Question 1

An auditor wishes to perform tests of controls on a client's cash disbursements procedures. If the control procedures leave no audit trail of documentary evidence, the auditor most likely will test the procedures by:

Accepted Answer

A)  inquiry and analytical procedures. 
B)  confirmation and observation. 
C)  observation and inquiry. 
D)  analytical procedures and confirmation.

Question 2

Which of the following audit tests would be regarded as a test of controls?

Accepted Answer

A)  Tests comparing inventory pricing to vendors' invoices. 
B)  Tests of the specific items making up the balance in a given general ledger account. 
C)  Tests of the additions to property, plant and equipment by physical inspections. 
D)  Tests of the signatures on purchase orders to a list of approved signatories.

Question 3

Which of the following internal control activities is not usually performed in the accounts payable department?

Accepted Answer

A)  Indicating the asset and expense accounts to be debited. 
B)  Accounting for unused pre-numbered purchase orders and receiving reports. 
C)  Matching the vendor's invoice with the related receiving report. 
D)  Approving vouchers for payment by having an authorised employee sign the vouchers.

Question 4

For effective internal control, the billing function should be performed by the:

Accepted Answer

A)  accounting department. 
B)  sales department. 
C)  shipping department. 
D)  credit and collection department.

Question 5

Tracing shipping documents to pre-numbered sales invoices provides evidence that:

Accepted Answer

A)  no duplicate shipments or billings occurred. 
B)  shipments to customers were properly invoiced. 
C)  all goods ordered by customers were shipped. 
D)  all pre-numbered sales invoices were accounted for.

Question 6

In a properly-designed purchasing process, the same employee most likely would match vendors' invoices with receiving reports and also:

Accepted Answer

A)  cancels vendors' invoices after payment. 
B)  reconciles the accounts payroll ledger. 
C)  recomputes the calculations on vendors' invoices. 
D)  posts the detailed accounts payable records.

Question 7

Which of the following procedures most likely would provide an auditor with evidence about whether an entity's internal control activities are suitably designed to prevent or detect material misstatements?

Accepted Answer

A)  Performing analytical procedures using data aggregated at a high level. 
B)  Re-performing the controls for a sample of transactions. 
C)  Observing the entity's personnel applying the controls. 
D)  Vouching a sample of transactions directly related to the controls.

Question 8

To check the accuracy of the accounting records with regards to the recorded hours worked, an auditor would ordinarily compare time clock cards with:

Accepted Answer

A)  shop job time tickets. 
B)  personnel records. 
C)  time recorded in the payroll register. 
D)  labour variance reports.

Question 9

An auditor will use test data in order to gain certain assurances with respect to the:

Accepted Answer

A)  degree of keying accuracy. 
B)  controls contained within the program. 
C)  machine capacity. 
D)  input data.

Question 10

Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate control procedures over the invoicing function allow goods to be invoiced that are not shipped. The inadequate control procedures could cause an:

Accepted Answer

A)  understatement of revenues, receivables and inventory. 
B)  overstatement of revenues and receivables, and an understatement of inventory. 
C)  understatement of revenues and receivables, and an overstatement of inventory. 
D)  overstatement of revenues, receivables and inventory.

Question 11

Which of the following internal controls would be most likely to deter the lapping of collections from customers?

Accepted Answer

A)  Supervisory comparison of the daily cash summary with the sum of the cash receipts journal entries. 
B)  Segregation of duties between receiving cash and posting the accounts receivable ledger. 
C)  Authorisation of write-offs of uncollectible accounts by a supervisor independent of the credit approval function. 
D)  Independent internal verification of dates of entry in the cash receipts journal with dates of daily cash summaries.

Question 12

After obtaining an understanding of an entity's internal control system, an auditor may assess control risk at the maximum level for some account balances because he or she:

Accepted Answer

A)  identifies internal controls that are likely to prevent material misstatements. 
B)  performs tests of controls to reduce detection risk to an acceptable level. 
C)  determines that the pertinent internal control components are not well documented. 
D)  believes the internal controls are unlikely to be operating effectively.

Question 13

When undertaking tests of controls for revenues, auditors are more concerned with controls associated with the occurrence assertion than they are with the completeness assertion because:

Accepted Answer

A)  clients are more likely to overstate than understate revenues. 
B)  clients are more likely to understate than overstate revenues. 
C)  it is difficult to determine when services have been performed. 
D)  the allowance for doubtful accounts is often understated.

Question 14

Which of the following procedures most likely would be included as part of an auditor's tests of controls?

Accepted Answer

A)  Reconciliation. 
B)  Inspection. 
C)  Analytical procedures. 
D)  Confirmation.

Question 15

Which of the following control activities is not usually performed in the vouchers payable department?

Accepted Answer

A)  Controlling the mailing of the cheque and remittance advice. 
B)  Matching the receiving report with the purchase order. 
C)  Determining the mathematical accuracy of the vendor's invoice. 
D)  Having an authorised person approve the voucher.

Question 16

Possible misstatements related to the occurrence assertion for payroll transactions include all of the following except:

Accepted Answer

A)  payments to fictitious employees. 
B)  payments to terminated employees. 
C)  payments to valid employees who have not worked. 
D)  payments to valid employees at a rate in excess of the authorised amount.

Question 17

A procedure that would most likely be used by an auditor in performing tests of controls that involve segregation of functions and that leave no transaction trail is:

Accepted Answer

A)  observation. 
B)  inspection. 
C)  reconciliation. 
D)  re-performance.

Question 18

In the examination of which of the following general ledger accounts will tests of controls be particularly appropriate?

Accepted Answer

A)  Loans payable. 
B)  Equipment. 
C)  Sales. 
D)  Bank charges.

Question 19

Tracing copies of sales invoices to shipping documents will provide evidence that all:

Accepted Answer

A)  shipments to customers were billed. 
B)  debits to the accounts receivable master file are for sales shipped. 
C)  billed sales were shipped. 
D)  shipments to customers were recorded as receivables.

Exam 9: Tests of Controls