One of the reasons that an auditor must be competent is to be able to
A) select the type and amount of evidence to accumulate.
B) explain how the bookkeeping should be done to his staff.
C) record the transactions properly for the underlying records.
D) capture the information properly in the computer files.
A common inventory observation procedure is to select a random sample of tag
numbers and identify the tag with that number attached to the actual inventory. The
audit objective being achieved by this procedure is
A) inventory as recorded on tags exists (existence).
B) existing inventory is counted and tagged (completeness).
C) inventory is counted accurately (accuracy).
D) inventory is classified correctly (classification).
What is the title of a compilation report?
A) Opinion
B) Criteria Schedule
C) Engagement Report
D) Notice to Reader
Balance-related audit objectives are applied to which types of general ledger accounts?
A) balance sheet accounts only
B) income statement accounts only
C) balance sheet accounts and some income statement accounts
D) accounts that affect the cash flow statement
Which of the following is an example of a financial statement audit?
A) determining whether ABC’s financial statements overall do not violate any debt
covenants
B) determining whether ABC’s overall financial statements are stated in conformity
with IFRS
C) evaluating the effectiveness and efficiency of internal controls used to create account
balance
D) evaluating the effectiveness and efficiency of internal controls used to record
transactions
If the auditor assessed the detection risk as high, the extent of evidence the auditor
plans to accumulate is
A) low.
B) high.
C) medium.
D) need more information to conclude.
What audit approach is used to search for unknown commitments?
A) Include as part of the search for subsequent events
B) Conduct with substantive tests associated with the cutoff assertion
C) Perform as part of the audit of each cycle or audit area
D) Include with the legal letter sent to lawyers
One of the key internal controls to prevent transactions in the sales and collection cycle
to fictitious customers is to
A) have the bank reconciliation done by someone who is independent of the treasury
function.
B) account for the integrity of the numerical sequence of sales orders.
C) compare customer numbers entered to the customer master file.
D) include the sales price list of all products in the computer files.
When the criteria to be used in the financial statement audit is established, the auditor’s
responsibility is to
A) evaluate the reporting framework used.
B) select the acceptable financial reporting framework.
C) make a recommendation to management for selecting the framework.
D) create and document the framework used.
Most auditors prefer to replace external confirmation with analytical procedures
whenever possible because the
A) analytical procedures are more reliable.
B) external confirmations are more expensive.
C) analytical procedures are more persuasive.
D) tests of details are more difficult to interpret.
Because cash is the most desirable asset for people to steal, it has a higher
A) inherent risk.
B) control risk.
C) detection risk.
D) materiality.
The auditor’s evaluation of the likelihood of material employee fraud is normally done
initially as a part of
A) the assessment of whether to accept the audit engagement.
B) understanding the entity’s internal controls.
C) the tests of controls.
D) the tests of transactions.
Because an external auditor is paid a fee by a client company, he or she
A) is absolutely independent and may conduct an audit.
B) may be sufficiently independent to conduct an audit.
C) is never considered to be independent.
D) must receive approval of the relevant provincial securities commission before
conducting an audit.
Following are situations that an auditor might find by means of tests of controls or tests
of details of cash balances for a company with a December year end.
A) The accountant did not record or deposit a cash receipt for $50,000 that was received
on December 28. Cash is prelisted by the receptionist.
B) Cheques prepared up to January 6 were dated December 31 and recorded in the cash
disbursements journal.
C) A cheque was issued for office supplies that were never received by the client.
Required:
List a substantive audit procedure that could uncover each of the preceding situations.
Internal controls can never be regarded as completely effective. Even if systems
personnel could design an ideal system, its effectiveness depends on the
A) adequacy of the computer system.
B) proper implementation by management.
C) ability of the internal audit staff to maintain it.
D) competency and dependability of the people using it.
The independent auditor’s report is the
A) communication of the result of the audit to the users.
B) set of audited financial statements.
C) invoice of the auditor detailing the work they have performed.
D) report presented to management about the possible improvements.
Otto decided to outsource the payroll function to Magna Plus. From the purpose of an
assurance engagement, Magna is considered a
A) service organization.
B) user entity.
C) payroll administrator.
D) human resource company.
A deviation from the standard unqualified report will cause knowledgeable users of
financial statements to recognize that the
A) auditor intends to communicate additional or limiting information.
B) financial statements contain a material error.
C) financial statements contain an error.
D) Canadian Auditing Standards were not followed.
Symco Inc has a policy that all cash disbursements of $2,000 or more must be approved
by the treasurer. While performing a test of controls on a sample of disbursements,
Craig discovered that the assistant controller had authorized a cash disbursement of
$3,500 while the treasurer was on vacation. This control deviation is significant only if
A) it is determined that the assistant controller is not qualified to approve cash
disbursements of this size.
B) it occurred with sufficient frequency to cause the auditor to believe there may be
material dollar misstatements in the statements.
C) the amount of the deviation identified is larger than the planning materiality.
D) the amount of the deviation identified is larger than the planning materiality and no
compensating control exists.
Zhang Corporation returned $6,000 of defective goods to Meli Inc. Meli has a strict
policy of no cash refund. Meli should
A) write off the account receivable.
B) issue a credit memo to Zhang.
C) wait until Zhang places its next order to record the return.
D) not adjust their accounting records since $6,000 is not material for Meli.
Tests of details for notes payable interest expense and accrued interest can frequently be
eliminated when
A) tests of controls are conducted over authorization and recording procedures.
B) notes are issued by a person independent of the accounting department.
C) the notes payable schedule indicates that all notes have been repaid.
D) results of analytical review are favourable.
The human resources department would likely provide which of the following internal
controls for the human resources and payroll cycle?
A) recalculation of net pay for every pay
B) independent verification of wage rate
C) account for the continuity of employee numbers
D) account for the continuity of payroll check numbers
“An engagement where the practitioner expresses a conclusion on a written assertion
about a subject prepared by a party accountable for the assertion, such as management”
is the definition of a(n)
A) audit engagement.
B) attestation engagement.
C) review engagement.
D) assurance engagement.
If the balance sheet of a company is dated December 31, 2012, the audit report is dated
March 6, 2013, and both are released to the public on March 15, 2013, this indicates
that the auditor has searched for material unrecorded transactions and events that
occurred up to
A) December 31, 2012.
B) March 6, 2013.
C) March 15, 2013.
D) December 31, 2013.
How is use of an applicable accounting framework enforced via legislation?
A) The Canada Business Corporations Act and many provincial incorporating acts
require that financial statements be prepared in accordance with the CICA Handbook.
B) PAs who do not prepare financial statements in accordance with such frameworks
are expelled from their professional association.
C) Tax authorities may sue corporations who do not prepare their financial statements
in accordance with such frameworks.
D) Financial executives may be sued if the financial statements prepared by their
company are not in conformance with such frameworks.
During the course of an audit, a public accountant observes that the recorded interest
expense seems to be excessive in relation to the balance in the long-term debt account.
This observation could lead the auditor to suspect that
A) long-term debt is understated.
B) discount on bonds payable is overstated.
C) long-term debt is overstated.
D) premium on bonds payable is understated.
The amount of time spent verifying owners’ equity is frequently minimal for
closely-held corporations because
A) these companies are so small that it is not necessary to audit the capital section.
B) the few owners all have access to the books so the auditor spends more time on
accounts like liabilities, which affect outsiders.
C) there are few if any transactions during the year for the capital stock accounts,
except for earnings and dividends.
D) there is no public interest in these companies.
Which of the following is an example of an attestation engagement?
A) Accounting and bookkeeping services for the accounts
B) An audit of internal controls over financial reporting
C) Preparation of the annual financial statements, with notes
D) Completion of provincial and federal tax returns
For how many years will assurance engagements be required by individuals or
organizations?
A) usually only when organizations obtain debt or other loans
B) for five years from the start of an organization until debt is retired
C) only when historical such as financial information needs to be audited
D) on an ongoing basis, as organizations and society’s needs evolve
When the auditor examines the minutes of board of directors’ meetings for the amount
of the dividend per share and the dividend date, the auditor is checking for
A) completeness.
B) valuation.
C) understandability.
D) existence.
Evidence is usually more persuasive for balance sheet accounts when it is obtained
A) from various times periods throughout the client’s year.
B) only from transactions occurring on the balance sheet date.
C) as close to the balance sheet date as possible.
D) from the time period when transactions in that account were most numerous during
the fiscal period.
Toasted Tomato is a restaurant in Ottawa. You walk by this restaurant frequently and
noticed it is usually empty. When you came in to do the audit, you were surprised to see
that they had a large cash balance and high sales. Toasted Tomato might
A) have a going concern issue.
B) be engaging in money laundering.
C) have lower business risk than initially anticipated.
D) have weak internal controls.
Often, numerous classes of transactions affect the ending balance of a particular general
ledger account. This is handled during the audit engagement by
A) ensuring that tests are conducted for each class of transactions.
B) obtaining a high level of assurance for at least one of the transaction types.
C) using a combination of assurance for each class of transactions and for the ending
balance.
D) testing only the ending balance, as this is the significant amount on the financial
statements.
CAS 330, the auditor’s response to assessed risks, explains that the auditor needs to link
completed audit work to the assessed risks at the assertion level and
A) document the conclusions and results of the audit procedures.
B) perform substantive procedures in areas where there is a high risk of fraud.
C) have the reviewing partner sign off on the assessed risk.
D) ensure that they test the entire population for areas that are considered to have a high
risk of errors.