When the employees are paid automatically by bank deposits to the employees’
accounts, in an effort to identify potential fraud, the auditor can look for
A) duplicated bank account numbers.
B) duplicated name in the master payroll files.
C) unusual employee names.
D) cancelled cheques.
The Big Insurance Company implemented a new computer system to track and record
insurance premiums receivable. The program automatically prints invoices and sends
them to customers when premiums are due. Due to a program error, a whole series of
invoices were included in sales but not in accounts receivable. The general
balance-related audit objective affected by this activity is
A) completeness.
B) accuracy.
C) classification.
D) existence.
The board of directors is essential for effective corporate governance because it has
ultimate responsibility to
A) make sure management implements proper internal control and financial reporting
processes.
B) assist management in the preparation of the financial statements.
C) test internal controls and ensure they are working properly.
D) provide a report to the auditor confirming that internal controls are working
properly.
The reason for adopting the CASs is to
A) comply with the requirement from the Canada Business Corporations Act.
B) respond to the increased litigation risks faced by the auditors.
C) be consistent with the international standards of auditing.
D) to simplify the auditing process.
To operate effectively, an internal auditor must be independent of the
A) line functions of the organizations.
B) entity that is being audited.
C) employer-employee relationship which exists for other employees in the
organization.
D) outsourcing organizations used.
Why does a self-review threat pose a problem when conducting an audit engagement?
A) The audit can be conducted more efficiently.
B) You are auditing your own work, and may not detect inadequacies.
C) The audit is more expensive, as you have to provide clear documentation.
D) The auditor may not have the expertise to complete the special work.
Which of the following situations best describes an advocacy threat? PA has been hired
to
A) consult with the corporate controller and the bank manager about the conditions for
financing a loan.
B) manage the accounting department for three weeks while the corporate controller is
on vacation.
C) complete the personal tax returns of all executive management.
D) prepare the year end journal entries for a subsidiary company.
There are many elements of quality control at the firm level. Which element does “an
organizational culture that provides quality should be present for audit and review
engagements” belong to?
A) leadership and responsibilities within the firm
B) general ethical requirements
C) general human resource policies
D) engagement performance
Those procedures specifically outlined in an audit program are primarily designed to
A) prevent litigation.
B) detect errors or irregularities.
C) test internal controls.
D) collect evidence.
When systematic sample selection is used, the first item is selected randomly and all
other items are selected automatically. If the characteristic of interest is not distributed
randomly in the population, the systematic selection creates the possibility of
A) bias.
B) abnormal frequency distribution.
C) judgmental intervention in the process.
D) selecting mostly larger dollar items.
Michum Inc. has related parties with a company owned by the CEO’s brother that
comprise about $500,000. There are also related party transactions with the owner
(about $250) and with two of the officers ($750 and $1,000) respectively. Which related
parties should be identified and included in audit documentation?
A) those with material transactions only
B) those that had transactions in the current year only
C) all related parties
D) only those that could lead to a conflict of interest
CAS 240 requires which of the following to be considered a significant risk?
A) revenue recognition
B) inventory valuation
C) accounts receivable valuation
D) calculation of income taxes
The most important test of details of balances to determine the existence of recorded
accounts receivable is
A) tracing sales entries to shipping documents.
B) tracing the credits in accounts receivable to bank deposits.
C) tracing sales returns entries to credit memos issued and receiving room reports.
D) sending external confirmations of customers’ balances.
CAS 450 requires the auditor to communicate all misstatements to the audit committee
A) if the misstatements are slightly material.
B) if the misstatements are material.
C) if the misstatements are other than trivial.
D) regardless of materiality.
Your PA firm has just obtained a new client and you have been assigned the task of
preparing the knowledge of business section of the file. Which of the following best
describes the process of gathering the knowledge of business for a client?
A) discussing processes and business objectives with company employees
B) gathering information about the industry and regulatory environment
C) understanding the client’s business, industry, and regulatory environment
D) examining the legal expenses file for possible regulatory infractions
An accountant who reviews the financial statements of an entity should issue a report
stating that a review
A) does not constitute an audit.
B) provides negative assurance that the internal control structure is functioning as
designed.
C) provides only limited assurance that the financial statements are fairly presented.
D) is substantially more in scope than a compilation.
CAS 200 provides overall objectives of the Independent Auditor during the conduct of
an audit in three categories: qualifications and conduct, performance of the audit, and
reporting of results. How do these standards provide guidance to auditors? They
A) detail what an auditor should do during each financial statement audit.
B) represent a framework for further discussion of detailed standards.
C) provide specific rules about how work should be done for evidence gathering.
D) explain how the audit report should be developed and distributed.
Which one of the following misstatements could be detected as part of the tests of a
bank reconciliation?
A) Payment of interest to a related party at an incorrect rate
B) Exclusion of mortgage interest receivable from the balance sheet
C) Deposits recorded as cash receipts at the end of year, but included as outstanding
deposits (deposits in transit)
D) A defalcation of cash by interception of collections before they are recorded
Effective internal control in a small company that has an insufficient number of
employees to permit proper division of responsibilities can best be enhanced by
A) employment of temporary personnel to aid in the segregation of duties.
B) direct participation by the owner of the business in the record-keeping activities of
the business.
C) engaging a public accountant to perform monthly “write-up” work.
D) delegation of full, clear-cut responsibility to each employee for the functions
assigned to each.
The audit report date is important to users because it indicates the last day
A) of the fiscal period.
B) on which the financial statements may be filed with the provincial securities
commission.
C) on which users may institute a lawsuit against either client or auditor.
D) of the auditor’s responsibility for the review of significant events that occurred after
the date of the financial statements.
A document that is used to describe and authorize additions, changes or deletion of
sales prices or customer data is called a(n)
A) uncollectible account authorization form.
B) journal entry authorization form.
C) master file change form.
D) transaction file change form.
Kyle is performing a test of detail using a non-statistical sample.
A) Can Kyle formally measure sampling error?
B) What should Kyle consider in determining the sampling error?
When the auditor examines the board of directors’ minutes for dividends declared, the
auditor should be alert to the possibility of unrecorded dividends declared, particularly
shortly before the balance sheet date. Which audit assertion does this address?
A) valuation
B) existence
C) completeness
D) understandability
The auditor has sent inquiry letters to all of the client’s law firms. Two law firms stated
that the client was unlikely to win the lawsuits in question, whereas the client had said
the opposite. What action should the auditor take?
A) ask management for invoices supporting the omitted lawsuits
B) request a meeting with management and the respective law firms
C) ask the law firms to provide additional details with respect to the lawsuits
D) change control risk to maximum and increase substantive testing
A common way to evaluate the adequacy of the bad debt allowance is to
A) review the results of tests of controls that are concerned with the client’s credit
policy.
B) inspect carefully the noncurrent accounts on the aged trial balance to determine
which ones have not been paid subsequent to the balance sheet date.
C) examine the program logic that is used to prepare the aged trial balance and to
monitor the implementation of credit policies.
D) send positive confirmations to all accounts with balances over 90 days based upon
the aged trial balance.
The implementation of the Sarbanes-Oxley requirements in the US resulted in increased
independence requirements for the auditors. The impact of this requirement in Canada
was
A) creation of the CPAB to oversee Canadian audit professionals.
B) revisions of the rules of professional conduct for PAs.
C) additional training requirements to become an auditor.
D) modification of the type of opinion provided in an assurance engagement by the
auditor.
In the audit of the transactions and amounts in the capital acquisitions and repayments
cycle, the auditor must ensure that significant legal requirements affecting the financial
statements have been properly fulfilled and
A) any violations are reported to the relevant provincial securities commissions.
B) any departures from the agreements are made with management’s knowledge and
consent.
C) are adequately disclosed in the financial statements.
D) must issue a disclaimer if they haven’t been fulfilled.
Which of the following material events occurring subsequent to the balance sheet date
would require an adjustment to the financial statements before they could be issued?
A) sale of long-term debt or capital stock
B) loss of a plant as a result of a flood
C) major purchase of a business that is expected to double the sales volume
D) settlement of litigation in excess of the recorded liability
Comparison of individual customer balances with previous years will detect what type
of possible misstatement?
A) misstatement in gross profit and bad debt expense
B) overstatement or understatement of bad debt expense
C) overstatement or understatement of allowance for uncollectible accounts
D) misstatements in accounts receivable and related income statement accounts
CAS 200 explains that as part of general qualifications and conduct the auditor should
be professionally competent. Which of the following help the auditor achieve
competence?
A) the use of due care in the performance of all aspects of auditing
B) have an objective state of mind and independence from the client
C) formal education, practical experience and continuing education
D) conducting the audit using a risk-based approach and being skeptical
Which of the following is an example of accounting rather than auditing?
A) gathering evidence about the quality of accounts receivable
B) entering sales transactions into the sales order system
C) reviewing sales invoices to see if they have been calculated correctly
D) comparing bank deposit documents to the recorded cash received
Establishing the tolerable exception rate (TER) requires
A) statistical frequency probability tables.
B) random number tables.
C) a computer program.
D) professional judgment.