CPA Exam- Becker Audit-Practice
Questions with Actual Answers.
Audit evidence is support for the ___________. - Answer audit opinion
Audit evidence is gathered throughout the audit. What are the four categories of procedures
that are performed to obtain audit evidence? - Answer 1. Risk assessment procedures
2. Tests of controls
3. Substantive procedures
4. Other audit procedures
What is the objective of substantive testing? - Answer The objective is to detect material
misstatements in the FS.
What are the three general types of audit evidence? - Answer 1. Accounting records
2. Corroborating evidence
3. Electronic evidence
What two types of procedures does the auditor use to test the accounting records? - Answer
1. Analytical procedures
2. Substantive procedures
___________ evidence includes minutes of meetings, confirmations, industry analysts' reports,
data about competitors, and information obtained through ________, __________, and
___________. - Answer Corroborating, observation, inquiry, inspection
What special consideration must the auditor make if some accounting records or corroborating
evidence is only available in electronic form? - Answer Since electronic information may not
be retrievable indefinitely, the auditor should consider the time during which information exists
or is available in determining the nature, extent, and timing of auditing procedures.
The auditor provides ________ assurance regarding the fairness of financial statements. The
auditor is NOT a _________. - Answer reasonable, guarantor
T or F: The cost-benefit relationship is not a valid reason for performing only certain procedures.
- Answer F: The cost-benefit relationship IS a valid reason for performing only certain
procedures. However, cost alone or difficulty in obtaining evidence is NOT a valid basis for
omitting procedures for which there are no alternatives.
,Sufficiency refers to the _______ of evidence. It should be _______ and ________. - Answer
quantity, valid, relavant
The auditor's decision regarding the sufficiency of audit evidence is influenced by two factors.
What are they? - Answer 1. RMM: greater risk implies more evidence will be required
2. Quality of evidence: less evidence may be required when that evidence is of higher quality
Appropriate audit evidence must be both _______ and _______. - Answer relevant, reliable
Audit evidence must be _________ and __________. - Answer sufficient, appropriate
What is the hierarchy of audit evidence, from most reliable to least reliable (hint: AEIO)? -
Answer 1. Auditor's direct knowledge & observation
2. External evidence
3. Internal evidence
4. Oral evidence
For evidence to be relevant, what should it relate to? - Answer The financial statement
assertion(s) under consideration.
Substantive procedures can be broken down into two categories. What are they? - Answer 1.
Tests of details
2. Substantive analytical procedures
What are tests of details? - Answer Tests of details consist of audit procedures used to gather
evidence to support the account balances as reflected in the FS.
What are tests of details performed on? - Answer Tests of details are performed on ending
balances, the details of transactions, or a combination of the two.
Analytical procedures are required in what two phases of the audit? - Answer 1. Planning
2. Final review
What is the purpose of analytical procedures in the planning phase? - Answer To assist the
auditor in understanding the entity and its environment. It is also used for risk measurement to
alert the auditor to problem areas requiring attention.
,What is the purpose of analytical procedures as a substantive procedure? - Answer To obtain
audit evidence about specific management assertions related to account balances and
transactions.
What is the purpose of analytical procedures in the final review stage? - Answer To assist the
auditor in the final review of the overall reasonableness of account balances.
What are the two primary categories of analytical procedures? - Answer 1. Comparisons of
financial data
2. Ratio analysis
Comparisons of financial data is an analytical procedure. What are the most common
comparisons of financial data? - Answer 1. Current year actual vs. current year budget
2. Current year actual vs. prior year actual
Ratio analysis is an analytical procedure. Generally ratio analysis involves comparing ratios
developed from recorded amounts to __________. - Answer expected ratios developed by the
auditor.
List the five general steps in designing and performing substantive analytical procedures. -
Answer 1. Determine the analytical procedures that are suitable for testing the assertion(s)
2. Evaluate the reliability of the data from which the auditor's expectation is to be developed
3. Develop an expectation
4. Perform the analytical procedures and compare the results with the expectations
5. Investigate any significant differences
Analytical procedures should be based on _________ relationships. - Answer predictable
In order to provide an appropriate level of assurance, analytical procedures should be based on
predictable relationships. What type of accounts should be targeted for use in analytical
procedures? - Answer 1. Income statement accounts
2. Accounts that are less subject to management discretion.
When an analytical procedure is used as the principle substantive test, what five things must be
documented? - Answer 1. Auditor's expectation
2. Factors considered in the development of the expectation
3. Results of the comparison of the expectation to recorded amounts
4. Additional audit procedures performed in response to unexplained differences
, 5. Results of additional procedures
A risk of overstatement is emphasized for which accounts? - Answer 1. Revenues
2. Assets
A risk of understatement is emphasized for which accounts? - Answer 1. Expenses
2. Liabilities
When testing revenue and asset accounts, the auditor is most concerned with which
assertion(s)? - Answer Existence and occurrence
When testing expense and liability accounts, the auditor is most concerned with which
assertion(s)? - Answer Completeness
In regards to directional testing, what assertion is being tested if the test starts with source
documents? What is the audit term used for this type of test? - Answer Assertion:
Completeness
Audit term: Trace
In regards to directional testing, what assertion is being tested if the test starts with items in the
FS? What is the audit term used for this type of test? - Answer Assertion:
Existence/occurrence
Audit term: Vouch
An auditor is testing the existence/occurrence assertion. Where does this test begin? List the
types of records/documents in order. - Answer Financial statements
Trial balance
General ledger
Subsidiary ledger
Books of original entry
Source documents
Execution of event
Transaction approved
An auditor is testing the completeness assertion. Where does this test begin. List the types of
records/documents in order. - Answer Transaction approved
Execution of event
Questions with Actual Answers.
Audit evidence is support for the ___________. - Answer audit opinion
Audit evidence is gathered throughout the audit. What are the four categories of procedures
that are performed to obtain audit evidence? - Answer 1. Risk assessment procedures
2. Tests of controls
3. Substantive procedures
4. Other audit procedures
What is the objective of substantive testing? - Answer The objective is to detect material
misstatements in the FS.
What are the three general types of audit evidence? - Answer 1. Accounting records
2. Corroborating evidence
3. Electronic evidence
What two types of procedures does the auditor use to test the accounting records? - Answer
1. Analytical procedures
2. Substantive procedures
___________ evidence includes minutes of meetings, confirmations, industry analysts' reports,
data about competitors, and information obtained through ________, __________, and
___________. - Answer Corroborating, observation, inquiry, inspection
What special consideration must the auditor make if some accounting records or corroborating
evidence is only available in electronic form? - Answer Since electronic information may not
be retrievable indefinitely, the auditor should consider the time during which information exists
or is available in determining the nature, extent, and timing of auditing procedures.
The auditor provides ________ assurance regarding the fairness of financial statements. The
auditor is NOT a _________. - Answer reasonable, guarantor
T or F: The cost-benefit relationship is not a valid reason for performing only certain procedures.
- Answer F: The cost-benefit relationship IS a valid reason for performing only certain
procedures. However, cost alone or difficulty in obtaining evidence is NOT a valid basis for
omitting procedures for which there are no alternatives.
,Sufficiency refers to the _______ of evidence. It should be _______ and ________. - Answer
quantity, valid, relavant
The auditor's decision regarding the sufficiency of audit evidence is influenced by two factors.
What are they? - Answer 1. RMM: greater risk implies more evidence will be required
2. Quality of evidence: less evidence may be required when that evidence is of higher quality
Appropriate audit evidence must be both _______ and _______. - Answer relevant, reliable
Audit evidence must be _________ and __________. - Answer sufficient, appropriate
What is the hierarchy of audit evidence, from most reliable to least reliable (hint: AEIO)? -
Answer 1. Auditor's direct knowledge & observation
2. External evidence
3. Internal evidence
4. Oral evidence
For evidence to be relevant, what should it relate to? - Answer The financial statement
assertion(s) under consideration.
Substantive procedures can be broken down into two categories. What are they? - Answer 1.
Tests of details
2. Substantive analytical procedures
What are tests of details? - Answer Tests of details consist of audit procedures used to gather
evidence to support the account balances as reflected in the FS.
What are tests of details performed on? - Answer Tests of details are performed on ending
balances, the details of transactions, or a combination of the two.
Analytical procedures are required in what two phases of the audit? - Answer 1. Planning
2. Final review
What is the purpose of analytical procedures in the planning phase? - Answer To assist the
auditor in understanding the entity and its environment. It is also used for risk measurement to
alert the auditor to problem areas requiring attention.
,What is the purpose of analytical procedures as a substantive procedure? - Answer To obtain
audit evidence about specific management assertions related to account balances and
transactions.
What is the purpose of analytical procedures in the final review stage? - Answer To assist the
auditor in the final review of the overall reasonableness of account balances.
What are the two primary categories of analytical procedures? - Answer 1. Comparisons of
financial data
2. Ratio analysis
Comparisons of financial data is an analytical procedure. What are the most common
comparisons of financial data? - Answer 1. Current year actual vs. current year budget
2. Current year actual vs. prior year actual
Ratio analysis is an analytical procedure. Generally ratio analysis involves comparing ratios
developed from recorded amounts to __________. - Answer expected ratios developed by the
auditor.
List the five general steps in designing and performing substantive analytical procedures. -
Answer 1. Determine the analytical procedures that are suitable for testing the assertion(s)
2. Evaluate the reliability of the data from which the auditor's expectation is to be developed
3. Develop an expectation
4. Perform the analytical procedures and compare the results with the expectations
5. Investigate any significant differences
Analytical procedures should be based on _________ relationships. - Answer predictable
In order to provide an appropriate level of assurance, analytical procedures should be based on
predictable relationships. What type of accounts should be targeted for use in analytical
procedures? - Answer 1. Income statement accounts
2. Accounts that are less subject to management discretion.
When an analytical procedure is used as the principle substantive test, what five things must be
documented? - Answer 1. Auditor's expectation
2. Factors considered in the development of the expectation
3. Results of the comparison of the expectation to recorded amounts
4. Additional audit procedures performed in response to unexplained differences
, 5. Results of additional procedures
A risk of overstatement is emphasized for which accounts? - Answer 1. Revenues
2. Assets
A risk of understatement is emphasized for which accounts? - Answer 1. Expenses
2. Liabilities
When testing revenue and asset accounts, the auditor is most concerned with which
assertion(s)? - Answer Existence and occurrence
When testing expense and liability accounts, the auditor is most concerned with which
assertion(s)? - Answer Completeness
In regards to directional testing, what assertion is being tested if the test starts with source
documents? What is the audit term used for this type of test? - Answer Assertion:
Completeness
Audit term: Trace
In regards to directional testing, what assertion is being tested if the test starts with items in the
FS? What is the audit term used for this type of test? - Answer Assertion:
Existence/occurrence
Audit term: Vouch
An auditor is testing the existence/occurrence assertion. Where does this test begin? List the
types of records/documents in order. - Answer Financial statements
Trial balance
General ledger
Subsidiary ledger
Books of original entry
Source documents
Execution of event
Transaction approved
An auditor is testing the completeness assertion. Where does this test begin. List the types of
records/documents in order. - Answer Transaction approved
Execution of event
