Tamra is performing a test of control consisting of looking at the numerical sequence of
credit memos issued by the company. Tamra is performing a block test by looking for
any missing number in the sequence. This test will provide evidence of
A) completeness.
B) occurrence, completeness.
C) occurrence and accuracy.
D) accuracy and completeness.
All other factors held constant, if the auditor decreases audit risk then
A) there will be less documentation in the audit file.
B) total audit evidence and audit costs will increase.
C) it will also be necessary to decrease either control risk or inherent risk.
D) less supervision will be required of the audit team.
What action will a lawyer likely take if they have information about a law suit that was
not mentioned by the client?
A) in the legal letter, tell the auditor the number of suits, and request the auditor to
contact the client
B) request the client to notify the auditor about the lawsuit
C) they will not mention the lawsuits, they are confidential
D) the law firm will refuse to answer the legal letter, since it is incorrect
A) The COSO internal control framework consists of five components. Describe each
of these components.
B) Custody of assets and reconciliation should be separated to contribute to strong
internal control. List the general categories of activities that should be separated.
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.
Invoices are prepared using a date equal to the shipping date. This control pertains to
which transaction-related audit objective?
A) posting and summarization
B) classification
C) cutoff
D) completeness
It is important that the policies, procedures and key decisions of senior management,
board of directors and audit committee be considered when developing a client risk
profile because
A) they have a pervasive effect on the company.
B) they influence the most important decisions for the company.
C) it is required by accounting and auditing standards.
D) they have the effect of increasing client business risks.
The auditors have decided upon a materiality level of $100,000 for their audit of ABC
Manufacturing. Which one of the following errors would be considered more important
by the auditors? An
A) error in accounts receivable cut-off of $50,000.
B) overstatement of accounts payable by $15,000.
C) error in allocation between accounts receivable and accounts payable by $75,000.
D) illegal payment of $15,000.
The most difficult type of cash defalcation for the auditor to detect is that which occurs
A) before the cash is recorded.
B) after cash is recorded but before it goes to the bank.
C) out of the balance kept in a cash register.
D) in amounts under $100.
The new Canadian Auditing Standards require the auditor to complete the audit
working papers within how many days of the audit report date?
A) 45
B) 60
C) 90
D) 183
What should a PA do if approached by a client where he and his firm lack or do not
have access to the technical knowledge required to complete the audit?
A) Subcontract the audit to another firm
B) Indicate that they can do a review engagement, not an audit
C) Decline the new audit engagement
D) Conduct the engagement, but prepare a qualified audit report
A statistical method used to estimate the proportion of items in a population containing
a characteristic of interest is
A) population-proportional-to-size sampling.
B) attribute sampling.
C) variables sampling.
D) estimation sampling.
Which of the following procedures would ordinarily be expected to best reveal
unrecorded sales at the balance sheet date?
A) Compare shipping documents with sales invoices.
B) Apply gross profit rates to inventory disposed of during the period.
C) Trace payments received subsequent to the balance sheet date.
D) Send accounts receivable confirmation requests.
Materiality is used to help decide the scope of testing, help determine the sample size
and to help
A) develop the audit report.
B) decide which analytical review calculations to use.
C) evaluate the results of testing.
D) conduct understanding of business tests.
Narratives, flowcharts, and internal control questionnaires are three commonly used
methods of
A) documenting the auditor’s understanding of internal controls.
B) testing internal controls.
C) designing the audit manual and procedures.
D) documenting the auditor’s understanding of client’s organizational structure.
Which of the following illustrates the definition of auditing with respect to the reporting
process?
A) accumulation and evaluation of evidence about balance sheet accounts
B) reporting on the degree of correspondence between financial statements and ASPE
C) writing an operational audit report that is tailored to the client’s situation
D) making sure that the auditor is competent and understands evidence gathering
One of the causes of nonsampling error is
A) the use of inappropriate or ineffective audit procedures.
B) failure to draw a random sample.
C) failure to draw a representative sample.
D) the use of attribute sampling instead of variables sampling.
A compilation presents information, in the form of financial statements, that is the
representation of management. The public accountant who prepares the compilation
undertakes to express
A) limited assurance on the statements.
B) minimal assurance on the statements.
C) no assurance on the statements.
D) full assurance on the statements.
The auditor’s responsibility for “reviewing the subsequent events” of a client is
normally limited to the period of time beginning with the
A) balance sheet date and ending with the date of the auditor’s report.
B) start of the fiscal year under audit and ending with the balance sheet date.
C) start of the fiscal year under audit and ending with the date of the auditor’s report
D) balance sheet date and ending with the date the registration statement becomes
effective.
Which of the following internal control tests would assist in satisfying the occurrence
transaction-related audit objective for payroll?
A) Examine payroll records for evidence of approval
B) Prove the payroll bank reconciliation
C) Review chart of accounts
D) Account for a sequence of payroll cheques
A) There are four important purposes of analytical procedures. Identify each of these
four purposes and, for each purpose, give a specific example of an analytical procedure
that an auditor might perform.
B) Identify each of the five major types of analytical procedures and give an example of
each.
C) One purpose of performing analytical procedures in the planning phase of an audit is
to assess the client’s financial condition. Explain how the assessment of a client’s
financial condition can affect the auditor’s decisions concerning evidence accumulation
in later phases of the audit.
Canadian GAAS (including the CICA Handbook) are the authoritative standards for the
conduct of financial statement audits in Canada. How would this affect the audit of a
Canadian company that is owned by a Swedish company that must also report using
Swedish (International) auditing standards?
CAS 450 requires the auditor to communicate all misstatements to the audit committee
A) if the misstatements are slightly material.
B) if the misstatements are material.
C) if the misstatements are other than trivial.
D) regardless of materiality.
If the client has set unreasonable objectives or if the performance measurement system
encourages aggressive accounting, the auditor will
A) increase inherent risk of financial statement misstatements.
B) lower inherent risk of financial statement misstatements.
C) increase control risk of financial statement misstatements.
D) lower control risk of financial statement misstatements.
Audit evidence can come in different forms with different degrees of persuasiveness.
Which of the following is the least persuasive type of evidence?
A) bank statement obtained from the client
B) computations made by the auditor
C) prenumbered client sales invoices
D) vendor’s invoice
The auditor has conducted tests of controls of the write off of accounts receivable and
found two exceptions. These exceptions are
A) an indication of the likelihood of errors or fraud and other irregularities.
B) confirmation that controls are not functioning as designed throughout the year.
C) information about the quantity of the dollar error in accounts receivable.
D) indications that employee training is required in the accounting area.
Whenever a statistical method is used, a decision rule determines whether the
population is acceptable. The decision rule for dollar-unit sampling is “Accept the
conclusion that the book value is not misstated by a material amount if
A) the upper error bound falls between the understatement and overstatement tolerable
misstatement amounts.”
B) both the lower and upper error bound falls between the understatement and
overstatement tolerable misstatement amounts.”
C) both the understatement and overstatement tolerable misstatement amounts fall
between the upper and lower error bound.”
D) the overstatement tolerable misstatement amount falls between the lower and upper
error bound.”
How frequently does the auditor make a decision with respect to the sample size to be
selected?
A) once for the entire audit
B) for each transaction cycle
C) once for each type of audit procedure
D) for each audit procedure
Which of the following is a test of controls?
A) Review the payroll journal, general ledger, and payroll earnings records for large or
unusual amounts
B) Examine time cards for indication of supervisor approval
C) Compare cancelled cheques with payroll journal for name, amount, and date
D) Examine cancelled cheques for proper endorsement
Controls which provide a means of ensuring that the physical counts are properly
summarized, priced at the same amount as the unit records, correctly extended and
totalled, and included in the general ledger at the proper amount are known as
A) standard cost records.
B) pricing internal controls.
C) compilation internal controls.
D) count quantity internal controls.
There are many types of analytical procedures that the auditor can conduct during the
planning stage of the financial statement audit. What is the purpose of comparing the
gross margin with those of prior years, looking for large fluctuations?
A) understand the client’s industry and business
B) assess going concern
C) indicate possible misstatements
D) reduce detailed tests
Performance of tests of controls provide evidence in support of the specific controls that
contribute to the auditor’s assessed control risk (where it is reduced below 100%). Also,
when dual-purpose tests are used, evidence is also obtained in support of
A) the nature of illegal acts that occurred.
B) the quantitative effects of fraud risks.
C) statistical ratios to assist analytical review.
D) monetary correctness of transactions.
One of the purposes of a client representation letter is to
A) reduce the amount of audit procedures performed by the auditor.
B) document the responses from management to inquiries about various aspects of the
audit.
C) serve as audit evidence for the accuracy of the contingent liabilities.
D) reduce the detection risk.