Q5
QUESTION 1
1. Assertions play a key role in the external audit of any firm. Assertions represent an efficient
and systematic method of auditing a client's accounts and disclosures. At what point in the
audit are assertions most likely to be used by the auditor?
2.Assertions are usually determined during the preliminary stages of the audit, with the
internal audit function typically assuming responsibility for assertions relating to areas of
higher risk.
Assertions are typically utilized by the auditor during the final stages of the audit, when the
auditor is checking assertions related to presentation and disclosure.
Assertions may be used by the auditor at various stages during the audit, and may relate to
risk assessment procedures and helping the auditor determine appropriate types of
evidence to collect.
Assertions are typically used by the auditor during the preliminary phases of the audit, as
they only relate to risk assessment procedures conducted by the auditor.
1 points
QUESTION 2
1. Auditors inspecting a sample of accounts payable balances listed on the ledger and verifying
that they are actual payables owed by the client gather evidence in support of the ________
assertion.
2.existence
occurrence
accuracy
completeness
1 points
QUESTION 3
1. As part of the audit of TableTop LLC, a manufacturer of high-end specialized furniture, the
partners of the external auditors, CPI Auditing Inc. are meeting to discuss which audit
procedures may be more appropriate in this case. The auditors are interested in learning
more about the quantities of materials that go into the products sold by TableTop LLC. A
method the auditor could use to achieve this would be to ________.
2.send confirmations to the client's vendors who supply raw materials to the client, asking
them to confirm this information
perform an inquiry procedure, inquiring of management as to the types and quantities of
material that go into each product and documenting the responses received
attempt to reperform the processes and procedures used by the client's manufacturing
staff, to corroborate the quantities used in the client's products
perform an observation procedure, which may involve either the auditor or a specialist
observing the materials used and the processes conducted in order to manufacture the
products
1 points
QUESTION 4
, 1. Verne external auditors are currently completing the audit of Davis, Inc., a manufacturer of
specialty furniture which sells in retail stores across the country. A question has been raised
by an audit manager with respect to the client's extensive use of leasing. The assertion that
would most likely be related to this would be the ________.
2.presentation and disclosure assertion, because the auditor will want to make sure that all
leases are not listed on the client's balance sheet or in the notes to the financial statements
rights and obligations assertion, because the auditor will be concerned with ensuring all
leases are recorded and noted as such, and not as the client's own assets
occurrence assertion, as the auditor will be looking to check to make sure that all historical
leases actually occurred
valuation assertion, as the auditor will need to check to ensure that the asset and liability
accounts associated with the lease are properly valued
1 points
QUESTION 5
1. Martha and Sallie are working on the audit of Bloom Company and are discussing
assertions. Martha, a seasoned auditor, has been given the task of training Sallie. Sallie is
attempting to understand more about audit procedures and has asked Martha to explain
how to determine when an assertion should be evaluated for a particular account. Martha's
most appropriate response to this question would be to ________.
2.advise that every assertion is applicable to every account, and the main concern for the
auditor is determining appropriate procedures to check each assertion
advise that different assertions will apply to different accounts, and they will not all apply to
each account. It is a matter of auditor judgment to determine which assertions may apply
to the accounts
explain that the auditor simply needs to either consult the prior year's audit file or contact
the predecessor auditor in the case of a new client to determine which assertions were
checked in prior years, and plan to audit these
explain that they, as external auditors, will work closely with the internal audit function who
will provide lists of which assertions need to be checked for each of the client's accounts
1 points
QUESTION 6
1. As part of the external audit of Candle Co., a regional distributor of candles and other wax
products, you have been assigned to audit the client's liability accounts. You are aware that
since the last audit, the client conducted a bond issue. Which of the following best
represents the types of evidence that you would collect to audit assertions pertaining to this
area?
2.Evidence would likely be gathered to confirm that internal controls in this area are effective,
as well as performing a vouching procedure to vouch cash paid out initially to bondholders
with bond certificates.
It is likely that you would conduct an inspection procedure to inspect documents related to
the bond issue, as well as analytical procedures to calculate interest expense related to the
bonds.
It is likely that you would perform a substantive procedure to match bond coupon
payments in the general ledger to the appropriate accounts, and inspect documents and
, certificates pertaining to the original bond issue.
You would likely perform a substantive procedure to check the accuracy of interest paid in
relation to the bonds, as well as inspecting documents pertaining to the original bond issue.
1 points
QUESTION 7
1. During the audit of Margram Enterprises Inc., a wholesaler of farming and agricultural
equipment throughout the Northeastern United States and Canada, a question has been
raised by one of the audit managers working on the audit as to the information being
provided to the auditor by management. Margram Enterprises is a long-time audit client,
and management turnover is generally low. Which of the following choices best represents
the auditors approach to evidence in this case?
2.The auditor should request written assurances from top management of the client,
preemptively confirming that any and all audit evidence submitted to the auditor will be
bona fide and accurate.
The auditor should treat documentary evidence submitted by the client's management with
the appropriate level of professional skepticism, confirming the accuracy, authenticity, and
legitimacy of the evidence where appropriate.
In every case, the external auditor should check the accuracy, authenticity and legitimacy of
documentary evidence submitted by management, and should request verification by the
client's internal auditors.
As Margram Enterprises represents a long-time and trusted audit client, the external
auditor should accept documentary evidence submitted by management and assume its
authenticity and legitimacy.
1 points
QUESTION 8
1. DayGlow Inc. is a manufacturer of specialized motors for racing cars and trucks, and
operates in both the American and Canadian markets. As part of the audit of DayGlow Inc.,
the partners of the external auditors, StraightLace LLC are meeting to discuss some areas of
potentially higher inherent risk. One area that has been mentioned is the client's
international operations; more specifically receivables from Canadian firms. Which of the
following best represents an audit procedure that might be used to audit this area?
2.An analytical procedure, whereby the auditors will examine trends in sales and associated
receivables from US clients to ensure that currency translation fluctuations have been
appropriately recorded.
A reperformance procedure, whereby the auditor reperforms the process of shipping to a
fictitious Canadian client and receiving funds at a later date in settlement of a receivable.
A recalculation procedure to ensure that the sales and receivables amounts are recorded
correctly, and have been adjusted as necessary due to foreign currency fluctuations.
A receivable confirmation procedure, whereby the auditor sends confirmations to a sample
of Canadian clients, requesting they confirm the balances owed to them by the client.
1 points
QUESTION 9
1. An important part of any audit is the gathering of sufficient and appropriate audit evidence
by the auditing team assigned to the engagement. Which of the following choices most
, accurately describes the types of audit evidence that an auditor might collect in order to
support his or her opinion on the financial statements?
2.The auditor is likely to collect a wide breadth of information to either corroborate or refute
the financial statement assertions made by management. The question of how much
evidence and the types of evidence to collect are generally a matter of auditor judgment.
The auditor is likely to collect many different types of information to support various
management assertions. The assertions pertaining to areas of higher inherent risk are likely
to be audited by the internal audit function due to their increased familiarity with the client.
During the preliminary stages of the audit, the auditor will determine which assertions
should be audited as part of the risk assessment phase. Once this is complete, the auditor
will apprise management of which assertions will be audited and the audit plan for each.
For areas of the audit representing higher inherent risk, the auditor is likely to solicit oral
evidence to corroborate or refute assertions in the financial statements. This is often done
by requesting verbal assurances from senior management to include in the final audit
report.
1 points
QUESTION 10
1. A fundamental premise of any external audit is checking assertions and searching for
evidence to either corroborate or refute these assertions. Which of the following statements
best describes the idea of an assertion and who holds responsibility for the assertions
made?
2.Management and the external auditors hold joint responsibility for the assertions
contained in the financial statements because management prepares the financial
statements which are then checked by the auditors.
Assertions are made by the client's management, and are implicit within the financial
statements. Management holds ultimate responsibility for the accuracy of these assertions.
Assertions are statements made by management regarding the presentation and
disclosure of notes contained in the financial statements and measurement of account
balances contained in the notes to the financial statements.
Assertions are made by the auditing firm after a careful preliminary review of the industry
in which the client operates and any specific operating characteristics that may be unique
to the client.
1 points
QUESTION 11
1. The quality of audit evidence is determined by its ________ in providing support for the
conclusions on which the auditor's opinion is based.
2.classification and understandability
relevance and reliability
accuracy and valuation
occurrence and rights and obligations
1 points
QUESTION 12
QUESTION 1
1. Assertions play a key role in the external audit of any firm. Assertions represent an efficient
and systematic method of auditing a client's accounts and disclosures. At what point in the
audit are assertions most likely to be used by the auditor?
2.Assertions are usually determined during the preliminary stages of the audit, with the
internal audit function typically assuming responsibility for assertions relating to areas of
higher risk.
Assertions are typically utilized by the auditor during the final stages of the audit, when the
auditor is checking assertions related to presentation and disclosure.
Assertions may be used by the auditor at various stages during the audit, and may relate to
risk assessment procedures and helping the auditor determine appropriate types of
evidence to collect.
Assertions are typically used by the auditor during the preliminary phases of the audit, as
they only relate to risk assessment procedures conducted by the auditor.
1 points
QUESTION 2
1. Auditors inspecting a sample of accounts payable balances listed on the ledger and verifying
that they are actual payables owed by the client gather evidence in support of the ________
assertion.
2.existence
occurrence
accuracy
completeness
1 points
QUESTION 3
1. As part of the audit of TableTop LLC, a manufacturer of high-end specialized furniture, the
partners of the external auditors, CPI Auditing Inc. are meeting to discuss which audit
procedures may be more appropriate in this case. The auditors are interested in learning
more about the quantities of materials that go into the products sold by TableTop LLC. A
method the auditor could use to achieve this would be to ________.
2.send confirmations to the client's vendors who supply raw materials to the client, asking
them to confirm this information
perform an inquiry procedure, inquiring of management as to the types and quantities of
material that go into each product and documenting the responses received
attempt to reperform the processes and procedures used by the client's manufacturing
staff, to corroborate the quantities used in the client's products
perform an observation procedure, which may involve either the auditor or a specialist
observing the materials used and the processes conducted in order to manufacture the
products
1 points
QUESTION 4
, 1. Verne external auditors are currently completing the audit of Davis, Inc., a manufacturer of
specialty furniture which sells in retail stores across the country. A question has been raised
by an audit manager with respect to the client's extensive use of leasing. The assertion that
would most likely be related to this would be the ________.
2.presentation and disclosure assertion, because the auditor will want to make sure that all
leases are not listed on the client's balance sheet or in the notes to the financial statements
rights and obligations assertion, because the auditor will be concerned with ensuring all
leases are recorded and noted as such, and not as the client's own assets
occurrence assertion, as the auditor will be looking to check to make sure that all historical
leases actually occurred
valuation assertion, as the auditor will need to check to ensure that the asset and liability
accounts associated with the lease are properly valued
1 points
QUESTION 5
1. Martha and Sallie are working on the audit of Bloom Company and are discussing
assertions. Martha, a seasoned auditor, has been given the task of training Sallie. Sallie is
attempting to understand more about audit procedures and has asked Martha to explain
how to determine when an assertion should be evaluated for a particular account. Martha's
most appropriate response to this question would be to ________.
2.advise that every assertion is applicable to every account, and the main concern for the
auditor is determining appropriate procedures to check each assertion
advise that different assertions will apply to different accounts, and they will not all apply to
each account. It is a matter of auditor judgment to determine which assertions may apply
to the accounts
explain that the auditor simply needs to either consult the prior year's audit file or contact
the predecessor auditor in the case of a new client to determine which assertions were
checked in prior years, and plan to audit these
explain that they, as external auditors, will work closely with the internal audit function who
will provide lists of which assertions need to be checked for each of the client's accounts
1 points
QUESTION 6
1. As part of the external audit of Candle Co., a regional distributor of candles and other wax
products, you have been assigned to audit the client's liability accounts. You are aware that
since the last audit, the client conducted a bond issue. Which of the following best
represents the types of evidence that you would collect to audit assertions pertaining to this
area?
2.Evidence would likely be gathered to confirm that internal controls in this area are effective,
as well as performing a vouching procedure to vouch cash paid out initially to bondholders
with bond certificates.
It is likely that you would conduct an inspection procedure to inspect documents related to
the bond issue, as well as analytical procedures to calculate interest expense related to the
bonds.
It is likely that you would perform a substantive procedure to match bond coupon
payments in the general ledger to the appropriate accounts, and inspect documents and
, certificates pertaining to the original bond issue.
You would likely perform a substantive procedure to check the accuracy of interest paid in
relation to the bonds, as well as inspecting documents pertaining to the original bond issue.
1 points
QUESTION 7
1. During the audit of Margram Enterprises Inc., a wholesaler of farming and agricultural
equipment throughout the Northeastern United States and Canada, a question has been
raised by one of the audit managers working on the audit as to the information being
provided to the auditor by management. Margram Enterprises is a long-time audit client,
and management turnover is generally low. Which of the following choices best represents
the auditors approach to evidence in this case?
2.The auditor should request written assurances from top management of the client,
preemptively confirming that any and all audit evidence submitted to the auditor will be
bona fide and accurate.
The auditor should treat documentary evidence submitted by the client's management with
the appropriate level of professional skepticism, confirming the accuracy, authenticity, and
legitimacy of the evidence where appropriate.
In every case, the external auditor should check the accuracy, authenticity and legitimacy of
documentary evidence submitted by management, and should request verification by the
client's internal auditors.
As Margram Enterprises represents a long-time and trusted audit client, the external
auditor should accept documentary evidence submitted by management and assume its
authenticity and legitimacy.
1 points
QUESTION 8
1. DayGlow Inc. is a manufacturer of specialized motors for racing cars and trucks, and
operates in both the American and Canadian markets. As part of the audit of DayGlow Inc.,
the partners of the external auditors, StraightLace LLC are meeting to discuss some areas of
potentially higher inherent risk. One area that has been mentioned is the client's
international operations; more specifically receivables from Canadian firms. Which of the
following best represents an audit procedure that might be used to audit this area?
2.An analytical procedure, whereby the auditors will examine trends in sales and associated
receivables from US clients to ensure that currency translation fluctuations have been
appropriately recorded.
A reperformance procedure, whereby the auditor reperforms the process of shipping to a
fictitious Canadian client and receiving funds at a later date in settlement of a receivable.
A recalculation procedure to ensure that the sales and receivables amounts are recorded
correctly, and have been adjusted as necessary due to foreign currency fluctuations.
A receivable confirmation procedure, whereby the auditor sends confirmations to a sample
of Canadian clients, requesting they confirm the balances owed to them by the client.
1 points
QUESTION 9
1. An important part of any audit is the gathering of sufficient and appropriate audit evidence
by the auditing team assigned to the engagement. Which of the following choices most
, accurately describes the types of audit evidence that an auditor might collect in order to
support his or her opinion on the financial statements?
2.The auditor is likely to collect a wide breadth of information to either corroborate or refute
the financial statement assertions made by management. The question of how much
evidence and the types of evidence to collect are generally a matter of auditor judgment.
The auditor is likely to collect many different types of information to support various
management assertions. The assertions pertaining to areas of higher inherent risk are likely
to be audited by the internal audit function due to their increased familiarity with the client.
During the preliminary stages of the audit, the auditor will determine which assertions
should be audited as part of the risk assessment phase. Once this is complete, the auditor
will apprise management of which assertions will be audited and the audit plan for each.
For areas of the audit representing higher inherent risk, the auditor is likely to solicit oral
evidence to corroborate or refute assertions in the financial statements. This is often done
by requesting verbal assurances from senior management to include in the final audit
report.
1 points
QUESTION 10
1. A fundamental premise of any external audit is checking assertions and searching for
evidence to either corroborate or refute these assertions. Which of the following statements
best describes the idea of an assertion and who holds responsibility for the assertions
made?
2.Management and the external auditors hold joint responsibility for the assertions
contained in the financial statements because management prepares the financial
statements which are then checked by the auditors.
Assertions are made by the client's management, and are implicit within the financial
statements. Management holds ultimate responsibility for the accuracy of these assertions.
Assertions are statements made by management regarding the presentation and
disclosure of notes contained in the financial statements and measurement of account
balances contained in the notes to the financial statements.
Assertions are made by the auditing firm after a careful preliminary review of the industry
in which the client operates and any specific operating characteristics that may be unique
to the client.
1 points
QUESTION 11
1. The quality of audit evidence is determined by its ________ in providing support for the
conclusions on which the auditor's opinion is based.
2.classification and understandability
relevance and reliability
accuracy and valuation
occurrence and rights and obligations
1 points
QUESTION 12
