Archives: Quiz

An auditor is selecting a random sample of cash disbursements. One of the corresponding source documents for a selected random number is a voided cheque. The auditor should: A.treat the cheque as a deviation. B.reduce the sample size by one. […]

The auditor accepted an engagement to audit the 20X0 financial report of Mountain Ltd and began the fieldwork on 30 September 20X0. Mountain Ltd gave the auditor the 20X0 financial report on 17 January 20X1. The auditor completed the fieldwork […]

Which of the following is intended to detect deviations from prescribed Accounting Department procedures? A.Substantive tests specified by a standardised audit program. B.Tests of controls designed specifically for the client. C.Analytical tests as designed in the industry audit guide. D.Computerised […]

An auditor decides that it is important and necessary to observe a client’s distribution of payroll cheques on a particular audit. The client organisation is so large that the auditor cannot conveniently observe the distribution of the entire payroll. In […]

The weakest form of audit evidence among the following is: A.a letter of representation from management. B.confirmation of an inter-company receivable from a related company. C.a letter of representation from the client’s solicitors. D.a bank statement. Time budgets are used […]

Which of the following is not a medium that can normally be used by an auditor to record information concerning a client’s internal control? A.Narrative memorandum B.Procedures manual C.Flowchart D.Decision table Which of the following best describes an audit report […]

The auditor tests the quantity of materials charged to work-in-process by tracing these quantities to: A.perpetual inventory records. B.cost ledgers. C.material requisition forms. D.receiving reports. For dollar-unit sampling, the number of individual accounts tested is always: A.greater than the sample […]

After the auditor has prepared a flowchart of the accounting system and control procedures surrounding sales, and assessed the design of the system, the auditor would perform tests of controls for all control procedures: A.documented in the flowchart. B.considered to […]

One of the major problems in an IT system is that incompatible functions may be performed by the same individual. One compensating control for this is the use of: A.a tape library. B.a self-checking digit system. C.computer-generated hash totals. D.a […]

In reporting performance audit findings, why does an auditor evaluate evidence against criteria? A.To ensure reasonable criteria have been established. B.To develop conclusions relative to the audit objectives. C.To develop the audit scope. D.To determine risk. The financial report of […]

The auditor notices significant fluctuations in key elements of the company’s financial report. If management is unable to provide an acceptable explanation, the auditor should: A.consider the matter a scope limitation. B.perform additional audit procedures to investigate the matter further. […]

Robert Judd has audited the financial report of Hurricane Pty Ltd for several years and had always been paid promptly for services rendered. Last year’s audit invoices have not been paid because Hurricane is experiencing cash flow difficulties, and the […]

The physical count of inventory of a retailer was higher than shown by the perpetual records. Which of the following could explain the difference? A.Credit memos for several items returned by customers had not been recorded. B.Inventory items had been […]

Which of the following auditing procedures most likely would provide assurance about a manufacturing entity’s assertion at risk of valuation and allocation of inventory? A.Testing the entity’s computation of standard overhead rates. B.Obtaining confirmation of inventories pledged under loan agreements. […]

A company policy should clearly indicate that defective merchandise returned by customers is to be delivered to the: A.sales clerk. B.receiving clerk. C.inventory control clerk. D.accounts receivable clerk. Selecting a sample of quantities of inventory in the warehouse and tracing […]

When the audited financial report of the prior year is presented together with those of the current year, the continuing auditor’s report covers: A.only the current year. B.both years. C.only the current year, but the prior year’s report should be […]

The auditor of Shakey Ltd has serious doubts that the entity will continue as a going concern. There is adequate disclosure of this significant uncertainty in the notes to the financial report. The uncertainty is the result of a single […]

Determining if the financial instruments included in the schedule of investment activity at year-end are stated at appropriate amounts in accordance with accounting standards is the balance-related audit objective of A) materiality. B) realizable value. C) consistency. D) classification. When […]

When communicating with the audit committee and management, A) only material fraud and illegal acts are required by auditing standards to be communicated. B) all internal control deficiencies are required by auditing standards to be communicated. C) the communications should […]

An individual who is not party to the contract between a CPA and the client, but who is known by both and is intended to receive certain benefits from the contract is known as A) a third party. B) a […]

The estimated unpaid obligations for services or benefits that have been received before the balance sheet date are A) accounts payable. B) accounts receivable. C) unearned liabilities. D) accrued liabilities. Which ratio is computed by dividing operating income by net […]

Which of the following is a reason that the auditors may change the preliminary judgment about materiality? A) The auditors decide that the preliminary judgment was too large. B) The auditors decide that the preliminary judgment was too small. C) […]

Which of the following is not a term related to evaluating results in audit sampling until after a sample is tested and evaluated? A) sample exception rate B) estimated population exception rate C) computed upper exception rate D) exception Some […]

Which one of the following duties should not be assigned the purchases department? A) finding the lowest cost vendor B) reviewing vendors’ catalog descriptions and prices for standardized items C) designing the purchase order form D) authorizing the acquisition of […]

A type of positive confirmation known as a blank confirmation A) requests the recipient to fill in the amount of the balance. B) is considered less reliable than the regular positive confirmation. C) generates as high a response rate as […]

The bank reconciliation A) must be done on a daily basis if the client uses electronic banking. B) should be performed by someone independent of the handling or recording of cash receipts. C) should be performed by someone who handles […]

Which of the following subsequent events is most likely to result in an adjustment to a company’s financial statements? A) merger or acquisition activities B) bankruptcy (due to deteriorating financial condition) of a customer with an outstanding accounts receivable balance […]

If an auditor concludes there are contingent liabilities, then he or she must evaluate the A) B) C) D) The auditor must gather sufficient and appropriate evidence during the course of the audit. Sufficient evidence must A) be well documented […]

When errors are found in a sample, auditors in practice generally make the assumption A) that the population errors cannot be determined. B) that the population errors are larger than the sample errors. C) that the population errors are smaller […]

Auditing standards require that the auditor evaluate whether there is a substantial doubt about a client’s ability to continue as a going concern for at least A) one quarter beyond the balance sheet date. B) one quarter beyond the date […]

The ________ is helpful in preventing classification errors if it accurately describes which type of transaction should be in each account. A) general ledger B) general journal C) trial balance D) chart of accounts Interpretations of the rules regarding independence […]

Substantive analytical procedures performed during the testing phase of the audit A) are required under generally accepted auditing standards. B) are always done independently from other audit procedures. C) are used as a substantive test in support of account balances. […]

In testing acquisitions the auditor needs to understand the appropriate accounting guidance related to acquisition accounting. Which of the following is not an accounting consideration for the auditor as regards to acquisition cost? A) inclusion of material transportation and installation […]

The risk of material misstatement refers to A) control risk and acceptable audit risk. B) inherent risk. C) the combination of inherent risk and control risk. D) inherent risk and audit risk. Which of the following services is not prohibited […]

Match six of the terms (a-l) with the definitions provided below (1-6): a. acceptable risk of incorrect acceptance b. acceptable risk of incorrect rejection c. difference estimation d. misstatement bounds e. monetary unit sampling f. mean-per-unit estimation g. point estimate […]

What is the best reason that standards prohibit accepting an engagement on a projection for general use? A) The CPA’s procedures would violate SSARS. B) Reports on projections are not well understood by the general public. C) Underlying hypothetical assumptions […]

Several factors influence the auditor’s choice of the types of tests to select, including A) the availability of the types of evidence. B) the relative costs of each type of test. C) the effectiveness of the internal controls. D) all […]

When assessing the risk of material misstatements in the financial statements, A) inadequate internal control procedures will mitigate client business risk. B) GAAS specifies in detail how much and what types of evidence the auditor needs to obtain. C) company […]

The computer file used for recording payroll transactions for each employee and maintaining total wages paid for the year to date is the A) payroll transaction file. B) payroll master file. C) payroll bank account reconciliation. D) payroll tax returns. […]

When determining whether independence is impaired because of an ownership interest in a client company, materiality will affect ownership A) in all circumstances. B) only for direct ownership. C) only for indirect ownership. D) under no circumstances. An example of […]

The 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 prior-period […]

The letter of representation obtained from an audit client should be A) dated as of the end of the period under audit. B) dated as of the audit report date. C) dated as of any date decided upon by the […]

To determine if significant internal control deficiencies are material weaknesses, they must be evaluated on their A) B) C) D) Which of the following includes all payroll transactions processed by the accounting system for a given period of time? A) […]

The last paragraph of the accountant’s review report A) details the responsibilities of management. B) details the responsibilities of the accountant. C) expresses limited assurance in the form of negative assurance. D) lists the analytical procedures performed. Audit procedures designed […]

Which of the following is a true statement regarding CPAs’ liability? A) The amounts assessed under joint and several liability will not differ significantly from the amounts assessed under separate and proportionate liability. B) When lawsuits are brought under the […]

Which of the following statements is correct regarding the audit of inventory cost accounting? A) Cost accounting systems and controls are the same for all manufacturing companies. B) All companies that have work-in-process must use a perpetual inventory system. C) […]

While there is no professional requirement to do so on audit engagements, CPAs frequently issue a formal “management” letter to clients. The primary purpose of this letter is to provide A) evidence indicating whether the auditor is reasonably certain that […]

Significant risks often relate to routine transactions. Significant changes in the industry may increase the risk of material misstatement at the assertion level. Answer: FALSE The cash account is not part of the acquisitions and payment cycle. Answer: FALSE To […]

Auditing standards indicate that reasonable assurance is a moderate, but not absolute, level of assurance that the financial statements are free of material misstatement. LANs link equipment within a single or small cluster of buildings and are used within a […]

After the accrual and property tax expense for each piece of property has been recalculated, the totals are added and compared with the general ledger. Deviation refers to a departure from prescribed controls or amounts that are not monetarily correct. […]