CPA AA - Audit & Insurance Exam

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Total 80 questions

The production department of Cates Ltd is headed by Brad Hogg, whose deputy is Michael.
Brad reports to the managing director, John Silver. There are several other departments namely sales and marketing, treasury, accounting, production, processing, purchasing, HR and internal audit.
Which of the following is the BEST method to make purchase orders from production department?

  • A. Brad Hogg and Michael should make purchase orders as production needs dictate.
  • B. Brad Hogg should make purchase orders, although Michael could make requisitions as production needs dictate.
  • C. Brad Hogg and Michael should send requisition for materials as production needs dictate, but orders should be placed by the purchasing department.
  • D. Brad Hogg and Michael should send requisition for materials as production needs dictate but orders should be placed by the purchasing department, having been authorised by John Silver.


Answer : C

Michael Gove audited the financial statement of Barays Co in the year 2010-11. Recently
Barays Co have brought some changes in their reporting system. While auditing, Michael
Gove evaluates the effect of a change in accounting principles of Barays Co.
What will be the basis of evaluating the materiality of the change?

  • A. Compare the change with the prior years presented.
  • B. Check the current year effect of the change.
  • C. Whatever basis Michael Gove considers appropriate.
  • D. The effect of the change on total assets.


Answer : B

The auditor of Net plc carried out an external confirmation of receivables at the year end to confirm the accuracy of total trade receivables in the balance sheet at that date. Two of the replies to the confirmations disagreed the balance.
For each of these two disagreements, select whether the disagreement would be considered as a misstatement or would not be considered as a misstatement for the purposes of evaluating the accuracy of total trade receivables in the balance sheet at the year end.
(i)Word Ltd disagreed the balance because they had made a payment two days before the year end. The auditor has confirmed that the cheque cleared the bank two days after the year end.
(ii)Red Ltd disagreed the balance because their records did not contain invoice number SI
00942. This invoice and associated goods were despatched by Net plc on the last day of the year. The auditor has verified that the despatch note and cut-off with inventory are correct.

  • A. Both (i) and (ii) would be considered as misstatement
  • B. (i) would be considered as misstatement and (ii) would not be considered as misstatement
  • C. (i) would not be considered as misstatement and (ii) would be considered as misstatement
  • D. Both (i) and (ii) would not be considered as misstatement


Answer : D

Management is legally required to prepare a shipping document for all movement of hazardous materials. The document must be filed with bills of lading. Management expects
100% compliance with the procedure.
Which of the following sampling approaches would be most appropriate?

  • A. Attributes sampling
  • B. Judgment sampling
  • C. Targeted sampling
  • D. Discovery sampling


Answer : D

When preparing audit documentation, the auditor of a smaller entity may find it helpful and efficient to record various aspects of the audit together in a single document, with cross- references to supporting working papers as appropriate. Examples of matters that may bedocumented together in the audit of a smaller entity include the understanding of the entity and its internal control, the overall audit strategy and audit plan, materiality, assessed risks, significant matters noted during the audit, and conclusions reached.
Which one of the following would not be included in the overall audit strategy?

  • A. Details of economic factors and industry conditions
  • B. The results of initial analytical procedures
  • C. Confirmation of management’s responsibility for the financial statements
  • D. Identification of specific audit risks


Answer : C

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Total 80 questions