Question 1

Camilla is preparing the audit program for the inventory of Summers,a large department store.Camilla listed "select a sample of invoices from suppliers to verify that the risks and rewards of the inventory were transferred to Summers." Camilla is concerned that some of the inventory in the store might be on consignment.The account balance-related objective that Camilla is concerned about is

Accepted Answer

A) rights and obligation. 
B) accuracy. 
C) valuation. 
D) existence.

Question 2

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?

Accepted Answer

A) discussing processes and business objectives with company employees 
B) gathering information about the industry and regulatory environment 
C) understanding the client's business,industry,and regulatory environment 
D) examining the legal expenses file for possible regulatory infractions

Question 3

In May 2017,the firm of Chang and Crown (C&C)became the auditors of Laua Limited (LL)for the fiscal year ended December 31,2016.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

The answer of In May 2017,the firm of Chang and...

Question 4

A financial statement audit typically consists of four sections that relate to risk.Identify the four sections and discuss the major activities performed by the auditor in each section.

Accepted Answer

The answer of A financial statement audit typically consists of...

Question 5

If the purchase of a long-term note receivable is included as cost of goods sold,there is a violation of the

Accepted Answer

A) existence objective. 
B) completeness objective. 
C) classification objective. 
D) timing objective.

Question 6

When comparing the auditor's responsibility for detecting employee fraud and for detecting errors,the profession has placed the responsibility

Accepted Answer

A) more on discovering errors than employee fraud. 
B) more on discovering employee fraud than errors. 
C) equally on discovering either one. 
D) on the senior auditor for detecting errors and on the manager for detecting employee fraud.

Question 7

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.

Question 8

Which of the following is an example of a direct effect illegal act that could be performed by a client? Violation of

Accepted Answer

A) environmental protection laws for the production facility. 
B) insider securities trading regulations by senior management. 
C) employment equity laws for a large group of non-unionized employees. 
D) income tax laws and incorrect calculation of income taxes payable.

Question 9

Which of the following statements is true regarding a difference between general audit objectives and specific audit objectives for an account balance?

Accepted Answer

A) The general audit objectives are applicable to every account balance on the financial statements. 
B) The specific audit objectives are applicable to every account balance on the financial statements. 
C) For any given account,usually only one audit objective must be met to conclude the transactions are properly accounted. 
D) The general audit objectives are stated in terms tailored to the engagement.

Question 10

During the audit process steps,when will the auditor conduct tests of controls?

Accepted Answer

A) when there are poor internal controls 
B) if the auditor plans to rely upon them 
C) when a substantive audit approach is selected 
D) when there are low risks of material error

Question 11

Flagpole Company Limited recently upgraded its accounting software due to changes in the payroll income tax rates.Unfortunately,there was an error in the software,and income tax was calculated incorrectly.The general transaction-related audit objective affected by this error is

Accepted Answer

A) occurrence. 
B) completeness. 
C) accuracy. 
D) posting and summarization.

Question 12

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

Question 13

When applying professional judgment,auditors are required to justify their decision based on seven criteria.List the criteria within the auditor's professional judgment framework.

Accepted Answer

The answer of When applying professional judgment,auditors are required to...

Question 14

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

Accepted Answer

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

Question 15

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

The answer of Sean Clem has done a review engagement...

Question 16

Marianne is currently performing tests of controls on the presence of an employee code of conduct,the presence of a whistle blower line,and on how management responded to complaints and implemented systematic penalties for instances where violations of the code of conduct existed.Marianne is currently evaluating the

Accepted Answer

A) industry and business environment. 
B) risk of fraud. 
C) client acceptance. 
D) entity-level controls.

Question 17

Substantive 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) detect monetary misstatements in the financial statements. 
D) prove that the trial balance is in balance.

Question 18

You have been assigned as the in-charge auditor for a new client,Beltair House.Beltair House is a non-profit charitable organization that operates a women's shelter.In the past,the organization had been almost fully funded by the provincial government.However,due to recent government budget cuts,Beltair now has to raise operating funds from public donations.
Because of financial constraints,there is now only one full-time manager,Joan Ng.Joan has the help of several volunteers.The shelter residents also help out with the chores and with maintenance and cleaning.Ng has been able to arrange for a local food bank to provide a large portion of the food required for meals.Door-to-door canvassers have been able to raise money to keep the House going,but Ng is concerned that this will change.
Required:
Identify issues that affect the risk of this audit engagement that you will need to consider.

Accepted Answer

The answer of You have been assigned as the in-charge...

Question 19

Jane's employer purchased a new calculator this month.When Jane added up the sales for the day,she was a bit confused with the new calculator and made numerous adding errors.The daily sales total for the next week were incorrectly posted to the general ledger.The general balance-related audit objective affected by this activity is

Accepted Answer

A) cutoff. 
B) accuracy (of allocation). 
C) classification. 
D) existence.

Exam 4: Audit Responsibilities and Objectives