Sarbanes-Oxley in the U.S. and regulatory reporting requirements in Canada provide
the clout to make management directly responsible for the financial statements. What is
one of the ways that this is implemented in the CASs (Canadian Auditing Standards)?
A) all listed company management must certify the accuracy of the evidence provided
B) management must implement and carry out development of high quality internal
controls
C) management must acknowledge and understand its responsibilities
D) companies must use internal auditors to assess the quality of the financial statements
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.
ABC Company is considering three different alternatives with respect to expansion. To
assist with the decision process, the company has requested PA to perform simulations
and prepare prospective financial information using several sets of assumptions. Some
of these assumptions are likely, while others are less likely. What type of information is
being prepared? A(n)
A) forecast.
B) projection.
C) prospective financial statement.
D) prospectus.
The test of balances procedure that requires the auditor to trace the unadjusted book
balance on the reconciliation to the general ledger is an attempt to satisfy the audit
objective of
A) detail tie-in.
B) existence.
C) completeness.
D) accuracy.
When is negative assurance used during a review engagement?
A) when the standards applicable to a review engagement have been met
B) if a qualification is required during the review engagement
C) when the criteria associated with a review engagement have not been satisfied
D) when the practitioner is unable to set appropriate criteria for the review engagement
If a lawyer refuses to provide the auditor with information that is within the lawyer’s
jurisdiction and may directly affect the fair presentation of financial statements about
material existing lawsuits (asserted claims) or unasserted claims, the audit report would
have to be
A) an adverse opinion.
B) a qualified opinion.
C) an unqualified opinion with an explanatory paragraph.
D) modified to reflect the lack of available evidence (ie. scope limitation).
The audit plan includes the nature, timing and extent of audit procedures for the
purposes of risk assessment, including those that are linked to the individual audit
assertions, as well as any other audit procedures that are considered necessary. At what
point in the audit process is the audit plan finalized? When
A) the auditor has finished documenting internal controls.
B) the client risk profile has been completed.
C) risk assessments are complete.
D) inherent risk information has been gathered.
When examining the bank reconciliation for the imprest payroll account, it is normal
for the only reconciling item to be
A) outstanding cheques.
B) direct deposits from customers.
C) outstanding deposits.
D) corrections to payroll amounts.
PA has been asked to accept the audit engagement of BarneyBlues Corporation. PA sent
a letter to the predecessor auditor asking whether there was any reason why he should
not accept the engagement. Assuming that the prior year audit went smoothly, what
would be an appropriate response by the predecessor auditor?
A) Provide a brief statement that there is no reason of which he or she is aware that
would prevent accepting the engagement.
B) Send a copy of the entire working paper file to PA.
C) Telephone PA and say that PA should not take the engagement because the fee
charged was too large.
D) Send a copy of the tax returns and tax assessments to PA.
Responsibility for the issuance of new notes should be vested in the
A) board of directors.
B) accounting department.
C) accounts payable department.
D) purchasing department.
The confidential relationship will be violated if, without the client’s permission, the
public accountant provides working papers about a client to
A) a court of law which subpoenas them.
B) the relevant provincial institute as part of a practice inspection.
C) another public accounting firm which has just purchased the public accountant’s
entire practice.
D) an investigative or disciplinary body of the relevant provincial institute which is
conducting a review of the public accountant’s practice.
The least severe type of report for disclosing departures from an unqualified report is
the
A) adverse opinion.
B) disclaimer of opinion.
C) qualified opinion.
D) report on unaudited financial statements.
As part of the audit program for the audit of sales, the auditor will “review sales
transactions for large and unusual amounts.” Which of the following types of sampling
would be suitable for this audit procedure?
A) systematic
B) attribute
C) block
D) directed
How many public accounting firms are there in Canada that have more than 50
professional staff?
A) 25
B) 50
C) 75
D) 100
Generally, all of the rules of professional conduct for CAs apply to
A) students in public practice.
B) students and members.
C) all members.
D) members in public practice.
In which of the following circumstances would a public accountant be bound by ethics
to refrain from disclosing any confidential information obtained during the course of a
professional engagement?
A) The public accountant is issued a subpoena that orders the public accountant to
present confidential information.
B) A major shareholder of a client company seeks accounting information from the
public accountant after management declined to disclose the requested information.
C) Confidential client information is made available as part of a practice inspection of
the public accountant’s practice.
D) An inquiry by a disciplinary body of a provincial institute requests confidential
client information.
One of the most controversial parts of the auditor’s report is the meaning of the term
“presents fairly.” What does the auditor’s opinion mean when these words are used? The
A) values in the financial statements represent the net realizable values of the assets of
the entity.
B) financial statements are accurate and provide a true and fair representation of the
entity’s current financial position.
C) values in the financial statements represent the value of the entity now, if it were
liquidated on an open market.
D) financial statements are fairly presented in accordance with the financial reporting
framework described in the opinion paragraph.
Both disclaimers of opinion and adverse opinions are used
A) only when the condition is highly material and pervasive.
B) whether the condition is material or not.
C) regardless of the auditor’s independence.
D) regardless of the client’s choice of accounting method.
Trade accounts receivable should exclude
A) accounts receivables denominated in foreign currencies.
B) past-due accounts receivable.
C) related party accounts receivable.
D) accounts receivable of clients entitled to receive discounts.
Which of the following internal controls helps ensure that recorded payroll payments
are for work actually performed by existing employees?
A) Procedures requiring the recording of transactions as soon as possible
B) Only valid employees from the computer data files are accepted for processing
C) Internal verification of payroll file contents
D) Independent preparation of payroll bank reconciliation
The client has a perpetual inventory system, and takes an inventory count of 100 items
every two weeks, for comparison to the perpetual records. There are no plans to have a
complete year end physical count of inventory. How will the auditor conduct the audit
of physical inventory?
A) select an attribute sample of items to count at the year end for comparison to the
perpetual records
B) select a dollar unit sample of items to count at the year end for comparison to the
perpetual records
C) use roll-forwards to carry forward the inventory records from the cyclical counts for
an attribute sample of inventory items
D) conduct test counts and compare the perpetual records with a cyclical count during
the intern audit
Which of the following describes the components of the audit risk model that are used
to describe the risk of material misstatement (RMM)?
A) AR / DR
B) IR CR
C) IR DR
D) CR DR
The auditor has considerable responsibility for notifying users whether the financial
statements are fairly stated. This imposes upon the auditor a duty to
A) be an insurer of the fairness in the statements.
B) be a guarantor of the fairness in the statements.
C) be equally responsible with management for the preparation of the financial
statements.
D) provide reasonable assurance that material misstatements will be detected.
“Independence” in auditing means
A) remaining aloof from the client.
B) not being financially dependent on the client.
C) impartiality in performing professional services.
D) being an advocate for the client.
Which of the following audit techniques would the auditor use to test the completeness
of sales (i.e. test whether shipments have been billed to customers)?
A) trace shipping documents to duplicate sales invoices
B) trace duplicate sales invoices to shipping documents
C) match data file versions of sales invoices to paper records
D) look at subsequent payments after the year end for payments for outstanding
invoices
The implementation of the Sarbanes-Oxley requirements in the US resulted in the
creation of the PCAOB to oversee listed companies’ auditors and develop audit
standards. The impact of this requirement in Canada was the
A) creation of new auditing standards to ensure better quality control of the audit.
B) revisions of the rules of professional conduct for CAs.
C) additional training requirements to become an auditor.
D) creation of the CPAB to oversee Canadian audit professionals.
You have just signed off the audit report on the financial statements of your client. What
type of engagement did you complete?
A) Review
B) Direct reporting
C) Attest and assurance
D) Operational
A positive confirmation is more reliable evidence than a negative confirmation because
A) the auditor has a document which can be used in court.
B) follow-up procedures can be performed if a response is not received from the debtor.
C) the debtor’s lack of response indicates agreement with the stated balance.
D) fewer confirmations can be sent out.
The tests of details of balances procedure which requires the auditor to examine notes
paid after year-end to determine whether they were liabilities at the balance sheet date is
an attempt to satisfy the audit objective of
A) existence.
B) completeness.
C) accuracy.
D) classification.
Comparing bad debt expense as a percentage of gross sales with previous years will
detect what kind of possible misstatement?
A) cut-off errors in recording cash receipts
B) overstatement of sales and accounts receivable
C) understatement of sales and accounts receivable
D) understatement of allowance for uncollectible accounts