Audit evidence is generally considered sufficient when
A) it is appropriate.
B) there is enough of it to afford a reasonable basis for an opinion on financial
statements.
C) it has the qualities of being relevant, objective, and free from known bias.
D) it has been obtained by random selection.
The starting point for the verification of current-year acquisitions of manufacturing
equipment is normally
A) the manufacturing equipment account in the general ledger.
B) the acquisitions journal.
C) the purchase requisitions file.
D) a client schedule of all acquisitions recorded during the year.
“The detailed instructions for the entire collection of evidence for an audit area” is the
definition of a(n)
A) sampling plan.
B) audit procedures.
C) audit plan.
D) audit program.
The tolerable exception rate (TER) has a significant effect on sample size. The
relationship of TER to sample size is
A) direct (larger TER = larger sample).
B) inverse (larger TER = smaller sample).
C) variable (sometimes larger, sometimes smaller).
D) not determinable.
There are many elements of quality control at the firm level. Which element does
“quality control procedures should be developed, documented, implemented and
communicated” belong to?
A) leadership and responsibilities within the firm
B) general ethical requirements
C) general human resource policies
D) engagement quality control review
The auditor has decided to audit all accounts receivable amounts that are over 120 days
old and over $5,000. What type of sample selection method is the auditor using?
A) haphazard
B) systematic
C) directed
D) block
Mario, the owner of Clayton’s ice cream, is giving Steve, the manager of the audit, a
private tour of the production facilities. By doing the tour, Steve will
A) be better able to identify control risks.
B) understand the client’s business and operations better.
C) be able to gather audit evidence on operational efficiencies.
D) Steve should not be taking a tour alone with the owner as this could compromise his
independence.
When considering the relationships between types of audit tests and evidence, which of
the following procedures are used for both obtaining an understanding of internal
control and for conducting tests of controls?
A) inspection, recalculation, observation, inquiry, and reperformance
B) inspection, recalculation, external confirmation, and reperformance
C) recalculation, observation, inquiry, analytical procedures and reperformance
D) analytical procedures, inspection, recalculation and reperformance
A document that describes which accounts receivable accounts are to be written off and
why is called a(n)
A) uncollectible account authorization form.
B) journal entry authorization form.
C) master file change form.
D) sales returns and allowances journal.
Which one of the following engagements would most likely be a compilation
engagement? An engagement with respect to financial statements
A) attached to a personal tax return.
B) for a large public company.
C) for a company that has a large bank loan.
D) that accompany future oriented information to obtain financing.
Last year the materiality for the client was $590,000. This year it is $400,000. All things
being equal, how will the change in materiality affect the extent of tests of details?
A) increase
B) decrease
C) no effect as the tests of controls will be increased
D) no effect as the tests of controls will be decreased
The auditor would like to design a test of control to test the following key control:
“there is a separation of duties between billing, recording sales, and handling of cash
receipts.” Which of the following typical tests of controls would be suitable?
A) match the amounts billed to the amounts recorded
B) verify that sales have been recorded in the proper period
C) trace cash receipts to the duplicate bank deposit slips
D) inquire about the duties of the accounting personnel
The most common statistical technique for analytical procedures is
A) analysis of variance.
B) bell-curve analysis.
C) time-series analysis.
D) regression analysis.
It is frequently possible to test the physical inventory prior to the balance sheet date
when
A) there are accurate perpetual inventory master files.
B) year-end sales are small.
C) the internal control system is no better at year-end than at an earlier point in time.
D) client counts inventory at interim dates.
The emphasis in the audit of dividends is on
A) ending equity balance.
B) transactions.
C) opening dividends payable balance.
D) confirming the number of shares outstanding.
In third party suits, when there is a misstatement in the financial statements, which of
the auditor’s defences usually means non-reliance on the financial statements by the
user?
A) lack of duty
B) non-negligent performance
C) contributory negligence
D) absence of causal connections
If no material fluctuations are found using analytical procedures and the auditor
concludes that differences should not have occurred,
A) it will be necessary to increase the tests of details of balances.
B) other tests may be reduced.
C) it will be necessary to increase the tests of controls.
D) it will not be necessary to perform tests of details of balances.
The most important balance-related and presentation and disclosure-related audit
objectives for notes payable are
A) accuracy, existence, completeness.
B) existence, completeness, valuation.
C) accuracy, completeness, understandability.
D) accuracy, completeness, valuation.
The auditor recomputed the dividend declaration amount by multiplying the declared
dividend per share by the number of shares outstanding. Which audit assertion is this
associated with?
A) completeness
B) accuracy
C) valuation
D) existence
The confidential relationship will be violated if, without the client’s permission, the
public accountant provides working papers about a client to
A) a court of law which subpoenas them.
B) the relevant provincial institute as part of a practice inspection.
C) another public accounting firm which has just purchased the public accountant’s
entire practice.
D) an investigative or disciplinary body of the relevant provincial institute which is
conducting a review of the public accountant’s practice.
Which of the following actions is more likely to be a result of error rather than fraud?
A) consignment sales are knowingly recorded as revenue
B) orders are shipped to a customer with a bad credit rating
C) fictitious revenue transactions are recorded and reported
D) subsequent period revenue is deliberately recorded in the current period
Reperformance is often conducted using computer-assisted audit techniques. The most
effective use of generalized audit software for reperformance would be to
A) recalculate a whole class of transactions, helping to quantify dollar errors.
B) determine on a test basis whether posting and summarization is performed
accurately.
C) confirm whether evidence has been recorded for the entire period under audit.
D) select a sample of transactions for recalculation.
For the most part, auditors treat each transaction cycle
A) separately as the audit is being performed.
B) as an interrelated unit with the other cycles throughout the entire audit.
C) as a separate business unit with different audit teams.
D) as a joint venture with other clients in the same industry.
The assessment against a defendant of the full loss suffered by a plaintiff regardless of
the extent to which other parties shared in the wrongdoing is called
A) separate and proportionate liability.
B) joint and several liability.
C) shared liability.
D) unitary liability.
An example of judgmental sampling is
A) block sampling.
B) simple random sample selection.
C) systematic sample selection.
D) proportionate-to-size sample selection.
It is not practical for users to evaluate the quality of the performance of most
professional services because of their
A) complexity.
B) legal standing.
C) veracity.
D) salaries and working conditions.
What is the most appropriate method for an organization to lower information risk
related to its financial statements? To have
A) good bookkeeping work completed on the accounts.
B) a high quality software package keep track of information.
C) an independent financial statement audit conducted.
D) an independent operational audit conducted on effectiveness.
As part of the conduct of a review engagement, which of the following would be a
typical procedure used for the assessment of the ending accounts receivable balance?
A) circularization of positive confirmations to all balances exceeding materiality
B) comparison of the age of the accounts receivable to the prior year
C) use of negative confirmations on all large balances
D) detailed examination of all accounts over 120 days to assess the bad debt allowance
A reason for a not-for-profit organization to be audited is
A) complying with the laws requiring them to be audited.
B) meeting requirements of lenders or funding sources.
C) having a professional accountant perform their bookkeeping.
D) ensuring that their financial statement do not contain errors.
When automatic purchase orders are generated, to help make sure that goods are
ordered for products that the company still needs, the company should
A) have all purchase orders approved by the purchasing manager.
B) have suppliers automatically replenish the shelves.
C) ensure that re-order points are monitored.
D) have receiving reports matched to the purchase order amounts.
A primary concern in determining whether retained earnings is correctly disclosed on
the balance sheet is
A) correct calculation of the net income or loss for the year.
B) correct calculation of dividend payments for the year.
C) whether adjustments to retained earnings have been made correctly.
D) whether there are any restrictions on the payment of dividends.
If detection risk is reduced, the amount of evidence the auditor accumulates will
A) increase.
B) decrease.
C) remain unchanged.
D) be indeterminate.