Sample Questions and Answers
Which of the following is the primary reason for documenting audit work?
a) To prevent litigation by other parties that question the audit performance.
b) To provide evidence of the auditor’s basis for conclusions.
c) To comply with legal requirements.
d) To assist in the preparation of the audit report.
Answer: b) To provide evidence of the auditor’s basis for conclusions.
Which of the following is considered the most reliable type of audit evidence?
a) Oral representations from management.
b) Bank statements obtained directly from the bank.
c) Internal memoranda.
d) Photocopies of invoices.
Answer: b) Bank statements obtained directly from the bank.
What is the primary purpose of performing analytical procedures during the planning phase of an audit?
a) To detect fraud.
b) To identify areas that may represent specific risks relevant to the audit.
c) To test the operating effectiveness of controls.
d) To obtain evidence from details tested to corroborate particular assertions.
Answer: b) To identify areas that may represent specific risks relevant to the audit.
Which of the following audit procedures would most likely be used to test the completeness assertion for accounts payable?
a) Confirming a sample of recorded payables with creditors.
b) Reviewing subsequent cash disbursements.
c) Observing the entity’s physical count of inventory.
d) Comparing a sample of receiving reports to related purchase orders.
Answer: b) Reviewing subsequent cash disbursements.
Which of the following is an example of audit evidence obtained through observation?
a) Reviewing the entity’s bank statements.
b) Inspecting the entity’s inventory records.
c) Observing the entity’s physical count of inventory.
d) Confirming accounts receivable balances with customers.
Answer: c) Observing the entity’s physical count of inventory.
Which of the following assertions is most directly related to the auditor’s concern with the existence of recorded assets?
a) Completeness.
b) Rights and obligations.
c) Valuation.
d) Existence.
Answer: d) Existence.
Which of the following is the most reliable form of audit evidence?
a) Oral representations from management.
b) Bank statements obtained directly from the bank.
c) Internal memoranda.
d) Photocopies of invoices.
Answer: b) Bank statements obtained directly from the bank.
Which of the following procedures would an auditor most likely perform to test the valuation assertion for accounts receivable?
a) Confirming a sample of recorded receivables by direct communication with the debtors.
b) Reviewing subsequent cash receipts.
c) Comparing a sample of shipping documents to related sales invoices.
d) Reviewing the entity’s aging schedule for reasonableness.
Answer: d) Reviewing the entity’s aging schedule for reasonableness.
Which of the following is an example of audit evidence obtained through inspection?
a) Reviewing the entity’s bank statements.
b) Observing the entity’s physical count of inventory.
c) Confirming accounts receivable balances with customers.
d) Inspecting the entity’s inventory records.
Answer: d) Inspecting the entity’s inventory records.
Which of the following is the most reliable form of audit evidence?
a) Oral representations from management.
b) Bank statements obtained directly from the bank.
c) Internal memoranda.
d) Photocopies of invoices.
Answer: b) Bank statements obtained directly from the bank.
Which of the following assertions is most directly related to the auditor’s concern with the existence of recorded assets?
a) Completeness.
b) Rights and obligations.
c) Valuation.
d) Existence.
Answer: d) Existence.
Which of the following procedures would an auditor most likely perform to test the valuation assertion for accounts receivable?
a) Confirming a sample of recorded receivables by direct communication with the debtors.
b) Reviewing subsequent cash receipts.
c) Comparing a sample of shipping documents to related sales invoices.
d) Reviewing the entity’s aging schedule for reasonableness.
Answer: d) Reviewing the entity’s aging schedule for reasonableness.
Which of the following is an example of audit evidence obtained through inspection?
a) Reviewing the entity’s bank statements.
b) Observing the entity’s physical count of inventory.
c) Confirming accounts receivable balances with customers.
d) Inspecting the entity’s inventory records.
Answer: d) Inspecting the entity’s inventory records.
Which of the following is the most reliable form of audit evidence?
a) Oral representations from management.
b) Bank statements obtained directly from the bank.
c) Internal memoranda.
d) Photocopies of invoices.
Answer: b) Bank statements obtained directly from the bank.
Which of the following assertions is most directly related to the auditor’s concern with the existence of recorded assets?
a) Completeness.
b) Rights and obligations.
c) Valuation.
d) Existence.
Answer: d) Existence.
Which of the following procedures would an auditor most likely perform to test the valuation assertion for accounts receivable?
a) Confirming a sample of recorded receivables by direct communication with the debtors.
b) Reviewing subsequent cash receipts.
c) Comparing a sample of shipping documents to related sales invoices.
d) Reviewing the entity’s aging schedule for reasonableness.
Answer: d) Reviewing the entity’s aging schedule for reasonableness.
Which of the following is the most reliable form of audit evidence?
a) Oral representations from management.
b) Bank statements obtained directly from the bank.
c) Internal memoranda.
d) Photocopies of invoices.
Answer: b) Bank statements obtained directly from the bank.
What type of audit evidence is obtained when the auditor directly communicates with a third party?
a) Physical evidence
b) Documentary evidence
c) Testimonial evidence
d) External evidence
Answer: d) External evidence
Which of the following would an auditor most likely use to verify the existence of liabilities?
a) Reviewing subsequent payments
b) Confirming with customers
c) Analyzing the general ledger
d) Observing the physical inventory count
Answer: a) Reviewing subsequent payments
Which of the following is an example of audit evidence obtained through confirmation?
a) Reviewing a client’s internal control procedures
b) Sending a request to a bank to confirm balances
c) Inspecting shipping documents
d) Observing the client’s internal financial review process
Answer: b) Sending a request to a bank to confirm balances
When auditing inventory, which of the following assertions is most closely related to the auditor’s concern with the proper inclusion of inventory in the financial statements?
a) Existence
b) Completeness
c) Valuation
d) Presentation and disclosure
Answer: b) Completeness
Which of the following types of evidence is most likely to be used to verify the completeness assertion of the financial statements?
a) Inspection of the underlying documents
b) Confirmation with external parties
c) Recalculation of the amounts stated in the records
d) Reviewing subsequent payments for unrecorded liabilities
Answer: d) Reviewing subsequent payments for unrecorded liabilities
What is the main advantage of obtaining audit evidence through external confirmations?
a) It is more cost-effective than other procedures
b) It provides highly reliable evidence, especially for balances that are subject to significant risk
c) It provides quicker evidence compared to other methods
d) It is more subjective and allows the auditor to use their judgment
Answer: b) It provides highly reliable evidence, especially for balances that are subject to significant risk
Which of the following is the most appropriate audit procedure for testing the completeness of revenue recognition?
a) Confirming accounts receivable balances with customers
b) Sending positive confirmations to customers
c) Examining shipping documents and related sales invoices
d) Reviewing the company’s minutes for related disclosures
Answer: c) Examining shipping documents and related sales invoices
An auditor wishes to assess the risk of fraud in a company’s accounts payable. Which procedure would most likely help address this concern?
a) Confirming accounts payable balances with creditors
b) Comparing accounts payable to the last year’s records
c) Reviewing subsequent payments to vendors for unrecorded liabilities
d) Examining the supporting documentation for accounts payable transactions
Answer: c) Reviewing subsequent payments to vendors for unrecorded liabilities
Which of the following is an example of audit evidence obtained through recalculation?
a) Verifying the physical count of inventory against the recorded amounts
b) Confirming accounts payable balances with suppliers
c) Recalculating the depreciation expense based on the company’s policies
d) Reviewing contracts for legality and terms
Answer: c) Recalculating the depreciation expense based on the company’s policies
Which of the following assertions is most relevant when an auditor is concerned with whether transactions are recorded in the proper period?
a) Existence
b) Accuracy
c) Cutoff
d) Completeness
Answer: c) Cutoff
Which of the following best describes “audit evidence”?
a) Information obtained by the auditor to support the audit opinion.
b) Proof that management is truthful in financial reporting.
c) A report generated from the auditor’s analysis of financial statements.
d) Observations made during the physical count of inventory.
Answer: a) Information obtained by the auditor to support the audit opinion.
When reviewing a sample of inventory items, which of the following assertions is most directly tested?
a) Completeness
b) Valuation
c) Existence
d) Presentation and disclosure
Answer: c) Existence
Which of the following is a characteristic of the best audit evidence?
a) It is obtained from a reliable and independent source outside the organization.
b) It is obtained through inquiry and discussion with management.
c) It is easily obtained at minimal cost.
d) It supports the client’s assertions without the need for further evaluation.
Answer: a) It is obtained from a reliable and independent source outside the organization.
An auditor is reviewing the entity’s financial statements and performing substantive tests. Which of the following audit procedures would provide the most reliable evidence for testing the existence of cash?
a) Reviewing the cash receipts journal.
b) Reviewing the client’s bank reconciliation.
c) Confirming the bank balance directly with the bank.
d) Observing the client’s internal controls for cash handling.
Answer: c) Confirming the bank balance directly with the bank.
When an auditor uses a bank confirmation to obtain audit evidence, which assertion is most directly being tested?
a) Completeness
b) Existence
c) Rights and obligations
d) Valuation and allocation
Answer: b) Existence
Which of the following best describes “sufficient appropriate audit evidence”?
a) Evidence that is obtained at the lowest possible cost.
b) Evidence that allows the auditor to make a reasonable conclusion.
c) Evidence that confirms the auditor’s suspicions about fraud.
d) Evidence that is easily understood by management.
Answer: b) Evidence that allows the auditor to make a reasonable conclusion.
In which of the following circumstances would the auditor most likely rely on oral representations from management?
a) When confirming year-end balances with third parties.
b) When verifying the company’s internal control effectiveness.
c) When examining the authenticity of supporting documents.
d) When clarifying specific issues or gaining insight into management’s intent.
Answer: d) When clarifying specific issues or gaining insight into management’s intent.
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