Question

1. Negative confirmations are generally a more effective way of obtaining audit evidence
compared to positive confirmations as auditors don’t have to wait to receive the confirmation or
perform alternate procedures.

A. True B. False

2. As it relates to the search for unrecorded liabilities audit procedure, circle all that apply.

Most relevant assertion:
(i) Completeness
(ii) Existence
(iii) Occurrence

Other:
(iv) Involves selecting a sample of liabilities recorded in the general ledger and checking to
see subsequent cash payment for such invoices
(v) Involves selecting subsequent cash payments and obtaining invoices for such payments
and determining if they were recorded prior to yearend
(vi) Involves selecting invoices that were recorded subsequent to yearend and determining
if they were accrued as of yearend if services or goods were received prior to yearend

3. Cut-off is one of the management assertions identified in the PCAOB standards

A. True B. False

Answer 1

1. Although returned negative confirmation provides evidence for financial statement assertion, unreturned negative confirmation rarely provide evidence for financial statement assertion. Positive confirmation requires the respondent to indicate whether he or she agrees or disagrees with the confirmation. A positive confirmation is of higher quality than the negative confirmation as the auditor gets an explicit response in positive confirmation.
"Negative confirmations are generally a more effective way of obtaining audit evidence compared to positive confirmations as auditors don’t have to wait to receive the confirmation or perform alternate procedures" is false.

Answer is B. False

2. The purpose for search of unrecorded liabilities is to find out liabilities that were not recorded in the reporting period. Completeness assertion is fulfilled when all liabilities that should have been recorded are recorded. The procedure that the auditor will most likely perform in searching unrecorded liabilities is to vouch a sample of cash disbursements made just after year-end to receiving reports and vendor invoices.
Answer is "(vi) Involves selecting invoices that were recorded subsequent to yearend and determining
if they were accrued as of yearend if services or goods were received prior to yearend" and the most relevant assertion is "(i) Completeness "

3. Cut - off is whether a transaction have been recorded in the correct accounting period. It is a management assertion under transactions and events.

"Cut-off is one of the management assertions identified in the PCAOB standards" is true.

Answer is A. True