With the use of electronic working papers, each team member should have a unique
access identification code and a password to access the working papers. Once a
working paper is completed, what type of access should the staff auditor who prepared
the working paper file have?
A) edit capability
B) update for current information
C) read only
D) change based upon review
Inquiry is a valuable technique during the planning phase of the audit because it
A) involves the rechecking of controls to ensure that they are conducted accurately.
B) is a type of audit evidence that provides a very high level of assurance.
C) is conclusive evidence from an independent source.
D) helps obtain information about how procedures and internal controls operate.
An auditor learns that his client has paid a vendor twice for the same shipment, once
based upon the original invoice and once based upon the monthly statement. A control
procedure that should have prevented this duplicate payment is
A) attachment of the receiving report to the invoice only.
B) prenumbering of disbursement vouchers.
C) use of a limit or reasonableness test.
D) prenumbering of receiving reports.
The document that is used to prepare and reconcile the deposit of cash and improve the
control over the custody of assets (cash) is the
A) sales invoice.
B) credit memo.
C) remittance advice.
D) cash receipts journal.
Which of the following is a test of controls?
A) Review the payroll journal, general ledger, and payroll earnings records for large or
unusual amounts
B) Examine time cards for indication of supervisor approval
C) Compare cancelled cheques with payroll journal for name, amount, and date
D) Examine cancelled cheques for proper endorsement
Which of the following matters would be addressed in a report on the results of
applying specified auditing procedures to financial information other than financial
statements?
A) An opinion with respect to the quality of the information examined
B) Explanations of the differences between audit, review and special engagements
C) The factual results of the procedures
D) Provision of negative assurance with respect to the accounts examined
A partial-period bank statement and the related cancelled cheques, duplicate deposit
slips, and other documents included in bank statements, mailed by the bank directly to
the public accounting firm’s office, is called a
A) four-column proof of cash.
B) bank statement.
C) cutoff bank statement.
D) short-period bank statement.
If the amount of a probable loss on a contingent liability is not determinable, the
liability should be
A) accrued and indicated in the body of the financial statements.
B) disclosed in footnotes, but not accrued.
C) neither accrued nor disclosed in footnotes.
D) disclosed in the auditor’s report but not disclosed on the financial statements.
As a member of a professional accounting association, when considering the
applicability of the rules of professional conduct, a PA would be responsible for
compliance by
A) themselves only.
B) their partners in the practice and themselves.
C) their employees.
D) themselves, their employees, and partners.
The statement that “nothing came to our attention which would indicate that these
statements are not fairly presented” expresses which of the following?
A) disclaimer of an opinion
B) negative assurance
C) negative confirmation
D) piecemeal opinion
Analytical procedures are those that
A) evaluate the accuracy of the account balances.
B) assess the overall reasonableness of account balances or other data.
C) review the effectiveness of internal controls.
D) analyze the effect of management procedures on the accounting system.
When the auditor identifies opportunities for the client to make operational
improvements in the internal control system, it will be communicated to the client’s
audit committee in the
A) management letter.
B) reportable conditions letter.
C) engagement letter.
D) audit report.
A) The COSO internal control framework consists of five components. Describe each
of these components.
B) Custody of assets and reconciliation should be separated to contribute to strong
internal control. List the general categories of activities that should be separated.
Sandra is a new partner at a PA firm. Sandra recently signed a new contract with
Gretchen Fabrics to become its auditor. In the process of accepting the client and
planning the first year’s audit, Sandra did the following:
– Sandra contacted the previous auditor to enquire if there were any reasons not to
accept the audit of this client. Unfortunately, the previous auditor was on vacation and
did not respond to Sandra before she accepted the client.
– Upon his return, the previous auditor did communicate with Sandra and indicated that
the client had aggressive expense deferral policies that they disagreed on. Sandra asked
to review the working papers of the previous auditor with regards to these expenses and
found them to be right below the materiality threshold.
– Gretchen Fabrics imports most of its fabrics and has two production facilities in Asia.
The company therefore has a complex tax structure and many import duties. Since this
is not the area of expertise of Sandra, she asked another auditing firm to provide the
required audit procedures for the international taxes and duties expense. When selecting
the other audit firm, Sandra researched the firm on the internet. She also ensured that
they had their professional designation and enquired with the CICA and provincial
association if the firm had any complaints or litigation outstanding for malpractice.
– Since the bidding process took time, Sandra had to start the audit almost right after
learning she had the winning bid. She did not prepare an engagement letter before
starting the work. She does not see this as being a problem since waiting until the audit
has begun will provide her with a better idea of what work has to be done and what the
engagement letter should include.
Required:
Identify the good and bad steps that Sandra has undertaken in reducing her exposure to
legal liability.
As part of the review engagement for a small manufacturing company, which of the
following would be a typical review procedure for the sales cycle?
A) review of internal controls over the granting of credit
B) examination of sales documents to ensure credit approval is documented
C) recalculation of the taxes and extensions on a sample of invoices
D) comparison of sales and gross profit to the prior year
Sarbanes-Oxley in the U.S. and regulatory reporting requirements in Canada provide
the clout to make management directly responsible for the financial statements. What is
one of the ways that this is implemented in the CASs (Canadian Auditing Standards)?
A) all listed company management must certify the accuracy of the evidence provided
B) management must provide evidence to support financial statement data
C) management must implement and carry out development of high quality internal
controls
D) companies must use internal auditors to assess the quality of the financial statements
What action will a lawyer likely take if they have information about a law suit that was
not mentioned by the client?
A) in the legal letter, tell the auditor the number of suits, and request the auditor to
contact the client
B) request the client to notify the auditor about the lawsuit
C) they will not mention the lawsuits, they are confidential
D) the law firm will refuse to answer the legal letter, since it is incorrect
A weak internal control system allows a foreman to clock in daily for a fictitious
employee and to approve the time card at the end of the payroll period. This fraud
would be detected if other controls were in place, such as having an independent party
A) compare the date of the recorded cheque in the payroll journal with the date on the
cancelled cheques and time cards.
B) foot the payroll journal and trace postings to the general ledger and the payroll
master file.
C) recompute hours worked from time cards.
D) distribute paycheques.
When several staff are working together on an audit engagement, what type of quality
control review is conducted on a daily basis?
A) the partner reviews the electronic files
B) team review by interview
C) second partner review
D) manager review of sections
Frank has come to you because he is worried about recovering the cost of his share of a
law firm partnership. His partner, Jennifer, is exercising the ‘shotgun” clause in their
partnership agreement, and wants to buy him out. Over the last two years, Frank and
Jennifer have had numerous battles over the way that Frank handles his accounts
receivable. Frank is lenient with his customers, and has converted many of his accounts
into long term notes extending two and three years into the future. He is confident that
these amounts are collectible, because every one of his clients continues to make small
monthly payments.
Frank thinks that Jennifer may have been hiding profits from him and collecting some
of her accounts in cash. He wants you to audit the books so that he can figure out what
the ‘true’ profits are and how much Jennifer should pay him for his share of the
partnership.
Required:
A) Explain to Frank what you would be able to do during the audit engagement.
B) List the management assertions that may have been violated. Justify your answer.
Which of the following audit techniques would the auditor use to test the completeness
of sales (i.e. test whether shipments have been billed to customers)?
A) trace shipping documents to duplicate sales invoices
B) trace duplicate sales invoices to shipping documents
C) match data file versions of sales invoices to paper records
D) look at subsequent payments after the year end for payments for outstanding
invoices
One of the main advantages of a “big” public accounting firm is the
A) lower professional fees due to economies of scale.
B) ability to share knowledge and experience of similar companies they audit with the
client.
C) ability to serve all major international cities as globalization of businesses increases.
D) increased reliance that can be placed on the audit report by financial statement users.
A) Assuming the client’s internal controls are adequate, describe how the auditor can
verify proper cutoff of sales transactions.
B) Describe how the auditor tests the rights objective for accounts receivable.
When the auditor goes through a population and selects items for the sample without
regard to their size, source, or other distinguishing characteristics, it is called
A) block selection.
B) haphazard selection.
C) systematic selection.
D) statistical selection.
Tests of details of balances are specific procedures intended to
A) identify the details of internal controls.
B) prove that the accounts with material balances are classified correctly.
C) test for monetary errors in the financial statements.
D) prove that the trial balance is in balance.
The two most important factors that determine the appropriate sample size in audits are
A) the auditor’s expectation of errors and the effectiveness of the client’s internal
controls.
B) the auditor’s expectation of errors and materiality.
C) the effectiveness of the client’s internal controls and materiality.
D) materiality and the type of audit procedure to be applied to the population.
The careful and timely preparation of all payroll withholdings and employers’ portion of
withholdings is necessary to avoid heavy fines. The most important control in the
timely preparation of these returns is
A) computerized preparation of income tax returns.
B) a well-defined set of policies that indicate when each form must be filed.
C) independent verification of computer output by a competent individual.
D) a Gantt chart.
When the users of financial statements have confidence in the independence of the
public accountant, it is referred to as independence in
A) fact.
B) appearance.
C) conduct.
D) total.
Which of the following characteristics of samples would make the sample more
sufficient? Samples that contain
A) at least one of each type of transaction that is in the population, and have a high
number of sample items.
B) items with a high likelihood of error and have large dollar values, as well as being
representative of the population.
C) multiple items from different layers of the population (strata), as well as all items
that are above the materiality threshold.
D) items that have a high likelihood of error, as well as being related to the audit
assertions that are being tested.
Which of the following best describes proper internal control over payroll? The
A) preparation of the payroll must be under the control of the personnel department.
B) confidentiality of employee payroll data should be carefully protected to prevent
fraud.
C) duties of hiring, payroll computation, and payment to employees should be
segregated.
D) payment by cheque to employees should be replaced with payment by automatic
deposits.
CAS 570 – Going Concern, requires that the auditor evaluates management’s assessment
of the ability of the entity to continue as a going concern based on
A) inquiry with management.
B) the opinion of the legal counsel of the company.
C) the liquidity and solvency ratios of the firm.
D) the evidence collected throughout the audit.
The purpose of a WebTrust service is to assure the user that
A) criteria related to business practices, transaction integrity, and information processes
have been met.
B) information systems are reliable in areas such as security, data integrity, and program
quality.
C) controls over information systems implemented by the company are used
consistently and reliably.
D) there will not be any unauthorized access to the web site or other systems used by
the client organization.
The least severe type of report for disclosing departures from an unqualified report is
the
A) adverse opinion.
B) disclaimer of opinion.
C) qualified opinion.
D) report on unaudited financial statements.