CPA Audit & Insurance (AA) Free Practice Test
Question 1
A firm's inventory consisted of 5,000 various types of stocks, 100 of which accounted for 75% of the total monetary value. The most recent regular quarterly manual count revealed that there was an unnecessary two years' supply of the more expensive items.
The control that would best help to correct this oversupply problem is
The control that would best help to correct this oversupply problem is
Correct Answer: C
Question 2
The following describes the processes which make up the sales system in operation at Shevhrol and Co.
Which of the following processes represents strength or weakness in the system?
(i)Orders are placed by telephone. When a call is received, the person receiving the order checks that the customer's credit status supports the order and that the customer's current balance is below the maximum level and then immediately inputs the order into the system.
(ii)The order automatically generates a message to the distribution centre which despatches the goods and to the accounts department, which immediately raises an invoice and sends it to the customer.
(iii)
Customer queries are dealt with by reception staff.
Which of the following processes represents strength or weakness in the system?
(i)Orders are placed by telephone. When a call is received, the person receiving the order checks that the customer's credit status supports the order and that the customer's current balance is below the maximum level and then immediately inputs the order into the system.
(ii)The order automatically generates a message to the distribution centre which despatches the goods and to the accounts department, which immediately raises an invoice and sends it to the customer.
(iii)
Customer queries are dealt with by reception staff.
Correct Answer: D
Question 3
Assurance providers obtain evidence using procedures set out in ISA 500.
Identify which type of audit procedures is / are correctly paired with each tests carried out by an auditor.
TestsAudit procedures (i)The assurance provider writes to a sample of customers asking them to inform him of the balance they owe theInspection company at the year end (ii)The assurance provider looks at a share certificate to confirm that the company has an investment in Company AObservation (iii)The assurance provider attends the inventory count and ensures that it is being carried out in accordance withConfirmation the issued instructions
Identify which type of audit procedures is / are correctly paired with each tests carried out by an auditor.
TestsAudit procedures (i)The assurance provider writes to a sample of customers asking them to inform him of the balance they owe theInspection company at the year end (ii)The assurance provider looks at a share certificate to confirm that the company has an investment in Company AObservation (iii)The assurance provider attends the inventory count and ensures that it is being carried out in accordance withConfirmation the issued instructions
Correct Answer: C
Question 4
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 most appropriate trend analysis to indicate this potential fraud is
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 most appropriate trend analysis to indicate this potential fraud is
Correct Answer: B
Question 5
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 extent of loans made to fictitious borrowers by the loan officer could best be determined 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 extent of loans made to fictitious borrowers by the loan officer could best be determined by
Correct Answer: C
Question 6
Smith and Co is considering preliminary audit strategy for Well Ltd. Well Ltd is an established company with well-documented systems and controls. It has an internal audit function whose principal activity is to monitor the implementation and effectiveness of existing controls.
Which of the following statements would be correct about the reliability of audit evidence of Well Ltd?
Which of the following statements would be correct about the reliability of audit evidence of Well Ltd?
Correct Answer: C
Question 7
A payroll clerk with authorised access to the local area network (LAN) was able to update personnel files directly, independent of the application programmes.
The best control to prevent a clerk from doing this would be to
The best control to prevent a clerk from doing this would be to
Correct Answer: C
Question 8
Accounting principle assumes that, a company will continue to exist long enough to carry out its objectives and commitments and will not liquidate in the foreseeable future.
Which of the following audit procedures is most likely to assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?
Which of the following audit procedures is most likely to assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?
Correct Answer: B