San Jose State University

ACCOUNTING 129A

1. 1)Calculating the gross margin for the current year under audit as a percent of sales and comparing it with previous years is what type of evidence?
   1. Physical examination
   2. Analytical procedures
   3. Observation
   4. Inquiry

1. 1. 1. 1. 1. 1. 2. When the auditor develops supporting evidence for amounts posted to account balances with documentary evidence, that process is called:
                     1. inquiry.
                     2. confirmation.
                     3. vouching.
                     4. physical examination.

1. 1. 1. 1. 1. 1. 3. An example of an external document that provides reliable information for the auditor is:
                     1. employees' time reports.

1. 1. 1. 1. 1. 1. 1. 2. bank statements.
                     3. purchase order for company purchases.
                     4. carbon copies of checks.

1. 1. 1. 1. 1. 1. 4. An example of a document the auditor receives from the client, but which was prepared by someone outside the client's organization, is a:
                     1. confirmation.
                     2. sales invoice.
                     3. vendor invoice.
                     4. bank reconciliation.

1. 1. 1. 1. 1. 1. 5. The evaluations of financial information through analysis of plausible relationships among financial and nonfinancial data is the definition of:
                     1. analytical procedures.
                     2. tests of transactions.
                     3. tests of balances.
                     4. auditing.

1. 1. 1. 1. 1. 1. 6. Audit procedures can result in significant, unexpected differences. The auditor should investigate further if:

A)

B)

C)

D)

1. 1. 1. 1. 1. 1. 7. When the auditor uses tracing as an audit procedure for tests of transactions she is primarily concerned with which audit objective?
                     1. Occurrence
                     2. Completeness
                     3. Cutoff
                     4. Classification

1. 1. 1. 1. 1. 1. 8. When the auditor uses the audit procedure vouching she is primarily concerned with which of the following audit objectives when testing classes of transactions?

1. 1. 1. 1. 1. 1. 1. 1. Occurrence
                     2. Completeness
                     3. Authorization
                     4. Classification

1. 1. 1. 1. 1. 1. 9. When auditors use documentation to support recorded transactions and amounts, the process is usually called:
                     1. tracing.
                     2. confirmations.
                     3. vouching.
                     4. reperformance.

1. 1. 1. 1. 1. 1. 10. Analytical procedures must be used during which phase(s) of the audit? A)

B)

C)

D)

1. 1. 1. 1. 1. 1. 11. Auditors may decide to replace tests of details with analytical procedures when possible because the:
                      1. analytical procedures are more reliable.
                      2. analytical procedures are considerably less expensive.
                      3. analytical procedures are more persuasive.
                      4. tests of details are more difficult to interpret.

1. 1. 1. 1. 1. 1. 12. When making decisions about evidence for a given audit, the auditor's goal is to obtain a sufficient amount of timely, reliable evidence that is relevant to the information being verified. In addition, the goal of audit efficiency is to gather and evaluate the information:
                      1. no matter the cost involved in obtaining such evidence.
                      2. even if cost is irrelevant to the auditor, because they bill the client for costs incurred.
                      3. at the lowest possible total cost.
                      4. at the cost suggested in the engagement letter.

1. 1. 1. 1. 1. 1. 13. "Physical examination" is the inspection or count by the auditor of items such as:
                      1. cash, inventory, and payroll timecards.
                      2. cash, inventory, canceled checks, and sales documents.
                      3. cash, inventory, canceled checks, and tangible fixed assets.
                      4. cash, inventory, securities, notes receivable, and tangible fixed assets.

1. 1. 1. 1. 1. 1. 14. Which of the following statements is most correct regarding the primary purpose of audit procedures?
                      1. To detect all errors or fraudulent activities as well as illegal activities
                      2. To comply with auditing standards promulgated by the PCAOB for publicly held clients
                      3. To gather corroborative audit evidence about management's assertions regarding the client's financial statements
                      4. To determine the amount of errors in the balance sheet accounts in order to adjust the accounts to actual

1. 1. 1. 1. 1. 1. 15. Which of the following generally provides the most reliable evidence?
                      1. Confirmations
                      2. Recalculation
                      3. Reperformance
                      4. Observations

1. 1. 1. 1. 1. 1. 16. When practical and reasonable, U.S. auditing standards require the confirmation of:
                      1. individual transactions between organizations, such as sales transactions.
                      2. accounts receivable.
                      3. fixed asset additions.
                      4. payroll expenses.

1. 1. 1. 1. 1. 1. 17. To be considered reliable evidence, confirmations must be controlled by:
                      1. the client's employee responsible for accounts receivable.
                      2. the external auditor.
                      3. the client's internal audit department.
                      4. the client's controller or CFO.

1. 1. 1. 1. 1. 1. 18. Indicate whether confirmation of accounts receivable and accounts payable, provided they each are significant accounts, is required or optional:

A)

B)

C)

D)

1. 1. 1. 1. 1. 1. 19. The Auditing Standards Board has concluded that analytical procedures are so important that they are required during:
                      1. planning and test of control phases.

1. 1. 1. 1. 1. 1. 1. 2. planning and completion phases.
                     3. test of control and completion phases.
                     4. planning, test of control, and completion phases.

1. 1. 1. 1. 1. 1. 20. A benefit obtained from using industry averages is that it provides a(n):
                      1. benchmark to compare the company's results.
                      2. indication where errors exist in the statements.
                      3. benchmark to be used in evaluating a client's budgets.
                      4. comparison of "what is" with "what should be."

1. 1. 1. 1. 1. 1. 21. Physical examination:
                      1. is a direct means of verifying that an asset really exists.
                      2. is sufficient evidence to verify that the existing assets are owned by the client.
                      3. can be used for both tangible assets and documents.
                      4. is not generally a reliable type of audit evidence.

1. 1. 1. 1. 1. 1. 22. Which of the following is not a correct combination of terms and related type of audit evidence?
                      1. Inquire — inquiries of client
                      2. Count — physical examination
                      3. Recompute — documentation
                      4. Read — documentation

1. 1. 1. 1. 1. 1. 23. Which of the following is a correct statement regarding confirmations?
                      1. Confirmations can be in oral or written form.
                      2. Electronic confirmations are not acceptable under generally accepted auditing standards.
                      3. Confirmations are generally used in the audit of fixed asset additions.
                      4. Auditors consider alternative evidence available when determining if confirmations should be used.

1. 1. 1. 1. 1. 1. 24. An important benefit of industry comparisons is as:
                      1. an aid to understanding the client's business.
                      2. an indicator of errors.
                      3. an indicator of fraud.
                      4. a least-cost indicator for audit procedures.

1. 1. 1. 1. 1. 1. 25. The auditor is concerned that a client is failing to bill customers for shipments. An audit procedure that would gather relevant evidence would be to:
                      1. select a sample of duplicate sales invoices and trace each to related shipping documents.
                      2. trace a sample of shipping documents to related duplicate sales invoices.
                      3. trace a sample of Sales Journal entries to the Accounts Receivable subsidiary ledger.
                      4. compare the total of the Schedule of Accounts Receivable with the balance of the Accounts Receivable account in the general ledger.

1. 1. 1. 1. 1. 1. 26.                        is the auditor's examination of the client's documents and records to substantiate that the information is included in the financial statements.

1. 1. 1. 1. 1. 1. 1. 1. Inspection
                     2. Recalculation
                     3. Observation
                     4. Verification

1. 1. 1. 1. 1. 1. 27. Which of the following statements regarding the appropriateness of evidence is correct?
                      1. The effectiveness of a client's internal control has no influence on the reliability of most types of evidence.
                      2. Analytical procedures will be reliable evidence even if the client's internal controls are weak.
                      3. One type of evidence is generally sufficient by itself to provide appropriate evidence.
                      4. The objectivity of evidence obtained through inspection is high.

1. 1. 1. 1. 1. 1. 28. You are auditing the company's purchasing process for goods and services. You are primarily concerned with the company not recording all purchase transactions. Which audit procedure below would be the most effective audit procedure in this case?
                      1. Vouching from the accounts payable account to the vendor invoices
                      2. Tracing vendor invoices to recorded amounts in the accounts payable account
                      3. Confirmation accounts payable recorded amounts
                      4. Reconciling the accounts payable subsidiary ledger to the accounts payable account

1. 1. 1. 1. 1. 1. 29. Which of the following discoveries through the use of analytical procedures would most likely indicate a relatively high risk of financial failure?
                      1. A decline in gross margin percentages
                      2. An increase in the balance in fixed assets
                      3. An increase in the ratio of allowance for uncollectible accounts to gross accounts receivable, while at the same time accounts receivable turnover also decreased
                      4. A higher than normal ratio of long-term debt to net worth as well as a lower than average ratio of profits to total assets

1. 1. 1. 1. 1. 1. 30. Which of the following statements is correct regarding the costs involved in obtaining evidence?

A)

B)

C)

D)