The auditor notices significant fluctuations in key elements of the company’s financial
report. If management is unable to provide an acceptable explanation, the auditor
should:
A.consider the matter a scope limitation.
B.perform additional audit procedures to investigate the matter further.
C.intensify the examination with the expectation of detecting management fraud.
D.withdraw from the engagement.
You are concerned about whether all sales have occurred. The procedure that will be
most effective in verifying this assertion is:
A.selecting a sample of invoices and tracing them to delivery dockets.
B.selecting a sample of customers’ orders and tracing them to delivery dockets.
C.checking the sequence of delivery dockets and tracing them to customers’ orders.
D.selecting a sample of delivery dockets and tracing them to invoices.
Which of the following best describes the independent auditor’s normal approach to
obtaining satisfaction concerning depreciation expense in the income statement?
A.Determine the method for computing depreciation expense and ascertain that it is in
accordance with generally accepted accounting principles.
B.Verify the mathematical accuracy of the amounts charged to income as a result of
depreciation expense.
C.Establish the basis for valuing depreciable assets and recalculate the depreciation
expense.
D.Reconcile the amount of depreciation expense to those amounts credited to
accumulated depreciation accounts.
Which of the following is an exception report that the auditor would generate using
generalised audit software in order to test the valuation and allocation assertion for
accounts receivable?
A.Adding the accounts receivable ledger, and checking the total to the accounts
receivable balance in the general ledger.
B.A sequence check looking for missing sales invoice numbers.
C.A report outlining those balances that are greater than three months overdue.
D.A sample of debtors to be confirmed by positive debtors’ confirmation procedures.
Which one of the following would the auditor consider to be an incompatible operation
if the cashier receives remittances from the mailroom?
A.The cashier prepares the daily deposit.
B.The cashier makes the daily deposit at a local bank.
C.The cashier posts the receipts to the accounts receivable subsidiary ledger cards.
D.The cashier endorses the cheques.
Reasonable assurance is provided by:
A.a review report.
B.an audit report.
C.an assurance engagement.
D.an agreed-upon procedures engagement.
When an auditor performs a review of an interim financial report, which of the
following steps would not be part of the review?
A.Inquiry of management.
B.Testing of the computer controls.
C.Reading the minutes of the shareholders’ meetings.
D.Review of ratios and trends.
Which of the following is an example of Utilitarianism?
A.Greatest benefit for the individual.
B.Do unto others as you would have them do unto you.
C.Greatest benefit for the greatest number.
D.Equal rights for all.
Inherent risk and control risk differ from detection risk in that they:
A.arise from the misapplication of auditing procedures.
B.may be assessed in either quantitative or non-quantitative terms.
C.exist independently of the financial report audit.
D.can be changed at the auditor’s discretion.
Which of the following procedures would best detect the theft of valuable items from
an inventory that consists of hundreds of different items selling for $1 to $10 and a few
items selling for hundreds of dollars?
A.Have an independent audit firm prepare an internal control structure report on the
effectiveness of the controls over inventory.
B.Maintain perpetual inventory records with frequent periodic verification of the
accuracy of these records.
C.Require an authorised officer’s signature on all requisitions for the more valuable
items.
D.Have separate warehouse space for the more valuable items with sequentially
numbered tags.
Maria Lee uses statistical sampling to test control procedures. Why does Lee use this
statistical sampling technique?
A.It reduces the use of judgment required by Lee because there are established
numerical criteria for this type of testing.
B.It provides a means of measuring the sampling risk that results from examining only
a part of the data.
C.It is specified by auditing standards.
D.It increases Lees’ knowledge of the client’s prescribed procedures and their
limitations.
A compiled financial report should be accompanied by a report stating all of the
following except:
A.a compilation has been performed.
B.the accountant does not express an opinion or any other form of assurance on the
report.
C.a compilation consists principally of inquiries of company personnel and analytical
procedures applied to financial data.
D.a compilation is limited to presenting in the form of a financial report information
that is the representation of management.
Early appointment of the independent auditor will enable:
A.a more thorough audit to be performed.
B.a sufficient understanding of internal control to be obtained.
C.sufficient competent evidential matter to be obtained.
D.a more efficient audit to be planned.
Inquiry of the entity’s personnel and analytical procedures are the primary bases for the
issuance of a(an):
A.audit report on a financial report supplemented with price level information.
B.compilation report on a financial report for a non-public company in its first year of
operations.
C.management advisory report prepared at the request of the client’s audit committee.
D.half-yearly review report on a comparative financial report for a public company.
Procedures directed towards obtaining evidence concerning the effectiveness of the
design or operation of an internal control policy or procedure are referred to as:
A.analytical procedures.
B.substantive tests.
C.tests of controls.
D.confirmations.
Engagement risk is the:
A.risk of issuing an incorrect audit opinion.
B.auditor’s risk of loss from events arising in connection with the financial report
audited and reported upon.
C.overall risk of material misstatements.
D.risk of entity financial failure.
Which of the following most completely describes auditor independence?
A.Performing an audit from the viewpoint of the public.
B.Avoiding the appearance of significant interests in the affairs of an audit client.
C.Performing the audit with integrity and objectivity.
D.Accepting the responsibility of acting professionally.
An auditor concludes that there is a material inconsistency in the other information in
an annual report to shareholders containing audited financial statements. If the auditor
concludes that the financial statements do not require revision, but the client refuses to
revise or eliminate the material inconsistency, the auditor may:
A.issue a qualified opinion after discussing the matter with the client’s board of
directors.
B.consider the matter closed since the other information is not in the audited financial
statements.
C.disclaim an opinion on the financial statements after explaining the material
inconsistency in a separate explanatory paragraph.
D.revise the auditor’s report to include an emphasis of matter paragraph describing the
material inconsistency.
Which of the following areas is not likely to be selected as an area for a performance
audit?
A.Delivery system.
B.Purchasing function.
C.Travel expenses.
D.Space utilisation.
The auditor has decided to use systematic selection of cash payments when testing the
control that cheque payments are supported by a supplier’s invoice, a purchase
requisition and a goods received note. Each cheque comprises a sampling unit. There
are 5000 cheques drawn (numbered 1-5000), and the total amount of cash payments is
$10 million. The sample size is 20, and the random start is 127. Given this information,
the sample interval is:
A.500 000.
B.250.
C.127.
D.Some other amount.
Which of the following is likely to be of least importance to an auditor in obtaining an
understanding of the internal control?
A.The segregation of duties within the IT centre.
B.The control over source documents.
C.The documentation maintained for accounting applications.
D.The cost-benefit ratio of data processing operations.
The tolerable deviation rate for a test of controls is generally:
A.lower than the expected rate of deviations in the related accounting records.
B.higher than the expected rate of deviations in the related accounting records.
C.identical to the expected rate of deviations in the related accounting records.
D.unrelated to the expected rate of deviations in the related accounting records.
Which of the following is not an argument in favour of limiting auditors’ liability?
A.Auditors are not necessarily able to resign their appointment.
B.Loss of reputation and disciplinary actions provide sufficient incentives for auditors
to maintain high standards.
C.Other service providers are able to limit their liability.
D.Limiting the liability of auditors would set a precedent for other professionals.
Some account balances, such as those for foreign currency transactions or leases, are
the results of complex calculations. The susceptibility to material misstatements in these
types of accounts is defined as:
A.detection risk.
B.audit risk.
C.sampling risk.
D.inherent risk.
Which of the following procedures would an auditor ordinarily perform during the
review of subsequent events?
A.An analysis of related-party transactions for the discovery of possible irregularities.
B.A review of the cut-off bank statements for the period after the year-end.
C.An inquiry of the client’s solicitor concerning litigation.
D.An investigation of material weaknesses in internal accounting control previously
communicated to the client.
Which of the following statements is NOT correct?
A.The auditor is required to read other information accompanying the financial report
to ensure that there are no inconsistencies.
B.The auditor may provide advice on accounting matters but the financial report and
related disclosures are the entity’s responsibility.
C.Towards the end of the audit the auditor should examine all related-party transactions.
D.Second-partner reviews are only required of the financial reports of public
companies.
With respect to the auditor’s duty to determine that certain matters related to the conduct
of the audit are communicated to the audit committee, the communication:
A.may be oral or written and may be made before or after issuing the audit report.
B.should be written and occur before issuing the audit report.
C.should be written and may be incorporated in the audit report or issued separately as
of the audit report date.
D.should be reported, preferably in writing, during the course of the audit.
Which of the following is appropriate in the selection of a statistical sample?
A.Random selection.
B.Block selection.
C.Stratified selection.
D.All of the given answers are correct.
With respect to records in an auditor’s possession:
A.copies of client records incorporated into audit work papers must be returned to the
client upon request.
B.work sheets in lieu of a general ledger belong to the auditor and need not be furnished
to the client upon request.
C.an extensive analysis of inventory prepared by the client at the auditor’s request are
work papers which belong to the auditor and need not be furnished to the client upon
request.
D.the auditor who retains copies of client records must return the original records upon
request.
An audit independence issue might be raised by the auditor’s participation in consulting
services engagements. Which of the following statements is most consistent with the
profession’s attitude towards this issue?
A.Information obtained as a result of a consulting engagement is confidential to that
engagement and should not influence performance of the attest function.
B.The decision as to loss of independence must be made by the client based upon the
facts of the particular case.
C.The auditor should not make management decisions for an audit client.
D.The auditor who is asked to review management decisions is also competent to make
these decisions and can do so without loss of independence.
What best describes the concept of risk assessment which currently underpins the
auditing standards?
A.The risk that the financial report is misstated as a result of weaknesses in internal
control.
B.The risk that the financial report is misstated because of fraud.
C.Developing client acceptance and continuance practices that minimise the likelihood
of lawsuits against the auditor.
D.Whether management has systems in place to evaluate and effectively manage the
entity’s business risks.