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challenging     Which of the following statements is not correct concerning audit documentation?
     a.     Audit documentation is merely required to defend against claims that the auditor performed a deficient audit.
     b.     The only time anyone has a legal right to examine audit documentation is when the documentation is subpoenaed by a court as legal evidence.
     c.     Audit documentation is the primary frame of reference used by supervisory personnel to evaluate the sufficiency of evidence.
     d.     All of the above are incorrect statements.
62.     Which of the following statements is not true?
     a.     A large sample of highly competent evidence is not persuasive unless it is relevant to the audit objective being tested.
     b.     A large sample of evidence that is neither competent nor timely is not persuasive.
     c.     A small sample of only one or two pieces of relevant, competent, and timely evidence lacks persuasiveness.
     d.     The persuasiveness of evidence can be evaluated after considering its competence and its sufficiency.
63.     Which of the following statements is not correct?
     a.     Analytical procedures are used to isolate accounts or transactions that should be investigated more extensively.
     b.     For certain immaterial accounts, analytical procedures may be the only evidence needed.
     c.     In some instances, other types of evidence may be reduced when analytical procedures indicate that an account balance appears reasonable.
     d.     Analytical procedures use comparisons and relationships to determine which account balances may be in error.
64.     Which of the following statements is not correct?
     a.     The effectiveness of the client’s internal control has a significant effect on the competence of most types of evidence.
     b.     Since the auditor performs the analytical procedures, these will be competent evidence even if internal controls provide inaccurate data.
     c.     Both physical examination and analytical procedures are likely to be highly reliable if the internal control structure is effective.
     d.     A specific type of evidence is rarely sufficient by itself to provide competent evidence to satisfy any audit objective.
     Evidential matter supporting the financial statements consists of the underlying accounting data and all corroborating information available to the auditor. Which of the following is an example of corroborating information?
     a.     Minutes of meetings.
     b.     General and subsidiary ledgers.
     c.     Accounting manuals.
     d.     Worksheets supporting cost allocations.
challenging     Which of the following discoveries through the use of analytical procedures would indicate a relatively high risk of financial failure?
     a.     A decline in gross margin percentages.
     b.     An increase in the balance in fixed assets.
     c.     An increase in the ratio of allowance for uncollectible accounts to gross accounts receivable, while at the same time accounts receivable turnover also decreased.
     d.     A higher than normal ratio of long-term debt to net worth as well as a lower than average ratio of profits to total assets.

challenging     Which of the following statements is correct with respect to the costs involved in obtaining audit evidence?
     a.     Cost of obtaining evidence is a valid reason for excluding that evidence from the audit.
     b.     Physical examination and confirmation are the most expensive types of audit evidence.
     c.     The least expensive type of evidence is analytical procedures.
     d.     Each of the above is correct.
challenging     A common comparison occurs when the auditor calculates the expected balance and compares it with the actual balance. The auditor’s expected account balance may be determined by
     a.     using industry standards.
     b.     using Dun and Bradstreet reports.
     c.     relating it to some other balance sheet or income statement account or accounts.
     d.     inquiry of client.
69.     Two analytical procedures available to the auditor are:
challenging     •     Compare current year’s balances with the preceding year.
     •     Compare details of a particular account’s balance with the preceding year.
     Shortcomings of these two procedures are that
     a.     the first ignores relationships of data to other data and the second fails to consider growth or decline in business activity.
     b.     the first fails to consider growth or decline in business activity and the second ignores relationships of data to other data.
     c.     both fail to consider growth or decline in business activity and ignore relationships of data.
     d.     it is difficult, time consuming, and, therefore, costly to perform these procedures.
challenging     Which of the following statements relating to the competence of evidential matter is always true?
     a.     Evidential matter gathered by an auditor from outside an enterprise is reliable.
     b.     Accounting data developed under satisfactory conditions of internal control are more reliable than data developed under unsatisfactory internal control conditions.
     c.     Oral representations made by management are not acceptable evidence.
     d.     Evidence gathered by auditors must be both acceptable and relevant to be considered competent.

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