Question

2) You are auditing the company's purchasing process for goods and services. You are primarily concerned with the company not recording all purchase transactions. Which audit procedure below would be the most effective audit procedure in this case?  
A) tracing vendor invoices to recorded amounts in the accounts payable account

B) confirmation accounts payable recorded amounts

C) reconciling the accounts payable subsidiary ledger to the accounts payable account

D) vouching from the accounts payable account to the vendor invoices

6) Which account is used in the current ratio but not the quick ratio?

A) accounts receivable   B) marketable securities

C) accounts payable   D) inventory

8) When allocating performance materiality,

A) it is easy to predict in advance which accounts are most likely to be misstated.

B) only overstatements need to be considered.

C) the sum of all the performance materiality levels cannot exceed the preliminary judgment about materiality.

D) professional judgment is critical.

11) Which is usually included in the engagement letter?

A)

The projected type of opinion on the financial statement to be audited	Name(s) of the client personnel responsible for supplying the auditor with information
No	Yes

B)

The projected type of opinion on the financial statement to be audited	Name(s) of the client personnel responsible for supplying the auditor with information
Yes	Yes

C)

The projected type of opinion on the financial statement to be audited	Name(s) of the client personnel responsible for supplying the auditor with information
Yes	No

D)

The projected type of opinion on the financial statement to be audited	Name(s) of the client personnel responsible for supplying the auditor with information
No	No

Answer 1

2)

A) tracing vendor invoices to recorded amounts in the accounts payable account

This will help the auditor to ensure all the invoices are recorded and also ensure the amounts and periods of recording are proper

6)

D) inventory

Quick ratio also known liquid ratio is concerned with the liquidity more. It measures the ability of the firm to meet its short term financial obligations. So only assets which could be easily converted into cash are only included in the Current Assets part while calculating Quick Ratio For ex: Markertable securities, Accounts receivable within 90 days etc. Inventory can't be converted into cash in a short duration, so it is avoided in calculation of Quick Ratio.

8)

D) Professional judgment is critical.

Usually the Materiality Benchmark will be of higher amounts. So somtimes frauds or misstatements involving amounts less than Materiality Benchmark may go unnoticed. But it may be a huge amount in aggregate. So the Auditors inorder to avoid such a situation sets Performance materiality level to reduce the probablity of undetected or uncorrected frauds or misstatements. The level of Performance materialy set will depend upon the professional judgement of the auditor.

11)

D)

The projected type of opinion on the financial statement to be audited - NO

Name(s) of the client personnel responsible for supplying the auditor with information - NO

Audit Engagement letter is just an intimation of the Auditor's acceptance to conduct audit and it sets an expectation on both sides i.e the client and auditor about the scope and engagement of audit to be conducted.