Substantive Testing and Documentation

Substantive Testing & Documentation
1 PSA defines audit evidence as:

ANS: The information obtained by the auditor in arriving at the conclusions on
which the audit opinion is based.
Assertions by management, explicit or otherwise, that are embodied in the
financial statements.
Tests performed to obtain audit evidence to detect material misstatements in the
Tests performed to obtain audit evidence about the suitability of design and
effective operation of the accounting and internal control systems.
2 The objective of the ordinary examination by the independent auditor is the

expression of an opinion on
The accuracy of the financial statements.
The balance sheet and the income statements.
The fairness of the financial statements.
The annual report of the client enterprise.
3. Which of the following statements is most correct regarding the primary purpose of
audit procedures?
To comply with SEC.
To detect all errors or fraudulent activities as well as illegal activities.
To determine the amount of errors in the balance sheet accounts in order to
adjust the accounts to actual.
To gather corroborative audit evidence about management’s assertions
regarding the client’s financial statements.
4. Management assertions are:
Stated in the footnotes to the financial statements.
Explicitly expressed representations about the financial statements.
Provided to the auditor in the assertions letter, but are not disclosed in the
Implied or expressed representation about the accounts in the financial
statements. 5. Audit procedures classified according to purpose include risk
assessment procedures, tests of controls, and substantive tests.
True
6. Physical examination of tangible assets is not sufficient form of evidence
when the auditor wants to determine the
Existence of the asset
Quantity and description of the asset.
Condition or quality of the asset.
Ownership of the asset.
7. Complete the statement: “The evidence gathering technique of
observation: Is useful in most parts of the audit.”
Is rarely sufficient by itself.”
Is limited to what the auditor sees.”
Requires the gathering of corroborating evidence.”
8. Which of the following types of procedures will aid the auditor in obtaining
evidence regarding the mathematical accuracy of accounting records and
other information? Confirmation
Recalculation
Inspection
Inquiry
9. Audit evidence obtained through inquiry is considered sufficient for purposes of an
audit. False
10.Traditionally, confirmations are used to verify
Fixed asset additions.
Bank balances and accounts receivable.
Individual transactions between organizations, such as sales
transactions. All three of the above.
11.An audit evidence, physical examination and confirmation, may only be obtained
using which of the following types of tests?
Test of controls
Tests of transactions
Analytical procedures
Test of details of balances.
12.The auditor ordinarily increases the extent of audit procedures as the risk of
material misstatement increases.
True.
13.Which of the following tests commonly occur together?
Substantive tests of transactions and tests of control.
Analytical procedures and tests of control.
Substantive tests of transactions and obtaining an understanding of internal
controls. All of the above commonly occur together.
14.Which of the procedures would provide the least reliable audit
evidence? Inquiries of the client’s internal audit staff held in
private.
Inspection of prenumbered client purchase orders filed in the vouchers
payable department.
Analytical procedures performed by the auditor on the entity’s trial balance.
Inspection of bank statements obtained directly from the client’s financial
institution. 15.In the context of an audit of financial statements, substantive tests
are audit procedures that
May be eliminated under certain conditions.
Are designed to discover significant subsequent events.
May either be tests of transactions, direct tests of financial balances, or
analytical tests. Will increase proportionately with the auditor’s reliance on internal
control. 16.Analytical procedures enable the auditor to predict the balance or
quantity of an item under audit. Information to develop this estimate can be
obtained from the following: Comparison of financial data with data for comparable
prior periods or anticipated results and similar data for the industry in which the
entity operates.
Study of the relationships of elements of financial data that would be expected to
conform to a predictable pattern based upon the entity’s experience.
Study of the relationships of financial data with relevant
nonfinancial data. All of these.
17.Where there are unusual fluctuations and relationships ordinarily begins with
inquiries of management followed by
Corroboration of management’s responses.
Consideration of the need to apply other audit procedures based on the
results of management inquiries.
Both a and b.
Neither a nor b.
18.Confirmation is most likely to be the relevant form of evidence with regard to
assertions about accounts receivable when the auditor has concerns about the
receivables? Valuation
Classification
Existence
Completeness
19.Obtaining and evaluating evidence through direct communication from a third party
in response to a request for information about a particular item affecting financial
statement assertions.
External confirmation
Recalculation
Inspection
Inquiry
20.Evidence obtained directly by the auditor is more reliable than information
obtained indirectly. Which of the following is not an example of the auditor’s
direct knowledge? Inspection
Observation
Computation
Inquiry.
d.

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Substantive Testing & Documentation

1 PSA defines audit evidence as:

2 The objective of the ordinary examination by the independent auditor is the

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