7) Below are five audit procedures, all of which are tests of transactions associated with the audit
of the acquisition and payment cycle. Also below are the six general transaction-related audit
objectives and the five management assertions. For each audit procedure, indicate (1) its audit
objective, and (2) the management assertion being tested.
Audit Objectives
A. occurrence
B. completeness
C. accuracy
D. posting and summarization
E. classification
F. timing
Assertions
V. occurrence
W. completeness
X. accuracy
Y. classification
Z. cutoff
1. Foot the purchases journal and trace the totals to the related general ledger accounts.
(1) ________
(2) ________
2. Recompute the cash discounts taken by the client.
(1) ________
(2) ________
3. Compare dates on cancelled checks with the bank cancellation date.
(1) ________
(2) ________
4. Trace from a sample of cancelled checks to the cash disbursements journal.
(1) ________
(2) ________
5. Examine supporting documentation for a sample of transactions for authorized payee and
amount and to determine services or goods were received.
(1) ________
(2) ________
8) General transaction-related audit objectives vary from audit to audit, depending on the nature
and characteristics of the client’s business and industry.
9) The audit objective of posting and summarization is associated with the management assertion
of accuracy.
10) The transaction-related audit objective of timing is related to the assertion of cutoff.
11) If a sale was for a valid shipment, but the amount of the sales invoice was calculated
incorrectly, the accuracy objective was violated.
12) The effect of a violation of the completeness transaction-related audit objective for cash
disbursements transactions would be an overstatement of cash disbursements.
13) The transaction-related audit objective that deals with whether recorded transactions have
actually occurred is the completeness objective.
1) In testing for cutoff, the objective is to determine
A) whether all of the current period’s transactions are recorded.
B) whether transactions are recorded in the correct accounting period.
C) the proper cutoff between capitalizing and expensing expenditures.
D) the proper cutoff between disclosing items in footnotes or in account balances.
2) The detail tie-in objective is not concerned that the details in the account balance
A) agree with related subsidiary ledger amounts.
B) are properly disclosed in accordance with GAAP.
C) foot to the total in the account balance.
D) agree with the total in the general ledger.
3) The detail tie-in is part of the ________ assertion for account balances.
A) classification
B) valuation and allocation
C) rights and obligations
D) completeness
4) The classification balance-related audit objective
A) involves determining if items included on a client’s listing are included in the correct general
leger accounts.
B) is the counterpart to the management assertion of completeness.
C) involves determining if items included on a client’s listing are disclosed properly in the
financial statements.
D) involves tying in the account balances to the general ledger.
5) Balance-related audit objectives
A) are never applied to income statement accounts.
B) are designed to detect fraud.
C) provide a framework to help the auditor accumulate sufficient appropriate evidence related to
account balances.
D) can have only one specific-related audit objectives.
6) Which of the following statements is not true?
A) Balance-related audit objectives are applied to ending account balances.
B) Transaction-related audit objectives are applied to classes of transactions.
C) Balance-related audit objectives are applied to the ending balance in balance sheet accounts.
D) Balance-related audit objectives are applied to both beginning and ending balances in balance
sheet accounts.
7) Determining that the footnote disclosures related to long-term debt are accurate is an example
of the ________ audit objective.
A) occurrence
B) completeness
C) presentation and disclosure
D) classification and understandability
8) An important balance-related audit objective is realizable value. Describe the purpose of this
audit objective, what it is concerned with, and give an example.
9) Below are five audit procedures, all of which are tests of balances associated with the audit of
accounts receivable. Also below are the eight general balance-related audit objectives and the
four management assertions. For each audit procedure, indicate (1) its audit objective, and (2) the
management assertion being tested.
Audit Objectives
A. existence
B. completeness
C. accuracy
D. classification
E. cutoff
F. detail tie-in
G. realizable value
H. rights and obligations
Assertions
V. existence
W. completeness
X. valuation and allocation
Y. rights and obligations
1. Obtain an aged listing of accounts receivable. For a sample of individual customers on the
listing, agree the customer’s name, amount, and other information with the corresponding
information in the accounts receivable master file.
(1) ________
(2) ________
2. Examine details of sales for five days before and five days after year-end to determine whether
sales have been recorded in the proper period.
(1) ________
(2) ________
3. Assess the reasonableness of the balance in the allowance for doubtful accounts.
(1) ________
(2) ________
4. Inquire as to whether any accounts receivable have been factored or sold during the period.
(1) ________
(2) ________
5. Inquire as to whether there are any receivables from related parties.
(1) ________
(2) ________
10) Balance-related audit objectives follow from management assertions.
11) Balance-related audit objectives are usually applied to the ending balance in income
statement accounts; transaction-related audit objectives are usually applied to transactions
reflected in balance sheet accounts.
12) Tests of details of balances typically involve the use of comparisons and relationships to
assess the overall reasonableness of account balances.
13) The general balance-related audit objective that deals with determining that details in the
account balance agree with related master file amounts, foot to the total in the account balance,
and agree with the total in the general ledger is the detail tie-in objective.
14) The cutoff objective, “transactions near the balance sheet date are recorded in the proper
period,” is a balance-related audit objective.
15) The presentation and disclosure-related audit objectives are identical to the management
assertions for presentation and disclosure.
6.11 Learning Objective 6-11
1) The procedures used to test the effectiveness of the internal controls are known as
A) tests of transactions.
B) tests of controls.
C) substantive analytical procedures.
D) control risk.
2) Which of the following statements is not correct?
A) There are many ways an auditor can accumulate evidence to meet overall audit objectives.
B) Sufficient appropriate evidence must be accumulated to meet the auditor’s professional
responsibility.
C) It is appropriate to minimize the cost of accumulating evidence.
D) Gathering evidence and minimizing costs are equally important considerations that affect the
approach the auditor selects.
3) Two overriding considerations affect the many ways an auditor can accumulate evidence:
1. Sufficient appropriate evidence must be accumulated to meet the auditor’s professional
responsibility.
2. Cost of accumulating evidence should be minimized.
In evaluating these considerations
A) the first is more important than the second.
B) the second is more important than the first.
C) they are equally important.
D) it is impossible to prioritize them.
4) If the auditor has obtained a reasonable level of assurance about the fair presentation of the
financial statements through understanding internal control, assessing control risk, testing
controls, and analytical procedures, then the auditor
A) can issue an unqualified opinion.
B) can significantly reduce other substantive tests.
C) can write the engagement letter.
D) needs to perform additional tests of controls so that the assurance level can be increased.
5) After the auditor has completed all audit procedures, it is necessary to combine the
information obtained to reach an overall conclusion as to whether the financial statements are
fairly presented. This is a highly subjective process that relies heavily on
A) generally accepted auditing standards.
B) the AICPA’s Code of Professional Conduct.
C) generally accepted accounting principles.
D) the auditor’s professional judgment.
6) Direct, written communication with the client’s customers to identify whether a receivable
exists is an example of a(n)
A) substantive test of transactions.
B) test of controls.
C) analytical procedure.
D) test of details of balances.
7) ________ are used as evidence to provide assurance about an account balance.
A) Substantive analytical procedures
B) Tests of transactions
C) Audit risks
D) Tests of details of balances
8) List the four phases of a financial statement audit.
9) Describe what analytical procedures and tests of details of balances are and give an example
of each.
10) Match seven of the terms (a-k) with the definitions provided below (1-7):
a. tests of details of balances
b. tests of controls
c. substantive tests of transactions
d. analytical procedures
e. transaction-related audit objectives
f. management assertions
g. balance-related audit objectives
h. fraud
i. illegal act
j. error
k. management fraud
________ 1. an intentional misstatement of the financial statements
________ 2. a set of six audit objectives the auditor must meet, including timing, posting and
summarization, and accuracy
________ 3. implied or expressed representations made by the client about classes of
transactions, account balances and disclosures in the financial statements
________ 4. audit procedures testing for monetary misstatements to determine whether the
balance-related audit objectives have been satisfied for each significant account balance
________ 5. a set of nine audit objectives the auditor must meet, including completeness, detail
tie-in, and rights and obligations
________ 6. audit procedures designed to test the effectiveness of control policies and
procedures
________ 7. use of comparisons and relationships to assess whether account balances or other
data appears reasonable
11) When an auditor has reduced assessed control risk based on tests of controls, he or she may
then reduce the extent to which the accuracy of the financial statement information directly
related to those controls must be supported through the accumulation of evidence using
substantive tests.
12) For a private company audit, tests of controls are normally performed only on those internal
controls the auditor believes have not been operating effectively during the period under audit.
13) Rights and obligations is the only balance-related assertion without a similar transaction-
related assertion.
14) The audit objectives are the well-defined methodology for organizing an audit to ensure that
the evidence gathered is sufficient and appropriate.
15) Obtaining an understanding of the entity and its environment is part of the analytical
procedures phase of the audit.
16) An auditor assesses the risk of material misstatement to determine the impact on the audit
plan and to determine the nature, extent, and timing of the audit procedures.