The audit working papers serve as a record of the evidence accumulated and the results
of the audit tests. This helps to demonstrate that the audit was
A) properly kept confidential; information was held secure.
B) completed using Canadian generally accepted accounting principles.
C) organized effectively with no mistakes in calculations.
D) conducted in accordance with Canadian generally accepted auditing standards.
The WhirlyGig Factory Ltd. manufactures WhirlyGigs of many different sizes and
types. The company employs 55 employees, all paid on an hourly basis.
Employees fill in time sheets and hand them in every Monday to the payroll clerk,
Pamela. For factory employees, the time sheet shows the hours worked by product job
number, and indicates if the job has been completed. The payroll clerk tracks the hours
worked by job, and when a job is complete, compares the totals to the estimate made by
the owner, Faruq. A bonus is paid for actual hours paid less than the estimated amount.
Every Wednesday, Pamela prepares the cheques and gives them to Faruq for signing.
Pamela then staples the cheques to the payroll stubs. Pamela hands out the office
cheques and gives the other cheques to the factory supervisor for distribution.
Required:
A) Identify control weaknesses and their impact, and provide recommendations for
improvement.
B) What is the impact of the control weaknesses upon your audit approach?
Shipping of finished goods is an integral part of the
A) acquisitions and payments cycle.
B) inventory and distribution cycle.
C) sales and collections cycle.
D) human resources and payroll cycle.
Which of the following is an example of fraudulent financial reporting (management
fraud)?
A) intentional overstatement of sales to increase reported earnings
B) managers or others taking bribes from accounts payable suppliers
C) the purchasing manager submitting travel expenses twice (i.e. duplicate payment)
D) a clerk taking cash at the time a sale is made and not recording the sale
A bank sues the auditor after making a loan to Klaxxon, a company that went bankrupt.
The bank indicates that they relied on the year-end financial statements of Klaxxon to
make the lending decision. The bank analyst indicates that the audit opinion was
unqualified so he assumed that Klaxxon was a going concern. The auditor defends
himself by referring to a note disclosure in the financial statements about the company’s
economic dependence on one buyer, Dexters Corp. Dexters Corp had experienced some
significant financial trouble for the past year and went bankrupt 3 months after the
financial statements of Klaxxon were released. The PA’s liability is likely
A) contributory negligence.
B) fraud.
C) breach of contract.
D) gross negligence.
As the effectiveness of internal control increases, what happens to control risk? It
A) stays the same.
B) increases.
C) changes based upon the audit procedures conducted.
D) decreases.
An accountant records information. When conducting an audit, the auditor must possess
A) an ability to interpret generally accepted accounting frameworks.
B) an education beyond the bachelor’s degree.
C) an ability to classify transactions by type.
D) an ability to organize and summarize economic events.
Which of the following is a substantive test of transactions?
A) Review personnel policies
B) Account for a sequence of payroll cheques
C) Reconcile the disbursements in the payroll journal with the disbursements on the
payroll bank statement
D) Examine printouts of transactions rejected by the computer as having invalid
employee numbers
A) Explain what is meant by kiting and discuss how it is performed.
B) Discuss how an auditor can test for kiting.
An effective audit is one that
A) reduces the audit risk to the targeted level.
B) ensures that there are no errors contained in the financial statements.
C) does not contain errors of a dollar amount higher than 5% of the net income of the
company.
D) is completed on time and within budget.
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.
An essential characteristic of the persons performing internal check procedures is
A) independence from the original data preparer.
B) a thorough knowledge of accounting.
C) an analytical and inquisitive mind.
D) competence in data entry skills.
Master files, worksheets, and reports that accumulate material, labour, and overhead as
the costs are incurred are
A) accounting system controls.
B) storeroom documents.
C) finished goods inventory records.
D) cost accounting records.
As the quality of the enterprise risk management process declines, and the quality of
internal controls over all declines
A) risk of fraud decreases.
B) risk of fraud increases.
C) the extent of control testing increases.
D) the extent of substantive testing decreases.
Proper authorization for the issuance of notes payable requires that
A) whenever notes are renewed (refinanced), they should be subject to the same
authorization procedures as those used when they were first issued.
B) responsibility for authorizing notes should lie with the manager who will receive the
benefits of the loan.
C) responsibility for authorization should lie with the treasurer’s function, since the
treasurer’s department will receive the cash generated.
D) responsibility for authorization should lie with the manager who must generate the
revenue to repay the loan.
The auditor has determined that the inventory procedures are highly automated, with
limited use of a paper or physical trail. Rather than having people count inventory
(since all inventory has RFID tags attached), inventory is being read using the wireless
mesh network. To provide assurance with respect to ending inventory, the auditor
should
A) bring in additional audit staff, and conduct a high level of test counts, matching
these counts to the automated systems.
B) use dollar unit sampling to identify all high dollar inventory items, and ask the client
to physically count these items using count teams.
C) test the quality of the controls over the programs in use, and over tagging inventory
items.
D) request that the client implement manual rotating counts to test the quality of the
automated systems.
An inventory observation procedure which compares physical counts with the perpetual
inventory master file is an attempt to satisfy the audit objective of
A) existence.
B) completeness.
C) accuracy.
D) classification.
To comply with the second examination standard, the auditor need not be concerned
with all areas of internal control that apply to management. The auditor’s primary
concerns are with the system’s ability to
A) maintain reliable control systems pertaining to financial transactions.
B) promote efficiency and encourage adherence to policy.
C) prevent and detect financial statement fraud and error.
D) provide reliable data and safeguard assets.
A) Describe the five types of audit tests used to determine whether financial statements
are fairly stated. Identify which of the five types are substantive tests, and which are
used to reduce assessed control risk.
B) There are several types of audit procedures that relate to the auditor’s understanding
of internal control. One type of procedure is “Update and evaluate the auditor’s previous
experience with the entity.” Identify the five additional types of procedures related to
understanding internal control, and four types of procedures that are used to test
controls.
An important consideration in evaluating the fairness of the amounts accrued for
vacation pay, sick pay, and other benefits is the
A) consistent accrual of these liabilities relative to those of the preceding year.
B) actual expense incurred for the prior period.
C) amount expended to date in the current period.
D) profitability of the client which will enable these liabilities to be met.
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.
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
Which of the following controls pertains to audit trails in the batch processing of sales
transactions?
A) groups of documents are totalled
B) audit trail is available in electronic form
C) the focus is on preventing incorrect transactions
D) remittance advice information is matched to sales invoice numbers
Which of the following type of test is most important for the audit of payroll?
A) Internal control
B) Test of detail
C) Analytical review
D) Substantive test
To protect the inventory, Globus Corp wants to assign the custody of inventory to a
specific responsible individual. Globus can accomplish this by requesting
A) a designated employee to authorize movement of inventory.
B) employees to have photo id cards.
C) have restricted access to the production facility.
D) have frequent inventory counts.
Gary West is a sole practitioner. He has conducted the audit of Reggie’s Farm for the
past 12 years. In the current year, Reggie’s Farm expanded by acquiring two other
farms, installed a new accounting system and also started to export to the United States.
Gary accepted the audit of Reggie’s Farm for the upcoming year even though he has no
experience with exports to the US or companies of the size of Reggie’s Farm. Which
element of quality control is compromised for Gary’s firm?
A) Independence
B) Client acceptance or continuance
C) Extent of professional development
D) General ethical requirements
In addition to representing an assessment of whether a client’s internal control is
effective for preventing or detecting misstatements, control risk also represents the
A) reliability of management in preventing or detecting fraud.
B) auditor’s intention to rely on internal controls.
C) likelihood that the auditor will detect illegal acts.
D) possibility of collusion occurring between two employees.
The process of transferring money from one bank account to another and improperly
recording the transaction in both accounts is called
A) lapping.
B) embezzling.
C) kiting.
D) a scam.
For each of the following situations, state which element of the profession or society
encourages the public accountant to conduct himself at a high level.
A) Marco attended a seminar on the topic of business combinations to ensure he was up
to date with the new standard.
B) Barbara referred to the standard on hedging to ensure that her client had the
appropriate documentation to qualify for hedge accounting.
C) Gretchen refused to perform the audit of her uncle’s restaurant chain.
D) Walid worked overtime all week to ensure that the file was properly documented and
met the quality control requirements.
E) Sarah took the summer off to study for the Uniform Final Examination (UFE) to
ensure that she would pass the entrance exam to become a chartered accountant.
You have just signed off the audit report on the financial statements of your client. What
type of engagement did you complete?
A) Review
B) Direct reporting
C) Attest and assurance
D) Operational
Auditing should be done by a qualified
A) chartered accountant.
B) certified management accountant.
C) competent and independent person.
D) professional accountant.
Which of the following controls help to ensure that the receipt of raw materials for
inventory is recorded in the correct period?
A) supplier details are automatically retrieved from the supplier master file
B) receiving staff write down the date goods are received on the bill of lading
C) accounting staff record the date that goods are received in the accounting systems
D) transaction date entered must be the same as the system date