AACSB: Analytic AICPA BB: Industry AICPA FN: Risk Analysis Bloom's: Apply Difficulty: Hard
Learning Objective: 05-05 Describe the considerations involved in auditing subjective areas; such as certain financial statement items valued at fair value.
Source: AICPA
Topic: Evidence for Subjective Areas
74. In obtaining sufficient appropriate audit evidence, the work of which type or types of specialists may be relied upon?
A. Option A
B. Option B C. Option C D. Option D
AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Bloom's: Understand Difficulty: Medium
Learning Objective: 05-04 List and describe types of audit evidence.
Topic: Risk, Evidence, and Assertions
Matching Questions
75. For each of the audit procedures listed below select the type of audit procedure, if any, that the auditor performed. A type of audit procedure may be selected once or not at all.
1. The auditor obtained a copy of the company's accounting manual and read the section on inventory to prepare for the physical inventory observation.
Inspection of tangible assets. 6 2. During a site visit to a branch warehouse, the
auditor noted unauthorized personnel have access to
the inventory. Observation. 2
3. The auditing firm's computer assisted audit specialist obtained an electronic billing file from the company and checked the accuracy of the summarized billings file.
Inspection of records or documents. 1 4. The auditor scanned the repairs and maintenance
account for unusually large amounts. Inquiry. 7 5. The auditor selected a sample of invoices and
agreed the vendor to the approved vendor list, as had been required by the client's internal control
procedures. Recalculation. 3
6. During the physical inventory count, the auditor requested that certain containers of inventory items be
opened to ensure they were not empty. Reperformance. 5 7. The auditor sent a letter to the company's outside
attorney accompanied by management's request for information concerning pending or threatened litigation, claims, and assessments.
Analytical
Learning Objective: 05-04 List and describe types of audit evidence.
Topic: Audit Procedures
76. Analytical procedures are substantive procedures that may be used to provide evidence about specific accounts and classes of transactions.
a. Describe three major types of comparisons the auditor might make in performing analytical procedures.
b. At what stages of the audit are analytical procedures performed and what purpose do they serve at each stage?
a. Comparisons made in performing analytical procedures include (only three required):
Comparisons with prior years' data.
Comparisons with budgets and forecasts.
Comparisons with industry statistics.
Comparisons with nonfinancial data.
Comparisons of predictable relationships based on past history.
b. Analytical procedures may be performed:
1. During risk assessment to identify items that require more audit attention.
2. Throughout the audit as a substantive procedure for accounts or classes of transactions.
3. Near the end of the audit to corroborate audit evidence obtained during the audit to assist the auditor in drawing reasonable conclusions.
AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Bloom's: Understand Difficulty: Medium
Learning Objective: 05-04 List and describe types of audit evidence.
Topic: Analytical Procedures
77. Audit working papers are an integral part of an examination in accordance with generally accepted auditing standards.
a. Describe three major functions of the audit working papers.
b. Distinguish between the permanent working paper file and the current working paper file.
a. The functions of audit working papers include (only three required):
Provide a means of assigning and coordinating audit work.
Aid in review of the work.
Provide support for the auditors' report.
Document compliance with generally accepted auditing standards.
Aid in planning and conducting future audits.
b. The permanent file is used to organize working papers of continuing audit interest over a number of years.
The current file contains the administrative and evidence working papers for the year under examination.
AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Bloom's: Understand Difficulty: Medium
Learning Objective: 05-06 Describe the purposes of audit documentation.
Learning Objective: 05-09 Describe the types of working papers and the way they are organized.
Topic: Audit Documentation
78. The following is an audit working paper prepared by an assistant on the Williams audit:
Column footed.
Amount agrees to amount recorded as a deposit on the bank statement and description agrees with receipt enclosed with 12/31/0X bank statement. This note is the Wilde note receivable that was recorded as a receipt by the client in the cash receipts journal on 1/3/0X.
The receivable was appropriately credited and properly reflected in the January cash receipts journal. No adjustment needed as bank and books simply record this in different periods.
Г Agreed to 12/31/0X bank statement.
Agreed to general ledger.
A - 1
Required: Prepare a list of review points as the preparer of this working. You may assume that any other working papers referred to are appropriate. You will receive credit for proper points you bring up and lose credit for improper ones and omissions.
The working paper's deficiencies include:
"prepared by" is not initialed ("Rev. by" isn't either, but since we are still performing the review it need not be).
Title of schedule is wrong, this is not a bank confirmation, it is a bank reconciliation.
The by Balance per Bank is incorrect for two reasons. First, the balance would not be in the general ledger. Second, the balance per bank should be agreed to either a bank
confirmation, bank statement, or both.
The bank service charge should be added, not subtracted.
Concerning balance per books, two things are wrong. First it is not footed in that the is missing. Second, it does not foot properly.
The tickmark Г is incorrect relating to the deposit in transit. If it was on the 12/31/0X bank statement, it would not be a deposit in transit.
The √ description is not correct since it should be recorded as a cash receipt as of 12/31/OX if the bank collected it prior to year-end. It is handled on the reconciliation properly, but the final comment is wrong.
AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Risk Analysis Bloom's: Apply Difficulty: Hard
Learning Objective: 05-06 Describe the purposes of audit documentation.
Learning Objective: 05-07 Discuss the factors that affect the auditors' judgment as to the nature and extent of audit documentation.
Learning Objective: 05-08 Identify matters that must be included in audit working papers.
Learning Objective: 05-09 Describe the types of working papers and the way they are organized.
Topic: Audit Documentation