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Question
As part of audit planning, you have calculated gross margin for the last five years, and compared gross margin to industry averages. Your client's gross margin has increased by about 5% in the current year, while the industry gross average has declined. One possible cause of this increased gross margin is
A) higher cost of goods sold.
B) increased bad debt expenses.
C) premature revenue recognition.
D) fictitious expenses.
Answer
This answer is hidden. It contains 117 characters.
Related questions
Q:
A) Explain how auditors use the audit risk model when planning an audit.
B) Describe the audit risk model and each of its components.
Q:
A) Describe some of the steps the CICA and the accounting profession as a whole can and are taking to reduce the practitioner's exposure to lawsuits.
B) Describe some of the steps individual practising auditors can take to minimize their legal liability.
Q:
For which of the following engagements is a contingent fee permitted?
A) An audit engagement of a large listed corporation
B) A tax consulting assignment assessing the excise tax payment processes
C) A review engagement of a small manufacturing corporation
D) An assurance engagement of leasehold payments for a rental agreement
Q:
Which one of the following situations is a violation of the professional rules of conduct? PA
A) looked the other way when he noticed that one of his firm's accounting staff accepted money from client management.
B) resigned so that he could accept a position on the Board of Directors at a major client.
C) prepared personal and corporate tax returns for a client and all of its executive officers.
D) placed an advertisement in the local paper indicating that she conducted audit engagements for five major insurance companies.
Q:
How is use of an applicable accounting framework enforced via legislation?
A) The Canada Business Corporations Act and many provincial incorporating acts require that financial statements be prepared in accordance with the CICA Handbook.
B) PAs who do not prepare financial statements in accordance with such frameworks are expelled from their professional association.
C) Tax authorities may sue corporations who do not prepare their financial statements in accordance with such frameworks.
D) Financial executives may be sued if the financial statements prepared by their company are not in conformance with such frameworks.
Q:
What should a PA do if approached by a client where he and his firm lack or do not have access to the technical knowledge required to complete the audit?
A) Subcontract the audit to another firm
B) Indicate that they can do a review engagement, not an audit
C) Decline the new audit engagement
D) Conduct the engagement, but prepare a qualified audit report
Q:
For listed clients, the audit committee should approve both the appointment of the auditor and
A) all services that the PA firm provides to the client.
B) an engagement that might affect the appearance of independence, such as design of control systems.
C) any services that are provided for senior management.
D) the material that is included in the management letter by the PA firm.
Q:
Where an independence threat occurs, it may be that only the person affected needs to be removed from the engagement. In this case, other members of the firm can complete the engagement. An example of a situation where only the student or member would be excluded from the engagement is where PA
A) has a significant financial interest in the client, such that influence could be exerted.
B) used to be a controller at the client, but now works for the PA firm.
C) owns ten percent of the shares of the client.
D) is a board member of the client with signing authority for cheques.
Q:
Some independence rules apply to all assurance engagements, while others apply only to a listed entity. For the purposes of assessing the independence rules, a listed entity is defined as
A) an organization with share capital exceeding $10 million that has public accountability.
B) an entity whose debt or shares is listed on a stock exchange, with market capitalization and total assets greater than $10 million.
C) any organization that has shares or debt listed on a stock exchange.
D) an organization that has shares or debt listed on a stock exchange, and that has redeemed shares.
Q:
An intimidation threat occurs when
A) it is difficult to believe the actions of management because there is a suspicion of irregular activity with respect to the recording of transaction activity.
B) the auditor suspects that fraud has occurred at the middle management level of the organization.
C) the auditor has been working on a client engagement for many years and has trouble believing that management would deceive the auditors.
D) a client threatens the firm or its staff with respect to the content of the financial statements or with respect to the conduct of the audit.
Q:
A familiarity threat at an audit engagement occurs when
A) the member has a financial interest in the client.
B) it is difficult to behave with professional skepticism.
C) PA promotes the client's position to third parties.
D) the member discloses financial information about the client.
Q:
Each of the following situations involves a possible violation of the provincial institutes' Rules of Professional Conduct. For each situation (1) decide whether or not the rules have been violated, and (2) briefly explain how the situation violates (or does not violate) the rules.
A) Carla is the CFO of Xenon Company. Carla was very happy after her husband Dwayne, a partner at a large PA firm was assigned as the new auditor of the company. Carla is confident that this will be helpful to Xenon since Dwayne already knows so much about the business.
Violation? Yes No
Explanation:
B) Jeremy accepted a summer internship at a PA firm. Jeremy's parents own 0.1% of Raven Inc, a large public company in Austria. Raven Inc. is a client of the Austrian branch of the PA firm. Jeremy reported this to the partner of his office.
Violation? Yes No
Explanation:
C) Ken Burns is a partner at Burns and Fields LLP, a PA firm. Ken was approached by a friend who asked him to invest in Safran Group Inc., a growing high tech company. The proposal would be for Ken to invest $650,000 to obtain 1% of the company. Ken decided to go ahead with the investment because Safran is a client from their Seattle office and he has never provided any services to Safran Inc. Ken indicates that he will ensure that he does not work on the audit of Safran.
Violation? Yes No
Explanation:
D) Sintron Inc. is a payroll processing company. Over the past 5 years, Clarkson Coppers LLP, a PA firm, has outsourced its payroll processing and other human resources tasks to Sintron. Clarkson Coopers LLP is happy to outsource more functions to Sintron as Sintron has asked Clarkson for additional consulting services with regards to system implementation and application of new accounting policies.
Violation? Yes No
Explanation:
Q:
As a member of a professional accounting association, when considering the applicability of the rules of professional conduct, a PA would be responsible for compliance by
A) themselves only.
B) their partners in the practice and themselves.
C) their employees.
D) themselves, their employees, and partners.
Q:
Which portions of the code of professional conduct are enforceable?
A) Principles and rules
B) The rules of conduct
C) Interpretations
D) Rules and interpretations
Q:
A code of professional conduct typically includes principles, rules of conduct, and interpretations or examples. What is the purpose of the principles?
A) state what a practitioner must do for each audit engagement conducted
B) provide discussions of the rules of conduct and how they relate to practical situations
C) provide minimum standards of ethical conduct stated specifically
D) provide ideal standards of ethical conduct stated in philosophical terms
Q:
The disadvantage of general statements in codes of professional conduct is
A) the emphasis on positive activities.
B) that they identify ideal conduct.
C) the difficulty of enforcing general ideals without minimum standards of behaviour.
D) that there are too many to remember.
Q:
Ethical behaviour is considered to be a cornerstone for trust in everyday life as well as in business practices. Ethics are
A) beliefs that we have about our own behaviour.
B) a set of moral principles or values.
C) rules in society that help us to do the right thing.
D) laws that govern how businesses should behave.
Q:
Which of the following is a typical consequence to a PA or PA firm if practice inspectors find any files or quality control procedures to be unsatisfactory? The PA
A) will lose the right immediately to conduct audit engagements.
B) will no longer be allowed to sign audit reports for a period of time (such as a year).
C) may be required to revise processes or attend training courses.
D) will be required to rewrite the professional qualification examinations.
Q:
There are many elements of quality control at the firm level. Which element does "adequate hiring policies (and documentation of their implementation) that ensure competence and integrity of personnel should be in place" belong to?
A) leadership and responsibilities within the firm
B) independence
C) general human resource policies
D) extent of professional development
Q:
There are many elements of quality control at the firm level. Which element does "a firm should establish a formal code of conduct that includes procedures for individuals to disclose differences of opinion and any inappropriate conduct" belong to?
A) leadership and responsibilities within the firm
B) general ethical requirements
C) general human resource policies
D) engagement quality control review
Q:
There are many elements of quality control at the firm level. Which element does "management within a firm should ensure that qualified personnel monitor and address non-compliance with quality control procedures" belong to?
A) leadership and responsibilities within the firm
B) general ethical requirements
C) general human resource policies
D) engagement quality control review
Q:
A PA firm is conducting the audit of a company that has operations in both Canada and Finland. There is a conflict between ISAs (International Statements on Auditing) and CASs (Canadian Auditing Standards) for the foreign operations that will be consolidated with the Canadian operations. Which reporting standards should the PA firm follow?
A) reporting standards of Finland
B) international reporting standards
C) Canadian reporting standards
D) the best of Canadian or international
Q:
CAS 200 explains that as part of general qualifications and conduct the auditor should exercise due care in the performance of all aspects of auditing. Which of the following is an illustration of due care?
A) having an objective state of mind and independence from the client
B) completing formal education and having practical experience in the conduct of auditing
C) issue a standard audit report using the CICA Handbook specified wording
D) considering the completeness of the working papers
Q:
Canadian GAAS (Generally Accepted Auditing Standards) are best described as
A) the CICA Handbook, plus published research and public accounting firm practices in auditing.
B) Canadian generally accepted auditing practices developed by public accounting firms.
C) material that is fully codified in the CICA Handbook developed in Canada.
D) the existing research that has been published about auditing that is used by firms.
Q:
Adequate planning and execution to reduce risk to an acceptable level is a requirement of which category of generally accepted auditing standard?
A) General
B) Examination
C) Reporting
D) Quality
Q:
Adequate technical training and proficiency in auditing is a requirement of which category of generally accepted auditing standards?
A) General
B) Examination
C) Reporting
D) Quality control
Q:
During which phases of the financial statement audit does the auditor "evaluate evidence" when conducting the financial statement audit using a risk assessment approach? During
A) the risk assessments.
B) the risk responses.
C) the reporting process.
D) risk assessment, risk response and reporting phases.
Q:
The risk response phases of conducting the financial statement audit using a risk assessment approach includes
A) conducting an independence threat analysis to evaluate independence.
B) preparation of the final auditor's report in response to audit findings.
C) identification of risks of material misstatement at the client.
D) gathering evidence to assess the likelihood of material misstatement.
Q:
What is the auditor required to do with respect to the financial reporting framework at a client?
A) assess whether the framework selected by management is suitable
B) select an applicable framework for use with the financial statements
C) make sure that ASPE or ASNPO are in use for publicly listed companies
D) select the accounting principles to be used as part of the reporting framework
Q:
The internal audit group typically reports directly to the
A) board of directors.
B) management of the company.
C) external auditor
D) audit committee.