1. Entity level Controls do not include
A. Board and Audit Committee Oversight
B. Segregation of Duties
C. Internal Audit's role in monitoring controls
D. Entity's risk assessment process
2. Calculating the gross margin for the current year under audit as a percent of sales and comparing it with previous years is what type of evidence?
A. Observation
B. Inquiry
C. Analytical procedures
D. Physical examination
3. Which of the following is least likely to be a test of control
A. Observation of the application of a procedure
B. Inquiries of appropriate personnel
C. Reperformance of the application of a policy
D. Inspection of audit engagement letter
4. A material weakness in internal control is a control deficiency that
A. Reduces the efficiency or effectiveness of the entity's operations
B. Results in a reasonable possibility that the internal control will not prevent or detect material financial misstatements
C. Conclusively proves that a material misstatement exists in the financial statements
D. All deficiencies in computer controls are treated as material weaknesses.
5. ‘Sales transactions, cash receipts and returns and allowances are recorded in the proper period' is an Audit Objective that relates to which management assertion
A. Completeness
B. Cutoff
C. Occurrence
D. Accuracy
6. As part of substantive tests of transactions for sales, an auditor traces a sample of debit entries from the accounts receivable master file back to the supporting sales invoices. By this step, the auditor intends to establish that
A. Sales invoices represent existing sales
B. Sales invoices have been correctly posted to customer's accounts
C. All sales have been correctly recorded
D. Debit entries in the accounts receivable master file are correctly supported by sales invoices
7. The return of positive confirmation of accounts receivable without an exception attests to the
A. Accuracy of the allowance for uncollectible accounts
B. Collectability of receivable balance
C. Correctness of aging of accounts receivable.
D. Accuracy of receivable balance
8. An abnormal fluctuation in gross profit that might suggest the need for extended audit procedures for sales and inventories would most likely be identified in the planning phase of the audit by the use of
A. Tests of transactions.
B. Tests of balances
C. Analytical Procedures.
D. Use of audit software.
9. Shown below (1 through 5) are the five types of tests which auditors use to determine whether financial statements are fairly stated. Which three are substantive tests?
1. Risk assessment procedures
2. Tests of controls
3. Tests of transactions
4. Substantive analytical procedures
5. Tests of details of balances
A. 1, 2, and 3.
B. 2, 3, and 5.
C. 3, 4 and 5
D. 2, 3, and 4.
10. The audit program contains procedures intended to:
A. provide support for the financial statements
B. assist the client in preparing the financial statements
C. certify that the financial statement accounts are accurate
D. gather evidence to support the auditor's opinion
11. To ensure segregation of duties, an employee who maintains the accounts receivable subsidiary ledger should not also authorize
A. Cash payments
B. Write-offs of customer accounts
C. purchases
D. Customer credit
12. Typical transactions in the purchasing cycle do not include
A. Goods returned to suppliers
B. Payments made for goods and services
C. Estimate of bad debt expense
D. Acquisition of goods and services
13. An internal control that will prevent duplicate payments for the same goods purchased, by presenting paid cash disbursement documents for payment a second time is:
A. Cash disbursements are approved by at least two responsible managers
B. The official signing the check compares the check with the document and defaces the document
C. The date on the cash disbursement document should be within few days of the invoice
D. Check books are kept in the custody of people authorized to sign them
14. An auditor inspects the sales invoices processed to see whether the accuracy of invoices has been verified. This is an example of
A. A test of details of balances
B. A substantive test of transactions
C. A test of control
D. It is both a test of control and s substantive test of transactions
15. During the preliminary analysis of accounts receivable turnover, an auditor noted the following rates over these accounting periods:
2012: 8.2%; 2013: 6.7%; 2014: 4.5%
Which of the following is the most likely cause of the decrease in accounts receivable turnover?
A. Increased cash sales
B. Increase in cash discount offered
C. Shortening of due date terms
D. Liberalization of credit policy
16. An auditor finds that the operating effectiveness of a control is not evidenced by written documentation. The auditor should proceed to obtain evidence about the control's effectiveness by
A. Inquiry and other procedures such as observation
A. Recalculating balances in the related accounts
B. Analytical procedures
C. Mailing confirmations
17. Which of the following is the least persuasive form of evidence?
A. Vendor's invoice issued to the client and obtained from the client
B. Mathematical computation made by the auditor
C. Client bank statement obtained directly from the bank
D. Invoice issued by the client and obtained directly from the client
18. Analytical procedures do not include
A. Comparisons
B. Inquiry of management personnel
C. Ratio analysis
D. Variance analysis
19. The Accounts payable department receives and utilizes the purchase order form to accomplish all of the following except:
A. Ensure the goods have been received by the party requesting the goods
B. Compare quantity ordered to quantity received
C. Compare the invoice price to purchase order price
D. Ensure that the purchase is properly authorized
20. The objective of the auditor is to design and perform audit procedures that enable the auditor to obtain sufficient appropriate audit evidence to be able to draw absolute conclusions on which to base the auditor's opinions.
A. True
B. False
21. If management refuses to allow to perform external confirmation procedures, the auditor should stop testing accounts receivable and conclude that there is a material misstatement in the financial statements
A. True
B. False
22. One of the purposes of performing preliminary analytical procedures in planning phase of an audit is to help the auditor make a preliminary assessment of control risk.
A. True
B. False
23. Fraud by senior management indicates material weakness in internal control, even if the amount involved is immaterial
A. True
B. False
24. If during the preliminary assessment of control risk for certain audit objectives and account balances the auditor determines that the control risk is maximum, the auditor should first test the controls before proceeding to substantive tests to obtain assurance for those audit objectives.
A. True
B. False
25. For evidence to be appropriate, it should be both reliable and relevant.
A. True
B. False