To improve the appropriateness of audit evidence, the auditor should
A) make sure to select a larger sample size for the items being tested.
B) add additional population items into the sample, improving sample variety.
C) select audit procedures that improve the reliability of the evidence.
D) select a smaller sample size that is statistically valid.
After testing the bank reconciliation and inspecting the cut-off bank statement received
from the bank, the auditor has determined that there are two outstanding cheques from
the list on the bank reconciliation that have still not cleared the bank. The auditor’s next
step should be to
A) trace the details of the two cheques to the cash disbursements journal.
B) trace the details of the two cheques to their associated expense accounts.
C) reperform the calculations in the bank reconciliation.
D) compare the total of the bank reconciliation to the bank confirmation.
Beltrand, PA, is auditing the financial statements of a small rural municipality. The
receivable balances represent residents’ delinquent property taxes or receivables over
the due date. The internal controls at the municipality are weak. To determine the
existence of the accounts receivable balances at the balance sheet date, Beltrand would
most likely
A) send positive confirmation requests.
B) send negative confirmation request.
C) examine evidence of subsequent cash receipts.
D) inspect the internal records such as copies of the tax invoices that were mailed to the
residents.
Usually dividends are audited
A) using block sampling.
B) on a 100% basis.
C) using variables sampling.
D) using attributes sampling.
Which of the following controls will help to detect unauthorized changes to payroll
master files, and help to detect whether terminated employees are still being paid?
A) use of authorized change forms
B) periodic review of master files
C) use of master files to print T4’s
D) use of master files to print payroll cheques
What is the purpose of exposure drafts issued by the AASB (Auditing and Assurance
Standards Board) in Canada? To
A) expose the newly established standards to as many groups as possible.
B) provide current copies of the standards in advance of being placed in the CICA
Handbook.
C) provide supporting reference material and other resources.
D) explain how standards will be changed and solicit feedback.
For the conduct of an assurance engagement, the practitioner is required to identify or
develop criteria to evaluate the subject matter. Identify some characteristics of suitable
criteria.
A) relevance, reliability, neutrality, understandability, completeness
B) reliability, accuracy, neutrality, timeliness
C) understandability, completeness, timeliness, free from bias
D) completeness, timeliness, free from bias, competent
If an auditor were to calculate an estimate of the errors by direct projection from the
sample to the population, and found $7,000 of net overstatement errors in a sample of
$100,000 out of a total population of $900,000, the estimate of errors in the population
is
A) $6,300.
B) $778.
C) $63,000.
D) $77,778.
A) “Failure to bill a customer” is an example of an error that results in the failure to
receive cash, but would not be discovered as part of the audit of the bank reconciliation.
State three other examples of errors or irregularities that result in the improper payment
of, or failure to receive, cash, but would not be discovered during the audit of the bank
reconciliation. How are these types of misstatements normally uncovered in the audit?
B) State three examples of errors or irregularities that normally would be uncovered
during the audit of the bank reconciliation.
A major type of assurance service performed by large public accounting firms is
A) audit.
B) review.
C) compilation.
D) management consulting.
The tests of details of balances procedure for manufacturing equipment which requires
the auditor to examine vendors’ invoices of closely related accounts such as repairs and
maintenance to uncover items that should be manufacturing equipment would satisfy
the audit objective of
A) detail tie-in.
B) existence.
C) classification.
D) accuracy.
Tests of details are designed based upon planned results of analytical review and
planned results of tests of controls. Should the planned results differ materially from the
actual results of analytical review and tests of controls then
A) audit risk will be revised.
B) the planned audit program will require revision.
C) inherent risk will be revised.
D) tests of controls will not be considered for overall risk assessment processes.
After the bank confirmation has been received by the auditor, the auditor should
A) recalculate the bank reconciliation in its entirety.
B) verify that cash cutoff was correct for that bank account.
C) trace the general ledger cash account balance to the amount confirmed.
D) trace the bank reconciliation cash amount to the amount confirmed.
After the items for confirmation have been selected, the auditor must maintain control
of the confirmations until
A) the names are provided to client’s personnel to type the envelopes.
B) the sealed envelopes are provided to client’s personnel to be mailed.
C) the responses are received by the client with the return mail.
D) they are returned by the debtor to the auditor.
There are a number of things that the CICA, representing the profession as a whole, can
do to reduce the practitioner’s exposure to lawsuits. One of them is to
A) sanction members for improper conduct and performance.
B) deal only with clients possessing integrity.
C) hire qualified auditors and train and supervise them.
D) perform quality audits.
Which of the following is the best example of an intimidation threat? Management
A) has decided to sue you because the audit fee was twice as high as they expected.
B) has changed auditors of all of its subsidiary companies as they can get the audit done
for a lower cost.
C) threatens to change auditors if you do not let them overstate accounts receivable by
$100,000 (the bad debt allowance is too low).
D) threatens to resign from the company if the board of directors does not give them a
15% raise.
A thorough understanding of the client’s business and industry and knowledge about the
company’s operations are essential for doing an adequate audit. Why do auditors need
greater knowledge about major customers and suppliers and related risks?
A) information technology connects these organizations, so that they affect each other
B) information technology provides rapid information about organizations
C) there is increased importance of human capital and other intangible assets
D) joint ventures and strategic alliances affect client business risks
For sales, the occurrence transaction-related audit objective affects the existence
balance-related audit objective. For cash receipts, the occurrence transaction-related
audit objective affects which balance-related audit objective?
A) existence
B) completeness
C) cut-off
D) valuation
Fraud risk factors are examples of factors that increase the risk of fraud. Which of the
following is an example of a management “opportunities” risk factor?
A) The company has lost a major account and income is falling.
B) Two major competitors have gone bankrupt as margins decline in the industry.
C) The chief executive officer owns forty percent of the outstanding share capital.
D) New accounting standards provide three different methods for valuing financial
instruments.
An auditor would be found negligent if he/she
A) relied on a report from management without considering management integrity.
B) relied on a report that contained errors that had been concealed by management.
C) did not consider the expenses from a division due to management intentionally
withholding that information.
D) failed to discover a payroll fraud by testing a statistical sample of transactions in the
salary expense account.
In connection with the examination of financial statements, an auditor could be
responsible for failure to detect a material fraud if
A) statistical sampling techniques were not used on the audit engagement.
B) the auditor planned the work in a hasty and ineffective manner.
C) accountants performing important parts of the work failed to discover a close
relationship between the treasurer and the cashier.
D) the fraud was perpetrated by one client employee, who circumvented the existing
internal controls.
A procedure designed to test for dollar errors or irregularities directly affecting the
correctness of financial statement balances is a
A) substantive test.
B) analytical test.
C) test of controls.
D) definition of dollar-unit sampling.
Mega Manufacturing Company (Mega) is thinking about acquiring Localized Small
Producer Inc. (LSP), a small manufacturing company that produces related products.
Mega has examined the financial statements of LSP, which show only a small profit in
the last five years. Management of LSP has taken reasonable salaries, and cost of goods
sold is higher than the industry average for LSP. Mega believes that it will be able to
introduce operational efficiencies at LSP, improving the profitability of the small
company, if acquired.
Required:
A) What type of engagement should be conducted to assess the operational efficiencies
of LSP? Justify your response.
B) Who should be engaged to conduct the engagement?
C) What major problems might the auditors encounter when conducting the audit and
writing the report?
Each working paper should include enough information to fulfill the objectives for
which it was designed. For example, if a working paper is designed to list the detail and
show the verification of support of a balance sheet account such as prepaid insurance, it
is essential that the detail on the working paper
A) reconcile the change in costs from last year to this year.
B) use analytical review to consider the reasonableness of the account.
C) reconcile with the associated general ledger account.
D) use observation to identify controls in place over the transactions.
Julianne is performing an analysis of the bad debt expense as a percentage of total sales.
When performing the analytical procedure, it is important that Julianne
A) can rely on the internal controls of the accounts receivable process.
B) has an expectation of the result that should be obtained.
C) has concluded that the accounts receivable balance is free from material
misstatement.
D) has requested permission from the client.
Which of the following is a factor that relates to “attitudes or rationalization” to commit
fraudulent financial reporting?
A) Significant accounting estimates involving subjective judgments
B) Excessive pressure for management to meet debt repayment requirements
C) Management’s practice of making overly aggressive forecasts
D) High turnover of accounting, internal audit and information technology staff
Because many of the types of errors and irregularities that may be found in the
acquisition and payment cycle represent a misstatement of earnings and are of
significant concern to the auditor, the tolerable exception rate selected by the auditor for
attribute testing of this cycle will be
A) low.
B) high.
C) average.
D) 15% or less.
ProForce Inc. is facing a large lawsuit from its employees. The contingency is
significant and may lead to a going concern issue if ProForce is found guilty. ProForce
took the adequate measures, as prescribed by IFRS (International Financial Reporting
Standards), to account, disclose and present the contingency in the financial statements.
The auditor should
A) add an emphasis-of-matter paragraph after the opinion paragraph.
B) issue a standard unqualified report.
C) issue a qualified report.
D) deny an audit opinion.
Recomputing hours worked from time records provides evidence that
A) internal controls relating to payroll disbursements were operating effectively.
B) payroll cheques were signed by an appropriate officer independent of the payroll
preparation process.
C) only bona fide employees worked and their pay was properly computed.
D) employees worked the number of hours for which their pay was computed.
The internal control which requires that “purchase orders, receiving reports, and
vouchers are prenumbered and accounted for” satisfies the objective of
A) occurrence.
B) classification.
C) completeness.
D) accuracy.
The purpose of the audit procedure to “trace receiving reports issued before year-end to
related vendors’ invoices” is to determine that all
A) merchandise received is included in accounts payable.
B) merchandise received is included in inventory.
C) merchandise was received.
D) invoices have been paid.
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 2?
A) Examine subsequent-period sales and purchases transactions to determine whether
the cutoff is accurate.
B) Correspond with lawyers.
C) Test the collectability of accounts receivable by reviewing subsequent period cash
receipts.
D) Compare the subsequent period purchase price of inventory with the recorded cost
as a test of lower-of-cost-or-market valuation.
What is the primary focus with respect to error detection and correction for the online
processing of sales transactions?
A) reject groups of transactions when one transaction is in error
B) trace daily sales totals from the journals to the general ledger
C) account for numeric sequencing of input documents
D) prevent the entering of incorrect transactions using data entry edits
When the auditor intends to evaluate a sample statistically, the only acceptable selection
method is
A) probabilistic selection.
B) judgmental selection.
C) haphazard selection.
D) block selection.
XYZ Brick Company decided to inflate sales by recording fictitious sales. Several
non-existent clients were created and the sales were added into the sales journal
throughout the year. The general transaction-related audit objective affected by these
actions is
A) occurrence.
B) completeness.
C) accuracy.
D) posting and summarization.