Download ACCT 3222 - LSU - Chapter 9 Exam: Substantive Procedures and Audit Evidence and more Exams Advanced Education in PDF only on Docsity!
ACCT 3222 - Wiley - LSU - Ch 9 Exam
With 100% Correct Answers 2026
Substantive procedures - Correct Answer- audit procedures designed to detect material misstatements at the assertion level and to gather evidence to support management assertions Some risks impact at the F/S level - Correct Answer-Management pressure to not violate debt covenants ex. Some risks impact at the assertion level - Correct Answer-(transactions/accounts) Auditor's response to risk impact at the F/S level - Correct Answer-- Make changes to the NET (nature, extent, timing), as needed
- More elements of unpredictability
- More experienced staff on higher risk areas
- More supervision of audit work
Auditor's response to risk impact at the assertion level - Correct Answer-2 categories of procedures: substantive analytical procedures (A) and tests of details (FIVE CROTS) Substantive analytical procedures (A) - Correct Answer-Trend analysis Ratio analysis Optional in risk response phase Tests of Details - Correct Answer-FIVE CROTS Footing, cross footing, recalculating Inquiry Vouching Examination/inspection Confirmation Reperformance Observation Tracing Scanning
- Accuracy and valuation and Classification and understandability Objective of auditors is to obtain - Correct Answer-sufficient appropriate audit evidence regarding the assessed risks of material misstatement Nature of an audit procedure refers to its - Correct Answer-purpose and type (test of controls or substantive procedure) When analytical procedures are used to obtain audit evidence during the risk response phase - Correct Answer-referred to as "substantive analytical procedures" Nature of an audit procedure is - Correct Answer-the most important factor when responding to the assessed risks Relevant assertions require - Correct Answer- perform substantive procedures
Relevant assertion - Correct Answer-An assertion that has a reasonable possibility of containing a material misstatement that would cause the financial statements to be materially misstated and, therefore, have a meaningful impact on whether the account is fairly stated Dual purpose test - Correct Answer-A substantive test of a transactions and a test of control relevant to that transaction that are performed concurrently Significant risk - Correct Answer-An identified and assessed risk of material misstatement that, in the auditor's judgment, requires special audit consideration Initial procedures - Correct Answer-1. Trace the beginning balance to prior year's audit. Should be the same.
- Scan the transactions for unusual items, due to large dollar amount, timing, or source
Factors that impact the effectiveness and efficiency of using a substantive analytical procedure to respond to risk include - Correct Answer-1. Nature of the assertion (low risk?)
- Plausibility and predictability of the relationship
- Availability and reliability of the data used to develop the expectation (relies heavily on client data)
- Precision of the expectation (more precision needed = less analytical procedures) Tests of details are used for - Correct Answer-higher risk assertions Tests of details are - Correct Answer-Footing, cross footing, recalculation Inquiry Vouching Evaluation/inspection Confirmation Reperformance Observation
Tracing Scanning When testing an assertion - Correct Answer- one or more tests of details may be used in conjunction with a substantive analytical procedure Most important assertion to focus on for assets - Correct Answer-Existence - prevent overstatement How to test existence of assets (in order) - Correct Answer-Inspection of assets; inspection of docs Allocation/valuation - recalculation; inquiry of management about impairments; inspect impairment docs; inspect invoices for new PPE vs JE Rights and obligations - inspect docs of new assets; management inquiry Completeness - usually lower risk assertion for assets
once - risk assessment and risk response phases Real time, continuous auditing will happen in future on greater scale (i.e., block chain) Beware of - Correct Answer-Confirmation Bias Confirmation Bias - Correct Answer-the tendency to seek or interpret evidence in ways that support pre-existing beliefs or expectations Timing of lower risk of material misstatement assertions - Correct Answer-May be more efficient for auditors to perform substantive procedures prior to year-end to allow more time for testing higher risk assertions at year-end Substantive procedures at an interim date factors - Correct Answer-IC are effective Assessed RMM is low Little change is expected during period from interim to year-end
Additional procedures can be performed during the period after interim to year-end and after year-end if necessary (i.e., not an inventory count only performed at year-end) Roll-forward procedures - Correct Answer- Procedures performed at year-end on transactions occurring between an interim date and year-end (the roll-forward period) to provide sufficient appropriate audit evidence on which to base conclusions at year-end when substantive procedures are performed at an interim date Extremes of IR, CR, DR, and substantive procedures - Correct Answer-Low CR and IR, High DR = Few substantive procedures required High CR and IR, Very low DR = Extensive substantive procedures required Some substantive procedures required when
- Correct Answer-Low CR, High IR, and Medium DR
results CANNOT be projected to the population because they are not really random and considered haphazard Items may be selected because they are - Correct Answer-high dollar value or for another characteristic (i.e., unusual, suspicious, or have a history of error) By using statistical sampling, auditors - Correct Answer-draw conclusions about an entire population based on the results of the sample testing Statistical sampling can be use in - Correct Answer-addition to testing specific items from a population NOT usually done Auditor's responsibility regarding accounting estimates made by management - Correct Answer-obtain sufficient appropriate evidence that 1. reasonable and 2. disclosures are adequate
Accounting estimates are - Correct Answer- an approximation of a monetary amount when a precise means of measurement is not available Two types of accounting estimates - Correct Answer-1. Forecasting the outcome of a transaction or event as required by a financial reporting framework
- Determining fair value of a transaction or financial statement item for inclusion in the financial statements and disclosure in the notes as required by a financial reporting framework (usually more challenging of the two) Estimation uncertainty - Correct Answer-The susceptibility of an accounting estimate and related disclosures to an inherent lack of precision in its measurement - outcome may be different from the estimate Some accounting estimates involve - Correct Answer-more estimation uncertainty than others
and fair presentation of information. May be intentional or unintentional Indicators of possible management bias - Correct Answer-Changes in accounting estimate method based on subjective assumptions Using management assumption inconsistent with readily observable market assumptions Selecting or developing significant assumptions more favorable for management objectives Selecting an estimate that indicates a pattern of optimism or pessimism Financial reporting framework may specify conditions or methods for - Correct Answer- making material/key accounting estimates Some accounting estimate procedures, if necessary - Correct Answer-Inquire about management rationale, consistent with use in industry, if alternative methods considered Inquire about assumptions and if reflect observable market conditions
Performing a recalculation procedures (provides evidence model used correctly and estimate is reasonable) Inspect events occurring after year-end and up to date of report For accounting estimates that have been identified as significant risks - Correct Answer-auditors may perform further substantive procedures For very specialized accounting estimates - Correct Answer-auditors have the option of using a specialist to gather sufficient appropriate audit evidence that it is reasonable Misstatement - Correct Answer-A difference between the amount, classification, presentation, or disclosure of a reported financial report item and the amount, classification, presentation, or disclosure that is required for the item to be in accordance with the applicable financial reporting framework
Projected misstatements - Correct Answer- Auditor's best estimate of the misstatement in a population based on the misstatement found in a sample drawn from the population. From statistical sampling - not really used When auditors are performing substantive procedures and identify unexpected misstatements (type or amount) - Correct Answer-Reconsider audit strategy and audit plan and determine if NET or substantive procedures need to be modified. - Maybe IC lower quality than originally believed as more errors found ex.
