In a manufacturing company, which one of the following audit procedures would give
the least assurance of the valuation and allocation assertion for inventory at the audit
date?
A.Examining paid vendors’ invoices.
B.Testing the computation of standard overhead rates.
C.Obtaining confirmation of inventories pledged under loan agreements.
D.Reviewing direct labour rates.
The auditor is most likely to rely on analytical procedures alone if a balance is:
A.material and internal controls are good.
B.immaterial and internal controls are poor.
C.immaterial and inherent risk is high.
D.immaterial and internal controls are good.
An auditor most likely would limit substantive audit tests of sales transactions when
control risk is assessed as low for the occurrence assertion concerning sales transactions
and the auditor has already gathered evidence supporting:
A.opening and closing inventory balances.
B.cash receipts and accounts receivable.
C.shipping and receiving activities.
D.cutoffs of sales and purchases.
The ‘Second Report of the Inquiry into the Law of Joint and Several Liability’ in
January 1995 recommended:
A.proportionate liability in all circumstances.
B.proportionate liability when the plaintiff is partly at fault.
C.proportionate division of insolvent defendant’s share.
D.proportionate liability and defendant’s degree of fault.
Which of the following statements, with respect to the audit report expressing an
opinion on a specific item on a financial report, is correct?
A.Such a report can only be expressed if the auditor is also engaged to audit the entire
financial report.
B.Materiality must be related to the specified item rather than to the financial report
taken as a whole.
C.The auditor who has issued an adverse opinion on the financial report taken as a
whole can never express an opinion on a specified item in that financial report.
D.The attention devoted to the specific item is usually less than it would be if the
financial report taken as a whole were being audited.
Audit documents record the results of the auditor’s evidence-gathering procedures.
When preparing audit documents, the auditor should remember that audit documents
should be:
A.kept on the client’s premises so that the client can have access to them for reference
purposes.
B.the primary support for the financial report being examined.
C.considered as a substitute for the client’s accounting records.
D.designed to meet the circumstances and the auditor’s needs on each engagement.
In determining the sample size for a test of controls, an auditor should consider the
likely rate of deviations, desired confidence level, and the:
A.tolerable deviation rate.
B.risk of incorrect acceptance.
C.nature and cause of deviations.
D.population size.
Substantive tests of balances:
A.will increase in extent, the greater the reliance on internal controls.
B.involve testing ending account balances, which are an aggregate of a number of
transactions.
C.will increase in extent, the greater the level of substantive testing of transactions
undertaken.
D.will increase in extent, the greater the level of analytical procedures undertaken.
The ultimate purpose of assessing control risk is to contribute to the auditor’s evaluation
of the:
A.factors that raise doubts about the auditability of the financial report.
B.operating effectiveness of internal control policies and procedures.
C.risk that material misstatements exist in the financial report.
D.possibility that the nature and extent of substantive tests may be reduced.
Which of the following is not an attribute of an external auditor?
A.Client advocacy.
B.Integrity.
C.Competence with regards to subject matter.
D.Objectivity.
Failure to detect material dollar misstatements in the financial report is a risk that the
auditor primarily mitigates by:
A.performing substantive tests.
B.performing tests of controls.
C.understanding internal control.
D.obtaining a client representation letter.
The responsible party for assumptions identified in the preparation of prospective
financial statements is usually:
A.a third-party lending institution.
B.the client’s management.
C.the reporting accountant.
D.the client’s independent auditor.