Chapter 10 Test Bank

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Chapter 10 - TEST BANK
Auditing and Assurance Service (University of New South Wales)
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Chapter 10
Student: ___________________________________________________________________________
1. The primary difference between an audit of the statement of financial position and an audit of the income
statement
lies in the fact that the audit of the income statement deals with the verification of:
A. authorisations.
B. transactions and events.
C. cut-offs.
D. presentation and disclosure.
2. To test for unsupported entries in the ledger, the direction of audit testing should be from the:
A. journal entries.
B. Ledger entries.
C. original source documents.
D. externally-generated documents.
3. In auditing accounts payable, an auditor's procedures most likely would focus primarily on management's
assertion of:
A. existence.
B. rights and obligations.
C. completeness.
D. occurrence.
4. Which of the following is not a primary objective of the auditor in undertaking substantive testing of
accounts receivable?
A. Determine the completeness of the recorded receivables.
B. Establish existence of the receivables.
C. Determine the adequacy of the internal control.
D. Determine the approximate amount that can be expected to be received.

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5. An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete
or
slow-moving inventory to support management's account balance assertion of:
A. valuation and allocation.
C. existence.
D. completeness.
6.
Tests designed to detect goods which arrived at the warehouse just before year end and for which the audit client
took ownership that have not been recorded in the perpetual inventory records until the subsequent year would most
likely provide evidence about management's assertion of:
A. accuracy.
B. occurrence.
C. valuation and allocation.
D. cut-off.
7.
An auditor will usually trace the details of the test counts of inventory items selected from the factory floor while
observing the inventory stocktake through to a final inventory schedule. This audit procedure is undertaken to
provide evidence of which assertion(s)?
A. Valuation and allocation.

B. Existence.
C. Completeness.
D. Cut-off.
8.
Two months before the year-end the bookkeeper erroneously recorded the receipt of a long-term bank loan by
a debit to cash and a credit to sales. Which of the following is the most effective procedure for detecting this
type of misstatement?
A. Analyse bank confirmation information.

B. Analyse the notes payable journal.
C. Prepare a year-end bank transfer schedule.
D. Prepare a year-end bank reconciliation.

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9. An auditor is testing sales transactions. One step is to trace a sample of debit entries from the accounts
receivable
subsidiary ledger back to the supporting sales invoices. What would the auditor intend to establish by this
step?
A. All sales invoices have been recorded.
B. Sales invoices represent bona fide sales.
C. Debit entries in the accounts receivable subsidiary ledger are properly supported by sales invoices.
D. All sales invoices have been properly posted to customer accounts.
10. To verify that all sales transactions have been recorded (the completeness assertion), a test of transactions
should
be completed on a representative sample drawn from:
A. the billing clerk's file of sales orders.
B. entries in the sales journal.
C. the shipping clerk's file of duplicate copies of bills of lading (goods shipped notices).
D. a file of duplicate copies of sales invoices for which all pre-numbered forms in the series have been
accounted for.
11. During the process of confirming receivables as of 30 June 2012, a positive confirmation was returned
indicating
the 'balance owed as of 30 June was paid on 9 July 2012.' The auditor would most likely:
A. determine whether a customary trade discount was taken by the customer.
B. determine whether there were any changes in the account between 1 July and 9 July 2012.
C. check subsequent cash receipts to confirm that the amount was received.
D. reconfirm the zero balance as of 9 July 2012.
12. An auditor should perform alternative procedures to substantiate the existence of an accounts receivable
when:
A. no reply to a negative confirmation request is received.
B. no reply to a positive confirmation request is received.
C. pledging of the receivable is probable.
D. collectability of the receivable is in doubt.
13. Once an auditor has determined that accounts receivable at year-end have increased due to slow collections
in
a 'tight money' environment, the auditor would be likely to:
A. review the going concern ramifications.
B. increase the balance in the allowance for bad debts account.
C. expand tests for the valuation and allocation assertion.
D. expand tests for the existence assertion.

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14. An aged trial balance of accounts receivable is usually used by the auditor to:
A. verify the existence assertion for recorded receivables.
B. ensure that all accounts receivable are recorded (completeness assertion).
C. evaluate the results of tests of controls for the sales/accounts receivable system.
D. evaluate the provision for bad debts related to the valuation and allocation assertion.
15. Which of the following is the best argument against the use of negative accounts receivable
confirmations?
A. The cost-per-response is excessively high.
B. There is no way of knowing if the intended recipients received them.
C. Recipients are likely to feel that, in reality, the confirmation is a subtle request for payment.
D. The inference drawn from receiving no reply may not be correct.
16. An auditor reviews the credit ratings of customers with overdue outstanding accounts receivable balances.
The
auditor's most likely purpose is to obtain evidence concerning management's assertions about:
B. completeness.
C. existence.
D. rights and obligations.
17. The audit working papers often include a client-prepared, aged trial balance of accounts receivable as at
balance
date. This ageing is best used by the auditor to:
A. test the accuracy of recorded sales.
B. assess control risk for credit sales.
C. verify the existence of the recorded receivables.
D. test the valuation and allocation assertion of accounts receivable.
18. In auditing accounts receivable the negative form of confirmation request most likely would be used when:
A. recipients are likely to return positive confirmation requests without verifying the accuracy of the
information.
B. the combined assessed level of inherent and control risk relative to accounts receivable is low.
C. a small number of accounts receivable are involved but a relatively large number of errors are expected.
D. the auditor performs a dual purpose test that assesses control risk and obtains substantive evidence.

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19. An auditor reconciles the total of the accounts receivable subsidiary ledger to the general ledger control
account,
as at 30 June 2012. By this procedure, the auditor would be most likely to learn of which of the following?
A. An April cheque from a customer was posted in error to the account of another customer with a similar
name.
B. An April invoice was improperly computed.
C. An account balance is past due and should be written off.
D. An opening balance in a subsidiary ledger account was improperly carried forward from the previous
accounting period.
20.
Johnson is engaged in the audit of a power company which supplies power to a residential community. All accounts
receivable balances are small and the internal control structure is effective. Customers are billed twice monthly. In
order to obtain evidence with regards the valuation and allocation assertion of the accounts receivable balances as
at balance date, Johnson would most likely:
A. send positive confirmation requests.

B. examine evidence of subsequent cash receipts.
C. use statistical sampling instead of sending confirmation requests.
D. send negative confirmation requests.
21. In determining the adequacy of the allowance for uncollectible accounts, the least reliance should be placed
upon
which of the following?
A. The credit manager's opinion.
B. An aging schedule of past due accounts.
C. Collection experience of the client's collection agency.
D. Ratios calculated showing the past relationship of accounts receivable to net credit sales.
22. The negative form of accounts receivable confirmation request is useful except when:
A. a large number of small balances are involved.
B. the internal control structure surrounding accounts receivable is considered to be effective.
C. individual account balances are relatively large and few in number.
D. the auditor has reason to believe the persons receiving the requests are likely to give them consideration.

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23.
During the current financial year, the client company began dealing with certain distributors on a consignment basis
(goods were delivered to the distributor but not deemed sold until the distributor had on-sold them). Which of the
following audit procedures is least likely to bring this new fact to the auditor's attention?
A. Test of cash receipts transactions.

B. Tracing of shipping documents to the sales journal.
C. Observation of physical inventory at the client company's premises.
D. Confirmation of accounts receivable.
24.
When evaluating the risk of material misstatement with regards to defalcations involving receivables (a credit entry
to accounts receivable for amounts not received), the auditor would expect an experienced bookkeeper to most likely
debit which of the following accounts?
A. Cash.
B. Sales returns.
C. Miscellaneous income.
D. Accounts payable.
25. An auditor, having accounted for a sequence of inventory tags, traces information on a representative
number of
tags to the physical inventory sheets. The purpose of this procedure is to obtain assurance that:
A. inventory sheets do not include untagged inventory items.
B. the final inventory is valued at cost.
C. the inventory listed on the inventory sheets is complete.
D. all inventory represented by an inventory tag is bona fide.
26. Procedures related to the purchases cut-off assertion should be designed to test whether or not all inventory:
A. purchased and received before the year-end was recorded.
B. on the year-end statement of financial position was recorded at lower of cost or market.
C. on the year-end statement of financial position was paid for by the company.
D. owned by the company is in the possession of the company.
27.
Your client sells a high-technology product which is subject to frequent technological improvements and design
changes in order to keep current with the market. Based on this information, for the inventory account, the
assertion upon which you should concentrate your audit procedures is:

B. existence.
C. completeness.

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28. During a client's stocktake you select a sample of items from the floor, count them and trace the quantities
to
the inventory summary sheet. Which financial report assertion is this audit procedure related to?
B. Rights and obligations.
C. Completeness.
D. Existence.
29. The accuracy of perpetual inventory records may be established, in part, by comparing entries on the
perpetual
records with details from:
A. receiving reports.
B. purchase requisitions.
C. vendor payments.
D. purchase orders.
30. An auditor would be most likely to learn of slow-moving inventory through:

A. review of the cash payments journal.
B. inquiry of sales personnel.
C. review of perpetual inventory records.
D. physical observation of inventory.
31. The auditor tests the quantity of materials charged to work-in-process by tracing these quantities to:
A. perpetual inventory records.
B. cost ledgers.
C. material requisition forms.
D. receiving reports.
32. When perpetual inventory records are maintained, and control risk for inventory is high, the auditor would
probably:
A. insist that the client perform physical counts of inventory items several times during the year.
B. want the client to schedule the physical inventory count at the end of the year.
C. increase tests of controls around sales and purchases.
D. increase the extent of tests for unrecorded liabilities at the end of the year.

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33. Tests designed to detect purchases made just before the end of the year that have been recorded in the
subsequent
year would provide assurance about management's assertion of:
A. accuracy.
B. occurrence.
C. cut-off.
D. classification.
34.
An auditor selected items that are on the store floor for test counts while observing a client's physical inventory.
The auditor then traced the test counts to the client's inventory listing. This procedure most likely obtained
evidence concerning management's assertion of:
A. rights and obligations.

B. completeness.
C. existence.
D. valuation and allocation.
35.
An auditor concluded that no excessive costs for idle plant were charged to inventory in a client's standard costing
system. This conclusion most likely related to the auditor's objective to obtain evidence about the account balance
assertion for inventory of:

B. completeness.
C. existence.
36. Which of the following auditing procedures most likely would provide assurance about a manufacturing
entity's
assertion of valuation and allocation of inventory?
A. Testing the entity's computation of standard overhead rates.
B. Obtaining confirmation of inventories pledged under loan agreements.
C. Reviewing shipping and receiving cut-off procedures for inventories.
D. Tracing test counts to the entity's inventory listing.

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37. Which of the following procedures would best detect the theft of valuable items from an inventory that
consists
of hundreds of different items selling for $1 to $10, and a few items selling for hundreds of dollars?
A. Have an independent audit firm prepare an internal control structure report on the effectiveness
of the controls over inventory.
B. Maintain perpetual inventory records with frequent periodic verification of the accuracy of these records.
C. Require an authorised officer's signature on all requisitions for the more valuable items.
D. Have separate warehouse space for the more valuable items with sequentially numbered tags.
38. From the auditor's point of view, inventory counts are more acceptable prior to the year-end when:
A. accurate perpetual inventory records are maintained.
B. control risk is high.
C. significant amounts of inventory are held on a consignment basis.
D. inventory turnover has decreased from the prior year.
39. A client's physical count of inventory was higher than the inventory per the perpetual records. This
situation could
be the result of the failure to record:
A. sales discounts.
B. sales.
C. purchase returns.
D. purchases.
40.
When outside firms of non-accountants specialising in the taking of physical inventories are used to count, list,
price and subsequently compute the total dollar amount of inventory on hand at the date of the physical count,
the auditor will ordinarily:
A. make or observe some physical counts of the inventory, recompute certain inventory calculations
and test certain inventory transactions.
B. consider the report of the outside inventory-taking firm to be an acceptable alternative procedure
to the observation of physical inventories.
C. consider the reduced audit effort with respect to the physical count of inventory as a scope limitation.
D. not reduce the extent of work on the physical count of inventory.
41. An auditor usually examines receiving reports to support entries in the:

A. sales journal and sales returns journal.
B. voucher register and sales returns journal.
C. cheque register and sales journal.
D. voucher register and sales journal.

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42. In a manufacturing company, which one of the following audit procedures would give the least assurance
with
regards to the valuation and allocation assertion for inventory?
A. Examining paid vendors' invoices.
B. Testing the computation of standard overhead rates.
C. Obtaining confirmation of inventories pledged under loan agreements.
D. Reviewing direct labour rates.
43. A client maintains perpetual inventory records in both quantities and dollars. If the assessed level of control
risk
is high, an auditor would probably:
B. apply gross profit tests to ascertain the reasonableness of the physical accounts.
C. increase the extent of tests of controls of the inventory cycle.
D. request the client to schedule the physical inventory count at the end of the year.
44. Which assertion for ending inventory is most likely at risk of material misstatement if the gross profit
percentage
is much greater than last year?
A. Existence.
B. Completeness.
C. Rights and obligations.
D. Accuracy.
45. The physical count of inventory of a retailer was higher than shown by the perpetual records. Which of the
following
could explain the difference?
A. Credit memos for several items returned by customers had not been recorded.
B. Inventory items had been counted but the tags placed on the items had not been taken off the items
and added to the inventory accumulation sheets.
C. An item purchased 'FOB shipping point' had not arrived at the date of the inventory count and had
not been reflected in the perpetual records.
D. No journal entry had been made on the retailer's books for several items that the retailer returned
to its suppliers.
46. Your client's inventory turnover has decreased from 8.2 times to 5.6 times during the year. Based on this
decrease,
which financial report assertion would you be least concerned with?
A. Existence.
C. Valuation and allocation.
D. Completeness.

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47. To determine whether accounts payable are complete, an auditor commonly performs sampling procedures
to
test whether all merchandise received is recorded. The population of documents for this test consists of all:
A. payment vouchers.
B. receiving reports.
C. purchase requisitions.
D. vendor's invoices.
48. In order to efficiently test the purchases/accounts payable cut-off, an auditor will be most likely to:
A. compare cut-off reports with purchase orders.
B. coordinate cut-off tests with physical inventory observation.
C. coordinate mailing of confirmations with cut-off tests.
D. compare vendors' invoices with vendors' statements.
49. Which of the following is the best audit procedure for determining the completeness of the accrued
liabilities listing?
A. Examine unusual relationships between monthly accounts payable balances and recorded purchases.
B. Examine confirmation requests returned by creditors whose accounts appear on a subsidiary trial
balance of accounts payable.
C. Examine a sample of cash disbursements in the period subsequent to year-end.
D. Examine a sample of invoices a few days prior to and subsequent to year-end to ascertain whether
they have been properly recorded.
50. The auditor is most likely to verify the liability account 'accrued commissions payable' in conjunction with
the:
A. verification of contingent liabilities.
B. review of sales transactions.
C. examination of trade accounts payable.
D. review of disbursements after year-end.
51. All of the following can assist the auditor in testing the existence assertion for investment securities except:
A. physical examination.
B. comparing fair value to cost.
C. confirmation with the issuer of the securities.
D. confirmation with the custodian.

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52. A normal audit procedure is to analyse the current year's repairs and maintenance accounts to provide
evidence
in support of the audit proposition that:
A. expenditures for fixed assets have been recorded in the proper period.
B. capital expenditures have been properly authorised.
C. non-capitalisable expenditures have been properly expensed.
D. the listing of fixed assets is complete.
53. In auditing intangible assets, an auditor would determine whether the amortisation amount is reasonable in
support
of management's financial statement assertion of:
B. existence.
C. completeness.
54. The auditor may conclude that depreciation charges are insufficient by noting:
A. large amounts of fully depreciated assets.
B. insured values greatly in excess of book values.
C. excessive recurring profits on assets retired.
D. continuous trade-ins of relatively new assets.
55. Which of the following is the most effective audit procedure for verification of dividends earned on
investments in
marketable equity securities?
A. Tracing deposit of dividend cheques to the cash receipts book.
B. Comparing the amounts received with dividends received in the preceding year.
C. Reconciling amounts received with published dividend records.
D. Recomputing selected extensions and footings of dividend schedules and comparing totals to
the general ledger.
56. In the examination of property, plant and equipment, which of the following does the auditor not try to
determine?
A. The reasonableness of the depreciation.
B. The capital nature of items included in repairs and maintenance.
C. The extent of property disposed of during the year.
D. The adequacy of future replacement funds.

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57. An auditor analyses repairs and maintenance accounts primarily to obtain evidence that:
A. expenditures for property, plant and equipment have been recorded in the proper period.
B. non-capitalisable expenditures for repairs and maintenance have been recorded in the proper period.
C. expenditures for property, plant and equipment have not been charged to expenses.
D. non-capitalisable expenditures for repairs and maintenance have been properly charged to expenses.
58. The auditor is least likely to learn of retirements of equipment through which of the following?
A. Review of depreciation calculations.
B. Review of the purchase returns and allowance account.
C. Review of insurance policy correspondence.
D. Analysis of the debits to the accumulated depreciation account.
59. Which of the following is not one of the auditor's primary objectives when externally confirming holdings
of marketable securities?
A. To determine whether recorded securities are properly classified on the statement of financial position.
B. To determine whether recorded securities are the property of the client.
C. To determine whether recorded securities actually exist.
D. To determine whether recorded securities are authentic.
60. All of the following evidence-gathering procedures can assist the auditor in testing the existence assertion
for
investment securities except:
B. comparing fair value to the original cost.
61. Which of the following explanations might satisfy an auditor who discovers significant debits to an
accumulated
depreciation account?
A. Prior years' depreciation charges were erroneously understated.
B. There were numerous fixed asset retirements during the year.
C. There were numerous fixed asset purchases during the year.
D. A reserve for possible loss on retirement has been recorded.

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62. To establish the existence and ownership of a long-term investment in the shares of a publicly traded
company,
an auditor ordinarily performs a security count or:
A. confirms the number of shares owned with the issuing company.
B. determines the market price per share at the balance sheet date from published quotations.
C. confirms the number of shares owned that are held by an independent custodian.
D. relies on the client's internal control if the auditor has reasonable assurance that the control activities
are being applied as prescribed.
63. In violation of company policy, Warren Ltd erroneously capitalised the cost of painting its warehouse. The
auditor
examining Warren's financial report would most likely detect this when:
A. examining maintenance expense accounts.
B. observing during the physical inventory observation that the warehouse had been painted.
C. examining the construction work orders supporting items capitalised during the year.
D. discussing the capitalisation policies with Warren's financial controller.
64. An auditor would be least likely to use external confirmation procedures in connection with the
examination of:
A. long-term debt.
B. property, plant and equipment.
C. inventories.
D. issued share capital.
65. In the audit of a medium-sized manufacturing concern, which one of the following areas would be
expected to require
the least amount of audit time?
A. Revenue.
B. Owners' equity.
C. Liabilities.
D. Assets.
66. One of the primary reasons for preparing a reconciliation between interest-bearing obligations outstanding
during
the year and interest expense presented in the financial report is to:
A. ascertain the reasonableness of accrued interest.
B. detect unrecorded liabilities.
C. determine the validity of prepaid interest expense.
D. assess control risk for securities.

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67. When a client company does not maintain its own share records, the auditor should obtain written
confirmation
from the transfer agent and registrar concerning:
A. the number of shares subject to agreements to repurchase.
B. guarantees of preferred share liquidation value.
C. restrictions on the payment of dividends.
D. the number of shares issued and outstanding.
68. Reviewing interest expense to identify payments to debt-holders not listed on the debt analysis schedule is
a procedure
that can be used to provide evidence for which audit assertion for loans payable:
A. occurrence.
B. completeness.
C. cut-off.
D. accuracy.
69. Substantive testing is typically used to audit shareholders' equity because:

A. the number of transactions is small.
B. controls over shareholders' equity transactions are typically weak.
C. a reliance strategy is most efficient.
D. the control environment over shareholders equity transactions is usually strong.
70. Which of the following audit procedures is least likely to detect an unrecorded liability?
A. Analysis and re-computation of depreciation expense.
B. Analysis and re-computation of interest expense.
C. Reading of the minutes of meetings of the board of directors.
D. Analysis of response to a bank confirmation request.
71. Which of the following analytical procedures should be applied to the income statement?
A. Ascertain that the net income amount in the statement of cash flow agrees with the net income
amount in the income statement.
B. Select sales and expense items and trace amounts to related supporting documents.
C. Compare the actual revenues and expenses with the corresponding figures of the previous year
and investigate significant differences.
D. Obtain from the proper client representatives the beginning and ending inventory amounts that
were used to determine costs of sales.

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72. An auditor would be least likely to use confirmation in connection with the examination of:
A. income tax expense.
B. inventories.
C. accounts receivable.
D. long-term debt.
73. Which of the following pairs of accounts would an auditor most likely analyse on the same working paper?
A. Notes receivable and interest income.
B. Accrued interest receivable and accrued interest payable.
C. Notes payable and notes receivable.
D. Interest income and interest expense.
74. Which of the following is true of generalised audit software?

A. They can be used on any computer without modification.
B. They can only be used in auditing on-line computer systems.
C. They enable the auditor to perform manual procedures related to tests of controls less expensively.
D. They each have their own characteristics which the auditor must carefully consider before using
in a given audit situation.
75. A primary advantage of using generalised audit software in the audit of an advanced IT system is that it
enables the auditor to:
A. gather and store large quantities of supportive evidential matter in machine-readable form.
B. verify the performance of machine operations which leave visible evidence of occurrence.
C. utilise the speed and accuracy of the computer.
D. substantiate the accuracy of data through self-checking digits and hash totals.
76. Auditors often make use of computer programs that perform routine processing functions such as sorting
and merging.
These programs are made available by IT companies and others and are specifically referred to as:
A. user programs.
B. utility programs.
C. supervisory programs.
D. compiler programs.

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77. Which of the following is an exception report that the auditor would generate using generalised audit
software in
order to test the valuation and allocation assertion for accounts receivable?
A. Adding the accounts receivable ledger, and checking the total to the accounts receivable balance
in the general ledger.
B. A sequence check looking for missing sales invoice numbers.
C. A report outlining those balances that are greater than three months overdue.
D. A sample of debtors to be confirmed by positive debtors' confirmation procedures.
78. The auditor is least likely to use generalised audit software to:
A. access information stored on the client's IT files.
B. perform analytical procedures on the client's data.
C. test the accuracy of the client's computations.
D. directly test weaknesses in the client's programmed controls.
79. Which of the following audit procedures would an auditor be least likely to perform using generalised audit
software?
A. Inputting test transactions to ensure that the check digit control is operating.
B. Searching records of accounts receivable balances for credit balances.
C. Listing unusually large inventory balances.
D. Selecting accounts receivable for positive and negative confirmation.
80. Which of the following tests would the auditor use generalised audit software for in order to test the
completeness
assertion of inventory?
A. Identification of inventory items which haven't been sold for three months.
B. A sequence check looking for missing purchase invoice numbers.
C. A sequence check looking for duplicate purchase invoice numbers.
D. Selecting items from the inventory records in order to trace back to physical inventory counts.
81. Which of the following is necessary to audit balances in an on-line IT system in an environment of
destructive updating?
A. Year-end utilisation of audit hooks.
B. Periodic dumping of transaction files.
C. A well-documented audit trail.
D. An integrated test facility.

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D. identify weaknesses in the client's IT controls.
83. An auditor using audit software would probably be least interested in which of the following fields in a
computerised
perpetual inventory file?
A. Quantity sold.
B. Date of last purchase.
C. Warehouse location.
D. Economic order quantity.
84.
While undertaking the audit of the debtors' balance, you use your audit software to extract from the accounts receivable
master file a report which shows those debtors with a positive balance owing that is overdue by more than 30 days. At
which of the following account balance assertions is this report aimed?
A. Completeness.
B. Valuation and allocation.
C. Occurrence.
D. Existence.

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Chapter 10 Key
1. The primary difference between an audit of the statement of financial position and an audit of the income
statement
lies in the fact that the audit of the income statement deals with the verification of:
A. authorisations.
B. transactions and events.
C. cut-offs.
D. presentation and disclosure.
Chapter - Chapter 10 #1
Difficulty: Easy
Est time: < 1 min
Learning Objective: 10.1 Identify and distinguish between tests of controls and substantive tests of transactions, and between substantive tests of transactions and
substantive tests of balances.
Section: Relationship between evidence-gathering procedures
2. To test for unsupported entries in the ledger, the direction of audit testing should be from the:
A. journal entries.
B. Ledger entries.
C. original source documents.
D. externally-generated documents.
Difficulty: Medium
Est time: 1–3 mins
Learning Objective: 10.1 Identify and distinguish between tests of controls and substantive tests of transactions, and between substantive tests of transactions and
substantive tests of balances.
Section: Relationship between evidence-gathering procedures
3. In auditing accounts payable, an auditor's procedures most likely would focus primarily on management's
assertion of:
A. existence.
C. completeness.
D. occurrence.
Difficulty: Easy
Est time: < 1 min
Learning Objective: 10.2 Identify and understand that the auditor is required to respond to assessed risks at the financial report level and at the assertion level for
transactions and events and account balances, and explain how these risks of material misstatement lead to an appropriate auditor response with specific audit
procedures.
Learning Objective: 10.6 Explain the specific audit objectives and the common audit procedures traditionally used to address risks of material misstatement for
accounts payable, payments and payroll
Learning Objective: 5.2 Outline the logical process of identifying financial report assertions, developing specific audit objectives and selecting auditing procedures.
Section: Overall responses, financial report assertions and substantive audit procedures

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4. Which of the following is not a primary objective of the auditor in undertaking substantive testing of
accounts receivable?
A. Determine the completeness of the recorded receivables.
B. Establish existence of the receivables.
C. Determine the adequacy of the internal control.
D. Determine the approximate amount that can be expected to be received.
Difficulty: Easy
Est time: < 1 min
procedures.
5. An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete
or
slow-moving inventory to support management's account balance assertion of:
C. existence.
D. completeness.
Difficulty: Easy
Est time: < 1 min
procedures.
purchases and inventories
6.
Tests designed to detect goods which arrived at the warehouse just before year end and for which the audit client
took ownership that have not been recorded in the perpetual inventory records until the subsequent year would most
likely provide evidence about management's assertion of:
A. accuracy.
B. occurrence.
C. valuation and allocation.
D. cut-off.
Difficulty: Easy
Est time: < 1 min
procedures.

lOMoARcPSD|6196095
7.
An auditor will usually trace the details of the test counts of inventory items selected from the factory floor while
observing the inventory stocktake through to a final inventory schedule. This audit procedure is undertaken to
provide evidence of which assertion(s)?

B. Existence.
C. Completeness.
D. Cut-off.
Difficulty: Medium
procedures.
8.
Two months before the year-end the bookkeeper erroneously recorded the receipt of a long-term bank loan by
a debit to cash and a credit to sales. Which of the following is the most effective procedure for detecting this
type of misstatement?
A. Analyse bank confirmation information.

B. Analyse the notes payable journal.
C. Prepare a year-end bank transfer schedule.
D. Prepare a year-end bank reconciliation.
Difficulty: Medium
Learning Objective: 10.3 Explain the specific audit objectives and the common audit procedures traditionally used to address risks of material misstatement for cash,
cash receipts and cash payments
Section: Cash, cash receipts and cash payments
9. An auditor is testing sales transactions. One step is to trace a sample of debit entries from the accounts
receivable
subsidiary ledger back to the supporting sales invoices. What would the auditor intend to establish by this
step?
A. All sales invoices have been recorded.
B. Sales invoices represent bona fide sales.
C. Debit entries in the accounts receivable subsidiary ledger are properly supported by sales invoices.
D. All sales invoices have been properly posted to customer accounts.
Difficulty: Easy
Section: Sales, cash receipts and accounts receivable

lOMoARcPSD|6196095
10. To verify that all sales transactions have been recorded (the completeness assertion), a test of transactions
should
be completed on a representative sample drawn from:
A. the billing clerk's file of sales orders.
B. entries in the sales journal.
C. the shipping clerk's file of duplicate copies of bills of lading (goods shipped notices).
D. a file of duplicate copies of sales invoices for which all pre-numbered forms in the series have been
accounted for.

Difficulty: Medium
11. During the process of confirming receivables as of 30 June 2012, a positive confirmation was returned
indicating
the 'balance owed as of 30 June was paid on 9 July 2012.' The auditor would most likely:
A. determine whether a customary trade discount was taken by the customer.
B. determine whether there were any changes in the account between 1 July and 9 July 2012.
C. check subsequent cash receipts to confirm that the amount was received.
D. reconfirm the zero balance as of 9 July 2012.

Difficulty: Easy
Learning Objective: 10.4 Explain the specific audit objectives and the common audit procedures traditionally used to address risks of material misstatement for sales,
cash receipts and accounts receivable
12. An auditor should perform alternative procedures to substantiate the existence of an accounts receivable
when:
A. no reply to a negative confirmation request is received.
B. no reply to a positive confirmation request is received.
C. pledging of the receivable is probable.
D. collectability of the receivable is in doubt.

Difficulty: Easy
Est time: < 1 min

lOMoARcPSD|6196095
13. Once an auditor has determined that accounts receivable at year-end have increased due to slow collections
in
a 'tight money' environment, the auditor would be likely to:
A. review the going concern ramifications.
B. increase the balance in the allowance for bad debts account.
C. expand tests for the valuation and allocation assertion.
D. expand tests for the existence assertion.

Difficulty: Easy
14. An aged trial balance of accounts receivable is usually used by the auditor to:
A. verify the existence assertion for recorded receivables.
B. ensure that all accounts receivable are recorded (completeness assertion).
C. evaluate the results of tests of controls for the sales/accounts receivable system.
D. evaluate the provision for bad debts related to the valuation and allocation assertion.

Difficulty: Easy
15. Which of the following is the best argument against the use of negative accounts receivable
confirmations?
A. The cost-per-response is excessively high.
B. There is no way of knowing if the intended recipients received them.
C. Recipients are likely to feel that, in reality, the confirmation is a subtle request for payment.
D. The inference drawn from receiving no reply may not be correct.

Difficulty: Easy

lOMoARcPSD|6196095
16. An auditor reviews the credit ratings of customers with overdue outstanding accounts receivable balances.
The
auditor's most likely purpose is to obtain evidence concerning management's assertions about:
B. completeness.
C. existence.

Difficulty: Easy
Est time: < 1 min
17. The audit working papers often include a client-prepared, aged trial balance of accounts receivable as at
balance
date. This ageing is best used by the auditor to:
A. test the accuracy of recorded sales.
B. assess control risk for credit sales.
C. verify the existence of the recorded receivables.
D. test the valuation and allocation assertion of accounts receivable.

Difficulty: Easy
18. In auditing accounts receivable the negative form of confirmation request most likely would be used when:
A. recipients are likely to return positive confirmation requests without verifying the accuracy of the
information.
B. the combined assessed level of inherent and control risk relative to accounts receivable is low.
C. a small number of accounts receivable are involved but a relatively large number of errors are expected.
D. the auditor performs a dual purpose test that assesses control risk and obtains substantive evidence.

Difficulty: Medium

lOMoARcPSD|6196095
19. An auditor reconciles the total of the accounts receivable subsidiary ledger to the general ledger control
account,
as at 30 June 2012. By this procedure, the auditor would be most likely to learn of which of the following?
A. An April cheque from a customer was posted in error to the account of another customer with a similar
name.
B. An April invoice was improperly computed.
C. An account balance is past due and should be written off.
D. An opening balance in a subsidiary ledger account was improperly carried forward from the previous
accounting period.

Difficulty: Medium
20.
Johnson is engaged in the audit of a power company which supplies power to a residential community. All accounts
receivable balances are small and the internal control structure is effective. Customers are billed twice monthly. In
order to obtain evidence with regards the valuation and allocation assertion of the accounts receivable balances as
at balance date, Johnson would most likely:
A. send positive confirmation requests.

B. examine evidence of subsequent cash receipts.
C. use statistical sampling instead of sending confirmation requests.
D. send negative confirmation requests.

Difficulty: Medium
21. In determining the adequacy of the allowance for uncollectible accounts, the least reliance should be placed
upon
which of the following?
A. The credit manager's opinion.
B. An aging schedule of past due accounts.
C. Collection experience of the client's collection agency.
D. Ratios calculated showing the past relationship of accounts receivable to net credit sales.

Difficulty: Medium

lOMoARcPSD|6196095
22. The negative form of accounts receivable confirmation request is useful except when:
A. a large number of small balances are involved.
B. the internal control structure surrounding accounts receivable is considered to be effective.
C. individual account balances are relatively large and few in number.
D. the auditor has reason to believe the persons receiving the requests are likely to give them consideration.

Difficulty: Medium
23.
During the current financial year, the client company began dealing with certain distributors on a consignment basis
(goods were delivered to the distributor but not deemed sold until the distributor had on-sold them). Which of the
following audit procedures is least likely to bring this new fact to the auditor's attention?
A. Test of cash receipts transactions.

B. Tracing of shipping documents to the sales journal.
C. Observation of physical inventory at the client company's premises.
D. Confirmation of accounts receivable.

Difficulty: Hard
24.
When evaluating the risk of material misstatement with regards to defalcations involving receivables (a credit entry
to accounts receivable for amounts not received), the auditor would expect an experienced bookkeeper to most likely
debit which of the following accounts?
A. Cash.
B. Sales returns.
C. Miscellaneous income.
D. Accounts payable.

Difficulty: Hard

lOMoARcPSD|6196095
25. An auditor, having accounted for a sequence of inventory tags, traces information on a representative
number of
tags to the physical inventory sheets. The purpose of this procedure is to obtain assurance that:
A. inventory sheets do not include untagged inventory items.
B. the final inventory is valued at cost.
C. the inventory listed on the inventory sheets is complete.
D. all inventory represented by an inventory tag is bona fide.

Difficulty: Easy
Section: Purchases and inventories
26. Procedures related to the purchases cut-off assertion should be designed to test whether or not all inventory:
A. purchased and received before the year-end was recorded.
B. on the year-end statement of financial position was recorded at lower of cost or market.
C. on the year-end statement of financial position was paid for by the company.
D. owned by the company is in the possession of the company.

Difficulty: Easy
27.
Your client sells a high-technology product which is subject to frequent technological improvements and design
changes in order to keep current with the market. Based on this information, for the inventory account, the
assertion upon which you should concentrate your audit procedures is:

B. existence.
C. completeness.

Difficulty: Easy
Est time: < 1 min

lOMoARcPSD|6196095
28. During a client's stocktake you select a sample of items from the floor, count them and trace the quantities
to
the inventory summary sheet. Which financial report assertion is this audit procedure related to?
C. Completeness.
D. Existence.

Difficulty: Easy
Est time: < 1 min
29. The accuracy of perpetual inventory records may be established, in part, by comparing entries on the
perpetual
records with details from:
A. receiving reports.
B. purchase requisitions.
C. vendor payments.
D. purchase orders.

Difficulty: Easy
30. An auditor would be most likely to learn of slow-moving inventory through:

A. review of the cash payments journal.
B. inquiry of sales personnel.
C. review of perpetual inventory records.
D. physical observation of inventory.

Difficulty: Easy

lOMoARcPSD|6196095
31. The auditor tests the quantity of materials charged to work-in-process by tracing these quantities to:
A. perpetual inventory records.
B. cost ledgers.
C. material requisition forms.
D. receiving reports.

Difficulty: Easy
32. When perpetual inventory records are maintained, and control risk for inventory is high, the auditor would
probably:
B. want the client to schedule the physical inventory count at the end of the year.
C. increase tests of controls around sales and purchases.
D. increase the extent of tests for unrecorded liabilities at the end of the year.

Difficulty: Easy
33. Tests designed to detect purchases made just before the end of the year that have been recorded in the
subsequent
year would provide assurance about management's assertion of:
A. accuracy.
B. occurrence.
C. cut-off.
D. classification.

Difficulty: Easy
Est time: < 1 min

lOMoARcPSD|6196095
34.
An auditor selected items that are on the store floor for test counts while observing a client's physical inventory.
The auditor then traced the test counts to the client's inventory listing. This procedure most likely obtained
evidence concerning management's assertion of:
A. rights and obligations.

B. completeness.
C. existence.
D. valuation and allocation.

Difficulty: Medium
35.
An auditor concluded that no excessive costs for idle plant were charged to inventory in a client's standard costing
system. This conclusion most likely related to the auditor's objective to obtain evidence about the account balance
assertion for inventory of:

B. completeness.
C. existence.

Difficulty: Medium
procedures.
36. Which of the following auditing procedures most likely would provide assurance about a manufacturing
entity's
assertion of valuation and allocation of inventory?
A. Testing the entity's computation of standard overhead rates.
B. Obtaining confirmation of inventories pledged under loan agreements.
C. Reviewing shipping and receiving cut-off procedures for inventories.
D. Tracing test counts to the entity's inventory listing.

Difficulty: Medium

lOMoARcPSD|6196095
37. Which of the following procedures would best detect the theft of valuable items from an inventory that
consists
of hundreds of different items selling for $1 to $10, and a few items selling for hundreds of dollars?
A. Have an independent audit firm prepare an internal control structure report on the effectiveness
of the controls over inventory.
B. Maintain perpetual inventory records with frequent periodic verification of the accuracy of these records.
C. Require an authorised officer's signature on all requisitions for the more valuable items.
D. Have separate warehouse space for the more valuable items with sequentially numbered tags.

Difficulty: Medium
38. From the auditor's point of view, inventory counts are more acceptable prior to the year-end when:
A. accurate perpetual inventory records are maintained.
B. control risk is high.
C. significant amounts of inventory are held on a consignment basis.
D. inventory turnover has decreased from the prior year.

Difficulty: Medium
39. A client's physical count of inventory was higher than the inventory per the perpetual records. This
situation could
be the result of the failure to record:
A. sales discounts.
B. sales.
C. purchase returns.
D. purchases.

Difficulty: Medium

lOMoARcPSD|6196095
40.
When outside firms of non-accountants specialising in the taking of physical inventories are used to count, list,
price and subsequently compute the total dollar amount of inventory on hand at the date of the physical count,
the auditor will ordinarily:
A. make or observe some physical counts of the inventory, recompute certain inventory calculations
and test certain inventory transactions.
B. consider the report of the outside inventory-taking firm to be an acceptable alternative procedure
to the observation of physical inventories.
C. consider the reduced audit effort with respect to the physical count of inventory as a scope limitation.
D. not reduce the extent of work on the physical count of inventory.

Difficulty: Medium
41. An auditor usually examines receiving reports to support entries in the:

A. sales journal and sales returns journal.
B. voucher register and sales returns journal.
C. cheque register and sales journal.
D. voucher register and sales journal.

Difficulty: Medium
42. In a manufacturing company, which one of the following audit procedures would give the least assurance
with
regards to the valuation and allocation assertion for inventory?
A. Examining paid vendors' invoices.
B. Testing the computation of standard overhead rates.
C. Obtaining confirmation of inventories pledged under loan agreements.
D. Reviewing direct labour rates.

Difficulty: Medium

lOMoARcPSD|6196095
43. A client maintains perpetual inventory records in both quantities and dollars. If the assessed level of control
risk
is high, an auditor would probably:
B. apply gross profit tests to ascertain the reasonableness of the physical accounts.
C. increase the extent of tests of controls of the inventory cycle.
D. request the client to schedule the physical inventory count at the end of the year.

Difficulty: Medium
44. Which assertion for ending inventory is most likely at risk of material misstatement if the gross profit
percentage
is much greater than last year?
A. Existence.
B. Completeness.
C. Rights and obligations.
D. Accuracy.

Difficulty: Hard
45. The physical count of inventory of a retailer was higher than shown by the perpetual records. Which of the
following
could explain the difference?
A. Credit memos for several items returned by customers had not been recorded.
B. Inventory items had been counted but the tags placed on the items had not been taken off the items
and added to the inventory accumulation sheets.
C. An item purchased 'FOB shipping point' had not arrived at the date of the inventory count and had
not been reflected in the perpetual records.
D. No journal entry had been made on the retailer's books for several items that the retailer returned
to its suppliers.

Difficulty: Hard

lOMoARcPSD|6196095
46. Your client's inventory turnover has decreased from 8.2 times to 5.6 times during the year. Based on this
decrease,
which financial report assertion would you be least concerned with?
A. Existence.
C. Valuation and allocation.
D. Completeness.

Difficulty: Hard
47. To determine whether accounts payable are complete, an auditor commonly performs sampling procedures
to
test whether all merchandise received is recorded. The population of documents for this test consists of all:
A. payment vouchers.
B. receiving reports.
C. purchase requisitions.
D. vendor's invoices.

Difficulty: Medium
Learning Objective: 11.3 Identify planning and design considerations for sampling, including defining audit objectives and the appropriate population, the potential
use of stratification and potential alternative definitions of the sampling unit, including dollar-unit sampling.
Section: Accounts payable, payments and payroll
48. In order to efficiently test the purchases/accounts payable cut-off, an auditor will be most likely to:
A. compare cut-off reports with purchase orders.
B. coordinate cut-off tests with physical inventory observation.
C. coordinate mailing of confirmations with cut-off tests.
D. compare vendors' invoices with vendors' statements.

Difficulty: Medium

lOMoARcPSD|6196095
49. Which of the following is the best audit procedure for determining the completeness of the accrued
liabilities listing?
A. Examine unusual relationships between monthly accounts payable balances and recorded purchases.
B. Examine confirmation requests returned by creditors whose accounts appear on a subsidiary trial
balance of accounts payable.
C. Examine a sample of cash disbursements in the period subsequent to year-end.
D. Examine a sample of invoices a few days prior to and subsequent to year-end to ascertain whether
they have been properly recorded.

Difficulty: Medium
50. The auditor is most likely to verify the liability account 'accrued commissions payable' in conjunction with
the:
A. verification of contingent liabilities.
B. review of sales transactions.
C. examination of trade accounts payable.
D. review of disbursements after year-end.

Difficulty: Medium
Learning Objective: 10.9 Identify the different substantive test approaches that may be used for account balances included in the income statement.
51. All of the following can assist the auditor in testing the existence assertion for investment securities except:
B. comparing fair value to cost.

Difficulty: Easy
Est time: < 1 min
non-current assets
Section: Non-current assets

lOMoARcPSD|6196095
52. A normal audit procedure is to analyse the current year's repairs and maintenance accounts to provide
evidence
in support of the audit proposition that:
A. expenditures for fixed assets have been recorded in the proper period.
B. capital expenditures have been properly authorised.
C. non-capitalisable expenditures have been properly expensed.
D. the listing of fixed assets is complete.

Difficulty: Easy
non-current assets
53. In auditing intangible assets, an auditor would determine whether the amortisation amount is reasonable in
support
of management's financial statement assertion of:
B. existence.
C. completeness.

Difficulty: Easy
Est time: < 1 min
non-current assets
54. The auditor may conclude that depreciation charges are insufficient by noting:
A. large amounts of fully depreciated assets.
B. insured values greatly in excess of book values.
C. excessive recurring profits on assets retired.
D. continuous trade-ins of relatively new assets.

Difficulty: Easy
non-current assets

lOMoARcPSD|6196095
55. Which of the following is the most effective audit procedure for verification of dividends earned on
investments in
marketable equity securities?
A. Tracing deposit of dividend cheques to the cash receipts book.
B. Comparing the amounts received with dividends received in the preceding year.
C. Reconciling amounts received with published dividend records.
D. Recomputing selected extensions and footings of dividend schedules and comparing totals to
the general ledger.

Difficulty: Easy
non-current assets
56. In the examination of property, plant and equipment, which of the following does the auditor not try to
determine?
A. The reasonableness of the depreciation.
B. The capital nature of items included in repairs and maintenance.
C. The extent of property disposed of during the year.
D. The adequacy of future replacement funds.

Difficulty: Easy
non-current assets
57. An auditor analyses repairs and maintenance accounts primarily to obtain evidence that:
A. expenditures for property, plant and equipment have been recorded in the proper period.
B. non-capitalisable expenditures for repairs and maintenance have been recorded in the proper period.
C. expenditures for property, plant and equipment have not been charged to expenses.
D. non-capitalisable expenditures for repairs and maintenance have been properly charged to expenses.

Difficulty: Easy
non-current assets

lOMoARcPSD|6196095
58. The auditor is least likely to learn of retirements of equipment through which of the following?
A. Review of depreciation calculations.
B. Review of the purchase returns and allowance account.
C. Review of insurance policy correspondence.
D. Analysis of the debits to the accumulated depreciation account.

Difficulty: Easy
non-current assets
59. Which of the following is not one of the auditor's primary objectives when externally confirming holdings
of marketable securities?
A. To determine whether recorded securities are properly classified on the statement of financial position.
B. To determine whether recorded securities are the property of the client.
C. To determine whether recorded securities actually exist.
D. To determine whether recorded securities are authentic.

Difficulty: Medium
non-current assets
60. All of the following evidence-gathering procedures can assist the auditor in testing the existence assertion
for
investment securities except:
B. comparing fair value to the original cost.

Difficulty: Medium
non-current assets

lOMoARcPSD|6196095
61. Which of the following explanations might satisfy an auditor who discovers significant debits to an
accumulated
depreciation account?
A. Prior years' depreciation charges were erroneously understated.
B. There were numerous fixed asset retirements during the year.
C. There were numerous fixed asset purchases during the year.
D. A reserve for possible loss on retirement has been recorded.

Difficulty: Medium
non-current assets
62. To establish the existence and ownership of a long-term investment in the shares of a publicly traded
company,
an auditor ordinarily performs a security count or:
A. confirms the number of shares owned with the issuing company.
B. determines the market price per share at the balance sheet date from published quotations.
C. confirms the number of shares owned that are held by an independent custodian.
D. relies on the client's internal control if the auditor has reasonable assurance that the control activities
are being applied as prescribed.

Difficulty: Medium
non-current assets
63. In violation of company policy, Warren Ltd erroneously capitalised the cost of painting its warehouse. The
auditor
examining Warren's financial report would most likely detect this when:
A. examining maintenance expense accounts.
B. observing during the physical inventory observation that the warehouse had been painted.
C. examining the construction work orders supporting items capitalised during the year.
D. discussing the capitalisation policies with Warren's financial controller.

Difficulty: Medium
non-current assets

lOMoARcPSD|6196095
64. An auditor would be least likely to use external confirmation procedures in connection with the
examination of:
A. long-term debt.
B. property, plant and equipment.
C. inventories.
D. issued share capital.

Difficulty: Medium
non-current assets
65. In the audit of a medium-sized manufacturing concern, which one of the following areas would be
expected to require
the least amount of audit time?
A. Revenue.
B. Owners' equity.
C. Liabilities.
D. Assets.

Difficulty: Easy
Est time: < 1 min
non-current liabilities and owners’ equity.
Section: Non-current liabilities and owners equity
66. One of the primary reasons for preparing a reconciliation between interest-bearing obligations outstanding
during
the year and interest expense presented in the financial report is to:
A. ascertain the reasonableness of accrued interest.
B. detect unrecorded liabilities.
C. determine the validity of prepaid interest expense.
D. assess control risk for securities.

Difficulty: Easy

lOMoARcPSD|6196095
67. When a client company does not maintain its own share records, the auditor should obtain written
confirmation
from the transfer agent and registrar concerning:
A. the number of shares subject to agreements to repurchase.
B. guarantees of preferred share liquidation value.
C. restrictions on the payment of dividends.
D. the number of shares issued and outstanding.

Difficulty: Easy
68. Reviewing interest expense to identify payments to debt-holders not listed on the debt analysis schedule is
a procedure
that can be used to provide evidence for which audit assertion for loans payable:
A. occurrence.
B. completeness.
C. cut-off.
D. accuracy.

Difficulty: Easy
Est time: < 1 min
69. Substantive testing is typically used to audit shareholders' equity because:

A. the number of transactions is small.
B. controls over shareholders' equity transactions are typically weak.
C. a reliance strategy is most efficient.
D. the control environment over shareholders equity transactions is usually strong.

Difficulty: Easy

lOMoARcPSD|6196095
70. Which of the following audit procedures is least likely to detect an unrecorded liability?
A. Analysis and re-computation of depreciation expense.
B. Analysis and re-computation of interest expense.
C. Reading of the minutes of meetings of the board of directors.
D. Analysis of response to a bank confirmation request.

Difficulty: Medium
71. Which of the following analytical procedures should be applied to the income statement?
A. Ascertain that the net income amount in the statement of cash flow agrees with the net income
amount in the income statement.
B. Select sales and expense items and trace amounts to related supporting documents.
C. Compare the actual revenues and expenses with the corresponding figures of the previous year
and investigate significant differences.
D. Obtain from the proper client representatives the beginning and ending inventory amounts that
were used to determine costs of sales.

Difficulty: Easy
Section: Income statement
72. An auditor would be least likely to use confirmation in connection with the examination of:
A. income tax expense.
B. inventories.
C. accounts receivable.
D. long-term debt.

Difficulty: Easy
Est time: < 1 min

lOMoARcPSD|6196095
73. Which of the following pairs of accounts would an auditor most likely analyse on the same working paper?
A. Notes receivable and interest income.
B. Accrued interest receivable and accrued interest payable.
C. Notes payable and notes receivable.
D. Interest income and interest expense.

Difficulty: Medium
74. Which of the following is true of generalised audit software?

A. They can be used on any computer without modification.
B. They can only be used in auditing on-line computer systems.
C. They enable the auditor to perform manual procedures related to tests of controls less expensively.
D. They each have their own characteristics which the auditor must carefully consider before using
in a given audit situation.

Difficulty: Easy
Learning Objective: 10.10 Describe and understand the use of computer-assisted audit techniques in substantive testing.
Section: Using CAATs to aid in the undertaking of substantive tests
75. A primary advantage of using generalised audit software in the audit of an advanced IT system is that it
enables the auditor to:
A. gather and store large quantities of supportive evidential matter in machine-readable form.
B. verify the performance of machine operations which leave visible evidence of occurrence.
C. utilise the speed and accuracy of the computer.
D. substantiate the accuracy of data through self-checking digits and hash totals.

Difficulty: Easy

lOMoARcPSD|6196095
76. Auditors often make use of computer programs that perform routine processing functions such as sorting
and merging.
These programs are made available by IT companies and others and are specifically referred to as:
A. user programs.
B. utility programs.
C. supervisory programs.
D. compiler programs.

Difficulty: Easy
77. Which of the following is an exception report that the auditor would generate using generalised audit
software in
order to test the valuation and allocation assertion for accounts receivable?
A. Adding the accounts receivable ledger, and checking the total to the accounts receivable balance
in the general ledger.
B. A sequence check looking for missing sales invoice numbers.
C. A report outlining those balances that are greater than three months overdue.
D. A sample of debtors to be confirmed by positive debtors' confirmation procedures.

Difficulty: Easy
D. directly test weaknesses in the client's programmed controls.

Difficulty: Easy

lOMoARcPSD|6196095
79. Which of the following audit procedures would an auditor be least likely to perform using generalised audit
software?
A. Inputting test transactions to ensure that the check digit control is operating.
B. Searching records of accounts receivable balances for credit balances.
C. Listing unusually large inventory balances.
D. Selecting accounts receivable for positive and negative confirmation.

Difficulty: Medium
80. Which of the following tests would the auditor use generalised audit software for in order to test the
completeness
assertion of inventory?
A. Identification of inventory items which haven't been sold for three months.
B. A sequence check looking for missing purchase invoice numbers.
C. A sequence check looking for duplicate purchase invoice numbers.
D. Selecting items from the inventory records in order to trace back to physical inventory counts.

Difficulty: Medium
81. Which of the following is necessary to audit balances in an on-line IT system in an environment of
destructive updating?
A. Year-end utilisation of audit hooks.
B. Periodic dumping of transaction files.
C. A well-documented audit trail.
D. An integrated test facility.

Difficulty: Medium

lOMoARcPSD|6196095
D. identify weaknesses in the client's IT controls.

Difficulty: Medium
83. An auditor using audit software would probably be least interested in which of the following fields in a
computerised
perpetual inventory file?
A. Quantity sold.
B. Date of last purchase.
C. Warehouse location.
D. Economic order quantity.

Difficulty: Medium
84.
While undertaking the audit of the debtors' balance, you use your audit software to extract from the accounts receivable
master file a report which shows those debtors with a positive balance owing that is overdue by more than 30 days. At
which of the following account balance assertions is this report aimed?
A. Completeness.
B. Valuation and allocation.
C. Occurrence.
D. Existence.

Difficulty: Medium
procedures.

lOMoARcPSD|6196095
Chapter 10 Summary
Category # of
Quest
ions
Chapter - Chapter 10 84
Difficulty: Easy 42
Difficulty: Hard 5
Difficulty: Medium 37
Est time: < 1 min 15
Est time: 1–3 mins 69
Learning Objective: 10.1 Identify and distinguish between tests of controls and substantive tests of transactions, and between substantive t 2
ests of transactions and substantive tests of balances.
Learning Objective: 10.10 Describe and understand the use of computer-assisted audit techniques in substantive testing. 11
Learning Objective: 10.2 Identify and understand that the auditor is required to respond to assessed risks at the financial report level and at 7
the assertion level for transactions and events and account balances, and explain how these risks of material misstatement lead to an appro
priate auditor response with specific audit procedures.
Learning Objective: 10.3 Explain the specific audit objectives and the common audit procedures traditionally used to address risks of mate 3
rial misstatement for cash, cash receipts and cash payments
rial misstatement for sales, cash receipts and accounts receivable
rial misstatement for purchases and inventories
rial misstatement for accounts payable, payments and payroll
rial misstatement for non-current assets
rial misstatement for non-current liabilities and owners’ equity.
Learning Objective: 10.9 Identify the different substantive test approaches that may be used for account balances included in the income st 7
atement.
Learning Objective: 11.3 Identify planning and design considerations for sampling, including defining audit objectives and the appropriate 1
population, the potential use of stratification and potential alternative definitions of the sampling unit, including dollar-unit sampling.
Learning Objective: 5.2 Outline the logical process of identifying financial report assertions, developing specific audit objectives and selec 1
ting auditing procedures.
Section: Accounts payable, payments and payroll 4
Section: Cash, cash receipts and cash payments 1
Section: Income statement 3
Section: Non-current assets 14
Section: Non-current liabilities and owners equity 6
Section: Overall responses, financial report assertions and substantive audit procedures 5
Section: Purchases and inventories 22
Section: Relationship between evidence-gathering procedures 2
Section: Sales, cash receipts and accounts receivable 16
Section: Using CAATs to aid in the undertaking of substantive tests 11

Chapter 10 Test Bank

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Chapter 10 - TEST BANK

Auditing and Assurance Service (University of New South Wales)

Studocu is not sponsored or endorsed by any college or university

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A. Valuation and allocation.

A. Analyse bank confirmation information.

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A. send positive confirmation requests.

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A. Test of cash receipts transactions.

A. valuation and allocation.

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30. An auditor would be most likely to learn of slow-moving inventory through:

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A. rights and obligations.

A. valuation and allocation.

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41. An auditor usually examines receiving reports to support entries in the:

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69. Substantive testing is typically used to audit shareholders' equity because:

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74. Which of the following is true of generalised audit software?

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A. Valuation and allocation.

A. Analyse bank confirmation information.

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Chapter - Chapter 10 #10

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Chapter - Chapter 10 #15

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Chapter - Chapter 10 #19

A. send positive confirmation requests.

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Chapter - Chapter 10 #21

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Chapter - Chapter 10 #22

A. Test of cash receipts transactions.

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