ACCT 444 Week 3 Quiz Solution

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ACCT 444 Week 3 Quiz Solution

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ACCT 444 Week 3 Quiz Solution



Week 3 : Audit Evidence, Planning, Risk, & Materiality – Quiz

  1. (TCO 6) Physical examination is the inspection or count by the auditor of items such as (Points : 3)

cash or inventory only.

cash, inventory, canceled checks, and sales documents.

cash, inventory, canceled checks, and tangible fixed assets.

cash, inventory, securities, notes receivable, and tangible fixed assets.

Chapter 7


  1. (TCO 6) The distinction between physical examination of assets and examination of documents is dependent on the item being examined. If the object being examined has no inherent value, the evidence is called (Points : 3)


physical examination.


none of the above.

Chapter 7


  1. (TCO 6) Which of the following statements regarding documentation is not correct? (Points : 3)

Documentation includes examining client records, such as general ledgers and supporting journals.

Internal documents are documents that are generated within the company and used to communicate with external parties.

External documents are documents that are generated outside of the company and are used to communicate the results of a transaction.

All of the above are correct statements

Chapter 7


  1. (TCO 6) Which of the following is not a purpose of analytical procedures? (Points : 3)

Understand the client’s industry

Assess the client’s ability to continue as a going concern

Identify misstatements

Reduce detailed audit tests

Chapter 7


  1. (TCO 6) Analytical procedures are (Points : 3)

diagnostic tests of financial information that may not be classified as evidential matter.

calculations of financial information made by a computer.

substantive tests of financial information made by a study and comparison of relationships among data.

statistical tests of financial information designed to identify areas requiring intensive investigation.

Chapter 7


  1. (TCO 6) When analytical procedures reveal no unusual fluctuations, the implication is that (Points : 3)

there are no material errors or irregularities.

there are no material errors.

there are no material irregularities.

the possibility of a material error or irregularity is lessened.

Chapter 7





  1. (TCO 6) The Auditing Standards Board has concluded that analytical procedures are so important that they are required during (Points : 3)

planning and testing phases.

planning and completion phases.

testing and completion phases.

planning, testing, and completion phases.

Chapter 7


  1. (TCO 6) The primary purpose of performing analytical procedures in the testing phase of an audit is to (Points : 3)

help the auditor obtain an understanding of the client’s industry and business.

assess the going concern assumption.

indicate possible misstatements.

reduce detailed tests.

Chapter 7


  1. (TCO 6) Which of the following statements regarding analytical procedures is not correct? (Points : 3)

The definition of analytical tests emphasizes a comparison of client’s data to GAAP.

Analytical procedures are required on all audits.

Analytical procedures can be used as substantive tests.

For certain accounts with small balances, analytical procedures alone may be sufficient evidence.

Chapter 7


  1. (TCO 6) Which of the following statements about confirmation is true? (Points : 3)

Confirmations are expensive and so are often not used.

Confirmations may inconvenience those asked to supply them, but they are widely used.

Confirmations are sometimes not reliable and so auditors use them only as necessary.

None of the above statements are true.

Chapter 7


  1. (TCO 6) Three common types of confirmations used by auditors are (1) negative confirmations where only a response is requested if the debtor disagrees with the amount, (2) positive confirmations with a request for information where the debtor is requested to respond and to include their believed balance, and (3) positive confirmations with the information included where the debtor is requested to respond and to confirm the balance we give them. If they were placed in the order of their competence, from highest to lowest, the sequence would be (Points : 3)

3, 1, 2.

1, 2, 3.

3, 2, 1.

2, 3, 1.

Chapter 7


  1. (TCO 6) Traditionally, confirmations are used to verify (Points : 3)

individual transactions between organizations, such as sales transactions.

bank balances and accounts receivables.

fixed asset additions.

All of the above

Chapter 7


  1. (TCO 7) The major concern when using nonfinancial data in analytical procedures is the (Points : 3)

accuracy of the nonfinancial data.

source of the nonfinancial data.

type of nonfinancial data.

presence of multiple sources of nonfinancial data.

Chapter 8


  1. (TCO 7) Analytical procedures used in planning an audit should focus on identifying (Points : 3)

material weaknesses of internal control.

the predictability of financial data from individual transactions.

the various assertions that are embodied in the financial statements.

areas that may represent specific risks relevant to the audit.

Chapter 8

  1. (TCO 7) Which of the following is correct with respect to the use of analytical procedures? (Points : 3)

Analytical procedures may be used in evaluating balances in the testing phase as long as the auditor also uses them in assessing the going concern assumption.

Analytical procedures must be used throughout the audit.

Analytical procedures used in the testing phase of the audit are primarily used to direct an auditor’s attention so that the auditor’s understanding of the business is improved.

None of the above

Chapter 8


  1. (TCO 7) A measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued is the (Points : 3)

inherent risk.

acceptable audit risk.

statistical risk.

financial risk.

Chapter 8


  1. (TCO 7) When inherent risk is high, there will need to be (Points : 3)

more evidence accumulated.

more experienced staff assigned to the work.

either a or b, but not both.

both a and b.

Chapter 8


  1. (TCO 7) A measure of the auditor’s assessment of the likelihood that there are material misstatements in an account before considering the effectiveness of the client’s internal control is (Points : 3)

acceptable audit risk.

control risk.

inherent risk.

statistical risk.

Chapter 8


  1. (TCO 7) What is the responsibility of a successor auditor with respect to communicating with the predecessor auditor in connection with a prospective new audit client? (Points : 3)

The successor auditor has no responsibility to contact the predecessor auditor.

The successor auditor should obtain permission from the prospective client to contact the predecessor auditor.

The successor auditor should contact the predecessor regardless of whether the prospective client authorizes contact.

The successor auditor need not contact the predecessor if the successor is aware of all available relevant facts.

Chapter 8


  1. (TCO 7) A successor auditor may perform which of the following for a new audit client? (Points : 3)

Speak to local attorneys, banks, and other businesses regarding the company’s reputation

Speak to the predecessor auditor about disagreements they had with management

Interview client personnel to better understand the business and associated risks

All of the above

Chapter 8


  1. (TCO 7) Which of the following is not correct regarding the communications between successor and predecessor auditors? (Points : 3)

The burden of initiating the communication rests with the predecessor auditor.

The burden of initiating the communication rests with the successor auditor.

The predecessor auditor must receive their former client’s permission prior to divulging information to the successor auditor.

The predecessor auditor may choose to provide a limited response to a successor auditor.

Chapter 8



  1. (TCO 8) The FASB definition of materiality emphasizes what class of financial statement users? (Points : 3)


Informed investors

Reasonable persons

Potential investors

Chapter 9


  1. (TCO 8) Auditors are responsible for determining whether financial statements are materially misstated, so upon discovering a material misstatement, they must bring it to the attention of (Points : 3)


the audit firm’s managing partner.

no one in particular.

the client’s management.

Chapter 9


  1. (TCO 8) The preliminary judgment about materiality is the _____ amount by which the auditor believes the statements could be misstated and still not affect the decisions of reasonable users. (Points : 3)



mean average

median average

Chapter 9


  1. (TCO 8) In setting materiality guidelines for current assets, the two standard setters, FASB and the AICPA, provide the following guidelines to practitioners (Points : 3)

Both agree that materiality should be set at an amount greater than 10% of current assets.

FASB’s guideline is greater than 10%, but the AICPA’s is greater than 5%.

Both agree that it should be greater than 5%.

No specific materiality guidelines are provided by either of them.

Chapter 9


  1. (TCO 8) Auditors are _____ to decide on the combined amount of misstatements in the financial statements that they would consider material early in the audit. (Points : 3)



not allowed

strongly encouraged

Chapter 9


  1. (TCO 8) When auditors allocate the preliminary judgment about materiality to account balances, the materiality allocated to any given account balance is referred to as (Points : 3)

the materiality range.

the error range.

tolerable materiality.

tolerable misstatement.

Chapter 9

  1. (TCO 8) Which of the following is not a correct statement regarding the allocation of the preliminary judgment about materiality to balance sheet accounts? (Points : 3)

Auditors expect certain accounts to have more misstatements than others.

The allocation has virtually no effect on audit costs because the auditor must collect sufficient appropriate audit evidence.

Auditors expect to identify overstatements as well as understatements in the accounts.

Relative audit costs affect the allocation.


Chapter 9


  1. (TCO 8) Which of the following elements ultimately determines the specific auditing procedures that are necessary in the circumstances to afford a reasonable basis for an opinion? (Points : 3)

Inherent risk


Auditor judgment

Reasonable assurance

Chapter 9


  1. (TCO 8) Why do auditors establish a preliminary judgment about materiality? (Points : 3)

To determine the appropriate level of audit experience required for the work

So that the client can know what records to make available to the auditor

To plan the appropriate audit evidence to accumulate and develop an overall audit strategy

None of the above

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