Unit 3: Performing Further Procedures and Obtaining Evidence

• Topic 01

  Audit Evidence

  43 questions
• Topic 02

  Tests of Controls

  15 questions
• Topic 03

  Substantive Procedures

  15 questions
• Topic 04

  Audit Sampling

  42 questions
• Topic 05

  Analytical Procedures

  45 questions
• Topic 06

  Using the Work of Others

  15 questions
• Topic 07

  Auditing Specific Accounts

  15 questions
• Topic 08

  Auditing Estimates and Fair Values

  46 questions
• Topic 09

  Written Representations

  15 questions

A few questions from this unit, with the answer and a full explanation. The complete bank is available when you start practising.

1. Analytical procedures would be least effective as the primary substantive procedure for which account?

   • A
     Payroll expense for a stable workforce
   • B
     Utility expense based on usage and known rates
   • C
     Rent expense based on square footage and contractual rates
   • D
     Long-term debt issued in a single complex transaction
     Correct answer
   Explanation

   Substantive analytical procedures rely on predictable, stable relationships. Long-term debt involving a single complex transaction is a low-volume, high-value item where no predictable historical pattern exists. Payroll, utility expense, and rent expense are all high-volume, routine accounts with clear relationships to non-financial data (headcount, usage, square footage, rates), making them well-suited to analytical procedures.

2. An auditor divides an accounts receivable population of $3 million into three strata: (1) over $50,000, (2) $10,000 to $50,000, and (3) under $10,000. All items in stratum 1 are tested; stratified random samples are taken from strata 2 and 3. A colleague suggests testing a single unstratified random sample instead. What is the advantage of the stratified approach?

   • A
     Both approaches are equally valid because the total sample size determines precision, not the stratification method
   • B
     The stratified approach is required by AU-C 530 for all populations exceeding $1 million; an unstratified sample would violate the standard
   • C
     The unstratified approach is preferable because it gives every item an equal probability of selection, which is required for statistical sampling
   • D
     Stratification ensures full coverage of the largest balances (stratum 1) while maintaining statistical rigor for smaller balances; an unstratified sample would likely underrepresent the largest items that pose the greatest individual misstatement risk
     Correct answer
   Explanation

   Stratification allows the auditor to allocate testing effort efficiently: 100% coverage of high-value items (which carry the greatest individual misstatement risk) while using sampling for lower-value strata. An unstratified random sample gives each dollar an equal probability of selection, which means the very large items may not all be selected. Stratification does not violate any AU-C 530 requirements — it is explicitly permitted and often recommended for populations with high variability.

3. An auditor is performing an AICPA-governed audit and completes the file 75 days after the report date. Is this compliant with AU-C 230?

   • A
     Yes, because AU-C 230 sets the completion deadline as 90 days after the balance sheet date, not the report date
   • B
     Yes, because 75 days is within the PCAOB 7-year retention period, which is the more relevant standard
   • C
     No, but only if the late completion affected the quality of the audit evidence gathered
   • D
     No. AU-C 230 requires the file to be completed within 60 days of the report release date; 75 days exceeds this limit
     Correct answer
   Explanation

   AU-C 230 requires that the assembly of the final audit file be completed within 60 days of the report release date. Completing the file on day 75 violates this requirement. The PCAOB has a stricter 45-day completion deadline under AS 1215. The 7-year retention period is separate and relates to how long the file must be kept after completion — it does not extend the completion deadline.