Accounting Information Systems and Auditing Exam Materials
Course Introduction
This course explores the integration of accounting information systems (AIS) within organizational environments, emphasizing their role in supporting financial reporting, decision-making, and internal controls. Students will examine the design, implementation, and management of AIS, including transaction processing cycles, database management, and technology-enabled controls. The course also delves into auditing standards and procedures, focusing on evaluating the reliability and integrity of information produced by AIS. Through case studies and practical exercises, students develop skills in assessing risks, designing audit plans, and using audit software tools to ensure compliance and data security in modern accounting environments.
Recommended Textbook
Auditing The Art and Science of Assurance Engagements 13th Canadian Edition by Alvin A. Arens
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20 Chapters
1385 Verified Questions
1385 Flashcards
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Page 2
Chapter 1: The Demand for Audit and Other Assurance Services
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69 Verified Questions
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Sample Questions
Q1) George had a conversation with the accounting personnel and documented information about how the accounting systems function. He has also placed copies of accounting forms in his files. George is performing which task?
A) accounting procedures
B) evidence gathering
C) tax audit
D) audit report preparation
Answer: B
Q2) The independent auditor's report is the
A) communication of the result of the audit to the users.
B) set of audited financial statements.
C) invoice of the auditor detailing the work they have performed.
D) report presented to management about the possible improvements.
Answer: A
Q3) When do individuals and organizations typically need assurance services?
A) usually only when organizations obtain debt or other loans
B) for five years from the start of an organization until debt is retired
C) only when historical data, such as financial information, needs to be audited
D) on an ongoing basis, as demand for forward-looking information increases
Answer: D
Page 3
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Chapter 2: The Public Accounting Profession and Audit Quality
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68 Verified Questions
68 Flashcards
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Sample Questions
Q1) There are many elements of quality control at the firm level. Which element does "processes should exist for following up internal and external complaints" relate to?
A) engagement performance
B) engagement quality control review
C) documentation
D) general human resource policies
Answer: B
Q2) The implementation of the Sarbanes-Oxley requirements in the U.S. resulted in the creation of the PCAOB to oversee listed companies' auditors and develop audit standards. The impact of this requirement in Canada was
A) the creation of new auditing standards to ensure better quality control for audits.
B) revision to the rules of professional conduct for CPAs.
C) additional training requirements for becoming an auditor.
D) the creation of the CPAB to oversee Canadian audit professionals.
Answer: D
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Chapter 3: Legal Liability
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55 Verified Questions
55 Flashcards
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Sample Questions
Q1) There are four major sources of auditors' legal liability. Briefly summarize the four sources.
Answer: The four sources of auditors' legal liability are: liability to clients under contract law (or common law) liability to third parties under common law and statute law liability under provincial securities acts criminal liability
Q2) What rights do secondary investors (i.e. those who purchase shares after an initial offering) have to sue an auditor?
A) Since they are third-party claimants, they would be part of a limited class of known users.
B) They could claim contributory negligence since they had prior information of company results.
C) They can sue under provincial legislation without the need to prove reliance.
D) Since there is absence of causal connection, they would not be able to sue the auditors.
Answer: C
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Page 5
Chapter 4: Professional Judgment and Ethics
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Sample Questions
Q1) The Rules of Professional Conduct require a successor auditor to communicate with the previous auditor. The primary concern in this communication is
A) to acquire information which will help the successor auditor determine whether the client management has integrity.
B) to learn about the client by examining the predecessor's working papers.
C) to enable the successor to perform a more efficient audit.
D) to save the successor auditor time and money in gathering data.
Q2) In applying professional judgment, the auditor must be able to justify a decision on the basis that it
A) is carried out with truthfulness and forthrightness.
B) meets the underlying principles of only GAAS.
C) considers the impact on management's performance.
D) helps the company improve its profitability.
Q3) Generally, all of the rules of professional conduct for CPAs apply to A) students in public practice.
B) students and members.
C) all members.
D) members in public practice.
Q4) List the components of the auditor's professional judgment framework.
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Chapter 5: Audit Responsibilities and Objectives
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Sample Questions
Q1) You have been assigned as the in-charge-auditor for a new client, Beltair House. Beltair House is a non-profit charitable organization that operates women's shelter. In the past, the organization had been almost fully funded by the provincial government. However, due to recent government budget cuts, Beltair now has to raise operating funds from public donations. Because of financial constraints, there is now only one full-time manager, Joan Ng. Joan has the help of several volunteers. The shelter residents also help out with the chores and with maintenance and cleaning. Ng has been able to arrange for a local food bank to provide a large portion of the food required for meals. Door-to-door canvassers have been able to raise money to keep the House going, but Ng is concerned that this will change.
Required:
Identify issues that affect the risk of this audit engagement that you will need to consider.
Q2) The factor that distinguishes an error from fraud or other irregularities is A) materiality.
B) intent.
C) whether it is a dollar amount or a process.
D) whether it is a caused by the auditor or the client.
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Page 7
Chapter 6: Client Acceptance and Planning the Audit
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Sample Questions
Q1) Vanovo Ltd. has purchased several companies in the retail sector. Recently, Vanovo purchased both a coffee and donut chain (that also owned bakeries) and a submarine sandwich chain. Unfortunately, the planned synergies between these two retail chains did not arise. What effect would this have on the financial statements of Vanovo Ltd., the parent company?
A) The financial statements will be incorrectly calculated and should be checked.
B) The fixed assets and goodwill recorded at acquisition could be impaired.
C) Risk of material misstatement for payroll expenses will increase.
D) Costs of goods sold will likely be overstated for both of the new chains.
Q2) What are the three main factors that influence the organizational structure of all public accounting firms?
Q3) During the course of an audit engagement an auditor prepares and accumulates audit working papers. The primary purpose of the audit working papers is to
A) aid the auditor in adequately planning the work.
B) provide a point of reference for future audit engagements.
C) support the underlying concepts included in the preparation of the basic financial statements.
D) support the auditor's report.
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Chapter 7: Materiality and Risk
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Sample Questions
Q1) Which of the following types of misstatements has the highest level of certainty?
A) identified misstatements
B) likely misstatements
C) likely aggregate misstatements
D) further possible misstatements
Q2) If it is probable that the judgment of a reasonable person would have been changed or influenced by the omission or misstatement of information, then that information is considered to be
A) significant.
B) insignificant.
C) material.
D) relevant.
Q3) Discuss three factors that affect client business risk and therefore audit risk.
Q4) When external users place heavy reliance on the financial statements it is appropriate that
A) audit risk be increased.
B) inherent risk be decreased.
C) inherent risk be increased.
D) audit risk be decreased.
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Chapter 8: Internal Controls and Control Risk
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Sample Questions
Q1) If an external auditor's client has used a service organization during the year for some of its payroll processing and accounting, which of the following steps should the external auditor take if he or she decides to use the service organization auditor's report as audit evidence that the entity's controls are operating effectively for certain assertions?
A) Consider the sufficiency and appropriateness of the evidence provided by the service organization auditor's report about the effectiveness of controls intended to prevent or detect material misstatements in the particular assertions.
B) Double-date the audit report to show the date of the service organization's audit and the date of the client's audit.
C) The auditor should make reference to the report of the service auditor as a basis, in part, for his or her own opinion on the entity's financial statements.
D) Re-perform each of the audit tests used by the service organization auditor.
Q2) An act of two or more employees to work together to misstate records is called A) malfeasance.
B) collusion.
C) defalcation.
D) felony.
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Page 10
Chapter 9: Audit Evidence
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80 Verified Questions
80 Flashcards
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Sample Questions
Q1) "The detailed instructions for the entire collection of evidence for an audit area" is the definition of a(n)
A) sampling plan.
B) audit procedure.
C) audit plan.
D) audit program.
Q2) At the first day of work at a PA firm, staff are given their own laptop computer for use in working with clients and other data.
Required:
A) What is the typical structure of client working paper files?
B) How is client data protected from unauthorized change?
Q3) A major benefit of computerized analytical procedures is the
A) ease of doing the calculations.
B) ease of updating the calculations.
C) ease of correcting math calculations.
D) ability to push the work down to lower levels of the audit staff to do the analysis.
Q4) Identify the characteristics that working papers should have. For each characteristic, briefly explain why it is important.
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11
Chapter 10: Audit Strategy and Audit Program
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Sample Questions
Q1) The auditor of ABC Ltd. has concluded that there are significant risks of misstatement of revenue at the company with potential overstatement of revenue. Which of the following audit tests should the auditor conduct to address this significant risk?
A) control tests of authorization to ensure that credit limits for sales are all approved by the sales manager
B) analytical review of sales comparing sales trends over the last five years by division and to the industry
C) examination of sales after the year end to quantify potential cutoff errors (income from the subsequent period included in the current year)
D) risk assessment procedures looking carefully at inherent risks associated with the handling of cash in the sales cycle
Q2) Analytical procedures are mandatory during which phases of the audit?
A) tests of controls and tests of details
B) planning and final evaluation
C) planning and tests of details
D) tests of details and final evaluation
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Chapter 11: Audit Sampling Concepts
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Sample Questions
Q1) An increase in the sample size has the effect of decreasing the sampling error if the A) actual sample exception rate increases.
B) actual sample exception rate does not increase.
C) number of exceptions in the sample does not increase.
D) number of exceptions in the sample increases.
Q2) When the auditor would like to improve the efficiency of the audit by focusing work on transactions that may be more subject to material error in a particular area of the population, the auditor will use
A) block testing.
B) haphazard sample selection.
C) random sample selection.
D) stratified sample selection.
Q3) A) Describe three types of sample selection methods commonly associated with statistical audit sampling.
B) Explain the difference between sampling with replacement and without replacement. Which method is more common in audit practice?
C) Describe the steps involved in systematic sampling.
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Chapter 12: Audit of the Revenue Cycle
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134 Flashcards
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Sample Questions
Q1) Some companies use a lockbox system, whereby customers mail payments to a post office box address. The lockbox contents could be handled by a bank, another external organization, or the owner of the company. One of the advantages of using a lockbox is that it
A) improves segregation of duties.
B) results in more accurate bank deposits.
C) results in more accurate accounts receivables.
D) provides more detailed bank deposit information.
Q2) You are conducting an audit and have obtained the following figures with respect to sales and accounts receivable:
\[\begin{array} { l r r r }
& \mathbf { 2 0 1 5 } & \mathbf { 2 0 1 4 } \\
\text { Accounts receivable } &\$ \mathbf { 3 } 343000 & \$ 2694000 \\
\text { Allowance for doubtful accounts } & 212150 & 207660 \\
\text { Sales } & 25640000 & 24630000
\end{array}\]
Required:
A) What are the audit implications of these figures?
B) Identify key audit steps that you would perform for any of the above accounts.
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Page 14
Chapter 13: Audit of the Acquisition and Payment Cycle
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Sample Questions
Q1) Discuss the audit tests the auditor would use to audit capital assets acquired in prior years.
Q2) Which of the following situations would indicate increased inherent risk in the accounts payable and acquisition cycle?
A) good quality internal controls for cash handling
B) the use of packaged software for accounting (including accounts payable)
C) the use of clear, standard terms when negotiating supplier discounts
D) significant related party transactions
Q3) A document identifying the description, supplier, quantity, and related information for goods and services the company intends to purchase is the A) purchases catalogue.
B) purchase requisition.
C) receiving report.
D) purchase order.
Q4) State six specific balance-related audit objectives for accounts payable and for each objective describe one common test of details of balances.
Q5) Discuss the key internal controls related to the disposal of manufacturing equipment.
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Chapter 14: Audit of the Inventory and Distribution Cycle
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Sample Questions
Q1) As part of the audit of valuation, the auditor is conducting pricing tests by comparing to supplier invoices. The auditor is making sure that, for each item tested, sufficient supplier invoices are examined to cover the quantity of inventory that was on hand during the physical inventory count. What type of pricing error could this detect?
A) the client valued their inventory on the basis of the most recent invoice only
B) the client has used the incorrect accounting method to value its inventory C) extension errors could occur with numerous different inventory items
D) the wrong inventory count quantity could have been recorded on the count sheets
Q2) When labour is a significant part of inventory, verifying the proper accounting of these costs should be tested in the A) inventory and distribution cycle.
B) human resources and payroll cycle.
C) acquisitions and payments cycle.
D) cash cycle.
Q3) What are inventory price tests and inventory compilation tests? Provide an example of each.
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16
Chapter 15: Audit of the Human Resources and Payroll Cycle
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Sample Questions
Q1) If there is an error in wage rates, such errors can typically escalate into material amounts. What characteristic of the human resources and payroll cycle causes this?
A) many repeated transactions
B) the presence of independent verification
C) the use of outsourcing organizations for payroll
D) an error in the starting cheque number in a cheque run
Q2) Which of the following best describes proper internal control over payroll?
A) Preparation of the payroll must be under the control of the personnel department. B) Confidentiality of employee payroll data should be carefully protected to prevent fraud.
C) Duties of hiring, payroll computation, and payment to employees should be segregated.
D) Payment by cheque to employees should be replaced with payment by automatic deposits.
Q3) Discuss the two most common ways in which employees can defraud a company in the payroll area.
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17
Chapter 16: Audit of the Capital Acquisition and Repayment Cycle
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Sample Questions
Q1) Describe the audit procedures and related audit assertions for the audit of dividends.
Q2) The audit objective to determine that notes payable and accrued interest on the notes payable schedule are accurate is accomplished by which of the following test of balances procedure?
A) Examine duplicate copies of notes for principal and interest rates.
B) Review the minutes of the board of directors for authorized but unrecorded notes.
C) Trace the total of the notes payable schedule to the general ledger.
D) Review the notes to determine whether any are with related parties or should be accounts payable.
Q3) Explain why the auditor's verification of owners' equity is more complex for publicly-held corporations than closely-held corporations.
Q4) The audit objective to determine that notes payable in the schedule exist is verified by the tests of balances procedure to
A) foot the notes payable list.
B) confirm notes payable.
C) recalculate interest expense.
D) examine the balance sheet for proper disclosure of noncurrent portions.
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Chapter 17: Audit of Cash Balances
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Sample Questions
Q1) The audit procedure that requires the auditor to record the last cheque number used on the last day of the year and subsequently trace to the outstanding cheques and the cash disbursements journal is performed to satisfy the audit objective of A) detail tie-in.
B) existence.
C) completeness.
D) allocation.
Q2) Certain types of misstatements that affect cash may be detected in the audit of tests of controls. Which of the following misstatements would be detected in the audit of the sales and collection cycle?
A) a defalcation of cash hidden by an unauthorized write-off of a bad debt
B) accidental duplicate payment of a vendor's invoice
C) payment for raw materials that were not received
D) payment to an employee at an incorrect wage rate
Q3) The most important internal control for petty cash is
A) the use of an imprest fund that is the responsibility of one individual.
B) keeping it in a safe or locked drawer.
C) keeping the amount of cash to a minimum.
D) accessibility so that cheques won't have to be written for small amounts.
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Page 19
Chapter 18: Completing the Audit
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Sample Questions
Q1) Whenever subsequent events are used to evaluate the amounts included in the statements, care must be taken to distinguish between conditions that existed at the balance sheet date and those that came into being after the end of the year. The subsequent information should not be incorporated directly into the statements if the conditions causing the change in valuation
A) did not take place until after year-end.
B) took place before year-end.
C) occurred both before and after year-end.
D) are reimbursable through insurance policies.
Q2) If the amount of a probable loss on a contingent liability is not determinable, the liability should be
A) accrued and indicated in the body of the financial statements.
B) disclosed in footnotes but not accrued.
C) neither accrued nor disclosed in footnotes.
D) disclosed in the auditor's report but not disclosed on the financial statements.
Q3) Discuss the purpose of a management letter.
Q4) State the three conditions required for a contingent liability to exist.
Q5) Describe the items the auditor is required to report to the audit committee.
Q6) State the three conditions required for a contingent liability to exist.
Page 20
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Chapter 19: Audit Reports on Financial Statements
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Sample Questions
Q1) The following are two unrelated situations. For each situation outline possible deviations (if any) from a standard auditor's report that may be necessary and give reasons. State your assumptions.
A) During 2015, your client was sued by a customer who had a serious car accident as a result of scrap metal that had been dumped in the parking lot. The customer drove over the scrap metal, which became embedded in the tires of her vehicle. The tires blew and the car went out of control on a major highway. The amount in dispute is $400 000, with estimated legal bills of about $20 000. The client does not wish to disclose the suit in the financial statements.
B) During the current year, your client leased a large amount of equipment. As the lease qualifies as a capital lease, the equipment has been recorded as an asset, with the corresponding liabilities recorded on the financial statements. The implicit interest rate in the lease is 7 percent. The annual payments due over the terms of the lease have been disclosed in the notes to the financial statements.
Q2) Discuss how materiality affects audit reporting decisions.
Q3) Analyze the "Auditor Responsibility Section" of the standard Independent Auditor's Report. Explain the intended purpose of the sentences in this section.
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Chapter 20: Other Assurance and Nonassurance Services
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Sample Questions
Q1) Which of the following techniques would be conducted by a practitioner when conducting a review of compliance with agreements and regulations?
A) use of a specialist to ensure that the terms of the agreement are complied with B) inquiring about how the client monitors its compliance with the provisions
C) testing control procedures throughout the year that pertain to the provisions of the agreement
D) discussing with client's legal counsel to identify any legal liabilities with respect to potential violations of the agreements
Q2) Richard is performing a compilation engagement. Richard is concerned that the information is
A) arithmetically correct. B) accurate.
C) complete.
D) in accordance with ASPE.
Q3) Define "assurance engagements."
Q4) Define "direct reporting engagements."
Q5) Identify the reporting standards for compilation engagements.
Q6) Define "attestation engagements."
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