PSA 520

• The decision about which audit procedures to perform, including whether to use substantive analytical procedures, is based on the auditor's judgment

  true
• Substantive analytical procedures are generally more applicable to small volumes of transactions that tend to be predictable over time. PSA 520 A6

  false
• The determination of the suitability of particular substantive analytical procedures is influenced by the nature of the assertion and the auditor's assessment of the risk of material misstatement.Example: If controls over sales order processing are weak, the auditor may place more reliance on tests of details rather than on substantive analytical proceduresfor assertions related to receivables.

  true
• The need to perform other audit procedures may arise when, for example, management is unable to provide an explanation with the audit evidence obtained relevant to management'sresponse, is considered adequate.

  false
• A basic premise underlying analytical procedures is the analysis of the implausible relationships among both financial and non-financial data.

  false
• Particular substantive analytical procedures may also be considered suitable when tests of details are performed on the same assertion.

  true
• It may be effective to use analytical data prepared by management, provided the auditor is satisfied that such data is properly prepared.

  true
• Different types of analytical procedures provide the same levels of assurance the source of data or information is the same .

  false
• Analytical procedures also encompass such investigation as is necessary of identified fluctuations or relationships that are consistent with other relevant information or that differ from expected values by a significant amount.

  false
• Risk assessment procedures by themselves do not provide sufficientappropriate audit evidence on which to base the audit opinion.

  true
• As a form of analytical procedure, trend analysis is based on the assumption that performance will continue in line with previous performance of industry trends unless something unusual is happening in the contrary.

  false
• Without sufficient understanding of the client, the auditor cannot perform an effective audit.

  true
• Analytical procedures involve comparison of the client's expectations & recorded amounts in financial statements and, if necessary, further investigation.

  true
• The number of employees hired & terminated to predict the change in payroll expense from previous year to current balance is an example of trend analysis.

  false
• The auditor uses analytical procedures to investigate significant differences between expected and recorded amounts.

  true
• Analytical procedures are so important that they are required specifically duringa. Planning and testing phasesb. Testing and completion phasesc. Planning and completion phasesd. Planning, testing and post-completion phases

  C
• Which of the following are included in the key elements of auditor's understandingI. External factorsII. Internal factorsIII. Nature of entityIV. Accounting policiesV. Entity's objectives and Strategiesa. I, II and III only c. All of the aboveb. I, III and IV only d. I, III, IV and V only


  d
• Which of the following non-financial information would an auditor most likely consider in performing analytical procedures during the planning phase of an audit?a. Turnover of personnel in the accounting departmentb. Square footage of selling spacec. Objectivity of audit committee membersd. Management's plans to repurchase stock

  B
• Which of the following would not be classified as an analytical procedure?a. Reconciling fixed assets disposition with fixed assets ledger.b. Benchmarking the company's profitability ratios against others in the industryc. Variance analysis of actual versus budgeted amounts for productiond. Re-performing the client's depreciation expense using the client's accounting policies for CAPEX during the year.

  A
• The objectives of the engagement partner's communication with the audit team includea. Complying with SEC rulesb. Complying with FRSC rulesc. Emphasizing the importance of professionalskepticismd. Maintaining an adversarial atmosphere betweenthe auditor and management


  C
• An auditor's analytical procedures most likely would be facilitated if the entitya. Corrects material weaknesses in internal control before the beginning of the auditb. Uses a standard cost system that produces variance reportsc. Segregates obsolete inventory before the physical inventory countd. Develops its data from sources solely within the entity

  B
• The auditor notices significant fluctuations in key elements of the company's F/S. If management is unable to provide an acceptable explanation, the auditor shoulda. Consider the matter as a scope limitationb. Intensify the examination with the expectation ofdetecting management fraudc. Withdraw from the engagementd. Perform additional audit procedures to investigatethe matter further

  D
• Sources of information for observation & inspection may includeI. Entity's operations, premises, & plant facilitiesII. Documents (business plans), control manuals, 2PsIII. Management and TCWG reports (minutes, etc)IV. Books, periodicals & other publicationsV. Personal correspondences of BOD chaira. I, II and III only c. I, III and IV onlyb. I, II, III and IV only d. All of the above


  B
• An example of analytical procedure is the comparison ofa. EDP generated data with similar data generated by a manual accounting systemb. Result of statistical sample with the expected characteristics of the actual populationc. Financial information with similar information regarding the industry in which the entity operatesd. Recorded amounts of major disbursements with appropriate invoices.


  C
• Which of the following represents a procedure that the auditor may use because of plausible relationships among F/S balances are expected to exist?a. Analytical reviewb. Attributes testingc. Enterprise risk assessment (ERM)d. Inherent test control


  A
• Which of the following represents a procedure that the auditor may use because of plausible relationships among F/S balances are expected to exist?a. Attributes testingb. Enterprise risk assessment (ERM)c. Inherent test controld. Analytical review

  D
• Analytical procedures used in planning an audit should focus on identifyinga. Material weaknesses in the internal control structureb. Predictability of financial data from individualtransactionsc. Areas that may represent specific risk relevant toauditd. Various assertions that are embodied in the financialstatements.

  C
• Which of the following tends to be most predictable for purposes of analytical procedures applied as substantive tests?a. Relationships involving balance sheet accountsb. Relationships involving income statement accountsc. Transactions subject to management discretiond. Data subject to audit testing in prior years

  B
• Analytical procedures used in planning an audit should focus on?a. Enhancing the auditor's understanding of the client's businessb. Evaluating the adequacy of evidence gathered concerning unusual balancesc. Testing individual account balances that depend on accounting estimatesd. Identifying material weaknesses in internal control

  A
• In the context of an audit of F/S, substantive tests are audit procedures that?a. May be eliminated under certain conditionsb. Are designed to discover significant subsequenteventsc. May be either tests of transactions, direct tests offinancial balances or analytical testsd. Degree of reliance on the relevant internal controls.

  C
• To obtain understanding of a continuing client's business, an auditor most likely would?a. Perform tests of details of transactions & balancesb. Review prior year working papers & permanent filefor the clientc. Read current issues of specialized industry'sjournalsd. Re-evaluate the client's internal controlenvironment


  b
• A benefit obtained from comparing the client's data with industry averages is that it provides a(n)?a. Indication where errors exist in the statementsb. Benchmark to be used in evaluating a client'sbudgetsc. Indication of the likelihood of financial problemsd. Comparison of 'what is' with 'what should be'


  c
• Auditor observed at year end that only one of the company's ten divisions had a large number of material sales transactions. In terms of risk analysis, this would most likely lead to...a. A relatively higher risk of overstatement of revenues for this division than the other divisionsb. Risks associated with auditing this division is not affected by this informationc. A high risk that liabilities of this division is understatedd. A high risk that the other divisions have understatedrevenues.


  A
• Each of the following may be relevant to an auditor when obtaining knowledge about the client's business and industry, except:a. Publications related to the industryb. Visits to the entity's premisesc. Performing a walkthrough testsd. Discussion with people within or outside the entity

  C
• Analytical procedures under the risk assessment phase is used to help identify the existence of unusual___ that may indicate ROMM especially due to fraud.I. Transactions II. AmountsIII. RatiosIV. Trendsa. I, II and IV onlyb. II, III and IV onlyc. I and II only d. I, II, III and IV

  D
• Analytical procedures under the risk assessment phase is used to help identify the existence of unusual___ that may indicate ROMM especially due to fraud.I. Transactions II. AmountsIII. RatiosIV. Trendsa. I, II and IV onlyb. II, III and IV onlyc. I and II only d. I, II, III and IV

  D
• Analytical procedures are used for the following purposes excepta. As an overall review of financial information in the final review stage of the auditb. To evaluate the effectiveness of the client's internal controlc. As a substantive test to obtain evidential matter about particular assertion related to account balancesd. To assist the auditor in planning the nature, timing and extent of other auditing procedures

  B
• Which of the following methods is considered the best combination in obtaining audit evidence assuming documentary evidence is available to the auditor?a. Inquiry and inspectionb. Inspection and re-performancec. Inquiry and analytical procedured. Observation and inquiry

  A
• Analytical procedures area. Substantive tests designed to evaluate a system of internal controlb. Tests of controls designed to evaluate the validity of management's representation letterc. Tests of controls designed to evaluate the reasonableness of financial informationd. Substantive tests designed to evaluate the reasonableness of financial information

  D
• Which of the following ultimately determines the specific auditing procedures necessary in the circumstances to afford a reasonable basis for an opinion?a. b. c. d.Relative riskAuditor judgment Materiality Reasonable assurance

  B