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CPA Audit & Insurance Sample Questions:

Question 1

A production manager for a medium-sized manufacturing company began ordering excessive raw materials and had them delivered to a wholesale company he runs as a side business. He falsified receiving documents and approved the invoices for payment.
Which of the following audit procedures would most likely detect this fraud?

A. Take a sample and confirm the amount purchased, purchase price, and date of shipment with the vendors.
B. Observe the receiving dock and count material received; compare your counts to receiving reports completed by receiving personnel.
C. Take a sample of cash disbursement; compare purchase orders, receiving reports, invoices, and check copies.
D. Prepare analytical tests, comparing production, material purchased, and raw material inventory levels and investigate differences.

Question 2

After partially completing an internal control review of the accounts payable department, the auditor suspects that some type of fraud has occurred. To ascertain whether the fraud is present, the best sampling approach would be to use

A. Judgmental sampling to select a sample of vouchers processed by clerks identified by the department manager as acting suspiciously.
B. Probability-proportional-to-size sampling to select a sample of vouchers processed by the department during the past year.
C. Simple random sampling to select a sample of vouchers processed by the department during the past year.
D. Discovery sampling to select a sample of vouchers processed by the department during the past year.

Question 3

During the audit planning for your client Shang Ltd for the year ending 30 April 2013, you read the following comment on the 'points forward for next year' schedule included in last year's audit working papers file:
'During the course of our audit we discovered that the company had incorrectly reclaimed input value added tax totalling $42,000. We have notified the client in writing of the need to repay this amount to tax authority as soon as possible. The financial statements have been adjusted to include this sum within current liabilities as 'amounts payable to Tax Authority'.
Included within income in the company's management accounts for the ten months ended 28 February 2013 is a credit entry for $42,000 described as 'VAT difference written off'.
Which one of the following actions is LEAST likely to be taken in respect of this matter?

A. Report to board of directors
B. Report to nominated officer/money laundering officer within the firm
C. Consider resignation
D. Avoid tipping off the client

Question 4

Allisons and Co is a firm of Chartered Accountants. It has a reputation for excellence in the banking and insurance industry and has been invited to accept engagements by various institutions. Recently it has been invited by Nationally plc, the leading building society in the UK.
Which of the following usages would be the BEST use of an engagement letter for Allisons and Co?

A. Confirmation of management representation letter of Nationally plc.
B. Provides access to all books, accounts and vouchers required for audit purpose of Nationally plc.
C. Auditor will obtain sufficient appropriate audit evidence for the audit of Nationally plc.
D. Endorsement of cooperation from other auditors of Nationally plc.

Question 5

Grey Ltd has recently discovered that it has been paying invoices in respect of goods which had been returned as faulty prior to acceptance. It is company policy to record goods only if they have been accepted.
Which of the following controls would be useful in preventing such incidence in future?

A. Matching of purchase invoices with orders
B. Date stamping purchase invoices on receipt
C. Matching of purchase invoices with goods received notes
D. Comparison of supplier statements with payables ledger accounts

Solutions: