Question 1

Explain examples of substantive tests of inventory that are always performed.

Accepted Answer

The answer of Explain examples of substantive tests of inventory...

Question 2

Identify and explain the key audit assertions relating to cash.

Accepted Answer

The answer of Identify and explain the key audit assertions...

Question 3

When Costa Zimbalist observes the inventory count at a client to establish that the client's personnel are complying with inventory count instructions, which assertions are in play?

Accepted Answer

A)  completeness, cutoff, rights and obligations 
B)  completeness, cutoff 
C)  existence, classification 
D)  existence, completeness, valuation and accuracy

Question 4

The two key assertions for inventory are completeness and rights and obligations.

Accepted Answer

A) True 
 B)False

Question 5

The additional opportunities for influencing the timing of the work include:

Accepted Answer

A)  reviewing provisions prior to year-end. 
B)  leveraging off the activities of the internal audit function. 
C)  reviewing activity in the period to date. 
D)  all of the above.

Question 6

What are the key assertions for payables?

Accepted Answer

A)  completeness and valuation and allocation 
B)  existence and completeness 
C)  completeness and rights and obligations 
D)  classification and valuation and allocation

Question 7

When Silvana Mathews reviewed the physical inventory compilation she performed a procedure that included tracing the cut-off information obtained during the physical inventory
Observation to the accounting records of sales and purchases. Which assertion did this
Procedure satisfy?

Accepted Answer

A)  valuation and accuracy 
B)  completeness 
C)  existence 
D)  all of the above

Question 8

Indicate whether you agree or disagree with the following statements and explain your reasoning.
a) Paula Padgett was performing substantive tests of trade receivables at Neu Lion. She indicated to her staff member, Leona Marshall: "At this client accounts receivable are material in amount. The two assertions that are the most important are the occurrence and accuracy assertions."
b) Emilio Boulrice, CPA was returning from an audit conference where he had entertained his many friends with his musical talents. As he sat in his aisle in the Air Canada flight back home to Montreal, he turned to his friend and said: "Although there is no specific requirement for us to confirm receivables anymore, existence of trade receivables is usually verified by sending confirmations to the client's customers."
c) Mike Gallagher was preparing his staff for the audit of inventory at a major client. He said to his staff: "The two key assertions for inventory are proper cutoff and accuracy."
d) Mona Lincolnshire was assessing the results of her staff's substantive testing procedures. She said: "When performing substantive procedures, the key objective is to determine whether there are material misstatements within the balance being investigated and to quantify the amount of any errors if they exist."

Accepted Answer

The answer of Indicate whether you agree or disagree with...

Question 9

Evaluating the adequacy of the allowance for doubtful accounts account is an example of a
substantive test of trade receivables that is always performed.

Accepted Answer

A) True 
 B)False

Question 10

Accounts that are clearly trivial or immaterial are usually ignored or only subjected to:

Accepted Answer

A)  tests of controls. 
B)  analytical procedures. 
C)  confirmations. 
D)  observations.

Question 11

Which of the following statements regarding a share register is incorrect?

Accepted Answer

A)  It is a list of all the items of inventory that a company has. 
B)  It is used to capture purchases and sales of shares. 
C)  It is essentially the sub-ledger reconciled to the general ledger account for share capital. 
D)  It is prepared by the auditor.

Question 12

When trade receivables is a significant account in an entity's balance sheet, the two audit
assertions that are considered most important are existence and valuation and allocation.

Accepted Answer

A) True 
 B)False

Question 13

When substantive tests performed identify errors or exceptions, the first response is to:

Accepted Answer

A)  qualify the audit report. 
B)  understand why the exception or error has arisen. 
C)  report the client to Canada Revenue Agency (CR
A) . 
D)  perform additional substantive testing.

Question 14

Which of the following is not an example of a substantive test of cash payments transactions?

Accepted Answer

A)  test the account classifications of cash payments 
B)  account for the numerical sequence of cheques issued during a specified period 
C)  test the mathematical accuracy of the cash receipts ledger 
D)  determine whether the signatures on paid cheques are authorized

Question 15

Physically sighting fixed assets enables the auditor to test the rights and obligations
assertion.

Accepted Answer

A) True 
 B)False

Question 16

When the assessment of inherent risk and control risk is low, the amount of substantive
testing required to reduce the detection risk to an acceptable level is significant.

Accepted Answer

A) True 
 B)False

Question 17

Explain how substantive testing is used for prepayments, investments and intercompany balances.

Accepted Answer

The answer of Explain how substantive testing is used for...

Question 18

Existence of trade receivables is usually verified by:

Accepted Answer

A)  examining copies of sales invoices sent to the client's customers. 
B)  sending confirmations to the client's customers. 
C)  calculating changes in the receivables balance from one year to the next. 
D)  evaluating the adequacy of the provision for doubtful accounts.

Question 19

Lynn Katsopolus was not sure which customers of her client to send confirmations. Who should she send confirmations to?

Accepted Answer

A)  to the customers who will be most likely to reply 
B)  to the customers with the largest balances 
C)  to the customers with the oldest balances 
D)  both b and c

Exam 10: Substantive Testing and Balance Sheet Accounts

Explain examples of substantive tests of inventory that are always performed.

Identify and explain the key audit assertions relating to cash.

When Costa Zimbalist observes the inventory count at a client to establish that the client's personnel are complying with inventory count instructions, which assertions are in play?

The two key assertions for inventory are completeness and rights and obligations.

The additional opportunities for influencing the timing of the work include:

What are the key assertions for payables?

When Silvana Mathews reviewed the physical inventory compilation she performed a procedure that included tracing the cut-off information obtained during the physical inventory Observation to the accounting records of sales and purchases. Which assertion did this Procedure satisfy?

Evaluating the adequacy of the allowance for doubtful accounts account is an example of a substantive test of trade receivables that is always performed.

Accounts that are clearly trivial or immaterial are usually ignored or only subjected to:

Which of the following statements regarding a share register is incorrect?

When trade receivables is a significant account in an entity's balance sheet, the two audit assertions that are considered most important are existence and valuation and allocation.

When substantive tests performed identify errors or exceptions, the first response is to:

Which of the following is not an example of a substantive test of cash payments transactions?

Physically sighting fixed assets enables the auditor to test the rights and obligations assertion.

When the assessment of inherent risk and control risk is low, the amount of substantive testing required to reduce the detection risk to an acceptable level is significant.

Explain how substantive testing is used for prepayments, investments and intercompany balances.

Existence of trade receivables is usually verified by:

Lynn Katsopolus was not sure which customers of her client to send confirmations. Who should she send confirmations to?