Audit risk is ordinarily set by the auditor during planning and
A) held constant for each major cycle and account.
B) held constant for each major cycle but varies by account.
C) varies by each major cycle and by each account.
D) varies by each major cycle but is constant by account.
A document prepared for shipment of the goods sold using a trucking company is called
the
A) sales order.
B) bill of lading.
C) sales invoice.
D) customer order.
An act of two or more employees to work together to misstate records is called
A) malfeasance.
B) collusion.
C) defalcation.
D) felony.
The auditor verifies the summarizing, accuracy, and posting of entries by performing
A) analytical procedures.
B) tests of controls.
C) dual-purpose tests.
D) procedures to gain an understanding of internal control.
Stella is auditing the electronic receipts and payments. The extent of her audit work
conducted on the bank reconciliation will
A) be less extensive than if the company did not engage in electronic receipts and
payments.
B) be more extensive than if the company did not engage in electronic receipts and
payments.
C) depend on the assessed quality of internal controls.
D) be significantly diminished if Stella can determine that the receipts and payments
come from a reputable bank with proper internal controls.
If the public accountant negligently failed to properly prepare and file a client’s tax
return, the public accountant can be held liable for
A) the penalties which the client owes Canada Customs and Revenue Agency.
B) the penalties and interest which the client owes.
C) the penalties and interest, plus the tax preparation fee which the public accountant
charged.
D) the penalties and interest, the tax preparation fee, and the amount of tax which was
underpaid.
An inherent risk (IR) of 40% and a control risk (CR) of 60% affect detection risk and
planned evidence differently than an
A) IR of 60% and CR of 40%.
B) IR of 100% and CR of 24%.
C) IR of 80% and CR of 30%.
D) IR of 70% and CR of 30%.
During which phases of the financial statement audit does the auditor “evaluate
evidence” when conducting the financial statement audit using a risk assessment
approach? During
A) the risk assessments.
B) the risk responses.
C) the reporting process.
D) risk assessment, risk response and reporting phases.
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.
What is the auditor required to do with respect to the financial reporting framework at a
client?
A) assess whether the framework selected by management is suitable
B) select an applicable framework for use with the financial statements
C) make sure that ASPE or ASNPO are in use for publicly listed companies
D) select the accounting principles to be used as part of the reporting framework
The general cash account is considered significant in almost all audits
A) where the ending balance is material.
B) where either the beginning or ending balance is material.
C) even when the ending balance is immaterial.
D) except those of not-for-profit organizations.
A) Discuss what is meant by ‘sampling risk.”
B) Discuss what is meant by “nonsampling risk.”
C) Discuss two causes of nonsampling risk. Also discuss ways the auditor can control
nonsampling risk.
D) Discuss two ways the auditor can control sampling risk.
When Dussault & Montgomery relied on Groves & Padden, another PA firm, to audit
the Quebec subsidiaries of one of their audit client, Dussault & Montgomery should
A) assess Groves & Padden’s professional qualifications.
B) ask Groves & Padden to also sign the auditor’s report.
C) send one of their auditors to Quebec to supervise the work being done by Groves &
Padden.
D) issue a qualified opinion for the financial information pertaining to the Quebec
subsidiaries.
Each of the following situations involves a possible violation of the provincial
institutes’ Rules of Professional Conduct. For each situation (1) decide whether or not
the rules have been violated, and (2) briefly explain how the situation violates (or does
not violate) the rules.
A) Carla is the CFO of Xenon Company. Carla was very happy after her husband
Dwayne, a partner at a large PA firm was assigned as the new auditor of the company.
Carla is confident that this will be helpful to Xenon since Dwayne already knows so
much about the business.
Violation? Yes No
Explanation:
B) Jeremy accepted a summer internship at a PA firm. Jeremy’s parents own 0.1% of
Raven Inc, a large public company in Austria. Raven Inc. is a client of the Austrian
branch of the PA firm. Jeremy reported this to the partner of his office.
Violation? Yes No
Explanation:
C) Ken Burns is a partner at Burns and Fields LLP, a PA firm. Ken was approached by a
friend who asked him to invest in Safran Group Inc., a growing high tech company. The
proposal would be for Ken to invest $650,000 to obtain 1% of the company. Ken
decided to go ahead with the investment because Safran is a client from their Seattle
office and he has never provided any services to Safran Inc. Ken indicates that he will
ensure that he does not work on the audit of Safran.
Violation? Yes No
Explanation:
D) Sintron Inc. is a payroll processing company. Over the past 5 years, Clarkson
Coppers LLP, a PA firm, has outsourced its payroll processing and other human
resources tasks to Sintron. Clarkson Coopers LLP is happy to outsource more functions
to Sintron as Sintron has asked Clarkson for additional consulting services with regards
to system implementation and application of new accounting policies.
Violation? Yes No
Explanation:
The audit procedure which requires the auditor to record the last cheque number used
on the last day of the year and subsequently trace to the outstanding cheques and the
cash disbursements journal is performed to satisfy the audit objective of
A) detail tie-in.
B) existence.
C) completeness.
D) allocation.
If there is an error in wage rates, such errors can typically escalate into material
amounts. What characteristic of the human resources and payroll cycle causes this?
A) many repeated transactions
B) the presence of independent verification
C) the use of outsourcing organizations for payroll
D) an error in the starting cheque number in a cheque run
In determining the quantity and quality of evidence to gather, the auditor will be
satisfied when the evidence is
A) irrefutable.
B) conclusive.
C) highly persuasive.
D) sufficiently convincing.
Vanovo Ltd. is a company that has purchased several companies in the retail sector.
Recently, Vanovo Ltd. purchased both a coffee and donut chain that also owned
bakeries and a submarine sandwich chain. Unfortunately, the planned synergies
between these two retail chains did not arise. What effect would this have on the
financial statements of Vanovo Ltd., the parent company?
A) the financial statements will be incorrectly calculated, and should be checked
B) the fixed assets and goodwill recorded at acquisition could be impaired
C) risk of material misstatement for payroll expenses will increase
D) costs of goods sold will likely be overstated for both of the new chains
Observation is an important audit technique where the auditor can use sight, hearing,
touch, and smell. Observation needs to be used together with other audit techniques
because
A) employees will often perform their procedures consistently over time.
B) it is a high cost technique that is rarely used by auditors.
C) it is a point in time technique limited to the time of the observation.
D) auditors may not accurately observe and interpret what is happening.
What situation represents a contingent liability for a company?
A) A candy company’s monthly production requires 1,000 kg of chocolate. The
company entered into a contract with a chocolate producer to purchase 6,000 kg of
chocolate over the next six months at the market price.
B) A bike company learned that a racer using its bike was seriously injured in an
accident on December 30th, 2012, as the front wheel of the bike was released in a curb
as a result of a manufacturing defect. The company has not received a claim at
December 31st, 2012 but management expects to receive a claim.
C) A restaurant received a $10,000 claim from a customer for emotional damages as a
result of poor service. The legal counsel of the restaurant indicated that the claim was
not supported and there was less than a 5% chance that the restaurant would have to
pay.
D) A hotel chain was found guilty by a judge for not refunding customers with on-line
reservations. The hotel chain will have to pay $50,000 to various customers in the
following year.
Which of the following controls best prevents employees from checking in for more
than one employee? The use of
A) numerically controlled punch-in cards.
B) placing the punch clock in full view of the receptionist.
C) time cards stored in a wall rack.
D) a personalized swipe card.
The King Surety Company wrote a general fidelity bond covering defalcations by the
employees of Wilson, Inc. Thereafter, Cooney, an employee of Wilson, embezzled
$17,200 of company funds. When the activities were discovered, King paid Wilson the
full amount in accordance with the terms of the fidelity bond, and then sought recovery
against Wilson’s auditors, Lynch & Merritt, public accountants. Which of the following
would be Lynch & Merritt’s best defence?
A) King is not in privity of contract.
B) The shortages were the result of clever forgeries and collusive fraud which would
not be detected by an examination made in accordance with generally accepted auditing
standards.
C) Lynch & Merritt were not guilty either of negligence or fraud.
D) Lynch & Merritt were not aware of the King-Wilson surety relationship.
To minimize the opportunity for fraud, unclaimed salary cheques should be
A) immediately returned for redeposit.
B) kept in the payroll department.
C) left with the employee’s supervisor.
D) held for the employee in the personnel department.
When are short-term investments that are readily converted to cash included in the cash
account in the financial statements?
A) If they are held in local currencies (i.e. Canadian dollars)
B) When there is little risk of change in value
C) When they are under the control of the treasury department
D) If interest has been paid up to the year end date
The auditor is deciding upon audit procedures to be used in the audit for a particular
cycle (i.e. what combination of the four types of tests are needed to obtain sufficient
appropriate audit evidence). This type of decision is called
A) audit risk.
B) audit strategy.
C) evidence mix.
D) detection risk.
Many PAs prepare tax returns for individuals and for corporations. Under what
circumstances is liability insurance required to cover the preparation of tax returns?
When
A) the PA is a member of a professional accounting association.
B) any number of tax returns are prepared, including no charge tax returns.
C) fees are being charged and more than a handful of returns are being prepared.
D) the bulk of the PA’s income comes from preparing tax returns.
Which one of the following circumstances would indicate that positive confirmations
should be used on this engagement?
A) A significant portion of the total accounts receivable balance is represented by a
small number of accounts with large balances.
B) The internal control over accounts receivable is good.
C) The recipients are mostly businesses rather than individuals.
D) The auditor is unaware of disputed or inaccurate accounts.
Which of the following organizations establishes ethical standards and standards for the
practice of Internal Auditing?
A) (ISACA) Information Systems Audit and Control Association
B) (IIA) Institute of Internal Auditors
C) (SMAC) Society of Management Accountants of Canada
D) (CICA) Canadian Institute of Chartered Accountants
A) Describe the four business functions that result in sales transactions in a typical sales
and collection cycle and, for each function, state the key documents and records
involved.
B) State the five classes of transactions that comprise the sales and collection cycle.
C) The sales and collections cycle is comprised of nine business functions. The first
four functions result in sales transactions. Discuss each of the remaining five business
functions that occur after sales transactions, and identify the key documents and records
involved in each of those five functions.
The No-Name Advertising Rating Agency conducts independent surveys to determine
the sources of purchases by consumers (e.g. newspaper ad, magazine ad, television ad).
This information is then used by those media (i.e. newspapers, magazines, and
television broadcasters) to indicate to purchasers of advertising the breadth of coverage
that they have. For example, Small Local Newspaper can say that 10% of the
purchasers of soap products made their decisions based upon their ads. This helps in
selling advertising. What type of service is No-Name providing?
A) Assurance
B) Attest
C) Review
D) Compilation
There are many elements of quality control at the firm level. Which element does
“policies in place should include use of second or independent partner review, technical
review, documentation, and compliance with quality control processes” belong to?
A) engagement performance
B) engagement quality control review
C) documentation
D) general human resource policies
Before goods are shipped on account to a new customer, a properly authorized person
must
A) prepare the sales invoice.
B) approve the journal entry.
C) approve credit.
D) verify that the unit price is accurate.
Gina is performing the audit of the payables section of Reno Inc. She wants to confirm
the payables from an independent source. Which of the following sources would
represent an independent provider?
A) Confirm an interco payable with the CEO of the US branch of Reno Inc.
B) Confirm the account payable with Clarkson Corp. The CFO of Clarkson is the wife
of the controller of Reno.
C) Confirm the line of credit balance with Citizen Bank. Reno does all its banking with
Citizen and it also has a long-term loan there.
D) Confirm the account payable to Suco Inc. The CEO of Reno owns 30% of the
outstanding shares of Suco.
The costs used to value the physical inventory must be tested to determine whether the
client has correctly followed an inventory method that is in accordance with an
acceptable financial reporting framework and is consistent with previous years. The
audit procedures used to verify these costs are referred to as inventory
A) price tests.
B) compilation tests.
C) cost allocation tests.
D) consistency tests.