You are conducting an audit and have obtained the following figures with respect to
sales and accounts receivable:
2012 2011
Accounts receivable $ 3,343,000 $ 2,694,000
Allowance for doubtful accounts 212,150 207,660
Sales 25,640,000 24,630,000
Required:
A) What are the audit implications of these figures?
B) Identify key audit steps that you would perform for any of the above accounts.
The auditor’s report of the Samcorp Company indicates that the auditor is unable to
form an opinion on whether the financial statements of the company are fairly presented
due to scope restrictions and unavailable and incomplete records. The auditor’s report is
A) unqualified.
B) qualified.
C) adverse.
D) disclaimer of opinion.
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.
Which of the following controls prevents error and helps to ensure that only authorized
wages are paid by the payroll service provider?
A) duplicate signatures required on payments to the Receiver General
B) use of an imprest payroll account for the payment of all payroll payments
C) independent approval of the payroll journal prior to payroll payment release
D) reconciliation of the payroll imprest bank account on a timely basis
If management and salespeople are compensated on the basis of achieving high sales
targets, there is increased incentive to record sales before they have been earned. In
such a situation, the auditor will increase the extent of testing for which of the
following transaction-related audit objectives for sales?
A) cutoff and classification
B) classification and occurrence
C) occurrence and cutoff
D) completeness and cutoff
Independence is assessed in the eyes of external users and regulators. Which of the
following is a tool that helps the auditor identify whether the auditor is independent for
a particular audit engagement?
A) completion of independence forms at time of employment
B) the use of an independence threat analysis
C) audit risk model assessment for each engagement
D) professional skepticism when assessing control risks
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
Senior management of Mega Corp. is entitled to receive large bonuses if they achieve
earnings targets. What is the effect of this on the risks associated with recording of
revenue? It increases
A) inherent risks associated with revenue cutoff and existence assertions.
B) inherent risks associated with revenue cutoff and completeness assertions.
C) control risks associated with revenue cutoff and existence assertions.
D) control risks associated with revenue cutoff and completeness assertions.
A typical objective of an operational audit is for the auditor to
A) determine whether the financial statements fairly present the entity’s operations.
B) evaluate the feasibility of attaining the entity’s operational objectives.
C) evaluate the effectiveness of an internal process.
D) report on the entity’s relative success in attaining profit maximization.
Bigland and Betton, PAs, is being sued by a bank for potential negligence during an
audit engagement which was completed over five years ago. Which one of the
following actions during that audit engagement will help ensure that the suit is fairly
assessed?
A) good quality documentation
B) honest management at the client
C) low employee turnover
D) good employee memory of events
The internal auditor is running a computer-assisted audit test that compares names and
wage rates in the personnel files (stored on optical disk) with the wage rates in the
payroll master file and the whole year’s payroll transaction files. What is the purpose of
these tests?
A) determine whether any employees were not paid in the most recent pay
B) check for wage rates that are under the amount specified by the union contract
C) help with the reconciliation of wage rates to the T4 summary
D) determine whether terminated employees are still being paid
The official record of the meetings of the board of directors and shareholders is
contained in the corporate
A) bylaws.
B) charter.
C) minutes.
D) license.
Jane’s employer purchased a new calculator this month. When Jane added up the sales
for the day, she was a bit confused with the new calculator and made numerous adding
errors. The daily sales total for the next week was incorrectly posted to the general
ledger. The general balance-related audit objective affected by this activity is
A) cutoff.
B) accuracy (of allocation).
C) classification.
D) existence.
In systematic selection, population size is divided by the number of sample items
desired in order to determine the
A) interval.
B) tolerable exception rate.
C) computed upper exception rate.
D) mean.
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.
The purpose of the audit procedure to “trace receiving reports issued before year-end to
related vendors’ invoices” is to determine that all
A) merchandise received is included in accounts payable.
B) merchandise received is included in inventory.
C) merchandise was received.
D) invoices have been paid.
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.
In the auditing environment, failure to meet generally accepted auditing standards is
often
A) an accepted practice.
B) a suggestion of negligence.
C) strong evidence of negligence.
D) tantamount to criminal behaviour.
As part of the review engagement for a small manufacturing company, which of the
following would be a typical review procedure for the sales cycle?
A) review of internal controls over the granting of credit
B) examination of sales documents to ensure credit approval is documented
C) recalculation of the taxes and extensions on a sample of invoices
D) comparison of sales and gross profit to the prior year
There are many types of analytical procedures that the auditor can conduct during the
planning stage of the financial statement audit. What is the purpose of comparing
prepaid expenses and related expense accounts with those of prior years?
A) understand the client’s industry and business
B) assess going concern
C) indicate possible misstatements
D) reduce tests of controls
Use of electronic funds transfers (such as electronic data interchange and online
banking) has which of the following effects on the audit risk model?
A) decreases control risks associated with cash
B) increases control risks associated with cash
C) decreases inherent risks associated with cash
D) increases inherent risks associated with cash
As part of the audit of sales, the auditor has used attribute sampling to select a sample
of sales invoices. The auditor has examined the duplicate sales invoice to determine
whether it was approved for credit. The client has a December year end. In October, the
auditor conducted the interim audit and drew a sample of 40 items that covered the
period from January to September. In order to be able to generalize to the sales
population, the auditor should also
A) select sample items from the rest of the year.
B) increase the sample size in proportion to the total population size.
C) use statistical methods to calculate sampling risk.
D) use statistical methods to calculate non-sampling risk.
Ordinarily, the working papers can be provided to someone else only with the express
permission of the client. This is the case even if the papers are
A) subpoenaed by a court.
B) used as a part of a provincial institute practice inspection.
C) requested as evidence in a provincial institute disciplinary hearing.
D) transferred as a result of a public accountant selling his/her practice to another
public accounting firm.
Presentation and disclosure are important because acceptable financial reporting
frameworks require that footnotes adequately describe the terms of notes payable
outstanding and the assets pledged as collateral for the loans. Which assertion does this
relate to?
A) valuation
B) existence
C) completeness
D) understandability
Dimitri works at a large public accounting firm. Dimitri referred one of his friends for a
junior auditor position. Dimitri’s friend was hired despite the fact that he had a criminal
record dating from 3 years ago. The partner did not perform a background check on
Dimitri’s friend since he was recommended by an employee. Which element of quality
control is compromised?
A) General ethical requirements
B) Independence
C) General human resource policies
D) Engagement performance
If the auditor concludes that the physical controls over inventory are so inadequate that
inventory will be difficult to count, the auditor should
A) inquire of management the additional controls that can be put in place to enable a
better count to be carried out.
B) conduct additional control tests over the pricing and compilation of inventory to
obtain a higher degree of accuracy.
C) rely upon the perpetual inventory master files rather than the physical count.
D) expand the observation of physical inventory tests to ensure that an adequate count
is carried out.
Which of the following is a factor that relates to “incentives or pressures” to commit
fraudulent financial reporting?
A) Significant accounting estimates involving subjective judgments
B) Excessive pressure for management to meet debt covenant requirements
C) Management’s practice of making overly achievable forecasts
D) High turnover of accounting, internal audit and information technology staff
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.
The audit objective to determine that existing notes payable are included in the notes
payable schedule (completeness) is accomplished by the following test of balances
procedure.
A) Examine balance sheet for disclosure details.
B) Recalculate accrued interest.
C) Review the bank reconciliation for new notes credited directly to the bank account
by the bank.
D) Examine duplicate copies of notes for principal and interest rates.
The standard letter of confirmation sent to the client’s legal counsel should be prepared
on the
A) auditor’s stationery and signed by an audit partner.
B) lawyer’s stationery and signed by the lawyer.
C) client’s stationery and signed by a company official.
D) plain paper and be unsigned.