AUDIT OBJECTIVES,

PROCEDURES, EVIDENCES AND

DOCUMENTATION
 Audited FS
Unaudited FS
Audit Opinion

Classes of
Account balances
transactions &
and related
events and related
disclosures
disclosures
• Occurrence • Existence
• Completeness • Rights and
• Accuracy obligations
• Cut off • Completeness
• Classification • Accuracy, valuation
• Presentation and allocation
• Classification
• Presentation
Assertions – Representations, explicit or otherwise, with
respect to the recognition, measurement, presentation &
disclosure of information in the financial statements which are
inherent in management representing that the financial
statements are prepared in accordance with the applicable
financial reporting framework.
 Accounting Other
Records Information Audited FS
AnalystUnaudited
reports FS
Audit Opinion
Benchmark
information
Contracts
Audit Evidence
Confirmation
replies All the information used by the auditor in
Checks/EFT arriving at the conclusions on which the
documents audit opinion is based.
Invoices T Accounting The records of initial
Y accounting entries and
Information from records
supporting records
IIO P
E All other evidence obtained by
Journals, ledgers, Other information the auditor; formerly
S
worksheets corroborating evidence

Minutes of S
O
Audit procedures
Previous audits
meetings U QC procedures for client acceptance and continuance
R
Other adjustments C
Management’s expert
Management representations
not reflected in E
S Other internal and external sources
formal JEs
 Audited FS
Unaudited FS
Audit Opinion
Other
Planned AP
RAP TOC ST Audit Evidence

Inquiry
Inspection
Audit Procedures
Observation
Analytical PRIMARY source of
procedures audit evidence
Confirmation
Recalculation Audit objectives
Reperformance

FS assertions
 AUDIT EVIDENCE

SUFFICIENCY APPROPRIATENESS

QUANTITY QUALITY

RMM QUALITY RELEVANCE RELIABILITY

LESS MAY BE
PURPOSE SOURCE
DIRECT REQUIRED IF
ASSERTION NATURE
RELATIONSHIP QUALITY IS CIRCUMSTANCES
DIRECTION
BETTER

CAN’T BE
COMPENSATED
WITH
QUANTITY
 Audited FS
Unaudited FS
Audit Opinion

AUDIT DOCUMENTATION
Audit Evidence
Known as “audit working papers”; is the record of procedures,
evidence, and conclusions of the auditor.
What to document? P-E-C
Assembly? 60 days Retention: Min. 7 years (SEC) Audit Procedures

PRIMARY source of
audit evidence

Audit objectives

FS assertions
MCQs
1. All the information used by the auditor in arriving at the conclusion on which the audit
opinion is based. It includes the information contained in the accounting records underlying
the financial statements (underlying accounting data) and other information (corroborating
information).

A. Audit Evidence

B. Audit Opinion

C. Audit Risk

D. Audit Program
2. All of the following are underlying accounting data, except:

a. Records of initial entries and supporting documents

b. General and subsidiary ledgers
c. Worksheets and spreadsheets for cost allocations
d. Minutes of meetings
3. The following statements are correct, except:

a. The greater the risk of misstatement, the more audit evidence is likely to be
required.
b. The higher the quality of audit evidence, the less may be required.
c. Obtaining more audit evidence will compensate for its poor quality.
d. The sufficiency and appropriateness of audit evidence are interrelated.
4. The most reliable form of documentary evidence are those documents that
are:

a. Internally generated
b. Pre-numbered
c. Authorized by a responsible official
d. Easily duplicated
5. Which of the following statements is/are correct?
Statement 1: The auditor considers the relationship between the cost of obtaining audit evidence and the usefulness of
the information obtained.

Statement 2: The difficulty and the expense involved are valid basis for omitting an audit procedure for which there is no
alternative.

Statement 3: The auditor relies on audit evidence that is persuasive rather than conclusive.

Statement 4: The auditor uses professional judgment and exercise professional skepticism to determine the sufficiency
and appropriateness of evidence.

a. Only one statement is correct c. Only three statements are correct

b. Only two statements are correct d. All statements are correct
6. Assertions used by the auditor fall into the following categories, except:

a. Assertions about the faithful representations

b. Assertions about classes of transactions and events
Completeness, Occurrence, Cut off, Accuracy,
c. Assertions about account balances at period end Classification
Completeness, Existence, Rights and obligations, Valuation
d. Assertions about presentation and disclosure
Completeness, Occurrence, Classification and understandability, Accuracy and
valuation
7. Management assertions are:

a. Directly related to PSAs c. Directly related to GAAP

b. Indirectly related to PSAs d. Indirectly related to GAAP
8. The assertion of cut-off means that:

a. All transactions and events that should have been recorded have been recorded
Completeness
b. Amounts and other data relating to recorded transactions and events have been
recorded appropriately Accuracy
c. Transactions and events have been recorded in the correct accounting period
d. Transactions and events have been recorded in the proper accounts Classification

Classes of transactions • Occurrence

& events and related • Completeness
disclosures • Accuracy
• Cut off
• Classification
• Presentation
9. The auditor notices that a client’s cash-basis financial statements are prepared with
accrual basis financial titles. This situation bears on which financial statement assertion?

a. Valuation or allocation c. Rights and obligations

b. Presentation and disclosure d. Completeness
10. When vouching,

a. The direction of the test is from the recorded item back to the underlying support.
b. A complete examination of the transactions in the account is performed.
c. Recomputations are performed.
d. The auditor selects a transaction and follows it forward to recording in the
accounting records.
11. Which of the following statements relating to the competence of evidential matter is
always true?

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

competent.
b. Properly designed analytical procedures will detect material misstatements.
c. Evidential matter gathered by an auditor from outside a client is reliable.
d. Oral representations made by management are not valid.
12. Acts to be performed in order to obtain audit evidence.

a. Audit standards c. Audit program

b. Audit procedures d. Audit strategy
13. Which of the following procedures is not required to be performed by the auditor?

a. Risk assessment procedures c. Substantive procedures

b. Tests of control d. Analytical procedures
14. Examining records or documents, whether internal or external, in paper form,
electronic form, or other media.

a. Inspection of records or documents c. Observation

b. Inspection of tangible assets d. Inquiry
15. Physical examination of the assets.

a. Inspection of records or documents c. Observation

b. Inspection of tangible assets d. Inquiry
16. Consists of looking at a process or procedures being performed by others.

a. Inspection of records or documents c. Observation

b. Inspection of tangible assets d. Inquiry
17. Evaluation of financial information made by study of plausible relationships among
both financial and non-financial data.

a. Reperformance c. Reconciliation
b. Confirmation d. Analytical procedures
18. Physical examination of tangible assets is not a sufficient form of evidence when the
auditor wants to determine the:

a. Existence of the asset c. Condition or quality of the asset

b. Quantity and description of the asset d. Ownership of the asset
19. Who signs the confirmation requests?

a. The appropriate level of management

b. The audit partner
c. The CEO/CFO of the client
d. Both management and the auditor
20. Negative confirmation requests may be used when:

a. The assessed levels of inherent and control risks are high

b. A large number of large balances is involved
c. A substantial number of errors is expected
d. The auditor has no reason to believe that respondents will disregard these requests
21. When the recipient has accomplished the confirmation request, replies should be:

a. Sent directly to the auditor

b. Sent directly to the client, after which the client gives the replies to the auditor
c. Sent directly to the auditor, with another copy of the reply going to the client
d. Not sent back since a confirmation request does not necessitate replies
22. Which of the following statements is incorrect about accounting estimates?

a. Management is responsible for making accounting estimates included in the

financial statements.
b. When evaluating accounting estimates, the auditor should pay particular attention
to assumptions that are objective and are consistent with industry patterns.
c. The risk of material misstatement is greater when accounting estimates are
involved.
d. The evidence available to support an accounting estimate will often be more
difficult to obtain and less conclusive than evidence available to support other items
in the financial statements.
23. In evaluating the reasonableness of an entity’s accounting estimates, an auditor
normally would be concerned about assumptions that are

a. Susceptible to bias c. Insensitive to variations

b. Consistent with prior periods d. Similar to industry guidelines
24. Which of the following would an auditor ordinarily perform first in evaluating
management’s accounting estimates for reasonableness?

a. Develop independent expectations of management’s estimates.

b. Consider the appropriateness of the key factors or assumptions used in preparing
the estimates.
c. Test the calculations used by management in developing the estimates.
d. Obtain an understanding of how management developed its estimates.
25. Which of the following is not a specialist upon whose an auditor may rely?

a. Actuary c. Appraiser
b. Internal auditor d. Engineer
26. According to PSA 230 “Documentation”, working papers do not

a. Assist in the planning and performance of the audit.

b. Assist in the supervision and review of the audit work.
c. Record the audit evidence resulting from the audit work performed to support an
auditor’s opinion.
d. Prove the independence of the auditor.
27. Consider the following statements.
Statement 1: Working papers are the property of the auditor
Statement 2: Although portions of or extracts from the working papers maybe
made available to the entity at the discretion of the auditor, they may be substitute for
the entity’s accounting records.

a. Only statement one is correct c. Both statements are correct

b. Only statement two is correct d. Both statements are incorrect
28. The primary purpose of audit working papers is to
To provide evidence of what supports the audit opinion
a. Provide evidence of compliance with auditing standards .
b. Provide management with an independent copy of financial records.
c. Provide protection against litigation.
d. Document deficiencies in client policies and procedures.
29. Which of the following statements is incorrect?
a. Documentation prepared at the time the work is performed is likely to be more
accurate than documentation prepared subsequently.
b. The auditor ordinarily includes in audit documentation superseded drafts of working
papers and financial statements, notes that reflect incomplete or preliminary
thinking, previous copies of documents corrected for typographical or other errors,
and duplicates of documents.
c. It is neither necessary nor practicable to document every matter the auditor
considers during the audit.
d. Oral explanations by the auditor, on their own, do not represent adequate support
for the work the auditor performed or conclusions the auditor reached, but may be
used to explain or clarify information contained in the audit documentation.
30. In the case of recurring audits, some working papers files may be classified as audit
files which are updated with new information of continuing importance. This type of
audit file is known as:

a. Current audit file c. Electronic audit file

b. Permanent audit file d. Planning memorandum file
31. For what minimum period should audit working papers be retained by the
independent CPA?

a. For the period during which the entity remains a client of the independent CPA.
b. For the period during which an auditor-client relationship exists but not more than
six (6) years.
c. For the statutory period within which legal action may be brought against the
independent CPA.
d. For as long as the CPA is in public practice.
32. How many days after the date of the auditor’s report is considered an appropriate
time for the auditor to complete the assembly of the financial audit file?

a. 30 c. 60
b. 90 d. 120
33. In confirming accounts receivable, an auditor decided to confirm customers'
account balances rather than individual invoices. Which of the following most likely
would be included with the client's confirmation letter?

a. A client-prepared statement of account showing the details of the customer's

account balance
b. An auditor-prepared letter requesting the customer to supply missing and incorrect
information directly to the auditor
c. A client-prepared letter reminding the customer that a nonresponse will cause a
second request to be sent
d. An auditor-prepared letter explaining that a nonresponse may cause an inference
that the account balance is correct
34. Which of the following statements is correct concerning an auditor's use of the work
of a specialist?

a. If there is a material difference between a specialist's findings and the assertions in

the financial statements, only an adverse opinion may be issued
b. If an auditor believes that the determinations made by a specialist are unreasonable,
only a qualified opinion may be issued
c. An auditor may not use a specialist in the determination of physical characteristics
relating to inventories
d. The work of a specialist who is related to the client may be acceptable under certain
circumstances
35. Which of the following is not a universal rule for achieving control over cash?

a. Decentralize the receiving of cash as much as possible.

b. Have bank reconciliations performed by employees who do not handle cash.
c. Separate the cash-handling (receipts and disbursements) and record-keeping
functions.
d. Deposit each day's cash receipts by the end of the day.
 The illegal practice of allocating one
customer’s payment to another
customer’s account.
36. Which of the following best prevents lapping?

a. Request that customer checks be made payable to the company and be addressed to
the treasurer.
b. Have customers send payments directly to a lock-box at the company's bank.
c. Segregate duties so that accounting personnel have no access to incoming mail
containing remittances.
d. Segregate duties so that no employee has access both to checks from customers and
to currency from daily cash receipts.
37. Which of the following audit procedures is the most efficient at detecting unrecorded
liabilities at the balance sheet date?

a. Examine purchase orders issued for several days prior to the close of the year.
b. Compare cash disbursements in the subsequent period with the accounts payable trial
balance at year-end.
c. Obtain a letter from the client's attorney.
d. Confirm large accounts payable balances at the balance sheet date.
38. The auditor is testing the labor charges and tracing them to entries in the job costing
records and into work-in-process inventory. This procedure primarily addresses which of
the following assertions?

a. Valuation or allocation.
b. Existence or occurrence.
c. Authorization.
d. Presentation and disclosure.
39. Which of the following procedures is most effective in providing reasonable
assurance that payroll checks are distributed only to bona fide employees?

a. All unclaimed paychecks are returned to an employee independent of payroll

preparation and distribution.
b. An employee independent of payroll preparation compares endorsements on
canceled payroll checks with employee signatures in personnel records.
c. All changes in pay rates and deductions are reviewed and approved by a responsible
official independent of payroll preparation and distribution.
d. All personnel and payroll records and documents are prenumbered and physically
protected from unauthorized access.
40. The auditor's review of obsolete inventory primarily addresses which assertion?

a. Completeness.
b. Fairly stated financial statements.
c. Valuation or allocation.
d. Presentation and disclosure.
41. On the date of the inventory count, the auditor does all of the following except

a. Observe the client's count teams counting the inventory.

b. Make test counts of the client's inventory.
c. Make recommendations to the client on controls over inventory.
d. Note slow-moving inventory.
42. To protect against improper disbursements, checks should be

a. Perforated or otherwise canceled after being returned with the bank statement.
b. Signed by an official after necessary supporting evidence has been examined.
c. Reviewed by the purchasing department before mailing.
d. Sequentially numbered and accounted for by internal auditors.
 Responsible for keeping track of what is owed to
vendors to assure payments are approved and
processed.
43. The accounts payable department receives the purchase order to accomplish all of
the following except

a. Compare quantity ordered to quantity purchased.

b. Ensure that the purchase had been properly authorized.
c. Ensure that the party requesting the goods had received the goods.
d. Compare invoice price to purchase order price.
44. Which of the following pieces of information is most important when auditing
shareholders' equity?

a. Entries in the capital stock account can be traced to the minutes of the board of
directors.
b. Stock dividends are capitalized at par or stated value on the dividend declaration
date.
c. Changes in the capital stock account are verified by an independent stock transfer
agent.
d. Stock dividends and/or stock splits during the year were approved by the
shareholders.
45. An unrecorded check issued during the last week of the year is most likely be
discovered by the auditor when the

a. Search for unrecorded liabilities is performed.

b. Bank confirmation is reviewed.
c. Cutoff bank statement is reconciled.
d. Check register for the last month is reviewed.
46. Of the financial statement accounts listed below, which is least likely affected by the
accuracy of payroll and the distribution of payroll costs to jobs?

a. Finished goods inventory.

b. Accrued sales taxes.
c. Cash.
d. Cost of sales.
47. The completeness assertion would be violated if

a. unbilled shipments had occurred during the period.

b. disclosure in the statements of pledged receivable was inadequate. Presentation
and
c. the balance of accounts payable was overstated. Existence disclosure
d. fictitious sales transactions were included in accounts receivable. Existence
48. Which of the following would most likely be detected by an auditor's review of a
client's sales cutoff?

a. Unauthorized goods returned for credit.

b. Lapping of year-end accounts receivable.
c. Unrecorded sales for the year.
d. Excessive sales discounts.
49. Which of the following is not a common activity of the expenditure/disbursement
cycle?

a. Receiving.
b. Fixed asset additions. Order to Cash Revenue and Receipt
Purchase to Pay Expenditure and
c. Recording of disbursements. Disbursement
d. Purchasing. Hire to Retire Human Resources and
Payroll
Plan to Inventory Production/Conversion
Financing and Investing Financing and Investing
50. An auditor usually examines receiving reports to support entries in the

a. Voucher register and sales returns journal.

b. Check register and sales journal.
c. Sales journal and sales returns journal.
d. Voucher register and sales journal.
THANK YOU!