Question 1

At what point during the audit should the auditor conduct an independence threat analysis?

Accepted Answer

A) after the audit evidence assessment and collection process 
B) prior to the acceptance of the engagement 
C) after gathering sufficient knowledge of the client's business 
D) prior to signing the audit report 
A) after the audit evidence assessment and collection process 
B) prior to the acceptance of the engagement 
C) after gathering sufficient knowledge of the client's business 
D) prior to signing the audit report B

Question 2

Your PA firm has been auditing Ontario Pulp Company for three years.Two years ago,a letter was received from the provincial government informing them that they needed to reduce the level of contaminants that they were releasing into the air and into local waterways.The deadline for this reduction is three months from today.The letter indicates significant fines (several hundred thousand dollars)if the targets are not met.Alternatively,the Company will need to shut down operations until the targets are met.During your audit planning process,management informed you that they have not taken any action but plan to start construction of the new pollution devices next month.
Required:
Explain the impact the above situation has on your audit planning process.

Accepted Answer

•The above situation seems to indicate that management does not take the letter from the provincial government seriously.
•This could affect the ability of the company to continue as a going concern,and as a minimum would require disclosure in the financial statements,possibly with a qualification.
•The audit planning process would need to include gathering knowledge about other companies in this sector-have they also received such letters and have they complied? Have there been charges laid by the provinces where compliance did not occur? The answers to these questions will help assess the potential impact on the client.
•The auditor should also look at any proposals that the company has received about implementing the anti-pollution equipment to see how quickly it can be implemented.
•The negative attitude about the anti-pollution equipment may also apply to other areas of the business.
•The auditor will need to assess the quality of corporate governance and of management integrity and assess the effect upon the engagement.Why has management really decided to wait so long?

Question 3

Which of the following is an example of fraudulent financial reporting (management fraud)?

Accepted Answer

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 
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 A

Question 4

There is agreement within the auditing profession and the courts that the auditor is

Accepted Answer

A) not a guarantor or insurer of financial statements. 
B) a guarantor but not an insurer of financial statements. 
C) an insurer but not a guarantor of financial statements. 
D) both a guarantor and an insurer of financial statements. 
A) not a guarantor or insurer of financial statements. 
B) a guarantor but not an insurer of financial statements. 
C) an insurer but not a guarantor of financial statements. 
D) both a guarantor and an insurer of financial statements.

Question 5

What is one of the first things that an auditor would do upon discovering an illegal act at an audit client?

Accepted Answer

A) resign from the audit 
B) inform the Board of Directors 
C) consult with a lawyer 
D) call the police 
A) resign from the audit 
B) inform the Board of Directors 
C) consult with a lawyer 
D) call the police

Question 6

The responsibility for the preparation of the financial statements and the accompanying footnotes belongs to

Accepted Answer

A) the auditor. 
B) management. 
C) both management and the auditor equally. 
D) management for the statements and the auditor for the notes. 
A) the auditor. 
B) management. 
C) both management and the auditor equally. 
D) management for the statements and the auditor for the notes.

Question 7

Bratlett Company has purchased all of the shares of another company but does not want to consolidate its financial statements.Management has drafted a rather long and confusing note to the financial statements that describes the transaction and states that debt has been acquired in a foreign currency.In your view,the transaction and its effect on the company and the accounts have not been properly disclosed.
Required:
List the audit objectives about presentation and disclosure that have been affected and explain how they are affected.

Accepted Answer

Rights and obligations: Assets and liabi

Question 8

To help improve the cash balance on the financial statements,the controller recorded several deposits from early January in the month of December.The general balance-related audit objective affected by this activity is

Accepted Answer

A) allocation timing. 
B) accuracy. 
C) classification. 
D) existence. 
A) allocation timing. 
B) accuracy. 
C) classification. 
D) existence.

Question 9

Management assertions are

Accepted Answer

A) stated in the footnotes to the financial statements. 
B) implied or expressed representations about the accounts in the financial statements. 
C) explicitly expressed representations about the financial statements. 
D) provided to the auditor in the engagement letter,but are not disclosed on the financial statements. 
A) stated in the footnotes to the financial statements. 
B) implied or expressed representations about the accounts in the financial statements. 
C) explicitly expressed representations about the financial statements. 
D) provided to the auditor in the engagement letter,but are not disclosed on the financial statements.

Question 10

Your PA firm audits the Barney Bloke Parts company,which manufactures plastic bumpers and other automobile parts in eight factories scattered across southern Ontario.The company has a December year end.It is now November 15.
The planning file indicates that internal controls in the accounts receivable area are poor,as there has been significant employee turnover.A review of the prior year's working paper file indicates that there was a poor response to the accounts receivable and accounts payable confirmation requests.There were several errors in inventory pricing and problems with obsolescence.
Required:
List the financial statement cycles that need to be tested.For each cycle,identify at least one transaction that needs to be examined.For that transaction,identify a management assertion that may have a high risk of error associated with it and explain why you believe the risk of error is high.

Accepted Answer

The answer of Your PA firm audits the Barney Bloke...

Question 11

In applying professional judgment,the auditor must be able to justify a decision on the basis that it

Accepted Answer

A) is carried out with truthfulness and forthrightness. 
B) meets the underlying principles of only GAAS. 
C) considers the impact on management's performance. 
D) helps the company improve its profitability. 
A) is carried out with truthfulness and forthrightness. 
B) meets the underlying principles of only GAAS. 
C) considers the impact on management's performance. 
D) helps the company improve its profitability.

Question 12

Radio Supplies Limited sells parts and components to organizations that repair radios and other forms of audio equipment.It has many parts on its inventory listing at cost that were purchased up to fifteen years ago.Some of these parts have not seen any movement in the last ten years.The general balance-related audit objective affected by this activity is

Accepted Answer

A) completeness. 
B) accuracy. 
C) valuation. 
D) existence. 
A) completeness. 
B) accuracy. 
C) valuation. 
D) existence.

Question 13

The factor that distinguishes an error from fraud or other irregularities is

Accepted Answer

A) materiality. 
B) intent. 
C) whether it is a dollar amount or a process. 
D) whether it is a caused by the auditor or the client. 
A) materiality. 
B) intent. 
C) whether it is a dollar amount or a process. 
D) whether it is a caused by the auditor or the client.

Question 14

Because of the risk of material misstatement,an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of

Accepted Answer

A) professional skepticism. 
B) objectivity. 
C) professional integrity. 
D) conservatism. 
A) professional skepticism. 
B) objectivity. 
C) professional integrity. 
D) conservatism.

Question 15

The requirement for an attitude of skepticism means that the auditor should

Accepted Answer

A) not be blind to evidence that suggests the documents,books,or records have been altered or are incorrect. 
B) plan and conduct the audit with an attitude of distrust in management. 
C) perform additional tests of controls to increase the probability of discovering fraud or errors. 
D) not consider management's explanation as evidence on any subject. 
A) not be blind to evidence that suggests the documents,books,or records have been altered or are incorrect. 
B) plan and conduct the audit with an attitude of distrust in management. 
C) perform additional tests of controls to increase the probability of discovering fraud or errors. 
D) not consider management's explanation as evidence on any subject.

Question 16

In the event that management insists on financial statement disclosure that the auditor finds unacceptable,the auditor cannot

Accepted Answer

A) issue a qualified report. 
B) issue an unqualified report. 
C) issue a disclaimer report. 
D) issue an adverse report. 
A) issue a qualified report. 
B) issue an unqualified report. 
C) issue a disclaimer report. 
D) issue an adverse report.

Question 17

Pet Shop Ltd.is a large retail outlet with ten full-time employees in addition to the owner.You dropped by on your way home one day to organize the audit planning process for the coming year and noticed brand new terminals at the cashier's desk.One of the employees was having fun zapping inventory items.The owner teased him about the new laser scanning devices and told him to get to work to see which items needed to be ordered.It turns out that Pet Shop Ltd.has implemented a new point-of-sale computer system that is integrated with inventory.The last time you were there to buy dog food (about three months ago),the store had old computer terminals that were no longer functional and staff were recording sales transactions manually in the sales journal.
Required:
List the three sections of the audit process that are relevant.For each section,explain how these new computer systems might affect the audit process.

Accepted Answer

Assess Risk of Material Misstatement:
•T

Question 18

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.

Accepted Answer

A)•The purpose of an audit is to provide

Question 19

The following table lists common audit objectives for accounts payable or purchases.For each procedure,list the management assertion and the related general audit objective.State whether the audit objective is transaction-related or balance-related.

Accepted Answer

The answer of The following table lists common audit objectives...

Question 20

Prior to looking at the specific cycles,the auditor will first

Accepted Answer

A) enquire about and document corporate governance systems. 
B) perform tests of controls on significant cycles. 
C) perform analytical review of specific accounts. 
D) perform a risk assessment for the audit of the organization. 
A) enquire about and document corporate governance systems. 
B) perform tests of controls on significant cycles. 
C) perform analytical review of specific accounts. 
D) perform a risk assessment for the audit of the organization.

At what point during the audit should the auditor conduct an independence threat analysis?

Which of the following is an example of fraudulent financial reporting (management fraud)?

There is agreement within the auditing profession and the courts that the auditor is

What is one of the first things that an auditor would do upon discovering an illegal act at an audit client?

The responsibility for the preparation of the financial statements and the accompanying footnotes belongs to

To help improve the cash balance on the financial statements,the controller recorded several deposits from early January in the month of December.The general balance-related audit objective affected by this activity is

Management assertions are

In applying professional judgment,the auditor must be able to justify a decision on the basis that it

The factor that distinguishes an error from fraud or other irregularities is

Because of the risk of material misstatement,an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of

The requirement for an attitude of skepticism means that the auditor should

In the event that management insists on financial statement disclosure that the auditor finds unacceptable,the auditor cannot

The following table lists common audit objectives for accounts payable or purchases.For each procedure,list the management assertion and the related general audit objective.State whether the audit objective is transaction-related or balance-related.

Prior to looking at the specific cycles,the auditor will first

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Professional Ethics and Legal Liability

Audit Evidence

Client Acceptance,Planning,and Materiality

Assessing the Risk of Material Misstatement

Internal Control and COSO Framework

Assessing Control Risk and Designing Test of Controls

Develop Risk Response: Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Human Resources and Payroll Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters

Exam 4: Audit Responsibilities and Objectives

At what point during the audit should the auditor conduct an independence threat analysis?

Which of the following is an example of fraudulent financial reporting (management fraud)?

There is agreement within the auditing profession and the courts that the auditor is

What is one of the first things that an auditor would do upon discovering an illegal act at an audit client?

The responsibility for the preparation of the financial statements and the accompanying footnotes belongs to

To help improve the cash balance on the financial statements,the controller recorded several deposits from early January in the month of December.The general balance-related audit objective affected by this activity is

Management assertions are

In applying professional judgment,the auditor must be able to justify a decision on the basis that it

The factor that distinguishes an error from fraud or other irregularities is

Because of the risk of material misstatement,an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of

The requirement for an attitude of skepticism means that the auditor should

In the event that management insists on financial statement disclosure that the auditor finds unacceptable,the auditor cannot

The following table lists common audit objectives for accounts payable or purchases.For each procedure,list the management assertion and the related general audit objective.State whether the audit objective is transaction-related or balance-related.

Prior to looking at the specific cycles,the auditor will first

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Professional Ethics and Legal Liability

Audit Evidence

Client Acceptance,Planning,and Materiality

Assessing the Risk of Material Misstatement

Internal Control and COSO Framework

Assessing Control Risk and Designing Test of Controls

Develop Risk Response: Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Human Resources and Payroll Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters