Question 1

The decision to continue doing the audit of an existing client is

Accepted Answer

A)  as important as deciding whether or not to accept a new client. 
B)  less important than deciding whether or not to accept a new client. 
C)  more important than deciding whether or not to accept a new client. 
D)  only to be reconsidered if the client's operations or upper management has changed. 
A)  as important as deciding whether or not to accept a new client. 
B)  less important than deciding whether or not to accept a new client. 
C)  more important than deciding whether or not to accept a new client. 
D)  only to be reconsidered if the client's operations or upper management has changed.

Question 2

Tests of details of balances are specific procedures intended to

Accepted Answer

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. 
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.

Question 3

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. For each section, explain how these new computer systems might affect the audit process.

Accepted Answer

Risk assessment:
•The auditor will need

Question 4

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 5

Balance-related audit objectives are applied to which types of general ledger accounts?

Accepted Answer

A)  balance sheet accounts only 
B)  income statement accounts only 
C)  balance sheet accounts and some income statement accounts 
D)  accounts that affect the cash flow statement 
A)  balance sheet accounts only 
B)  income statement accounts only 
C)  balance sheet accounts and some income statement accounts 
D)  accounts that affect the cash flow statement

Question 6

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

Question 7

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 spouse, 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:
Identify the issues that Sean needs to consider during the planning of the audit.

Accepted Answer

•This is a first audit engagement, so ad

Question 8

The auditor has considerable responsibility for notifying users whether the financial statements are fairly stated. This imposes upon the auditor a duty to

Accepted Answer

A)  be an insurer of the fairness in the statements. 
B)  be a guarantor 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. 
A)  be an insurer of the fairness in the statements. 
B)  be a guarantor 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.

Question 9

A financial statement audit typically consists of three sections. Identify the three sections and discuss the major activities performed by the auditor in each section.

Accepted Answer

1. Risk Assessment. In this section, the

Question 10

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 11

When considering each material type (or class) of transaction during the audit, which general transaction-related audit objectives are assessed during the audit?

Accepted Answer

A)  those transaction-related audit objectives where there is the highest risk of error 
B)  all five transaction-related audit objectives 
C)  those transaction-related audit objectives where there are poor internal controls 
D)  primarily completeness, occurrence, and accuracy, since they typically have most errors 
A)  those transaction-related audit objectives where there is the highest risk of error 
B)  all five transaction-related audit objectives 
C)  those transaction-related audit objectives where there are poor internal controls 
D)  primarily completeness, occurrence, and accuracy, since they typically have most errors

Question 12

Auditing standards regarding the detection of illegal acts clearly state that the auditor provides

Accepted Answer

A)  no assurance that they will be detected. 
B)  the same reasonable assurance provided for other items. 
C)  assurance that they will be detected, if material. 
D)  assurance that they will be detected, if highly material. 
A)  no assurance that they will be detected. 
B)  the same reasonable assurance provided for other items. 
C)  assurance that they will be detected, if material. 
D)  assurance that they will be detected, if highly material.

Question 13

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 14

Transaction cycles begin and end at

Accepted Answer

A)  the beginning and end of the fiscal period. 
B)  the balance sheet date. 
C)  January 1 and December 31. 
D)  the origin and final disposition of the company. 
A)  the beginning and end of the fiscal period. 
B)  the balance sheet date. 
C)  January 1 and December 31. 
D)  the origin and final disposition of the company.

Question 15

For the most part, auditors treat each transaction cycle

Accepted Answer

A)  separately as the audit is being performed. 
B)  as an interrelated unit with the other cycles throughout the entire audit. 
C)  as a separate business unit with different audit teams. 
D)  as a joint venture with other clients in the same industry. 
A)  separately as the audit is being performed. 
B)  as an interrelated unit with the other cycles throughout the entire audit. 
C)  as a separate business unit with different audit teams. 
D)  as a joint venture with other clients in the same industry.

Question 16

In May 2015, the firm of Chang and Crown (C&C) became the auditors of Laua Limited (LL) for the fiscal year ended December 31, 2014. LL's shareholders and Board approved the change from its previous audit firm on the recommendation of LL's senior management. One of the new board members is a bit confused about management's role with respect to the financial statements and thought that Chang and Crown would be preparing the financial statements. He was also glad that the auditors would be able to help prevent illegal acts and fraud.
Required:
A) Distinguish between management's responsibility and the auditor's responsibility for the financial statements under audit.
B) Explain to the board member why the auditor does NOT help prevent illegal acts and fraud. What is the role of the auditor with respect to illegal acts and fraud?

Accepted Answer

A)Management:
Management is responsible

Question 17

Management assertions are

Accepted Answer

A)  directly related to auditing standards. 
B)  directly related to accounting standards. 
C)  indirectly related to auditing standards. 
D)  indirectly related to accounting standards. 
A)  directly related to auditing standards. 
B)  directly related to accounting standards. 
C)  indirectly related to auditing standards. 
D)  indirectly related to accounting standards.

Question 18

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

@#IMG-DLM& Note: Students may select oth

Question 19

In testing for cutoff, the objective is to determine

Accepted Answer

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. 
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.

Question 20

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

Accepted Answer

A)  completeness. 
B)  accuracy. 
C)  allocation to accounts. 
D)  existence. 
A)  completeness. 
B)  accuracy. 
C)  allocation to accounts. 
D)  existence.

The decision to continue doing the audit of an existing client is

Tests of details of balances are specific procedures intended to

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

Balance-related audit objectives are applied to which types of general ledger accounts?

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

The auditor has considerable responsibility for notifying users whether the financial statements are fairly stated. This imposes upon the auditor a duty to

A financial statement audit typically consists of three sections. Identify the three sections and discuss the major activities performed by the auditor in each section.

When considering each material type (or class) of transaction during the audit, which general transaction-related audit objectives are assessed during the audit?

Auditing standards regarding the detection of illegal acts clearly state that the auditor provides

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.

Transaction cycles begin and end at

For the most part, auditors treat each transaction cycle

Management assertions are

In testing for cutoff, the objective is to determine

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Legal Liability

Professional Judgment and Ethics

Client Acceptance and Planning the Audit

Materiality and Risk

Internal Controls and Control Risk

Audit Evidence

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 5: Audit Responsibilities and Objectives

The decision to continue doing the audit of an existing client is

Tests of details of balances are specific procedures intended to

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

Balance-related audit objectives are applied to which types of general ledger accounts?

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

The auditor has considerable responsibility for notifying users whether the financial statements are fairly stated. This imposes upon the auditor a duty to

A financial statement audit typically consists of three sections. Identify the three sections and discuss the major activities performed by the auditor in each section.

When considering each material type (or class) of transaction during the audit, which general transaction-related audit objectives are assessed during the audit?

Auditing standards regarding the detection of illegal acts clearly state that the auditor provides

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.

Transaction cycles begin and end at

For the most part, auditors treat each transaction cycle

Management assertions are

In testing for cutoff, the objective is to determine

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Legal Liability

Professional Judgment and Ethics

Client Acceptance and Planning the Audit

Materiality and Risk

Internal Controls and Control Risk

Audit Evidence

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