Question 1

A review of any part of an organization's procedures and methods for the purpose of evaluating efficiency and effectiveness is classified as a(n)

Accepted Answer

A)  audit of financial statements. 
B)  compliance audit. 
C)  operational audit. 
D)  production audit.

Question 2

In auditing accounting data, the concern is with

Accepted Answer

A)  determining whether recorded information properly reflects the economic events that occurred during the accounting period. 
B)  determining if fraud has occurred. 
C)  determining if taxable income has been calculated correctly. 
D)  analyzing the financial information to be sure that it complies with government requirements.

Question 3

In the audit of an individual's tax return, the criteria used would be

Accepted Answer

A)  an accounting framework. 
B)  the Income Tax Act. 
C)  the client's policies for taxable income. 
D)  the auditor's judgment.

Question 4

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?

Accepted Answer

A)  assurance 
B)  attest 
C)  review 
D)  compilation

Question 5

As a PA, you have been asked to prepare your sister Betty's year-end financial statements. Betty is a photographer and is the sole shareholder of a small company called Best Weddings Ltd. She photographs weddings, graduations, and schools, and earns about $75 000 per year. Betty has said that she only needs the financial statements for her tax returns and would like you to prepare the tax returns too.
Required:
A) Would you be able to prepare the financial statements for your sister? Why or why not?
B) If yes, what type of report would you prepare to accompany the financial statements?
C) Would you be able to prepare the tax returns for your sister? Why or why not?

Accepted Answer

The answer of As a PA, you have been asked...

Question 6

Which of the following is an example of a financial statement audit?

Accepted Answer

A)  determining whether ABC's financial statements overall do not violate any debt covenants 
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 create account balance 
D)  evaluating the effectiveness and efficiency of internal controls used to record transactions

Question 7

The Sarbanes-Oxley Act requires the auditor to attest to the

Accepted Answer

A)  accuracy of the financial statements. 
B)  efficiency of the internal controls in financial reporting. 
C)  effectiveness of internal controls. 
D)  compliance of the company with the generally accepted accounting framework.

Question 8

What is the primary difference between internal and external auditors?

Accepted Answer

A)  the methodology used to conduct financial statement audits 
B)  the level of competence required 
C)  the parties to whom the auditor is responsible 
D)  the level of objectivity required

Question 9

Which of the following is an example of auditing rather than accounting?

Accepted Answer

A)  recording purchase amounts in the expense accounts 
B)  posting the daily sales totals to the general ledger 
C)  recording cash received in the customer account files 
D)  evaluating whether accounts receivable are collectible

Question 10

A typical objective of an operational audit is for the auditor to

Accepted Answer

A)  determine whether the financial statements fairly present the entity's operations. 
B)  evaluate the feasibility of attaining the entity's operational objectives. 
C)  evaluate the effectiveness of an internal process. 
D)  report on the entity's relative success in attaining profit maximization.

Question 11

What type of information is available from www.sedar.com (System for Electronic Document Analysis and Retrieval)?

Accepted Answer

A)  minutes of shareholders and directors meetings 
B)  transaction reports from major credit card companies 
C)  annual reports and management discussion and analysis 
D)  listings of all of the shareholders on record

Question 12

Mega Manufacturing Company (Mega) is thinking about acquiring Localized Small Producer Inc. (LSP), a small manufacturing company that produces related products. Mega has examined the financial statements of LSP, which show only a small profit in the last five years. Management of LSP has taken reasonable salaries, and cost of goods sold is higher than the industry average for LSP. Mega believes that it will be able to introduce operational efficiencies at LSP, improving the profitability of the small company, if acquired.
Required:
A) What type of engagement should be conducted to assess the operational efficiencies of LSP? Justify your response.
B) Who should be engaged to conduct the engagement?
C) What major problems might the auditors encounter when conducting the audit and writing the report?

Accepted Answer

The answer of Mega Manufacturing Company (Mega) is thinking about...

Question 13

The auditor and the entities should agree on the criteria to be used in the audit

Accepted Answer

A)  before the audit starts. 
B)  after the audit planning has been done. 
C)  as they progress with the audit, as they can determine which criteria are most suitable. 
D)  at the end of the audit.

Question 14

Joe is recording sales transactions in the accounting system so that they can be summarized in a logical manner for the purpose of providing financial information for decision-making. Joe is performing

Accepted Answer

A)  accounting. 
B)  auditing. 
C)  review. 
D)  management consulting.

Question 15

It is important for the auditor to be independent because

Accepted Answer

A)  otherwise the auditor would not charge a fair rate to the client. 
B)  otherwise the auditor might not be as knowledgeable of the subject matter and the criteria. 
C)  this will prevent bias in accumulating and evaluating evidence. 
D)  the Canadian tax authorities require that the auditor be independent.

Question 16

Auditors General are responsible for auditing which types of organizations?

Accepted Answer

A)  public companies with shares issued to investors 
B)  private companies that have loans outstanding to banks or other creditors 
C)  ministries, departments, agencies, and crown corporations 
D)  any organization that submits tax returns to the tax authorities

Question 17

Auditing should be done by a qualified

Accepted Answer

A)  chartered accountant. 
B)  certified management accountant. 
C)  competent and independent person. 
D)  professional accountant.

Question 18

Who is responsible for developing financial statement audit and assurance standards in Canada?

Accepted Answer

A)  AASB (Auditing and Assurance Standards Board) 
B)  standards staff at the CICA (Canadian Institute of Chartered Accountants) 
C)  national accounting bodies such as CGA Canada 
D)  the accounting firms who conduct financial statement audits

Question 19

What is the most appropriate method for an organization to lower information risk related to its financial statements?

Accepted Answer

A)  Have good bookkeeping work completed on the accounts. 
B)  Use a high quality software package keep track of information. 
C)  Have an independent financial statement audit conducted. 
D)  Have an independent operational audit conducted on effectiveness.

Question 20

The independent auditor's report is the

Accepted Answer

A)  communication of the result of the audit to the users. 
B)  set of audited financial statements. 
C)  invoice of the auditor detailing the work they have performed. 
D)  report presented to management about the possible improvements.

Exam 1: The Demand for Audit and Other Assurance Services