Auditing - Midterm
A reason for a nonprofit organization to be audited is to A) meet requirements of lenders or funding sources. B) have a professional accountant perform their bookkeeping. C) ensure that their financial statements do not contain errors. D) comply with the laws requiring them to be audited.
A
CAS 200 explains that as part of general qualifications and conduct, the auditor should exercise due care in the performance of all aspects of auditing. Which of the following is an illustration of due care? A) considering the completeness of the working papers B) having an objective state of mind and independence from the client C) issuing a standard audit report using the CPA Canada Handbook specified wording D) having formal education and practical experience in the conduct of auditing
A
CAS 200 explains that the purpose of the financial statement audit is to express an opinion on the financial statements. This opinion is an assessment of whether the financial statements are presented fairly using A) an applicable financial reporting framework. B) rules of professional conduct. C) management's assertions. D) Canadian generally accepted accounting principles (GAAP) only.
A
Formamould Inc. sells plastic moulds to a variety of companies. Some moulds are custom made and cost thousands of dollars. To help customers finance these purchases, Formamould uses a variety of methods, such as payment terms stretched over three years, delayed payment, and pay-as-you-produce models tailored to individual customer needs. The outstanding balance is included in current accounts receivable. The general balance-related audit objective affected by this activity is A) allocation to accounts. B) accuracy. C) existence. D) completeness.
A
If the public accountant negligently failed to properly prepare and file a client's tax return, the public accountant can be held liable for A) the penalties and interest, plus the tax preparation fee that the public accountant charged. B) the penalties and interest, the tax preparation fee, and the amount of tax that was underpaid. C) the penalties and interest the client owes. D) the penalties the client owes Canada Customs and Revenue Agency.
A
One of the reasons that an auditor must be competent is so that they can A) understand the engagement risks and the criteria used by the client. B) capture the information properly in the computer files. C) record the transactions properly for the underlying records. D) explain to staff how the bookkeeping should be done.
A
Organizations with a good control environment are able to document their positive "tone at the top" with a clear code of ethics. How would the auditor include the presence of such a code of ethics in the risk assessment process? A) lower inherent risks associated with violations of laws and regulations B) lower control risks associated with violations of laws and regulations C) increase inherent risks associated with violations of laws and regulations D) increase control risks associated with violations of laws and regulations
A
The King Surety Company wrote a general fidelity bond covering defalcations by the employees of Wilson, Inc. Thereafter, Cooney, an employee of Wilson, embezzled $17 200 of company funds. When the activities were discovered, King paid Wilson the full amount in accordance with the terms of the fidelity bond, and then sought recovery against Wilson's auditors, Lynch & Merritt, public accountants. Which of the following would be Lynch & Merritt's best defence? A) The shortages were the result of clever forgeries and collusive fraud which would not be detected by an examination made in accordance with generally accepted auditing standards. B) Lynch & Merritt were not aware of the King-Wilson surety relationship. C) Lynch & Merritt were not guilty either of negligence or fraud. D) King is not in privity of contract.
A
The auditor's assessment relating to risk of material misstatement in financial statements is a part of A) understanding the entity and its environment. B) the assessment of whether to accept the audit engagement. C) the tests of transactions. D) the tests of controls.
A
There are many elements of quality control at the firm level. Which element does the statement "quality control procedures should be developed, documented, implemented, and communicated" fall under? A) leadership and responsibilities within the firm B) general ethical requirements C) general human resource policies D) engagement quality control review
A
Three conditions for fraud are referred to as the "fraud triangle." One of the sides of this triangle is incentives or pressures. The other two sides are A) opportunities and attitudes or rationalizations. B) opportunities and a desire to meet debt repayment obligations. C) attitudes or rationalizations and the need to maintain stock prices. D) the need to maintain stock prices and the need to meet debt repayment obligations.
A
When do individuals and organizations typically need assurance services? A) on an ongoing basis, as demand for forward-looking information increases B) only when historical data, such as financial information, needs to be audited C) for five years from the start of an organization until debt is retired D) usually only when organizations obtain debt or other loans
A
Which of the following organizations establishes ethical standards and standards for the practice of Internal Auditing? A) Institute of Internal Auditors (IIA) B) Canadian Institute of Chartered Accountants (CICA) C) Society of Management Accountants of Canada (SMAC) D) Information Systems Audit and Control Association (ISACA)
A
An effective audit is one that A) does not contain errors of a dollar amount higher than 5% of the net income of the company. B) reduces the audit risk to the targeted level. C) ensures that there are no errors contained in the financial statements. D) is completed on time and within budget.
B
An example of an audit failure is when the A) auditor issues an erroneous audit opinion as the result of an undiscovered fraud that took place in the period being audited. B) auditor issues an erroneous audit opinion as the result of a failure to comply with the requirements of GAAS. C) company files for bankruptcy less than 12 months after receiving an unqualified opinion. D) audit opinion is qualified.
B
An important reason for auditors to obtain good knowledge of a client's industry is that A) detection risk must be set in accordance with the needs of the industry as well as of the individual client. B) organizations like city governments have unique accounting requirements that could be complex. C) control risks will vary from zero to 100% and can be better assessed in context. D) payroll processing functions could differ from client to client.
B
Anna performed a trend analysis of accounts receivable (AR) balances and computed the days to collect AR ratio. When she compared the results of her analysis with industry averages, she found the results were unusually low compared to the industry norm. Anna can conclude that A) the accounts receivable balance is wrong. B) the accounts receivable has an increased risk of misstatement. C) she will not be able to rely on internal controls for accounts receivable for audit purposes. D) the integrity of the company's management is questionable.
B
Balance-related audit objectives are applied to which types of general ledger accounts? A) income statement accounts only B) balance sheet accounts and some income statement accounts C) accounts that affect the cash flow statement D) balance sheet accounts only
B
Canadian Auditing Standards (CASs) are best described as A) material that is fully codified in the CPA Handbook developed in Canada. B) the CPA Canada Handbook, plus published research and public accounting firm practices in auditing. C) Canadian generally accepted auditing practices developed by public accounting firms. D) the existing research that has been published about auditing that is used by firms.
B
Canadian Auditing Standards (CASs) require that an audit be conducted using A) a standard approach. B) a risk-assessment approach. C) a controls-testing approach. D) a substantive approach.
B
Dimitri works at a large public accounting firm. Dimitri referred one of his friends for a junior auditor position. Dimitri's friend was hired despite the fact that he had a criminal record. The partner at the firm did not perform a background check on Dimitri's friend since he was recommended by an employee. Which element of quality control has been compromised? A) independence B) general human resource policies C) engagement performance D) general ethical requirements
B
During discussion and inquiry with management, the auditor determined that the company has started a new line of business that requires 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) inspection of recent sales invoices for types of sales B) observation during the plant tour C) further inquiry of the accounting personnel D) use of analytical procedures, comparing last year to this year
B
Enron and Equity Funding are companies that suffered from large frauds by corporate management. One important lesson with respect to such cases is that A) partners and staff should cooperate in preparing working papers that prove the accuracy of the financial statements. B) an investigation of the integrity of management is an important part of deciding upon the extent of audit work. C) when a company does really well financially it is important to suspect that such results are always inflated. D) securities and exchange commissions expect auditors to be perfect in their assessment of management.
B
For a CPA working as a sole practitioner or working in a small public accounting office, the provincial practice inspectors will likely come to review audit files A) every year. B) every three years. C) every five years. D) never: files are not reviewed in person.
B
Fraud risk factors are examples of factors that increase the risk of fraud. Which of the following is an example of a management "opportunities" risk factor? A) The Chief Executive Officer owns forty percent of the outstanding share capital. B) New accounting standards provide three different methods for valuing financial instruments. C) The company has lost a major account and income is falling. D) Two major competitors have gone bankrupt as margins decline in the industry.
B
Georgina was working as the part-time accountant for three small businesses. Whenever she could, she pocketed cash and neglected to record the sale in the sales system. The general transaction-related audit objective affected by her actions is A) occurrence. B) completeness. C) accuracy. D) posting and summarization.
B
In Canada, publicly traded companies are A) not required to have an audit. B) required to have audits. C) not required to have an audit if they have a review. D) strongly encouraged to have audits.
B
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) Steve should not be taking a tour alone with the owner as this could compromise his independence. B) understand the client's business and operations better. C) be able to gather audit evidence on operational efficiencies. D) be better able to identify control risks.
B
Professional skepticism during the financial statement audit requires an appropriate state of mind: being impartial and objective and continuing to be throughout the whole audit engagement. Which of the following illustrates an appropriate state of mind? A) carefully assessing documents and not being the company's advocate B) being aware that there could be material misstatements in the financial statements C) matching documents to make sure that they are accurate and fair D) not having any ownership in the client's shares or being a debt-holder
B
The Rules of Professional Conduct require a successor auditor to communicate with the previous auditor. The primary concern in this communication is A) to save the successor auditor time and money in gathering data. B) to acquire information which will help the successor auditor determine whether the client management has integrity. C) to enable the successor to perform a more efficient audit. D) to learn about the client by examining the predecessor's working papers.
B
The principal issue to be resolved in cases involving alleged negligence is usually A) the amount of the damages suffered by the plaintiff. B) the level of care required. C) whether the defendant was involved in fraud. D) whether to impose punitive damages on the defendant.
B
There are a number of things that the CPA, representing the profession as a whole, can do to reduce the practitioner's exposure to lawsuits. One of them is to A) hire qualified auditors and train and supervise them. B) sanction members for improper conduct and performance. C) perform quality audits. D) deal only with clients possessing integrity.
B
There are many types of analytical procedures that the auditor can conduct during the planning stage of the financial statement audit. What is the purpose of calculating key ratios for the client's business and comparing them with industry averages? A) to reduce detailed tests B) to understand the client's industry and business C) to indicate possible misstatements D) to assess going concern
B
There is an increasing demand for assurance about computer controls surrounding financial information transacted electronically and the security of the information related to the transaction. This is in large part due to A) client's uncertainty about the proper functioning of their computer systems. B) the large volume of transactions and information shared online and in real-time by companies. C) the increasing presence of Internet sales in many businesses. D) the use of computer-assisted auditing tools.
B
What is the auditor's role in the detection of computer fraud? A) use test data to make sure that the computer programs are functioning as described by the client B) investigate unusual relationships or patterns, conduct the audit properly, and report to management C) use computer-assisted audit techniques to make sure that the computer programs do not have any unauthorized processing D) only detect fraud if it has been ongoing for a long period of time and leaves many different types of evidence
B
When public accountants are able to maintain an independent attitude in fulfilling their responsibility, it is referred to as independence in A) total. B) fact. C) conduct. D) appearance.
B
Which of the following illustrates the definition of auditing with respect to the evidence analysis process? A) writing an operational audit report that is tailored to the client's situation B) accumulation and evaluation of evidence about balance sheet accounts C) learning about different types of computing technology, such as mainframes D) making sure that the auditor is competent and understands evidence gathering
B
Which of the following is a factor that relates to "attitudes or rationalization" to commit fraudulent financial reporting? A) excessive pressure for management to meet debt repayment requirements B) management's practice of making overly aggressive forecasts C) significant accounting estimates involving subjective judgments D) high turnover of accounting, internal audit, and information technology staff
B
Which of the following is an advantage of a review engagement as compared to an audit engagement? A) For the review engagement, information risk is reduced more than for an audit. B) The review engagement requires considerably less work, so is less costly. C) For the review engagement, the financial statements assessed will have more detail. D) For the review engagement, the documentation to be provided by the client is greater.
B
Which of the following is an example of a financial statement audit? A) evaluating the effectiveness and efficiency of internal controls used to create account balance B) determining whether ABC's overall financial statements are stated in conformity with IFRS C) evaluating the effectiveness and efficiency of internal controls used to record transactions D) determining whether ABC's financial statements overall do not violate any debt covenants
B
Which of the following is an example of accounting rather than auditing? A) reviewing sales invoices to see if they have been calculated correctly B) entering sales transactions into the sales order system C) gathering evidence about the quality of accounts receivable D) comparing bank deposit documents to the recorded cash received
B
A code of ethics is an important document for organizational conduct. In response to the Sarbanes-Oxley Act in the United States, the SEC requires which of the following actions for organizations that have not adopted a code of ethics? A) disclosure of actions undertaken to prevent and detect fraud B) a cost-benefit analysis for immediate implementation of one C) explanation of why it has not done so D) disclosure of all related parties in management and discussion documents
C
A common way for a public accounting firm to demonstrate its defence of a lack of duty to perform is by use of a(n) A) expert witness. B) letter of representation. C) engagement letter. D) confirmation letter.
C
A measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued is the A) financial risk. B) statistical risk. C) audit risk. D) inherent risk.
C
After the auditor has completed all the procedures, it is necessary to combine the information obtained to reach an overall conclusion as to whether the financial statements are fairly presented. This is a highly subjective process that relies heavily on A) generally accepted auditing standards. B) generally accepted accounting principles. C) the auditor's professional judgment. D) the provincial institutes' Rules of Professional Conduct.
C
An accountant records information. When conducting an audit, the auditor must possess A) an ability to classify transactions by type. B) an ability to organize and summarize economic events. C) an ability to interpret generally accepted accounting frameworks. D) an education beyond the bachelor's degree.
C
Auditors General are responsible for auditing which types of organizations? A) any organization that submits tax returns to the tax authorities B) public companies with shares issued to investors C) ministries, departments, agencies, and crown corporations D) private companies that have loans outstanding to banks or other creditors
C
CAS 200 explains that as part of general qualifications and conduct, the auditor should be professionally competent. Which of the following help the auditor achieve competence? A) using due care in the performance of all aspects of auditing B) conducting the audit using a risk-based approach and being skeptical C) having formal education and practical experience, and pursuing continuing education D) having an objective state of mind and independence from the client
C
CPAB's purpose is to A) provide training and continuing education to auditors. B) clarify and communicate the role of the auditor to the public. C) improve the public's confidence in independent auditing. D) develop auditing standards.
C
Communicating the findings of the audit in accordance with CASs is a requirement of which category of generally accepted auditing standards? A) general B) examination C) reporting D) quality
C
Conflict between financial statement users and auditors often arises because of the placement of the auditor's report in the back of the client's annual report, where it is hard to locate. A) high cost of performing an audit. B) expectation gap. C) extremely technical vocabulary auditors use in their reports.
C
Gabori Company would like to pay less income tax this year. It decided that it could do this by understating its inventory values, increasing costs of goods sold. This was done by deliberately pricing the inventory at incorrect amounts, so that it would be shown at a lower value than it was really worth (for example, items worth five dollars each were shown at fifty cents each). Which management assertion has been violated? A) completeness B) statement presentation C) accuracy D) valuation
C
Heavy Manufacturing Company is in the business of making steel plates, forming heavy metal slabs, and drilling and scoring metals. The company recently upgraded many of its forming machines. Five machines were purchased on four different invoices. Unfortunately, one of the invoices was recorded twice, resulting in five invoices being recorded. The general balance-related audit objective affected by this activity is A) accuracy. B) classification. C) existence. D) completeness.
C
In rare cases, auditors have been held liable for criminal acts. A criminal conviction against an auditor can result only when it is demonstrated that the auditor A) was grossly negligent. B) caused a financial loss to an innocent third party. C) knowingly issued an incorrect auditor's report. D) was negligent.
C
Jessica is a summer junior at Branes & Castle, a PA firm. Jessica has only completed three accounting courses in university and has not yet taken her auditing class. A team of auditors from Branes & Castle are starting an audit and Jessica was sent to help them. Jessica A) should not perform any work pertaining to the audit engagement since she doesn't have sufficient knowledge. B) can perform work for the audit engagement on cycles where risk was assessed as low. C) can perform work for the audit engagement as long as she is supervised and proper review of her work is performed. D) should be limited to assisting the audit team with support functions such as photocopying and file assembly.
C
Management assertions are A) explicitly expressed representations about the financial statements. B) provided to the auditor in the engagement letter, but are not disclosed on the financial statements. C) implied or expressed representations about the accounts in the financial statements. D) stated in the footnotes to the financial statements.
C
One of the purposes of developing a client risk profile is to assist the auditor in A) locating related parties that need to be disclosed. B) developing the pertinent audit procedures for tests of internal controls. C) assessing the client's business risk. D) deciding whether fraud or illegal acts have taken place.
C
Small Town Lumberyard Limited (STLL) needed an additional bank loan to finance its operations. To make its financial statements look better, the company overstated its inventory and overstated its accounts payable. The auditors did not detect this deliberate misstatement because they conducted limited tests of inventory and did not confirm accounts payable. Other auditors agreed that the procedures conducted during this audit were inadequate. The auditors of STLL would likely be considered to be A) guilty of fraud. B) contributorily negligent with STLL. C) negligent. D) guilty of constructive fraud.
C
The Big Insurance Company implemented a new computer system to track and record insurance premiums receivable. The program automatically prints invoices and sends them to customers when premiums are due. Due to a program error, a whole series of invoices were included in sales but not in accounts receivable. The general balance-related audit objective affected by this activity is A) accuracy. B) existence. C) completeness. D) classification.
C
The Sarbanes-Oxley Act requires management to certify that it has informed the auditor and audit committee of any A) specific business or industry risk. B) related party transactions. C) significant deficiencies in internal controls. D) significant deficiencies in business practices.
C
The Sarbanes-Oxley Act requires the auditor to attest to the A) compliance of the company with the generally accepted accounting framework. B) accuracy of the financial statements. C) effectiveness of internal controls. D) efficiency of the internal controls in financial reporting.
C
The auditor will obtain a copy of the client's articles of incorporation (if applicable) and retain a copy in the permanent file. Important information in the articles of incorporation includes A) the interest rates currently being paid for bonds that have been issued. B) which shares have been redeemed by the company in the current year. C) voting rights of each class of shares issued by the company. D) the interest rates that are being received on long-term notes invested.
C
The internal audit group typically reports directly to the A) board of directors. B) external auditor. C) audit committee. D) management of the company
C
The most authoritative requirements for public accountants performing financial statement audits in Canada are the A) assurance guidelines. B) industry specific standards. C) CPA Canada handbook requirements. D) standards used by the client.
C
There are three phases in the risk response category of the audit process (design further audit procedures, tests of control, substantive tests). When will the auditor conduct tests of controls? A) when there are low risks of material error B) when there are poor internal controls C) if the auditor plans to rely upon them D) when a substantive audit approach is selected
C
What is an auditor required to do with respect to a client's financial reporting framework? A) make sure that ASPE or ASNPO are in use for publicly listed companies B) select the accounting principles to be used as part of the reporting framework C) assess whether the framework selected by management is suitable D) select an applicable framework for use with the financial statements
C
What is the purpose of assurance standards issued by the AASB (Auditing and Assurance Standards Board) in Canada? A) to provide current copies of the standards in advance of being placed in the CPA Handbook B) to provide supporting reference material and other resources C) to set standards for engagements such as reviews and compilations D) to expose the newly established standards to as many groups as possible
C
A PA firm has an organizational structure that assures the technical review of every engagement by a partner who has expertise in the client's industry. This is an example of good A) business risk management. B) entity-level controls. C) adherence to professional standards. D) quality controls.
D
A client is suing a PA firm, claiming that the firm is responsible for the losses suffered from a fraud in the payroll department that was not uncovered during the year-end testing done by the auditor. The auditors did indicate to management that controls over payroll calculations and payments were weak, as there was improper segregation of duties. The auditor's best defence is A) no damages. B) absence of causal connection. C) absence of negligence. D) contributory negligence.
D
Analytical procedures are those that A) review the effectiveness of internal controls. B) analyze the effect of management procedures on the accounting system. C) evaluate the accuracy of the account balances. D) assess the overall reasonableness of account balances or other data.
D
During which phase(s) of the financial statement audit does the auditor "evaluate evidence" when using a risk assessment approach? A) the reporting process phase B) the risk assessment phase C) the risk response phase D) the risk assessment, risk response, and reporting phases
D
In the audit of an individual's tax return, the criteria used would be A) the client's policies for taxable income. B) the auditor's judgment. C) an accounting framework. D) the Income Tax Act.
D
Jibbery Company has numerous transactions with related parties. For example, it has borrowed money from shareholders, purchases raw materials from a subsidiary company, and sells finished goods to its parent company. Which of the following describes one of the impacts of these transactions on risk assessment ? A) audit risk would be decreased B) control risk would be set as low C) inherent risk would be set as low D) inherent risk would be set as high
D
Larger audits may have established procedures that utilize an audit committee whenever there is a dispute between management and the auditors. What is the purpose of such procedures? A) to ensure that the auditor understands management's point of view B) to improve the competence of the financial statement auditors C) to help make sure the audit is conducted following GAAS D) to facilitate the auditors' independence from management
D
Most accounting and auditing professionals agree that when an audit has failed to uncover material misstatements, and the wrong type of audit opinion is issued, the audit firm A) has failed to follow generally accepted auditing standards (GAAS). B) should not be held responsible for the financial loss suffered by others. C) deserves to lose the lawsuit. D) should be asked to defend the quality of the audit.
D
PA was engaged by Microcomputer Distributor Limited (MDL) to conduct a review engagement. The financial statements are used primarily by the shareholders, management, and by the bank. Recently, an employee was fired for stealing computer parts, primarily chips and boards that could easily be placed in a pocket. MDL is suing PA because they believed that audit procedures, such as counting inventory, would have detected this fraud. What is PA's best defence? A) contributory negligence B) absence of causal connection C) lack of negligence D) duty of care not required
D
Tests of details of balances are specific procedures intended to A) prove that the accounts with material balances are classified correctly. B) prove that the trial balance is in balance. C) identify the details of internal controls. D) test for monetary errors in the financial statements.
D
The No-Name Agency conducts an independent service for a company to determine if its suppliers have complied with health and safety regulations, child labour guidelines, and other employee welfare issues. What type of service is No-Name providing? A) review B) compilation C) attest D) assurance
D
The auditor has considerable responsibility for notifying users whether the financial statements are fairly stated. This imposes upon the auditor a duty to A) be a guarantor of the fairness in the statements. B) be an insurer of the fairness in the statements. C) be equally responsible with management for the preparation of the financial statements. D) provide reasonable assurance that material misstatements will be detected.
D
The factor that distinguishes an error from fraud or other irregularities is A) whether it is a dollar amount or a process. B) materiality. C) whether it is a caused by the auditor or the client. D) intent.
D
The underlying reason for a high level of professional conduct, such as exemplified in a code of conduct, for any profession is A) that it is required by federal legislation. B) that it allows licensing agencies to have a yardstick to measure deficient performance. C) that it provides a safeguard to keep unscrupulous people out. D) the need for public confidence in the quality of service of the profession.
D
There are many elements of quality control at the firm level. Which element does "employees should be adequately trained in the skills needed to conduct audits and reviews" relate to? A) leadership and responsibilities within the firm B) independence C) general human resource policies D) extent of professional development
D
When readers are cautioned that the financial statements may not be appropriate for their purposes, the non-assurance service is called a(n) A) review. B) audit. C) SysTrust. D) compilation.
D
When reading the corporate minutes, the auditor extracted the approved annual salary for the President, the Chief Executive Officer, and other senior executives. What audit step would the auditor likely conduct with this information? A) verify that payroll cheques have two signatures for all large amounts B) check that the payroll has been recorded into the correct bank account C) ensure that all overtime is approved and adequately documented D) trace the payroll amount to each individual officer's payroll record
D
Which of the following is a factor that relates to "incentives or pressures" to commit fraudulent financial reporting? A) significant accounting estimates involving subjective judgments B) high turnover of accounting, internal audit, and information technology staff C) management's practice of making overly achievable forecasts D) excessive pressure for management to meet debt covenant requirements
D
Which of the following is the best example of an intimidation threat? Management A) has decided to sue you because the audit fee was twice as high as they expected. B) threatens to resign from the company if the board of directors does not give them a 15% raise. C) has changed auditors of all of its subsidiary companies as they can get the audit done for a lower cost. D) threatens to change auditors if you do not let them overstate accounts receivable by $100 000 (the bad debt allowance is too low).
D
Which of the following services provides a moderate level of assurance about the client's financial statements? A) forecasts and projections B) compliance C) audit D) review
D
A bank sues an auditor after having lost a significant amount of money from a loan granted to a client based on the financial statements that contained a material error. The source of the legal liability is A) known third party liability. B) liability under provincial securities law. C) criminal liability. D) client liability.
A
Adequate planning and execution to reduce risk to an acceptable level is a requirement of which category of generally accepted auditing standards? A) general B) examination C) reporting D) quality
B
Amin is distraught. Six months ago, a big-box stereo store opened just down the street from his independent stereo and music business and now he is unable to continue operating his business. Only eight months ago, you issued an unqualified audit opinion on his financial statements that showed the financial results of a well-run, profitable store. Amin's business is experiencing A) audit failure. B) business failure. C) customer expectation gap. D) fiduciary duty.
B
When the CPA Canada Handbook is silent on an auditing issue, which of the following is the best of other authoritative sources that the auditor could use? A) reference to audit standards partner B) Assurance and Related Services Guidelines (AuG) C) audit firm practice manuals D) past practice at the client
B
When the auditor has properly planned and performed the audit to reduce risk to an acceptably low level that is consistent with the objective of the audit, this means that the auditor has conducted enough work to A) detect errors in internal controls so that control risk can be set higher. B) detect material misstatements to the targeted level of assurance. C) reduce inherent risks to an acceptable level. D) increase detection risk to a satisfactory level.
B
Which of the following services provides no assurance about the client's financial statements? A) review B) compilation C) audit D) SysTrust
B
When considering each material type (or class) of transaction during the audit, which general transaction-related audit objectives are assessed during the audit? A) those transaction-related audit objectives where there is the highest risk of error B) those transaction-related audit objectives where there are poor internal controls C) all five transaction-related audit objectives D) primarily completeness, occurrence, and accuracy, since they typically have most errors
C
Where the auditor has decided to rely upon internal controls, he or she will then A) proceed to expand the sample sizes in that area. B) negotiate with management to determine which controls will be tested in that area. C) test the effectiveness of the controls in that area. D) eliminate the need to gather evidence in that area.
C
Which of the following is an example of fraudulent financial reporting (management fraud)? A) managers or others taking bribes from accounts payable suppliers B) the purchasing manager submitting travel expenses twice (i.e. duplicate payment) C) intentional overstatement of sales to increase reported earnings D) a clerk taking cash at the time a sale is made and not recording the sale
C
Which of the following rights is necessary for the completion of an audit? A) The right to obtain copies of all documentation needed to conduct the audit. B) The right to advise management regarding how it should set up its records. C) The right to have access to the necessary records, information, and explanations. D) The right to publish information when management engages in fraud.
C
Which of the following services results in assurance that the company's e-commerce activities on its website comply with Trust Services principles? A) SysTrust B) internal controls assessment C) WebTrust D) review engagement
C
Your PA firm has just obtained a new client and you have been assigned the task of preparing the knowledge of business section of the file. Which of the following best describes the process of gathering the knowledge of business for a client? A) gathering information about the industry and regulatory environment B) discussing processes and business objectives with company employees C) understanding the client's business, industry, and regulatory environment D) examining the legal expenses file for possible regulatory infractions
C
In order to assess if a company is a going concern, the auditor can calculate which of the following ratios during the audit planning and compare with previous years and successful companies in the industry? A) percent of interest expense to sales B) accounts receivable turnover ratio C) inventory turnover ratio D) debt to equity ratio
D
