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 record the last cheque number used
on the last day of the year and subsequently trace to the outstanding cheques and the
cash disbursements journal is performed to satisfy the audit objective of
A) detail tie-in.
B) existence.
C) completeness.
D) allocation.
Which of the following best describes what the auditor means by the exception rate in
the attribute sampling plan? The
A) number of errors that can reasonably be expected to be found in a population.
B) frequency with which a certain characteristic occurs within a population.
C) degree of confidence that the sample is representative of the population.
D) dollar range within which the true population total can be expected to fall.
The working papers are
A) the property of client.
B) prepared by the client’s internal auditors.
C) the primary means of documenting that an adequate audit was conducted in
accordance with GAAS.
D) used primarily as a basis for the partners to review and reward the work of the
managers, seniors, and staff.
The primary purpose of accounts receivable confirmation is to satisfy the
A) existence objective.
B) existence and cutoff objectives.
C) accuracy and cutoff objectives.
D) existence, accuracy, and cutoff objectives.
General qualifications and conduct standards indicate that performance of all aspects of
auditing should be performed with due care. This means that the auditor must fulfill
his/her duties
A) in accordance with the CAS.
B) carefully and in a timely manner.
C) to the satisfaction of the client.
D) diligently and carefully.
One of the reasons that an auditor must be competent is to be able to
A) understand the engagement risks and the criteria used by the client.
B) explain how the bookkeeping should be done to his staff.
C) record the transactions properly for the underlying records.
D) capture the information properly in the computer files.
In addition to having modifications of wording for the financial statement audit opinion,
other types of opinions can have modifications as well. Which one of the following
describes a situation where there would be a qualification or disclaimer of opinion for a
direct reporting engagement? The
A) subject matter does not conform to the criteria.
B) information is not presented fairly.
C) practitioner conducted alternative procedures where there was a scope limitation.
D) practitioner and management disagree about the content of the report.
An auditor learns that his client has paid a vendor twice for the same shipment, once
based upon the original invoice and once based upon the monthly statement. A control
procedure that should have prevented this duplicate payment is
A) attachment of the receiving report to the invoice only.
B) prenumbering of disbursement vouchers.
C) use of a limit or reasonableness test.
D) prenumbering of receiving reports.
The auditor is going to select a sample of accounts receivable to circulate external
confirmations, and then estimate the total dollar value of the accounts receivable
balance. The auditor should use what type of sampling?
A) attribute sampling
B) discovery sampling
C) monetary unit sampling
D) variable estimation sampling
Frank has discovered that his employer is part of a group of banks that is manipulating
interest rates. He would like to stop this practice at his employer, and is not sure how
best to talk to his boss. He has heard of the GVV (Giving Voice to Values) approach,
and thinks he may be able to use it successfully because his company has recently
implemented new initiatives to empower employees to speak of improvements to
business practices. After identifying and clarifying the ethical issue, what should Frank
do next?
A) identify the stakeholders, what is at stake for them, and how to connect with them
B) identify the values underpinning the different positions in the conflict and the
possibilities for action
C) consider his personal and professional purpose and choices in this situation
D) develop and practice a powerful response that he can use with his boss
A risk of material misstatement in accounts receivable associated with the accuracy
balance-related audit objective is that ‘sales recorded at the incorrect price result in
revenue and accounts receivable that are over or under stated.” Which of the following
tests of detail of balances would respond to this risk?
A) select a sample of master file change forms and verify that all sales prices changes
were appropriately authorized
B) use audit software to match sales invoice price details to authorized prices in the
sales price master files
C) inquire of management with respect to the procedures used to update sales price
master file
D) match shipping details for a sample of invoices to the invoice details, on an item by
item basis
General controls must be evaluated and their impact considered upon the human
resources and payroll transaction cycle because
A) there are frequently weaknesses in internal controls in the payroll cycle.
B) automated techniques are normally used to prepare and post payroll transactions.
C) the best way to test payroll transactions is usually by using test data.
D) the best way to test payroll transactions is usually by using generalized audit
software.
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.
Audit risk is assessed for
A) the financial statements as a whole and is not usually allocated to various accounts
or objectives.
B) the financial statements as a whole and then allocated to various accounts.
C) various accounts but not for the financial statements as a whole.
D) various accounts and objectives, and the sum is then assigned to the financial
statements as a whole.
Most large corporations employ the services of a stock transfer agent for the purpose of
A) maintaining the shareholder records.
B) recording share capital in the accounts.
C) issuing the shares for the company.
D) ensuring that stock issuances are complying with federal and provincial laws.
Which of the following controls best prevents employees from checking in for more
than one employee? The use of
A) numerically controlled punch-in cards.
B) placing the punch clock in full view of the receptionist.
C) time cards stored in a wall rack.
D) a personalized swipe card.
The audit risk model is used primarily
A) for planning purposes in determining how much evidence to accumulate.
B) while doing tests of controls.
C) to determine the type of opinion to express.
D) to evaluate the evidence which has been gathered.
An important role of inherent risk assessment during the audit process is the need to
A) document the quality of the disaster recovery plan.
B) attempt to predict where misstatements are most and least likely in the financial
statement segments.
C) train the audit staff to assess the integrity of management.
D) increase the level of analytical review.
A measure of how willing the auditor is to accept that the financial statements may be
materially misstated after the audit is completed and an unqualified opinion has been
issued is the
A) inherent risk.
B) audit risk.
C) statistical risk.
D) financial risk.
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 exception rate the auditor will permit in the population and still be willing to use
the assessed level of control risk is called the
A) tolerable exception rate.
B) estimated population exception rate.
C) acceptable risk of overreliance.
D) sample exception rate.
Vanovo Ltd. is a company that has purchased several companies in the retail sector.
Recently, Vanovo Ltd. purchased both a coffee and donut chain that also owned
bakeries and a submarine sandwich chain. Unfortunately, the planned synergies
between these two retail chains did not arise. What effect would this have on the
financial statements of Vanovo Ltd., the parent company?
A) the financial statements will be incorrectly calculated, and should be checked
B) the fixed assets and goodwill recorded at acquisition could be impaired
C) risk of material misstatement for payroll expenses will increase
D) costs of goods sold will likely be overstated for both of the new chains
An important part of evaluating whether the financial statements are fairly stated is
summarizing the misstatements uncovered in the audit. Whenever the auditor uncovers
misstatements that are in themselves material,
A) entries should be proposed to the client to correct the statements.
B) no entries need be made but footnote disclosure is required.
C) it is necessary to combine individually immaterial misstatements with the material
misstatements and make entries to correct the statements.
D) it is necessary to combine individually immaterial misstatements with the material
misstatements and make full disclosure in the footnotes.
Each of the following situations involves a possible violation of the provincial
institutes’ Rules of Professional Conduct. For each situation (1) decide whether or not
the rules have been violated, and (2) briefly explain how the situation violates (or does
not violate) the rules.
A) Carla is the CFO of Xenon Company. Carla was very happy after her husband
Dwayne, a partner at a large PA firm was assigned as the new auditor of the company.
Carla is confident that this will be helpful to Xenon since Dwayne already knows so
much about the business.
Violation? Yes No
Explanation:
B) Jeremy accepted a summer internship at a PA firm. Jeremy’s parents own 0.1% of
Raven Inc, a large public company in Austria. Raven Inc. is a client of the Austrian
branch of the PA firm. Jeremy reported this to the partner of his office.
Violation? Yes No
Explanation:
C) Ken Burns is a partner at Burns and Fields LLP, a PA firm. Ken was approached by a
friend who asked him to invest in Safran Group Inc., a growing high tech company. The
proposal would be for Ken to invest $650,000 to obtain 1% of the company. Ken
decided to go ahead with the investment because Safran is a client from their Seattle
office and he has never provided any services to Safran Inc. Ken indicates that he will
ensure that he does not work on the audit of Safran.
Violation? Yes No
Explanation:
D) Sintron Inc. is a payroll processing company. Over the past 5 years, Clarkson
Coppers LLP, a PA firm, has outsourced its payroll processing and other human
resources tasks to Sintron. Clarkson Coopers LLP is happy to outsource more functions
to Sintron as Sintron has asked Clarkson for additional consulting services with regards
to system implementation and application of new accounting policies.
Violation? Yes No
Explanation:
The appropriate test of controls for separation of duties is
A) documentation.
B) confirmation.
C) examination.
D) observation.
If the auditor is not using tests of control, then
A) tests of detail must be used.
B) analytical procedures must be used.
C) tests of design of internal controls must at least be used.
D) the auditor will have to qualify the audit opinion.
Many companies have inventory that is easy to steal and is readily marketable. Which
of the following controls help to prevent theft and misuse of inventory?
A) physical control of inventory from time of receipt until use
B) proper access controls over the inventory master and transaction files
C) dual signatures required on all purchase orders over $10,000
D) purchase requisitions are to be approved by the production manager
During which phases of the financial statement audit does the auditor “evaluate
evidence” when conducting the financial statement audit using a risk assessment
approach? During
A) the risk assessments.
B) the risk responses.
C) the reporting process.
D) risk assessment, risk response and reporting phases.
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.
When public accountants are able to maintain an independent attitude in fulfilling their
responsibility, it is referred to as independence in
A) fact.
B) appearance.
C) conduct.
D) total.
One form of accounts payable fraud occurs when the accounts payable clerk or another
employee steals a cheque made payable to a legitimate vendor. The purchases
information is then resubmitted for payment and the second cheque sent to the vendor.
How could such a theft be prevented?
A) cancel supporting documents to prevent their being re-used
B) make sure that all payments are supported by valid documents
C) reconcile the transaction files to the accounts payable master file
D) have receiving reports authorized independently
The bias in recording inventory would be toward
A) overstatement.
B) understatement.
C) increasing share price.
D) income smoothing.