The need to implement philosophies and practices commonly referred to as “improved
business practices” comes from
A) increased competition resulting in public accounting firms being concerned about
keeping clients and maintaining a reasonable profit.
B) a CAS pronouncement.
C) a GAAP pronouncement.
D) a need to increase profitability on assurance type mandates.
There are three main types of revenue manipulations. Which of the following revenue
manipulations affects the valuation objective?
A) recording subsequent period sales as current period sales
B) the use of “bill and holds” (goods are invoiced but not shipped)
C) understatement of bad debts
D) creation of fictitious sales that are misclassified as revenue
When the auditor assesses the likelihood of material misstatement in the financial
statements, the auditor will use
A) risk assessment procedures.
B) procedures to obtain an understanding.
C) tests of control.
D) assessment of design effectiveness of controls.
A) List the four items which a defendant must prove in an action for negligence against
a public accountant.
B) Describe each of the six defences a public accounting firm can normally use when
facing legal claims by clients.
C) Discuss what is meant by the term “expectation gap.”
Shipping of finished goods is an integral part of the
A) acquisitions and payments cycle.
B) inventory and distribution cycle.
C) sales and collections cycle.
D) human resources and payroll cycle.
Which of the following situations would be an example a of self-review threat? Prior to
commencing the audit engagement, PA has completed
A) personal and corporate tax returns.
B) audit of a company where the client owns a minority interest.
C) purchase price allocation calculation for a company that the client purchased during
the year.
D) audit of the non-for profit organization of the client.
Audit risk is assessed at which level of the audit?
A) account
B) cycle
C) transaction-related audit objective
D) overall audit
A bank sues the auditor after making a loan to Klaxxon, a company that went bankrupt.
The bank indicates that they relied on the year-end financial statements of Klaxxon to
make the lending decision. The bank analyst indicates that the audit opinion was
unqualified so he assumed that Klaxxon was a going concern. The auditor defends
himself by referring to a note disclosure in the financial statements about the company’s
economic dependence on one buyer, Dexters Corp. Dexters Corp had experienced some
significant financial trouble for the past year and went bankrupt 3 months after the
financial statements of Klaxxon were released. The PA’s liability is likely
A) contributory negligence.
B) fraud.
C) breach of contract.
D) gross negligence.
Which analytical procedures will help the auditor identify possible misstatements in
compilation, unit costs, or extensions that affect inventory and cost of goods sold?
Compare
A) compare gross margin percentage with previous years’.
B) unit costs of inventory with previous years’.
C) inventory turnover with previous years’.
D) extended inventory value with previous years’.
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.
Which of the following documents and records is used to record the packages, weights
and sizes shipped using an external trucking company?
A) remittance advice
B) shipping advice containing shipment tracking number
C) returns receiving report
D) bill of lading
Your client, Macilbink Ltd., manufactures calendars, books and magazines. The
printing presses that they use are only three years old, yet new technology has been
developed that would result in cuts in ink and electricity costs by over 20%, while
simplifying the set up process (the new equipment can read in PDF files directly),
making lower production runs more feasible. Macilbink Ltd. is facing lowered demand
for its products, and will need to change direction or innovate to stay in business. The
effect of the new printing technology has resulted in the following risk assessment
changes by Macilbink Ltd.’s auditors:
A) decrease control risk
B) increase control risk
C) decrease client business risk
D) increase client business risk
The auditor would like to design a test of control to test the following key control: “unit
selling prices are obtained from the price list master file of approved prices.” Which of
the following typical tests of controls would be suitable?
A) compare prices used on sales invoices to the authorized customer purchase order
B) review change to price file throughout the year for proper authorizations and trace
prices to copy of sales invoice
C) use analytical review to compare total sales last year to total sales this year
D) discuss the process used to authorize sales prices with the sales manager and the
controller
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.
Which of the following organizations establishes ethical standards and standards for the
practice of Internal Auditing?
A) (ISACA) Information Systems Audit and Control Association
B) (IIA) Institute of Internal Auditors
C) (SMAC) Society of Management Accountants of Canada
D) (CICA) Canadian Institute of Chartered Accountants
Bianca Jones was engaged to conduct the audit of Smilicor Company, a toy distributor,
three months after the year end date. Bianca was unable to conduct an audit of opening
inventory, but was able to satisfy herself with respect to the opening balances. She was
also able to conduct audit procedures for other opening balances, for example, by
observing fixed assets. What type of audit opinion would Smilicor receive?
A) Disclaimer
B) Adverse
C) Qualified
D) Unqualified
Which of the following is an example of semi-permanent information that would be
included in personnel records?
A) gross pay for the monthly pay issued in September
B) met pay for the weekly pay issued in the first week of October
C) category of job the person is employed in
D) income tax deducted for the current pay
The Federal Auditor General provides the results of operational audits to Parliament in
Auditor General reports. What type of engagements are these?
A) direct reporting
B) attest engagement
C) review engagement
D) compilation engagement
To protect the inventory, Globus Corp wants to assign the custody of inventory to a
specific responsible individual. Globus can accomplish this by requesting
A) a designated employee to authorize movement of inventory.
B) employees to have photo id cards.
C) have restricted access to the production facility.
D) have frequent inventory counts.
Which of the following types of evidence would be considered most reliable in the
audit of accounts payable?
A) review of internal budgets for the period under audit
B) inquiry of management with respect to recent purchases
C) inspection of client purchase orders
D) inspection of supplier invoices
The initial review of the working papers prepared by any given auditor is normally
done by the
A) partner assigned to the audit.
B) supervisor or manager.
C) senior.
D) immediate supervisor.
A review engagement includes
A) obtaining an understanding of the internal controls.
B) tests of controls or transactions.
C) inquiry, analytical procedures and discussion.
D) independent confirmation or physical examination.
Certain types of misstatements that affect cash may be detected in the audit of tests of
controls. Which of the following misstatements would be detected in the audit of the
sales and collection cycle?
A) A defalcation of cash hidden by an unauthorized write off of a bad debt
B) Accidental duplicate payment of a vendor’s invoice
C) Payment for raw materials that were not received
D) Payment to an employee at an incorrect wage rate
The responsibility for the preparation of the financial statements and the accompanying
footnotes belongs to
A) the auditor.
B) management.
C) both management and the auditor equally.
D) management for the statements and the auditor for the notes.
Julianne is performing an analysis of the bad debt expense as a percentage of total sales.
When performing the analytical procedure, it is important that Julianne
A) can rely on the internal controls of the accounts receivable process.
B) has an expectation of the result that should be obtained.
C) has concluded that the accounts receivable balance is free from material
misstatement.
D) has requested permission from the client.
When auditing the human resources and payroll cycle, the auditor should verify the
officers’ compensation because
A) officers are more likely to commit fraud.
B) officers’ compensation is likely more prone to error.
C) some officers may have complex compensation packages.
D) some officers may be in a position to pay themselves more than the authorized
amounts.
Which of the following is an example of fraudulent financial reporting (management
fraud)?
A) intentional overstatement of sales to increase reported earnings
B) managers or others taking bribes from accounts payable suppliers
C) the purchasing manager submitting travel expenses twice (i.e. duplicate payment)
D) a clerk taking cash at the time a sale is made and not recording the sale
One of the purposes of using statistical sampling is to quantify sampling risk. For which
of the following audit tests would sampling risk be zero? The auditor
A) used monetary unit sampling to select a sample of payroll payments.
B) used attribute sampling to select a sample of shipping documents.
C) sent empty (zero balance) external confirmations to suppliers with large dollar
balances.
D) sent external confirmations to all financial institutions used by the client.
It is important for the auditor to be independent because
A) the auditor would not charge a fair rate to the client.
B) the auditor might not be as knowledgeable of the subject matter and the criteria.
C) this will prevent bias in accumulating and evaluating evidence.
D) the Canadian Tax Authorities require that the auditor be independent.
Most auditors prefer to replace external confirmation with analytical procedures
whenever possible because the
A) analytical procedures are more reliable.
B) external confirmations are more expensive.
C) analytical procedures are more persuasive.
D) tests of details are more difficult to interpret.
The general cash account is considered significant in almost all audits
A) where the ending balance is material.
B) where either the beginning or ending balance is material.
C) even when the ending balance is immaterial.
D) except those of not-for-profit organizations.
A) Explain what is meant by a cutoff bank statement and discuss the purpose of the
cutoff bank statement in the audit of cash.
B) Explain the purpose of testing the client’s bank reconciliation and discuss the major
audit procedures involved.
The auditor is going to select a sample to find out whether any potentially fraudulent
transactions have been processed. The auditor should use what type of sampling?
A) attribute sampling
B) discovery sampling
C) monetary unit sampling
D) variable estimation sampling
After considering a client’s internal controls, an auditor has concluded that it is well
designed and is functioning as intended. Under these circumstances, the auditor would
most likely
A) perform tests of controls to the extent outlined in the audit program.
B) determine the control procedures that should prevent or detect errors and
irregularities.
C) use a combined audit approach that includes tests of controls and substantive tests.
D) determine whether transactions are recorded to permit preparation of financial
statements in accordance with generally accepted accounting principles.
The starting point for the verification of the balance in the general bank account is to
obtain
A) the client’s December bank statement and reconcile it.
B) a bank reconciliation from the client.
C) a cutoff bank statement directly from the bank.
D) the client’s cash account balance from the general ledger.