Question 1

In determining the adequacy of the allowance for uncollectible accounts, the least reliance should be placed upon which of the following?

Accepted Answer

A) The credit manager's opinion. 
B) An ageing schedule of past due accounts. 
C) Collection experience of the client's collection agency. 
D) Ratios calculated showing the past relationship of accounts receivable to net credit sales. 
A) The credit manager's opinion. 
B) An ageing schedule of past due accounts. 
C) Collection experience of the client's collection agency. 
D) Ratios calculated showing the past relationship of accounts receivable to net credit sales. A

Question 2

From the auditor's point of view, inventory counts are more acceptable prior to the year-end when:

Accepted Answer

A) accurate perpetual inventory records are maintained. 
B) control risk is high. 
C) significant amounts of inventory are held on a consignment basis. 
D) inventory turnover has decreased from the prior year. 
A) accurate perpetual inventory records are maintained. 
B) control risk is high. 
C) significant amounts of inventory are held on a consignment basis. 
D) inventory turnover has decreased from the prior year. A

Question 3

During the current financial year, the client company began dealing with certain distributors on a consignment basis (goods were delivered to the distributor but not deemed sold until the distributor had on-sold them).Which of the following audit procedures is least likely to bring this new fact to the auditor's attention?

Accepted Answer

A) Test of cash receipts transactions. 
B) Tracing of shipping documents to the sales journal. 
C) Observation of physical inventory at the client company's premises. 
D) Confirmation of accounts receivable. 
A) Test of cash receipts transactions. 
B) Tracing of shipping documents to the sales journal. 
C) Observation of physical inventory at the client company's premises. 
D) Confirmation of accounts receivable. C

Question 4

Which of the following is the best audit procedure for determining the completeness of the accrued liabilities listing?

Accepted Answer

A) Examine unusual relationships between monthly accounts payable balances and recorded purchases. 
B) Examine confirmation requests returned by creditors whose accounts appear on a subsidiary trial balance of accounts payable. 
C) Examine a sample of cash disbursements in the period subsequent to year-end. 
D) Examine a sample of invoices a few days prior to and subsequent to year-end to ascertain whether they have been properly recorded. 
A) Examine unusual relationships between monthly accounts payable balances and recorded purchases. 
B) Examine confirmation requests returned by creditors whose accounts appear on a subsidiary trial balance of accounts payable. 
C) Examine a sample of cash disbursements in the period subsequent to year-end. 
D) Examine a sample of invoices a few days prior to and subsequent to year-end to ascertain whether they have been properly recorded.

Question 5

An auditor would be least likely to use external confirmation procedures in connection with the examination of:

Accepted Answer

A) long-term debt. 
B) property, plant and equipment. 
C) inventories. 
D) issued share capital. 
A) long-term debt. 
B) property, plant and equipment. 
C) inventories. 
D) issued share capital.

Question 6

Which assertion for ending inventory is most likely at risk of material misstatement if the gross profit percentage is much greater than last year?

Accepted Answer

A) Existence. 
B) Completeness. 
C) Rights and obligations. 
D) Accuracy. 
A) Existence. 
B) Completeness. 
C) Rights and obligations. 
D) Accuracy.

Question 7

Which of the following is an exception report that the auditor would generate using generalised audit software in order to test the valuation and allocation assertion for accounts receivable?

Accepted Answer

A) Adding the accounts receivable ledger, and checking the total to the accounts receivable balance in the general ledger. 
B) A sequence check looking for missing sales invoice numbers. 
C) A report outlining those balances that are greater than three months overdue. 
D) A sample of debtors to be confirmed by positive debtors' confirmation procedures. 
A) Adding the accounts receivable ledger, and checking the total to the accounts receivable balance in the general ledger. 
B) A sequence check looking for missing sales invoice numbers. 
C) A report outlining those balances that are greater than three months overdue. 
D) A sample of debtors to be confirmed by positive debtors' confirmation procedures.

Question 8

An aged trial balance of accounts receivable is usually used by the auditor to:

Accepted Answer

A) verify the existence assertion for recorded receivables. 
B) ensure that all accounts receivable are recorded (completeness assertion). 
C) evaluate the results of tests of controls for the sales/accounts receivable system. 
D) evaluate the provision for bad debts related to the valuation and allocation assertion. 
A) verify the existence assertion for recorded receivables. 
B) ensure that all accounts receivable are recorded (completeness assertion). 
C) evaluate the results of tests of controls for the sales/accounts receivable system. 
D) evaluate the provision for bad debts related to the valuation and allocation assertion.

Question 9

In the audit of Cassie Ltd, a medium-sized manufacturing company, which one of the following areas would be expected to require the least amount of audit time?

Accepted Answer

A) Revenue. 
B) Owners' equity. 
C) Liabilities. 
D) Assets. 
A) Revenue. 
B) Owners' equity. 
C) Liabilities. 
D) Assets.

Question 10

'While auditing James Ltd, you find that their inventory turnover has decreased from 7.8 times to 5.4 times during the year.Based on this decrease, which financial report assertion would you be least concerned with?

Accepted Answer

A) Existence. 
B) Rights and obligations. 
C) Valuation and allocation. 
D) Completeness. 
A) Existence. 
B) Rights and obligations. 
C) Valuation and allocation. 
D) Completeness.

Question 11

An auditor using audit software would probably be least interested in which of the following fields in a computerised perpetual inventory file?

Accepted Answer

A) Quantity sold. 
B) Date of last purchase. 
C) Warehouse location. 
D) Economic order quantity. 
A) Quantity sold. 
B) Date of last purchase. 
C) Warehouse location. 
D) Economic order quantity.

Question 12

All of the following evidence-gathering procedures can assist the auditor in testing the existence assertion for investment securities except:

Accepted Answer

A) physical examination. 
B) comparing fair value to the original cost. 
C) confirmation with the issuer of the securities. 
D) confirmation with the custodian. 
A) physical examination. 
B) comparing fair value to the original cost. 
C) confirmation with the issuer of the securities. 
D) confirmation with the custodian.

Question 13

Once an auditor has determined that accounts receivable at year-end have increased due to slow collections in a 'tight money' environment, the auditor would be likely to:

Accepted Answer

A) review the going concern ramifications. 
B) increase the balance in the allowance for bad debts account. 
C) expand tests for the valuation and allocation assertion. 
D) expand tests for the existence assertion. 
A) review the going concern ramifications. 
B) increase the balance in the allowance for bad debts account. 
C) expand tests for the valuation and allocation assertion. 
D) expand tests for the existence assertion.

Question 14

Which of the following is the best argument against the use of negative accounts receivable confirmations?

Accepted Answer

A) The cost-per-response is excessively high. 
B) There is no way of knowing if the intended recipients received them. 
C) Recipients are likely to feel that, in reality, the confirmation is a subtle request for payment. 
D) The inference drawn from receiving no reply may not be correct. 
A) The cost-per-response is excessively high. 
B) There is no way of knowing if the intended recipients received them. 
C) Recipients are likely to feel that, in reality, the confirmation is a subtle request for payment. 
D) The inference drawn from receiving no reply may not be correct.

Question 15

A normal audit procedure is to analyse the current year's repairs and maintenance accounts to provide evidence in support of the audit proposition that:

Accepted Answer

A) expenditures for fixed assets have been recorded in the proper period. 
B) capital expenditures have been properly authorised. 
C) non-capitalisable expenditures have been properly expensed. 
D) the listing of fixed assets is complete. 
A) expenditures for fixed assets have been recorded in the proper period. 
B) capital expenditures have been properly authorised. 
C) non-capitalisable expenditures have been properly expensed. 
D) the listing of fixed assets is complete.

Question 16

During a client's stocktake you select a sample of items from the floor, count them and trace the quantities to the inventory summary sheet.Which financial report assertion is this audit procedure related to?

Accepted Answer

A) Valuation and allocation. 
B) Rights and obligations. 
C) Completeness. 
D) Existence. 
A) Valuation and allocation. 
B) Rights and obligations. 
C) Completeness. 
D) Existence.

Question 17

Which of the following is necessary to audit balances in an on-line IT system in an environment where updated information is written over existing information?

Accepted Answer

A) A utility program which reconciles the subsidiary ledgers with the general ledger. 
B) Periodic dumping of transaction files. 
C) A well-documented audit trail. 
D) An integrated test facility. 
A) A utility program which reconciles the subsidiary ledgers with the general ledger. 
B) Periodic dumping of transaction files. 
C) A well-documented audit trail. 
D) An integrated test facility.

Question 18

Which of the following is one of the auditor's primary objectives when externally confirming holdings of marketable securities?

Accepted Answer

A) To determine whether recorded securities are properly classified on the statement of financial position. 
B) To determine whether recorded securities are the property of the client. 
C) To determine whether recorded securities are appropriately valued in accordance with accounting standards 
D) To determine whether the internal control system for recorded securities is functioning effectively for the period of the audit. 
A) To determine whether recorded securities are properly classified on the statement of financial position. 
B) To determine whether recorded securities are the property of the client. 
C) To determine whether recorded securities are appropriately valued in accordance with accounting standards 
D) To determine whether the internal control system for recorded securities is functioning effectively for the period of the audit.

Question 19

Tests designed to detect goods that arrived at the warehouse just before year-end and for which the audit client took ownership that have not been recorded in the perpetual inventory records until the subsequent year would most likely provide evidence about management's assertion of:

Accepted Answer

A) accuracy. 
B) occurrence. 
C) valuation and allocation. 
D) cut-off. 
A) accuracy. 
B) occurrence. 
C) valuation and allocation. 
D) cut-off.

Question 20

Substantive testing is typically used to audit shareholders' equity because:

Accepted Answer

A) the number of transactions is small. 
B) controls over shareholders' equity transactions are typically weak. 
C) a reliance strategy is most efficient. 
D) the control environment over shareholders equity transactions is usually strong. 
A) the number of transactions is small. 
B) controls over shareholders' equity transactions are typically weak. 
C) a reliance strategy is most efficient. 
D) the control environment over shareholders equity transactions is usually strong.

In determining the adequacy of the allowance for uncollectible accounts, the least reliance should be placed upon which of the following?

From the auditor's point of view, inventory counts are more acceptable prior to the year-end when:

Which of the following is the best audit procedure for determining the completeness of the accrued liabilities listing?

An auditor would be least likely to use external confirmation procedures in connection with the examination of:

Which assertion for ending inventory is most likely at risk of material misstatement if the gross profit percentage is much greater than last year?

Which of the following is an exception report that the auditor would generate using generalised audit software in order to test the valuation and allocation assertion for accounts receivable?

An aged trial balance of accounts receivable is usually used by the auditor to:

In the audit of Cassie Ltd, a medium-sized manufacturing company, which one of the following areas would be expected to require the least amount of audit time?

'While auditing James Ltd, you find that their inventory turnover has decreased from 7.8 times to 5.4 times during the year.Based on this decrease, which financial report assertion would you be least concerned with?

An auditor using audit software would probably be least interested in which of the following fields in a computerised perpetual inventory file?

All of the following evidence-gathering procedures can assist the auditor in testing the existence assertion for investment securities except:

Once an auditor has determined that accounts receivable at year-end have increased due to slow collections in a 'tight money' environment, the auditor would be likely to:

Which of the following is the best argument against the use of negative accounts receivable confirmations?

A normal audit procedure is to analyse the current year's repairs and maintenance accounts to provide evidence in support of the audit proposition that:

During a client's stocktake you select a sample of items from the floor, count them and trace the quantities to the inventory summary sheet.Which financial report assertion is this audit procedure related to?

Which of the following is necessary to audit balances in an on-line IT system in an environment where updated information is written over existing information?

Which of the following is one of the auditor's primary objectives when externally confirming holdings of marketable securities?

Tests designed to detect goods that arrived at the warehouse just before year-end and for which the audit client took ownership that have not been recorded in the perpetual inventory records until the subsequent year would most likely provide evidence about management's assertion of:

Substantive testing is typically used to audit shareholders' equity because:

Assurance and Auditing: An Overview

Audit Regulation, Structure of the Profession and Auditors Liability

Ethics, Independence and Corporate Governance

Overview of Elements of the Financial Report Audit Process

Planning, Understanding the Entity and Assessing Business Risk

Assessing Inherent Risk, and Other Specific Business Risks

Understanding and Assessing Internal Control

Tests of Controls

Completion and Review

The Auditors Reporting Obligations

Other Assurance Services and Advanced Topics

Internal Auditing

Audit and Assurance Services in the Public Sector

Filters

Exam 9: Substantive Tests of Transactions and Balances

In determining the adequacy of the allowance for uncollectible accounts, the least reliance should be placed upon which of the following?

From the auditor's point of view, inventory counts are more acceptable prior to the year-end when:

Which of the following is the best audit procedure for determining the completeness of the accrued liabilities listing?

An auditor would be least likely to use external confirmation procedures in connection with the examination of:

Which assertion for ending inventory is most likely at risk of material misstatement if the gross profit percentage is much greater than last year?

Which of the following is an exception report that the auditor would generate using generalised audit software in order to test the valuation and allocation assertion for accounts receivable?

An aged trial balance of accounts receivable is usually used by the auditor to:

In the audit of Cassie Ltd, a medium-sized manufacturing company, which one of the following areas would be expected to require the least amount of audit time?

'While auditing James Ltd, you find that their inventory turnover has decreased from 7.8 times to 5.4 times during the year.Based on this decrease, which financial report assertion would you be least concerned with?

An auditor using audit software would probably be least interested in which of the following fields in a computerised perpetual inventory file?

All of the following evidence-gathering procedures can assist the auditor in testing the existence assertion for investment securities except:

Once an auditor has determined that accounts receivable at year-end have increased due to slow collections in a 'tight money' environment, the auditor would be likely to:

Which of the following is the best argument against the use of negative accounts receivable confirmations?

A normal audit procedure is to analyse the current year's repairs and maintenance accounts to provide evidence in support of the audit proposition that:

During a client's stocktake you select a sample of items from the floor, count them and trace the quantities to the inventory summary sheet.Which financial report assertion is this audit procedure related to?

Which of the following is necessary to audit balances in an on-line IT system in an environment where updated information is written over existing information?

Which of the following is one of the auditor's primary objectives when externally confirming holdings of marketable securities?

Tests designed to detect goods that arrived at the warehouse just before year-end and for which the audit client took ownership that have not been recorded in the perpetual inventory records until the subsequent year would most likely provide evidence about management's assertion of:

Substantive testing is typically used to audit shareholders' equity because:

Assurance and Auditing: An Overview

Audit Regulation, Structure of the Profession and Auditors Liability

Ethics, Independence and Corporate Governance

Overview of Elements of the Financial Report Audit Process

Planning, Understanding the Entity and Assessing Business Risk

Assessing Inherent Risk, and Other Specific Business Risks

Understanding and Assessing Internal Control

Tests of Controls

Completion and Review

The Auditors Reporting Obligations

Other Assurance Services and Advanced Topics

Internal Auditing

Audit and Assurance Services in the Public Sector

Filters