Which of the following presentation and disclosure related audit objectives has a
matching transaction related audit objective, but not a matching balance-related audit
objective?
A) accuracy
B) classification
C) occurrence
D) completeness
Kendra is inquiring about subsequent events with regards to lawsuits and contingent
claims. To obtain a meaningful answer, Kendra should hold the enquiry with
A) the Vice President, legal of the company.
B) the accountant in charge of the legal liability reconciliation.
C) the mail clerk.
D) the assistant controller.
There are a number of things that the practising auditor can do to reduce the liability in
lawsuits. One of them is to
A) lobby for changes in laws.
B) carry adequate insurance.
C) establish peer review requirements.
D) revise auditing standards to meet the changing needs of society.
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.
Caroline is performing the audit of the capital acquisition and repayment cycle. She is
currently auditing the payments of interest made during the year. The proper
documentation that Caroline should use as supporting evidence of the payment is
A) a copy of the note.
B) a bank reconciliation.
C) documentation of her inquiries with management.
D) the notes payable sub-ledger.
In monetary-unit sampling, the values of the estimated likely maximum misstatements
are referred to as the
A) point estimates.
B) precision intervals.
C) confidence intervals.
D) misstatement bounds.
Which of the following internal control tests would help to assess whether payroll
transactions were properly classified?
A) Test clerical accuracy by footing the payroll journal
B) Recompute net pay and gross pay
C) Reconcile the disbursements in the payroll journal with the payroll bank statement
D) Review time records and job records, tracing to labour distribution
Which of the following types of evidence is most appropriate in the audit of fixed
assets?
A) recalculation of the amortization schedule provided by the client
B) auditor inspection of recently acquired fixed assets
C) reperformance of the posting of depreciation expenses to the general ledger
D) analytical review to assess the reasonableness of depreciation expense
Financial statement users cannot be expected to evaluate audit performance because
they will not have the time or the competence to do so. In such a situation, how is
public confidence in the quality of professional services enhanced? When there are
A) only business majors hired to work as auditing students with public accounting
firms.
B) adequate controls at the public accounting firm to limit the amount of overtime
worked.
C) high standards of performance and conduct on the part of all practitioners.
D) strict rules about the type of work that employees should complete on a daily basis.
Since materiality is relative, it is necessary to have bases for establishing whether
misstatements are material. Normally, the most important base for deciding what is
material, because it is regarded as a critical item of current period information for users,
is
A) total assets.
B) net income.
C) net working capital.
D) net income before taxes.
In the audit of a corporate tax return, the report provided by the Canada Revenue
Agency auditor would describe
A) an opinion on the likelihood of tax return error.
B) the likely accounting errors that could contribute to tax errors.
C) management issues with respect to accurately reporting taxes.
D) corporate income tax overages or income tax under payments.
The purpose of tests of controls is to provide reasonable assurance that the
A) accounting treatment of transactions and balances is valid and proper.
B) accounting control procedures are operating effectively.
C) entity has complied with disclosure requirements of generally accepted accounting
framework.
D) entity has complied with requirements of quality control.
The auditor’s responsibility for “reviewing the subsequent events” of a client is
normally limited to the period of time beginning with the
A) balance sheet date and ending with the date of the auditor’s report.
B) start of the fiscal year under audit and ending with the balance sheet date.
C) start of the fiscal year under audit and ending with the date of the auditor’s report
D) balance sheet date and ending with the date the registration statement becomes
effective.
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.
Control risk is a measure of the auditor’s expectation that internal controls will
A) prevent material misstatements from occurring.
B) detect and correct material misstatements.
C) either prevent material misstatements or detect and correct them.
D) neither prevent material misstatements nor detect and correct them.
Assume that the client’s internal controls require a clerk to attach a shipping document
to every duplicate sales invoice. But this procedure is not followed exactly 3 percent of
the time. If the auditor selects a sample of 200 duplicate sales invoices, which of the
following sample results is most representative of the population?
A) three shipping documents are missing
B) six shipping documents are missing
C) five shipping document are missing
D) there were no shipping documents missing
When examining payroll transactions, an auditor is primarily concerned with the
possibility of
A) overpayments and unauthorized payments.
B) posting of gross payroll amounts to incorrect salary expense accounts.
C) misfootings of employee time records.
D) excess withholding of amounts required to be withheld.
The phrase “in our opinion” indicates that
A) the auditor performed the audit on a test basis.
B) the auditor’s judgment can be relied upon.
C) the auditor relied on their knowledge to perform the audit.
D) there may be some information risk associated with the financial statements.
In most audits, the amounts of the balance sheet accounts related to payroll are
A) large and require substantial effort to audit.
B) small compared with the transactions.
C) large on the liability side but small on the asset side.
D) significantly larger than the related accounts on the income statement.
An auditor should perform alternative procedures to substantiate the existence of
accounts receivable when
A) no reply to a positive confirmation request is received.
B) no reply to a negative confirmation request is received.
C) collectability of the accounts receivable is in doubt.
D) pledging of the accounts receivable is probable.
In determining that the accounts payable cutoff is correct, it is essential that the cutoff
tests be coordinated with the
A) confirmation of accounts payable.
B) tests on long-term liabilities.
C) observation of inventory.
D) cash count.
“Recorded payroll transactions are for the amount of time actually worked and at the
proper pay rate; withholdings are properly calculated” relates to which control
objective?
A) Authorization
B) Completeness
C) Existence
D) Accuracy
Which of the following is an example of a direct-effect illegal act that could be
performed by a client? Violation of
A) environmental protection laws for the production facility.
B) insider securities trading regulations by senior management.
C) employment equity laws for a large group of non-unionized employees.
D) income tax laws and incorrect calculation of income taxes payable.
An effective procedure to test for unbilled shipments is to trace from the
A) sales history file to the shipping documents.
B) shipping documents to the sales history file .
C) sales history file to the accounts receivable ledger.
D) sales history file to the general ledger sales account.
The auditor would like to conduct dual purpose tests verifying that the programs
performing the totaling and aging of accounts receivable are functioning correctly as
well as quantifying any error. Which of the following is a dual purpose test that the
auditor could use?
A) use analytical review and compare amounts from current to prior
B) inquire how the calculations are performed
C) use test data and observe how the invoice(s) of the test are aged
D) use generalized audit software to reperform the calculations
Notes payable are easy for companies to correctly value and include in the financial
statements. This means that with respect to notes payable, inherent risk is
A) low.
B) medium.
C) high.
D) not assessed.
PA firm has been auditing Big Manufacturing Company (BMC) for several years. Last
year, BMC converted its inventory and purchasing systems to a new system effective
December 31, the date of the year end. To their horror, the PA firm discovered at the
beginning of the current error that there was a cut-off error in the accounts payable
system of $25 million dollars LAST YEAR. Neither the client nor the firm had detected
that the purchases of December 31 had been omitted from the old computer system
transaction processing and had been recorded only in the new computer system,
understating last year’s expenses. Last year’s financial statements have been restated and
the error disclosed in the notes to both last year’s and this year’s financial statements.
What type of audit opinion will BMC receive this year?
A) Qualified
B) Disclaimer
C) Adverse
D) Unqualified
The following events all occurred after the balance sheet date (6/30/12) but prior to the
auditor’s report (9/10/12). Which one would require an adjustment to the account
balances as of 6/30/12?
A) Client will market a new series of equity securities ($2 million of preferred stock) on
8/1/12.
B) Unused equipment on the books at 6/30/12 for $100,000 was disposed of 7/31/12 for
$60,000.
C) Securities costing $30,000 held for temporary investment on 6/30/12 declined in
value by one-third when the market took a plunge on 8/15/12.
D) Inventory valued at $100,000 on 6/30/12 was destroyed in a fire on 8/1/12.
As part of the conduct of a review engagement, which of the following procedures
would be appropriate for assessing the ending value of inventory?
A) discussion with management with respect to the costing method used
B) observation of the inventory count
C) observation of the warehouse, paying particular attention to dusty and damaged
goods
D) confirmation with customers that are holding consignment inventory with respect to
quantity and condition of the inventory
Conflict between financial statement users and auditors often arises because of the
A) high cost of performing an audit.
B) extremely technical vocabulary which the auditor uses in the report.
C) placement of the auditor’s report in the back of the client’s annual report where it is
hard to locate.
D) expectation gap.
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
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.
The auditor has selected a sequence of 200 payroll cheques to verify the numerical
continuity of the cheque numbers. What type of sampling is the auditor doing?
A) haphazard
B) systematic
C) directed
D) block
A major consideration in the audit of the general cash balance is the possibility of fraud.
The auditor must extend his or her procedures in the audit of year-end cash to determine
the possibility of a material fraud when there are
A) large cash balances at the end of the year.
B) large cash receipts and disbursements during the year.
C) no imprest accounts used for payroll.
D) material internal control weaknesses.