CPA Audit & Insurance - AA Exam Practice Test
Question 1
Auditors seek written representations from management to support oral representations that have been made during the course of the audit.
Which of the following would require a written representation in relation to a statutory audit?
(i)The directors have fulfilled their responsibility for the preparation of the financial statements (ii)The accounting policies selected and applied by management are appropriate
(iii) A material item, subject to management judgement, for which no other evidence could
reasonably be expected to exist
Which of the following would require a written representation in relation to a statutory audit?
(i)The directors have fulfilled their responsibility for the preparation of the financial statements (ii)The accounting policies selected and applied by management are appropriate
(iii) A material item, subject to management judgement, for which no other evidence could
reasonably be expected to exist
Correct Answer: B
Question 2
The management of Tory Bank Ltd suspects that a bank loan officer frequently made loans to fictitious companies, disbursed loan proceed to his wife's accounts, and then the loan has been written-off as irrecoverable. Some significant facts about the loan officer include
A high standard of living, explained as the result of sound investments and not taking vacations
An expensive personal car obtained through business contacts
Gasoline and repair bills submitted for an assigned company car that is higher than company average (mileage logs were submitted on a quarterly basis)
Marked annoyance with questions from auditors
The above fraud would least likely be discovered by
A high standard of living, explained as the result of sound investments and not taking vacations
An expensive personal car obtained through business contacts
Gasoline and repair bills submitted for an assigned company car that is higher than company average (mileage logs were submitted on a quarterly basis)
Marked annoyance with questions from auditors
The above fraud would least likely be discovered by
Correct Answer: D
Question 3
Audit sampling is the application of audit procedures to less than 100% of items within a population of audit relevance such that all sampling units have a chance of selection in order to provide the auditor with a reasonable basis on which to draw conclusions about the entire population.
You are carrying out a review of payments to suppliers with the aim to identifying at least one instance of fraud. Which of the following would be the most appropriate sampling technique to use?
You are carrying out a review of payments to suppliers with the aim to identifying at least one instance of fraud. Which of the following would be the most appropriate sampling technique to use?
Correct Answer: B
Question 4
The auditor is subject to relevant ethical requirements. Relevant ethical requirements ordinarily comprise Parts A and B of the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) related to an audit of financial statements together with national requirements that are more restrictive.
Interpretations of the IESBA Code of Professional Conduct are dominated by the concept of __________________.
Interpretations of the IESBA Code of Professional Conduct are dominated by the concept of __________________.
Correct Answer: B
Question 5
Your firm has recently been appointed as auditor to Crate Ltd for the year ending 31 October 2012. This is the first year of audit for Crate Ltd as it fell below the statutory audit exemption limits for the year ended 31 October 2011, which was the company's first period of trading.
Which of the following is NOT a matter to be considered in respect of the opening balances of Crate Ltd?
Which of the following is NOT a matter to be considered in respect of the opening balances of Crate Ltd?
Correct Answer: A
Question 6
Rehan & Co has been appointed as an external auditor of Limba Plc for the financial year 2011-12. Rehan & Co has identified some problems in the financial statements and now at the final stage of writing the report on the audit.
In which of the following case, Rehan & Co may issue an adverse opinion?
In which of the following case, Rehan & Co may issue an adverse opinion?
Correct Answer: C
Question 7
Cates plc is a large organisation with a complex accounting and information system. Critical to an understanding of the system are the reporting lines and relationships between different departments.
Which of the following represents inherent limitation of a system of internal controls in Cates plc?
Which of the following represents inherent limitation of a system of internal controls in Cates plc?
Correct Answer: B
Question 8
Saturn Ltd has offered Jack Lee to be the head of their treasury department during the audit of Saturn Ltd. Jack Lee is the audit manager who is currently in charge of Saturn Ltd. Jack Lee discussed the role with Saturn Ltd and intends to accept the appointment.
Which of the following is a safeguard that the audit firm of Jack Lee should adopt?
Which of the following is a safeguard that the audit firm of Jack Lee should adopt?
Correct Answer: C
