WorksheetsPractice for final exam part 1 (MCQ's)-IAF520
Total questions: 30
Worksheet time: 31mins
The auditor's primary concern with regard to internal controls is
the impact the controls have on the accuracy of the accounting records
the degree to which the internal controls are working as designed
the possibility of an inherent risk that has to be controlled
the amount of substantive work to be saved by testing controls instead
Which of the following is true regarding the financial statement assertions?
All assertions can be proved using only substantive procedures, but it would be too costly.
Some assertions are virtually impossible to prove without some evaluation of control effectiveness.
Some assertions can be proved using only an evaluation of control effectiveness.
The evaluation of control effectiveness is only used because it is more efficient than using only substantive procedures.
Which of the following statements is true?
Testing of controls is the most cost-efficient way of designing each audit.
Substantive testing is the most cost-efficient way of designing each audit.
As the work of testing of controls increases, the cost of substantive work increases.
There is a point where further testing of controls becomes more expensive than performing substantive tests.
Monthly comparison of the accounts receivable control account balance to the total of customer balances from A/R subsidiary ledger is an example of what general control category?
Periodic comparison and reconciliation
Performance reviews
Supervision
Segregation of responsibilities
Which of the following selection methods is least likely to result in a sample representative of all transactions?
Block sampling
Random sampling
Haphazard sampling
Systematic sampling
Which of the following audit procedures is NOT typically used in audit sampling applications?
Observation of personnel and procedures.
Physical count of tangible assets.
Recalculation.
Confirmation.
In an auditing context, which of the following scenarios describes a type II error?
An auditor applies non-statistical sampling methodology to a randomly selected sample.
An auditor fails to uncover a material misstatement in an account that is, in reality, materially misstated.
An auditor applies statistical sampling methodology to a non-randomly selected sample.
An auditor concludes that an account is materially misstated, when in reality, it is not materially misstated.
In testing controls over invoices, an auditor discovers that in 10% of her statistical sample invoices were for amounts greater than the actual quantity shipped. In such a case, an appropriate response for her would be to__________.
increase her sample size to determine the extent of the control weakness
recalculate control risk to determine if there is any effect on the nature, timing, or extent of her year-end procedures
conclude that controls are working at 90% effectiveness and classify control risk as low
consult with her partner to consider launching a fraud investigation
Which of the following lists outlines the best order for a typical sequence of activities in the revenue and collection cycle?
Delivering goods, billing customers, credit granting, collection activity.
Customer ordering, delivering goods, billing customer, cash receipts.
Customer ordering, delivering goods, credit granting, collection activity.
Credit granting, billing customers, delivering goods, cash receipts.
When the credit manager decides a customers' account is considered to be uncollectible, the decision should be reviewed by the controller to ________.
ensure the bad debts account is within budget
ensure the credit manager has not written off the account as a favour to a friend
begin a lawsuit to collect the money
inform the police
A fictitious entry in the cash receipts journal provides evidence of which assertion misstatement for accounts receivable?
Ownership
Completeness
Valuation
Existence
Which of the following procedures would best lead to an understanding of the transaction flow in the revenue and collection cycle?
Inquiry.
Observation.
Confirmations.
Inspecting a sample of documents.
Martinez CPA was auditing his client, Marvelous Retail Limited. He selected a sample of inventory items from the perpetual records and vouched all additions to receiving reports. This procedure was intended to satisfy which control objective?
Authorization.
Completeness.
Validity.
Accuracy.
Which of the following internal control procedures is most likely to be used in order to maintain accurate inventory records?
Perpetual inventory records are periodically compared with the current cost of individual inventory items
A just-in-time inventory ordering system keeps inventory levels at a desired minimum.
Requisitions, receiving reports, and purchase orders are independently matched before payment is approved.
Periodic inventory counts are used to adjust the perpetual inventory records.
When auditing merchandise inventory at year-end, the auditor performs a purchase cutoff test to obtain evidence that ________.
all goods purchased before year-end are received before the physical inventory count
goods held on consignment for customers are not included in the inventory balance
the stock of inventory on hand at year-end is neither pledged nor sold
all goods owned at year-end are included in the inventory balance
ABC Co. has a calendar year-end. The final merchandise purchase recorded in the system was for PO #456, received January 3rd. The ending inventory count excluded this shipment. Assuming shipping terms on PO #456 were FOB shipping point, what misstatement, if any, exists in ABC records?
Cost of goods sold has been understated, gross profit, net income, inventory, and owners' equity have been overstated.
Cost of goods sold has been overstated, gross profit, net income, inventory, and owners' equity have been understated.
There is no misstatement in ABC's accounts.
Cost of goods sold and accounts payable have been overstated, net income and owners' equity have been understated.
The purpose of segregating the duties of hiring personnel and distributing payroll cheques is to separate the ________.
human resources function from the controllership function
administrative controls from the internal accounting controls
authorization of transactions from the custody of related assets
operational responsibility from the record-keeping responsibility
Which of the following is most likely to approve changes in pay rates and deductions from employee salaries?
Personnel department.
Treasurer.
Controller.
Payroll department.
An auditor traces an employee's name, job category, and employee number from the payroll journal to authorized personnel records. This provides evidence of
Ownership.
Completeness.
Presentation.
Existence/Occurrence
Selecting a sample of production cost reports and vouching material costs to issue slips and materials-used reports, is a procedure designed to test the control objective of _________.
Authorization
Validity
Completeness
Accuracy
"Off-the-balance-sheet" financing transactions means that ________.
obligations and commitments are recorded only in the income statement accounts
obligations and commitments are recorded only in the statement of cash flows
capital budgets are properly authorized and approved
obligations and commitments are not recorded in the accounts of the company
Transactions in debt and shareholder equity are typically handled by ________.
payroll
accounting staff
accounting supervisors
upper management
The decision of a company to have a transfer agent handle the exchange of shares is related primarily to which functional responsibility?
Authorization.
Custody.
Record-keeping.
Periodic reconciliation.
Who is responsible for making accounting estimates?
Auditors.
Management.
Boards of directors.
Shareholders.
Selecting a sample of paid notes and tracing interest costs to the general ledger expense account is a test of the control objective of ________.
accounting
accuracy
completeness
validity
The primary objective of performing analytical procedures in the final review stage of an audit is to ________.
obtain evidence from details tested to corroborate management assertions
obtain evidence on the validity of the assessment of control risk
assist the auditor in evaluating the overall financial statement presentation
identify areas that represent specific risks relevant to the audit
Analytical procedures used in the overall review stage of an audit generally include ________.
considering unusual or unexpected account balances that were not previously identified
performing tests of transactions to corroborate management's financial statement assertions
gathering evidence concerning account balances that have not changed from the prior year
retesting control procedures that appeared to be ineffective during the assessment of control risk
For audit purposes, subsequent events are defined as events that occur ________.
any time after balance sheet date
after the date of the audit report
after the balance sheet date but prior to the date of the audit report
after the date of the audit report and concern contingencies that are not reflected in the financial statements
A subsequent event involving the issue of bonds payable or share capital requires ________.
financial statement disclosure only
restatement of prior years' financial statements
adjustment to financial statement numbers
no disclosure or financial statement adjustment
An auditor is most likely to suspect the existence of undisclosed related parties by noticing _______.
large-sales transactions
abnormally long collection terms for a receivable
a large number of sales to numbered corporations
a significant increase in sales over the prior year
