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When the auditor knows that the financial statements may be misleading because they were not prepared in accordance with an acceptable financial reporting framework, he or she must issue A) a qualified opinion. B) an adverse opinion. C) a disclaimer […]

Management assesses risks as a part of designing and operating internal controls to minimize fraud and errors. Auditors assess risks to A) decide the evidence needed in the audit. B) fully implement the audit risk model. C) enable them to […]

The existence of advanced automated systems affects the audit process. Which of the following characteristics is an indicator of the presence of an advanced automated information system? A) use of data communications (such as the Internet) to transfer transaction data […]

The transfer agent confirmed to the auditor that the company had 2,500,000 shares outstanding at December 31, 2010. To have assurance over the accuracy of the dividend payable, the auditor would multiply 2,500,000 by the A) dividend per share declared. […]

The document that is used to prepare and reconcile the deposit of cash and improve the control over the custody of assets (cash) is the A) sales invoice. B) credit memo. C) remittance advice. D) cash receipts journal. A risk […]

A review engagement requires what amount of evidence to be accumulated? A) Minimal B) Moderate C) Extensive D) Maximum Brandon is working on the audit of Michum Inc. In accordance with CAS 550 (related parties), Brandon had obtained a management […]

Comparison of the total balance in notes payable, interest expense and accrued interest with these accounts in the prior year could detect what type of possible misstatement? A) Misstatement of interest expense or accrued interest, or omission of a note […]

CAS 200 explains that as part of general qualifications and conduct the auditor should exercise due care in the performance of all aspects of auditing. Which of the following is an illustration of due care? A) having an objective state […]

Which of the following illustrates the definition of auditing with respect to the evidence analysis process? A) accumulation and evaluation of evidence about balance sheet accounts B) learning about different types of computing technology, such as mainframes C) writing an […]

When conducting an audit, the auditor should look at Canadian GAAS as A) minimum standards of performance. B) normal standards of performance. C) ultimate standards of performance. D) practical standards of performance. The audit procedure which requires the auditor to […]

You are conducting an audit and have obtained the following figures with respect to sales and accounts receivable: 2012 2011 Accounts receivable $ 3,343,000 $ 2,694,000 Allowance for doubtful accounts 212,150 207,660 Sales 25,640,000 24,630,000 Required: A) What are the […]

A common inventory observation procedure is to be alert for items that are damaged, rust- or dust-covered, or located in inappropriate places. The balance-related audit objective being achieved by this procedure is A) classification. B) cutoff. C) valuation. D) rights. […]

Three presentation and disclosure audit objectives are not affected by assessed control risk for the sales transactions. These are A) rights and obligations, valuation, understandability. B) understandability, valuation, occurrence. C) valuation, rights and obligations, classification. D) classification, understandability, rights and […]

To do an audit, it is necessary to have information in a verifiable form and some criteria by which the auditor can evaluate the information. Required: A) What information and criteria would a public accounting firm use when auditing a […]

Even though the tests of controls are the most important part of testing payroll, many auditors spend little time in this area. In many audits, there is a minimal risk of material misstatements, even though payroll is frequently a significant […]

Which of the following is an example of a key internal control for an online system that would help ensure that recorded sales are for the amount of goods shipped and are accurately billed and recorded? A) Shipping documents are […]

The appropriate date for the audit report for a public company is the one on which the A) client’s fiscal year ended. B) auditor and client entered into a contract. C) board of directors approved the financial statements. D) auditor […]

If the auditor were responsible for making certain that all the assertions of management in the statements were correct, A) bankruptcies could no longer occur. B) bankruptcies would be reduced to a very small number. C) audits would be much […]

PA firm has been auditing Big Manufacturing Company (BMC) for several years. Last year, BMC converted its inventory and purchasing systems to a new system effective December 31, the date of the year end. To their horror, the PA firm […]

During his examination of a January 19, 2013 cutoff bank statement, an auditor noticed that the majority of cheques listed as outstanding at December 31, 2012 had not cleared the bank. This would indicate A) a high probability of lapping. […]

In rare cases, auditors have been held liable for criminal acts. A criminal conviction against an auditor can result only when it is demonstrated that the auditor A) was negligent. B) was grossly negligent. C) intended to deceive or harm […]

Confirmation is most likely to be a relevant form of evidence with regard to assertions about accounts receivable when the auditor has concerns about the accounts receivable’s A) valuation. B) classification. C) existence. D) completeness. Your client has two sets […]

The use of the term “reasonable assurance” is intended to indicate that an audit cannot be expected to A) completely eliminate the possibility that a material error or fraud exists. B) consider or search for minor errors. C) be compliant […]

Sarbanes-Oxley in the U.S. and regulatory reporting requirements in Canada provide the clout to make management directly responsible for the financial statements. What is one of the ways that this is implemented in the CASs (Canadian Auditing Standards)? A) all […]

Tamra is performing a test of control consisting of looking at the numerical sequence of credit memos issued by the company. Tamra is performing a block test by looking for any missing number in the sequence. This test will provide […]

PA is working on the audit of a publicly held corporation. At what level will the auditor likely set audit risk? A) low B) medium C) high D) very high As part of audit planning, you have calculated accounts receivable […]

To ensure that goods and services acquired are for authorized company purposes, and help acquire only needed items A) receiving reports should be independently signed and reconciled to the purchase order. B) proper authorization for acquisitions and changes to the […]

The No-Name Advertising Rating Agency conducts independent surveys to determine the sources of purchases by consumers (e.g. newspaper ad, magazine ad, television ad). This information is then used by those media (i.e. newspapers, magazines, and television broadcasters) to indicate to […]

If no material fluctuations are found using analytical procedures and the auditor concludes that differences should not have occurred, A) it will be necessary to increase the tests of details of balances. B) other tests may be reduced. C) it […]

The use of the negative (as opposed to the positive) form of receivables confirmation is indicated when A) internal control surrounding accounts receivable is considered to be ineffective. B) there is reason to believe that a substantial number of accounts […]

Your client has experienced a major data breach with lawsuits and fines pending of significant and uncertain amounts. These events are disclosed in the client financial statements and clearly explained in the notes. How do these events affect the independent […]

The operational responsibility and the recording of transactions are normally kept separate A) to centralize activities in order to be more cost efficient. B) to ensure unbiased information is recorded. C) because operational personnel rarely has the necessary accounting skills […]

As a result of management’s refusal to permit the auditor to physically examine inventory, the auditor has not accumulated sufficient evidence to conclude whether financial statements are stated in accordance with ASPE (Accounting Standards for Private Enterprises). The auditor must […]

Evidence can be obtained from others, or provided by the auditor, who has good knowledge of each industry but is not an expert. Which of the following types of evidence is considered to be most reliable? A) examination of diamond […]

© 2013 Pearson Canada Inc. Auditing, 12e (Arens) Chapter 1 The Demand for an Auditing and Assurance Profession 1.1 Identify the components of an audit and explain why there is a demand for audits 1) Which of the following illustrates […]

© 2013 Pearson Canada Inc. 16) Which of the following services results in the placement of an electronic seal affixed to the web site? A) review engagement B) internal controls assessment C) SysTrust D) WebTrust Answer: D Diff: 2 Type: […]

© 2013 Pearson Canada Inc. Auditing, 12e (Arens) Chapter 10 Audit Strategy and Audit Program 10.1 Explain what an audit strategy is 1) A planned approach to the conduct of audit testing, taking into account assessed risks, is called an […]

Answer: A. Financial statement impact: Audit phase and description How the audit process is affected or changed due to the implementation of the new DBMS system 1. Preplanning, which involves documentation and decisions prior to the actual conduct of the […]

© 2013 Pearson Canada Inc. Auditing, 12e (Arens) Chapter 11 Audit Sampling Concepts 11.1 Define sampling. Decide when an auditor would use statistical rather than nonstatistical sampling 1) CAS 530 has a very specific definition of sampling. Assuming that each […]

© 2013 Pearson Canada Inc. 19) A) Describe three types of sample selection methods commonly associated with statistical audit sampling. B) Explain the difference between sampling with replacement and without replacement. Which method is more common in audit practice? C) […]

© 2013 Pearson Canada Inc. Auditing, 12e (Arens) Chapter 12 Audit of the Sales and Collection Cycle; Tests of Controls 12.1 Identify and describe typical records and transactions in the sales cycle 1) The overall objective in the audit of […]

© 2013 Pearson Canada Inc. 11) An effective procedure to test for unbilled shipments is to trace from the A) sales history file to the shipping documents. B) shipping documents to the sales history file . C) sales history file […]

© 2013 Pearson Canada Inc. Auditing, 12e (Arens) Chapter 13 Completing the Tests in the Sales and Collection Cycle: Accounts Receivable 13.1 Identify and describe the risk-based process for designing tests of details of balances for accounts receivable 1) Tests […]

© 2013 Pearson Canada Inc. 20) A communication addressed to the debtor requesting him or her to confirm whether the balance as stated on the communication is correct or incorrect is a A) legal confirmation. B) negative confirmation. C) positive […]

© 2013 Pearson Canada Inc. Auditing, 12e (Arens) Chapter 14 Audit of Cash Balances 14.1 Identify the different types of cash accounts 1) The general cash account is considered significant in almost all audits A) where the ending balance is […]

© 2013 Pearson Canada Inc. 25) You are the auditor of Brody Grass Inc. The CEO expressed a concern that the audit fees for the year were very high. You then explained that this is largely due to poor internal […]

© 2013 Pearson Canada Inc. Auditing, 12e (Arens) Chapter 15 Audit of the Human Resources and Payroll Cycle 15.1 Explain the importance of the human resources and payroll cycle 1) The human resources and payroll cycle is the transaction cycle […]

© 2013 Pearson Canada Inc. 5) Which of the following is a test of controls? A) Review the payroll journal, general ledger, and payroll earnings records for large or unusual amounts B) Examine time cards for indication of supervisor approval […]

Answer: B Diff: 3 Type: MC Page Ref: 508 Learning Obj.: 16-1 Describe the major business functions, documents, and records in the acquisition and payment cycle Answer: C Diff: 3 Type: MC Page Ref: 506 Learning Obj.: 16-1 Describe the […]

© 2013 Pearson Canada Inc. Auditing, 12e (Arens) Chapter 17 Audit of the Inventory and Distribution Cycle 17.1 Describe the business functions, documents, and records of the inventory and distribution cycle 1) Obtaining an adequate understanding of the client’s business […]

© 2013 Pearson Canada Inc. 4) The auditor has determined that the inventory procedures are highly automated, with limited use of a paper or physical trail. Rather than having people count inventory (since all inventory has RFID tags attached), inventory […]

Answer: A Diff: 1 Type: MC Page Ref: 556 Learning Obj.: 18-1 Describe the four key characteristics of the capital acquisition and repayment cycle and the risks of fraud or error in the cycle © 2013 Pearson Canada Inc. 1 […]

© 2013 Pearson Canada Inc. Auditing, 12e (Arens) Chapter 19 Completing the Audit 19.1 Design and perform audit tests related to presentation and disclosure audit objectives 1) Which level of risk does the auditor normally assign to the presentation and […]

© 2013 Pearson Canada Inc. 41) Discuss three audit procedures commonly used to search for contingent liabilities. Answer: (note that students’ answers will vary): • Inquire of management (orally and in writing) about the possibility of unrecorded contingencies. • Review […]

Answer: A Diff: 3 Type: MC Page Ref: 27 Learning Obj.: 2-1 Describe the various organizational structures of public accounting firms Answer: C Diff: 2 Type: MC Page Ref: 27 Learning Obj.: 2-1 Describe the various organizational structures of public […]

© 2013 Pearson Canada Inc. Auditing, 12e (Arens) Chapter 20 Auditor Reporting 20.1 State the requirements for a standard unqualified audit report 1) The most common type of audit report contains A) an adverse opinion. B) a disclaimer of opinion. […]

© 2013 Pearson Canada Inc. 4) The auditor’s report of the Samcorp Company indicates that the auditor is unable to form an opinion on whether the financial statements of the company are fairly presented due to scope restrictions and unavailable […]

Answer: B Diff: 2 Type: MC Page Ref: 618 Learning Obj.: 21-1 Describe how assurance engagement general standards are different from and similar to audit standards © 2013 Pearson Canada Inc. 1 Answer: C Diff: 3 Type: MC Page Ref: […]

© 2013 Pearson Canada Inc. Auditing, 12e (Arens) Chapter 3 Professional Relationships: The Role of Ethics and Independence 3.1 Describe ethics and their relevance 1) Ethical behaviour is considered to be a cornerstone for trust in everyday life as well […]

© 2013 Pearson Canada Inc. 3) When the users of financial statements have confidence in the independence of the public accountant, it is referred to as independence in A) fact. B) appearance. C) conduct. D) total. Answer: B Diff: 2 […]

© 2013 Pearson Canada Inc. Auditing, 12e (Arens) Chapter 4 Legal Liability 4.1 Explain how sources of legal liability are related to a distinction between business failure and audit failure 1) While performing services for their clients, professionals have always […]

© 2013 Pearson Canada Inc. 28) A client is suing a PA firm claiming that they are responsible for the losses suffered from a fraud in the payroll department that was not uncovered during the year end testing done by […]

© 2013 Pearson Canada Inc. Auditing, 12e (Arens) Chapter 5 Audit Responsibilities and Objectives 5.1 Describe the objective of conducting an audit of financial statements 1) The objective of the audit of financial statements by the auditor is the expression […]

14 © 2013 Pearson Canada Inc. 8) Pet Shop Ltd. is a large retail outlet with ten full time employees in addition to the owner. You dropped by on your way home one day to organize the audit planning process […]

© 2013 Pearson Canada Inc. Auditing, 12e (Arens) Chapter 6 Client Risk Profile and Documentation 6.1 Explain the importance of an adequate audit planning process 1) An effective audit is one that A) reduces the audit risk to the targeted […]

© 2013 Pearson Canada Inc. 45) Knowledge of the client’s industry and external environment can be obtained in different ways. Discuss some of the ways that this knowledge can be obtained. 13 Answer: – discussion with the auditor who was […]

© 2013 Pearson Canada Inc. Auditing, 12e (Arens) Chapter 7 Materiality and Risk 7.1 State the components of the audit risk model and describe the process used to assess audit risk 1) Risk in auditing means that the auditor accepts […]

14 Client business risk is reduced by: – the fact that manufacturing is outsourced and there is no inventory, reducing financial exposure for unsold items Audit risk could be argued to be any of low/med/high depending upon the emphasis given […]

© 2013 Pearson Canada Inc. Auditing, 12e (Arens) Chapter 8 Audit Evidence 8.1 Describe five evidence decisions made during the audit process 1) CAS 330, the auditor’s response to assessed risks, explains that the auditor needs to link completed audit […]

15 18) Following are examples of evidence that could be collected during an audit of financial statements. 1. Duplicate copies of sales invoices. 2. Inspection of new $100,000 cutting machine. 3. Bank confirmation. 4 Remittance advices. 5. Vendor’s invoices. 6. […]

© 2013 Pearson Canada Inc. Auditing, 12e (Arens) Chapter 9 Internal Controls and Control Risk 9.1 State the three primary objectives of effective internal control 1) A system of internal control consists of policies and procedures designed to provide management […]

16 15) Which one of the following is an example of a general authorization? A) The highest credit limit allowed for accounts receivable is $50,000. B) ABC Company has a credit limit of $25,000. C) Each supervisory wage rate must […]

Richard is performing a compilation engagement. Richard is concerned that the information is A) arithmetically correct. B) accurate. C) complete. D) in accordance with ASPE. Which of the following situations best describes a familiarity threat? A) Design and implementation of […]

The information systems audit specialist on your audit team has indicated that the general controls over program changes are inadequate for all application cycles. What impact does this have upon your audit of sales invoice processing? A) The auditor could […]

“Use of comparisons and relationships to determine whether account balances or other data appear reasonable” is a definition of A) auditing. B) tests of balances. C) tests of controls. D) analytical procedures. When the criteria to be used in the […]

The need to implement philosophies and practices commonly referred to as “improved business practices” comes from A) increased competition resulting in public accounting firms being concerned about keeping clients and maintaining a reasonable profit. B) a CAS pronouncement. C) a […]

In testing for cutoff, the objective is to determine A) whether all of the current period’s transactions are recorded. B) that no transactions from the prior period are included in the current period’s balances. C) that no transactions of the […]