Evidence can be obtained from others, or provided by the auditor, who has good
knowledge of each industry but is not an expert. Which of the following types of
evidence is considered to be most reliable?
A) examination of diamond inventory by the auditor
B) external confirmations from individual owners of condominium units
C) examination of oil and gas reserves by the auditor
D) external confirmations from financial institutions
When an auditor calculates the gross margin as a percent of sales and compares it with
previous periods, this type of evidence is called
A) physical examination.
B) analytical procedures.
C) observation.
D) enquiries of client.
An important type of protective measure for safeguarding assets and records is
A) adequate segregation of duties among personnel.
B) proper authorization of transactions.
C) the use of physical precautions.
D) adequate documentation.
When the CICA Handbook is silent on an auditing issue, which of the following is the
best of other authoritative sources that the auditor could use?
A) audit technique studies
B) audit firm practice manuals
C) past practice at the client
D) reference to audit standards partner
The auditor selects several transactions in each functional area and traces them through
the entire accounting system, paying special attention to evidence about whether or not
the control features are in operation. This is an example of a
A) sequence test.
B) test of controls.
C) substantive test.
D) functional test.
Tests of details of balances relate to which part of the Audit Risk Model?
A) control risk
B) inherent risk
C) substantive risk
D) planned detection risk
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.
Adequate planning and execution to reduce risk to an acceptable level is a requirement
of which category of generally accepted auditing standard?
A) General
B) Examination
C) Reporting
D) Quality
The following are two unrelated situations. For each situation outline possible
deviations (if any) from a standard auditor’s report that may be necessary, and give
reasons. State your assumptions.
A) Rosebud Ltd. is a construction company that builds and repairs greenhouses for
nurseries. An architect does the design, and three different small construction
companies are used to build the greenhouses. You are concerned that some of the
projects that span the April year end may result in material losses, even though income
has been reported in the coming year. Management has refused permission for you to
enter construction sites, as they feel that the construction sites will be dangerous and
they do not want to be exposed to such liability.
B) Save our Trees is a charitable organization devoted to maintaining national
woodland and green space. Fund raising is handled primarily by means of electronic
mail and door to door canvassing by volunteers. Volunteers conducting canvassing
provide receipts at the door using prenumbered receipts. Funds raised by email are sent
receipts by email.
One of the ways to prevent the use of fictitious suppliers to steal company funds is to
A) have adequate network access controls to prevent unauthorized access to transaction
files.
B) ensure that accounts payable programs are available only in source code.
C) establish controls to establish only approved vendors.
D) reconcile the accounts payable trial balance to the general ledger.
Because of the importance of tests of controls for acquisitions and cash disbursements,
it is common in this audit area to use
A) attributes sampling.
B) variables sampling.
C) probability-proportional-to-size sampling.
D) block sampling.
Canadian GAAS (Generally Accepted Auditing Standards) are best described as
A) the CICA Handbook, plus published research and public accounting firm practices in
auditing.
B) Canadian generally accepted auditing practices developed by public accounting
firms.
C) material that is fully codified in the CICA Handbook developed in Canada.
D) the existing research that has been published about auditing that is used by firms.
The audit objective to determine that notes payable and accrued interest on the notes
payable schedule are accurate is accomplished by which of the following test of
balances procedure?
A) Examine duplicate copies of notes for principal and interest rates.
B) Review the minutes of the board of directors for authorized but unrecorded notes.
C) Trace the total of the notes payable schedule to the general ledger.
D) Review the notes to determine whether any are with related parties or should be
accounts payable.
Your client is a large financial institution in Canada. Canadian regulators require that
such financial statements have an audit report that provides an opinion on the
consistency of accounting policies. How do these events affect the independent auditors
report? The auditor would
A) add an Other Matter paragraph titled Report on Other Legal and Regulatory
Requirements.
B) add an Emphasis of Matter paragraph titled Report on Other Legal and Regulatory
Requirements.
C) use a standard unqualified auditor’s report.
D) state in the opinion paragraph that the financial statements were prepared in
accordance with the legislation for financial institutions.
The auditor would most likely issue a disclaimer of opinion because of
A) the client’s failure to present supplementary information.
B) inadequate disclosure of material information.
C) a client-imposed scope limitation.
D) the qualification of an opinion by the other auditor of a subsidiary where there is a
division of responsibility.
When considering each material type (or class) of transactions during the audit, which
general transaction-related audit objectives are assessed during the audit?
A) those transaction-related audit objectives where there is the highest risk of error
B) all five transaction-related audit objectives
C) those transaction-related audit objectives where there are poor internal controls
D) primarily completeness, occurrence and accuracy, since this is where most errors
occur
The auditor traces items from the journals back to the source documents in order to
satisfy the
A) occurrence objective.
B) completeness objective.
C) ownership objective.
D) valuation objective.
The Bank of New Haven relies heavily on computers to calculate the settlements of
amounts due to other banks. Given that the process is highly automated, the auditor
would not be able to obtain sufficient evidence with substantive procedures. The
auditors of the Bank of New Haven should
A) design and perform tests of controls.
B) qualify the opinion for the section on settlements.
C) hire a specialist to give an opinion on the proper functioning of the system.
D) perform a walkthrough of the system.
Small Town Lumberyard Limited (STLL) needed an additional loan from its bank to
finance its operations. To make its financial statements look better, the company
overstated its inventory and overstated its accounts payable. The auditors did not detect
this deliberate misstatement because they conducted limited tests of inventory and did
not confirm accounts payable. Other auditors agreed that the procedures conducted
during this audit were inadequate. The auditors of STLL would likely be considered to
be
A) guilty of fraud.
B) negligent.
C) contributorily negligent with STLL.
D) guilty of constructive fraud.
A public accountant examining inventory may appropriately apply sampling for
attributes in order to estimate the
A) average price of inventory items.
B) percentage of slow-moving inventory items.
C) dollar value of inventory.
D) physical quantity of inventory items.
The careful and timely preparation of all payroll withholdings and employers’ portion of
withholdings is necessary to avoid heavy fines. The most important control in the
timely preparation of these returns is
A) computerized preparation of income tax returns.
B) a well-defined set of policies that indicate when each form must be filed.
C) independent verification of computer output by a competent individual.
D) a Gantt chart.
When the auditor has properly planned and performed the audit to reduce risk to an
acceptably low level that is consistent with the objective of the audit, this means that
the auditor has conducted enough work to
A) reduce inherent risks to an acceptable level.
B) increase detection risk to a satisfactory level.
C) detect errors in internal controls so that control risk can be set higher.
D) detect material misstatements to the targeted level of assurance.
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
“exception?” The
A) sales invoice number.
B) approval initials.
C) name of the person who approves credit.
D) absence of an authorization.
Verification of the legitimacy of year-end unpaid bonuses to officers and employees can
be accomplished by comparing the recorded accrual to the amount
A) in the expense account.
B) used in the prior period.
C) authorized and recorded in the minutes of the board of directors.
D) paid in the subsequent period.
The two most important factors that determine the appropriate sample size in audits are
A) the auditor’s expectation of errors and the effectiveness of the client’s internal
controls.
B) the auditor’s expectation of errors and materiality.
C) the effectiveness of the client’s internal controls and materiality.
D) materiality and the type of audit procedure to be applied to the population.
Which of the following internal controls would assist in ensuring that recorded payroll
transactions are for the amount of time actually worked and at the proper pay rate, and
that withholdings are properly calculated?
A) Comparison of batch totals with computer summary reports
B) Comparison of payroll master file with payroll general ledger totals
C) Adequate personnel files
D) Separation of duties between personnel, timekeeping, and payroll disbursements
Ricky recently got an internal transfer from payroll analyst to assistant regional
manager of production. An employee at the production facility came to see Ricky since
he was not paid on the last payroll cheque for the overtime he had done. Ricky
apologized for this mistake and logged into the payroll system to modify the next
paycheque for the employee to ensure that he would be paid for the additional hours.
A) The company did not properly allocate access rights.
B) The company did not properly complete the access rights approval form.
C) The company did not properly check employee background when they hired Ricky.
D) Ricky did not do anything wrong since the employee had worked the hours.
Those procedures specifically outlined in an audit program are primarily designed to
A) prevent litigation.
B) detect errors or irregularities.
C) test internal controls.
D) collect evidence.
When a higher than normal ratio of long-term debt to net worth is coupled with a lower
than average ratio of profits to total assets, the company
A) is highly successful.
B) is comparable with industry standards.
C) has a high risk of financial failure.
D) has a liquidity problem.
The final step in the evaluation of the audit results is the decision to
A) determine the acceptability of the population.
B) determine sampling error and calculate the estimated total population error.
C) analyze exceptions or misstatements.
D) determine the error in each sample.
A procedure that would most likely be used by an auditor in performing tests of control
procedures that involve segregation of functions and that leave no transaction trail is
A) inspection.
B) observation.
C) reperformance.
D) reconciliation.
In the audit of an individual’s tax return, the criteria used would be
A) an accounting framework.
B) the Income Tax Act.
C) the client’s policies for taxable income.
D) the auditor’s judgment.
The internal control which requires “purchase orders be prenumbered and accounted
for” satisfies the objective of
A) occurrence.
B) completeness.
C) accuracy.
D) posting and summarization.
An increase in the sample size has the effect of decreasing the sampling error if the
A) actual sample exception rate increases.
B) actual sample exception rate does not increase.
C) number of exceptions in the sample does not increase.
D) number of exceptions in the sample increases.
After completing tests of key controls, the auditor should review the results and
consider whether
A) the planned degree of reliance on internal controls is justified.
B) the audit evidence obtained from the study of internal controls can provide a
reasonable basis for an opinion.
C) further study of internal controls is likely to justify any restriction of tests of details
of balances.
D) sufficient knowledge has been obtained about the entity’s entire internal control
structure.