A sample in which the characteristics of the sample are the same as those of the
population is a(n)
A) random sample.
B) variables sample.
C) attribute sample.
D) representative sample.
To help with corporate governance and a positive “tone at the top,” the board of
directors and its committees, such as the audit committee, should
A) rubber stamp the financial statements once per year.
B) consist of all members of executive management.
C) follow the policies and procedures approved by management.
D) take an active role in overseeing the company.
The need to implement philosophies and practices commonly referred to as “improved
business practices” comes from
A) increased competition resulting in public accounting firms being concerned about
keeping clients and maintaining a reasonable profit.
B) a CAS pronouncement.
C) a GAAP pronouncement.
D) a need to increase profitability on assurance type mandates.
How do practice inspections affect the ability of a PA firm to have articling students
work at the firm? Practice inspectors
A) only permit students to work there if the quality controls are good.
B) review the ability of the office to provide sufficient, appropriate hours.
C) require that students work only on audit engagements, not reviews.
D) consider only work completed by qualified PAs, not students.
Dimple Leather is a chain of retail stores that sells leather clothing and accessories
across Canada. Each store has point of sale equipment that is linked to a local server. At
night, local accounting information is transmitted to the head office computer and any
updates to prices or other adjustments are transferred to the local office.
Required:
Define the control environment. List the components of the control environment. For
each component, provide an example of a control that might exist at Dimple Leather.
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.
“Existing payroll transactions are recorded” is the control objective of
A) authorization.
B) completeness.
C) existence.
D) accuracy.
The analytical procedure which requires the auditor to “inspect the list of accounts
payable for unusual or non-vendor payables” would have the best chance of discovering
which possible error?
A) Misstatement of accounts payable and expenses
B) Classification error for non-trade liabilities
C) Unrecorded accounts or misstatements
D) Invalid accounts or misstatements
The auditor’s report of the Huge Mega Company indicates that the financial statement
are fairly presented except for the goodwill balance which does not comply with
International Financial Reporting Standards. The auditor’s report is
A) unqualified.
B) unqualified with explanatory paragraph.
C) qualified.
D) adverse.
There will be heavy emphasis on tests of controls when
A) controls are ineffective and assessed control risk is high.
B) controls are effective and assessed control risk is low.
C) the auditor is doing a “fraud audit.”
D) it is a first-year audit.
You are conducting the audit of a medium-sized company that has a chief accountant
and three employees. Segregation of duties is excellent, with jobs allocated to provide
maximum levels of controls. Segregation is supported by accounting software with user
identification and password that limits functions to the appropriate job.
Required:
A) What type of audit approach would you recommend? Why?
B) How would your answer change if the accounting department was organized on a
job sharing basis so that all employees did some of every task to keep the work more
interesting? Why?
Transaction cycles begin and end at
A) the beginning and end of the fiscal period.
B) the balance sheet date.
C) January 1 and December 31.
D) the origin and final disposition of the company.
For publicly held corporations, the verification of owners’ equity is more complex due
to the
A) fact that there are many more equity accounts to audit.
B) larger numbers of shareholders and frequent changes in the individuals holding the
shares.
C) problem of having to confirm shares held with many more different individuals.
D) need to consider that audit risk will be lower, and different shareholders have
different points of view with respect to materiality.
Confirmation of individual accounts receivable balances directly with debtors will, of
itself, normally provide evidence concerning the
A) collectability of the balances confirmed.
B) ownership of the balances confirmed.
C) existence of the balances confirmed.
D) internal control over balances confirmed.
The internal control which requires an “independent verification of calculations and
amounts” satisfies the objective of
A) occurrence.
B) completeness.
C) accuracy.
D) posting and summarization.
Where the auditor has decided to rely upon internal controls, he or she will then
A) eliminate the need to gather evidence in that area.
B) test the effectiveness of the controls in that area.
C) proceed to expand the sample sizes in that area.
D) negotiate with management to determine which controls will be tested in that area.
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?
A standard audit program can dramatically increase
A) audit efficiency.
B) quality of audit evidence.
C) communication between the audit team.
D) the amount of work that can be delegated to more junior staff members.
Amin is distraught. There is a big box stereo store that opened just down the block from
his independent stereo and music business six months ago, and he is unable to continue
operating his business. Only eight months ago, you issued an unqualified audit opinion
on his financial statements, which showed the financial results of a well run, profitable
store. Amin’s business is experiencing
A) customer expectation gap.
B) audit failure.
C) fiduciary duty.
D) business failure.
Segregation of duties has an important role in providing for good quality internal
controls. Which of the following segregation of duties improve controls over the
inventory and distribution cycle?
A) purchasing department should not be responsible for updating the economic order
quantity
B) the accounting staff should not be responsible for the data entry of supplier invoice
detail
C) the inventory transaction processing systems should not be accessible to the
receiving department
D) purchasing department should not be responsible for authorizing the acquisition or
receiving the goods
Which of the following audit tests pertains to the accuracy assertion?
A) prepare proof of cash
B) test a cut-off bank statement
C) examine minutes and loan agreements
D) read the notes to the financial statements
A) Describe each of the five business functions that comprise the acquisition and
payment cycle.
B) Describe the key documents used in processing purchase orders for the acquisitions
and payment cycle.
C) Discuss the key documents and records used in the recognizing the liability function
in the acquisitions and payment cycle.
Discuss the two most common ways in which employees can defraud a company in the
payroll area.
The auditor would like to design a test of control to test the following key control: “unit
selling prices are obtained from the price list master file of approved prices.” Which of
the following typical tests of controls would be suitable?
A) compare prices used on sales invoices to the authorized customer purchase order
B) review change to price file throughout the year for proper authorizations and trace
prices to copy of sales invoice
C) use analytical review to compare total sales last year to total sales this year
D) discuss the process used to authorize sales prices with the sales manager and the
controller
When assessing the plausibility of the financial statements for a review engagement, the
auditor will use which of the following criteria for auditing a small, privately held
company?
A) standards of efficiency and effectiveness
B) the audit objectives associated with the audit of financial statements
C) an acceptable reporting framework such as ASPE
D) an enterprise risk management framework, to help detect fraud
When the auditor has determined that there is a significant risk of misstatement for a
particular assertion (for example, completeness of revenue), what type of audit testing
does CAS 330 require?
A) tests of risk assessment
B) tests of understanding of internal control
C) control tests
D) substantive tests
If inventory is the largest balance on the financial statements, a large misstatement
would be so material that the auditor should issue
A) an unqualified opinion.
B) a qualified opinion.
C) an adverse opinion.
D) a disclaimer of opinion.
A) Discuss the purposes of performing analytical procedures during the audit
completion phase.
B) State the two purposes of the client representation letter.
The audit process has three categories of audit phases: risk assessment, risk response
and reporting. Which of the following are the phases that are part of the risk assessment
process?
A) preplanning, design further audit procedures, tests of control
B) client risk profile, plan the audit, design further audit procedures
C) preplanning, client risk profile, plan the audit
D) preplanning, plan the audit, design further audit procedures
Which one of the following is an example of a general authorization?
A) The highest credit limit allowed for accounts receivable is $50,000.
B) ABC Company has a credit limit of $25,000.
C) Each supervisory wage rate must be approved by the executive manager.
D) Grocery supervisors approve each transaction reversal over five dollars.
A) Describe three types of sample selection methods commonly associated with
statistical audit sampling.
B) Explain the difference between sampling with replacement and without replacement.
Which method is more common in audit practice?
C) Describe the steps involved in systematic sampling.
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.