Attribute sampling would be an appropriate method to use on which one of the
following procedures in an audit program?
A) Review sales transactions for large and unreasonable amounts.
B) Observe whether the duties of the accounts receivable clerk are separate from
handling cash.
C) Examine a sample of duplicate sales invoices for credit approval by the credit
manager.
D) Review the aged schedule of accounts receivable to determine if amounts receivable
from officers are included.
There is agreement within the auditing profession and the courts that the auditor is
A) not a guarantor or insurer of financial statements.
B) a guarantor but not an insurer of the statements.
C) an insurer but not a guarantor of the statements.
D) both a guarantor and an insurer of the financial statements.
When planning the audit, the auditor’s decision on the appropriate assessed level of
control risk to use is
A) an economic issue, trading off the costs of testing controls against the cost of testing
balances.
B) calculated by using the audit risk model.
C) calculated by using a standard formula.
D) determined by using actuarial tables.
Comparing expenses to prior years is an effective analytical procedure for accounts
payable because expenses from year to year are
A) relatively stable.
B) erratic.
C) variable.
D) dynamic.
There are many elements of quality control at the firm level. Which element does
“management within a firm should ensure that qualified personnel monitor and address
non-compliance with quality control procedures” belong to?
A) leadership and responsibilities within the firm
B) general ethical requirements
C) general human resource policies
D) engagement quality control review
A) Describe some of the steps the CICA and the accounting profession as a whole can
and are taking to reduce the practitioner’s exposure to lawsuits.
B) Describe some of the steps individual practising auditors can take to minimize their
legal liability.
Which of the following is an example of a substantive test that could be used for the
audit of the accuracy of sales prices?
A) inspect sales price master authorization forms for the presence of an approval
signature
B) observe that the point-of-sale system automatically pulls sales prices from the master
file
C) inquire about the process that is used to update sales prices in the sales price master
file
D) calculate the gross margin for each product that is sold by the company
Which of the following key controls helps ensure that sales transactions are classified to
the correct account?
A) Computer checks for gaps in shipping document numbers.
B) Invoices are prepared using prices and terms from the customer master file.
C) Management reviews sales reports regularly for reasonableness.
D) Posting is done automatically to the sales account based upon periodic totals.
Cost accounting controls are those related to the physical inventory and the consequent
costs from the point at which
A) materials are ordered for purchase until the finished product is sold.
B) raw materials are requisitioned until the finished product is sent to storage.
C) raw materials are requisitioned until the finished product is completely
manufactured.
D) the customer’s order is received until the finished product is shipped.
Which of the following duties would indicate a weakness in internal controls? The
A) accounting function is under the controller.
B) custodianship of cash is the responsibility of the treasurer’s function.
C) internal auditor reports to the board of directors.
D) custodianship of buildings and equipment is the responsibility of the controller’s
function.
The implementation of the Sarbanes-Oxley requirements in the US resulted in the
creation of the PCAOB to oversee listed companies’ auditors and develop audit
standards. The impact of this requirement in Canada was the
A) creation of new auditing standards to ensure better quality control of the audit.
B) revisions of the rules of professional conduct for CAs.
C) additional training requirements to become an auditor.
D) creation of the CPAB to oversee Canadian audit professionals.
Bianca Jones was engaged to conduct the audit of Smilicor Company, a toy distributor,
three months after the year end date. Bianca was unable to conduct an audit of opening
inventory, but was able to satisfy herself with respect to the opening balances. She was
also able to conduct audit procedures for other opening balances, for example, by
observing fixed assets. What type of audit opinion would Smilicor receive?
A) Disclaimer
B) Adverse
C) Qualified
D) Unqualified
Beem & Lord, a PA firm, audited the financial statements of Frazer Inc. Since this was a
first time audit, Beem & Lord did not audit the comparative financial statements, as this
was done by the previous auditor. Beem & Lord should expand their report to include
an explanation in
A) the scope paragraph.
B) the management responsibility paragraph.
C) the opinion paragraph.
D) a paragraph following the opinion paragraph.
Clark Kent is a PA partner at the firm of Kent, Lane and Lang, a limited liability
partnership. Kent’s firm has just completed the audit of a client with a March 31, 2012,
year end. How should the audit report be signed?
A) Clark Kent, PA
B) Kent, Lane and Lang, LLP
C) Clark Kent, LLP
D) Kent, Lane and Lang, PAs
An important reason for adequately planning the audit engagement is to
A) help decide whether the engagement should be accepted.
B) enable the auditor to obtain sufficient appropriate audit evidence.
C) properly design the contents of the engagement letter.
D) keep audit risk as low as possible.
As part of the audit of valuation, the auditor is conducting pricing tests by comparison
to supplier invoices. The auditor is making sure that, for each item tested, sufficient
supplier invoices are examined to cover the quantity of inventory that was on hand
during the physical inventory count. What type of pricing error could this detect?
A) clients value their inventory on the basis of the most recent invoice only
B) the client has used the incorrect accounting method to value its inventory
C) extension errors could occur with numerous different inventory items
D) the wrong inventory count quantity could have been recorded on the count sheets
Certain internal controls satisfy more than one objective. It is desirable to consider
A) each objective separately.
B) the objectives together.
C) the objectives that can be tested.
D) only the controls that satisfy the more than one objective.
Materiality should be adjusted for the effect of net anticipated misstatements to
determine performance materiality available for
A) identified misstatements.
B) likely misstatements.
C) unanticipated misstatements.
D) further possible misstatements.
Four different engagements that the auditor can complete are: compilation,
bookkeeping, audit and review. Rank these engagements with respect to the level of
assurance provided from highest assurance level to lowest assurance level.
A) audit, review, compilation, bookkeeping
B) audit, compilation, review, bookkeeping
C) review, audit, compilation, bookkeeping
D) review, audit, bookkeeping, compilation
Laws that have been passed through federal or provincial governments are
A) statutory law.
B) judicial law.
C) criminal law.
D) common law.
Verification of the legitimacy of year-end unpaid bonuses to officers and employees can
be accomplished by comparing the recorded accrual to the amount
A) in the expense account.
B) used in the prior period.
C) authorized and recorded in the minutes of the board of directors.
D) paid in the subsequent period.
Which of the following describes the components of the audit risk model that are used
to describe the risk of material misstatement (RMM)?
A) AR / DR
B) IR CR
C) IR DR
D) CR DR
Professional skepticism during the financial statement audit requires an appropriate
state of mind, being impartial and objective and continuing to be throughout the whole
audit engagement. Which of the following illustrates an appropriate state of mind?
A) not having any ownership in the client’s shares or being a debt-holder
B) carefully assessing documents and not being the company’s advocate
C) matching documents to make sure that they are accurate and fair
D) being aware that there could be material misstatements in the financial statements
When the current year’s unaudited trial balance amounts are compared to the prior
year’s audited trial balance amounts,
A) errors are identified.
B) discrepancies are discovered.
C) irregularities become apparent.
D) significant changes in balances are highlighted.
The inherent risk of programming errors (and thus processing errors for the affected
application systems) increases when
A) programs are customized by an external software house.
B) the company uses an internet-based applications service provider.
C) standard software packages are used for processing transactions.
D) programs are customized by an understaffed information system group.
When is negative assurance used during a review engagement?
A) when the standards applicable to a review engagement have been met
B) if a qualification is required during the review engagement
C) when the criteria associated with a review engagement have not been satisfied
D) when the practitioner is unable to set appropriate criteria for the review engagement
An important control in the accounts payable and information systems departments is to
require that those personnel who record acquisitions do not have access to
A) lists of vendors’ names and addresses.
B) cash, marketable securities, and other assets.
C) vendors’ price lists.
D) the accounts payable master file.
Office Design Inc. (ODI) has been your audit client for five years. ODI designs and
sells office furniture, such as desks, cabinets, and couches used in reception areas. ODI
has sales in Canada and the U.S., with five distribution locations, where furniture is
available to prospective purchasers to try out before purchasing. These locations are in
Toronto, Montreal, Halifax, New York and Chicago. The company uses custom
designed software for its order processing and sales, kept current by one of the five
information systems personnel.
The Vice President Finance is new. Executive management is paid based upon a salary
and a bonus based upon the annual net income of ODI. Unfortunately, the accounting
staff at head office (Montreal) has been downsized from ten people to six due to a
recent slowdown in sales. Your review of the aged accounts receivable trial balance
revealed that one third of the accounts have been outstanding for more than one year.
ODI’s profits have declined substantially from last year. The line of credit and bank
loans are at their maximum, and the company is considering selling its U.S. operations
to provide cash flow.
Prior year working papers revealed few errors and that you considered management
integrity to be good. However, due to segregation issues, you did not rely on the
internal controls in the prior year.
Required:
A) What issues in corporate governance and in the control environment affect your
assessment of internal controls for revenue? How does this affect the decision to
conduct substantive testing (i.e. exclusion of tests of controls)?
B) What is the likely assessment of computer general controls? How does this affect the
type of audit testing conducted at ODI?
In the planning phase, Denis conducted an analytical procedure to compare the
allowance for doubtful accounts balance to the accounts receivable balance. In the prior
years, the allowance for doubtful accounts/ accounts receivable ratio was between 2.5%
to 3.5%. This year, the number is 1.25%. What should Denis do?
A) Change the assessed inherent risk
B) Conduct additional testing to justify the lower bad debt
C) Advise management that they should increase the allowance for doubtful accounts
provision
D) Document this difference and continue with audit work to see if this is pervasive
bias of management
External auditor Mary Smith may not rely on the work of internal auditor Ray Jones
unless
A) Jones is certified (CA, CGA or CMA).
B) Jones is independent of the client.
C) Jones is supervised by Smith.
D) Smith obtains evidence that supports the competence, integrity, and objectivity of
Jones.
There are two important assumptions that underly the auditor’s use of external
confirmations. The first is that the person returning the confirmation is independent of
the company and so will provide an unbiased response. The second is that
A) only authorized employees of the company have prepared the response.
B) the person completing the response has carefully checked the data being confirmed.
C) the respondent has not been coerced or bribed to respond to the confirmation.
D) adequate controls exist at the client company to prevent unauthorized responses.
It is common to test sales for proper classification as part of testing for
A) cutoff.
B) accuracy.
C) valuation.
D) completeness.