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BMGT 422 Ch. 6 Questions with Detailed Verified Answers
(100% Correct Answers) /Already Graded A+
Sufficiency of audit evidence concerns what? What affects sufficiency?
Ans: The quantity of audit evidence; quantity is affected by assessment of risk
of material misstatement (more risk=more evidence) and quality of evidence
(better quality=less evidence)
When performing substantive tests, what does an auditor consider to select
sample size?
Ans: client factors, like the risk of material misstatement and assurance
obtained from other substantive procedures performed by the auditor
When performing tests of controls, what does an auditor consider to select
sample size?
Ans: whether client has tested controls as a basis for its assertion on the
effectiveness of internal control, and type of control being tested (shorter term
controls require larger sample)
What additional consideration is required when auditing controls over
adjusting entries?
Ans: the better the control environment, the smaller the sample size; want to
determine that a) other controls aren't being overridden by management b)
there is support for the adjusting entries c) the entries are properly approved
by the appropriate level of management
high number of transactions=sampling, low number of transactions=focus on
larger transactions
Appropriateness of audit evidence concerns what? What affects
appropriateness?
Ans: measures evidence quality; includes relevance of evidence; relevance
determines if the evidence provides insight on the validity of the assertion
being tested and reliability of evidence (whether evidence is convincing)
What affects relevance of audit evidence?
Approved By:
vPretest - Stuvia US
, 2
Ans: the purpose of the procedure being performed, the direction of testing,
and the specific procedure/set of procedures being performed; evidence can be
either directly or indirectly relevant
What does the purpose of an audit procedure determine?
Ans: whether the procedure is a risk assessment procedure, test of controls,
or substantive procedure
What is the goal of directional testing?
Ans: to test balances primarily for either overstatement or understatement,
but not both
What does vouching test?
Ans: tests for existence/occurrence by comparing sample of ledger to source
document (overstatement); typically used to test assets and revenues
What does tracing test?
Ans: tests for completeness by comparing sample of source document to the
ledger (understatement); typically used to test liabilities and expenses
What affects the reliability of audit evidence?
Ans: source (internal or external), nature, and circumstances under which the
evidence is obtained (inquiry, physical documentation, etc)
What factors affect the reliability of internal documentation?
Ans: effectiveness of internal controls over documentation, management
motivation to misstate individual accounts (ie fraud potential), formality of the
documentation, and independence of those preparing documentation
What factors affect the reliability of external documentation?
Ans: if the documentation was prepared by a knowledgeable/independent
outside party and if the documentation is received directly by the auditor
What is a management's specialist?
Approved By:
vPretest - Stuvia US
BMGT 422 Ch. 6 Questions with Detailed Verified Answers
(100% Correct Answers) /Already Graded A+
Sufficiency of audit evidence concerns what? What affects sufficiency?
Ans: The quantity of audit evidence; quantity is affected by assessment of risk
of material misstatement (more risk=more evidence) and quality of evidence
(better quality=less evidence)
When performing substantive tests, what does an auditor consider to select
sample size?
Ans: client factors, like the risk of material misstatement and assurance
obtained from other substantive procedures performed by the auditor
When performing tests of controls, what does an auditor consider to select
sample size?
Ans: whether client has tested controls as a basis for its assertion on the
effectiveness of internal control, and type of control being tested (shorter term
controls require larger sample)
What additional consideration is required when auditing controls over
adjusting entries?
Ans: the better the control environment, the smaller the sample size; want to
determine that a) other controls aren't being overridden by management b)
there is support for the adjusting entries c) the entries are properly approved
by the appropriate level of management
high number of transactions=sampling, low number of transactions=focus on
larger transactions
Appropriateness of audit evidence concerns what? What affects
appropriateness?
Ans: measures evidence quality; includes relevance of evidence; relevance
determines if the evidence provides insight on the validity of the assertion
being tested and reliability of evidence (whether evidence is convincing)
What affects relevance of audit evidence?
Approved By:
vPretest - Stuvia US
, 2
Ans: the purpose of the procedure being performed, the direction of testing,
and the specific procedure/set of procedures being performed; evidence can be
either directly or indirectly relevant
What does the purpose of an audit procedure determine?
Ans: whether the procedure is a risk assessment procedure, test of controls,
or substantive procedure
What is the goal of directional testing?
Ans: to test balances primarily for either overstatement or understatement,
but not both
What does vouching test?
Ans: tests for existence/occurrence by comparing sample of ledger to source
document (overstatement); typically used to test assets and revenues
What does tracing test?
Ans: tests for completeness by comparing sample of source document to the
ledger (understatement); typically used to test liabilities and expenses
What affects the reliability of audit evidence?
Ans: source (internal or external), nature, and circumstances under which the
evidence is obtained (inquiry, physical documentation, etc)
What factors affect the reliability of internal documentation?
Ans: effectiveness of internal controls over documentation, management
motivation to misstate individual accounts (ie fraud potential), formality of the
documentation, and independence of those preparing documentation
What factors affect the reliability of external documentation?
Ans: if the documentation was prepared by a knowledgeable/independent
outside party and if the documentation is received directly by the auditor
What is a management's specialist?
Approved By:
vPretest - Stuvia US
