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 of mind and independence from the client
B) completing formal education and having practical experience in the conduct of
auditing
C) issue a standard audit report using the CICA Handbook specified wording
D) considering the completeness of the working papers
IFRS uses specific terminology to refer to the likelihood of the occurrence of an
organizational event. Which of the following would require note disclosure in the
financial statements adjusted?
A) likely to occur and the amount can be estimated
B) possible that an outflow of resources is not required
C) likelihood is remote
D) amount is yet to be confirmed
The purpose of allocating planning materiality to balance sheet accounts is to
A) assess the appropriate evidence to accumulate for each account on the balance sheet.
B) assess the appropriate evidence to accumulate for each account on both the balance
sheet and income statement.
C) reduce the amount of procedures done in the course of the audit.
D) increase the possibility that fraud or illegal activities would be detected by audit
procedures.
Management’s objectives with respect to internal control include
A) having reasonable assurance that the financial statements are in accordance with
IFRS or ASPE.
B) ensuring that all policies and procedures are clearly documented to reduce employee
training costs.
C) preventing fraud and illegal activities at all costs.
D) providing reasonable assurance that the goals and objectives important to the entity
have been met.
The reason for testing the client’s bank reconciliation is to verify whether the client’s
recorded bank balance is the same amount as the actual cash in the bank, except for
deposits in transit, cheques outstanding, and other reconciling items. The information
needed to complete the tests of the reconciliation are provided by the
A) journals and ledgers of client for the year under audit.
B) cutoff bank statement.
C) journals and ledgers of client for the subsequent year.
D) cancelled cheques for the year under audit.
Which of the following would you expect to find in a corporation’s bylaws? The
A) kinds and amounts of capital stock authorized.
B) date of incorporation.
C) rules and procedures adopted by the shareholders of the corporation.
D) types of business activities that the corporation is authorized to conduct.
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
Two accounts receivable balance-related audit objectives are not affected by assessed
control risk for the sales and cash receipts classes of transactions. These are
A) valuation allocation.
B) allocation, rights and obligations.
C) valuation, rights and obligations.
D) accuracy, existence.
Frag Jones Company has a December year end, with a tight reporting deadline, so the
auditors confirmed the accounts receivable as of November 30 using positive
confirmations. In addition to following up confirmation discrepancies, the auditor
should
A) test December transactions.
B) send negative confirmations as of the end of December.
C) text November transactions.
D) do cut-off testing for the month of October.
Transaction cycles begin and end at
A) the beginning and end of the fiscal period.
B) the balance sheet date.
C) January 1 and December 31.
D) the origin and final disposition of the company.
What impact is the presence of factors such as real-time information (such as via the
Internet) expected to have upon the demand for assurance services? Demand is
expected to
A) decline, due to the lack of adequate resources.
B) grow, due to the increase in large corporations.
C) grow, due to the need for forward-looking information.
D) decline, as small businesses use the Internet more.
You have just recently become a member of your local non-profit housing co-op by
moving into the largest unit. The Board of Directors has asked that you handle the
review engagement, but you are concerned about independence. What is a practical way
for you to stay in the co-op but also perform the review engagement?
A) Request a bylaw stating that the accountant cannot vote for Board members.
B) Do a compilation rather than a review engagement.
C) Have all the preparation work for the review engagement completed by a Board
member.
D) Include a paragraph in the review engagement report stating that you are not
independent.
Mary is entering a fictitious transaction in the sales data entry system to see if the
system will reject the order for a client that is already exceeding its credit limit. Mary is
using
A) observation.
B) analytical procedures.
C) test data.
D) generalized audit software.
When are short-term investments that are readily converted to cash included in the cash
account in the financial statements?
A) If they are held in local currencies (i.e. Canadian dollars)
B) When there is little risk of change in value
C) When they are under the control of the treasury department
D) If interest has been paid up to the year end date
If it is probable that the judgment of a reasonable person would have been changed or
influenced by the omission or misstatement of information, then that information is
considered to be
A) significant.
B) insignificant.
C) material.
D) relevant.
The occurrence rate or exception rate for attribute sampling is defined as the
A) exception rate that the auditor will permit in the population and still be willing to use
the assessed control risk.
B) risk that the auditor is willing to take of accepting a balance as correct when the true
misstatement in the balance is greater than materiality.
C) exception rate that the auditor expects to find in the population before testing begins.
D) ratio of the items containing a specific attribute to the total number of population
items.
It is normal for the auditor to verify large and unusual transactions for the entire year as
well as a representative sample of typical additions. The size of the sample for
substantive testing depends on the auditor’s
A) sampling selection methodology used.
B) assessed control risk and assessed inherent risks.
C) understanding of the nature of internal controls.
D) availability of client resources to pull supporting documentation.
Frankinfurter Limited decided that it wanted to improve earnings. To do this, it
understated its expenses by omitting unpaid expenses from the accrued liabilities
account at year end. Which management assertion has been violated?
A) existence
B) disclosure
C) rights and obligations
D) completeness
Simon owns a clothing store, Simonello. Simonello recently purchased a material
amount fabrics from Simonique Inc., a textile company also owned by Simon. With
regards to this transaction, the auditors should
A) request a confirmation from Simonique that the transaction took place.
B) inspect the textile received in the warehouse to ensure that the amount sent equals
the amount ordered.
C) qualify the audit report as this puts into question management’s integrity.
D) verify that the business relationship is disclosed in the financial statements.
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
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.
For a CA or CGA working as a sole practitioner or working in a small public
accounting office, the provincial practice inspectors will likely come to review audit
files
A) every three years.
B) every five years.
C) every year.
D) files sent, not reviewed in person.
If inherent risk is considered at the assertion level, why does the nature of the client’s
business affect inherent risk?
A) Certain accounts, such as inventory, are affected by the nature of the client’s
business.
B) If the client has really basic manufacturing processes, inherent risk is low.
C) When there is a risk of technological obsolescence, a specialist must be used during
the engagement.
D) Accounts such as cash, notes and mortgages payable vary depending upon the type
of business.
The first step in the financial statement audit using a risk assessment approach is to
A) identify risks of material misstatement.
B) gather evidence to assess the likelihood of material misstatement.
C) evaluate audit evidence.
D) evaluate the reporting framework.
The purpose of the audit procedure to “examine underlying documentation for
subsequent cash disbursements” is to
A) uncover liabilities on the balance sheet which should not have been recorded until a
subsequent period.
B) find the documentation relating to a cash disbursement.
C) uncover payments made in a subsequent accounting period that represent liabilities
at the balance sheet date.
D) uncover cash disbursements recorded in a subsequent accounting period which
should be recorded in that period.
What is the purpose of exposure drafts issued by the AASB (Auditing and Assurance
Standards Board) in Canada? To
A) expose the newly established standards to as many groups as possible.
B) provide current copies of the standards in advance of being placed in the CICA
Handbook.
C) provide supporting reference material and other resources.
D) explain how standards will be changed and solicit feedback.
The statement that “nothing came to our attention which would indicate that these
statements are not fairly presented” expresses which of the following?
A) disclaimer of an opinion
B) negative assurance
C) negative confirmation
D) piecemeal opinion
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 normal audit approach for the audit of bonds issued is to
A) examine transactions that occurred near the year end date only.
B) verify each transaction taking place in the cycle for the entire year.
C) select a statistical sample of transactions throughout the year.
D) rely upon controls rather than conducting substantive tests.
Which one of the following situations is a violation of the professional rules of
conduct? PA
A) looked the other way when he noticed that one of his firm’s accounting staff
accepted money from client management.
B) resigned so that he could accept a position on the Board of Directors at a major
client.
C) prepared personal and corporate tax returns for a client and all of its executive
officers.
D) placed an advertisement in the local paper indicating that she conducted audit
engagements for five major insurance companies.