The auditor and the entities should agree on the criteria to be used in the audit
A) before the audit starts.
B) after the audit planning has been done.
C) as they progress with the audit as they can determine which criteria is more suitable.
D) at the end of the audit.
If it is probable that the judgment of a reasonable person would have been changed or
influenced by the omission or misstatement of information, then that information is
considered to be
A) significant.
B) insignificant.
C) material.
D) relevant.
How has the Canada Business Corporation Act given authority to Canadian accounting
and auditing standard setters? By stating that financial statements
A) must be compiled in accordance with International Financial Reporting Standards.
B) should be prepared in accordance with the standards in the CICA Handbook.
C) must be audited by accountants that reside in Canada.
D) should be prepared in accordance with local financial reporting standards.
Some independence rules apply to all assurance engagements, while others apply only
to a listed entity. For the purposes of assessing the independence rules, a listed entity is
defined as
A) an organization with share capital exceeding $10 million that has public
accountability.
B) an entity whose debt or shares is listed on a stock exchange, with market
capitalization and total assets greater than $10 million.
C) any organization that has shares or debt listed on a stock exchange.
D) an organization that has shares or debt listed on a stock exchange, and that has
redeemed shares.
If most companies in the industry use FIFO inventory valuation and straight-line
depreciation, and the audit client uses LIFO and double-declining balance, comparisons
of client and industry data
A) will be a meaningful highlight of the result of these differences in accounting
methods.
B) will enable the auditor to spot errors but not irregularities.
C) will enable the auditor to spot irregularities but not errors.
D) may not be meaningful, affecting the comparability of data.
Evidence can be obtained from others, or provided by the auditor, who has good
knowledge of each industry but is not an expert. Which of the following types of
evidence is considered to be most reliable?
A) examination of diamond inventory by the auditor
B) external confirmations from individual owners of condominium units
C) examination of oil and gas reserves by the auditor
D) external confirmations from financial institutions
The test of transactions which requires “the recomputing of cash discounts” satisfies the
objective of
A) occurrence.
B) completeness.
C) accuracy.
D) posting and summarization.
A) Discuss each of the six steps in applying materiality in an audit, and identify the
audit phase(s) in which each step is performed.
B) Discuss the three main factors that affect an auditor’s preliminary judgment about
materiality.
Which of the following components of an engagement letter would apply to both a
review engagement and a compilation engagement?
A) negative assurance will be provided, so there is no assurance that fraud will be
detected
B) no assurance will be provided, since only mathematical accuracy will be verified
C) procedures used during the engagement will be limited to analytical review and
inquiry
D) a statement that each page of the statements should be clearly marked “unaudited”
The audit procedures for the subsequent events review can be divided into two
categories: (1) procedures normally integrated as a part of the verification of year-end
account balances, and (2) those performed specifically for the purpose of discovering
subsequent events. Which of the following procedures are in category 1?
A) Make inquiries of client regarding contingent liabilities.
B) Obtain a letter of representation written by client.
C) Examine subsequent period sales and purchases transactions to determine whether
the cutoff is accurate.
D) Review the minute book to determine the existence of any transaction related to year
1.
In rare cases, auditors have been held liable for criminal acts. A criminal conviction
against an auditor can result only when it is demonstrated that the auditor
A) was negligent.
B) was grossly negligent.
C) intended to deceive or harm others.
D) caused a financial loss to an innocent third party.
An auditor who is engaged to examine the financial statements of a business enterprise
will request a cutoff bank statement primarily in order to
A) verify the cash balance reported on the bank confirmation inquiry form.
B) verify reconciling items on the client’s bank reconciliation.
C) detect lapping.
D) detect kiting.
The Sarbanes-Oxley Act requires management to certify that it has informed the auditor
and audit committee of any
A) related party transactions.
B) significant deficiencies in business practices.
C) significant deficiencies in internal controls.
D) specific business or industry risk.
Which one of the following analytical procedures would be most helpful in alerting the
auditor to the possibility of obsolete inventory? Comparing
A) gross margin percentage with previous years.
B) unit costs of inventory with previous years.
C) inventory turnover with previous years.
D) current year manufacturing costs with previous years.
The extent and the scope of the audits conducted by Auditors General are determined
by
A) legislation in the Auditor General’s jurisdiction.
B) audit partner planning audit program development.
C) the Auditor General and his/her staff.
D) the financial statement auditors of the client.
When there are problems with program change procedures or with access controls the
auditor may choose to
A) rely less upon manual controls since control risk has been increased.
B) not rely on programmed or interdependent application controls.
C) reduce control risk, which reduces the level of substantive testing.
D) use an information technology audit specialist to assess programmed application
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
The most important part of the observation of inventory is determining whether
A) the inventory-takers are qualified.
B) the physical count is being taken in accordance with the client’s instructions.
C) the counts are accurate.
D) obsolete inventory has been identified.
Frank has discovered that his employer is part of a group of banks that is manipulating
interest rates. He would like to stop this practice at his employer, and is not sure how
best to talk to his boss. He has heard of the GVV (Giving Voice to Values) approach,
and thinks he may be able to use it successfully because his company has recently
implemented new initiatives to empower employees to speak of improvements to
business practices. After considering his personal and professional purpose and choices,
what should Frank do next?
A) identify the stakeholders, what is at stake for them, and how to connect with them
B) identify the values underpinning the different positions in the conflict and the
possibilities for action
C) practice what he is going to say, with help from a mentor or coach
D) develop a powerful response that he can use with his boss, using external research or
resources
For each control on which the auditor plans to rely to reduce assessed control risk, he or
she must
A) design one or more tests of controls to verify its effectiveness.
B) report all weaknesses in the management letter.
C) quantitatively determine the effect on sampling error.
D) ensure that the test applies to several different transaction audit objectives.
Prior to looking at the specific cycles, the auditor will first
A) inquire and document corporate governance systems.
B) perform tests of controls on significant cycles.
C) perform analytical review of specific accounts.
D) perform a risk assessment for the audit of the organization.
One form of accounts payable fraud occurs when the accounts payable clerk or another
employee steals a cheque made payable to a legitimate vendor. The purchases
information is then resubmitted for payment and the second cheque sent to the vendor.
How could such a theft be prevented?
A) cancel supporting documents to prevent their being re-used
B) make sure that all payments are supported by valid documents
C) reconcile the transaction files to the accounts payable master file
D) have receiving reports authorized independently
After the supplier master file data has been entered, to best improve internal controls
the
A) supplier master file data should be matched to the accounts payable files.
B) transaction file detail should be matched to the supplier master file.
C) data entry should be independently verified.
D) accounting department should file the new supplier authorization form sequentially.
Which of the following techniques would be conducted by a practitioner when
conducting a review of compliance with agreements and regulations?
A) use of a specialist to ensure that the terms of the agreement are complied with
B) inquire about how the client monitors its compliance with the provisions
C) testing control procedures throughout the year that pertain to the provisions of the
agreement
D) discussions with client’s legal counsel to identify any legal liabilities with respect to
potential violations of the agreements
Last year, the client’s internal controls were weak. This year, the internal controls are
stronger. This means that information recorded on internal documentation is
A) more timely.
B) less reliable.
C) more reliable.
D) less timely.
The audit objective requiring that existing notes payable are included in the notes
payable schedule (completeness) is satisfied by performing the following audit
procedure.
A) Recalculate accrued interest.
B) Examine duplicate copies of notes for details.
C) Review the notes payable schedule to determine whether any are related parties.
D) Obtain confirmations from creditors who have held notes from the client in the past
and are not currently included in the notes payable schedule.
The auditor has determined exchange rates used by the client to present cash in foreign
currencies and has recalculated the amounts. Which audit assertion is associated with
this audit procedure?
A) existence
B) valuation
C) allocation
D) classification
Which of the following controls could help to prevent unauthorized overtime?
A) review by payroll supervisor of a report that lists all employees whose wage rate
does not match the permanent file
B) print a gap report for all employees who have not submitted their time reports for the
current pay period
C) review by payroll supervisor of a report that lists all employees working more than
44 hours per week
D) have a calculation check for payroll calculations (gross pay less deductions = net
pay)
The auditor traces items from the journals back to the source documents in order to
satisfy the
A) occurrence objective.
B) completeness objective.
C) ownership objective.
D) valuation objective.
During the audit of cash, the focus of the audit is to
A) do substantive tests of payments for supplies.
B) conduct control tests of sales transactions.
C) verify the bank reconciliation.
D) conduct control tests over payments.
The audit program for most audits is designed in three parts. Those parts are
A) risk assessment procedures, tests of controls, and tests of details.
B) risk assessment procedures, analytical procedures, and tests of details.
C) obtaining an understanding of internal controls, analytical procedures, and tests of
details.
D) tests of controls, analytical procedures, and tests of details of balances.
Internal controls which are likely to prevent the client from including as a business
expense those transactions that primarily benefit management or other employees rather
than the entity being audited satisfy the control objective that
A) recorded acquisitions are for goods and services received.
B) existing acquisitions are recorded.
C) acquisitions are correctly valued.
D) acquisitions are correctly classified.
The court ruled that Jones did not rely on the financial statements in his decision to
purchase shares of Manumite Limited. Instead, Jones relied upon his discussions with
the owners and with financial analysts. This result illustrates
A) absence of negligence.
B) lack of privity.
C) contributory negligence.
D) absence of causal connection.
It is important for the auditor to be independent because
A) the auditor would not charge a fair rate to the client.
B) the auditor might not be as knowledgeable of the subject matter and the criteria.
C) this will prevent bias in accumulating and evaluating evidence.
D) the Canadian Tax Authorities require that the auditor be independent.
In testing for cutoff, the objective is to determine
A) whether all of the current period’s transactions are recorded.
B) that no transactions from the prior period are included in the current period’s
balances.
C) that no transactions of the current period have been delayed and recorded in a future
period.
D) whether transactions are recorded in the proper period.