LOA :TOPIC 04_AUDIT EVIDENCE AND AUDIT DOCUMENTATION AY 2021-2022

COLLEGE OF BUSINESS AND ACCOUNTANCY

AUDITING & ASSURANCE PRINCIPLES

TOPIC 04 – AUDIT EVIDENCE AND AUDIT DOCUMENTATION

EXERCISES

1. The main reason why an independent auditor gathers and evaluates evidence is
A. To support management representations that shall be disclosed along with the financial
statements
B. To detect fraud on the financial statements
C. To form an opinion on the financial statements
D. To evaluate internal control
2. Which statement is incorrect regarding audit evidence?
A. Audit evidence is all the information used by the auditor in arriving at the conclusions on which
the audit opinion is based.
B. Audit evidence includes the information contained in the accounting records underlying the
financial statements and other information.
C. Audit evidence is cumulative in nature.
D. Auditors are expected to address all information that may exist.
3. Other information includes
I. Comparable data about competitors III. Information obtained from inquiry
II. General and subsidiary ledgers
A. I and II D. I, II and III
B. II and III E. Answer not given
C. I and III
4. Other information least likely includes:
I. Minutes of the meetings III. Book of original entry
II. Official receipts issued by the company
A. I and II D. I, II and III
B. II and III E. Answer not given
C. I and III
5. I. Gathering of underlying accounting records only represents sufficient and appropriate evidence.
II. Not all available information are audit evidence.
A. True, false C. False, false
B. False, true D. True, true
6. Which of the following best describes observation?
A. Involves examining records and documents, whether external or internal, in paper form,
electronic form or other media, or physical examination of an asset.
B. A direct written response to the auditor from a third party.
C. Consists of checking the mathematical accuracy of documents and records.
D. Consists of seeking information of knowledgeable persons, both financial and non-financial,
within the entity or outside the entity.
E. The process of looking at a process or procedure being performed by others.
7. Which of the following is the primary source of audit evidence?
A. Audit procedures C. Work of experts
B. Previous audits D. Management representations
8. The auditor obtains audit evidence to draw reasonable conclusions on which to base the audit opinion
by performing
A. Risk assessment procedures
B. Further audit procedures comprising test of controls and substantive procedures
C. Both A and B
D. Neither A nor B
9. Physical examination is not an objective means of ascertaining an asset’s
A. quantity. C. condition or quality.
B. description. D. ownership.

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10. An example of an analytical procedure is the comparison of

A. financial information with similar information regarding the industry in which the entity
operates.
B. recorded amounts of major disbursements with appropriate invoices.
C. results of a statistical sample with the expected characteristic of the actual population.
D. EDP-generated data with similar data generated by a manual accounting system.
11. Which of the following assertion is not addressed by the audit procedure, inquiry, in auditing balance
sheet items?
A. Existence C. Accuracy
B. Completeness D. None of the choices given
12. Which of the following audit procedures would provide the least reliable evidence about legal title to
inventories?
A. Confirmation of inventories at locations outside the client’s facilities
B. Analytical procedures comparing inventory balances to purchasing and sales activities
C. Observation of physical inventory counts
D. Examination of paid vendors’ invoices
13. In determining whether transactions have been recorded, the direction of the audit testing should be
from the
A. General journal entries C. General Ledger balances
B. Original source documents D. Adjusted trial balance
14. Analytical procedures are used in an audit because it is assumed of financial statements that
A. Management fraud can be discovered using such procedures.
B. It is plausible that no relationship among data exists.
C. Analytical procedures are used as test of controls.
D. Plausible relationships among data may reasonably be expected to exist and continue in the
absence of known conditions to the contrary.
15. Which of the following audit procedures are used in testing the operating effectiveness of an entity’s
internal controls?
I. Analytical procedures III. Observation
II. Inquiry IV. External confirmation
A. I and II D. I and IV
B. II and III E. Answer not given
C. III and IV
16. Which of the following audit procedures is considered to be most costly?
A. External confirmation C. Inspection
B. Inquiry D. Observation
17. Which of the following statements is incorrect?
A. There are many ways an auditor can accumulate evidence to meet the overall audit objectives.
B. Sufficient competent evidence must be accumulated to meet the auditor’s professional
responsibility.
C. The cost of accumulating the evidence should be minimized.
D. Gathering evidence and minimizing costs are equally important.
18. I. Sufficiency is the measure of the quality of audit evidence.
II. Merely obtaining more evidence may compensate for its poor quality
III. The greater the risk, the more audit evidence is likely to be required.
A. True, false, false D. False, false, true
B. False, true, true E. True, true, true
C. True, false, true
19. The following statements relate to relevance of audit evidence. Which is correct?
A. Relevance deals with the logical connection with, or bearing upon, the purpose of the audit
procedure, direction of testing, and where appropriate, the assertion under consideration.
B. The auditor shall perform test of controls to obtain understanding of the entity and its
environment, including internal control.
C. The auditor shall perform substantive procedures to test the operating effectiveness of entity’s
internal control.
D. The auditor shall perform risks assessment procedures to detect material misstatements in the
financial statements.
20. Ordinarily, what source of evidence should least affect audit conclusions?
A. External C. Auditor-prepared analysis
B. Inquiry of management D. Inquiry of company legal counsel

21. Generally, what source of evidence would most persuasively support audit conclusions?

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A. External C. Oral
B. Inquiry D. Informal
22. Which of the following would be the most persuasive type of evidence?
A. Check register C. Observation of assets
B. Bank statement D. Inquiry with the in-house attorney
23. Audit evidence is generally more reliable when:
I. In original state rather than photocopies or facsimiles
II. Obtained from dependent sources
III. The related controls are ineffective
A. I and II D. I, II and III
B. II and III E. Answer not given
C. I and III
24. I. Audit evidence, to be relevant, must link directly to relevant assertions.
II. A given set of audit procedures may provide audit evidence that is relevant to certain assertions
but not to other assertions.
A. True, false C. False, false
B. False, true D. True, true
25. Which of the following statements about the competence of evidence is not correct?
A. To be competent, an evidence must be both valid and relevant.
B. Competence can be improved by selecting a larger sample size.
C. Competence can be improved by selecting audit procedures that contain a higher quality of the
characteristics sought.
D. Competence cannot be improved by selecting different population items to include in the sample
size.
26. These are the records of audit procedures performed, relevant audit evidence obtained and
conclusions reached.
A. Working papers C. Audit work papers
B. Audit documentation D. All of the given choices
27. Which of the following is not a purpose of audit work papers?
I. Assist in the supervision and review of the audit work.
II. To provide evidence supporting financial statements.
III. To provide basis of auditors’ opinion
A. I only D. I and II
B. II and III E. II only
C. I and III

28. I. Audit documentations are substitutes of entity’s accounting records.

II. The auditor shall assemble the audit documentation in an audit file.
A. True, false C. False, false
B. False, true D. True, true
29. Working papers that record the procedures used by the auditor to gather evidence should be
A. considered the primary support for the financial statements being audited.
B. viewed as the connecting link between the books of accounts and the financial statements.
C. designed to meet the circumstances of the particular engagement.
D. destroyed when the particular audit engagement is terminated.
30. Which of the following is not a factor affecting the independent auditor’s judgment about the quantity,
type, and content of audit working papers?
A. The need for supervision and review of the work performed by assistants.
B. The nature and condition of the client’s records and internal controls.
C. The expertise of the client personnel and their participation in preparing the schedules.
D. The type of financial statements, schedules, or other information on which the auditor is
reporting.
31. In documenting the nature, timing and extent of audit procedures, which of the following is not
considered?
I. Identification of the characteristics of specific items or matters tested.
II. The person who performed the procedures and date of its completion.
A. I only C. Both I and II
B. II only D. Neither I nor II
32. When reviewing audit working papers, the primary responsibility of an audit supervisor is to
determine that
A. each worksheet is properly identified with a descriptive heading.
B. working papers are properly referenced and kept in logical groupings.

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C. standard departmental procedures are adhered to with regard to working paper preparation and
technique.
D. working papers adequately support the audit findings, conclusions, and report.
33. Audit working papers are indexed by means of reference numbers. Which of the following is the
primary purpose of indexing?
A. Determine that working papers adequately support findings, conclusions, and reports.
B. Support the audit opinion.
C. Permit cross-referencing and simplify supervisory review.
D. Eliminate the need for follow-up reviews.
34. The current file of the auditor’s working papers generally includes:
I. Audit plan and audit programs
II. Excerpts from minutes of the meetings
III. Management representation letters
A. I and II D. I, II and III
B. II and III E. Answer not given
C. I and III
35. The permanent (continuing file) of an auditor’s working papers most likely indicate copies of the
A. Bank statements C. Lead schedules
B. Debt agreements D. Attorney’s letters
36. A good working paper must:
I. not be confusing and must contain information which is sufficient and understandable for an
auditor who is not connected in the audit under consideration.
II. may be prepared anytime as long as is supports the financial statements of the entity.
A. I only C. Both I and II
B. II only D. Neither I nor II
37. Documentation may not be deleted from the working papers after the
A. audit report delivery date.
B. date of the audit report.
C. Completion of the assembly of final audit file.
D. final day of fieldwork.
38. The auditor is required to complete the administrative process of assembling the final audit file on a
timely basis after the date of the auditor's report. The time limit within which to complete the
assembly of the audit file is ordinarily not more than 90 days after the end of the entity's reporting
period.

Audit documentation should be retained in accordance with the company’s policies and procedures,
which should not be less than 3 years from report date.
A. True, false C. False, false
B. False, true D. True, true
39. I. Working papers are owned by the auditors; the rights of ownership are subject to ethical
limitations relating to confidentiality.
II. Audit documentation should not be deleted since this is the auditors basis of performance of his
audit.
III. Audit documentation prepared on a timely basis enhances the quality of the audit.
A. True, false, true D. False, true, true
B. False, false, true E. Answer not given
C. True, true, true
40. Which of the following is included in an auditor’s working paper?
I. Tick marks and legends
II. Control manuals
III. Initials of the staff and reviewers
A. I and II D. I, II and III
B. II and III E. Answer not given
C. I and III

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QUIZZER (DO-IT-YOURSELF DRILL)

1. I. An auditor gathers audit evidence primarily to detect fraud since it is one of the
auditor’s responsibilities.
II. Evidence gathering is a cumulative and iterative process.
A. True, false C. False, false
B. False, true D. True, true
2. Which of the following statements concerning audit evidence is correct?
A. Appropriateness is the measure of the quantity of audit evidence.
B. Sufficiency is the measure of the quality of audit evidence, that is, its relevance and reliability.
C. The quantity of audit evidence needed is affected by its quality and the risk of misstatement.
D. The sufficiency and appropriateness of audit evidence are not interrelated.
3. Evidential matters supporting the financial statements consist of accounting records and other
information available to the auditor. Other information can be found in:
A. The subsidiary ledgers
B. Worksheet supporting cost allocations
C. Minutes of director’s meetings
D. Adjusting entries
4. Which of the following audit procedures is (are) used obtain understanding of the entity and its
environment, including internal control?
I. Inquiry III. External confirmation
II. Recalculation IV. Analytical procedures
A. I and II D. I and IV
B. II and III E. Answer not given
C. III and IV
5. Which one of the following statements is not true? “The evidence gathering technique of observation
A. is useful in most parts of the audit.”
B. is rarely sufficient by itself.”
C. is limited to what the auditor sees.”
D. requires the gathering of corroborative evidence.”
6. Which of the following audit procedures best supports the valuation objective?
A. Performing a lower of cost or market test of the client's inventories
B. Reviewing a contingent liability disclosure for proper wording
C. Searching for unrecorded liabilities
D. Observing the client's year-end physical inventory taking
7. Which one of the following forms of evidence would be least reliable?
A. Monthly bank statement
B. Positive confirmation of customer’s balance
C. A letter from the client’s attorney stating that there are no known lawsuits pending against
the client
D. Client’s file copy of a purchase requisition
8. The strongest criticism of the reliability of audit evidence that the auditor physically observes is that
A. The client may conceal items from the auditor
B. The auditor may not be qualified to evaluate the item he is observing
C. Such evidence is too costly in relation to its reliability
D. The observation must occur at a specific time, which is often difficult to arrange.
9. The nature, timing and extent of audit procedures are ultimately determined by:
A. Auditor’s professional judgment
B. Relative risk
C. Planning and tolerable materiality
D. None of the choices.
10. I. To be relevant, audit evidence must pertain to the audit objective of the evidence.
II. To be relevant, audit evidence must be derived from a system of effective internal controls.
A. True, false C. False, false
B. False, true D. True, true
11. I. The auditor often obtains audit evidence from different sources of a different nature that is
relevant to the same assertion.
II. Audit evidence comprises any information that contradicts management's assertions.
A. True, false C. False, false
B. False, true D. True, true

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12. The reason why the auditors accumulate evidence is to

A. defend themselves in the event of a lawsuit.
B. justify the conclusions they have otherwise reached.
C. satisfy the requirements of the Bureau of Internal Revenue.
D. enable them to reach conclusions about the fairness of the financial statements and issue an
appropriate audit report.
13. Which of the following is usually included or shown in the auditor's working papers?
A. The procedures used by the auditor to verify the personal financial status of members of the
client's management team.
B. The manner in which exceptions and unusual matters disclosed by the auditor's procedures
were resolved or treated.
C. Analyses that are designed to be a part of, or a substitute for, the client's accounting records.
D. Excerpts from authoritative pronouncements that support the financial reporting framework
used in preparing the financial statements.
14. The primary purpose of audit working papers is to
A. Provide evidence of the planning and execution of audit procedures performed.
B. Comply with the Philippine Standards on Auditing (PSAs).
C. Document weaknesses in internal control with recommendations to management for
improvement.
D. Serve as a means for the preparation of the financial statements.
15. Which of the following is not a primary purpose of audit documentation?
I. Serve as a means for the preparation of the financial statements.
II. Enables the conduct of quality reviews and inspection.
III. To provide a basis for audit opinion.
A. I and II D. I, II and III
B. II and III E. Answer not given
C. I and III
16. I. A working trial balance contains columns for adjustments and reclassifications.
II. A lead schedule is prepared for similar accounts.
A. True, false C. False, false
B. False, true D. True, true
17. Which of the following document(s) form(s) part as current file of an audit documentation?
I. Prior year analytical procedures on fixed assets.
II. Current year external confirmation results
III. Reconciliation of accounting records to FS.
A. I and II D. I, II and III
B. II and III E. Answer not given
C. I and III
18. The current file of the auditor’s working papers generally should not include
I. a flowchart of the internal controls.
II. a copy of the financial statements.
III. organization charts.
A. I and II D. I, II and III
B. II and III E. Answer not given
C. I and III
19. The auditor is required to complete the administrative process of assembling the final audit file on a
timely basis after the date of the auditor's report. The time limit within which to complete the
assembly of the audit file is ordinarily
A. Not more than 30 days after the date of the auditor's report.
B. Not more than 60 days after the date of the auditor's report.
C. Not more than 90 days after the end of the entity's reporting period.
D. Not more than 60 days after the date the entity's financial statements are authorized for issue.
20. After the assembly of audit file, the auditor shall not delete or discard audit documentation before the
end of its retention period, which is ordinarily not shorter than _______________ from auditor’s
report date.
A. 7 years C. 7 weeks
B. 7 months D. 7 days
- END OF HANDOUTS -

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