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Posts Tagged ‘VU ACC311- Fundamentals of Auditing MIDTERM Solved/Unsolved Papers Spring 2009’

VU ACC311- Fundamentals of Auditing MIDTERM Solved/Unsolved Papers Spring 2009

VU ACC311- Fundamentals Of Auditing MIDTERM Solved/Unsolved Papers Spring 2009

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FINALTERM EXAMINATION

Spring 2009

ACC311- Fundamentals of Auditing (Session – 1)

Marks: 81

Question No: 1 ( Marks: 1 ) – Please choose one

Which one of the following is an objective of the internal audit?

To report on financial statements

To check accounting system and internal control are operating efficiently

To determine the accuracy of financial statement values and disclosures

To establish a control system in the company

Question No: 2 ( Marks: 1 ) – Please choose one

Which one of the following statements is NOT correct in respect of the internal auditor?

The scope of audit performed by internal auditors is primarily in respect of financial

report audits

An internal auditor does not require a license to practice

Internal auditors are usually employed by companies and government units

Primary responsibility of the internal auditor is to the board of directors

Question No: 3 ( Marks: 1 ) – Please choose one

After how many days the Securities and Exchange Commission may appoint the auditors, if the

Directors of a company could not appoint the auditors to fill casual vacancy? (Companies Ordinance,

1984)

 

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.

30 days

60 days

80 days

120 days

Question No: 4 ( Marks: 1 ) – Please choose one

Suppose that during audit of a company, an auditor accepted the schedule of bad debts furnished

by the client, though it was apparent that debts were not recoverable. The auditor shall be held

liable for which one of the following liabilities?

Liability for negligence

Liability for misfeasance

Criminal liability

Personal liability

Question No: 5 ( Marks: 1 ) – Please choose one

The books of accounts of a company should be kept at which one of the following offices?

(Companies Ordinance, 1984)

Registered office of the company

Accounts office of the company

Record office of the company

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Registrar office

Question No: 6 ( Marks: 1 ) – Please choose one

Which of the following is one of the most fundamental and effective internal controls?

Increased use of computers for recording accounting transactions

Increased reliance on internal auditors to monitor accounting systems

Segregation of incompatible duties across several people

.

Having internal auditors report only to the Board of Directors

Question No: 7 ( Marks: 1 ) – Please choose one

Which of the following is NOT a major component of an internal control system?

Risk assessment

Staffing

Control procedures/activities

Information and communication system

Question No: 8 ( Marks: 1 ) – Please choose one

An audit firm audited a Leather Manufacturing company and presented its report addressed to the

management. They found significant material misstatements in the company s internal controls

system. They strongly recommended that there should be sufficient controls in existence to ensure

 

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management can effectively control the business operations. In your opinion, auditors are

emphasizing on which one of the following categories of SOAP MAPS?

Authorization

Management and Monitoring

Arithmetic and Accounting

Segregation of duties

Question No: 9 ( Marks: 1 ) – Please choose one

Which of the following statements best describes the purpose of an internal control questionnaire

(ICQ)?

An internal control questionnaire is a series of questions regarding accounting and control

policies and procedures that the auditor considers necessary to prevent all misstatements in the

financial report

.

An internal control questionnaire is a series of questions regarding accounting and control

policies and procedures that the auditor considers necessary to prevent material misstatements in

the financial report

An internal control questionnaire is a series of questions regarding accounting and control

policies and procedures that the auditor considers necessary to detect material misstatements in

the financial report

An internal control questionnaire is a series of questions prepared by the entity about the

entity’s accounting and control policies and procedures for which the entity seeks guidance on

from the auditor in order to detect material misstatements in the financial report

Question No: 10 ( Marks: 1 ) – Please choose one

A Beverages company is being audited by an audit firm. Audit procedures are being undertaken

in all of its departments. During this, the audit team has to spend more time on physical

 

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examination of the company assets to get reliable audit evidence. In your opinion, auditors are

considering which type of audit inquiry in this case?

Recalculations

Inspection of tangible assets

Analytical procedures

Confirmations

Question No: 11 ( Marks: 1 ) – Please choose one

Which one of the following matters should be included in the letter of representation?

Existence of any immaterial mistake in the statements

Existence of any fraud or error in the statements

Company s growth trend in the future in figures

.

Market value of the company s stock

Question No: 12 ( Marks: 1 ) – Please choose one

Which one of the following may NOT be a type of control of the purchase cycle of an entity?

Receipt of goods

Invoicing and returns

Invoicing and credit notes

 

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Purchase ledger and suppliers

Question No: 13 ( Marks: 1 ) – Please choose one

While testing the purchase system of an entity, which one of the following control tests may be

applied to the Credit Notes by the auditors?

Evidence of matching credit notes to goods returned notes

Evidence of approval of credit notes

Evidence of a sequence check

Proof of issuance date

Question No: 14 ( Marks: 1 ) – Please choose one

During the audit work of testing the purchase system of an entity, which one of the following

control tests may be applied to the Payables Ledger by the auditors?

Evidence of authorization of adjustments to payables ledger

Evidence of review of reconciliation of purchase ledger listing

Evidence of authorization of adjustments to payable ledger control account

Evidence of authorization of adjustments to purchase ledger

Question No: 15 ( Marks: 1 ) – Please choose one

Which one of the following possible misstatements related to payroll does not involve the audit

.

objective of Validity?

 

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Payments to fictitious employees

Payments to terminated employees

Payments to valid employees who have not worked

Payments to valid employees at a rate in excess of the authorized amount

Question No: 16 ( Marks: 1 ) – Please choose one

In order to ensure effective control, how often a full inventory count should be held when

perpetual inventory records are not kept adequately?

On a daily basis

At least once a year

At least monthly

At least weekly

Question No: 17 ( Marks: 1 ) – Please choose one

An oil exploring company employs 1500 personal in its international market. All of its personnel

are paid on monthly basis. The company should compensate them in which form of payment?

Salary

Cheque

Wages

None of the given option

Question No: 18 ( Marks: 1 ) – Please choose one

 

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For the purpose of keeping effective control in the cash system, who should have no access to the

.

cash or the preparation of the paying-in slip?

Sales ledger personnel

Teller/cashier

Cash officers

Operations manager

Question No: 19 ( Marks: 1 ) – Please choose one

When should the petty cash book entries be made?

At the day end

Next day

Promptly

Monthly

Question No: 20 ( Marks: 1 ) – Please choose one

How often the physical inspection of non current assets should be carried out?

Rarely

Periodically

Never

 

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Daily

Question No: 21 ( Marks: 1 ) – Please choose one

In which one of the following ways auditors can choice the verification techniques in a given set

of circumstances?

It depends upon the available audit evidence to the auditor

It depends upon the nature of business operations of the entity

It depends upon the audit procedures planned by the auditor

.

It depends upon the judgmental skills of the auditor

Question No: 22 ( Marks: 1 ) – Please choose one

Which one of the following may NOT ensure that the movement in share capital of a company is

properly authorized and correctly shown and described in accordance with the Companies

Ordinance, 1984?

Check that directors were authorized to allot shares

Agree authorized capital with memorandum of association

Consider special rules for allotments of public company shares

Test payments with supporting evidence and trace entries in register

Question No: 23 ( Marks: 1 ) – Please choose one

 

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Which one of the following testing objectives refers to the management assertion Occurrence

in obtaining audit evidence?

Assets shown include all rights under the control of the enterprise

Transactions and events that have been recorded have occurred and pertain to the entity

The amounts at which assets and liabilities are stated is correct

Assets and liabilities included on the balance sheet actually exist

Question No: 24 ( Marks: 1 ) – Please choose one

Which one of the following certain expense items may be verified in order to keep control of

stock-in-trade and stores & spares?

Interest on short term loan

Accumulated depreciation on assets

Director s fees

Wages and salaries

.

Question No: 25 ( Marks: 1 ) – Please choose one

Which one of the following is NOT an advantage of using statistical sampling?

It aids in the design of an efficient sample

It allows the auditor to measure the sufficiency of the evidential matter obtained

It allows the auditor to greatly reduce substantive testing

It provides means for mathematically measuring the degree of sampling risk

Question No: 26 ( Marks: 1 ) – Please choose one

Which one of the following is an underlying feature of random-based selection of items?

Each stratum of the accounting population be given equal representation in the sample

All items in the accounting population be randomly ordered.

Every item in the population should have an opportunity to be selected

Every item must be systematically selected using replacement

Question No: 27 ( Marks: 1 ) – Please choose one

Which one of the following matters is generally included in an auditor’s engagement letter?

Management’s responsibility for the entity’s compliance with laws and regulations

The factors to be considered in setting preliminary judgments about materiality

Management’s vicarious liability for illegal acts committed by its employees

The auditor’s responsibility to search for significant internal control deficiencies

Question No: 28 ( Marks: 1 ) – Please choose one

What should be the next step of an auditor after establishing the overall audit strategy of an

entity?

To develop an audit plan

To define the scope of audit

To determine the focus of engagement team efforts

To determine the objectives of audit

.

Question No: 29 ( Marks: 1 ) – Please choose one

The establishment of the overall audit strategy involves the following EXCEPT:

To determine the characteristics of the engagement

To ascertain the reporting objectives of the engagement

To consider the important factors i.e. materiality levels, higher risks of material

misstatement etc.

To guide the development of detailed business activities to occur in future

Question No: 30 ( Marks: 1 ) – Please choose one

Which one of the following mainly affects the auditor s opinion?

Agreement on accounting policies

Limitation on the scope of the auditor s work

Dispute among the members of the company

Future prospects of the company s growth

Question No: 31 ( Marks: 1 ) – Please choose one

Which one of the following matters does NOT affect Auditor s Opinion?

When there is a limitation on the scope of the auditor s work

When there is a disagreement with management regarding the accounting policies selected

When there is a disagreement with management regarding the method of applying

accounting policies

When an auditor modify the auditor s report by adding a paragraph to highlight a material

matter

Question No: 32 ( Marks: 1 ) – Please choose one

Tracing selected shipments to the sales journal to be sure that each one is included is a test of

which of the following?

Accuracy

.

Classification

Completeness

Existence

Question No: 33 ( Marks: 1 ) – Please choose one

Which one of the following best describes the term Input VAT?

Input VAT is charged on a firm when it makes its purchases

Input VAT is charged on a firm when it makes its investments

Input VAT is charged on a firm when it produces highly quality products

Input VAT is charged on a firm when it exports the products

Question No: 34 ( Marks: 1 ) – Please choose one

The duties of the wages staff should preferably be rotated during the year when the salary

payment is made by which of the following systems?

By cheque

In cash

By demand draft

Direct transfer to employees bank account

Question No: 35 ( Marks: 1 ) – Please choose one

Which of the following are the three audit objectives that are most important for cash, and that

receive the greatest attention during the audit?

Existence, accuracy, and completeness

Existence, cutoff, and presentation

Accuracy, cutoff, and presentation & disclosure

Completeness, realizable value, and cutoff

Question No: 36 ( Marks: 1 ) – Please choose one

Which one of the following is most likely to indicate fraud?

.

Several overpayments are made for goods received from a supplier

The year end cash balance does not include cash in transit to the company at year-end

A check received after year end was inadvertently recorded as if received before year-end

A documented loan is sanctioned to an officer of the company

Question No: 37 ( Marks: 1 ) – Please choose one

When an auditor increases the assessed level of control risk because certain control activities

were determined to be ineffective, which of the following would most likely be increased by the

auditor?

Extent of tests of controls

Level of detection risk

Extent of tests of details

Level of inherent risk

Question No: 38 ( Marks: 1 ) – Please choose one

Which one of the following statements is TRUE regarding control procedures?

They are not required if the control environment is strong

They should generally be all manual

They should generally be all automated

They can be either manual or automated

Question No: 39 ( Marks: 1 ) – Please choose one

Which one of the following statements does not apply to the Institute of Chartered Accountants of

Pakistan (ICAP) in Pakistan?

An autonomous body incorporated under the Chartered Accountants Ordinance 1961

Regulatory body that formulates auditing standards in Pakistan

Its affairs are run by a council which is elected by its member (Chartered Accountants).

ICAP is a member of the International Federation of Accountants (IFAC)

.

Question No: 40 ( Marks: 1 ) – Please choose one

Which one of the following statements indicates a primary difference between an operational

audit and a compliance audit?

Operational audit focuses on business efficiencies and effectiveness, while compliance

audit focuses on whether laws and other requirements are being followed

Operational audit focuses on reliability of the financial statements, while compliance audit

focuses on whether laws and other requirements are being followed

Operational audit focuses on business growth prospects, while a compliance

audit focuses

on reliability of the financial statements

Operational audit focuses on business size and potential to grow, while compliance audit

focuses on reliability of accounting records

Question No: 41 ( Marks: 1 ) – Please choose one

Which one of the following primary assertions is satisfied when an auditor ensures that there is no

false transaction recorded and all recorded transactions have actually taken place?

Occurrence

Completeness

Existence

Rights and obligations

Question No: 42 ( Marks: 1 ) – Please choose one

Following are the points considered during the verification of bank balances EXCEPT:

Obtain direct bank confirmation

Obtain direct bank confirmation

Investigate about outstanding stale cheques

Investigate any significant reconciling items of an unusual nature

.

Ensure that the creditors have been paid for their loan amount

Question No: 43 ( Marks: 3 )

Enlist the typical control procedures at key stages of the sales cycle.

Solution:

Obtain direct bank confirmation

Obtain direct bank confirmation

Investigate about outstanding stale cheques

Investigate any significant reconciling items of an unusual nature

Ensure that the creditors have been paid for their loan amount

Question No: 44 ( Marks: 3 )

What steps an auditor should take in order to ensure that the reserves are properly classified and

described in the accounts in accordance with the Companies Ordinance, 1984?

Question No: 45 ( Marks: 3 )

Throughout the 1960s and 70s, the largest accounting firms devoted extensive resources to the

development and implementation of statistical sampling procedures. Enlist several sample

selection methods now available to an auditor for selecting items in the populations.

Question No: 46 ( Marks: 5 )

Suppose you have been appointed as an auditor of a manufacturing company. You are at the stage

of testing the purchase system. According to your knowledge of Auditing Standards, what control

objectives would you develop in respect of the Purchase system of the entity?

Question No: 47 ( Marks: 5 )

Discuss the factors which influence auditor s judgment regarding sample size for tests of control.

Suppose that your supervisor has asked you to carry out an internal

control review of the

inventory system of a manufacturing company. What internal control procedures would you

.

examine in respect of the following functions of the inventory system?

1. Arithmetical Accuracy

2. Control Accounts

3. Access to Assets and Records

Question No: 49 ( Marks: 10 )

A company has hired auditors at the year end. Auditors used audit sampling techniques which

made them enable to gather audit evidence efficiently. State the objectives auditors might have

defined first to achieve by using sampling techniques and also briefly explain further steps the

auditors might undertake to complete the sampling process.

 

VU ACC311- Fundamentals Of Auditing MIDTERM Solved/Unsolved Papers Spring 2009

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