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 payable
B) Omission or misstatement of a note payable
C) Misclassification of a note payable as long term rather than current
D) Misstatement of notes payable, interest expense or accrued interest
When the auditor intends to evaluate a sample statistically, the only acceptable selection
method is
A) probabilistic selection.
B) judgmental selection.
C) haphazard selection.
D) block selection.
If the purchase of a long-term note receivable is included as cost of goods sold, there is
a violation of the
A) existence objective.
B) completeness objective.
C) classification objective.
D) timing objective.
“The detailed instructions for the entire collection of evidence for an audit area” is the
definition of a(n)
A) sampling plan.
B) audit procedures.
C) audit plan.
D) audit program.
A) Describe the four business functions that result in sales transactions in a typical sales
and collection cycle and, for each function, state the key documents and records
involved.
B) State the five classes of transactions that comprise the sales and collection cycle.
C) The sales and collections cycle is comprised of nine business functions. The first
four functions result in sales transactions. Discuss each of the remaining five business
functions that occur after sales transactions, and identify the key documents and records
involved in each of those five functions.
A) Discuss the methodology for designing tests of details of balances for cash in the
bank.
B) An effective monthly bank reconciliation by client personnel includes nine
procedures. List these nine bank reconciliation procedures.
C) Discuss two analytical procedures commonly performed during the audit of the cash
account.
Describe an ethical dilemma that an auditor or an accountant might face in his or her
business career, then illustrate how the auditor or accountant might use the six-step
approach presented in Chapter 3 to resolve that dilemma. Be specific.
The codes of professional conduct of the various accounting bodies are meant to
A) provide a standard of conduct for all members, including those in public practice.
B) interpret the assurance recommendations and views of the AASB.
C) provide the rules underlying the audits and related service activities carried on by the
accountants.
D) establish the norms for quality control of an audit.
A client representation letter is a written statement from a non-independent source and
therefore
A) cannot be regarded as reliable evidence on its own.
B) can be regarded as reliable evidence only if the auditor finds strong internal controls.
C) can be regarded as reliable evidence if the high-level corporate officials who sign it
are trustworthy.
D) needs to be confirmed by an outside, independent source such as a financial
institution, or law firm.
Evidence is usually more persuasive for balance sheet accounts when it is obtained
A) from various times periods throughout the client’s year.
B) only from transactions occurring on the balance sheet date.
C) as close to the balance sheet date as possible.
D) from the time period when transactions in that account were most numerous during
the fiscal period.
IFRS uses specific terminology to refer to the likelihood of the occurrence of an
organizational event. Which of the following would need to provide for the (i.e. the
financial statements adjusted)?
A) outflow of resources is required, but cannot be reliably estimated
B) possibility that an outflow of resources is required
C) likelihood is remote
D) amount is yet to be confirmed
CPAB’s purpose is to
A) develop auditing standards.
B) provide training and continuing education to auditors.
C) clarify and communicate the role of the auditor to the public.
D) improve the public’s confidence in independent auditing.
Subsequent events affecting the valuation of assets ordinarily will require adjustments
of the financial statements under examination because such events typically represent
the
A) culmination of conditions that existed at the balance sheet date.
B) final estimates of losses relating to casualties occurring in the subsequent events
period.
C) discovery of new conditions occurring in the subsequent events period.
D) preliminary estimate of losses relating to new events that occurred subsequent to the
balance sheet date.
When a material uncertainty exists, the auditor must
A) disclose it in the audit report.
B) first determine the materiality of the item and whether adequate disclosure is
included in the financial statements.
C) issue a disclaimer of opinion.
D) issue a qualified opinion.
The methods that management uses to supervise the entity’s activities are called
A) personnel practices.
B) management control methods.
C) methods of assigning authority and responsibility.
D) management’s operating style.
The independent auditor’s opinion explains how much evidence the auditor collects
during the independent audit. How much evidence is collected?
A) sufficient and appropriate to provide a basis for the audit opinion
B) sufficient to state that there are no material errors in the financial statements
C) appropriate to be able to evaluate the exact accuracy of the accounting estimates
D) sufficient and appropriate to conclude the financial statements present a true and fair
view of the economic events of the organization
As a member of a professional accounting association, when considering the
applicability of the rules of professional conduct, a PA would be responsible for
compliance by
A) themselves only.
B) their partners in the practice and themselves.
C) their employees.
D) themselves, their employees, and partners.
Each of the following situations involves a possible violation of the independence
requirements of the provincial institutes’ Rules of Professional Conduct. For each
situation, (1) decide whether the Rules have been violated, and (2) briefly explain how
the situation violates (or does not violate) the Rules.
A) Mike Lednicky, public accountant, is a partner in the Oshawa office of Arthur &
Thompson, public accountants. Mike’s brother is employed as an inventory warehouse
supervisor (an audit-sensitive position) by Sweeny Appliances, a publicly-held
company in Manitoba. Sweeny Appliances is one of Arthur & Thompson’s audit clients.
Neither Mike nor the Oshawa office of Arthur & Thompson is involved in the audit of
Sweeny Appliances.
Violation? Yes No
Explanation:
B) The accounting firm of Finke & Hersley, public accountants, provides bookkeeping
and tax services for Hendershot Corporation. Finke & Hersley also performs the annual
audit of Hendershot Corporation.
Violation? Yes No
Explanation:
C) Brent Shaw, public accountant, is the auditor of Cafe Eccel. A couple of weeks ago,
Cafe Eccel’s management expressed an intention to commence litigation against Brent,
alleging he was negligent in last year’s audit. Brent believes there is a strong possibility
that management will proceed with the litigation. However, Cafe Eccel has not fired
Brent as its auditor, and he is now working on the current year’s audit of Cafe Eccel.
Violation? Yes No
Explanation:
D) Melissa Barry, public accountant, is the auditor of Audio Video Inc. Audio Video has
not paid Melissa’s audit fee for the past two years. Melissa is working on the current
year’s audit of Audio Video.
Violation? Yes No
Explanation:
Gabori Company would like to pay less income tax this year. It decided that it could do
this by understating its inventory values, increasing costs of goods sold. This was done
by deliberately pricing the inventory at incorrect amounts, so that it would be shown at
a lower value than it was really worth (for example, items worth five dollars each were
shown at fifty cents each). Which management assertion has been violated?
A) valuation
B) accuracy
C) statement presentation
D) completeness
When the auditor has determined that there is a significant risk of misstatement for a
particular assertion (for example, completeness of revenue), what type of audit testing
does CAS 330 require?
A) tests of risk assessment
B) tests of understanding of internal control
C) control tests
D) substantive tests
The test of details of balance procedure which requires the auditor to review contracts
with suppliers and customers and inquire of management for the possibility of the
inclusion of consigned or other non-owned inventory is an attempt to satisfy the
objective of
A) existence.
B) completeness.
C) realizable value.
D) rights and obligations.
Securities regulations in Canada are the responsibility of
A) national securities commission.
B) provincial securities commissions.
C) the professional accounting organizations.
D) office of the auditor general of Canada.
The audit objective requiring that existing notes payable are included in the notes
payable schedule (completeness) is satisfied by performing the following audit
procedure.
A) Recalculate accrued interest.
B) Examine duplicate copies of notes for details.
C) Review the notes payable schedule to determine whether any are related parties.
D) Obtain confirmations from creditors who have held notes from the client in the past
and are not currently included in the notes payable schedule.
When errors are found, a common and standard assumption in practice is to assume
A) a 100% assumption for all errors.
B) that the actual sample errors are representative of the population errors.
C) that the population errors are larger than the sample errors.
D) that the population errors are smaller than the sample errors.
The auditor has determined exchange rates used by the client to present cash in foreign
currencies and has recalculated the amounts. Which audit assertion is associated with
this audit procedure?
A) existence
B) valuation
C) allocation
D) classification
If the amount of a probable loss on a contingent liability is not determinable, the
liability should be
A) accrued and indicated in the body of the financial statements.
B) disclosed in footnotes, but not accrued.
C) neither accrued nor disclosed in footnotes.
D) disclosed in the auditor’s report but not disclosed on the financial statements.
Which one of the following circumstances would indicate that positive confirmations
should be used on this engagement?
A) A significant portion of the total accounts receivable balance is represented by a
small number of accounts with large balances.
B) The internal control over accounts receivable is good.
C) The recipients are mostly businesses rather than individuals.
D) The auditor is unaware of disputed or inaccurate accounts.
An auditor who uses statistical sampling for attributes in testing internal controls should
increase the assessed level of control risk when the
A) sample rate of exceptions is less than the expected rate of exception used in planning
the sample.
B) tolerable exception rate less the allowance for sampling risk exceeds the sample rate
of deviation.
C) sample rate of exceptions plus the allowance for sampling risk exceeds the tolerable
exception rate.
D) sample rate of exceptions plus the allowance for sampling risk equals the tolerable
exception rate.
There are three phases in the risk response category of the audit process (design further
audit procedures, tests of control, substantive tests). When will the auditor conduct tests
of controls?
A) when there are poor internal controls
B) if the auditor plans to rely upon them
C) when a substantive audit approach is selected
D) when there are low risks of material error
Financial statement users cannot be expected to evaluate audit performance because
they will not have the time or the competence to do so. In such a situation, how is
public confidence in the quality of professional services enhanced? When there are
A) only business majors hired to work as auditing students with public accounting
firms.
B) adequate controls at the public accounting firm to limit the amount of overtime
worked.
C) high standards of performance and conduct on the part of all practitioners.
D) strict rules about the type of work that employees should complete on a daily basis.
Stefano is performing a review of the accounts receivable for large and unusual
amounts. Of the following accounts receivables, Stefano should pay special attention to
an account receivable
A) from a related party.
B) for a large dollar amount.
C) recorded close to year end.
D) that is recurring.
A shareholder of a public Canadian firm can have access to the audited financial
statements
A) on the internet.
B) by calling the accounting department of the company.
C) requesting a copy from the auditors.
D) if he holds more than 1% of the shares of the company.
Ethical behaviour is considered to be a cornerstone for trust in everyday life as well as
in business practices. Ethics are
A) beliefs that we have about our own behaviour.
B) a set of moral principles or values.
C) rules in society that help us to do the right thing.
D) laws that govern how businesses should behave.