Confirmation is most likely to be a relevant form of evidence with regard to assertions
about accounts receivable when the auditor has concerns about the accounts receivable’s
A) valuation.
B) classification.
C) existence.
D) completeness.
Your client has two sets of financial statements. One set is in compliance with IFRS,
while the other set is in compliance with local tax legislation, and will be used only
with the tax returns. How do these events affect the independent auditors report? The
auditor would use
A) an unqualified audit report for both financial statements, with an Emphasis of Matter
paragraph that describes to readers the nature of the other set of financial statements.
B) a standard unqualified auditor’s report for both financial statements, labeling the
auditor’s report “for IFRS only” and “for tax purposes only.”
C) an unqualified audit report for both financial statements, with an Other Matter
paragraph that describes to readers the nature of the other set of financial statements.
D) a qualified audit report would be issued as the client may not have two different sets
of financial statements.
As part of the conduct of a review engagement, which of the following would be a
typical procedure used for the assessment of the ending accounts receivable balance?
A) circularization of positive confirmations to all balances exceeding materiality
B) comparison of the age of the accounts receivable to the prior year
C) use of negative confirmations on all large balances
D) detailed examination of all accounts over 120 days to assess the bad debt allowance
The internal control which requires “approval of acquisitions at the proper level”
satisfies the objective of
A) occurrence.
B) completeness.
C) accuracy.
D) posting and summarization.
If the amount of a probable loss on a contingent liability cannot be estimated, but the
event is likely, 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.
Which of the following areas are tested as part of the audit of the acquisition and
payment cycle?
A) payment for raw materials, receipt of raw materials, shipment of goods to customers
B) processing of sales orders, production of goods for clients, and subsequent invoicing
C) processing supplier invoices, vendor master file changes, shipment of goods to
customers
D) processing purchase orders, vendor master file changes, receiving goods and
services
How do practice inspections affect the ability of a PA firm to have articling students
work at the firm? Practice inspectors
A) only permit students to work there if the quality controls are good.
B) review the ability of the office to provide sufficient, appropriate hours.
C) require that students work only on audit engagements, not reviews.
D) consider only work completed by qualified PAs, not students.
A public accountant has been engaged to conduct an examination of future-oriented
financial information. Which of the following procedures would be included in the
examination?
A) creation of assumptions that fit the projected information
B) developing the hypotheses with the assistance of management
C) assessment of internal controls over the development of internal future-oriented
information, such as budgets
D) assessing the plausibility of hypotheses
Which of the following is the best example of objective evidence?
A) a letter written by a client’s lawyer discussing the likely outcome of outstanding
lawsuits
B) the physical count of securities and cash by the auditor
C) inquiries of the credit manager about the collectability of noncurrent accounts
receivable
D) observation of cobwebs on some inventory bins
When labour is a significant part of inventory, verifying the proper accounting of these
costs should be tested in the
A) inventory and distribution cycle.
B) human resources and payroll cycle.
C) acquisitions and payments cycle.
D) cash cycle.
Once the auditor has determined the company’s policy for accruing wages and knows it
is consistent with that of previous years, the appropriate audit procedure to test for
cutoff and accuracy is to
A) recalculate the client’s accruals.
B) compare the ledger balance with the journal and the T-4 form.
C) confirm the amount with employees.
D) compare the recorded accrued wages with the amount approved in the minutes of the
Board.
What is one of the first things that an auditor would do upon discovering an illegal act
at an audit client?
A) resign from the audit
B) inform the Board of Directors
C) consult with a lawyer
D) call the police
When the current year’s unaudited trial balance amounts are compared to the prior
year’s audited trial balance amounts,
A) errors are identified.
B) discrepancies are discovered.
C) irregularities become apparent.
D) significant changes in balances are highlighted.
Most international and national accounting firms in Canada are comprised of
professional accountants with the designations
A) CGA or CMA.
B) CMA or CIA.
C) CA [CPA] or CGA.
D) CIA or CISA.
An example of vouching would be to trace from
A) receiving reports to the acquisitions journal.
B) the acquisitions journal to supporting vendors’ invoices.
C) duplicate bank deposit slips to the cash receipts journal.
D) cancelled cheques to the cash disbursement journal.
Heavy Manufacturing Company is in the business of making steel plates, forming
heavy metal slabs and drilling and scoring metals. Recently, it upgraded many of its
forming machines. There were five machines purchased on four different invoices.
Unfortunately, one of the invoices was recorded twice, resulting in five invoices being
recorded. The general balance-related audit objective affected by this activity is
A) completeness.
B) accuracy.
C) classification.
D) existence.
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.
Your firm has been appointed as the auditor of Bush Mining Inc. (BMI), a company that
runs small mining operations in remote areas of northern Canada, primarily in surface
mines. You have been assigned the job of audit senior for BMI.
BMI’s operations are subject to provincial and federal laws and regulations. These laws
and regulations have become stricter in recent years and some of BMI’s older mines
may be in violation of environmental laws.
Surface mining produces tailings (toxic wastes that are dangerous to animal and plant
life). These tailings are either further processed and buried or retained in tailings ponds.
BMI is required to restore the mining property to a safe condition after a mine is
exhausted. BMI has programs in place to monitor and control pollutants that are
released to the air and to local waterways.
Required:
A) What factors would affect the client business risk of BMI? Based upon your
assessment of BMI’s client business risk, would you adjust audit risk? Why or why not?
B) What is your preliminary assessment of audit risk? Justify your answer.
To ensure that all the population items will be properly subjected to the sample
selection process, the auditor should
A) use a random number generator for sample selection.
B) use monetary unit sample selection methods.
C) document the range of document numbers in use by the client.
D) test the population for completeness.
The internal control which requires an “independent verification of calculations and
amounts” satisfies the objective of
A) occurrence.
B) completeness.
C) accuracy.
D) posting and summarization.
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.
A) Describe the three basic concepts (assumptions) underlying the study of internal
control and assessment of control risk.
B) Describe the inherent limitations of internal control.
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.
A note payable is
A) a long-term account payable.
B) a legal obligation to a creditor secured by assets.
C) an unsecured legal obligation to a creditor.
D) a legal obligation to a creditor which may be unsecured or secured by assets.
The auditor evaluates the internal transfer of assets and related costs during the
A) acquisition and payments cycle.
B) human resources and payroll cycle.
C) sales and collection cycle.
D) inventory and distribution cycle.
When the users of financial statements have confidence in the independence of the
public accountant, it is referred to as independence in
A) fact.
B) appearance.
C) conduct.
D) total.
Which of the following is an example of subjective evidence?
A) a positive confirmation of an account receivable
B) a bank confirmation
C) inquiries of the credit manager about the collectability of noncurrent accounts
receivable
D) the physical count of securities and cash
The dollar amount of some misstatements cannot be accurately measured. If, for
example, the client was unwilling to disclose an existing lawsuit, the materiality
question the auditor must evaluate in such a situation is
A) what effect will it have on net income.
B) how will it affect management’s future decisions.
C) does it increase the auditor’s exposure to lawsuits.
D) what effect will it have on statement users.
An audit procedure which compares the name, amount, and dates shown on remittance
advices with cash receipts journal entries and with related duplicate deposit slips would
be effective in detecting
A) kiting.
B) lapping.
C) illicit write-offs of customers as uncollectible accounts.
D) sales without proper credit authorization.
Which of the following material events occurring subsequent to the balance sheet date
would require an adjustment to the financial statements before they could be issued?
A) sale of long-term debt or capital stock
B) loss of a plant as a result of a flood
C) major purchase of a business that is expected to double the sales volume
D) settlement of litigation in excess of the recorded liability