ACCT 543 Final Exam- Introduction to Auditing
COMPLETE EXAM LATEST VERSION 2026-2027
QUESTIONS AND 100% Verified ANSWERS
What is observation that's used for audit evidence? - answer>>>- watching a process or
procedure being performed by others
- generally used in combination with other procedures and only provides evidence when
the observation takes place
When is a re-performance audit evidence procedure usually done? - answer>>>Often
done when performing controls testing of a process by completing walkthroughs
What are purposes for analytical procedures? - answer>>>- understand the client's
business and industry
- assess the entity's ability to continue as a going concern
- indicate the possibility of financial statement misstatements
- provide evidence supporting an account balance
What are 3 things auditors need to decide when considering and gathering evidence? -
answer>>>- nature, time and extent of evidence
How long do auditors have to retain audit documentation for a certain year? -
answer>>>- Private company audit documentation must be kept for 5 years required by
AS
- Public company audit documentation must be kept for 7 years minimum required by
SOX
,What are permanent files kept by the company? - answer>>>- contain data of a historical
or continuing nature
- provide a convenient source of information that is used from year to year
What is planning materiality? - answer>>>The maximum amount the auditor believes the
financials could be misstated and still not effect the decisions of the users
What do auditing standards require for planning materiality? - answer>>>For auditors to
decide on a combined number of misstatements in the financial statements that would
be material early in the audit
What are some real world planning materiality practices? - answer>>>setting benchmark
percentages to total assets, total revenue, net income, etc., as to what is the materiality
threshold
In the planning materiality stage, how should auditors decide which benchmark account
to use? - answer>>>The one that would be most relevant to financial users in that year
What is performance materiality? - answer>>>- tolerable misstatement for a specific
account
- the max amount of a misstatement that can exist in an account without being material
- an amount set by the auditor that is less than planning materiality and is used to make
decisions about the extent of the audit procedures for a certain transaction or account
balance
,What is posting materiality? - answer>>>The uncorrected misstatements identified that
will be considered at the end of the audit in determining whether the financial
statements overall are materially correct
During the posting materiality phase, how do you determine if a specific account is
material misstated? - answer>>>- Multiply the planning materiality amount by the
tolerable misstatement percentage threshold for that account
During the posting materiality phase, how do you determine if the overall financials are
materially misstated? - answer>>>Add up the sum of total misstatement identified and
see if they are below or above the total planning materiality threshold number for the
overall financials
What are substantive tests? - answer>>>Procedures designed to test for actual dollar
amount misstatements that directly affect correctness of financial statements
What are substantive tests of transactions used to do? - answer>>>Satisfy any assertions
about client transactions
What is a test of control? - answer>>>Validating that someone or something such as a
system is doing their job as instructed by the internal control
How does the effectiveness of internal controls relate to substantive testing? -
answer>>>The more effective the internal controls are, the less substantive testing that
will need to be performed
, What are the 3 types of substantive tests? - answer>>>- substantive tests of transactions
- substantive analytical procedures
- tests of details of balances
What does it mean when control risk is high? - answer>>>The auditor is concerned that a
material misstatement may not be detected or corrected by management
What is a representative sample? - answer>>>A sample in which the characteristics in the
sample are approximately the same as those of the whole population
What is sampling risk? - answer>>>risk that an auditor reaches an incorrect conclusion
because the sample is not representative of the whole population
How can sampling risk be controlled? - answer>>>- taking a bigger sample size -
using the best method of selecting sample items from the population
How would the risk of incorrect acceptance by the auditor affect the audit risk? -
answer>>>Audit risk would increase because there is a risk that the audit will be
ineffective
What are implications of the risk of incorrect rejection? - answer>>>There would be an
increase in audit effort when it is not required as there is a risk that the audit will be
inefficient
COMPLETE EXAM LATEST VERSION 2026-2027
QUESTIONS AND 100% Verified ANSWERS
What is observation that's used for audit evidence? - answer>>>- watching a process or
procedure being performed by others
- generally used in combination with other procedures and only provides evidence when
the observation takes place
When is a re-performance audit evidence procedure usually done? - answer>>>Often
done when performing controls testing of a process by completing walkthroughs
What are purposes for analytical procedures? - answer>>>- understand the client's
business and industry
- assess the entity's ability to continue as a going concern
- indicate the possibility of financial statement misstatements
- provide evidence supporting an account balance
What are 3 things auditors need to decide when considering and gathering evidence? -
answer>>>- nature, time and extent of evidence
How long do auditors have to retain audit documentation for a certain year? -
answer>>>- Private company audit documentation must be kept for 5 years required by
AS
- Public company audit documentation must be kept for 7 years minimum required by
SOX
,What are permanent files kept by the company? - answer>>>- contain data of a historical
or continuing nature
- provide a convenient source of information that is used from year to year
What is planning materiality? - answer>>>The maximum amount the auditor believes the
financials could be misstated and still not effect the decisions of the users
What do auditing standards require for planning materiality? - answer>>>For auditors to
decide on a combined number of misstatements in the financial statements that would
be material early in the audit
What are some real world planning materiality practices? - answer>>>setting benchmark
percentages to total assets, total revenue, net income, etc., as to what is the materiality
threshold
In the planning materiality stage, how should auditors decide which benchmark account
to use? - answer>>>The one that would be most relevant to financial users in that year
What is performance materiality? - answer>>>- tolerable misstatement for a specific
account
- the max amount of a misstatement that can exist in an account without being material
- an amount set by the auditor that is less than planning materiality and is used to make
decisions about the extent of the audit procedures for a certain transaction or account
balance
,What is posting materiality? - answer>>>The uncorrected misstatements identified that
will be considered at the end of the audit in determining whether the financial
statements overall are materially correct
During the posting materiality phase, how do you determine if a specific account is
material misstated? - answer>>>- Multiply the planning materiality amount by the
tolerable misstatement percentage threshold for that account
During the posting materiality phase, how do you determine if the overall financials are
materially misstated? - answer>>>Add up the sum of total misstatement identified and
see if they are below or above the total planning materiality threshold number for the
overall financials
What are substantive tests? - answer>>>Procedures designed to test for actual dollar
amount misstatements that directly affect correctness of financial statements
What are substantive tests of transactions used to do? - answer>>>Satisfy any assertions
about client transactions
What is a test of control? - answer>>>Validating that someone or something such as a
system is doing their job as instructed by the internal control
How does the effectiveness of internal controls relate to substantive testing? -
answer>>>The more effective the internal controls are, the less substantive testing that
will need to be performed
, What are the 3 types of substantive tests? - answer>>>- substantive tests of transactions
- substantive analytical procedures
- tests of details of balances
What does it mean when control risk is high? - answer>>>The auditor is concerned that a
material misstatement may not be detected or corrected by management
What is a representative sample? - answer>>>A sample in which the characteristics in the
sample are approximately the same as those of the whole population
What is sampling risk? - answer>>>risk that an auditor reaches an incorrect conclusion
because the sample is not representative of the whole population
How can sampling risk be controlled? - answer>>>- taking a bigger sample size -
using the best method of selecting sample items from the population
How would the risk of incorrect acceptance by the auditor affect the audit risk? -
answer>>>Audit risk would increase because there is a risk that the audit will be
ineffective
What are implications of the risk of incorrect rejection? - answer>>>There would be an
increase in audit effort when it is not required as there is a risk that the audit will be
inefficient
