In testing for cutoff, the objective is to determine
A) whether all of the current period’s transactions are recorded.
B) that no transactions from the prior period are included in the current period’s
balances.
C) that no transactions of the current period have been delayed and recorded in a future
period.
D) whether transactions are recorded in the proper period.
FiddleWare Limited uses purchased packaged application software to handle the
processing of its transactions. An important control that management should implement
with respect to information systems is the
A) use of a formal systems development methodology.
B) evaluation of potential new systems against organizational objectives.
C) use of appropriate checkpoints and milestones during development.
D) tracking of routine program maintenance changes.
Which of the following internal control tests would help to assess whether payroll
transactions were properly classified?
A) Test clerical accuracy by footing the payroll journal
B) Recompute net pay and gross pay
C) Reconcile the disbursements in the payroll journal with the payroll bank statement
D) Review time records and job records, tracing to labour distribution
One of the reasons that an auditor must be competent is to be able to
A) select the type and amount of evidence to accumulate.
B) explain how the bookkeeping should be done to his staff.
C) record the transactions properly for the underlying records.
D) capture the information properly in the computer files.
A document that is used to describe and authorize additions, changes or deletion of
sales prices or customer data is called a(n)
A) uncollectible account authorization form.
B) journal entry authorization form.
C) master file change form.
D) transaction file change form.
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
Jane works for Middle Co. She is responsible for opening the mail, and preparing the
bank deposit for cheques received, which she then gives to the owner. After the owner
has deposited the cash, he gives Jane the stamped bank deposit slip, which she uses to
record the cash received in the accounts receivable records. How does this allocation of
responsibilities affect the audit process? The auditor should
A) increase control testing with respect to the accuracy assertion.
B) do substantive tests (compare the deposit slip to the accounts receivable records).
C) consider the possibility of material fraud.
D) increase control testing with respect to the completeness assertion.
If the balance sheet of a company is dated December 31, 2012, the audit report is dated
March 6, 2013, and both are released to the public on March 15, 2013, this indicates
that the auditor has searched for material unrecorded transactions and events that
occurred up to
A) December 31, 2012.
B) March 6, 2013.
C) March 15, 2013.
D) December 31, 2013.
Frank has discovered that his employer is part of a group of banks that is manipulating
interest rates. He would like to stop this practice at his employer, and is not sure how
best to talk to his boss. He has heard of the GVV (Giving Voice to Values) approach,
and thinks he may be able to use it successfully because his company has recently
implemented new initiatives to empower employees to speak of improvements to
business practices. Frank has crafted a useful, powerful response that he could use,
taking into account multiple options. He has conducted research to make him more
informed on the issue, and has consulted a friend who is expert in this area. What
should is the next thing he should do before talking to his boss?
A) review the values underpinning the different positions in the value conflict
B) further develop and practice his response (scripting) and get help (coaching)
C) review the different possibilities for action to make sure that he has considered
enough
D) check his stakeholder analysis to make sure that it is thorough and complete
With respect to working on an engagement to examine a financial forecast or projection
included in a prospectus or other public offering document, the public accountant and
the client should agree upon
A) allocation of the responsibility of creating the assumptions to the public accountant.
B) the period of time to be covered.
C) delegation of forecast preparation to the public accountant.
D) the fact that the forecast may not be prepared in accordance with standards.
What is one of the advantages of converting procedures from a design to a performance
format?
A) Obtain audit evidence of better quality
B) Help the auditor select the procedures to be performed
C) Eliminate duplicate procedures
D) Ensure compliance with Canadian Auditing Standards
The auditor’s report of the Huge Mega Company indicates that the financial statement
are fairly presented except for the goodwill balance which does not comply with
International Financial Reporting Standards. The auditor’s report is
A) unqualified.
B) unqualified with explanatory paragraph.
C) qualified.
D) adverse.
In auditing the imprest payroll account, which of the following procedures will take the
least amount of auditor time?
A) tests of controls
B) risk analysis and obtaining an understanding of controls
C) analytical procedures
D) tests of details of balances
Which of the following lawsuits resulted in a decision that shareholders could not sue
the auditors for the loss in the value of their shares?
A) Haig V. Bamford et al (1976)
B) Hercules Management Ltd. V. Ernst & Young (1997)
C) Ultramers Corporation V. Touche (1931)
D) United States V. Anderson (2002)
There are many elements of quality control at the firm level. Which element does
“adequate processes and procedures should be in place to ensure that the audit or review
is conducted in accordance with GAAS, that quality control procedures are followed for
each engagement, and that the audit is appropriately documented” belong to?
A) leadership and responsibilities within the firm
B) general human resource policies
C) extent of professional development
D) engagement performance
A familiarity threat at an audit engagement occurs when
A) the member has a financial interest in the client.
B) it is difficult to behave with professional skepticism.
C) PA promotes the client’s position to third parties.
D) the member discloses financial information about the client.
When the auditor would like to improve the efficiency of the audit by focusing work on
transactions that may be more subject to material error in a particular area of the
population, the auditor will use
A) block testing.
B) haphazard sample selection.
C) random sample selection.
D) stratified sample selection.
An important reason for adequately planning the audit engagement is to
A) help decide whether the engagement should be accepted.
B) enable the auditor to obtain sufficient appropriate audit evidence.
C) properly design the contents of the engagement letter.
D) keep audit risk as low as possible.
What is the primary focus with respect to error detection and correction for the online
processing of sales transactions?
A) reject groups of transactions when one transaction is in error
B) trace daily sales totals from the journals to the general ledger
C) account for numeric sequencing of input documents
D) prevent the entering of incorrect transactions using data entry edits
Sean Clem has done a review engagement and prepared the tax return for your web
design business for the last five years. The books and records have always been well
organized, although year end adjusting entries have been required. You do some of the
accounting yourself and the rest of the accounting records are handled by your wife,
who is also an employee of the business.
This year, you would like to expand your business to provide ISP (internet service
provider) services to your clients. This would entail you purchasing additional computer
equipment and software. You are also considering hiring an additional employee (you
currently have three), and you are looking at obtaining a loan for $100,000 from the
bank. The bank says that you should have your records audited, but you are not sure
what this will mean.
Required:
A) What would Sean say to you about the differences between an audit and a review?
B) Identify the issues that Sean needs to consider during the planning of the audit.
The inherent risks of data compromise (such as privacy violations) or data loss increase
when
A) documents are sent by regular mail to confirm contract details.
B) information is encrypted using public key technology.
C) organizations use web sites to process sales transactions.
D) packaged software is used to process sales transactions.
Silka is in the process of performing an audit. During the audit, Silka decided to change
materiality. A valid reason for this would be
A) a new user of the financial statements was identified.
B) a fraud was discovered in the accounts payable section.
C) materiality required the auditors to perform too many tests.
D) too many errors were found during testing.
The Sarbanes-Oxley Act requires management to certify that it has informed the auditor
and audit committee of any
A) related party transactions.
B) significant deficiencies in business practices.
C) significant deficiencies in internal controls.
D) specific business or industry risk.
During the course of an audit engagement an auditor prepares and accumulates audit
working papers. The primary purpose of the audit working papers is to
A) aid the auditor in adequately planning the work.
B) provide a point of reference for future audit engagements.
C) support the underlying concepts included in the preparation of the basic financial
statements.
D) support the auditor’s report.
A public accounting firm can issue a compilation report
A) only if the partners are independent.
B) only if all the partners and the staff in the office performing the engagement are
independent.
C) if the partners have no material or direct immaterial interest in client.
D) even if it is not independent.
During discussion and inquiry with management, the auditor determined that the
company has started a new line of business, requiring a substantial investment in
manufacturing equipment. The company has also implemented wireless scanning for its
warehouse and inventory. Which of the following techniques will the auditor likely use
to corroborate these statements?
A) further inquiry of the accounting personnel
B) inspection of recent sales invoices for types of sales
C) use of analytical procedures, comparing last year to this year
D) observation during the plant tour
PA is attempting to sell a service to his clients that will provide assurance on
information systems reliability. PA is attempting to sell a(n)
A) WebTrust service.
B) compilation service.
C) SysTrust service.
D) audit engagement.
Symco Inc has a policy that all cash disbursements of $2,000 or more must be approved
by the treasurer. While performing a test of controls on a sample of disbursements,
Craig discovered that the assistant controller had authorized a cash disbursement of
$3,500 while the treasurer was on vacation. This control deviation is significant only if
A) it is determined that the assistant controller is not qualified to approve cash
disbursements of this size.
B) it occurred with sufficient frequency to cause the auditor to believe there may be
material dollar misstatements in the statements.
C) the amount of the deviation identified is larger than the planning materiality.
D) the amount of the deviation identified is larger than the planning materiality and no
compensating control exists.
Since materiality is relative, it is necessary to have bases for establishing whether
misstatements are material. Normally, the most important base for deciding what is
material, because it is regarded as a critical item of current period information for users,
is
A) total assets.
B) net income.
C) net working capital.
D) net income before taxes.
What is an important benefit of independent preparation of bank reconciliations?
A) An opportunity to independently check that cheques have two signatures
B) The client being able to check that the bank is processing transactions correctly
C) The ability to internally verify cash receipts and disbursements transactions
D) The best time to carefully serially account for cheques issued
Using the audit risk model, audit risk describes targeted assurance, while control risk
and inherent risk are assessed based upon a variety of factors. Of the components of the
audit risk model, which is most likely to be set to 100%?
A) audit risk
B) control risk
C) detection risk
D) inherent risk
There are two categories of lawsuits: an outstanding (or asserted) claim, and a(n)
A) possible or unasserted claim.
B) disputed claim among several parties.
C) settled claim.
D) claims that could result in material misstatements.
In the case of Enron, Andersen was ultimately convicted on the count of
A) obstruction of justice for altering a memo.
B) obstruction of justice for shredding documents relating to the audit of Enron.
C) failing to discover the fraud.
D) refusing to testify in court against their client.