Which of the following is an example of a key internal control for an online system that
would help ensure that recorded sales are for the amount of goods shipped and are
accurately billed and recorded?
A) Shipping documents are matched to invoices.
B) Shipping details are automatically used as the invoicing source.
C) Shipping documents are prenumbered and accounted for.
D) Transactions are summarized daily for posting to the general ledger.
CAS 200 provides overall objectives of the Independent Auditor during the conduct of
an audit in three categories: qualifications and conduct, performance of the audit, and
reporting of results. How do these standards provide guidance to auditors? They
A) detail what an auditor should do during each financial statement audit.
B) represent a framework for further discussion of detailed standards.
C) provide specific rules about how work should be done for evidence gathering.
D) explain how the audit report should be developed and distributed.
Prospective financial information prepared using assumptions reflecting management’s
judgment as to the most probable courses of action for the entity is called a(n)
A) forecast.
B) projection.
C) prospective financial statement.
D) prospectus.
Eleonar is inspecting a sample of “Code of Conduct acknowledgement forms” that must
be signed by all employees to indicate that they have read and understood the
company’s code of conduct. Eleonar is ensuring that they have been signed by the
employee. Eleonar is performing
A) a test of controls.
B) an analytical procedure.
C) a substantive procedure.
D) a procedure to obtain an understanding of internal controls.
If actual interest expense is materially larger than the auditor’s independent estimate,
one possible cause could be
A) interest payments on unrecorded notes payable.
B) omitted payments of interest (i.e. underpayments).
C) interest payments recorded at the wrong lower interest rate.
D) notes payable that were set up incorrectly as short term notes.
Confirmations from outside organizations such as banks and law firms are
A) a highly regarded and often-used type of evidence.
B) expensive and rarely used during the audit.
C) difficult to obtain and infrequently required.
D) internal documents that provide low quality evidence.
Risk in auditing means that the auditor accepts some level of uncertainty in performing
the audit function. An effective auditor will
A) take any means available to reduce the risk to the lowest possible level.
B) set the risk level between 5% and 10%.
C) perform the audit procedures first and quantitatively set the risk level before forming
an opinion and writing the report.
D) recognize that risks exist and deal with those risks in an appropriate manner.
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.
The auditor has a responsibility to review transactions and activities occurring after the
year-end to determine whether anything occurred that might affect the valuation or
disclosure of the statements being audited. The auditing procedures required to verify
these transactions are commonly referred to as the review for
A) contingent liabilities.
B) subsequent year’s transactions.
C) late unusual occurrences.
D) subsequent events.
If a potential loss on a contingent liability is likely and the amount of the loss can be
reasonably estimated, the liability should be
A) accrued and indicated in the body of the financial statements.
B) disclosed in footnotes, but not accrued.
C) neither accrued nor disclosed in footnotes.
D) disclosed in the auditor’s report but not disclosed on the financial statements.
Bravo Design had IMB consulting design a custom software to record the job costs and
sales in progress. What acquisition process did Bravo design follow?
A) In-house development
B) Systems acquisition
C) Turnkey software development
D) Outsourcing
Danford, PA, is setting up his accounting firm as a sole practitioner. Which of the
following is an important way that Danford can reduce legal liability with respect to the
work completed by his office?
A) participate in the standard setting process for audit engagements
B) find out when his practice is due for practice inspection
C) hire only qualified personnel and train them well
D) sanction other PAs who engage in improper conduct
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
Usually dividends are audited
A) using block sampling.
B) on a 100% basis.
C) using variables sampling.
D) using attributes sampling.
A standard audit program can dramatically increase
A) audit efficiency.
B) quality of audit evidence.
C) communication between the audit team.
D) the amount of work that can be delegated to more junior staff members.
Refusal by a client to prepare and sign the representation letter would require a(n)
A) qualified opinion as to scope limitation or a disclaimer of opinion.
B) adverse opinion or a denial of opinion.
C) qualified opinion as to accounting treatment departure or an adverse opinion.
D) unqualified opinion with an explanatory paragraph.
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.
The tests of details of balances procedure which requires the auditor to examine
corporate minutes for loan approval would satisfy the audit objective of
A) classification.
B) existence.
C) completeness.
D) accuracy.
Which of the following scenarios regarding a lawsuit filed against a client by a third
party would qualify as a “contingent liability”? A lawsuit has been filed
A) but not yet resolved.
B) and concluded with the client winning.
C) and concluded with a third party winning an award of $100,000, but the client hasn’t
paid yet.
D) and concluded with a third party winning an award of $100,000, which the client
paid after the balance sheet date but before the statements are issued.
The decision to continue doing the audit of an existing client is
A) as important as deciding whether or not to accept a new client.
B) less important than deciding whether or not to accept a new client.
C) more important than deciding whether or not to accept a new client.
D) only to be reconsidered if the client’s operations or upper management has changed.
Control risk for notes payable is usually assessed as low. This occurs because internal
controls are normally good for notes payable and
A) creditors would complain if the notes are not paid.
B) interest expense can easily be distinguished from bank service charges.
C) there are a small number of large transactions or this type of transaction.
D) inclusion in the accounts payable listing helps track the notes.
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
Anna performed a trend analysis of accounts receivable (AR) balances and computed
the days to collect AR ratio. When she compared the results of her analysis with the
industry averages, she found the results were unusually low compared to the industry
norm. Anna can conclude that
A) the accounts receivable balance is wrong.
B) the accounts receivable has an increased risk of misstatement.
C) the integrity of the company’s management is questionable.
D) she will not be able to rely on internal controls for accounts receivable for audit
purposes.
Organizations with a good control environment are able to document their positive
“tone at the top” with a clear code of ethics. How would the auditor include the
presence of such a code of ethics in the risk assessment process?
A) increase inherent risks associated with violations of laws and regulations
B) lower inherent risks associated with violations of laws and regulations
C) increase control risks associated with violations of laws and regulations
D) lower control risks associated with violations of laws and regulations
The auditor may identify some risks that cannot be effectively tested by substantive
tests alone, for example, when there are paperless transactions (perhaps using EDI –
electronic data interchange). Then the auditor is required, to address those risks, to
A) assess the design effectiveness of relevant controls, and test them
B) obtain an understanding of the controls and test them if reliance is intended
C) obtain an understanding of the controls and assess their design effectiveness
D) test the controls that address the paperless aspects of the transactions
The auditing standards indicate that
A) it is preferable to use statistical sampling instead of non-statistical sampling.
B) it is preferable to use non-statistical sampling instead of statistical sampling.
C) it is equally acceptable to use either statistical or non-statistical sampling.
D) non-statistical sampling should only be used if statistical sampling is too costly to
use.
The auditor traces items from the source documents to the journals in order to satisfy
the
A) existence objective.
B) completeness objective.
C) accuracy objective.
D) classification objective.
The implementation of the Sarbanes-Oxley requirements in the US resulted in increased
independence requirements for the auditors. The impact of this requirement in Canada
was
A) creation of the CPAB to oversee Canadian audit professionals.
B) revisions of the rules of professional conduct for PAs.
C) additional training requirements to become an auditor.
D) modification of the type of opinion provided in an assurance engagement by the
auditor.
The inventory and distribution cycle can be thought of as comprising two separate but
closely related systems, one involving the actual physical flow of goods, and the other
the
A) internal control over those goods.
B) related costs.
C) storing of the goods.
D) prevention of waste, obsolescence, and theft.
When an auditor allocates materiality to segments, then the materiality amount for
different accounts under audit will
A) potentially differ from each other.
B) require the same level of unanticipated misstatements.
C) require the same amount of audit work.
D) be the same for each account audited.
Herbert Zora is having financial statements prepared by his PA to accompany his tax
return. His primary concern is cost. Of the following, the lowest cost engagement that
the PA can perform for Zora’s financial statements is
A) compilation.
B) review.
C) audit.
D) WebTrust.
CAS 530 has a very specific definition of sampling. Assuming that each item (described
as a sampling unit) in the populations below could be selected as part of the sample,
which of the following illustrates the other part of the CAS 530 definition of sampling?
A) looking at 50 sales invoices from the current population of 100,000
B) recalculating interest calculations for notes payable
C) estimating the gross profit by product for all company products
D) inspecting all legal invoices for potential contingent liabilities
The CAS require that audit procedures for inventory include that the auditor
A) must count the inventory.
B) must be present at the count and must receive adequate documentation from client
regarding the effectiveness of inventory-taking.
C) must be present at the count and evaluate the methods followed in the determination
of quantities and values.
D) need not be present at the count but must review the methods followed in the
determination of quantities and values.