Question

1. All invoices received by a Company subsequent to the yearend but that have not been entered
into the financial records as of the date of testing are tested to determine if they were accrued
in the financials as of yearend. Answer the following questions:

A. Relevant assertion:

1. Existence
2. Occurrence
3. Completeness
4. Presentation
5. Valuation

B. This is an example:

1. Vouching

2. Tracing

C. It addresses the following risk(s):

1. Expenses are not recorded although incurred before yearend
2. Expenses are recorded prior to yearend although incurred after yearend
3. The quantity of goods or receives are different from the purchase order and invoice

2. An auditor performs a walkthrough for the following reasons:

A. Understand of the process
B. Identify risks
C. Understand the industry
D. Understand if there is a control to mitigate the risk
E. Understand the design of the control
F. Obtain evidence over test of detail
G. Confirm that the controls appear to be operating as designed
H. Obtain audit evidence over test of operating effectiveness
I. Obtain substantive audit evidence

3. Which of the following best defines error in financial statement auditing context?

A. Error is an unintentional misstatement of the financial statements
B. Error is an intentional misstatement of the financial statements
C. Error is either an intentional or unintentional misstatement of the financial statements,
depending on materiality
D. Error is either an intentional or unintentional misstatement of the financial statements,
depending on consistency

Answer 1

1.

A.

Answer is 3. Completeness

Reason: Other relevant assertion relevant to that of testing is cutoff.

Since, options given did not contain cut off as choices, we decided to choose completeness. Existence is the assertion relating to balance sheet items. This testing definitely addresses the occurrence assertion but since testing is done for invoices after year end. Testing no where relates to how Presentation is done, neither it addresses valuation issue. Therefore, the answer is Completeness assertion.

B.

Answer is 2.Tracing.

There is a difference between vouching and tracing, vouching starts with taking a financial number from financial statements and finding its supporting documents relevant supporting. Whereas Tracing starts with taking a Financial document and tracing its posting and final presentation in Financial Statements. Tracing of Invoices pertaining to post year end period and not finding them in the financial statement will give negative assurance of completeness and cutoff.

C.

Answer is 2. Expenses are recorded prior to year end even though incurred after yearend.

By performing the mentioned audit procedure we address the risk mentioned in option 2. only

To address risks mentioned in option 1. & 3. other audit procedures are required to be performed.

2.

Answer is A. Understand the process.

Walkthrough is performed to know the process end to end. Therefore, it is definitely an understanding process and not audit evidence collection process. Therefore, Option F, G, H & I are irrelevant

Walkthrough is performed to understand not only single control in the process, but all controls in one process. Therefore, Option C, D, E are irrelevant

Risk identification and implementation of control is the responsibility of the auditee

Therefore, option B is also irrelevant.

3.

Answer is A.

An error is always unitentional, on the other hand fraud is intentional. While testing whether a particular transaction posting is an error or not, materiality or consistency is not taken into consideration. If an error occurs consistently, it may be a fraud. But, consistency in error will not always lead to fraud.

Option, B,C,D all have intentional misstatement mentioned in the description. Therefore, option A is the correct answer.