The overall objective in the audit of the inventory and distribution cycle is to determine
that
A) costs of goods sold and gross profit are correctly stated on the income statement.
B) inventory items on the balance sheet are neither fraudulent nor materially in error.
C) gross profit and inventory are fairly presented on the financial statements.
D) inventory and cost of goods sold are fairly stated on the financial statements.
An individual PA sets up his or her own business as a sole practitioner. With additional
practitioners, a common structure is a partnership. Why would a large firm set up its
organizational structure as a limited liability partnership (LLP)? If the audit was
conducted in accordance with GAAS
A) partners not on the engagement would not be liable on their personal assets.
B) improved quality control practices can be initiated using technical personnel.
C) more formal reporting requirements are in place to federal tax authorities.
D) partners are liable for only a limited portion of their personal assets when sued.
The transfer agent confirmed to the auditor that the company had 2,500,000 shares
outstanding at December 31, 2010. To have assurance over the accuracy of the dividend
payable, the auditor would multiply 2,500,000 by the
A) dividend per share declared.
B) dividend per share paid during the year.
C) dividend per share as per the articles of incorporation, even if it was not declared
during the year.
D) average dividend for the industry.
What is the auditor’s role in the detection of computer fraud?
A) use computer assisted audit techniques to make sure that the computer programs do
not have any unauthorized processing
B) use test data to make sure that the computer programs are functioning as described
by the client
C) investigate unusual relationships or patterns, conduct the audit properly, and report
to management
D) only detect fraud if it has been ongoing for a long period of time and leaves many
different types of evidence
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.
While performing services for their clients, professionals have always had a duty to
provide a level of care which is
A) reasonable.
B) greater than average.
C) superior.
D) guaranteed to be free from error.
In “auditing” accounting data, the concern is with
A) determining whether recorded information properly reflects the economic events
that occurred during the accounting period.
B) determining if fraud has occurred.
C) determining if taxable income has been calculated correctly.
D) analyzing the financial information to be sure that it complies with government
requirements.
Which of the following areas are tested as part of the audit of the acquisition and
payment cycle?
A) payment for raw materials, receipt of raw materials, shipment of goods to customers
B) processing of sales orders, production of goods for clients, and subsequent invoicing
C) processing supplier invoices, vendor master file changes, shipment of goods to
customers
D) processing purchase orders, vendor master file changes, receiving goods and
services
The most common organizational form used by public accounting firms is
A) sole proprietorship or partnership.
B) professional corporation.
C) corporation.
D) co-operative.
Individuals who accept fees (or property), should they know or be willfully blind to the
fact that the property was obtained illegally can be charged with money laundering, a
criminal offence. Which of the following techniques will help a PA prevent such
charges?
A) ensure that the financial statements are in accordance with an acceptable reporting
framework
B) require that clients carefully document the sources of their funds.
C) carefully assess management integrity.
D) obtain a detailed letter of representation from management confirming the sources of
their funds.
Subsequent events affecting the valuation of assets ordinarily will require adjustments
of the financial statements under examination because such events typically represent
the
A) culmination of conditions that existed at the balance sheet date.
B) final estimates of losses relating to casualties occurring in the subsequent events
period.
C) discovery of new conditions occurring in the subsequent events period.
D) preliminary estimate of losses relating to new events that occurred subsequent to the
balance sheet date.
The most difficult type of cash defalcation for the auditor to detect is that which occurs
A) before the cash is recorded.
B) after cash is recorded but before it goes to the bank.
C) out of the balance kept in a cash register.
D) in amounts under $100.
When determining whether an exception is highly material, the extent to which the
exception affects different parts of the financial statements must be considered. This is
referred to as
A) materiality.
B) pervasiveness.
C) financial analysis.
D) ratio analysis.
Which of the following areas is considered to have a high risk of fraud in the retail
industry?
A) point-of-sale sales
B) customer refunds
C) credit sales
D) completeness of payroll
The standard letter of confirmation from client’s legal counsel should ask for
information about the period of time
A) covered by client’s financial statements.
B) covered by client’s financial statements plus the preceding year.
C) covered by client’s financial statements plus the succeeding year.
D) approximately up to the date of the auditor’s report.
The control environment consists of actions, policies and procedures that
A) reflect the overall attitudes of top management, the directors and the owners of an
entity about control and its importance.
B) govern access to particular applications, such as how employees use passwords to
change master file payroll rates.
C) are recorded on the web site, for example, access policies to data.
D) help implement the ethical attitudes at the organization, such as a computer usage
policy.
General controls must be evaluated and their impact considered upon the human
resources and payroll transaction cycle because
A) there are frequently weaknesses in internal controls in the payroll cycle.
B) automated techniques are normally used to prepare and post payroll transactions.
C) the best way to test payroll transactions is usually by using test data.
D) the best way to test payroll transactions is usually by using generalized audit
software.
Which of the following data elements would be included in the customer master file as
semi-permanent information?
A) transaction date
B) credit limit
C) transaction amount
D) amount paid
A common inventory observation procedure is to be alert for items that are damaged,
rust- or dust-covered, or located in inappropriate places. The balance-related audit
objective being achieved by this procedure is
A) classification.
B) cutoff.
C) valuation.
D) rights.
The emphasis for the audit of sales return and allowances is often placed on testing the
existence of recorded transactions. However, the most important objective to consider is
A) cut-off.
B) valuation.
C) accuracy.
D) completeness.
An advantage of using statistical over nonstatistical sampling methods in tests of
controls is that the statistical methods
A) afford greater assurance and clarity than a nonstatistical sample of equal size.
B) provide an objective basis for quantitatively evaluating sample risks.
C) can more easily convert the sample into a dual-purpose test useful for substantive
testing.
D) eliminate the need to use judgment in determining appropriate sample sizes.
Whenever the client imposes restrictions on the scope of the audit, the auditor should be
concerned about the possibility that management is trying to prevent discovery of
misstated information. In such cases, which type of report should be issued? A
A) disclaimer of opinion, in all cases.
B) qualification of both scope and opinion, in all cases.
C) disclaimer of opinion, whenever materiality is in question.
D) qualification of both scope and opinion, whenever materiality is in question.
There are many elements of quality control at the firm level. Which element does
“employees should be adequately trained in the skills needed to conduct audits and
reviews” belong to?
A) leadership and responsibilities within the firm
B) independence
C) general human resource policies
D) extent of professional development
What information would be considered semi-permanent as well as transaction
information?
A) Customer number or code
B) Customer credit limit
C) Transaction amount
D) Current balance outstanding
At what point during the audit should the auditor conduct an independence threat
analysis?
A) after the audit evidence assessment and collection process
B) prior to the acceptance of the engagement
C) after gathering sufficient knowledge of the client’s business
D) prior to signing the audit report
The tests of details of balances procedure which requires the auditor to examine
corporate minutes for loan approval would satisfy the audit objective of
A) classification.
B) existence.
C) completeness.
D) accuracy.
When the proper disclosure in the financial statements of material contingencies is
through footnotes, the footnote should describe the nature of the contingency to the
extent it is known and
A) the auditor’s opinion as to the expected outcome.
B) the opinion of legal counsel or management as to the expected outcome.
C) an estimate of the amount or a statement that the amount cannot be estimated.
D) the steps client has taken to ensure that it doesn’t recur.
IFRS, ASPE and ASNPO require that related party transactions be disclosed. Gregorio
Limited has a materiality threshold of $50,000. Which of the following standards apply
to the disclosure of related party transactions for Gregorio Limited? Disclose
A) all transactions that are greater than the current year’s materiality.
B) all related party transactions, even those below materiality.
C) those related party transactions that relate to officers or directors of the corporation.
D) those related party transactions that could affect the decisions of a user.
After finishing the procedures to obtain an understanding of internal control in an audit
engagement, the auditor should perform tests of controls on
A) those controls that the auditor plans to rely upon.
B) those controls in which material weaknesses were identified.
C) those controls that have a material effect upon the financial statement balances.
D) a random sample of the controls that were reviewed.
When considering the relationships between types of audit tests and evidence, which of
the following procedures is suitable for use for all types of audit tests (procedures to
obtain an understanding of internal control, tests of controls, analytical procedures, and
tests of details of balances)?
A) inspection
B) observation
C) inquiries of the client
D) recalculation
A company has changed its method of inventory valuation from an unacceptable one to
one that complies with ASPE (Accounting Standards for Private Enterprises). The
auditor’s report on the financial statements of the year of the change should include
A) no reference to the item assuming that the change has been properly disclosed.
B) a reference to a change in accounting principle in the opinion paragraph.
C) an explanatory paragraph explaining the change.
D) a justification for making the change and the impact of the change on reported net
income.
The internal control objective to determine that “existing acquisition transactions are
recorded” describes the objective of
A) occurrence.
B) classification.
C) completeness.
D) accuracy.
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
Marianne is currently performing tests of controls on the presence of an employee code
of conduct, the presence of a whistle blower line and on how management responded
and implemented systematic penalties for instances where violations of the code of
conduct existed. Marianne is currently evaluating the
A) industry and business environment.
B) risk of fraud.
C) client acceptance.
D) entity-level controls.
When the auditor knows that the financial statements may be misleading because they
were not prepared in accordance with an acceptable financial reporting framework, he
or she must issue
A) a qualified opinion.
B) an adverse opinion.
C) a disclaimer of opinion.
D) a qualified or an adverse opinion, depending on the materiality of the item in
question.