San Jose State University

ACCOUNTING 129A

Chapter 13

1)Shown below (1 through 5) are the five types of tests which auditors use to determine whether financial statements are fairly stated. Which three are substantive tests?

1. Risk assessment procedures
2. Tests of controls
3. Tests of transactions
4. Substantive analytical procedures
5. Tests of details of balances A) 1, 2, and 3.

B) 3, 4, and 5.

C) 2, 3, and 5.

D) 2, 3, and 4.

2. Collectively, procedures performed to obtain an understanding of the entity and its environment, including internal controls, represent the auditor's:
   1. audit strategy.
   2. tests of controls.
   3. risk assessment procedures.
   4. tests of transactions.

3. Which of the following would not be considered further audit procedures?

1. Tests of controls
2. Analytical procedures
3. Tests of details of balances
4. Risk assessment procedures

4. Which of the following procedures would most likely be performed in response to the auditor's assessment of the risk of monetary misstatements in the financial statements?

1. Ratio analysis
2. Tests of controls
3. Tests of details of balances
4. Risk assessment procedures

5. Which of the following further audit procedures are used to determine whether all six transaction-related audit objectives have been achieved for each class of transactions?
   1. Tests of controls
   2. Risk assessment procedures
   3. Substantive tests of transactions
   4. Preliminary analytical procedures

6. You are auditing Rodgers and Company. After performing substantive analytical procedures you conclude that, for the accounts tested, the client's balance appears reasonable. This may indicate that:

1. details test of balances can be eliminated for those accounts.
2. certain tests of details of balances may be eliminated for those accounts.
3. control tests may be eliminated for those accounts.
4. control tests may be reduced for those accounts.

7. The purpose of tests of controls is to provide reasonable assurance that the:

1. accounting treatment of transactions and balances is valid and proper.
2. internal control procedures are functioning as intended.
3. entity has complied with GAAP disclosure requirements.
4. entity has complied with requirements of quality control.

8. In the context of an audit of financial statements, substantive tests are audit procedures that:

1. may be eliminated under certain conditions.
2. are designed to discover significant subsequent events.
3. are designed to test for dollar misstatements.
4. will increase proportionately with the auditor's reliance on internal control.

9. Which of the following is true?

1. Tests of details of balances focus on the ending general ledger balances for both balance sheet and income statement accounts.
2. Tests of details of balances focus on the transactions during the period for both balance sheet and income statement accounts.

3. Tests of details of balances focus on the auditor's understanding of internal controls.
4. Tests of details of balances focus on comparisons of recorded amounts to expectations developed by the auditor.

10. A system walkthrough is primarily used to help the auditor:
    1. test the ending account balances.
    2. test the details of transactions.
    3. determine whether internal controls are in place.
    4. determine whether the audit engagement should be accepted.

11. Risk assessment procedures are performed by auditors during an audit in order to:
    1. determine the risk of material misstatement in the financial statements.
    2. determine the amount of testing of internal control.
    3. determine the extent of testing of details of balances.
    4. determine the extent of testing of transactions.

12. Tests of controls are directed toward the control's:
    1. efficiency.
    2. effectiveness.
    3. cost and effectiveness.
    4. cost benefit ratio.

13. A procedure designed to test for monetary misstatements directly affecting the correctness of financial statement balances is a:
    1. test of controls.
    2. substantive test.
    3. test of attributes.
    4. monetary-unit sampling test.

14. Analytical procedures:
    1. involve comparisons of recorded amounts to expectations developed by management.
    2. are only performed during the planning stage of the audit.
    3. are required to be performed when auditing an account balance.
    4. provide substantive evidence.

15. The primary emphasis in most tests of details of balances is on the:
    1. balance sheet accounts.
    2. revenue accounts.
    3. cash flow statement accounts.
    4. expense accounts.

16. Which of the following statements is NOT true?
    1. Analytical procedures emphasize the overall reasonableness of transactions and balances.
    2. Tests of controls are concerned with evaluating whether controls are sufficiently effective to justify reducing control risk and thereby reducing analytical review procedures.

1. 3. Substantive tests of transactions emphasize the verification of transactions recorded in the journals and then posted in the general ledger.
   4. Tests of details of balances emphasize the ending balances in the general ledger.

17. Many auditors perform extensive analytical procedures on audits because:
    1. they are required by GAAS.
    2. they pinpoint errors in accounts.
    3. they indicate areas of potential risk and misstatement.
    4. they are required for tests of controls.

18. When controls are deemed ineffective and assessed control risk is at the maximum for a private company, which of the following would normally be true?
    1. No emphasis is placed on the controls.
    2. Relatively little emphasis is placed on the controls.
    3. Moderate emphasis is placed on the controls.
    4. Heavy emphasis is placed on the controls.

19. Which of the following is ordinarily designed to detect material dollar errors on the financial statements?
    1. Tests of controls
    2. Analytical review procedures
    3. Computer controls
    4. Tests of details of balances

28. In order to promote audit efficiency the auditor considers cost in selecting audit tests to perform. Which of the following audit tests would be the most costly?
    1. Analytical procedures
    2. Risk assessment procedures
    3. Tests of controls
    4. Tests of details of balances

29. An exception or deficiency found in a test of controls:
    1. indicates a financial statement misstatement.
    2. indicates the likelihood of a misstatement.
    3. indicates that the financial statements are fairly stated.
    4. indicates that an adverse opinion is warranted on the audit of internal control

30. If no material differences are found using analytical procedures and the auditor concludes that misstatements are not likely to have occurred:
    1. other substantive tests may be reduced.
    2. it will be necessary to increase the tests of balances.
    3. it will not be necessary to perform tests of balances.
    4. it will be necessary to increase the tests of transactions.

31. Which of the following audit tests is usually the least costly to perform?
    1. Analytical procedures

1. 2. Tests of controls
   3. Tests of balances
   4. Substantive tests of transactions

32. An increased extent of tests of controls is most likely to occur when:
    1. it is a first-year audit.
    2. the auditor is doing a "fraud audit."
    3. controls are effective and the preliminary control risk assessment is low.
    4. controls are ineffective and the preliminary control risk assessment is high.

33. When an auditor believes that analytical procedures indicate a reasonable possibility of misstatement, the auditor usually would:

A)

B)

C)

D)

34. If tests of controls support the control risk assessment, then                            in the audit risk model is increased.
    1. planned detection risk.
    2. planned inherent risk.
    3. planned fraud risk.
    4. planned assurance risk.

35. The auditor would design which of the following audit tests to detect possible monetary errors in the financial statements?
    1. Control tests
    2. Analytical procedures
    3. Risk assessment procedures
    4. Tests of operating effectiveness of controls over revenue and cash

36. The reliance the auditor places on substantive tests in relation to the reliance placed on internal control varies in a relationship that is ordinarily:
    1. parallel.
    2. inverse.
    3. direct.
    4. equal.