Multiple Choices

1. The reliability of audit evidence is affected by its source and its nature. Which of the following statements about the sources or nature of evidence is true?

a) In comparing the three sources of audit evidence, externally generated evidence held by the client will generally be the most reliable.

b) Of the three categories representing the nature of evidence, natural evidence is the most reliable, followed by created evidence and, finally, rational argument.

c) Of the three categories representing the nature of evidence, natural evidence is the most reliable, followed by rational argument and, finally, created evidence.

d) In comparing the three sources of audit evidence, client-generated evidence will be the most reliable and will depend on the effectiveness of the client's internal controls.

2. Which of the following is considered a test of controls?

a) Recalculating the allowance for doubtful accounts using the rates established by management

b) Recalculating the gain/loss on disposal of assets, agreeing the proceeds to sales invoices, and agreeing net book value to the capital asset register

c) Selecting a sample of shipping documents to ensure there are no missing numbers

d) Vouching a sample of current balances on the aged trial balance to sales invoices to determine proper aging

3. One of the audit procedures in the property, plant, and equipment audit program is to use a disclosure checklist to ensure capital assets are presented in accordance with CPA Canada Handbook requirements. Which of the following assertion(s) is/are most likely being tested?

a) Presentation

b) Cutoff

c) Rights and obligations

d) Accuracy, valuation, and allocation

4. The accounting for construction contracts is complex and can pose complications in the audit. Which of the following audit procedures would be a relevant procedure to test for the completeness of the costs recognized in relation to a construction contract?

a) Select a sample of material costs from the general ledger (G/L) and vouch to invoices, and ensure they relate to the specific contract to which they have been allocated.

b) Review the board of directors' minutes for evidence of progress and performance of the contract, and ensure the evidence is consistent with the percentages recognized.

c) Agree invoice amounts to the amounts of the billing schedule in the contract.

d) Select a sample of material costs from the billing schedule and verify the costs have been recorded in the correct period.

5. Which of the following statements regarding external confirmation procedures for accounts receivable is true?

a) When preparing and sending the letter, the request is typed on the client's letterhead and is sent out by the audit staff.

b) When preparing and sending the letter, the request is typed on the client's letterhead and is sent out by the client staff.

c) For negative confirmations, customers are asked to reply only if they agree with the balance outstanding.

d) The auditor should follow up on any non-replies regarding negative confirmations because customers may not understand what is required of them.