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Select the best possible answers for each of the following questions.
This activity contains 10 questions.
In the context of an audit of financial statements, substantive tests are audit procedures that
may be either tests of details of balances or analytical procedures.
may be eliminated under certain conditions.
will increase proportionately with the auditor's reliance on internal control.
are designed to discover significant subsequent events.
Which of the following is not an auditing procedure that is commonly used in performing tests of controls?
The auditor generally gives most emphasis to ratio and trend analysis in the examination of the statement of
Which of the following is not a typical analytical review procedure?
study of relationships of the financial information with relevant non-financial information
comparison of the financial information with similar information regarding the industry in which the entity operates
comparison of recorded amounts of major disbursements with appropriate invoices
comparison of the financial information with budgeted amounts
Which of the following is the most reliable analytical procedures approach to verification of the year-end financial statement balances of a wholesale business?
verify Employment Insurance (EI) liability by multiplying total payroll costs by the EI contribution rate in effect during the year
verify amortization expense by multiplying the net book value of the assets by 1 divided by the amortization rate
verify commission expense by multiplying sales revenue by the company's standard commission rate
verify interest expense, which includes imputed interest, by multiplying long-term debt balances by the year-end prevailing interest rate
As a result of analytical procedures, the independent auditor determines that the gross profit percentage has declined from 30% in the preceding year to 20% in the current year. The auditor should
evaluate management's performance in causing this decline.
require footnote disclosure.
consider the possibility of an error in the financial statements.
express an opinion that is qualified due to inability of the client company to continue as a going concern.
CICA Handbook Section 5301 "analysis" states that analytical procedures
should be applied in the planning and final review stages of the audit and as a substantive test during the audit.
should be applied in the final review stage, and can be applied as a substantive test and in the planning stage.
should be applied in the planning stage and can be applied as a substantive test and in the final review stage.
should be applied in the planning and final review stages of the audit and can be used as a substantive test during the audit.
Analytical procedures performed in the overall review stage of an audit suggest that several accounts have unexpected relationships. The results of these procedures most likely would indicate that
additional tests of details are required.
the communication with the audit committee should be revised.
internal control activities are not operating effectively.
fraud exists among the relevant account balances.
An abnormal fluctuation in gross profit might suggest the need for extended audit procedures for sales and inventories. It is most likely to be identified in the planning phase of the audit by the use of
analytical review procedures.
a preliminary review of internal accounting control.
specialized audit programs.
tests of transactions and balances.
In designing written audit programs, an auditor should establish specific audit objectives that relate primarily to the
cost-benefit of gathering evidence.
timing of audit procedures.
financial statement assertions.
selected audit techniques.
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