Question 1

In the audit of a corporate tax return,the report provided by the Canada Revenue Agency auditor would describe
A)an opinion on the likelihood of tax return error.
B)the likely accounting errors that could contribute to tax errors.
C)management issues with respect to accurately reporting taxes.
D)that the corporate income tax return is in compliance with the Income Tax Act.

Accepted Answer

The report provided by the Canada Revenue Agency auditor in the audit of a corporate tax return would typically state that the corporate income tax return is in compliance with the Income Tax Act. This means that the auditor has reviewed the return and found that it meets the requirements set out in the legislation. The report may also include recommendations for improvements or highlight any issues that were noted during the audit, but the main purpose is to provide assurance that the return is in compliance with the law. Options A, B, and C are not typically included in the audit report provided by the CRA auditor.

Question 2

The auditor and the entities being audited should agree on the criteria to be used in the audit
A)well in advance before the audit starts.
B)after the audit planning has been done.
C)as they progress with the audit,as they can determine which criteria are most suitable.
D)at the end of the audit.

Accepted Answer

Agreeing on the criteria to be used in the audit should happen well in advance before the audit starts to ensure that the auditor can tailor their approach to meet those criteria and that entities being audited can provide the necessary information and documentation to support the audit. Waiting until after audit planning or during the audit can lead to delays, inefficiencies, and even disputes between the auditor and entity being audited. Agreeing at the end of the audit would be too late and would render the audit results less meaningful.

Question 3

Use your knowledge of the definition of auditing and Figure 1-1: Audit of a Corporate Tax Return to explain how an auditor would conduct a Corporate Tax Return audit.
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Accepted Answer

First,the concept of a competent,independent person requires that the practitioner who is conducting an assurance engagement should have "adequate proficiency," which means that the tax auditor should be competent in the fields of taxation and the fields that need to be assessed,such as accounting,information systems,data management and access and internal controls.The auditor should also use due care and have an objective state of mind.This means that the auditor should be independent of the client and do their best using their skills when conducting the audit.
The second part of Figure 1-1 relates to accumulation and evaluation of evidence using a risk-based approach.This means that the auditor would collect evidence based upon risks of violations in the tax return by the client.
The next three parts are connected.The auditor determines the correspondence of the information provided by the client (which could be the financial statements,tax return and the quality of the calculations within the tax return)to established criteria (the Income Tax Act).
Finally,the auditor issues a report (Notice of Assessment)to summarize the findings.

Question 4

In the audit of historical financial statements by PA firms,the criteria used are
A)generally accepted auditing standards.
B)relevant accounting frameworks.
C)regulations of the Canada Revenue Agency.
D)regulations of the provincial securities commissions.

Accepted Answer

The criteria used in the audit of historical financial statements by PA (Public Accounting) firms are relevant accounting frameworks. These frameworks provide the guidelines for the preparation and presentation of financial statements, ensuring they are accurate, complete, and in accordance with the applicable standards.

Question 5

In the audit of an individual's tax return,the criteria used would be
A)an accounting framework.
B)the Income Tax Act.
C)the client's policies for taxable income.
D)the auditor's judgment.

Accepted Answer

The criteria used in the audit of an individual's tax return would be the Income Tax Act, as it is the governing legislation that outlines the rules and regulations for calculating and reporting taxable income. The auditor would need to ensure that the client's tax return complies with the requirements set out in the Income Tax Act. While the auditor's judgment may be used in determining the appropriate audit procedures and assessing the evidence obtained, it is not a criteria in itself. The client's policies for taxable income may be relevant in a corporate tax return, but not in the audit of an individual's tax return. An accounting framework is also not applicable in this context.

Question 6

Joe is recording sales transactions in the accounting system so that they can be summarized in a logical manner for the purpose of providing financial information for decision-making.Joe is performing
A)accounting.
B)auditing.
C)review.
D)management consulting.

Accepted Answer

Accounting involves the systematic recording, classifying, and summarizing of financial transactions for the purpose of producing financial statements that provide information to decision-makers. Joe's role of recording sales transactions in the accounting system aligns with the definition of accounting. Auditing involves examining financial records to ensure that they are accurate and comply with accounting standards, while review involves analyzing financial statements to identify any errors or omissions. Management consulting involves providing advice and guidance to help organizations improve their performance and achieve their goals.

Question 7

A large PA firm has assessed evidence collected during an engagement.Criteria used to assess the financial statements were International Financial Reporting Standards (IFRS).A high level of assurance was obtained.The type of engagement conducted was
A)an audit.
B)a review.
C)management consulting.
D)a compilation.

Accepted Answer

An audit is the only type of engagement that provides a high level of assurance and involves the assessment of financial statements against a specific set of criteria, such as IFRS. Reviews provide limited assurance, management consulting involves providing advice rather than assessing financial statements, and compilations involve presenting financial information without providing any assurance on its accuracy.

Question 8

The independent auditor's report is the
A)communication of the outcome of auditor's evaluation to the users.
B)set of audited financial statements.
C)invoice of the auditor detailing the work they have performed.
D)report presented to management about the possible improvements.

Accepted Answer

The independent auditor's report is a communication of the outcome of the auditor's evaluation to the users of the financial statements. It includes the auditor's opinion on the financial statements and whether they are presented fairly in all material respects in accordance with the applicable financial reporting framework. It also includes disclosures about the auditor's responsibilities and any significant findings or issues that arose during the audit.

Question 9

As an external auditor is paid a fee by a client company,he or she
A)is absolutely independent and may conduct an audit.
B)may still be sufficiently independent to conduct an audit.
C)is never considered to be independent.
D)must receive approval from the relevant provincial securities commission before conducting an audit.

Accepted Answer

While an external auditor who is paid a fee by a client company may not be considered absolutely independent, they may still be sufficiently independent to conduct an audit. In order to ensure their independence, auditors must follow a set of professional standards and ethical guidelines, and may need to disclose any potential conflicts of interest. The approval of provincial securities commissions is not specifically required for auditors to conduct an audit.

Question 10

Auditing should be done by a qualified
A)chartered accountant.
B)certified management accountant.
C)competent and independent person.
D)professional accountant.

Accepted Answer

Auditing should be done by a competent and independent person who has the necessary knowledge, skills, and experience to perform the audit effectively. While a chartered accountant or professional accountant may have the necessary qualifications, they may not always be independent or competent to perform the audit. A certified management accountant may have the necessary knowledge and skills but may not have the required independence. Therefore, the best choice is a competent and independent person.

Question 11

George had a conversation with the accounting personnel and documented information about how the accounting systems function.He has also placed copies of accounting forms in his files.George is performing which task?
A)accounting procedures
B)evidence gathering
C)tax audit
D)audit report preparation

Accepted Answer

George is gathering evidence by documenting information and placing copies of accounting forms in his files.

Question 12

Which of the following is an example of accounting rather than auditing?
A)gathering evidence about the quality of accounts receivable
B)entering sales transactions into the sales order system
C)reviewing sales invoices to see if they have been calculated correctly
D)comparing bank deposit documents to the recorded cash received

Accepted Answer

Entering sales transactions into the sales order system is an example of accounting as it involves the recording and processing of financial transactions. Auditing, on the other hand, involves the examination of financial statements and records to ensure they accurately reflect the financial position of the organization. Choices A, C, and D are all examples of auditing activities.

Question 13

One of the reasons that an auditor must be competent is so that they can
A)select the type and amount of evidence to accumulate.
B)explain to staff how the bookkeeping should be done.
C)record the transactions properly for the underlying records.
D)capture the information properly in the computer files.

Accepted Answer

An auditor must be competent in selecting the type and amount of evidence to accumulate in order to form an opinion on the financial statements. They need to have the necessary knowledge and expertise to understand the client's business and the risks associated with it. They must also be able to evaluate the sufficiency and appropriateness of the audit evidence, which is crucial in determining the validity of the financial statements. The other options (B, C, and D) are tasks that are typically performed by bookkeepers or accountants, not auditors.

Question 14

Which of the following is an example of auditing rather than accounting?
A)recording purchase amounts in the expense accounts
B)posting the daily sales totals to the general ledger
C)recording cash received in the customer account files
D)evaluating whether accounts receivable are collectible

Accepted Answer

Auditing involves evaluating the accuracy and reliability of financial information, whereas accounting involves recording, classifying and summarizing financial transactions. Evaluating whether accounts receivable are collectible is an example of an auditing task, as it involves assessing the validity of the recorded financial data. Recording purchase amounts, posting daily sales totals, and recording cash received are all examples of accounting tasks.

Question 15

In the audit of a corporate tax return,the CRA auditor should demonstrate competence in the use of
A)external databases that contain economic statistics.
B)standard personal and corporate tax preparation software.
C)the Income Tax Act and accompanying regulations.
D)database management software for the use of client based research.

Accepted Answer

The CRA auditor should demonstrate competence in the use of the Income Tax Act and accompanying regulations as this is the primary legislation that governs tax matters in Canada. The auditor should be knowledgeable about the legislation and its interpretation in order to effectively conduct the audit.

Answer: A and B
 While external databases containing economic statistics are not always necessary for a corporate tax return audit, the auditor should be competent in their use in case they are required. Additionally, the auditor should be proficient in standard personal and corporate tax preparation software in order to effectively review and assess the tax return.

Question 16

In auditing accounting data,the concern is with
A)evaluating whether recorded information reasonably reflects the economic events that occurred during the accounting period within specified dollar ranges.
B)determining if fraud has occurred.
C)determining if taxable income has been calculated correctly.
D)analyzing the financial information to be sure that it complies with government requirements.

Accepted Answer

Auditing accounting data involves evaluating whether recorded information reasonably reflects the economic events that occurred during the accounting period within specified dollar ranges. This includes verifying the existence of transactions, completeness of information, and accuracy of financial statements. While fraud detection and tax compliance are important aspects of auditing, they are not the primary concern in auditing accounting data.

Question 17

Which of the following illustrates the definition of auditing with respect to the reporting process?
A)accumulation and evaluation of evidence about balance sheet accounts
B)reporting on the degree of correspondence between financial statements and ASPE/IFRS
C)writing an operational audit report that is tailored to the client's situation
D)making sure that the auditor is competent and understands evidence gathering

Accepted Answer

Auditing with respect to the reporting process involves reviewing the financial statements and reporting on whether they comply with applicable accounting standards, such as ASPE or IFRS. Choice A involves auditing specific balance sheet accounts, which is a component of substantive testing. Choice C involves operational auditing, which is a separate type of audit engagement. Choice D involves the competence of the auditor and evidence gathering, but does not specifically relate to auditing with respect to the reporting process.

Question 18

One of the reasons that an auditor must be competent is so that they can
A)understand the engagement risks and the criteria used by the client.
B)explain to staff how the bookkeeping should be done.
C)record the transactions properly for the underlying records.
D)capture the information properly in the computer files.

Accepted Answer

Understanding engagement risks and criteria used by the client is a critical part of auditing. Without competence, the auditor may not be able to correctly assess and evaluate the risks involved with the engagement or evaluate whether the client's criteria are reasonable and appropriate. Additionally, being competent allows the auditor to provide reliable and meaningful information to stakeholders. Choices B, C, and D do not fully address the importance of competence in auditing.

Question 19

It is important for the auditor to be independent because
A)otherwise the auditor would not charge a fair rate to the client.
B)otherwise the auditor might not be as knowledgeable of the subject matter and the criteria.
C)this will prevent bias in accumulating and evaluating evidence.
D)the Canadian tax authorities require that the auditor be independent.

Accepted Answer

Independence is important for auditors as it ensures that they are unbiased in their accumulation and evaluation of evidence. This means that their opinions and judgments are not influenced by their relationship with the client or any external factors, and they can provide an objective assessment of the financial statements. The other options are not accurate or relevant to the importance of independence in auditing.

Question 20

Which of the following illustrates the definition of auditing with respect to the evidence analysis process?
A)accumulation and evaluation of evidence regarding assertions
B)learning about different types of computing technology,such as mainframes
C)writing an operational audit report that is tailored to the client's situation
D)making sure that the auditor is competent and understands evidence gathering

Accepted Answer

Auditing involves the accumulation and evaluation of evidence regarding assertions, which helps the auditor form an opinion on the entity's financial statements or other information being examined. Choice B concerns information technology knowledge, while choice C pertains to the communication of audit findings, and choice D relates to the auditor's competence and understanding.

Quiz 1: The Demand for Audit and Other Assurance Services

In the audit of a corporate tax return,the report provided by the Canada Revenue Agency auditor would describe

The auditor and the entities being audited should agree on the criteria to be used in the audit

Use your knowledge of the definition of auditing and Figure 1-1: Audit of a Corporate Tax Return to explain how an auditor would conduct a Corporate Tax Return audit. -

In the audit of historical financial statements by PA firms,the criteria used are

In the audit of an individual's tax return,the criteria used would be

Joe is recording sales transactions in the accounting system so that they can be summarized in a logical manner for the purpose of providing financial information for decision-making.Joe is performing

A large PA firm has assessed evidence collected during an engagement.Criteria used to assess the financial statements were International Financial Reporting Standards (IFRS) .A high level of assurance was obtained.The type of engagement conducted was

The independent auditor's report is the

As an external auditor is paid a fee by a client company,he or she

Auditing should be done by a qualified

George had a conversation with the accounting personnel and documented information about how the accounting systems function.He has also placed copies of accounting forms in his files.George is performing which task?

Which of the following is an example of accounting rather than auditing?

One of the reasons that an auditor must be competent is so that they can

Which of the following is an example of auditing rather than accounting?

In the audit of a corporate tax return,the CRA auditor should demonstrate competence in the use of

In auditing accounting data,the concern is with

Which of the following illustrates the definition of auditing with respect to the reporting process?

One of the reasons that an auditor must be competent is so that they can

It is important for the auditor to be independent because

Which of the following illustrates the definition of auditing with respect to the evidence analysis process?