The weakest form of audit evidence among the following is:
A.a letter of representation from management.
B.confirmation of an inter-company receivable from a related company.
C.a letter of representation from the client’s solicitors.
D.a bank statement.
Time budgets are used for which of the following reasons?
A.Monitor actual audit hours incurred.
B.Assist in the staff scheduling process.
C.Estimate the costs and fee for the engagement.
D.All of the given answers are correct.
Which of the following statements is not true?
A.The auditor has a right of access to all books and records at all reasonable times.
B.The auditor must report all situations where inadequate records are being kept.
C.The auditor has a right to attend and be heard at all board meetings.
D.The auditor must review other information attached to the financial report to ensure
consistency with the financial report.
Which of the following best describes the concept of audit risk?
A.The risk of the auditor being sued because of association with an audit client.
B.The risk that the auditor will provide an unqualified opinion on a materially misstated
financial report.
C.The overall risk that a material misstatement exists in the financial report.
D.The risk that auditors use audit procedures that are inappropriate.
An auditor reviews a client’s payroll procedures. The auditor would consider the
internal control to be less than effective if a payroll department supervisor was assigned
the responsibility for:
A.reviewing and approving time reports for subordinate employees.
B.distributing payroll cheques to employees.
C.hiring subordinate employees.
D.initiating requests for salary adjustments for subordinate employees.
Which of the following procedures is usually included in a limited assurance
engagement?
A.The confirmation of accounts receivable.
B.A study and evaluation of internal accounting control.
C.An inquiry concerning subsequent events.
D.The observation of physical inventory counts.
Ethical decision models:
A.provide a framework for decision making.
B.provide the correct decision for different ethical situations.
C.are mandatory for members of the two major accounting bodies.
D.none of the given answers are correct.
It would not be appropriate for the auditor to initiate discussion with the audit
committee concerning:
A.the extent to which the work of internal auditors will influence the scope of the audit.
B.details of the procedures that the auditor intends to apply.
C.the extent to which change in the company’s organisation will influence the scope of
the audit.
D.details of potential problems that the auditor believes might cause a qualified
opinion.
Government activities may be carried out through:
A.government departments.
B.statutory authorities.
C.companies.
D.all of the given answers are correct.
In connection with the audit of a financial report by an independent auditor, the client
suggests that members of the internal audit staff be utilised to minimise audit costs.
Which of the following tasks could most appropriately be delegated to the internal audit
staff?
A.Selection of accounts receivable for confirmation, based upon the internal auditor’s
judgment as to how many accounts and which accounts will provide sufficient
coverage.
B.Preparation of schedules for negative accounts receivable responses.
C.Evaluation of the internal control for accounts receivable and sales.
D.Determination of the adequacy of the allowance for doubtful accounts.
Whenever negative assurance is provided by an auditor, it is based upon:
A.the presence of substantiating evidence.
B.an absence of nullifying evidence.
C.a judgmental determination in accordance with guidelines promulgated by the
accounting bodies.
D.an objective audit in accordance with the auditing standards.
Governmental auditing often extends beyond examinations leading to the expression of
an opinion on the fairness of financial presentation and includes audits of efficiency and
effectiveness, anD.
A.internal control.
B.evaluation.
C.accuracy.
D.compliance.
Which of the following is essential to determine whether effective internal control
policies and procedures were prescribed and are being followed?
A.Developing questionnaires and checklists.
B.Understanding control policies directed towards operating efficiency.
C.Obtaining an understanding of the internal control and performing tests of controls.
D.Observing employee functions and making inquiries.
Which of the following statements best describes the term ‘efficiency’?
A.A reduction in costs through better contracting.
B.Clarifying objectives and policies.
C.Greater outputs from the inputs.
D.Rationalisation of facilities.
In an audit situation, communication between the new auditor and previous auditors
should be:
A.authorised in an engagement letter.
B.acknowledged in a representation letter.
C.either written or oral.
D.written.
An auditor will usually trace the details of the test counts of inventory items selected
from the factory floor while observing the inventory stocktake through to a final
inventory schedule. This audit procedure is undertaken to provide evidence of which
assertion/s?
A.Valuation and allocation.
B.Existence.
C.Completeness.
D.Cutoff.
Which of the following best describes why an independent auditor is asked to express
an opinion on the true and fair presentation of a financial report?
A.It is management’s responsibility to seek available independent aid in the appraisal of
the financial information shown in its financial report.
B.It is difficult to prepare a financial report that fairly presents a company’s financial
position and changes in cash flows without the expertise of an independent auditor.
C.It is a customary courtesy that all shareholders of a company receive an independent
report on management’s stewardship in managing the affairs of the business.
D.The opinion of an independent party is needed because a company may not be
objective with respect to its own financial report.
The auditor may conclude that depreciation charges are insufficient by noting:
A.large amounts of fully depreciated assets.
B.insured values greatly in excess of book values.
C.excessive recurring profits on assets retired.
D.continuous trade-ins of relatively new assets.
The auditor is most likely to verify the liability account accrued commissions payable
in conjunction with the:
A.verification of contingent liabilities.
B.sales cut-off review.
C.examination of trade accounts payable.
D.review of disbursements after year-end.
In dollar-unit sampling, population size is:
A.the number of items in an account.
B.the dollar balance of an account.
C.included in the denominator of the formula to determine sample size.
D.unrelated to sample size.
An account balance is $300 000 and there are 80 items in the account, 6 of which have
balances that equal or exceed $15 000. The auditor plans to use a dollar-unit sampling
plan with systematic sample selection. To ensure that all accounts with balances of at
least $15 000 are selected, the sampling interval should be:
A.80.
B.6.
C.15 000.
D.12 000.
The independence of an auditor would be impaired if the auditor:
A.provides advisory services for a client.
B.joins a trade association, which is a client, and serves in a non-management capacity.
C.accepts a token gift from a client.
D.serves as an executor and trustee of the estate of an individual who owned the
majority of the shares of a closely held client.
The audit trail includes all of the following except:
A.journals and journal files.
B.segregation of duties.
C.ledgers and ledger files.
D.source documents and transaction files.
The CLERP 9 reforms now provide for limitation of auditor’s liability through:
A.a statutory cap.
B.proportionate liability.
C.incorporation.
D.all of the given answers are correct.
An auditor may decide to assess control risk at high for certain assertions because the
auditor believes:
A.evaluating the effectiveness of control policies and procedures is inefficient.
B.sufficient evidential matter to support the assertions is likely to be available.
C.considering the relationship of assertions to specific account balances is more
efficient.
D.more emphasis on tests of controls than substantive tests is warranted.
Ethics requires:
A.knowledge of moral principles.
B.skill in applying moral principles.
C.the development of virtues within individuals.
D.all of the given answers are correct.
Which of the following inventory items is likely to have high inherent risk?
A.Internet computer software
B.Cement
C.Washing machines
D.Office furniture
In determining estimates of fees for an attestation service, an auditor may take into
account each of the following except the:
A.value of the service to the client.
B.degree of responsibility assumed by undertaking the engagement.
C.skills required to perform the service.
D.attainment of specific findings.
Competence as an independent auditor includes all of the following except:
A.having the technical qualifications to perform an engagement.
B.possessing the ability to supervise and evaluate the quality of staff work.
C.guaranteeing the accuracy of the work performed.
D.doing additional research or consulting others.
When an independent auditor decides that the work performed by internal auditors may
have a bearing on the nature, timing and extent of contemplated audit procedures, the
independent auditor should plan to evaluate the objectivity of the internal auditors.
Relative to objectivity, the independent auditor should:
A.consider the organisation level to which internal auditors report the results of their
work.
B.review the quality control program in effect for the internal audit staff.
C.examine the quality of the internal audit reports.
D.consider the qualifications of the internal audit staff.
The audit committee of a publicly-held company should be made up of:
A.representatives of the major shareholders.
B.the audit partner, the chief financial officer, the legal counsel, and at least one
outsider.
C.representatives from the client’s management, investors, suppliers and customers.
D.members of the board of directors who are not employees.
Which of the following is not a requirement of a profession?
A.Community sanction.
B.Regulative code.
C.Large membership.
D.Professional expertise.
When an audit is made in accordance with the auditing standards, the independent
auditor must:
A.utilise statistical sampling.
B.confirm receivables at year-end.
C.obtain certain written representations from management.
D.observe the taking of physical inventory on the balance date.
The ‘AWA’ case established that:
A.reasonable care and skill means following the Auditing Standards.
B.auditors have a duty to closely supervise and review the work of inexperienced audit
staff.
C.auditors are only liable for the proportion of damages attributable to their actions.
D.auditors have a duty of care only to the shareholders as a group.
To determine whether accounts payable are complete, an auditor commonly performs
sampling procedures to test whether all merchandise received is recorded. The
population of documents for this test consists of all:
A.payment vouchers.
B.receiving reports.
C.purchase requisitions.
D.vendor’s invoices.