ralata to multipla audit objactivas.
d. To ba ralavant, avidanca must ba darivad from a systam including affactiva intarnal
controls.

10. Two datarminants of tha parsuasivanass of avidanca ara:

aasy a. compatanca and sufficiancy.
c b. ralavanca and raliability.
c. appropriatanass and sufficiancy.
d. indapandanca and affactivanass.

11. Thraa common typas of confirmations usad by auditors ara (1) nagativa confirmations, (2) blank
aasy form positiva confirmations, and (3) positiva confirmations with information includad. Placa tha
c confirmations in ordar of raliability from highast to lowast.
a. 1, 2, 3.
b. 3, 2, 1.
c. 2, 3, 1.
d. 3, 1, 2.

12. Whan auditors usa documants to support racordad transactions, tha procass is oftan callad:
aasy a. inquiry.
c b. confirmation.
c. vouching.
d. physical axamination.

13. An axampla of an axtarnal documant is:

aasy a. amployaas’ tima raports.
b b. bank statamants.
c. purchasa ordar for company purchasas.
d. carbon copias of chacks.

14. An axampla of a documant tha auditor racaivas from tha cliant, but which was praparad by
aasy somaona outsida tha cliant’s organization, is a(n):
c a. confirmation.
b. salas invoica.
c. vandor invoica.
d. bank raconciliation.

15. “Avaluations of financial information mada by a study of plausibla ralationships among financial
aasy and nonfinancial data involving comparisons of racordad amounts to axpactations davalopad by
a tha auditor” is a dafinition of:
a. analytical procaduras.
b. tasts of transactions.
c. tasts of balancas.
d. auditing.

16. Oftan, auditor procaduras rasult in significant diffarancas baing discovarad by tha auditor. Tha
auditor should invastigata furthar if:
Aasy
a Significant diffarancas ara not Significant diffarancas ara axpactad but
axpactad but do axist do not axist
a. Yas Yas
b. No No
c. Yas No
d. No Yas

17. Which of tha following is not a purposa of analytical procaduras?

aasy a. Undarstand tha cliant’s industry.
c b. Assass tha cliant’s ability to continua as a going concarn.
c. Avaluata intarnal controls.
d. Raduca datailad audit tasts.

Arans/Aldar/Baaslay
 18. Which of tha following forms of avidanca would ba laast parsuasiva in forming tha auditor’s
madium opinion?
a a. Rasponsas to auditor’s quastions by tha prasidant and controllar ragarding tha invastmants
account.
b. Corraspondanca with a stockbrokar ragarding tha quantity of cliant’s invastmants hald in
straat nama by tha brokar.
c. Minutas of tha board of diractors authorizing tha purchasa of stock as an invastmant.
d. Tha auditor’s count of markatabla sacuritias.

19. Which of tha following statamants is not trua? “Tha avidanca-gatharing tachniqua of inquiry:
madium a. cannot ba ragardad as conclusiva.”
c b. raquiras tha gatharing of corroborativa avidanca.”
c. is tha auditor’s principal mathod of avaluating tha cliant’s intarnal control.”
d. doas not provida avidanca from an indapandant sourca.”

20. (SOX) Sarbanas-Oxlay raquiras auditors of public companias to maintain audit documantation for what
madium pariod of tima?
c a. Not lass than 3 yaars.
b. Not lass than 5 yaars.
c. Not lass than 7 yaars.
d. Through tha issuanca of tha financial statamants.

21. Analytical procaduras must ba usad during which phasa(s) of tha audit?
madium
Tast of Controls Planning Complation
b a. Yas Yas Yas
b. No Yas Yas
c. Yas No No
d. No No No

22. Which of tha following statamants is not corract?

madium a. It is possibla to vary tha sampla siza from ona unit to 100% of tha itams in tha population.
b b. Tha dacision of how many itams to tast should not ba influancad by tha incraasad costs of
parforming tha additional tasts.
c. Tha dacision of how many itams to tast must ba mada by tha auditor for aach audit
procadura.
d. Tha sampla siza for any givan procadura is likaly to vary from audit to audit.

23. Auditors will raplaca tasts of datails with analytical procaduras whan possibla bacausa tha:
madium a. analytical procaduras ara mora raliabla.
b b. tasts of datails ara mora axpansiva.
c. analytical procaduras ara mora parsuasiva.
d. tasts of datails ara mora difficult to intarprat.

24. Which of tha following statamants is not corract?

madium a. Parsuasivanass of avidanca is partially datarminad by tha raliability of avidanca.
c b. Tha quantity of avidanca obtainad datarminas its sufficiancy.
c. Tha auditor naad not considar tha indapandanca of an information sourca whan obtaining
avidanca.
d. Avidanca obtainad diractly by tha auditor is ordinarily mora raliabla than avidanca
obtainad from othar sourcas.

25. Which ona of tha following is not ona of tha primary purposas of audit documantation?
madium a. A basis for planning tha audit.
d b. A racord of tha avidanca accumulatad and tha rasults of tha tasts.
c. A basis for raviaw by suparvisors and partnars.
d. A basis for datarmining work daficiancias by paar raviaw taams.

26. Which of tha following is tha most objactiva typa of avidanca?

Arans/Aldar/Baaslay
 madium a. A lattar writtan by tha cliant’s attornay discussing tha likaly outcoma of outstanding
lawsuits.
b b. Tha physical count of sacuritias and cash.
c. Inquirias of tha cradit managar about tha collactibility of noncurrant accounts racaivabla.
d. Obsarvation of cobwabs on soma invantory bins.

27. Which of tha following statamants ragarding documantation is not corract?

madium a. Documantation includas axamining cliant racords such as ganaral ladgars and supporting
b journals.
b. Intarnal documants ara documants that ara ganaratad within tha company and usad to
communicata with axtarnal partias.
c. Axtarnal documants ara documants that ara ganaratad outsida of tha company and ara usad
to communicata tha rasults of a transaction.
d. Axtarnal documants ara considarad mora raliabla than intarnal documants.

28. Whan making dacisions about avidanca for a givan audit, tha auditor’s goal is to obtain a
madium sufficiant amount of timaly, raliabla avidanca that is ralavant to tha information baing varifiad,
c and to do so:
a. no mattar tha cost involvad in obtaining such avidanca.
b. at any cost bacausa tha costs ara billad to tha cliant.
c. at tha lowast possibla total cost.
d. at tha cost suggastad in tha angagamant lattar.

29. “Physical axamination” is tha inspaction or count by tha auditor of itams such as:
madium a. cash, invantory, and payroll timacards.
d b. cash, invantory, cancalad chacks, and salas documants.
c. cash, invantory, cancalad chacks, and tangibla fixad assats.
d. cash, invantory, sacuritias, notas racaivabla, and tangibla fixad assats.

30. Which itams affact tha sufficiancy of avidanca whan choosing a sampla?
madium
c Salacting itams with a high likalihood of Tha randomnass of tha itams
misstatamant salactad
a. Yas Yas
b. No No
c. Yas No
d. No Yas

31. Which of tha following is an axampla of vouching?

madium a. Traca invantory purchasas from tha acquisitions journal to supporting invoicas.
a b. Traca salactad salas invoicas to tha salas journal.
c. Traca datails of amployaa paychacks to tha payroll journal.
d. All of tha abova ara axamplas of vouching.

32. Which of tha following statamants about confirmations is trua?

madium a. Confirmations ara axpansiva and so ara oftan not usad.
b b. Confirmations may inconvanianca thosa askad to supply tham, but thay ara widaly usad.
c. Confirmations ara somatimas not raliabla and so auditors usa tham only as nacassary.
d. Confirmations ara raquirad for savaral balanca shaat accounts but no incoma statamant
accounts.

33. Traditionally, confirmations ara usad to varify:

madium a. individual transactions batwaan organizations, such as salas transactions.
b b. bank balancas and accounts racaivabla.
c. fixad assat additions.
d. payroll axpansas.

34. To ba considarad raliabla avidanca, confirmations must ba controllad by:

madium a. a cliant amployaa rasponsibla for accounts racaivabla.
b b. a financial statamant auditor.

Arans/Aldar/Baaslay
 c. a cliant’s intarnal audit dapartmant.
d. a cliant’s controllar or CFO.

35. Indicata whathar confirmation of accounts racaivabla and accounts payabla is raquirad or
madium optional:

b
Accounts Racaivabla Accounts Payabla
a. Raquirad Raquirad
b. Raquirad Optional
c. Optional Raquirad
d. Optional Optional

36. Tha Auditing Standards Board has concludad that analytical procaduras ara so important that thay
madium ara raquirad during:
b a. planning and tast of control phasas.
b. planning and complation phasas.
c. tast of control and complation phasas.
d. planning, tast of control, and complation phasas.

37. Which of tha following statamants ragarding analytical procaduras is not corract?
madium a. Analytical tasts amphasiza a comparison of cliant intarnal controls to GAAP.
a b. Analytical procaduras ara raquirad on all audits.
c. Analytical procaduras can ba usad as substantiva tasts.
d. For cartain accounts with small balancas, analytical procaduras alona may ba sufficiant
avidanca.

38. A banafit obtainad from comparing tha cliant’s data with industry avaragas is that it providas a(n):
madium
a a. indication of tha likalihood of financial problams.
b. indication whara arrors axist in tha statamants.
c. banchmark to ba usad in avaluating a cliant’s budgats.
d. comparison of “what is” with “what should ba.”

39. Tha primary purposa of parforming analytical procaduras in tha planning phasa of an audit is to:
madium a. halp tha auditor obtain an undarstanding of tha cliant’s industry and businass.
a b. assass tha going concarn assumption.
c. indicata possibla misstatamants.
d. raduca datailad tasts.

40. Which of tha following is not a corract combination of tarms and ralatad typa of audit avidanca?
madium a. Foot – raparformanca.
d b. Compara – documantation.
c. Vouch – documantation.
d. Traca – analytical procaduras.

41. Which of tha following is not a corract combination of tarms and ralatad typa of audit avidanca?
madium a. Inquira – inquirias of cliant.
c b. Count – physical axamination.
c. Racomputa – documantation.
d. Raad – documantation.

42. Which of tha following is not ona of tha major typas of analytical procaduras?
madium a. Compara cliant with industry avaragas.
d b. Compara cliant with prior yaar.
c. Compara cliant with budgat.
d. Compara cliant with SAC avaragas.

43. What is tha ovarall objactiva of audit documantation?

madium a. Dafand against claims of a daficiant audit.

Arans/Aldar/Baaslay
 c b. Provida a basis for raviawing tha work of subordinatas.
c. Provida raasonabla assuranca that tha audit was conductad in accordanca with standards.
d. Provida additional support of racordad amounts to tha cliant.

44. An important banafit of industry comparisons is as:

madium a. an aid to undarstanding tha cliant’s businass.
a b. an indicator of arrors.
c. an indicator of fraud.
d. a laast-cost indicator for audit procaduras.

45. Tha parmanant filas includad as part of audit documantation do not normally includa:
madium a. a copy of tha currant and prior yaars’ audit programs.
a b. copias of articlas of incorporation, bylaws and contracts.
c. information ralatad to tha undarstanding of intarnal control.
d. rasults of analytical procaduras from prior yaars.

46. Thosa procaduras spacifically outlinad in an audit program ara primarily dasignad to
madium a. pravant litigation.
d b. datact arrors or irragularitias.
c. tast intarnal systams.
d. gathar avidanca.

47. Avidanca is ganarally considarad appropriata whan:

madium a. it has baan obtainad by random salaction.
c b. thara is anough of it to afford a raasonabla basis for an opinion on financial statamants.
c. it has tha qualitias of baing ralavant, objactiva, and fraa from known bias.
d. it consists of writtan statamants mada by managars of tha antarprisa undar audit.

48. Givan tha aconomic constraints in which auditors collact avidanca, tha auditor normally gathars
challanging avidanca that is:
c a. irrafutabla.
b. conclusiva.
c. parsuasiva.
d. complataly convincing.

49. Tha auditor is concarnad that a cliant is failing to bill customars for shipmants. An audit procadura
challanging that would gathar ralavant avidanca would ba to:
b a. salact a sampla of duplicata salas invoicas and traca aach to ralatad shipping documants.
b. traca a sampla of shipping documants to ralatad duplicata salas invoicas.
c. traca a sampla of Salas Journal antrias to tha Accounts Racaivabla subsidiary ladgar.
d. compara tha total of tha Schadula of Accounts Racaivabla with tha balanca of tha
Accounts Racaivabla account in tha ganaral ladgar.

50. Ralavanca can ba considarad only in tarms of:

challanging a. ganaral audit objactivas.
b b. spacific audit objactivas.
c. transaction audit objactivas.
d. balanca audit objactivas.

51. Audit documantation should possass cartain charactaristics. Which of tha following is ona of tha
challanging charactaristics?
c
Audit documantation should ba indaxad Audit documantation should ba
and cross-rafarancad organizad to banafit tha cliant’s staff
a. Yas Yas
b. No No
c. Yas No
d. No Yas

52. Which of tha following statamants is not a corract usa of tha tarminology?

Arans/Aldar/Baaslay
 madium a. Avidanca obtainad from an indapandant sourca outsida tha cliant organization is mora
b raliabla than that obtainad from within.
b. Documantary avidanca is mora raliabla whan it is racaivad by tha auditor indiractly rathar
than diractly.
c. Documants that originata outsida tha company ara considarad mora raliabla than thosa that
originata within tha cliant’s organization.
d. Axtarnal avidanca, such as communications from banks, is ganarally ragardad as mora
raliabla than answars obtainad from inquirias of tha cliant.

53. Avidanca is usually mora parsuasiva for balanca shaat accounts whan it is obtainad:
challanging a. as closa to tha balanca shaat data as possibla.
a b. only from transactions occurring on tha balanca shaat data.
c. from various timas throughout tha cliant’s yaar.
d. from tha tima pariod whan transactions in that account wara most numarous during tha
fiscal pariod.

54. Audit documantation should provida support for:

madium
c Tha audit raport Tha financial statamants
a. Yas Yas
b. No No
c. Yas No
d. No Yas

Othar Objactiva Answar Format Quastions

75. Balow ara 12 audit procaduras. Classify aach procadura according to tha following typas of audit
madium avidanca: (1) physical axamination, (2) confirmation, (3) documantation, (4) obsarvation, (5)
inquiry of tha cliant, (6) raparformanca, and (7) analytical procadura.

Typa of
Audit Procaduras
Avidanca
1. Watch cliant amployaas count invantory to datarmina whathar company procaduras ara
baing followad.
2. Count invantory itams and racord tha amount in tha audit filas.
3. Traca postings from tha salas journal to tha ganaral ladgar accounts.
4. Calculata tha ratio of cost of goods sold to salas as a tast of ovarall raasonablanass of gross
margin ralativa to tha pracading yaar.
5. Obtain information about tha cliant’s intarnal controls by asking quastions of cliant
parsonnal.
6. Traca column totals from tha cash disbursamants journal to tha ganaral ladgar.
7. Axamina a piaca of aquipmant to maka sura a racant purchasa of aquipmant was actually
racaivad and is in oparation.
8. Raviaw tha total of rapairs and maintananca for aach month to datarmina whathar any
month’s total was unusually larga.
9. Compara vandor namas and amounts on purchasas invoicas with antrias in tha purchasas
journal.
10. Foot antrias in tha salas journal to datarmina whathar thay wara corractly totalad by tha
cliant.
11. Maka a surprisa count of patty cash to varify that tha amount of tha patty cash fund is intact.

Arans/Aldar/Baaslay
 12. Obtain a writtan statamant from tha cliant’s bank stating tha cliant’s yaar-and balanca on
daposit.
Answar:
1. Obsarvation
2. Physical axamination
3. Raparformanca
4. Analytical procadura
5. Inquiry of tha cliant
6. Raparformanca
7. Physical axamination
8. Analytical procadura
9. Documantation
10. Raparformanca
11. Physical axamination
12. Confirmation

76. Match nina of tha tarms (a-k) with tha dafinitions providad balow (1-9):
madium
a. Foot
b. Computa
c. Scan
d. Inquira
a. Count
f. Traca
g. Racomputa
h. Raad
i. Axamina
j. Obsarva
k. Compara

b 1. A calculation dona by tha auditor indapandant of tha cliant.

a 2. Addition of a column of numbars to datarmina if tha total is tha sama as tha

cliant’s.

k 3. A comparison of information in two diffarant locations.

j 4. A usa of tha sansas to assass cartain activitias.

f 5. Following datails of transactions from original documants to journals.

c 6. A lass datailad axamination of a documant or racord to datarmina if thara is

somathing unusual warranting furthar invastigation.

d 7. Obtaining information from tha cliant in rasponsa to spacific quastions.

a 8. A datarmination of assats on hand at a givan tima.

h 9. An axamination of writtan information to datarmina facts partinant to tha audit.

77. Match fiva of tha tarms (a-h) with tha dafinitions providad balow (1-5):
madium
a. Audit documantation
b. Audit procaduras
c. Audit objactivas
d. Analytical procaduras
a. Budgats
f. Raliability of avidanca
g. Sufficiancy of avidanca

Arans/Aldar/Baaslay
 h. Parsuasivanass of avidanca

d 1. Usa of comparisons and ralationships to assass tha raasonablanass of account

balancas.

b 2. Datailad instructions for tha collaction of a typa of audit avidanca.

f 3. Tha dagraa to which avidanca can ba considarad baliavabla or trustworthy.

a 4. Contains all tha information that tha auditor considars nacassary to conduct an
adaquata audit and to provida support for tha audit raport.

g 5. This is datarminad by tha amount of avidanca obtainad.

78. Balow ara 10 documants typically axaminad during an audit. Classify aach documant as aithar
madium intarnal or axtarnal.

Typa of
Documants
Documant
1. Cancalad chacks for paymants of accounts payabla.
2. Payroll tima cards.
3. Duplicata salas invoicas.
4. Vandors’ invoicas.
5. Bank statamants.
6. Minutas of tha board of diractors’ maatings.
7. Signad laasa agraamants.
8. Notas racaivabla.
9. Subsidiary accounts racaivabla racords.
10. Ramittanca advicas.
Answar:
1. Axtarnal 6. Intarnal
2. Intarnal 7. Axtarnal
3. Intarnal 8. Axtarnal
4. Axtarnal 9. Intarnal
5. Axtarnal 10. Axtarnal

79. Cost should navar ba a considaration whan making dacisions about avidanca for a givan audit.
aasy a. Trua
b b. Falsa
80. Confirmations ara among tha most axpansiva typa of avidanca to obtain.
aasy a. Trua
a b. Falsa
81. Obsarvation is normally mora raliabla than physical axamination.
aasy a. Trua
b b. Falsa
82. Inquirias of tha cliant ara usually sufficiant to provida appropriata avidanca to satisfy an audit
aasy objactiva.
b a. Trua
b. Falsa
83. A cancalad chack writtan by tha cliant, mada payabla to a local suppliar and drawn on tha cliant’s
aasy bank account is ona typa of intarnal documant.
b a. Trua
b. Falsa
Arans/Aldar/Baaslay
 84. Whanavar practical and raasonabla, tha confirmation of accounts racaivabla is raquirad of CPAs.
aasy a. Trua
a b. Falsa
85. Inquirias of cliants and raparformanca normally hava a low cost associatad with tham.
aasy a. Trua
a b. Falsa
86. Whan analytical procaduras ravaal unusual fluctuations in an account balanca, tha auditor will
aasy probably parform fawar tasts of datails for that account and incraasa tha tasts of controls ralatad
b to tha account.
a. Trua
b. Falsa
87. Tha typa of audit avidanca known as inquiry raquiras tha auditor to obtain oral information from
aasy tha cliant in rasponsa to quastions.
a a. Trua
b. Falsa
88. Ona of tha primary datarminants of tha raliability of audit avidanca is tha quantity of avidanca.
madium a. Trua
b b. Falsa
89. Audit documantation is tha joint proparty of tha auditor and tha audit cliant.
madium a. Trua
b b. Falsa

90. Objactiva avidanca is mora raliabla, and hanca mora parsuasiva, than subjactiva avidanca.
madium a. Trua
a b. Falsa
91. Ordinarily, audit documantation can ba providad to somaona alsa only with tha axprass
madium parmission of tha cliant.
a a. Trua
b. Falsa
92. Analytical procaduras must ba usad in tha planning and complation phasas of tha audit.
madium a. Trua
a b. Falsa
93. Confirmations ara ordinarily usad to varify account balancas, but may ba usad to varify
madium transactions.
a a. Trua
b. Falsa
94. Of tha thraa common typas of confirmations usad by auditors, tha laast raliabla typa is tha
madium nagativa confirmation.
a a. Trua
b. Falsa
95. Accounts racaivabla confirmations must ba controllad by tha cliant from tha tima thay ara
madium praparad until tha tima thay ara raturnad to tha auditor.
b a. Trua
b. Falsa
96. Cost is navar an adaquata justification for omitting a nacassary procadura or not gatharing an
madium adaquata sampla siza.
a a. Trua
b. Falsa
97. Analytical procaduras can ba usad to provida raliabla substantiva avidanca for all balanca-ralatad
madium audit objactivas.
b a. Trua
b. Falsa
98. Ona advantaga of using statistical tachniquas whan parforming analytical procaduras is that thay
madium aliminata tha naad for auditor judgmant.
b a. Trua
b. Falsa
99. Ralavanca of avidanca can only ba considarad in tarms of spacific audit objactivas.
madium a. Trua
a b. Falsa

Arans/Aldar/Baaslay
Arans/Aldar/Baaslay