Question 1: Which is true about the auditor's observation of physical inventory counts?
a) It can provide evidence supporting the existing assertion.
b) It can provide evidence supporting the completeness assertion
c) Both of the above
d) None of the above
Question 2: Which audit procedure is most likely related to the classification and understandability of the financial statements with respect to inventory?
a) Confirming inventories pledged under loan agreements
b) Obtaining quotations for the current market value of inventory
c) Examining consignment agreements
d) Analyzing inventory turnover
Question 3: Generally accepted auditing procedures have not been followed in which of the following situations?
a) The accounts receivable balance is immaterial, so the auditor decides not to send any receivables confirmations
b) An unusually large number of receivables confirmations are not returned, and the auditor decides to verify the related cash receipts rather then sending second requests
c) The auditor receives very few responses to negative confirmations sent. The audit does not perform any additional procedures related to the non-responses.
d) The auditor receives several faxes and emailed confirmation responses indicating that the amount stated is correct. The auditor does not perform any additional procedures related to these electronic responses.
Question 4: Which of the following is NOT a procedure the auditor would use in evaluating the reasonableness of an accounting estimate?
a) Determine how management developed their estimate and test the procedures they used
b) Confirm via the management representation letter that management has disclosed significant estimates
c) Use subsequent events to determine whether the estimate was reasonable
d) Develop an independent estimate and compare it to management's estimate
Question 5: An auditor becomes aware that a client has been threatened with litigation. The auditor would likely send an audit inquiry letter to the client's attorney regarding all the following, except:
a) Management's intended response and the progress of the case to date
b) How likely it is that there will be an unfavorable outcome to the litigation
c) The appropriateness of management's financial statement disclosure
d) An estimate of the potential loss that may be incurred due to the litigation.
In a few sentences please support your answer.