10 points

QUESTION 2

1.Which of the following factors will influence the auditor the greatest into taking a substantive audit approach as part of a financial statement audit?

The company implemented an EDI system at the start of the fiscal year under audit

Due to downsizing, Internal Audit was unable to audit the sales process during the fiscal year under audit

A company's transactions are uniform and there has not been a change in the company's processes in three years

A small company has few transactions however controls are expected to be effective

10 points

QUESTION 3

1.Your client has refused to adjust its inventory balance for a write-down in value that you believe is permanent based on your audit procedures.The amount that you believe should be written-off is $35 million.Overall audit materiality is $25 million.No other adjustments are required as you believe all other balances are fairly stated.What type of opinion would you issue?

Issue an unqualified opinion

Issue a disclaimer of opinion

Issue a qualified "except for" opinion

Issue an adverse opinion

10 points

QUESTION 4

1.Which of the following factors would drive an increase in the number of receivables confirmations that the auditor would send to the client's customers?

Use of negative confirmations rather than positive confirmations

High planned detection risk

Low control risk

Management refusal to auditor to send out confirmations due to lawsuit with customers

10 points

QUESTION 5

1.Which of the following factors will influence the auditor the greatest into taking a substantive audit approach as part of a financial statement audit?

The company implemented an EDI system at the start of the fiscal year under audit

Due to downsizing, Internal Audit was unable to audit the sales process during the year

A company's transactions are uniform and there has been no change in three years

A small company has few transactions, however controls are expected to be effective

10 points

QUESTION 6

1.Which of the following provides highest quality of evidence for valuation of Accounts Receivable?

External confirmations of account balances with your client's customers (insurance companies)

External confirmation of large balances with your client's customers (university students)

Inquiry of internal audit over the results of past audits of Accounts Receivable

Inspection of process narratives for the sales and receivables process

10 points

QUESTION 7

1.Which following scenarios make sense for auditor to utilize substantive analytical procedures?

A substantive audit approach is necessary as the company has a poor control environment

A client must maintain a 2:1 Current ratio or bank loan must be paid back in full within 30 days

A client's payroll consists of 3 full-time employees

A company has several capital assets that are each depreciated using a different rate

10 points

QUESTION 8

1.At the review stage of an audit, the application of analytical procedures is

Recommended by auditing standards.

Not mentioned by auditing standards.

Not useful, since detailed substantive tests have already been performed.

Required by auditing standards.

10 points

QUESTION 9

1.One of the auditor's primary concerns with regard to internal controls is:

The degree to which the internal controls are working as designed.

The possibility of an inherent risk which has to be controlled.

The impact the controls have on the accuracy of the accounting records.

The amount of substantive work to be saved by testing controls instead.

10 points

QUESTION 10

1.Purchase cut off procedures should be designed to produce evidence about whether or not merchandise that is included in the inventory of the company

Has been paid for.

Is physically present in the warehouse.

Is owned by the company (legal title has been transferred).

Relates to the shipping documents for the merchandise issued in the company's name.

10 points

QUESTION 11

1.An audit report included an additional paragraph disclosing a difference of opinion between the auditor and the client. The auditor believed that an adjustment should be made to the financial statements. The opinion paragraph of the audit report should express

An unqualified opinion.

An "except for" opinion citing a departure from generally accepted accounting principles.

An "except for" opinion citing a scope limitation.

A disclaimer of opinion.

10 points

QUESTION 12

1.Which audit opinion is most appropriate if the auditor of a client for the past seven years identifies that while there has been no change to the client's operations or controls (which were assessed during the previous audit as operating effectively), the client is unable to provide a paper trail to support transactions on the financial statements?

Unqualified opinion

Qualified opinion

Disclaimer of opinion

Adverse opinion

10 points

QUESTION 13

1.Big Bank requires, as part of its loan agreement, that only accounts receivable less than 60 days old be used as collateral. An auditor has been engaged to provide assurance that the accounts receivable on the list provided to the bank are indeed less than 60 days old. What type of engagement is the auditor conducting?

financial statement

compliance

operational

review

10 points

QUESTION 14

1.Michum Inc. has related party transactions with company owned by CEO's brother for $500,000. There are also related party transactions with the owner (about $250) and with two of the officers ($750 and $1,000). Which related parties be identified and included in audit documentation?

those with material transactions only

those that had transactions in the current year only

all related parties

only those that could lead to a conflict of interest

10 points

QUESTION 15

1.During a review engagement, CPA discovers that the gross margin has increased by 20% over the last few years. To avoid potential liability due to misstated financial statements, CPA should

Correct the gross margin to be consistent with prior years.

No additional work is required for review engagements.

Downgrade the assignment to a compilation engagement.

Obtain additional information to correct or substantiate the figures.

10 points

QUESTION 16

1.An audit report included an additional paragraph disclosing a difference of opinion between the auditor and the client. The auditor believed that an adjustment should be made to the financial statements. The opinion paragraph of the audit report should express

An unqualified opinion.

An "except for" opinion citing a departure from generally accepted accounting principles.

An "except for" opinion citing a scope limitation.

A disclaimer of opinion.

10 points

QUESTION 17

1.Which of the following is true concerning the auditor's responsibilities according to Canadian Auditing Standards (CAS)?

Inventory must be counted on the last day of the auditee's fiscal period unless it is not feasible to do so.

Inventory owned by the auditee but located at a third party's location must be inspected by the auditor

If inventory is material to the financial statements, the auditor must observe the year-end physical inventory count unless it is not feasible to do so.

The auditor must design the inventory-counting procedures to be used by the auditee.

10 points

QUESTION 18

1.How should the current period audit report be worded when the prior period financial statements were not audited?

The auditor shall state in another matter paragraph in the auditor's report that the corresponding figures are unaudited.

The auditor shall state in another matter paragraph that no assurance is given regarding the opening balances.

No comment is necessary in the report, unless the opening balances contain material misstatements.

No comment is necessary in the report, unless the opening balances are material.

10 points

QUESTION 19

1.Senate Products Ltd. is in its second year of business and has not recorded any liability for its goods sold last year, even though it offers a two-year warranty. Which of the following management assertions would be affected?

Classification

Compliance

Existence

Completeness

10 points

QUESTION 20

1.Which of the following is false concerning the use of observation as an evidence-gathering technique by auditors?

Observation is limited to the point in time at which the observation takes place.

Observation is limited by the fact that the act of being observed may affect how the process or procedure is performed.

Observation of a fixed asset provides evidence of ownership.

Observation of a fixed asset provides evidence of existence.

10 points

QUESTION 21

1.Which of the following confirmation requests would provide audit evidence considered to be most reliable?

An external confirmation request that asks the confirming party to reply to the auditor in all cases, indicating the confirming party's agreement with the given information.

An external confirmation request that asks the confirming party to reply to the auditor only if the party disagrees with the recorded amount.

An external confirmation request that does not contain the amount to be confirmed, and asks the confirming party to fill in the amount and reply to the auditor.

An external confirmation request that asks the confirming party to reply to the client.

10 points

QUESTION 22

1.Which of the following is true regarding the auditor's responsibilities concerning the client'scompliance with laws and regulations?

The auditor shall obtain a general understanding of the legal and regulatory framework applicable to the client.

The auditor's only required audit procedures are to contact both the client and the client's lawyer to request written representations that it has complied with all laws and regulations.

The auditor has no required audit procedures because non-compliance may involve conduct designed to conceal it, such as collusion or forgery, which the auditor is not trained to detect.

The auditor has no responsibility to detect non-compliance with laws and regulations, since whether an act constitutes non-compliance is ultimately a matter for legal determination by a court of law.

10 points

QUESTION 23

1.Which of the following types of evidence would an auditor consider to be the weakest in terms of reliability?

Documentary evidence obtained from a third party

Written representation from the auditee's directors

Documentary evidence originating from outside the auditee's data processing system, but received and processed by the auditee

Evidence obtained through the auditor's observation

10 points

QUESTION 24

1.Which of the following is true concerning materiality and misstatements found during the audit?

The auditor would communicate all misstatements (other than those classified as trivial) accumulated during the audit with the appropriate level of management, and request management to correct those misstatements.

The auditor would communicate only misstatements that exceed materiality to the appropriate level of management, and request management to correct those misstatements.

The auditor would communicate all misstatements accumulated during the audit with the appropriate level of management, and request management to correct those misstatements which management feels are material.

The auditor would communicate all misstatements accumulated during the audit with the appropriate level of management, and request management to correct those misstatements considered to be material by the auditor.

10 points

QUESTION 25

1.Auditors frequently have to use professional judgement during an audit, for example, in determining materiality. Which of the following would likely be the most appropriate basis for calculating materiality for a profitable business operation?

The same amount as the previous year

1% of total revenue

1% of total expenses

5% of profit before tax from continuing operations

10 points

QUESTION 26

1.If the auditor determines that the risk of material misstatement (RMM) is high, then which of the following would be appropriate?

Assigning more experienced personnel to the audit

Doing more of the substantive testing at an interim date, instead of waiting until the end of the year

Increasing the amount considered to be material

Relying more on the client's internal controls

10 points

QUESTION 27

1.How is the critical cut-off percentage rule used in the planning stage of an audit?

It allows the auditor to identify items that exceed materiality.

It allows the auditor to identify items that may not exceed materiality, but for which the percentage change is so large that it indicates potential problems.

It helps the auditor to identify items that may be recorded after the audit period.

It is used by the auditor to determine the amount of performance materiality as a percentage of overall materiality.

10 points

QUESTION 28

1.What type of information would most likely be found in an auditor's logistical plan?

Arrangements made with the client in respect of space, equipment, and access to records

Issues of overall assurance, materiality, and basic timing

Choice of internal control questionnaires and audit programs

Actual staffing for the engagement and audit fees

10 points

QUESTION 29

1.What type of audit opinion should the auditor issue if, after a first audit of a new client, the auditor has been unable to obtain sufficient appropriate evidence concerning the carrying value of the opening inventories which were material in amount but not highly so? The auditor has no other concerns about the financial statements.

An unqualified opinion on the financial statements including a note that no opinion is expressed with respect to the comparative figures for the previous year as they were not audited

An audit report that is qualified with respect to the comparative figures

A denial of opinion on the current year's income statement, statement of retained earnings, and statement of cash flows, and an unqualified opinion with respect to the balance sheet

A qualification of opinion on the current year's income statements, statement of retained earnings, and statement of cash flows, and an unqualified opinion with respect to the balance sheet

10 points

QUESTION 30

1.An auditor has not been given access to the minutes of the board of directors' meetings held during the year. As a result, the auditor would most likely issue which opinions?

Adverse opinion

Qualified (GAAP) opinion

Unqualified opinion with an emphasis of matter paragraph

Denial of opinion

10 points

QUESTION 31

1.Which of the following opinions is an auditor most likely to issue when he or she found a material misstatement in a client's opening balances during an initial audit engagement, but has determined that the balance sheet accounts at the end of the fiscal year are not materially misstated?

An unqualified opinion modified by an explanatory paragraph

A qualified (GAAP) opinion

A qualified (scope) opinion

An adverse opinion

10 points