16) Which of the following services results in the placement of an electronic seal affixed to the
web site?
A) review engagement
B) internal controls assessment
C) SysTrust
D) WebTrust
17) PA is attempting to sell a service to his clients that will provide assurance on information
systems reliability. PA is attempting to sell a(n)
A) WebTrust service.
B) compilation service.
C) SysTrust service.
D) audit engagement.
18) Which of the following services provides no assurance about the client’s financial
statements?
A) compilation
B) review
C) audit
D) SysTrust
19) Herbert Zora is having financial statements prepared by his PA to accompany his tax return.
His primary concern is cost. Of the following, the lowest cost engagement that the PA can
perform for Zora’s financial statements is
A) compilation.
B) review.
C) audit.
D) WebTrust.
20) When a compilation engagement is performed, the report attached is called a
A) Compilation Report.
B) Notice to Reader.
C) No Assurance Report.
D) Auditor’s Report.
21) Blader Ng. Inc. has recently placed into production new air-cleaning systems in their smoke-
stacks to meet clean-air quality regulations. PA has been engaged to assess air quality and
compare results to legislated requirements. What type of audit or engagement is PA conducting?
A) financial statement
B) compliance
C) operational
D) review
22) Big Bank requires, as part of its loan agreement, that only accounts receivable less than 60
days old be used as collateral. An auditor has been engaged to provide assurance that the
accounts receivable on the list provided to the bank are indeed less than 60 days old. What type
of engagement is the auditor conducting?
A) financial statement
B) compliance
C) operational
D) review
23) A review of any part of an organization’s procedures and methods for the purpose of
evaluating efficiency and effectiveness is classified as a(n)
A) audit of financial statements.
B) compliance audit.
C) operational audit.
D) production audit.
24) Which one of the following is more difficult to evaluate objectively?
A) efficiency and effectiveness of operations
B) compliance with government regulations
C) presentation of financial statements in accordance with a generally accepted accounting
framework
D) internal controls in use at a small company.
25) A typical objective of an operational audit is for the auditor to
A) determine whether the financial statements fairly present the entity’s operations.
B) evaluate the feasibility of attaining the entity’s operational objectives.
C) evaluate the effectiveness of an internal process.
D) report on the entity’s relative success in attaining profit maximization.
26) Which of the following audits can be regarded as being solely “compliance” audits?
A) Canada Revenue Agency’s examinations of the returns of taxpayers
B) the Auditor General’s evaluation of the computer operations of governmental units
C) an internal auditor’s review of his employer’s payroll authorization procedures
D) a public accounting firm’s audit of the local school district
27) Which of the following is an example of a financial statement audit?
A) determining whether ABC’s financial statements overall do not violate any debt covenants
B) determining whether ABC’s overall financial statements are stated in conformity with IFRS
C) evaluating the effectiveness and efficiency of internal controls used to create account balance
D) evaluating the effectiveness and efficiency of internal controls used to record transactions
28) What is the primary difference between internal and external auditors? The
A) methodology used to conduct financial statement audits.
B) level of competence required.
C) parties to whom the auditor is responsible.
D) level of objectivity required.
29) Why might the decisions about materiality and risks be different for the internal auditor than
for the external auditor when conducting an audit of a system?
A) the auditors are applying different skills during the conduct of the audit
B) external auditors have different expectations with respect to quality control
C) internal auditors will focus only on the potential for dollar errors internally
D) external users may have different needs than management
30) To do an audit, it is necessary to have information in a verifiable form and some criteria by
which the auditor can evaluate the information.
Required:
A) What information and criteria would a public accounting firm use when auditing a company’s
financial statements?
B) What information and criteria would a Canada Revenue Agency auditor use when auditing
that same company’s tax return?
C) What information and criteria would an internal auditor use when performing an operational
audit to evaluate whether the company’s computerized payroll processing system is operating
efficiently and effectively?
31) Two types of services provided by public accounting firms are audits and reviews. Discuss
the similarities and differences between these two types of services. Which type provides the
most assurance?
32) Mega Manufacturing Company (Mega) is thinking about acquiring Localized Small
Producer Inc. (LSP), a small manufacturing company that produces related products. Mega has
examined the financial statements of LSP, which show only a small profit in the last five years.
Management of LSP has taken reasonable salaries, and cost of goods sold is higher than the
industry average for LSP. Mega believes that it will be able to introduce operational efficiencies
at LSP, improving the profitability of the small company, if acquired.
Required:
A) What type of engagement should be conducted to assess the operational efficiencies of LSP?
Justify your response.
B) Who should be engaged to conduct the engagement?
C) What major problems might the auditors encounter when conducting the audit and writing the
report?
33) Jordan set up a nonprofit corporation several years ago to provide scholarships to poor youth
in his community. From a small start, Scholarships Get up and Go Foundation now has assets of
over $5 million, and provides about ten university scholarships every year. Jordan is proud of the
new doctors, dentists and other health care practitioners that his Foundation has funded.
Jordan is thinking of starting another foundation in an old building that he has purchased. It
would be a youth drop in centre, with music lessons, art facilities, basketball facilities in a gym,
with linkages to local high schools so that there could be a homework club to encourage good
grades.
Required:
A) Why should Jordan have the financial statements of both of these foundations audited?
B) Who would be the users of the financial statements of the foundations?
C) What other types of services could PAs provide to Jordan and the foundations?
34) You, PA, have been asked to prepare the year-end financial statements of your sister. Betty is
a photographer, and is the sole shareholder of a small company called Best Weddings Ltd. She
photographs weddings, graduations and schools, earning about $75,000 per year. Betty has said
that she only needs the financial statements for her tax returns, and would like you to prepare the
tax returns too.
Required:
A) Would you be able to prepare the financial statements for your sister? Why or why not?
B) If yes, what type of report would you prepare to accompany the financial statements?
C) Would you be able to prepare the tax returns for your sister? Why or why not?
1.3 Explore the different types of accountants and what they do
1) Who is responsible for developing financial statement audit and assurance standards in
Canada?
A) AASB (Auditing and Assurance Standards Board)
B) Standards staff at the CICA (Canadian Institute of Chartered Accountants)
C) National accounting bodies such as CGA Canada
D) The accounting firms who conduct financial statement audits
2) 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
3) Auditors General are responsible for auditing which types of organizations?
A) Public companies with shares issued to investors
B) Private companies that have loans outstanding to banks or other creditors
C) Ministries, departments, agencies, and crown corporations
D) Any organization that submits tax returns to the tax authorities
4) The extent and the scope of the audits conducted by Auditors General are determined by
A) legislation in the Auditor General’s jurisdiction.
B) audit partner planning audit program development.
C) the Auditor General and his/her staff.
D) the financial statement auditors of the client.
5) To operate effectively, an internal auditor must be independent of the
A) line functions of the organizations.
B) entity that is being audited.
C) employer-employee relationship which exists for other employees in the organization.
D) outsourcing organizations used.
6) The internal audit group typically reports directly to the
A) board of directors.
B) management of the company.
C) external auditor
D) audit committee.
7) We discuss four types of auditors: public accountants, government auditors, Canada Revenue
Agency auditors and internal auditors. Briefly describe the work and responsibilities of each
type.
8)
[Note: If this question is used as part of an examination question, Figure 1-1. Audit of a Tax
Return will need to be included as part of the examination.]
Use your knowledge of the definition of auditing and Figure 1-1. Audit of a Tax Return, to
explain how an auditor would conduct a privacy audit.