Class Test 4 - IA2 Auditing

Class test four 50 marks
Question 1 - MCQ’S 20 marks

1.1 Which source document is NOT used when shipping/delivering goods and/or rendering of
services to customers?
a. Delivery note.
b. Shipping document.
c. Job card.
*d. Raw materials requisition.
e. None of the options.
1.2 Which source document is NOT used when invoicing and collecting payments from customers for
shipped/delivered goods and/or rendered services?
a. Cash receipt.
b. Debtor’s statement.
c. Job card.
*d. Remittance advice.
1.3 Which source document is NOT used when recording purchases of goods?
*a. Purchase form.

b. Purchase order.
c. Goods Received Note.
d. Invoice from supplier.
1.4 Which source document is NOT used in the production, storage and dispatching of goods?
a. Delivery note.
b. Inventory issue note.
*c. Goods Received Note.
d. Raw materials requisition.
1.5 Which source document is NOT used when requesting and ordering of raw materials needed for
production?
*a. Delivery note.

b. Materials requisition.
c. Purchase requisition.
d. Purchase order.
1.6 Which source document is NOT used in storing raw materials until needed for production?
a. Inventory issue note.

b. Inventory tag/bar code.
*c. Purchase requisition.
d. Inventory count sheet.
1.7 An auditor for a large wholesaler is evaluating the controls over the approval and oversight of
credit sales. Which of the following procedures would be a control weakness?
a. The credit department is responsible for approving credit applications of all customers.
b. The finance committee of the board of directors periodically reviews credit standards.
c. Customers who fail to meet credit requirements must pay cash for shipments upon delivery.
*d. The sales department periodically allows credit sales transactions that exceed a long-term
customer’s credit limit.
1.8 The following is a typical risk encountered in the recording of purchases function (creditors
department): A supplier's invoice with incorrect details may be entered in the purchases journal.
Which of the control activities listed should mitigate this risk?
*a. The creditors clerk should check whether the invoice total has been added up correctly.
b. The Goods Received Note pending file should be reviewed regularly for unmatched
invoices.
c. All supporting documents should be stamped as “Paid” once a cheque (or EFT) requisition
has been prepared.
d. All of the options.
1.9 Which of the following internal control weaknesses would an internal auditor most likely detect
while reviewing a flowchart that depicts the purchasing function of an organisation?
a. Purchasing policies have not been updated.

b. The organisation is not taking advantage of quantity discounts available from its suppliers.
c. The sales policies of the supplier have not been updated.
*d. Payments to suppliers are made before goods are received.
1.10 You as the internal auditor have already identified the risks in the payment of creditors function.
Management has implemented appropriate internal controls to mitigate the risks. Now you want to
test whether those internal controls are working as intended. Which compliance procedure will best
test whether the control to mitigate the following risk is working as intended: duplicate payments may
be made to creditors.
a. Observe the cheque signing process.

b. Observe security measures to detect theft by employees.
*c. Select a sample of supporting documents (purchase order, GRN and supplier’s invoice)
and inspect that they have been stamped as paid.
d. Do a walk-through test.
1.11 What conclusion can be reached by a positive comparison of a random sample of supplier
invoices to purchase orders?
a. No duplicate invoices were received.

b. No duplicate payments were made.
*c. Invoices received were for authorised purchases.
d. Authorised invoices were paid.
1.12 An internal auditor’s flowchart of a client’s raw material requisition and ordering processes is a
pictorial presentation that depicts the internal auditor’s
a. Assessment of the risks of material misstatement.

b. Assessment of the control environment’s effectiveness.
c. Role in the system.
*d. Understanding of the system.
1.13 In ABC Ltd., human resources and payroll are separate departments. Which of the following
combinations would provide the best segregation of duties.
a. Human resources personnel add employees, payroll personnel process hours, and human
resources personnel deliver paychecks to employees.
b. Human resources personnel add employees, review, and submit payroll hours to the
payroll department for processing, and deliver paychecks to employees.
*c. Human resources personnel add employees, and payroll personnel process hours and
enter employee bank account numbers. Paychecks are automatically deposited in the
employees’ bank account.
d. Payroll personnel add employees and enter employee bank account numbers but process
hours only as approved by the human resources department. Paychecks are automatically
deposited in the employee's bank account.
1.14 If employee paychecks are distributed by hand to employees, which one of the following
departments should be responsible for the safekeeping of unclaimed paychecks?
a. Payroll department.
b. Timekeeping department.
c. Production department in which the employee works or worked.
*d. Cashier department.
1.15 Which of the following situations represents an internal control weakness in the payroll
department?
a. Payroll department personnel are rotated periodically in their duties.

*b. Paychecks are distributed by the employees’ immediate supervisor who keeps record of
the employees’ timesheet.
c. Payroll records are reconciled with quarterly tax reports by independent senior personnel.
d. The timekeeping function is independent of the payroll department.
1.16 In the inventory and production cycle, the sequence in which the documents would be used is:
a. Materials requisition, job card, production report, materials issue note, transfer to finished
goods note, delivery note.
b. Delivery note, materials requisition, materials issue note, job card, production report,
transfer to finished goods note.
c. Materials requisition, materials issue note, job card, production report, transfer to finished
goods note, delivery note. *
d. Materials requisition, job card, production report, materials issue note, transfer to finished
goods note, delivery note.
1.17 Competent/trustworthy staff as a characteristic of good internal control in the inventory and
production cycle can be implemented by ensuring that:
a. The stores controller has read access to the computerized perpetual inventory, but with
write access.
b. The warehouse manager follows up on every inventory adjustment before authorized, by
signing the inventory adjustment form, that the adjustment may be entered.
c. All warehouse personnel, pickers, receiving clerks etc, are sent on regular training
courses to ensure that they are kept up to date with the company’s products. *
d. The pickers sign the picking slip after they have selected the goods from stores.
1.18 In a typical acquisition (or expenditure) cycle, the sequence in which documents would be used Deleted:
is:
Deleted: .
a. Inventory requisition; Purchase order; Supplier Delivery Note; Goods
Received Note, Purchase Invoice and Cheque Requisition. * Deleted:  
b. Purchase order; Supplier Delivery Note; Goods Received Note; Purchase
Invoice; Inventory requisition and Cheque Requisition. Deleted:  
c. Purchase order; Inventory requisition; Supplier Delivery Note; Goods
Received Note; Purchase Invoice and Cheque Requisition Deleted:  
d. All of the above options.
1.19 Payroll expense can be considered as one of the major expenses on the income statement, Deleted: ¶
Payroll preparation will NOT include which of the following activity? Formatted: Line spacing: Multiple 1,15 li
a. Calculation of bonuses.
Formatted: Font: (Default) Arial, 10 pt
b. Calculation of net remuneration.
Formatted: List Paragraph, Line spacing: Multiple 1,15 li,
c. Preparation of timecards.* Numbered + Level: 1 + Numbering Style: a, b, c, … + Start
d. Calculation of gross remuneration. at: 1 + Alignment: Left + Aligned at: 1,25 cm + Indent at:
e. None of the above 1,89 cm
Formatted: Font: 10 pt
1.20 Floorplan (Pty) Ltd has designed documents which are in the human resource and personnel Formatted: Font: (Default) Arial, 10 pt
cycle. Which document is NOT associated with the cycle? Formatted: Font: 10 pt
a. Invoice.*
b. Payslips.
c. Unclaimed wages register. Formatted: Font: (Default) Arial, 10 pt
d. Clock cards. Formatted: Font: 10 pt
e. None of the above. Formatted: Font: (Default) Arial, 10 pt
Formatted: Line spacing: Multiple 1,15 li
Formatted: List Paragraph, Line spacing: Multiple 1,15 li,
Numbered + Level: 1 + Numbering Style: a, b, c, … + Start
at: 1 + Alignment: Left + Aligned at: 1,25 cm + Indent at:
1,89 cm
Question 2: Jumbled sentence – drop down list 10 marks
10 out of the 16 randomly selected questions will be given to a student to answer. Formatted: Numbered + Level: 1 + Numbering Style: i, ii,
iii, … + Start at: 1 + Alignment: Right + Aligned at: 0,63 cm
i. The assertion that describes the authority an entity has over a customer to receive payment + Indent at: 1,27 cm
for goods sold to the customer is known as: Deleted: a.
Formatted: Indent: First line: 1,27 cm
[Right]
Formatted: Numbered + Level: 1 + Numbering Style: i, ii,
ii. The assertion that all amounts owed by customers for goods sold, to an entity, have been
+ Indent at: 1,27 cm
presented at correct amounts in the accounts receivable ledger account of the organisation, is
referred to as: Deleted: a.
[Valuation]
iii. The assertion that all amounts received from customers for goods sold have in fact been + Indent at: 1,27 cm
recorded, is known as:
Deleted: a.
[Completeness] Formatted: Indent: First line: 1,27 cm
iv. The assertion that all credit purchases that took place in an organisation have, in fact, been iii, … + Start at: 1 + Alignment: Right + Aligned at: 0,63 cm
recorded, is known as: + Indent at: 1,27 cm
Deleted: a.
[Completeness]
v. The assertion that the entity has a liability to pay for goods purchased on credit, from a Formatted: Numbered + Level: 1 + Numbering Style: i, ii,
creditor is known as: iii, … + Start at: 1 + Alignment: Right + Aligned at: 0,63 cm
[Obligation] Deleted: a.
vi. The assertion that all purchased goods that are recorded have, in fact, been received by the Formatted: Indent: First line: 1,27 cm
organisation, is referred to as: Formatted: Numbered + Level: 1 + Numbering Style: i, ii,
[Existence] + Indent at: 1,27 cm
Deleted: ¶
vii. The assertion that the cost of goods sold is shown at the mathematically correct amount is a.
referred to as: Formatted: Indent: First line: 1,27 cm
[Accuracy] Formatted: Numbered + Level: 1 + Numbering Style: i, ii,

viii. The assertion that all inventory-related transactions that took place in the organisation have,
in fact, been recorded is known as: Deleted: a.
[Completeness]
ix. The assertion that the property, plant and equipment shown in the company’s statement of + Indent at: 1,27 cm
financial position can actually be traced and validated is known as:
Deleted: a.
[Existence] Formatted: Indent: First line: 1,27 cm
x. The assertion that the accounts payable ledger account is shown in the correct amount is iii, … + Start at: 1 + Alignment: Right + Aligned at: 0,63 cm
referred to as: + Indent at: 1,27 cm
Deleted: a.
[Valuation]
The assertion that all bonuses paid to employees at the end of the year have been recorded in the Formatted: Numbered + Level: 1 + Numbering Style: i, ii,
correct financial year, is known as: iii, … + Start at: 1 + Alignment: Right + Aligned at: 0,63 cm
a. Cut off Deleted: a.
The assertion that the employee deductions have been correctly calculated in the cash register is
known as:
a. Accuracy
The assertion that entries in the payroll journal correlate with those indicated on the bank statement is
referred to as:
a. Completeness
Deleted: Which operational audit outcome aims to

Right assess whether a function is performed using the
Valuation minimum amount of financial resources?¶
Completeness Deleted: a. Economy
Obligation ¶
Existence
Accuracy
Cut-off
Deleted: Which operational audit outcome aims to

assess whether a function is performed in the quickest
possible amount of time?¶
¶
a. Efficiency
¶
Which operational audit outcome aims to assess
whether a function is performed in a consistent
manner? ¶
¶
a. Effectiveness¶
Question 3 – Correct order (10 marks)
Note: 2 out of the 4 scenarios will be answered by the students. The scenarios will be randomly
selected.
The following documents are found in the revenue and receipts cycle of Hilary Trump (Pty) Ltd, a
wholesaler of stationery. You are required to place the mentioned documents in the logical
chronological sequence in which they are most likely to occur (from beginning to end).
a. Sales order
b. Delivery note
c. Invoice
d. Debtor’s statement
e. Remittance advice
f. Credit note
The following documents are found in the purchases and payments cycle of Hilary Trump (Pty) Ltd, a
wholesaler of stationery. You are required to place the mentioned documents in the logical
a. Requisition form
b. Purchase order
c. Goods received note
d. Purchase invoice
e. EFT/Cheque requisition
f. Debit note
The following documents are found in the requesting, ordering and storage of raw materials in the
inventories, production and warehousing cycle of Hilary Trump (Pty) Ltd, a wholesaler of stationery.
You are required to place the mentioned documents in the logical chronological sequence in which
they are most likely to occur (from beginning to end).
a. Material requisition
b. Purchase order
c. Goods received note
d. Suppliers invoice
e. Inventory issue note
f. Inventory tag/bar code
The following documents are found in the human resources and payroll cycle of Hilary Trump (Pty)
Ltd, a wholesaler of stationery. You are required to place the mentioned documents in the logical
a. Employment contract
b. Time cards
c. Payslips
d. Cheque requisition
e. Authorised payroll coinage schedule
f. EFT/Cheque payment confirmation
Question 4 – Macthing 10 marks
Each student will receive 1 randomly selected question from the 2 to complete.
Listed below are typical risks and controls of a revenue and receipt cycle. You are required to match
each risk with a control activity that management will most likely implement
a. Customers may not be billed for some inventory deliveries.

= Shipping documents are prenumbered and are independently accounted for and matched with
sales invoices.
b. Goods may be sold to customers, on credit, who cannot pay for them.
= New customers are subject to creditworthiness checks by the credit manager before credit is
granted.
c. Fictitious bank deposits that were never made are recorded in the company’s accounts .
= Bank reconciliations are performed by an independent person not responsible for record keeping. Deleted: a third party
d. Incorrect goods may be shipped to customers.
= Goods received from the warehouse are verified and then matched with the approved sales order
before being shipped to customers.
e. Small amounts could be deposited as full amounts in the bank.
= Company’s bank provides independent evidence by validating the deposit slips used in depositing in
the company’s bank account.
f. Risk of theft of goods by dispatch clerk. Deleted: delivery
= Two security guards should always be present at the exit gate when goods are being delivered to
customers.
g. Unauthorised bad debts may be written off by the organisation.
= Delinquent customers who cannot pay their accounts are reviewed by three different senior
personnel.
h. Shipped goods may be left unaccounted for, leading to errors appearing in the inventory records of
the organisation. Deleted:
= Upon receipt of the packing slip and bill of lading, inventory controller updates the inventory system
after matching them with the approved sales order.
Listed below are typical risks and controls of a purchases and payment cycle. You are required to
match each risk with a control activity that management will most likely implement.
a. Inferior quality goods could be purchased / Excessive prices could be paid for goods.
= The purchases department makes use of preapproved fixed suppliers. Each purchaser has the right
to choose the best supplier out of this preapproved list.
b. Purchases could be made from certain sub-standard vendors, who may be receiving kickbacks Deleted: ed
from the employee(s) making the purchase.
= The company makes use of preapproved suppliers for all their locally purchased goods, and are
subjected to regular evaluations.
c. Unauthorised purchases in the form of personal purchases may take place which results in a
financial loss for the company.
= Purchase requests from the company, in any form, are directed to the purchase department for
processing of the purchase order, thus ensuring segregation of duties between the requisitioning and
ordering functions. The purchase department ensures that all requests are carried out.
d. Fictitious invoices could be paid thereby resulting in financial loss for the company.
= EFTs are used for payments, and when such payments are made, only authorised personnel have
access to signature stamps for authorisation.
e. Invoice terms could be incorrect or false, resulting in non-payment or partial payment to creditors.
= The invoice is also immediately prepared for payment after receipt necessary checks against
relevant source documents. If there is enough cash in petty cash, it is used.
f. Accounts payable could show no record of proof of delivery and payment to be made after it took
place.
= The delivery note is kept and filed by the receiving department as proof that goods were
delivered. The invoice is sent to the accountant to record the transaction.
g. Invoice could be incorrect, thereby causing no or incorrect record of payment.
= As soon as the invoice is received from a supplier, it is immediately recorded in the relevant journal
by the accountant after necessary checks against relevant source documents.
h. Suppliers could be paid more than once for a submitted invoice.
= Supporting documents are reviewed and stamped as “processed” when an EFT is issued for
payment.

Class Test 4 - IA2 Auditing

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Class test four 50 marks

Question 1 - MCQ’S 20 marks

*a. Purchase form.

*a. Delivery note.

a. Inventory issue note.

a. Purchasing policies have not been updated.

a. Observe the cheque signing process.

a. No duplicate invoices were received.

a. Assessment of the risks of material misstatement.

a. Payroll department personnel are rotated periodically in their duties.

[Accuracy] Formatted: Numbered + Level: 1 + Numbering Style: i, ii,

Deleted: Which operational audit outcome aims to

Deleted: Which operational audit outcome aims to

a. Customers may not be billed for some inventory deliveries.

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