Ch7

Question 1 (1 point] An auditor performs a control test that includes examining the approval signature and date on purchase requisitions. This control ensures only valid and authorized purchases are made. The company completes on average one purchase requisition a day. How many purchase requisitions should be examined for approval in order for the auditor to gain reasonable assurance that the control is effective? Question 1 (1 point) Auditors mayr execute two types of audit procedures compliance tests and substantive tests. Normally, it is more efficient to carry out substantive procedures than to test and rely on controls. Question 2 (1 point) The lack of signicant change in an account balance from one year to the next does not necessarily mean that the auditor can assume the balance is reasonable. Question 3 (1 point) Which of the following factors should not influence the extent and timing of when substantive procedures are performed? 0 the type of audit opinion that the client would like the auditor to issue 0 the complexity of the client's data capturing systems 0 the level of assurance necessary O the type of evidence required Question 10 (1 point) In a typical financial statement audit, company management will be looking to make the financial statements look better than reality. Which of the following statements is false? Auditors should be most concerned with OVERSTATEMENT of revenues. Auditors should be most concerned with OVERSTATEMENT of liabilities. Auditors should be most concerned with OVERSTATEMENT of assets. Auditors should be most concerned with UNDERSTATEMENT of expenses.Question 2 (1 point) Which of the following is accurate when determining how much testing the auditor needs to perform on internal controls? Select all that apply. f'N more testing is required to gain more assurance statistically based techniques are used so professional judgement is not required the frequency of the control impacts the decision to reduce control risk by a limited amount, much more testing is required persuasiveness of evidence produced Question 3 (1 point) An entity has established a requirement that bank accounts are reconciled to the general ledger on a monthly basis. This procedure is part of the entity's 0 information systems. 0 control environment. 0 control activities. 0 risk assessment process. Question 4 (1 point) Which of the following statements about internal control is incorrect? 0 Internal control eliminates the possibility of fraud and error. 0 Internal control provides reasonable assurance about the achievement of the entity's objectives. 0 Internal control encompasses all of the elements of an organization. 0 Internal control is a very broad concept. Question 4 (1 point) As a result of analytical procedures, the independent auditor determines that the gross profit percentage has declined from 30 percent in the preceding year to 20 percent in the current year. The auditor should 0 Investigate the credit manager's performance 0 Evaluate management performance in causing this decline 0 Require footnote disclosure 0 Consider the possibility of misstatement of revenue or cost of goods sold 7 Hide hint for Question 4 What accounts make up Gross Profit? Question 5 (1 point) Vouching involves tracking a source document back to the underlying accounting records. Question 5 (1 point) When does the auditor typically test the internal controls? O at the end of the year under audit several times throughout the year O at the interim audit date O beginning of the year under audit Question 6 (1 point) In larger entities, there are often limitations surrounding the entity's ability to put effective internal controls in place. True FalseQuestion 6 (1 point) Several years ago, Conway inc. secured a conventional real estate mortgage loan. Which of the following audit procedures would most likely be performed by an auditor examining the mortgage balance? 0 Recompute the mortgage interest expense 0 Inspect the public records for registered mortgages 0 Examine the current yea r's cancelled cheques for mortgage payments 0 Review the mortgage amortization schedule Question 7 (1 point) An inventory turnover analysis is useful to the auditor because it may detect: 0 The optimum automatic reorder points 0 Methods of avoiding cyclical holding costs 0 The existence of obsolete merchandise 0 Inadequacies in inventory pricing Question 7 (1 point) The auditor is required to maintain "professional skepticism" when assessing fraud risk. Which of the following is not an example of professional skepticism? O The company has just announced staff layoffs dues to poor financial results, but the auditor notices that the company president has just purchased a new luxury automobile. 0 After determining that the company procedures manual states that at least two quotations must be obtained for all large purchases, the auditor confirms this procedure with the purchasing clerk. 0 While waiting in the reception area before a meeting, the auditor observes how the incoming mail is handled. Q When supporting documents are missing for several small office purchases, the auditor accepts that client explanation that these items are insignificant. Question 8 (1 point) A computer operator perpetrated a theft by preparing erroneous T4 forms. The operator?s income tax withheld was overstated by $2,000, and the income tax withheld for all other employees was understated by the same amount. Which of the following audit procedures would detect such a fraud most effectively? O Multiplication of the applicable rate by the individual?s gross taxable earnings. 0 Footing and cross footing of the payroll register followed by tracing postings to the general ledger. 0 Using employee TD1 forms and withholding tables to determine whether deductions authorized per pay period agree with amounts deducted per pay period. 0 Vouching cancelled cheques to income tax withholding remittance forms. 7 Hide hint for Question 8 Before you do too much work, consider the "quick and dirty" solution. Question 9 (1 point) Matilda Papas has been asked to lead her audit team in the audit of the Toronto Raptors basketball team. She performed a review of their risks and found that the team's risks tend to be driven by the nature of certain significant accounts or business activities that the Raptors pursue. This risk is 0 control risk. 0 detection risk. 0 audit risk. 0 inherent risk. Question 9 (1 point) When internal controls are effective, 0 the organization is more likely to achieve its strategic and operating objectives. 0 the organization is less likely to achieve its strategic and operating objectives. 0 there will be an increased reliance on substantive tests of transactions and account balances. 0 control risk will also be high. Question 10 (1 point) The purpose of preventive controls is to discover fraud or errors that may have occurred during transaction processing and to rectify those errors