Test 3
Test 3
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Completed on Thursday, 14 April 2022, 3:19 PM
Time taken 1 hour 19 mins
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Grade 6 out of 10 (59%)
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Question 1
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Which of the following audit evidence obtained during the audit of bank and cash would be
considered the most reliable?
Select one:
A.
B.
Verbal discussions with the Managing Director regarding an increase in the bank overdraft limit
D.
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The correct answer is: Bank confirmation obtained from the entity's bankers
Question 2
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Auditors seek written representations from management to support oral representations that have
been made during the course of the audit. For each of the following in relation to a statutory
audit, select whether a written representation is required or not required.
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The correct answer is: Whether all deficiencies in internal control of which management is aware
have been communicated to auditors. → Not required, The director has provided the auditor with
all relevant information and access in the term of the audit engagement → Required, The effect of
uncorrected misstatement are immaterial, both individually and in the aggregate, to financial
statements as a whole. → Not required
Question 3
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B.
C.
D.
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The correct answers are: Testing less than 100% of the item in a population, Testing items selected
randomly from the population
Question 4
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Kiama, the auditor of Mwangi Flight Enterprises, performs audit procedures relating to existence of
aeroplanes. Kiama does this by selecting a sample of the aeroplanes and requesting Boeing the
supplier to confirm whether it had sold these planes to the Company. What is the key attribute of
audit evidence that has not been complied with?
Select one:
A.
Sufficiency
B.
Reliability
C.
Relevancy
D.
Reliability, Sufficiency, and Relevancy
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Question 5
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An auditor traces a sample of electronic time cards before and after the bi-weekly payroll report
and then traces to the payroll master file to determine that payroll transactions are reported in the
correct period. The auditor is gathering evidence for which audit objective?
Select one:
A.
existence
B.
accuracy
C.
completeness
D.
cut-off
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Question 6
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The correct answer is: Calculate the ratio of cost of goods sold to sales as a test of overall
reasonableness of gross margin relative to the preceding year → Analytical procedures, Obtain a
letter from an insurance company to the CPA firm stating the amount of the fire insurance
coverage on buildings and equipment. → Confirmation, Watch employees count inventory to
determine whether company procedures are being followed → Observation
Question 7
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Ria Electronics is an established organisation that is well known for its innovation. The
management of Ria Electronics have been under extreme pressure from the board to ensure that
they meet the earnings guidelines provided to the market. Management are required to compute
allowance for Warranty provisions, provision for doubtful debts and depreciation method for its
new warehouses located overseas. Which of the below statements is more likely to be correct?
Select one:
A.
The estimation uncertainty for the depreciation method is higher than warranty provisions
B.
The estimation uncertainty for warranty provisions is higher than that of depreciation method
C.
D.
It is the pressure from the board rather than the account balances themselves that will result in
estimation uncertainty
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The correct answer is: The estimation uncertainty for warranty provisions is higher than that of
depreciation method
Question 8
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ISA (UK) 580, Written Representation deals with the auditor’s responsibility to obtain written
representation form management and, where appropriate, those charged with governance of an
audited entity. Which three of the following are included in the definition of management in the
context?
A.
B.
Majority shareholders
C.
Persons with executive responsibility for the conduct of the entity’s operations
D.
An owner-manager
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The correct answers are: Persons with executive responsibility for the conduct of the entity’s
operations, An owner-manager, Executive members of a governance board
Question 9
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Which one of the following statements is correct when describing automated and electronic
working papers?
Select one:
a.
Both electronic and automated working papers always involve automatic calculations.
b.
c.
Both Electronic working papers and automated working papers never involve any automatic
calculations.
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The correct answer is: Electronic working papers do not involve any automatic calculations
Question 10
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The process which requires the calculation of an interval and then selects the items based on the
size of the interval is
Select one:
a.
c.
statistical sampling.
d.
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Question 11
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When designing audit procedures, tracing of source documents to the customers subsidiary
ledger and subsequently to the general ledger is done to satisfy what assertion?
Select one:
A.
valuation
B.
classification
C.
completeness
D.
cutoff
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Question 12
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For each of the following statements about audit documentation, select whether they are true or
false.
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The correct answer is: The assurance provider should not obtain client permission before showing
working paper to third parties. → False, Working paper belong to the client → False, The auditor
must be ensure the safe custody of audit documentation for at least six years form the date of the
auditor’s report → False
Question 13
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Select one:
A.
occurrence
B.
authorization
C.
completeness
D.
accuracy
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Question 14
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For each of the following statements concerning written representation letters, select whether they
are true or false.
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The correct answer is: The written representation letter must include a list of all uncorrected
misstatements. → True, The written representation letter must be be dated before the auditor’s
report. → True, A written representation letter is only required for new clients → False
Question 15
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When determining a sample size for test of control and test of detail, there are a number of
factors which an auditor should take into account. For each of the following factors, select whether
it would cause the sample size to increase or to decrease.
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The correct answer is: An increase in the auditor’s desired level of assurance that tolerable rate of
deviation is not exceeded by the actual rate of deviation in population → Increase, Stratification of
the population when appropriate → Decrease, An increase in the amount of misstatement the
auditor expects to find in population → Increase
Question 16
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The auditor of Breknat Ltd processes fictitious transactions through the clients accounting system
to determine whether IT controls are effective. What technique is the auditor using?
Select one:
A.
B.
Audit software
C.
Test data
D.
Accounting software
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Question 17
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A letter addressed by management to auditors and that confirms in writing any statements made
by management to the auditors during the course of an audit is commonly referred to as
Select one:
a.
b.
A management letter.
c.
An engagement letter.
d.
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Question 18
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Which of the following computer-aided audit techniques is not useful for substantive testing of
transactions and balances?
Select one:
a.
c.
d.
Test data
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Question 19
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What is the most appropriate sampling technique for an auditor who wants to trace physical
inventory on the shelves to the inventory records in the system?
Select one:
A.
A combination of both systematic and random to ensure that the process is both methodical and
random
B.
Random selection as it will enable the auditor randomly select the items.
C.
D.
Systematic selection as It will enable the auditor ensure that all the shelves are covered
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The correct answer is: Haphazard selection as the auditor will be selection inventory on the shelves
Question 20
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Select one:
a.
A deviation from prescribed internal control procedures set by the auditor in respect of which the
auditor seeks to obtain an appropriate level of assurance that the rate of deviation set by the
auditor is not exceeded by the actual rate of deviation in the population.
b.
A monetary amount set by the auditor in respect of which the auditor seeks to obtain an
appropriate level of assurance that the monetary amount set by the auditor is not exceeded by the
actual misstatement in the population
c.
The maximum deviation in the population that the auditor would be willing to accept
d.
The correct answer is: A monetary amount set by the auditor in respect of which the auditor seeks
to obtain an appropriate level of assurance that the monetary amount set by the auditor is not
exceeded by the actual misstatement in the population
Question 21
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Select one:
A.
B.
D.
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Question 22
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When determining a sample size for test of detail there are a number of factors which an auditor
should take into account. For each of the following factors, select whether it would cause the
sample size to increase or to decrease
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The correct answer is: A decrease in tolerable misstatement → Increase, An increase in auditor’s
desired level of assurance that tolerable misstatement is not exceeded by actual misstatement in
the population → Increase, A decrease in the auditor’s assessment of the risk of material
misstatement → Decrease
Question 23
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What is the key factor that an auditor should consider when assessing the risk of material
misstatement relating to accounting estimates?
Select one:
A.
The size of the account balance or transaction
B.
C.
D.
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The correct answer is: The degree of estimation uncertainty associated with the estimate.
Question 24
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________ is not a transaction-related audit objective for the classes of transactions underlying the
payroll cycle.
Select one:
A.
Existence
B.
Timing
C.
Completeness
D.
Classification
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25
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Hayley, an audit junior, has carried out the following tests to verify the valuation of inventory in
the financial statements of Cobham plc.
In each case, select whether the test proves the assertion of valuation or not
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The correct answer is: Attending the inventory count and carrying out sample counts on a number
of items → Does not prove valuation, Comparing cost on a number of inventory items to sales
invoices subsequent to the year end → Proves valuation
Question 26
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The correct answer is: Calculate the ratio of sales commission expense to sales as a test of sales
commissions. → Analytical procedures, Obtain information about internal control by requesting
the client to fill out a questionnaire. → Inquiry,
Compare a duplicate sales invoice with the sales journal for customer name and amount. →
Inspection of documentation
Question 27
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In relation to a public company listed on the UK Securities Exchange, when should the
management representation letter be dated?
Select one:
A.
At the date when the audited financial statements are lodged with UK Sercurities Exchange.
B.
C.
At the date when the audited financial statements are lodged with the UK Sercurities & Investment
Commission
D.
As near as practicable to, but not after, the date of the auditor's report on the financial statements
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The correct answer is: As near as practicable to, but not after, the date of the auditor's report on
the financial statements
Question 28
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a.
b.
d.
e.
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The correct answers are: Analysis of errors or other significant observations, The file reference of
the working paper, The subject of the working paper
Question 29
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When testing the computerised controls over payroll using test data, which of the following would
be the most likely outcome?
Select one:
A.
B.
C.
D.
Effective physical controls over the terminal containing payroll master files
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The correct answer is: Effective physical controls over the terminal containing payroll master files
Question 30
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Select one:
A.
B.
C.
D.
Tracing items from the physical count of inventory to the underlying assets
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The correct answer is: Testing from the underlying assets to the accounting records
Question 31
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When determining a sample size for test of control there are a number of factors which an auditor
should take into account.
For each of the following factors, select whether it would cause the sample size to increase or to
decrease, or negligible effect
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The correct answer is: A decrease in the number of sale voices in the population → Negligible
effect, An increase in the expected rate of deviation of the population to be tested → Increase, An
increase in the auditor’s required confidence level → Increase
Question 32
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Select one:
a.
b.
c.
d.
choosing the wrong sample size.
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Question 33
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In terms of the standard management representation letter provided in connection with audits of
financial statements, which of the following is most likely to be included?
Select one:
a.
b.
A statement that all information relating to fraud and suspected fraud has been disclosed
d.
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The correct answer is: A statement that all information relating to fraud and suspected fraud has
been disclosed
Question 34
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Which of the following statements regarding block sampling is least likely to be true?
Select one:
a.
It is acceptable to use block sampling for tests of transactions only if a reasonable number of
blocks is used.
b.
Only one block should be selected to increase the probability of a representative sample.
c.
Once the first item in the block is selected, the remainder of the block is chosen automatically.
d.
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The correct answer is: Only one block should be selected to increase the probability of a
representative sample.
Question 35
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a.
Working papers should be kept for the current and previous year only
b.
Working paper should be made available to third parties at the request of the client.
c.
Working paper should not be made available to third parties without client permission
d.
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The correct answers are: Working papers belong to the assurance provider, Working paper should
not be made available to third parties without client permission
Question 36
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A.
B.
C.
D.
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Your answer is correct.
The correct answers are: Direct confirmations with customers, Review of cash paid after date
Question 37
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Kiama, the auditor of Mwangi Flight Enterprises, performs audit procedures relating to existence of
aeroplanes. Kiama selects a sample of 15 planes out of the 30510 planes owned by the Company
and carries out the audit procedure.
What is the key attribute of audit evidence that has not been complied with
Select one:
A.
Sufficiency
B.
Relevancy
C.
Appropriateness
D.
Reliability
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Question 38
Partially correct
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Which two of the following misstatement discovered in a sample would not generally be
extrapolated against the total population?
A.
A misposting between two customer accounts
B.
C.
D.
E.
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The correct answers are: A misposting between two customer accounts, A timing difference
between customer records and client records.
Question 39
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The auditor traces items from the source documents to the journals in order to accumulate audit
evidence that will satisfy the
Select one:
A.
existence objective.
B.
completeness objective.
C.
valuation objective.
D.
ownership objective.
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Question 40
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Ria Electronics is an established organisation that is well known for its innovation. The
management of Ria Electronics have been under extreme pressure from the board to ensure that
they meet the earnings guidelines provided to the market. What assertion is likely to be at risk of
material misstatement due estimation uncertainty when it comes to its debtors due to doubtful
debts?
Select one:
A.
B.
Completeness
C.
Occurrence
D.
Existence
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Question 41
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In which of the following audit procedures are ‘existence’ and ‘accuracy, valuation and allocation’
of trade debtors the major assertions of interest?
Select one:
A.
Agreeing amounts listed on the aged trade debtors trial balance to subsequent receipts
B.
C.
Vouching transactions back to supporting documentation and ensuring that the dollar value is
correctly
D.
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The correct answer is: Agreeing amounts listed on the aged trade debtors trial balance to
subsequent receipts
Question 42
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Which two of the following are reasons why sales are often verified by testing the internal controls
in place over sales?
A.
B.
Because there are so many individual transactions, there is a significant risk that sales are
misstated
C.
Sales constitute a high volume of similar transactions which are suitable for controls testing
D.
There are usually too many individual transactions to test them individually
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The correct answers are: Sales constitute a high volume of similar transactions which are suitable
for controls testing, Controls over sales in a company are often strong
Question 43
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Which of the below is an important factor under ISA (UK) 230 in determining the form, content
and extent of audit documentation of significant matters?
Select one:
A.
B.
The requirements of external regulators
C.
The audit documentation currently existing in the audit file which supports conclusions reached.
D.
The extent of professional judgement exercised in performing the work and evaluating the results.
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The correct answer is: The extent of professional judgement exercised in performing the work and
evaluating the results.
Question 44
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Select one:
A.
B.
C.
D.
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Question 45
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The auditor is performing substantive tests of balances for accounts payable. What documentation
would provide the best evidence for the ending balance?
Select one:
A.
receiving reports
B.
purchase orders
C.
vendors' invoices
D.
vendors' statements
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Question 46
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Kiama, the auditor of Mwangi Flight Enterprises, performs audit procedures relating to its debtors.
Kiama does this by confirming that the accounting system ages the balances correctly and also
checks for subsequent receipts from debtors. Kiama also sends debtors confirmation letters to a
number of customers. One significant debtor however
disputes the balance indicated in the letter (per the client’s records). Kiama concludes that the
balance as per the client’s system is correct as there is no evidence that controls within the
debtor’s organization are effective.
What is the key attribute of audit evidence that has not been complied with?
Select one:
A.
B.
Sufficiency
C.
Relevancy
D.
Reliability
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Question 47
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Which of the following is most reliable for verifying the correct balance of accounts payable?
Select one:
A.
vendors' statements
B.
bills of lading
C.
confirmations
D.
vendors' invoices
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Question 48
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Select one:
a.
b.
Using audit software to identify all trade debtors over 90 days outstanding
c.
Using CAATs to assess whether credit notes over $5,000 have an electronic date stamp and
approval signature.
d.
Multiplying the number of employees on each pay scale by the yearly pay rate to determine an
estimate of payroll expense
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The correct answer is: Using CAATs to assess whether credit notes over $5,000 have an electronic
date stamp and approval signature.
Question 49
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Select one:
a.
b.
c.
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The correct answer is: Item in the accounting population should have an opportunity to be
selected.
Question 50
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Many auditors use two types of audit file: a current audit file and a permanent audit file. For each
of the following documents, select whether it is most likely to be included in the current audit file,
permanent audit file or in both.
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The correct answer is: Detail of test of control and test of detail → Current audit file, Accounting
system notes → Permanent audit file, A Summary of unadjusted errors → Current audit file
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