Auditing and Assurance Test Bank PDF

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Chapter 09 - TEST BANK
Auditing and Assurance Service (University of New South Wales)
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Chapter 09
Student: ___________________________________________________________________________
1. Assessing control risk at a level below high most likely would involve:
A. identifying specific internal controls relevant to specific assertions.
B. changing the timing of substantive tests by omitting interim testing and performing the tests at year-end.
C. reducing inherent risk for most of the assertions relevant to significant account balances.
D. performing more extensive substantive tests with larger sample sizes than originally planned.
2. An auditor may decide to assess control risk at high for certain assertions because the auditor believes:
A. evaluating the effectiveness of control policies and procedures is inefficient.
B. sufficient evidential matter to support the assertions is likely to be available.
C. considering the relationship of assertions to specific account balances is more efficient.
D. more emphasis on tests of controls than substantive tests is warranted.
3. After obtaining an understanding of an entity's internal control system, an auditor may assess control risk at
the maximum
level for some account balances because he or she:
A. identifies internal controls that are likely to prevent material misstatements.
B. performs tests of controls to reduce detection risk to an acceptable level.
C. determines that the pertinent internal control components are not well documented.
D. believes the internal controls are unlikely to be operating effectively.
4. Which of the following audit tests would be regarded as a test of controls?

A. Tests comparing inventory pricing to vendors' invoices.
B. Tests of the specific items making up the balance in a given general ledger account.
C. Tests of the additions to property, plant and equipment by physical inspections.
D. Tests of the signatures on purchase orders to a list of approved signatories.
5. Test of controls must be performed:

A. to ensure that controls that are to be relied upon are operating effectively throughout the entire year.
B. when inherent risk is high.
C. in areas of business risk.
D. when control risk is high.

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6. A procedure that would most likely be used by an auditor in performing tests of controls that involve
segregation of functions
and that leave no transaction trail is:
A. observation.
B. inspection.
C. reconciliation.
D. re-performance.
7. Which of the following procedures most likely would be included as part of an auditor's tests of controls?
A. Reconciliation.
B. Inspection.
C. Analytical procedures.
D. Confirmation.
8. Evidence about which aspect(s) of internal control is usually gained when the auditor is assessing control
risk?
A. Existence.
B. Effectiveness.
C. Continuity.
D. All of the given answers.
9. Which of the following procedures most likely would provide an auditor with evidence about whether an
entity's internal control
activities are suitably designed to prevent or detect material misstatements?
A. Performing analytical procedures using data aggregated at a high level.
B. Re-performing the controls for a sample of transactions.
C. Observing the entity's personnel applying the controls.
D. Vouching a sample of transactions directly related to the controls.
10. Based on a study and evaluation completed at an interim date, the auditor concludes that no significant
internal accounting control weaknesses
exist. The records and procedures would most likely be tested again at year-end if:
A. the internal accounting control system provides a basis for reliance in reducing the extent of substantive
testing.
B. tests of controls were not performed by the internal auditor during the remaining period.
C. inquiries and observations lead the auditor to believe that conditions have changed.
D. the auditor used non-statistical sampling during interim compliance testing.

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11. An auditor wishes to perform tests of controls on a client's cash disbursements procedures. If the control
procedures leave
no audit trail of documentary evidence, the auditor most likely will test the procedures by:
A. inquiry and analytical procedures.
B. confirmation and observation.
C. observation and inquiry.
D. analytical procedures and confirmation.
12. When undertaking tests of controls which are related to controls built around a major transaction flow,
which assertion would
be of least interest to the auditor?
A. Occurrence.
B. Accuracy.
C. Cut-off.
D. Valuation or allocation.
A. Accuracy.
B. Completeness.
C. Occurrence.
D. Rights and obligations.
14. In the examination of which of the following general ledger accounts will tests of controls be particularly
appropriate?
A. Loans payable.
B. Equipment.
C. Sales.
D. Bank charges.
15. Tests designed to detect credit sales made before the end of the year that have been recorded in the
subsequent year provide assurance about management's assertion of:
A. Classification.
B. Cut-off.
C. Occurrence.
D. Accuracy.

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16. Which of the following tests of control most likely would help assure an auditor that goods shipped are
properly billed? Checking that the client has:
A. scanned the sales journal for sequential and unusual entries.
B. examined shipping documents for matching sales invoices.
C. compared the accounts receivable ledger to daily sales summaries.
D. inspected unused sales invoices for consecutive pre-numbering.
17. To determine whether internal control structure policies and procedures operated effectively to minimise
errors of failure to invoice
a shipment, the auditor would select a sample of transactions from the population represented by the:
A. bill of lading file.
B. customer order file.
C. sales invoice file.
D. subsidiary customer accounts ledger.
18. For effective internal control, the billing function should be performed by the:
A. accounting department.
B. sales department.
C. shipping department.
D. credit and collection department.
19. Tracing shipping documents to pre-numbered sales invoices provides evidence that:
A. no duplicate shipments or billings occurred.
B. shipments to customers were properly invoiced.
C. all goods ordered by customers were shipped.
D. all pre-numbered sales invoices were accounted for.
20. Tracing bills of lading to sales invoices provides evidence that:

A. invoiced sales were shipped.
B. recorded sales were shipped.
C. shipments to customers were recorded as sales.
D. shipments to customers were invoiced.
21. Tracing copies of sales invoices to shipping documents will provide evidence that all:
A. shipments to customers were billed.
B. debits to the accounts receivable master file are for sales shipped.
C. billed sales were shipped.
D. shipments to customers were recorded as receivables.

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22. Which is not a key segregation of duties for the revenue process? Different parties should:
A. prepare shipping orders and prepare bills of landing.
B. perform the credit and billing functions.
C. perform the shipping and billing functions.
D. receive cash and adjust accounts receivable.
23. All of the following are important controls over credit memos except:
A. proper segregation of duties to ensure that sales discounts taken were earned.
B. credit memos should be approved by someone other than whoever initiated it.
C. credit memos should be supported by a receiving document for returned goods.
D. proper segregation of duties between access to customer records and authorising credit memos.
24. When undertaking tests of controls for revenues, auditors are more concerned with controls associated with
the occurrence
assertion than they are with the completeness assertion because:
A. clients are more likely to overstate than understate revenues.
B. clients are more likely to understate than overstate revenues.
C. it is difficult to determine when services have been performed.
D. the allowance for doubtful accounts is often understated.
25. An auditor selects a sample from the file of shipping documents to determine whether invoices were
prepared. This test is performed
to assess which assertion for sales?
A. Accuracy.
B. Completeness.
C. Cut-off.
D. Occurrence.
26. Which of the following is a test of controls for the control assertion of completeness for revenue?
A. Test a sample of sales invoices for authorised customer orders.
B. Review sales orders for proper credit approval.
C. Trace shipping documents to sales invoices and the sales journal.
D. Examine reconciliation of accounts receivable subsidiary ledger to general ledger control account.

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27. An auditor most likely would limit substantive audit tests of sales transactions when control risk is assessed
as low for the
occurrence assertion concerning sales transactions and the auditor has already gathered evidence supporting:
A. opening and closing inventory balances.
B. cash receipts and accounts receivable.
C. shipping and receiving activities.
D. cut-offs for sales and purchases.
28. Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate control
procedures over the invoicing
function allow goods to be invoiced that are not shipped. The inadequate control procedures could cause an:
A. understatement of revenues, receivables and inventory.
B. overstatement of revenues and receivables, and an understatement of inventory.
C. understatement of revenues and receivables, and an overstatement of inventory.
D. overstatement of revenues, receivables and inventory.
function allow goods to be shipped that are not invoiced. The inadequate control procedures could cause an:
B. overstatement of revenues and receivables and an understatement of inventory.
C. understatement of revenues and receivables and an overstatement of inventory.
30. Which of the following internal controls would be most likely to deter the lapping of collections from
customers?
A. Supervisory comparison of the daily cash summary with the sum of the cash receipts journal entries.
B. Segregation of duties between receiving cash and posting the accounts receivable ledger.
C. Authorisation of write-offs of uncollectible accounts by a supervisor independent of the credit approval
function.
D. Independent internal verification of dates of entry in the cash receipts journal with dates of daily cash
summaries.
31. Purchase cut-off procedures should be designed to test whether or not all inventory:
A. on the statement of financial position was carried at lower of cost or market.
B. purchased and received before the year-end was recorded at year-end.
C. owned by the company is in the possession of the company.
D. on the year-end statement of financial position was paid for by the company.

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32. The cut-off assertion for accounts payable includes:

A. determining whether all accounts payable are recorded at their correct amount.
B. determining whether all accounts payable are actually liabilities.
C. determining whether all accounts payable are recorded in the proper period.
D. determining whether all accounts payable are properly classified in the financial statements.
33. Which of the following is a primary function of the purchasing department?

A. Reducing expenditures for goods acquired.
B. Verifying the propriety of goods acquired.
C. Ensuring the acquisition of goods of a specified quality.
D. Authorising the acquisition of goods.
34. Which of the following control activities is not usually performed in the vouchers payable department?
A. Controlling the mailing of the cheque and remittance advice.
B. Matching the receiving report with the purchase order.
C. Determining the mathematical accuracy of the vendor's invoice.
D. Having an authorised person approve the voucher.
35. To ensure the completeness of purchases made during the year, the auditor should:
A. select a sample of transactions from the accounts payable master file and vouch to related invoices.
B. select a sample of invoices received before the year-end and ensure that they are appropriately recorded in
the
accounts payable master file.
C. perform a bank reconciliation.
D. select a sample of receiving reports before and after the year-end and ensure they have been appropriately
recorded.

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36.
An internal control questionnaire indicates that an approved receiving report is required to accompany every cheque request for payment of
merchandise. Which of the following tests of control provides the greatest assurance that this control is operating effectively?
A. Select and examine receiving reports and ascertain that the related voucher documents are dated no later
than
the receiving reports.
B. Select and examine receiving reports and ascertain that the cancelled voucher documents are dated no
earlier
than the receiving reports.
C. Select and examine voucher documents and ascertain that the related receiving reports are dated no later
than
the date of payment.
D. Select and examine voucher documents and ascertain that the related receiving reports are dated no earlier
than
37. An audit client erroneously recorded a large purchase twice. Which of the following tests of control
measures would be most
likely to detect this error in a timely and efficient manner?
A. Reconciling vendors' monthly statements with subsidiary payable ledger accounts.
B. Footing the purchases journal.
C. Sending written quarterly confirmations to all vendors.
D. Tracing totals from the purchases journal to the ledger accounts.
38. When goods are received, the receiving clerk should match the goods with:
A. the receiving report and the vendor shipping document.
B. the vendor shipping document and the purchase order.
C. the vendor invoice and the receiving report.
D. the purchase order and the requisition form.
39. In a properly-designed accounts payable system, a voucher is prepared after the invoice, purchase order,
requisition and receiving
report are verified. The next step in the system is:
A. approval of the voucher for payment.
B. entering of the voucher into the voucher register.
C. entry of the cheque amount in the cheque register.
D. cancellation of the supporting documents.

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40. To check the accuracy of the accounting records with regards to the recorded hours worked, an auditor
would ordinarily
compare time clock cards with:
A. shop job time tickets.
B. personnel records.
C. time recorded in the payroll register.
D. labour variance reports.
41. In auditing the purchases system, an auditor vouches a sample of entries in the voucher register (accounting
records) to
the supporting documents. Which assertion would this test of controls most likely support?
A. Completeness.
B. Occurrence.
C. Accuracy.
D. Classification
42. Tests of controls for the occurrence assertion for purchases include all of the following except:
A. evaluating proper segregation of duties.
B. testing a sample of vouchers to an authorised purchase order.
C. testing a sample of vouchers to receiving reports.
D. tracing a sample of vouchers to the purchases journal.
43. Which of the following is the most effective test of control to detect vouchers prepared for the payment of
goods that were not received?
A. Counting of goods upon receipt in the storeroom.
B. Matching of purchase order, receiving report and vendor invoice for each voucher in the accounts payable
department.
C. Comparison of goods received with goods requisitioned in the receiving department.
D. Verification of vouchers for accuracy and approval in the internal audit department.
44. Which of the following internal control activities is not usually performed in the accounts payable
department?
A. Indicating the asset and expense accounts to be debited.
B. Accounting for unused pre-numbered purchase orders and receiving reports.
C. Matching the vendor's invoice with the related receiving report.
D. Approving vouchers for payment by having an authorised employee sign the vouchers.

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45. In a properly-designed purchasing process, the same employee most likely would match vendors' invoices
with receiving reports and also:
A. cancels vendors' invoices after payment.
B. reconciles the accounts payroll ledger.
C. recomputes the calculations on vendors' invoices.
D. posts the detailed accounts payable records.
46. Which of the following procedures would be most likely to be considered a weakness in an entity's internal
controls over payroll?
A. The personnel department sends employees' termination notices to the payroll department.
B. The employee who distributes payroll cheques is responsible for later distributing unclaimed payroll
cheques
to the employees absent at time of payroll distribution.
C. Payroll cheques are prepared by the payroll department and signed by the treasurer.
D. A voucher for the amount of the payroll is prepared in the general accounting department based on the
payroll
department's payroll summary.
47. Selected employee time cards that have been approved by supervisory personnel during the year are
compared to the payroll
register to ensure that they have been recorded. Which of the following assertions for payroll expense does this
test?
A. Occurrence.
B. Completeness.
C. Accuracy.
D. Cut-off.
48. Selected items from the payroll register are compared to employee time cards that have been approved by
supervisory personnel.
Which of the following assertions for payroll expense does this test?
A. Occurrence.
B. Completeness.
C. Accuracy.
D. Cut-off.

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49.
An auditor decides that it is important and necessary to observe a client's distribution of payroll cheques on a particular audit. The client
organisation is so large that the auditor cannot conveniently observe the distribution of the entire payroll. In these circumstances, which of the
following is most acceptable to the auditor?
A. Observation should be made for all departments regardless of the inconvenience.

B. Observation should be limited to one or more selected departments.
C. Observation should be limited to those departments where employees are readily available.
D. Observation should be eliminated and other alternative auditing procedures should be utilised to obtain
satisfaction.
50. Possible misstatements related to the occurrence assertion for payroll transactions include all of the
following except:
A. payments to fictitious employees.
B. payments to terminated employees.
C. payments to valid employees who have not worked.
D. payments to valid employees at a rate in excess of the authorised amount.
51. Auditing by testing the input and output of an IT system instead of the computer program itself will:
A. detect all program errors, regardless of the nature of the output.
B. not detect program errors which do not show up in the output sampled.
C. not provide the auditor with confidence in the results of the auditing procedures.
D. provide the auditor with the same type of evidence.
52. An auditor will use test data in order to gain certain assurances with respect to the:
A. degree of keying accuracy.
B. controls contained within the program.
C. machine capacity.
D. input data.
53. Tests of controls of an advanced IT system:

A. can be performed using actual transactions or simulated transactions.
B. can be performed using only actual transactions since testing of simulated transactions is of no consequence.
C. is inadvisable because it may distort the evidence in master files.
D. is impractical since many procedures within the CIS activity leave no visible evidence of having been
performed.

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54. When testing a computerised accounting system, which of the following is not true of the test data
approach?
A. The test data must consist of all possible valid and invalid conditions.
B. Test data are processed by the client's computer programs under the auditor's control.
C. Only one transaction of each type need be tested.
D. The test data need consist of only those valid and invalid conditions in which the auditor is interested.
55. Which of the following is not among the errors that an auditor might include in the test data when auditing
a client's IT system?
A. Authorisation code.
B. Numeric characters in alphanumeric fields.
C. Illogical entries in fields whose logic is tested by programmed consistency checks.
D. Differences in description of units of measure.
56. An auditor who is testing IT controls in a payroll system would most likely use test data that contain
conditions such as:
A. payroll cheques with unauthorised signatures.
B. time cards with invalid job numbers.
C. overtime not approved by supervisors.
D. deductions not authorised by employees.
57. An approach to testing real-time processing of a computer-based information system is known as the
integrated test facility
(ITF) technique. This approach involves:
A. testing the computer hardware at the same time as test transactions enter the real-time system.
B. validating as well as editing all input transactions entering the real-time system.
C. running monthly activities simultaneously with current transactions so that the two are integrated in the
result of the test.
D. setting up a small set of records for a fictitious entity in the master files and then processing dummy
transactions
against the fictitious entity.

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58.
Smith Ltd has numerous customers. Each customer file contains name, address, credit limit and account balance. The auditor wishes to undertake
a test of the programmed control that does not allow account balance to exceed credit limit. The best procedure for the auditor to follow would be
to:
A. develop a program to compare credit limits with account balances and print out the details of any account
with
a balance exceeding its credit limit.
B. develop test data that would cause some account balances to exceed the credit limit and determine if the
system
properly detects such situations.
C. request a printout of a sample of account balances so they can be individually checked against the credit
limits.
D. request a printout of all account balances so they can be manually checked against the credit limits.
59.
In a daily computer run to update cheque account balances and to print out basic details on any customer's account that was overdrawn, the
overdrawn account of the computer programmer was never printed. Which of the following control procedures would have been most effective in
detecting this irregularity?
A. A manual test check of the information in the master file against the information on the printout.
B. Use of the test data approach by the auditor in testing the client's program and verifying the subsidiary file.
C. Periodic recompiling of programs from approved and documented source code, and comparison with
programs currently in use.
D. A program check for valid customer code.

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Chapter 09 Key
1. Assessing control risk at a level below high most likely would involve:
A. identifying specific internal controls relevant to specific assertions.
B. changing the timing of substantive tests by omitting interim testing and performing the tests at year-end.
C. reducing inherent risk for most of the assertions relevant to significant account balances.
D. performing more extensive substantive tests with larger sample sizes than originally planned.
Chapter - Chapter 09 #1
Difficulty: Easy
Est time: < 1 min
Learning Objective: 8.1 Define internal control, and explain the audit logic of assessing control risk.
Learning Objective: 9.1 Understand that tests of controls are undertaken when the auditor intends to rely on a control to reduce a risk of material misstatement.
Section: Tests of controls.
2. An auditor may decide to assess control risk at high for certain assertions because the auditor believes:
A. evaluating the effectiveness of control policies and procedures is inefficient.
B. sufficient evidential matter to support the assertions is likely to be available.
C. considering the relationship of assertions to specific account balances is more efficient.
D. more emphasis on tests of controls than substantive tests is warranted.
Difficulty: Easy
Est time: < 1 min
Learning Objective: 8.1 Define internal control, and explain the audit logic of assessing control risk.
3. After obtaining an understanding of an entity's internal control system, an auditor may assess control risk at
the maximum
level for some account balances because he or she:
A. identifies internal controls that are likely to prevent material misstatements.
B. performs tests of controls to reduce detection risk to an acceptable level.
C. determines that the pertinent internal control components are not well documented.
D. believes the internal controls are unlikely to be operating effectively.
Difficulty: Easy
Est time: < 1 min
Est time: 1–3 mins

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4. Which of the following audit tests would be regarded as a test of controls?

A. Tests comparing inventory pricing to vendors' invoices.
B. Tests of the specific items making up the balance in a given general ledger account.
C. Tests of the additions to property, plant and equipment by physical inspections.
D. Tests of the signatures on purchase orders to a list of approved signatories.
Difficulty: Medium
5. Test of controls must be performed:

A. to ensure that controls that are to be relied upon are operating effectively throughout the entire year.
B. when inherent risk is high.
C. in areas of business risk.
D. when control risk is high.
Difficulty: Easy
Est time: < 1 min
Learning Objective: 9.2 Appreciate that when undertaking tests of controls, the auditor must collect audit evidence about the existence, effectiveness and continuity of
controls.
Section: Existence, effectiveness and continuity of controls
6. A procedure that would most likely be used by an auditor in performing tests of controls that involve
segregation of functions
and that leave no transaction trail is:
A. observation.
B. inspection.
C. reconciliation.
D. re-performance.
Difficulty: Easy
controls.

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7. Which of the following procedures most likely would be included as part of an auditor's tests of controls?
A. Reconciliation.
B. Inspection.
C. Analytical procedures.
D. Confirmation.
Difficulty: Medium
Est time: < 1 min
controls.
8. Evidence about which aspect(s) of internal control is usually gained when the auditor is assessing control
risk?
A. Existence.
B. Effectiveness.
C. Continuity.
D. All of the given answers.
Difficulty: Medium
controls.
9. Which of the following procedures most likely would provide an auditor with evidence about whether an
entity's internal control
activities are suitably designed to prevent or detect material misstatements?
A. Performing analytical procedures using data aggregated at a high level.
B. Re-performing the controls for a sample of transactions.
C. Observing the entity's personnel applying the controls.
D. Vouching a sample of transactions directly related to the controls.
Difficulty: Medium
controls.

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10. Based on a study and evaluation completed at an interim date, the auditor concludes that no significant
internal accounting control weaknesses
exist. The records and procedures would most likely be tested again at year-end if:
A. the internal accounting control system provides a basis for reliance in reducing the extent of substantive
testing.
B. tests of controls were not performed by the internal auditor during the remaining period.
C. inquiries and observations lead the auditor to believe that conditions have changed.
D. the auditor used non-statistical sampling during interim compliance testing.

Difficulty: Medium
controls.
11. An auditor wishes to perform tests of controls on a client's cash disbursements procedures. If the control
procedures leave
no audit trail of documentary evidence, the auditor most likely will test the procedures by:
A. inquiry and analytical procedures.
B. confirmation and observation.
C. observation and inquiry.
D. analytical procedures and confirmation.

Difficulty: Medium
controls.
A. Occurrence.
B. Accuracy.
C. Cut-off.
D. Valuation or allocation.

Difficulty: Medium
Learning Objective: 9.3 Identify factors affecting the auditor’s assessment of the sufficiency and appropriateness of evidence of tests of controls.
Section: Sufficiency and appropriateness of evidence

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A. Accuracy.
B. Completeness.
C. Occurrence.
D. Rights and obligations.

Difficulty: Medium
Learning Objective: 9.3 Identify factors affecting the auditor’s assessment of the sufficiency and appropriateness of evidence of tests of controls.
Section: Sufficiency and appropriateness of evidence
14. In the examination of which of the following general ledger accounts will tests of controls be particularly
appropriate?
A. Loans payable.
B. Equipment.
C. Sales.
D. Bank charges.

Difficulty: Easy
Learning Objective: 9.4 Describe the audit procedures for testing controls in the revenues, receivables and receipts system.
Section: Revenues, receivables and receipts
15. Tests designed to detect credit sales made before the end of the year that have been recorded in the
subsequent year provide assurance about management's assertion of:
A. Classification.
B. Cut-off.
C. Occurrence.
D. Accuracy.

Difficulty: Easy
Est time: < 1 min

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16. Which of the following tests of control most likely would help assure an auditor that goods shipped are
properly billed? Checking that the client has:
A. scanned the sales journal for sequential and unusual entries.
B. examined shipping documents for matching sales invoices.
C. compared the accounts receivable ledger to daily sales summaries.
D. inspected unused sales invoices for consecutive pre-numbering.

Difficulty: Medium
17. To determine whether internal control structure policies and procedures operated effectively to minimise
errors of failure to invoice
a shipment, the auditor would select a sample of transactions from the population represented by the:
A. bill of lading file.
B. customer order file.
C. sales invoice file.
D. subsidiary customer accounts ledger.

Difficulty: Medium
18. For effective internal control, the billing function should be performed by the:
A. accounting department.
B. sales department.
C. shipping department.
D. credit and collection department.

Difficulty: Medium

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19. Tracing shipping documents to pre-numbered sales invoices provides evidence that:
A. no duplicate shipments or billings occurred.
B. shipments to customers were properly invoiced.
C. all goods ordered by customers were shipped.
D. all pre-numbered sales invoices were accounted for.

Difficulty: Medium
20. Tracing bills of lading to sales invoices provides evidence that:

A. invoiced sales were shipped.
B. recorded sales were shipped.
C. shipments to customers were recorded as sales.
D. shipments to customers were invoiced.

Difficulty: Medium
21. Tracing copies of sales invoices to shipping documents will provide evidence that all:
A. shipments to customers were billed.
B. debits to the accounts receivable master file are for sales shipped.
C. billed sales were shipped.
D. shipments to customers were recorded as receivables.

Difficulty: Medium
22. Which is not a key segregation of duties for the revenue process? Different parties should:
A. prepare shipping orders and prepare bills of landing.
B. perform the credit and billing functions.
C. perform the shipping and billing functions.
D. receive cash and adjust accounts receivable.

Difficulty: Medium

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23. All of the following are important controls over credit memos except:
A. proper segregation of duties to ensure that sales discounts taken were earned.
B. credit memos should be approved by someone other than whoever initiated it.
C. credit memos should be supported by a receiving document for returned goods.
D. proper segregation of duties between access to customer records and authorising credit memos.

Difficulty: Medium
24. When undertaking tests of controls for revenues, auditors are more concerned with controls associated with
the occurrence
assertion than they are with the completeness assertion because:
A. clients are more likely to overstate than understate revenues.
B. clients are more likely to understate than overstate revenues.
C. it is difficult to determine when services have been performed.
D. the allowance for doubtful accounts is often understated.

Difficulty: Medium
25. An auditor selects a sample from the file of shipping documents to determine whether invoices were
prepared. This test is performed
to assess which assertion for sales?
A. Accuracy.
B. Completeness.
C. Cut-off.
D. Occurrence.

Difficulty: Medium

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26. Which of the following is a test of controls for the control assertion of completeness for revenue?
A. Test a sample of sales invoices for authorised customer orders.
B. Review sales orders for proper credit approval.
C. Trace shipping documents to sales invoices and the sales journal.
D. Examine reconciliation of accounts receivable subsidiary ledger to general ledger control account.

Difficulty: Medium
27. An auditor most likely would limit substantive audit tests of sales transactions when control risk is assessed
as low for the
occurrence assertion concerning sales transactions and the auditor has already gathered evidence supporting:
A. opening and closing inventory balances.
B. cash receipts and accounts receivable.
C. shipping and receiving activities.
D. cut-offs for sales and purchases.

Difficulty: Medium
function allow goods to be invoiced that are not shipped. The inadequate control procedures could cause an:
B. overstatement of revenues and receivables, and an understatement of inventory.
C. understatement of revenues and receivables, and an overstatement of inventory.

Difficulty: Hard

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function allow goods to be shipped that are not invoiced. The inadequate control procedures could cause an:
B. overstatement of revenues and receivables and an understatement of inventory.
C. understatement of revenues and receivables and an overstatement of inventory.

Difficulty: Hard
30. Which of the following internal controls would be most likely to deter the lapping of collections from
customers?
A. Supervisory comparison of the daily cash summary with the sum of the cash receipts journal entries.
B. Segregation of duties between receiving cash and posting the accounts receivable ledger.
C. Authorisation of write-offs of uncollectible accounts by a supervisor independent of the credit approval
function.
D. Independent internal verification of dates of entry in the cash receipts journal with dates of daily cash
summaries.

Difficulty: Hard
31. Purchase cut-off procedures should be designed to test whether or not all inventory:
A. on the statement of financial position was carried at lower of cost or market.
B. purchased and received before the year-end was recorded at year-end.
C. owned by the company is in the possession of the company.
D. on the year-end statement of financial position was paid for by the company.

Difficulty: Easy
Learning Objective: 9.5 Describe the audit procedures for testing controls in the expenditures, payables and disbursements system.

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32. The cut-off assertion for accounts payable includes:

A. determining whether all accounts payable are recorded at their correct amount.
B. determining whether all accounts payable are actually liabilities.
C. determining whether all accounts payable are recorded in the proper period.
D. determining whether all accounts payable are properly classified in the financial statements.

Difficulty: Easy
Est time: < 1 min
Section: Expenditures, payables and disbursements
33. Which of the following is a primary function of the purchasing department?

A. Reducing expenditures for goods acquired.
B. Verifying the propriety of goods acquired.
C. Ensuring the acquisition of goods of a specified quality.
D. Authorising the acquisition of goods.

Difficulty: Easy
Est time: < 1 min
34. Which of the following control activities is not usually performed in the vouchers payable department?
A. Controlling the mailing of the cheque and remittance advice.
B. Matching the receiving report with the purchase order.
C. Determining the mathematical accuracy of the vendor's invoice.
D. Having an authorised person approve the voucher.

Difficulty: Medium

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35. To ensure the completeness of purchases made during the year, the auditor should:
A. select a sample of transactions from the accounts payable master file and vouch to related invoices.
B. select a sample of invoices received before the year-end and ensure that they are appropriately recorded in
the
accounts payable master file.
C. perform a bank reconciliation.
D. select a sample of receiving reports before and after the year-end and ensure they have been appropriately
recorded.

Difficulty: Medium
36.
An internal control questionnaire indicates that an approved receiving report is required to accompany every cheque request for payment of
merchandise. Which of the following tests of control provides the greatest assurance that this control is operating effectively?
A. Select and examine receiving reports and ascertain that the related voucher documents are dated no later
than
the receiving reports.
B. Select and examine receiving reports and ascertain that the cancelled voucher documents are dated no
earlier
than the receiving reports.
C. Select and examine voucher documents and ascertain that the related receiving reports are dated no later
than
D. Select and examine voucher documents and ascertain that the related receiving reports are dated no earlier
than

Difficulty: Medium

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37. An audit client erroneously recorded a large purchase twice. Which of the following tests of control
measures would be most
likely to detect this error in a timely and efficient manner?
A. Reconciling vendors' monthly statements with subsidiary payable ledger accounts.
B. Footing the purchases journal.
C. Sending written quarterly confirmations to all vendors.
D. Tracing totals from the purchases journal to the ledger accounts.

Difficulty: Medium
38. When goods are received, the receiving clerk should match the goods with:
A. the receiving report and the vendor shipping document.
B. the vendor shipping document and the purchase order.
C. the vendor invoice and the receiving report.
D. the purchase order and the requisition form.

Difficulty: Medium
39. In a properly-designed accounts payable system, a voucher is prepared after the invoice, purchase order,
requisition and receiving
report are verified. The next step in the system is:
A. approval of the voucher for payment.
B. entering of the voucher into the voucher register.
C. entry of the cheque amount in the cheque register.
D. cancellation of the supporting documents.

Difficulty: Medium

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40. To check the accuracy of the accounting records with regards to the recorded hours worked, an auditor
would ordinarily
compare time clock cards with:
A. shop job time tickets.
B. personnel records.
C. time recorded in the payroll register.
D. labour variance reports.

Difficulty: Medium
Learning Objective: 5.2 Outline the logical process of identifying financial report assertions, developing specific audit objectives and selecting auditing procedures.
41. In auditing the purchases system, an auditor vouches a sample of entries in the voucher register (accounting
records) to
the supporting documents. Which assertion would this test of controls most likely support?
A. Completeness.
B. Occurrence.
C. Accuracy.
D. Classification

Difficulty: Medium
42. Tests of controls for the occurrence assertion for purchases include all of the following except:
A. evaluating proper segregation of duties.
B. testing a sample of vouchers to an authorised purchase order.
C. testing a sample of vouchers to receiving reports.
D. tracing a sample of vouchers to the purchases journal.

Difficulty: Medium

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43. Which of the following is the most effective test of control to detect vouchers prepared for the payment of
goods that were not received?
A. Counting of goods upon receipt in the storeroom.
B. Matching of purchase order, receiving report and vendor invoice for each voucher in the accounts payable
department.
C. Comparison of goods received with goods requisitioned in the receiving department.
D. Verification of vouchers for accuracy and approval in the internal audit department.

Difficulty: Medium
44. Which of the following internal control activities is not usually performed in the accounts payable
department?
A. Indicating the asset and expense accounts to be debited.
B. Accounting for unused pre-numbered purchase orders and receiving reports.
C. Matching the vendor's invoice with the related receiving report.
D. Approving vouchers for payment by having an authorised employee sign the vouchers.

Difficulty: Medium
45. In a properly-designed purchasing process, the same employee most likely would match vendors' invoices
with receiving reports and also:
A. cancels vendors' invoices after payment.
B. reconciles the accounts payroll ledger.
C. recomputes the calculations on vendors' invoices.
D. posts the detailed accounts payable records.

Difficulty: Medium

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46. Which of the following procedures would be most likely to be considered a weakness in an entity's internal
controls over payroll?
A. The personnel department sends employees' termination notices to the payroll department.
B. The employee who distributes payroll cheques is responsible for later distributing unclaimed payroll
cheques
to the employees absent at time of payroll distribution.
C. Payroll cheques are prepared by the payroll department and signed by the treasurer.
D. A voucher for the amount of the payroll is prepared in the general accounting department based on the
payroll
department's payroll summary.

Difficulty: Medium
Learning Objective: 9.6 Describe the audit procedures for testing controls relating to other types of expenditure transactions, including contractual transactions.
Section: Tests of controls for other types of expenditure transactions, including contractual transactions
47. Selected employee time cards that have been approved by supervisory personnel during the year are
compared to the payroll
register to ensure that they have been recorded. Which of the following assertions for payroll expense does this
test?
A. Occurrence.
B. Completeness.
C. Accuracy.
D. Cut-off.

Difficulty: Medium
48. Selected items from the payroll register are compared to employee time cards that have been approved by
supervisory personnel.
Which of the following assertions for payroll expense does this test?
A. Occurrence.
B. Completeness.
C. Accuracy.
D. Cut-off.

Difficulty: Medium

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49.
An auditor decides that it is important and necessary to observe a client's distribution of payroll cheques on a particular audit. The client
organisation is so large that the auditor cannot conveniently observe the distribution of the entire payroll. In these circumstances, which of the
following is most acceptable to the auditor?
A. Observation should be made for all departments regardless of the inconvenience.

B. Observation should be limited to one or more selected departments.
C. Observation should be limited to those departments where employees are readily available.
D. Observation should be eliminated and other alternative auditing procedures should be utilised to obtain
satisfaction.

Difficulty: Medium
50. Possible misstatements related to the occurrence assertion for payroll transactions include all of the
following except:
A. payments to fictitious employees.
B. payments to terminated employees.
C. payments to valid employees who have not worked.
D. payments to valid employees at a rate in excess of the authorised amount.

Difficulty: Medium
51. Auditing by testing the input and output of an IT system instead of the computer program itself will:
A. detect all program errors, regardless of the nature of the output.
B. not detect program errors which do not show up in the output sampled.
C. not provide the auditor with confidence in the results of the auditing procedures.
D. provide the auditor with the same type of evidence.

Difficulty: Easy
Learning Objective: 9.7 Understand the auditing approaches used to test the controls contained in the client’s computer program, including test data and integrated
test facilities.
Section: Testing controls in client computer programs

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52. An auditor will use test data in order to gain certain assurances with respect to the:
A. degree of keying accuracy.
B. controls contained within the program.
C. machine capacity.
D. input data.

Difficulty: Easy
Est time: < 1 min
test facilities.
53. Tests of controls of an advanced IT system:

A. can be performed using actual transactions or simulated transactions.
B. can be performed using only actual transactions since testing of simulated transactions is of no consequence.
C. is inadvisable because it may distort the evidence in master files.
D. is impractical since many procedures within the CIS activity leave no visible evidence of having been
performed.

Difficulty: Medium
test facilities.
54. When testing a computerised accounting system, which of the following is not true of the test data
approach?
A. The test data must consist of all possible valid and invalid conditions.
B. Test data are processed by the client's computer programs under the auditor's control.
C. Only one transaction of each type need be tested.
D. The test data need consist of only those valid and invalid conditions in which the auditor is interested.

Difficulty: Medium
test facilities.

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55. Which of the following is not among the errors that an auditor might include in the test data when auditing
a client's IT system?
A. Authorisation code.
B. Numeric characters in alphanumeric fields.
C. Illogical entries in fields whose logic is tested by programmed consistency checks.
D. Differences in description of units of measure.

Difficulty: Medium
test facilities.
56. An auditor who is testing IT controls in a payroll system would most likely use test data that contain
conditions such as:
A. payroll cheques with unauthorised signatures.
B. time cards with invalid job numbers.
C. overtime not approved by supervisors.
D. deductions not authorised by employees.

Difficulty: Medium
test facilities.
57. An approach to testing real-time processing of a computer-based information system is known as the
integrated test facility
(ITF) technique. This approach involves:
A. testing the computer hardware at the same time as test transactions enter the real-time system.
B. validating as well as editing all input transactions entering the real-time system.
C. running monthly activities simultaneously with current transactions so that the two are integrated in the
result of the test.
D. setting up a small set of records for a fictitious entity in the master files and then processing dummy
transactions
against the fictitious entity.

Difficulty: Medium
test facilities.

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58.
Smith Ltd has numerous customers. Each customer file contains name, address, credit limit and account balance. The auditor wishes to undertake
a test of the programmed control that does not allow account balance to exceed credit limit. The best procedure for the auditor to follow would be
to:
A. develop a program to compare credit limits with account balances and print out the details of any account
with
a balance exceeding its credit limit.
B. develop test data that would cause some account balances to exceed the credit limit and determine if the
system
properly detects such situations.
C. request a printout of a sample of account balances so they can be individually checked against the credit
limits.
D. request a printout of all account balances so they can be manually checked against the credit limits.

Difficulty: Medium
test facilities.
59.
In a daily computer run to update cheque account balances and to print out basic details on any customer's account that was overdrawn, the
overdrawn account of the computer programmer was never printed. Which of the following control procedures would have been most effective in
detecting this irregularity?
A. A manual test check of the information in the master file against the information on the printout.
B. Use of the test data approach by the auditor in testing the client's program and verifying the subsidiary file.
C. Periodic recompiling of programs from approved and documented source code, and comparison with
programs currently in use.
D. A program check for valid customer code.

Difficulty: Hard
test facilities.

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Chapter 09 Summary
Category # of Questi
ons
Chapter - Chapter 09 59
Difficulty: Easy 12
Difficulty: Hard 4
Difficulty: Medium 43
Est time: < 1 min 9
Est time: 1–3 mins 51
Learning Objective: 5.2 Outline the logical process of identifying financial report assertions, developing specific audit objectives and 5
selecting auditing procedures.
Learning Objective: 8.1 Define internal control, and explain the audit logic of assessing control risk. 2
Learning Objective: 9.1 Understand that tests of controls are undertaken when the auditor intends to rely on a control to reduce a risk 4
of material misstatement.
Learning Objective: 9.2 Appreciate that when undertaking tests of controls, the auditor must collect audit evidence about the existenc 7
e, effectiveness and continuity of controls.
Learning Objective: 9.3 Identify factors affecting the auditor’s assessment of the sufficiency and appropriateness of evidence of tests 2
of controls.
Learning Objective: 9.4 Describe the audit procedures for testing controls in the revenues, receivables and receipts system. 17
Learning Objective: 9.5 Describe the audit procedures for testing controls in the expenditures, payables and disbursements system. 15
Learning Objective: 9.6 Describe the audit procedures for testing controls relating to other types of expenditure transactions, includin 5
g contractual transactions.
Learning Objective: 9.7 Understand the auditing approaches used to test the controls contained in the client’s computer program, incl 9
uding test data and integrated test facilities.
Section: Existence, effectiveness and continuity of controls 7
Section: Expenditures, payables and disbursements 13
Section: Revenues, receivables and receipts 19
Section: Sufficiency and appropriateness of evidence 2
Section: Testing controls in client computer programs 9
Section: Tests of controls for other types of expenditure transactions, including contractual transactions 5
Section: Tests of controls. 4

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Chapter 09 - TEST BANK

Auditing and Assurance Service (University of New South Wales)

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4. Which of the following audit tests would be regarded as a test of controls?

5. Test of controls must be performed:

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20. Tracing bills of lading to sales invoices provides evidence that:

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32. The cut-off assertion for accounts payable includes:

33. Which of the following is a primary function of the purchasing department?

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A. Observation should be made for all departments regardless of the inconvenience.

53. Tests of controls of an advanced IT system:

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4. Which of the following audit tests would be regarded as a test of controls?

5. Test of controls must be performed:

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20. Tracing bills of lading to sales invoices provides evidence that:

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32. The cut-off assertion for accounts payable includes:

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33. Which of the following is a primary function of the purchasing department?

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