The operational responsibility and the recording of transactions are normally kept
separate
A) to centralize activities in order to be more cost efficient.
B) to ensure unbiased information is recorded.
C) because operational personnel rarely has the necessary accounting skills to record
transactions.
D) to avoid confusion of responsibilities and duplication of efforts.
The proper recognition of accounts payable liabilities are crucial to ensure fair
statement of the ending accounts payable balance. What documents are required to
adequately support accounts payable?
A) receiving reports and bill of lading documents that indicate dates shipped
B) bill of lading documents matched to the internal purchase requisition
C) purchase requisition (authorized) matched with the purchase order to the supplier
D) supplier invoices matched to receiving reports and authorized purchase documents
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.
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.
The normal starting point for the audit of notes payable is
A) a discussion with management of any new notes payable for the year.
B) a schedule of notes payable and accrued interest obtained from the client.
C) the assessment of materiality.
D) the minutes of the board of directors.
An auditor selects a sample from the file of shipping documents to determine whether
invoices were prepared. This test is performed to satisfy the audit objective of
A) accuracy.
B) completeness.
C) control.
D) existence.
Serena is the assistant controller of Opus Inc. As a result of a recent expansion the
controller has been very busy and delegated the signing authority of the cheques to
Serena. Further, due to the cash accountant leaving on maternity leave, Serena was
asked to perform the bank reconciliation until they found someone to replace the cash
accountant.
Serena is a qualified accountant and has been able to handle all of these additional
tasks. However, she asked her boss for a raise to compensate her for the additional
responsibilities that she currently has. Her boss indicated that this was only temporary
and the company could not afford a raise for now.
Serena created a vendor in the system with her home address. She has been paying this
vendor $2,000 for the past 3 months as a means of compensating herself. This theft has
yet to be discovered by Opus.
Required:
A) What internal controls are missing to enable the theft to occur?
B) What audit procedures might detect the theft?
As part of the audit of sales, the auditor has used attribute sampling to select a sample
of sales invoices. The auditor has examined the duplicate sales invoice to determine
whether it was approved for credit. Which of the following would be termed the
“attribute?” The
A) sales invoice number
B) approval initials
C) name of the person who approves credit
D) absence of an authorization
For which of the following engagements is a contingent fee permitted?
A) An audit engagement of a large listed corporation
B) A tax consulting assignment assessing the excise tax payment processes
C) A review engagement of a small manufacturing corporation
D) An assurance engagement of leasehold payments for a rental agreement
The auditor has determined that the perpetual inventory master files are high quality,
assessing control risk related to physical observation of inventory as low. How does this
affect audit testing? The auditor may
A) reduce the extent of control tests over data entry to the master file.
B) reduce the extent of the tests of physical inventory.
C) reduce the extent of control tests with respect to program change controls.
D) increase assessed inherent risks over the tests of physical inventory.
When the employees are paid automatically by bank deposits to the employees’
accounts, in an effort to identify potential fraud, the auditor can look for
A) duplicated bank account numbers.
B) duplicated name in the master payroll files.
C) unusual employee names.
D) cancelled cheques.
You are working on the testing of internal controls over price changes in the inventory
system. You completed the controls testing to determine whether all price changes were
approved by the senior accountant, by reference to master file change forms.
In order to place reliance on this control, your audit supervisor has decided that the
error rate in the population should be less than 1%. When you calculated your sample
size, you used a confidence level of 90% and predicted an error rate in the population of
less than one percent. Based on these decisions, you examined 150 inventory price
master file change forms.
In your testing, you uncovered two deviations. Based on these results, you calculate that
the actual error rate in the population could be as high as 2.33 %.
Required:
A) What actions are available to you regarding your planned reliance on the master file
change controls?
B) What are the advantages and disadvantages of each action?
C) How would you decide which action to take?
Which of the following duties would indicate a weakness in internal controls? The
A) accounting function is under the controller.
B) custodianship of cash is the responsibility of the treasurer’s function.
C) internal auditor reports to the board of directors.
D) custodianship of buildings and equipment is the responsibility of the controller’s
function.
Clark Kent is a PA partner at the firm of Kent, Lane and Lang, a limited liability
partnership. Kent’s firm has just completed the audit of a client with a March 31, 2012,
year end. How should the audit report be signed?
A) Clark Kent, PA
B) Kent, Lane and Lang, LLP
C) Clark Kent, LLP
D) Kent, Lane and Lang, PAs
What situation represents a fiduciary duty?
A) A professional accountant acts as a director of an organization.
B) A professional accountant performs an audit.
C) The owner of a private company prepares financial statements.
D) A professional accountant performs a non-assurance engagement.
The Sarbanes-Oxley Act requires the auditor to attest to the
A) accuracy of the financial statements.
B) efficiency of the internal controls in financial reporting.
C) effectiveness of internal controls.
D) compliance of the company with the generally accepted accounting framework.
Obtaining an adequate understanding of the client’s business is important in physical
observation of inventory because
A) it is required by GAAP.
B) it will help the auditor in assessing the risk of theft of inventory.
C) inventory is normally a significant item.
D) inventory varies significantly for different companies.
In “auditing” accounting data, the concern is with
A) determining whether recorded information properly reflects the economic events
that occurred during the accounting period.
B) determining if fraud has occurred.
C) determining if taxable income has been calculated correctly.
D) analyzing the financial information to be sure that it complies with government
requirements.
National accounting firms in 2012 are those with
A) offices in most major cities and revenues over $100 million.
B) international representation in most cities around the world.
C) offices in all major cities in Canada and revenues over $75 million.
D) national and international affiliations providing services in all major centres.
The auditor has reconciled the dividend payment amounts disbursed according to the
cash disbursements journal to the dividend declared. Which audit assertions is this test
associated with?
A) valuation and existence
B) accuracy and valuation
C) accuracy and completeness
D) valuation and understandability
A common comparison occurs when the auditor calculates the expected balance and
compares it with the actual balance. The auditor’s expected account balance may be
determined by
A) using industry standards.
B) using credit bureau reports.
C) relating it to some other balance sheet or income statement account or accounts.
D) inquiry of the client.
Some companies use a lockbox system, whereby customers mail payments to a post
office box address. The lockbox contents could be handled by a bank, another external
organization, or the owner of the company. One of the advantages of using a lockbox is
that
A) improves segregation of duties.
B) results in more accurate bank deposits.
C) results in more accurate accounts receivables.
D) provides more detailed bank deposit information.
A) Distinguish between internal documentation and external documentation as types of
audit evidence. Give two examples of each. Which type is considered more reliable?
B) Below are 10 documents typically examined by auditors. Classify each document as
either internal or external.
The chart of accounts is an important control because it provides the framework for
determining the information presented to management and other financial statement
users. What type of errors is the chart of accounts helpful in preventing? It helps
prevent errors of
A) occurrence.
B) completeness.
C) accuracy.
D) classification.
To help improve the cash balance on the financial statements, the controller recorded
several deposits from early January in the month of December. The general
balance-related audit objective affected by this activity is
A) allocation timing.
B) accuracy.
C) classification.
D) existence.
The responsibility for adopting a sound and appropriate financial reporting framework
and corresponding accounting policies, maintaining adequate internal controls, and
making fair representations in the financial statements rests
A) with management.
B) with the auditor.
C) equally with management and the auditor.
D) with the internal audit department.
Which of the following data elements would be included in the customer master file as
semi-permanent information?
A) transaction date
B) credit limit
C) transaction amount
D) amount paid
A partial-period bank statement and the related cancelled cheques, duplicate deposit
slips, and other documents included in bank statements, mailed by the bank directly to
the public accounting firm’s office, is called a
A) four-column proof of cash.
B) bank statement.
C) cutoff bank statement.
D) short-period bank statement.
A) Describe each of the six key control activities for sales.
B) When assessing planned control risk for sales, the auditor is concerned about proper
authorization at three key points. Discuss each of these three points.
C) When testing the existence objective for sales, the auditor is concerned with the
possibility of three types of misstatements. One type is sales being including in the
journal for which no shipment was made. Discuss the other two types of misstatements.
In the scope paragraph of the audit report, the use of the term “reasonable assurance” is
intended to indicate that
A) no misstatements exist in the financial statements.
B) no material misstatements exist in the statements.
C) there is some possibility that material misstatements still exist in the financial
statements.
D) there is a possibility that immaterial misstatements still exist in the financial
statements.
When accounts payable and purchasing systems are highly automated, more detail is
included in the transaction files. This deeper level of detail is illustrated by including
A) economic order quantities for each item that is held in inventory, including delivery
times.
B) quantities, prices and item descriptions from each line of the supplier invoice.
C) sequentially numbered purchase requisitions and purchase orders (with matching
numbers).
D) having receiving report numbers match the numbers on the supplier invoices for
improved tracking.
A wage rate form that also documents a change in job responsibility for one of the
warehouse employees should be approved by the
A) human resources and the corporate controller.
B) warehouse supervisor and human resources.
C) warehouse supervisor.
D) human resources.
The process which requires the calculation of an interval and then selects the items
based on the size of the interval is
A) statistical sampling.
B) random selection.
C) systematic selection.
D) computerized selection.
Laws that have been passed through federal or provincial governments are
A) statutory law.
B) judicial law.
C) criminal law.
D) common law.
As part of the conduct of a review engagement, which of the following procedures
would be appropriate for assessing the ending value of accounts payable?
A) sending zero balance confirmations to frequently used suppliers
B) use of negative confirmations to suppliers with material balances
C) comparison of the accounts payable balances by supplier to the prior year
D) examination of invoices received after the year end to ensure that they were
recorded in the proper period