1) A substantive test for accounts payable that would be used to provide evidence
regarding the occurrence assertion would be to:
A) agree a sample of vouchers to authorized purchase orders
B) recalculate the accuracy of the vouchers and the authorized purchase orders
C) trace vouchers to the client’s purchases journal
D) vouch a sample of vouchers from the cash disbursements register to accounts
payable
2) Which of the following verifications would generally not be performed by the
auditor in the month subsequent to the balance sheet date?
A) Foot the lists of all canceled checks, debit memos, deposits, and credit memos
B) verify the bank statement balances when the footed totals are used
C) Verify the book statement balances tie to the cash receipts and disbursements
journals for the year under audit
D) Review the items included in the footings to make sure that they were cancelled by
the bank
3) In comparing (1) the adequacy of the hardware controls in the system with (2) the
organization’s methods of handling the errors that the computer identifies, the
independent auditor is:
A) unconcerned with both (1) and (2)
B) equally concerned with (1) and (2)
C) less concerned with (1) than with (2)
D) more concerned with (1) than with (2)
4) When an auditor has reduced assessed control risk based on tests of controls, he or
she may then reduce the extent to which the accuracy of the financial statement
information directly related to those controls must be supported through the
accumulation of evidence using substantive tests.
A) True
B) False
5) ________ inquiry is used to ascertain whether information already obtained is
correct, factual or truthful.
A) Assessment
B) Declarative
C) Interrogative
D) Informational
6) Which of the following best describes the first standard of field work?
A) The auditor must adequately plan the work and properly supervise any assistants
B) The auditor must have adequate technical training and proficiency to perform the
audit
C) The auditor must maintain independence in mental attitude in all matters relating to
the audit
D) The auditor must exercise due professional care in the performance of the audit and
the preparation of the report
7) Audit tests of payroll are usually not extensive because:
A)
B)
C)
D)
8) Which of the following statements is not correct?
A) It is possible to vary the sample size from one unit to 100% of the items in the
population
B) The decision of how many items to test should not be influenced by the increased
costs of performing the additional tests
C) The decision of how many items to test must be made by the auditor for each audit
procedure
D) The sample size for any given procedure is likely to vary from audit to audit
9) Credit should be approved before goods are shipped to a customer.
A) True
B) False
10) Generally, audit evidence gathered from the sales and collection cycle is combined
with evidence:
A) as the evidence accumulation process proceeds
B) only when all fieldwork processes of the engagement are completed
C) only after the audit of the sales and collection cycle is concluded
D) after the conclusion of both the cash cycle and the sales and collection cycle
11) Fraud is more prevalent in large businesses than small businesses and not-for-profit
organizations.
A) True
B) False
12) Gross negligence is the existence of extreme or unusual negligence with the intent
to deceive.
A) True
B) False
13) Payroll checks should be distributed by someone independent of the payroll and
timekeeping functions.
A) True
B) False
14) The document that accompanies the customer’s payment is the:
A) credit memo
B) remittance advice
C) vendor invoice
D) monthly statement
15) Tests of details of balances typically involve the use of comparisons and
relationships to assess the overall reasonableness of account balances.
A) True
B) False
16) Analytical procedures are the most expensive type of audit test to perform because
of the expertise and training required to properly use them.
A) True
B) False
17) Tests of the payroll bank reconciliation usually require considerable time if there is
an imprest payroll account in use.
A) True
B) False
18) Use of the ratio estimation sampling technique to estimated dollar amounts is
inappropriate when:
A) the total book value is known and corresponds to the sum of all the individual book
values
B) a book value for each sample item is unknown
C) there are some observed differences between audited values and book values
D) the audited values are nearly proportional to the book values
19) The correct title of the Yellow Book is:
A) Government Auditing Standards
B) IIA Practice Standards
C) Statement of Responsibilities of Internal Auditing
D) Statement of Standards on Accounting and Review Services
20) Which of the following is not an objective of the auditor’s examination of notes
payable?
A) To determine whether internal controls are adequate
B) To determine whether client’s financing arrangements are effective and efficient
C) To determine whether transactions regarding the principal and interest of notes are
properly authorized
D) To determine whether the liability for notes and related interest expense and accrued
liabilities are properly stated
21) The primary factor affecting the auditor’s acceptable risk of incorrect acceptance is
assessed as inherent risk when quantifying audit risk.
A) True
B) False
22) Which of the following statements are true?
I.The introductory paragraph states that management is responsible for the preparation
and content of the financial statements.
II.The scope paragraph states that the auditor evaluates the appropriateness of those
accounting principles, estimates, and financial statement disclosures.
A) I only
B) II only
C) I and II
D) Neither I nor II
23) Statements on Internal Auditing Standards are issued by the:
A)
B) SEC
C) Internal Auditing Standards Boards
D) Auditing Standards Boards
24) Which of the following is not one of the general types of prospective financial
statements included in the attestation standards?
A)
B)
C)
D)
25) For prospective clients that have previously been audited by another CPA firm, the
predecessor auditor is required to communicate with the successor auditor.
A) True
B) False
26) Controls which are built in by the manufacturer to detect equipment failure are
called:
A) input controls
B) data integrity controls
C) hardware controls
D) manufacturer’s controls
27) The basis for preparing financial statements for companies is the general ledger. As
soon as possible the auditor obtains the general ledger accounts of the client and
prepares a working trial balance. Discuss the audit documentation in the current file that
relates to the working trial balance. Include a description of lead and support schedules
in your answer.
28) ( shipments made to nonexistent customers and recorded as sales, (2) sales recorded
more than once, and (3) sales included in the journals for which no shipment was made.
29) “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 that would not be discovered during the audit of the
bank reconciliation. How are these types of misstatements normally uncovered in the
audit?
30) Besides the search for contingent liabilities and the review for subsequent events,
the auditor has four important final evidence accumulation responsibilities, all of which
are required by current professional auditing standards. Discuss each of these four
responsibilities.
31) The “Yellow Book” defines and sets standards for performance audits. Discuss
below the purpose of a program audit.
32) Discuss the primary purpose of an audit engagement letter. Is an engagement letter
required?