If no material fluctuations are found using analytical procedures and the auditor
concludes that differences should not have occurred,
A) it will be necessary to increase the tests of details of balances.
B) other tests may be reduced.
C) it will be necessary to increase the tests of controls.
D) it will not be necessary to perform tests of details of balances.
During final review of working papers and financial statements, possible oversights in
the audit can be identified by
A) the partner’s knowledge of the client’s business combined with effective analytical
procedures.
B) conducting a closing interview with management of the client.
C) conducting a meeting with the audit team.
D) review the minutes from the board meetings.
At what point during the audit should the auditor conduct an independence threat
analysis?
A) after the audit evidence assessment and collection process
B) prior to the acceptance of the engagement
C) after gathering sufficient knowledge of the client’s business
D) prior to signing the audit report
The primary auditor who relies on a secondary auditor
A) is responsible for any deficiencies in the secondary auditor’s work.
B) will mention the name of the secondary auditor if he or she decides that an
unqualified opinion is appropriate.
C) will never mention the name of the secondary auditor in his or her report even if the
report is qualified.
D) has no responsibility for checking the work of the secondary auditor.
For listed clients, the audit committee should approve both the appointment of the
auditor and
A) all services that the PA firm provides to the client.
B) an engagement that might affect the appearance of independence, such as design of
control systems.
C) any services that are provided for senior management.
D) the material that is included in the management letter by the PA firm.
In Canada, publicly traded companies are
A) required to have audits.
B) strongly encouraged to have audits.
C) not required to have an audit if they have a review.
D) not required to have an audit.
The point at which most companies first recognize the acquisition and related liability
on their records is when the
A) purchase requisition is completed.
B) purchase order is completed.
C) receiving report is completed.
D) vendor’s invoice is paid.
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
The internal audit group typically reports directly to the
A) board of directors.
B) management of the company.
C) external auditor
D) audit committee.
For each control on which the auditor plans to rely to reduce assessed control risk, he or
she must
A) design one or more tests of controls to verify its effectiveness.
B) report all weaknesses in the management letter.
C) quantitatively determine the effect on sampling error.
D) ensure that the test applies to several different transaction audit objectives.
When comparing the reliability of external versus internal documents, the external
documents are generally considered
A) more reliable.
B) less reliable.
C) equally reliable.
D) unreliable.
You, PA, have been asked to prepare the year-end financial statements of your sister.
Betty is a photographer, and is the sole shareholder of a small company called Best
Weddings Ltd. She photographs weddings, graduations and schools, earning about
$75,000 per year. Betty has said that she only needs the financial statements for her tax
returns, and would like you to prepare the tax returns too.
Required:
A) Would you be able to prepare the financial statements for your sister? Why or why
not?
B) If yes, what type of report would you prepare to accompany the financial
statements?
C) Would you be able to prepare the tax returns for your sister? Why or why not?
How has the Canada Business Corporation Act given authority to Canadian accounting
and auditing standard setters? By stating that financial statements
A) must be compiled in accordance with International Financial Reporting Standards.
B) should be prepared in accordance with the standards in the CICA Handbook.
C) must be audited by accountants that reside in Canada.
D) should be prepared in accordance with local financial reporting standards.
The internal control which requires “new vendors and changes to vendor file be
approved” satisfies the objective of
A) occurrence.
B) completeness.
C) accuracy.
D) posting and summarization.
One of the reasons that the auditor reads debt agreements is to discover whether there
are any restrictions on the company, such as restrictions on the payment of dividends. It
is important for the auditor to identify such restrictions as
A) corroborative evidence can then be obtained from management.
B) the auditor can make sure that management is adhering to the restrictions.
C) the auditor can include the restrictions in the management representation letter.
D) they must be disclosed in the footnotes of the financial statements.
Effective internal control in a small company that has an insufficient number of
employees to permit proper division of responsibilities can best be enhanced by
A) employment of temporary personnel to aid in the segregation of duties.
B) direct participation by the owner of the business in the record-keeping activities of
the business.
C) engaging a public accountant to perform monthly “write-up” work.
D) delegation of full, clear-cut responsibility to each employee for the functions
assigned to each.
Which of the following services results in the placement of an electronic seal affixed to
the web site?
A) review engagement
B) internal controls assessment
C) SysTrust
D) WebTrust
The purpose of a WebTrust service is to assure the user that
A) criteria related to business practices, transaction integrity, and information processes
have been met.
B) information systems are reliable in areas such as security, data integrity, and program
quality.
C) controls over information systems implemented by the company are used
consistently and reliably.
D) there will not be any unauthorized access to the web site or other systems used by
the client organization.
Whenever the client imposes restrictions on the scope of the audit, the auditor should be
concerned about the possibility that management is trying to prevent discovery of
misstated information. In such cases, which type of report should be issued? A
A) disclaimer of opinion, in all cases.
B) qualification of both scope and opinion, in all cases.
C) disclaimer of opinion, whenever materiality is in question.
D) qualification of both scope and opinion, whenever materiality is in question.
Assume that the client’s internal controls require a clerk to attach a shipping document
to every duplicate sales invoice. But this procedure is not followed exactly 3 percent of
the time. If the auditor selects a sample of 200 duplicate sales invoices, which of the
following sample results is most representative of the population?
A) three shipping documents are missing
B) six shipping documents are missing
C) five shipping document are missing
D) there were no shipping documents missing
An individual PA sets up his or her own business as a sole practitioner. With additional
practitioners, a common structure is a partnership. Why would a large firm set up its
organizational structure as a limited liability partnership (LLP)? If the audit was
conducted in accordance with GAAS
A) partners not on the engagement would not be liable on their personal assets.
B) improved quality control practices can be initiated using technical personnel.
C) more formal reporting requirements are in place to federal tax authorities.
D) partners are liable for only a limited portion of their personal assets when sued.
Canadian auditing standards (CASs) require that the audit be conducted using
A) a controls testing approach.
B) a risk assessment approach.
C) a substantive approach.
D) a standard approach.
The test of details of balances procedure to “inspect the accounts payable trial balance
and master file for related parties, notes, or other interest-bearing liabilities” satisfies
the objective of
A) existence.
B) completeness.
C) classification.
D) detail tie-in.
A) Describe the differences between statistical and nonstatistical sampling in terms of
(1) the sample selection methods used, and (2) measurement (quantification) of
sampling risk.
B) Describe each of the three types of sample selection methods commonly associated
with nonstatistical audit sampling.
C) Directed sample selection is the selection of each item in the sample based on some
judgment criteria established by the auditor. Describe three commonly used criteria.
Which of the following is an example of a substantive test that could be used for the
audit of the accuracy of sales prices?
A) inspect sales price master authorization forms for the presence of an approval
signature
B) observe that the point-of-sale system automatically pulls sales prices from the master
file
C) inquire about the process that is used to update sales prices in the sales price master
file
D) calculate the gross margin for each product that is sold by the company
To detect an overstatement or understatement of inventory and cost of goods sold, the
auditor may perform an analytical procedure such as comparing
A) gross margin percentage with previous years.
B) inventory turnover with previous years.
C) current year manufacturing costs with previous years.
D) extended inventory value with previous years.
The audit program for most audits is designed in three parts. Those parts are
A) risk assessment procedures, tests of controls, and tests of details.
B) risk assessment procedures, analytical procedures, and tests of details.
C) obtaining an understanding of internal controls, analytical procedures, and tests of
details.
D) tests of controls, analytical procedures, and tests of details of balances.
Which of the following items includes criteria for accepting a compilation engagement?
A) evaluation of whether the financial statements are in accordance with ASPE
B) no reason to believe that the financial statements are false or misleading
C) completion of an independence threat analysis, ensuring that there are no threats to
independence
D) completion of a client risk analysis, with the conclusion that risks are low
Control risk is a measure of the auditor’s expectation that internal controls will
A) prevent material misstatements from occurring.
B) detect and correct material misstatements.
C) either prevent material misstatements or detect and correct them.
D) neither prevent material misstatements nor detect and correct them.
To protect against theft of physical assets (such as computer equipment), the company
should
A) assign the computers to specific individuals at the company.
B) assign the computers to specific areas within the company.
C) use strong access controls (such as login passwords) to prevent access.
D) have them engraved or otherwise permanently labeled and a subsidiary ledger
maintained.
An example of a breach of contract would be
A) a bank’s claim that an auditor had a duty to uncover material errors in financial
statements that had been relied on in making a loan.
B) an auditor’s refusal to return a client’s records until the client paid last year’s audit
fees.
C) a public accounting firm’s failure to deliver a tax return on the agreed-upon date
because the firm had a backlog of other work which was more lucrative.
D) an auditor’s failure to complete the audit by the agreed-upon date because the client’s
financial records had been destroyed.
One difference between auditors and other professionals is that most professionals
A) need not be concerned about maintaining independence.
B) don’t have requirements for continuing education beyond university.
C) don’t have to pass a rigorous examination.
D) aren’t expected to act in the public interest.