Ch.

7 True/False
Study online at quizlet.com/_24ytc6
1.

True or False. A client's purchase order is much

better evidence than a confirmation returned from
the client's bank.

False.

18.

True or False. Evidence is worth more to the audit

process if it involves a member of the audit team
actually going out to physically observe it.

True.

2.

True or False. An advantage of directional testing is

that it is more efficient by providing evidence on
complementary sets of accounts.

True.

19.

True.

3.

True or False. Analytical procedures are a type of

substantive evidence.

True.

True or False. For an auditor to test the existence

assertion of assets, testing will be performed
beginning with the recorded asset and ending with
the source documents.

20.

False.

True or False. An auditor may test an account

balance by testing the transactions that comprise
the balance, by directly testing the final account
balance, or a combination of both.

True.

True or False. Inquiries of client personnel are not

an effective means of evidence gathering by an
auditor.

21.

True.

True or False. An example of physical examination

is the auditor's testing of inventory by counting it to
substantiate the existence assertion.

True.

True or False. Internal documentation is more

reliable to the auditor if the internal control
surrounding the documentation is considered strong.

22.

True.

6.

True or False. Assertions are not relevant to an

audit because the financial statements are
management's responsibility instead of the auditor's.

False.

True or False. In the performance of audit

procedures there is a preference by auditors to
focus on changes in account balances during the
year if the opening balances were audited the
previous year.

7.

True or False. Assertions are relevant to the audit

process because they are the representations of
management embodied in the financial statements.

True.

23.

True.

8.

True or False. Audit documentation serves as

support for the financial statements.

False.

True or False. Lead schedules are often created by

auditors to combine similar accounts, such as all
inventory accounts for further testing and
documentation.

24.

True.

9.

True or False. Audit documentation should include

either manual or electronic initials in order to
identify the audit personnel responsible for the work
and the managers and partners reviewing the work.

True.

True or False. One strategy used by auditors in

testing assertions is to perform directional testing
to find overstatements or understatements, but not
both, for a given class of account.

25.

True.

10.

True or False. Audit evidence is also known as the

audit opinion.

False.

True or False. Partners performing a concurring

audit review should have no other involvement in the
audit.

26.

True or False. Auditors must mail the confirmations

through the client's mailroom.

False.

12.

True or False. Audit planning workpapers are

prepared to support the foundation of the audit and
are prepared for the client to assist in their
understanding of the specific audit procedures that
will be performed.

False.

True or False. Presentation and disclosure

assertions imply that all transactions and balances
are properly presented, disclosures represent what
actually happened, and the footnote disclosures are
appropriate and adequate.

True.

11.

27.

True or False. Recent regulation requires that audit

documentation be retained for at least seven years.

True.

28.

True or False. Based upon the risk of misstatement,

the auditor uses judgment to determine which
balances and transactions should be tested in the
financial statements.

True.

True or False. Reliable evidence usually exists more

for transactions than for items making up an ending
balance.

False.

29.

True.

14.

True or False. Direct tests of account balances and

of transactions is a dual purpose test.

False.

True or False. Some audit procedures may be

performed prior to the close of the year under audit.

30.

False.

15.

True or False. Documentation that is produced

electronically by the client's internal systems are
not considered reliable to the audit process.

False.

True or False. Testimonial evidence concerns

review of publicly available information about the
client.

31.

True.

True or False. Dual purpose tests examines both

controls and the reasonableness of dollar amounts.
A good example is testing a sample of purchase
transactions that occurred throughout the year.

True.

True or False. Test of transactions, directional

testing and analytical procedures are used to
provide evidence about management's assertions
embedded in the financial statements.

32.

False.

True or False. Emails and faxes are documents that

represent important evidence to the auditor,
however, they are difficult to substantiate as
authentic.

True.

True or False. The amount of evidence gathered is

not important to an auditor since the quality of the
evidence is of primary importance.

4.

5.

13.

16.

17.

33.

True or False. The auditor multiplies the quantity of

inventory on the inventory ledger by the cost of the
inventory to arrive at total inventory balance per
product number. This is an example of
recomputation by footing.

False.

34.

True or False. The auditor's concern for potential

fraud in the financial statements will most likely
result in increased testing for the overstatement of
revenues.

True.

35.

True or False. The auditor's opinion on the financial

statements taken as a whole is the single most
important piece of information documenting the
financial statements.

False.

36.

True or False. The auditor utilizes the same audit

program and the same procedures each year for a
client in order to ensure that nothing is missed in
the current year audit.

False.

37.

True or False. The audit program specifies what the

client must do to perform the audit in accordance
with generally accepted audit procedures.

False.

38.

True or False. The client's purchase orders and

invoices are a more persuasive type of evidence
than evidence directly observed by the auditor.

False.

39.

True or False. The direction of testing from recorded

amounts toward supporting documentation provides
evidence as to occurrence of assets and revenues.

True.

40.

True or False. The direction of testing from the

source documents to recorded amounts provides
evidence regarding the completeness of liabilities
and expenses.

True.

41.

True or False. The extent of evidence gathered

during an audit is affected by the auditor's
assessment of detection risk.

True.

42.

True or False. The performance of analytical

procedures is often used by an auditor as a
procedure to gather certain types of audit evidence.

True.

43.

True or False. The primary evidence in support of an

auditor's conclusions is the auditor's documentation.

True.

44.

True or False. The primary importance of the audit

program is its guidance of the overall conduct of the
audit.

True.

45.

True or False. The quality of electronic evidence

depends on the controls built into the information
system.

True.

46.

True or False. The reliability of audit evidence

means that it is relevant to the audit objective.

True.

47.

True or False. Ulanda and Mudana, CPAs are

performing an audit on McArnee, Inc. Ulanda selects
a sample from certain source documents and traces
them forward to the accounts payable ledger. The
purpose of this test is to determine the possibility of
understated liabilities.

True.

48.

True or False. Underlying accounting records

consists of evidence of controls as well as
supporting records such as checks, invoices, the
general and subsidiary ledger and journal entries.

True.

49.

True or False. Vouching is a process that helps

establish that all recorded transactions are valid.

True.

50.

True or False. Vouching recorded transactions

involves taking a sample from the journal and tracing
them back to the source documents to ensure they
occurred.

True.