23) Tests of controls provide evidence about the likelihood for misstatements in a client’s
financial statements.
24) An exception in a test of control provides only an indication of the likelihood of monetary
misstatements in the financial statements because tests of controls do not reveal whether
monetary misstatements have actually occurred.
13.3 Learning Objective 13-3
1) Which of the following is generally not included in the “evidence mix”?
A) tests of controls
B) substantive tests of transactions
C) risk assessment procedures
D) tests of details of balances
2) The ________ is the combination of the types of tests to obtain sufficient appropriate evidence
for a cycle. There are likely to be variations in the mix from cycle to cycle depending on the
circumstances of the audit.
A) testing mix
B) evidence mix
C) audit process mix
D) procedures mix
3) Which of the following would most likely not be included in the evidence mix for an
integrated audit of a public company’s financial statements and internal control over financial
reporting?
A) sophisticated internal controls
B) extensive substantive analytical procedures
C) extensive tests of details of balances
D) low inherent risk
4) If the auditor finds extensive control test deviations and significant misstatements while
performing substantive tests of transactions and substantive analytical procedures,
A) the cost of the audit should decrease.
B) the auditor will conclude that internal controls are effective.
C) extensive tests of details of balances will need to be performed.
D) all of the above
5) The evidence mix includes risk assessment procedures.
6) The choice of which types of tests to use and how extensively they need to be performed must
be the same for all audits.
13.4 Learning Objective 13-4
1) The document that details the specific audit procedures for each type of test is the
A) audit strategy.
B) audit program.
C) audit procedure.
D) audit risk model.
2) Auditors follow a four step approach to reduce assessed control risk. Which of the following
is not one of the four?
A) Apply transaction-related audit objectives to a class of transactions.
B) Identify accounts that have high inherent risk.
C) Identify key controls that reduce control risk.
D) For potential misstatements, design appropriate substantive tests of transactions.
3) When designing the audit program and the particular audit tests, the auditor should keep in
mind that
A) the audit program is broken down into two parts-the risk assessment procedures and the tests
of details of balances.
B) the tests of controls will not vary depending on assessed control risk.
C) analytical procedures performed during substantive testing are generally more focused and
more extensive than those done as part of planning.
D) auditing standards require that the tests contained in the audit program must be approved by
the PCAOB.
4) The auditor obtained an aged list of receivables and traced the accounts to the master file,
footed the schedule, and traced the amounts to the general ledger. Which balance-related audit
objective was met?
A) existence
B) cutoff
C) detail tie-in
D) all of the above
5) When designing tests of controls and substantive tests an auditor is gathering evidence to
satisfy the transaction-related audit objectives. What are the four steps the auditor would
normally follow to reduce assessed control risk?
6) One of the most challenging parts of auditing is properly applying the factors that affect tests
of details of balances.
7) Auditing standards require a written audit program.
8) When designing an audit program for tests of details of balances, the auditor should make
assumptions about inherent risk and control risk, and predictions concerning the outcome of tests
of controls, substantive tests of transactions, and analytical procedures.
9) Once set during the planning phase, the audit program cannot be revised.
10) Inherent risk can be extended to individual balance-related audit objectives.
11) When controls are effective and control risk is assessed as low, auditors put heavy emphasis
on tests of balances.
13.5 Learning Objective 13-5
1) There is a direct relationship between the ________ transaction-related audit objective and the
________ balance-related audit objective.
A) occurrence; existence
B) timing; cutoff
C) posting and summarization; detail tie-in
D) all of the above
2) If all transaction-related audit objectives are met, the auditor does not need to perform
substantive test of balances to meet the realizable value audit objective.
3) The auditor performs tests of controls and substantive procedures to obtain assurance that all
audit objectives are achieved for information and amounts included in those disclosures.
13.6 Learning Objective 13-6
1) What type of test is used to obtain the most types of evidence?
A) substantive tests of transactions
B) tests of controls
C) risk assessment tests
D) tests of details of balances
2) Which phase(s) of the audit uses inquiries of clients as a type of evidence?
A) plan and design
B) tests of controls and substantive tests of transactions
C) completion of the audit and issuance of the audit report
D) all of the above
3) Which audit tests involve physical examination and confirmation?
A) tests of controls
B) tests of transactions
C) tests of details of balances
D) analytical procedures
4) Which of the following types of evidence is not available when using substantive tests of
transactions?
A) inspection
B) confirmation
C) inquiries of the client
D) reperformance
5) Presentation and disclosure objectives are primarily addressed in the tests of details of
balances phase of the audit.
13.7 Learning Objective 13-7
1) Presentation and disclosure related audit objectives would be performed in which phase of the
audit process?
A) plan and design audit approach
B) perform audit tests for controls and transactions
C) perform analytical procedures and tests of balances
D) complete the audit and issue the audit report
2) Transaction-related audit objectives would most likely be performed in which phase of the
audit process?
A) plan and design audit approach
B) perform tests of controls and substantive tests of transactions
C) perform substantive analytical procedures and tests of details of balances
D) complete the audit and issue the audit report
3) Which of the following is an accurate statement regarding the four phases of the audit
process?
A) After the planning stage, the auditor should have a well-defined audit strategy and plan and a
specific audit program for the entire audit.
B) The objective of phase III is to perform tests of controls.
C) During phase II, the auditor must evaluate the going-concern assumption.
D) All of the above are correct statements.
4) Which of the following tests commonly occur together?
A) substantive tests of transactions and tests of controls
B) substantive tests of transactions and obtaining an understanding of internal controls
C) analytical procedures and tests of controls
D) tests of controls and tests of details of balances
5) Tests of controls and substantive tests of transactions are an important determinant of the
extent of the auditor’s use of tests of details of balances. Which of the following is true?
A) They are likely to be performed prior to the client’s end of the fiscal year.
B) They are likely to eliminate the need for tests of details of balances.
C) They are likely to have no impact on the planned tests of details of balances.
D) They are likely to be used only in the audit of internal control.
6) When the auditor has completed the tests of details of balances and enters phase IV of the
audit process, she must still perform audit procedures for which of the following?
A) contingent liabilities and employee compensation
B) contingent liabilities and subsequent events
C) subsequent events and contractual commitments
D) subsequent events and unrecorded liabilities
7) Which of the following audit tests would be regarded as a test of controls?
A) comparison of the inventory pricing to vendors’ invoices
B) tests of the signatures on canceled checks to board of directors’ authorizations
C) tests of the additions to property, plant, and equipment by physical inspections
D) review of the specific items making up the balance in a given general ledger account
8) Which of the following audit tests form the basis for an auditor’s report on internal control
over financial reporting?
A) analytical procedures
B) tests of transactions
C) tests of controls
D) tests of details of balances
9) Management implements internal controls to ensure that all required footnote disclosures are
accurate. Auditors tests those controls to provide evidence supporting the ________ presentation.
A) completeness and valuation
B) completeness and accuracy
C) rights and obligations and existence
D) occurrence and accuracy
10) At what point in the audit process are tests of details most appropriately designed?
A) plan and design audit approach
B) perform audit tests of controls and substantive tests of transactions
C) perform substantive analytical procedures and tests of details of balances
D) complete the audit and issue the audit report
11) Which of the following is not completed during phase IV of the audit?
A) Obtain a client representation letter.
B) Read information in the annual report to make sure that it is consistent with the financial
statements.
C) Perform substantive tests of transactions.
D) Perform final analytical procedures.
12) For clients with highly sophisticated computerized accounting systems, auditors perform
tests throughout the year to identify significant or unusual transactions. This approach is called
________ and is frequently used in integrated audits of financial statements and internal control
for public companies.
A) continuous audit program
B) continuous auditing
C) continuous analytical testing
D) continuous audit mix
13) Analytical procedures performed during phase III of the audit
A) must be performed before the balance sheet date.
B) can be used as a means of planning and directing other audit tests to specific areas.
C) should be done after tests of details of balances.
D) are expensive and are therefore not frequently used by the auditor.
14) In phase IV of the audit, complete the audit and issue an audit report, there are five activities
required. List below the activities.
15) In accumulating final evidence upon which to base an audit opinion, the auditor should
perform four activities. List the activities below.
16) Discuss the major activities and procedures performed by the auditor in the plan and design
of the audit approach.
17) The auditor must communicate significant deficiencies in internal control only after the
entire audit is complete to ensure the auditor has a sufficient understanding of the circumstances
surrounding the deficiency.
18) Subsequent events represent events that occasionally occur after the balance sheet date, but
before the issuance of the financial statements and the auditor’s report, that have an effect on the
financial statements.
19) Substantive tests of balances performed before year-end provide significant assurance and
are normally only done when internal controls are ineffective.