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
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.
Two of the audit objectives for notes payable are important because a misstatement
could be material even if one note is omitted or incorrect. Which assertions are they?
A) completeness and valuation
B) existence and completeness
C) accuracy and existence
D) completeness and accuracy
There are many elements of quality control at the firm level. Which element does
“ongoing professional development of personnel should exist, with assignment to work
that matches employee competence, and performance evaluations related to audit
quality” belong to?
A) leadership and responsibilities within the firm
B) independence
C) general human resource policies
D) extent of professional development
For a CA or CGA working as a sole practitioner or working in a small public
accounting office, the provincial practice inspectors will likely come to review audit
files
A) every three years.
B) every five years.
C) every year.
D) files sent, not reviewed in person.
When the auditor assesses the likelihood of material misstatement in the financial
statements, the auditor will use
A) risk assessment procedures.
B) procedures to obtain an understanding.
C) tests of control.
D) assessment of design effectiveness of controls.
What is the purpose of an extended test of the bank reconciliation? To
A) verify whether all transactions included in the journals for the last month of the year
were correctly allocated to the bank reconciliation.
B) compensate for material weaknesses in internal control with respect to segregation
of duties.
C) increase detection risk for the audit of cash.
D) verify whether specific transactions that flowed through the cash account were
correctly recorded.
Electronic data interchange (EDI) represents the electronic transfer of
A) funds.
B) business documents.
C) data between accounting systems of the company’s entities.
D) information between the bank and the company.
When examining the bank reconciliation for the imprest payroll account, it is normal
for the only reconciling item to be
A) outstanding cheques.
B) direct deposits from customers.
C) outstanding deposits.
D) corrections to payroll amounts.
One of the reasons that the auditor considers the type of information systems and its
functions is to
A) assess whether hardware functioning affects applications.
B) evaluate design effectiveness of internal controls.
C) complete risk assessment by audit assertion for cycles.
D) assess whether programmed controls can be relied upon.
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.
A) List the three types of general computer control systems.
B) Adequate segregation of duties is an important control procedure. Describe the
specific functions that should be separated for segregation of duties to prevent both
intentional and unintentional misstatements that are of significance to auditors.
C) Adequate documents and records are important for effective internal control. Five
principles dictate the proper design and use of documents and records. One principle is
that documents and records should be prenumbered consecutively to facilitate control
over missing documents, and to aid in locating documents when they are needed at a
later date. Discuss each of the other four principles of adequate documents and records.
An audit procedure that is part of the audit of notes payable is the review of the
permanent audit working paper files to determine if there are restrictions on the
payment of dividends in bond indenture agreements or preferred share provisions.
Which presentation and disclosure audit assertion is this associated with?
A) valuation
B) completeness
C) existence
D) classification
The auditor has examined the financial statements, particularly the cash flow statement,
and the notes to the financial statements to determine that all relevant information is
presented clearly. Which audit assertion is associated with this audit test?
A) classification
B) allocation
C) understandability
D) valuation
Risks of fraud are assessed at which level(s) of the audit?
A) overall audit, transaction-related audit objectives
B) balance-related audit objectives only
C) overall audit, cycle and account
D) cycle, account and transaction-related audit objectives
When the client’s internal control structure is adequate, the cutoff can usually be
verified by
A) the client’s representation letter.
B) inquiries of the controller.
C) obtaining the last shipping document number of the year and comparing it with
current and subsequent period recorded sales.
D) confirmation of the receivable for the last recorded sale.
A significant part of the total audit, that relates to cash , is the audit of
A) physical inventory on hand using an inventory count.
B) assessment of the accounting policies in use.
C) substantive testing of the ending accounts payable balance.
D) sales and collections, payables payments and payroll payments.
In attribute sampling, an advance estimate of the expected population exception rate is
necessary to plan the appropriate sample size. The relationship of expected population
exception rate (EPER) to sample size is
A) direct (small EPER = small sample).
B) inverse (small EPER = large sample).
C) a variable (sometimes small, sometimes large) dependent on other factors present.
D) indeterminate.
How do quality control processes for the financial statement audit process incorporate
consideration of legislation that affects the client?
A) requiring second partner review of all working partners that relate to legislative
matters
B) provide auditors with copies of legislation that affects their client
C) train all auditors in legislation details that could affect all clients
D) include in audit checklists questions that address relevant new legislation
Which one of the following is an example of a specific authorization?
A) The computer systems automatically reorder inventory when quantities fall below
the economic order quantity.
B) The highest credit limit allowed for accounts receivable customers is $100,000.
C) Each sales transaction that exceeds the credit limit of a customer must be approved
by the controller.
D) Grocery sales clerks may approve returns of goods less than ten dollars in value.
The auditor is going to select a sample to find out whether any potentially fraudulent
transactions have been processed. The auditor should use what type of sampling?
A) attribute sampling
B) discovery sampling
C) monetary unit sampling
D) variable estimation sampling
What type of audit test is a proof of cash?
A) Test of control
B) Test of details
C) Dual-purpose
D) Analytical review
For some audit objectives and in some circumstances, analytical procedures may be the
most effective procedure to apply. The objectives that most likely would benefit from
the use of analytical review with respect to the allowance for uncollectible accounts
would be
A) validity of sales transactions recorded for individual customer accounts.
B) classification and completeness of transactions, accuracy of judgments and
estimates.
C) collectability of individual customer account balances.
D) allocation of transactions to the proper accounting period.
The audit procedure that requires the auditor to examine notes, minutes, and bank
confirmations for restrictions is performed to satisfy the audit objective of
A) existence.
B) completeness.
C) accuracy.
D) presentation and disclosure.
Inspection of assets is not a sufficient form of evidence when the auditor wants to
determine the
A) existence of the asset.
B) quantity and description of the asset.
C) condition or quality of the asset.
D) ownership of the asset.
Which of the following situations would be an example of a self-interest threat that
would prevent a PA from auditing the client?
A) The PA’s uncle owns the business that the PA is auditing.
B) For the last two years, the client could not pay their fees, so the PA created a loan
agreement covering the fees, with the client paying 10% interest on the fees.
C) The PA has a small bank loan at normal business interest rates with the bank that his
firm is auditing.
D) The PA has purchased a used car from one of the employees of the client.
With respect to clients, business risk increases when conditions, events, circumstances
or inactions
A) adversely affect the entity’s ability to achieve its objectives.
B) cause employees to not do their job properly.
C) result in the company continuing profitable operations.
D) result in an assessment of poor internal controls.
The working papers are
A) the property of client.
B) prepared by the client’s internal auditors.
C) the primary means of documenting that an adequate audit was conducted in
accordance with GAAS.
D) used primarily as a basis for the partners to review and reward the work of the
managers, seniors, and staff.
An audit procedure which compares the name, amount, and dates shown on remittance
advices with cash receipts journal entries and with related duplicate deposit slips would
be effective in detecting
A) kiting.
B) lapping.
C) illicit write-offs of customers as uncollectible accounts.
D) sales without proper credit authorization.
A public accountant observes his client’s physical inventory count on December 31.
There are eight inventory-taking teams, and a tag system is used. The public
accountant’s observation normally may be expected to result in detection of which of
the following inventory errors?
A) The inventory takers forgot to count all the items in one room of the warehouse.
B) An error is made in the count of one inventory item.
C) Some of the items included in the inventory had been received on consignment.
D) The inventory omits items on consignment to wholesalers.
An important benefit of industry comparisons is as
A) an aid to understanding the client’s performance.
B) an indicator of errors.
C) an indicator of irregularities.
D) a least-cost indicator for audit procedures.
Organizations with a good control environment are able to document their positive
“tone at the top” with a clear code of ethics. How would the auditor include the
presence of such a code of ethics in the risk assessment process?
A) increase inherent risks associated with violations of laws and regulations
B) lower inherent risks associated with violations of laws and regulations
C) increase control risks associated with violations of laws and regulations
D) lower control risks associated with violations of laws and regulations
A system of internal control consists of policies and procedures designed to provide
management with
A) reasonable assurance that the company achieves its objectives.
B) assurance that fraud will be prevented.
C) reasonable assurance that fraud will be detected.
D) assurance that the firm’s resources will be used in the optimal way.