revision question

1- As part of the current audit the audit team of Baker Hill Auditors compared the annual change in sales, cost of goods and production from last year to the average change for the past 10 years of the company's history and that of the industry to which the company is a member.

The action of the audit team best illustrates which type of evidence gathering:

Select one:

a. Recalculation.

b. Analytical procedures.

c. Confirmation.

d. Physical Examination/Inspection.

2- The audit team were told by the company that comprehensive and detailed processes have been established to ensure that all inventory acquired by the company is recorded, processed, handled and stored properly.

As part of the audit team's efforts to verify this assertion/claim by the company, the audit team gathered files, forms, and notes produced internally by the company that allegedly described the company's policies and procedures.

This form of evidence gathering is best described as:

Select one:

a. Observation.

b. Inquires of the Client.

c. Analytical Procedures.

d. Documentation.

3- Internal documents of FIB Limited, a major merchandise company, states that each inventory delivery must be examined and counted by two warehouse personnel and the delivery docket receipt signed by a third person from warehouse management.

The audit team wish to confirm that this process is being followed correctly. To complete this task the audit team decided they will be present to watch 20 deliveries at 4 of the warehouses owned by FIB Limited during the next week.

The form of evidence gathering best described by the actions of the audit team is:

Select one:

a. Recalculation.

b. Confirmation.

c. Observation.

d. Documentation.

4- The audit team is concerned the sales revenue reported by the company is a materially misstated.

As part of their efforts to determine this, the audit team created a number of dummy sales using their (the auditor's) IT processes.

The audit team then entered the dummy sales into the company's accounting information, and compared the totals computed independently by the auditor using their IT system to that using the company's system.

This form of evidence gathering is best described as:

Select one:

a. Reperformance.

b. Confirmation.

c. Documentation.

d. Recalculation.

5- For the forthcoming audit of Tom and Lee Limited the audit partner of Jack Lift Audits has set a low acceptable audit risk compared to last year.

The level of materiality the audit team will apply in the forthcoming audit will, therefore, be:

Select one:

a. Indeterminable as materiality is set by standard setters.

b. Higher compared to last year.

c. Lower compared to last year.

d. Unchanged from last year.

6- You are a member of the audit team of PBA Auditors, a major audit firm responsible for auditing Outback Hats Limited.

The audit partner during an audit team meeting stated that compared to past years the audit team will need to collect more evidence and do more work.

The audit partners of PBA Auditors had decided in an executive meeting the additional work load was needed because the audit partners wanted to lower the probability the audit team would not find a material misstatement.

The decision by the audit partners of PBA Auditors best represents a(n):

Select one:

a. Decrease in engagement risk.

b. Increase in inherent risk.

c. Decrease in detection risk.

d. Increase in detection risk.

7- Which of the following statements best describes a goal of the audit?

Select one:

a. Collect an insufficient amount of appropriate evidence at the least cost.

b. Collect a sufficient amount of inappropriate evidence at the least cost.

c. Collect a sufficient amount of appropriate evidence at the most cost.

d. Collect a sufficient amount of appropriate evidence at the least cost.v

8- Company policy requires that each credit sale above $10,000 requires approval of two department managers.

Examination of a sample of 200 credit sales in excess of $10,000 indicated that each transaction had been perfectly entered into the general journal and posted to the general ledger.

The audit team, however, found that from the sample 20 transactions had either been approved by only one department manager or no department manager.

This findings above suggest:

Select one:

a. Inherent risk is high and control risk is low.

b. Inherent risk is high and control risk is high.

c. Inherent risk is low and control risk is high.

d. Inherent risk is low and control risk is high.

9- The audit partner wishes to keep the level of audit risk the same as prior years for the audit of Rubber Stamps Limited.

Since last year the audit partner has determined the level of control risk associated with Rubber Stamps Limited is higher whilst inherent risk has remained constant.

Compared to last year, the level of detection risk will be:

Select one:

a. Unchanged

b. Doubled

c. Higher

d. Lower

10- The audit team has been tasked with determining the amount of work that will be expected to complete and evidence to collect.

A member of the audit team has been assigned responsibility for investigating the general operations of the company, the industry to which the company belongs, competitors and the types of transactions the company (and companies in the industry) are involved in on a day-to-day basis.

The task of the audit team member is best described as evaluating the level of ______________________ of the client.

Select one:

a. Engagement Risk

b. Inherent Risk

c. Enterprise Risk

d. Audit Risk

11- In The Dark Limited has been a long term client of DPA Auditors.

During the last year the directors of In The Dark Limited have been the subject of multiple investigations by legal authorities for illegal dumping of chemicals and questionable share trading activities. Furthermore, the company has been increasingly seeing significant declines in suppliers willing to accept their business leading to higher input prices wish sales have declined as customers seek more reputable companies.

For the forthcoming audit, DPA Auditors would assess In The Dark Limited to have _______________________ compared to prior years.

Select one:

a. Lower audit risk.

b. Higher substantive risk.

c. Higher detection risk.

d. Lower engagement risk.

12- During the current year audit the audit team is concerned that one of the clients (ABC Limited) is not recording it sales correctly for the past year.

The audit team contacted all customers of ABC Limited who purchased large value items over 2 years ago. All the customers confirmed in writing that they had purchased the items from ABC Limited and provided the sales invoices.

The audit partner is likely to dismiss the value of the audit evidence gathered by the audit team because the audit evidence lacks:

Select one:

a. Relevance.

b. Sufficiency.

c. Reliability.

d. Timeliness.