Question

1. The following are several multiple-choice questions adapted from the CPA exam that concern the persuasiveness of evidence, audit documentation, and materiality. For each question, selected the best answer and then explain why it is better than all the alternatives. Your explanations should address all the possible alternatives presented in the question.
2. 1. Which of the following types of documentary evidence should the auditor considered to be the most reliable and why?
      1. A sales invoice issued by the client and supported by a delivery receipt from an outside trucker.
      2. Confirmation of an account payable balance mailed by and returned directly to the auditor.
      3. A check, issued by the company and bearing the payee's endorsement, that is included with the bank statements mailed directly to the auditor.
      4. An audit schedule prepared by the client's controller and reviewed by the client's treasurer.

Hint - Base your answer on the evidence reliability issues discussed in the text.

Answer: Confirmation of an account payable balance mailed by and returned directly to the auditor

Explanation:

2. Which of the following statements concerning audit evidence is true?
   1. To be appropriate, audit evidence should be either persuasive or relevant, but need not be reliable.
   2. The measure of the quantity and quality of audit evidence lies in the auditor's judgment.
   3. The difficulty and expense of obtaining audit evidence concerning an account balance is a valid basis for omitting the test.
   4. A client's accounting records can be sufficient audit evidence to support the financial statements.

Hint - This question involves consideration of all this issues that affect persuasiveness.

Answer:

Explanation:

3. Audit evidence can come in different forms with different degrees of persuasiveness. Which of the following is the least persuasive type of evidence?
   1. Vendor's invoice
   2. Bank statement obtained from the client
   3. Computations made by the auditor
   4. Prenumbered sales invoices

Hint - While the question mentions persuasiveness, the main issues here are reliability relevance.   

Answer:

Explanation:

4. Which of the following presumptions is correct about the reliability of audit evidence?
   1. Information obtained indirectly from outside sources is the most reliable audit evidence.
   2. To be reliable, audit evidence should be convincing rather than merely persuasive.
   3. Reliability of audit evidence refers to the amount of corroborative evidence obtained.
   4. Effective internal control provides more assurance about the reliability of audit evidence.

Hint - Some of the options are trying to distract you from the reliability issue. Keep focused on it. Also, consider all the issues raise in the text about reliability.

Answer:

Explanation:

5. Which of the following is not a primary purpose of audit documentation?
   1. To coordinate the audit.
   2. To assist in preparation of the audit report.
   3. To support the financial statements.
   4. To provide evidence of the audit work performed.

Hint - Stay focused on what an auditor's responsibilities are versus what the client's are.

Answer:

Explanation:

6. During an audit engagement, pertinent data are compiled and included in the audit files. The audit files primarily are considered to be
   1. a client-owned record of conclusions reached by the auditors who performed the engagement.
   2. evidence supporting financial statements.
   3. support for the auditor's representations as to compliance with auditing standards.
   4. a record to be used as a basis for the following year's engagement.

Hint - Same as above. Stay focused on the auditor's responsibilities.

Answer:

Explanation:

Answer 1

Answer for a is given so we start with b

Answer b

ii. As per AU 500 AUDIT EVIDENCE the quantity and quality of audit EVIDENCE depends on auditor professional judgment.

Answer c

iv. As per AU 500 Audit evidence the client generated evidence is least persuasive evidence. As per numbered sales invoice is prepared by client that why it is least of all given. Bank statement is prepared by bank but received from client that why is not least persuasive evidence.

Answer D

V. Effective internal control increases the reliability of audit evidence obtained from client. As there are effective controls are placed to monitor the functions or operations

Answer E

iii. As per AU 230 audit documentation. The purpose of audit evidence is not support the financial statement but the audit conclusion reached.

Answer F

iv. Audit files are part of audit documentation which is auditor owned record which can be use for in future audit engagement. Auditor is not responsible for making any representation in relation to the audit engagement.