Deck 10: Testing and Evaluation of Systems

Question 1

The use of CAAT's enables auditors to examine large populations of data.

Answer 1

True

Question 2

Auditors use test data to test controls within the client's computer system.

Answer 2

True

Question 3

Modern software makes the use of CAATs cheap and easy to do so audit staff don't need any special training.

Answer 3

False

Question 4

Embedded software can provide continuous monitoring of client data.

Question 5

Which of the following sets of duties would ordinarily be considered basically incompatible in terms of good internal control? ?

A) Preparation of monthly statements to customers and maintenance of the Receivables Ledger.
B) Maintenance of the Nominal Ledger and approval of additions and terminations relating to the payroll.
C) Custody of signed cheques and maintenance of Nominal Ledger.
D) Collection of receipts on account and maintaining Receivables Ledger

Question 6

A trainee auditor has listed what she thought were some of the control objectives in the purchases cycle within an entity at the stage of placing a purchase order as:
1) To ensure that the item purchased is not already in stock.
2) To ensure that the stock count is accurate.
3) To ensure that the order is actually required.
4) To ensure that all orders are paid for.
Is she correct? Which of these are control objectives?

A) All of the above
B) 3 and 4 only
C) 1 only
D) 1 and 3 only

Question 7

When Fidelio plc receives a payables invoice it is: checked by the accounts clerk for accuracy, matched against the purchase order, and the goods received note, then authorized by the line manager who signs it to verify that it has been authorized.
How can the auditor test this process?

A) Walk through the whole process with sample of invoices to check the procedures are being evidenced
B) Identify areas of audit risk within the process and test that area
C) Select a sample from each stage of the process and test for evidence that the procedures are carried out
D) Observe the processing of invoices and note the process is being carried out in full

Question 8

Wilton Ltd operates a Wages Control Account which they claim is reconciled each month. How can the auditor test this control?

A) For a sample of the reconciliations in the year, re-perform the calculation to ensure accuracy
B) Review the reconciliations file to verify that the reconciliations were carried out each month in the year to be audited
C) Check that the payments to the tax authorities for deductions from employees pay agree to the control account
D) Observe the clerk carrying out the next reconciliation whilst at the client premises

Question 9

Which of the following is NOT an audit software technique?

A) Using computer programs to extract a sample for a receivables circularization
B) Running a computer program to test the addition of the cash book
C) Using a computer to perform an analytical review comparison of administration expenses against the prior year
D) Entering a sample of dummy sales orders through the computer system which takes customers over their credit limit to ensure the system rejects the orders

Question 10

Which of the following sets of duties would ordinarily be considered basically incompatible in terms of good internal control? Being able to:
i. Authorize a new supplier and authorising the payment invoices from suppliers
ii. Enter details of new employee on the master file database and prepare the payroll
iii. Record cash receipts in the Cash Book and bank the monies
iv. Maintain the Receivables ledger and authorise credit limits for customers

A) All of the above
B) i, ii and iv only
C) i, ii, iii only
D) ii, iii and iv only