Question 1

Which statement is incorrect regarding audit evidence?

Audit evidence is all the information used by the auditor in arriving at the
conclusions on which the audit opinion is based.

Audit evidence includes the

information contained in the accounting records underlying the financial statements and
other information.
Audit evidence is cumulative in nature.
Auditors are expected
to address all information that may exist.
Auditing Theory - Evidence (Average)

Question 2
Which of the following procedures would provide the most reliable audit evidence?
Inquiries of the clients internal audit staff held in private.
Inspection of
prenumbered client purchase orders filed in the vouchers payable department.
Analytical procedures performed by the auditor on the entitys trial balance.
Inspection of bank statements obtained directly form the clients financial institution.
Auditing Theory - Evidence (Average)

Question 3
Negative confirmation requests is unlikely to be used to reduce audit risk to an
acceptable level when:
The assessed level of inherent and control risk is low.
balances is involved.

A large number of small

A substantial number of errors is expected.

no reason to believe that respondents will disregard these requests.

Auditing Theory - Evidence (Average)

Question 4

The auditor has

When a CPA observes that the recorded interest expense seems to be excessive in
relation to the balance in the bonds payable account, the CPA might suspect that
Discount on bonds payable is understated
Bonds payable are understated
Bonds payable are overstated

Premium on bonds payable is overstated

Auditing Theory - Evidence (Average)

Question 5
For audit purposes, a corporation's articles of incorporation are normally:
Copied and placed on the owners' equity lead schedule
Copied and placed in
the permanent file

Confirmed with the transfer agent

Ignored since they are not

normally considered to be related to the internal control structure

Auditing Theory - Evidence (Average)

Question 6
Which of the following procedures would an auditor least likely perform in planning a
financial statement audit?
Coordinating the assistance of entity personnel in data preparation

Discussing

matters that may affect the audit with firm personnel responsible for non-audit services
to the entity
Selecting a sample of vendors invoices for comparison to receiving
reports

Reading the current years interim financial statements

Auditing Theory - Audit Planning (Average)

Question 7
When an auditor expresses an opinion other than unqualified opinion, a clear
description of all substantive reasons for the modification of the opinion should be
included in the report. This explanation should be presented:

As a separate paragraph that precedes the opinion paragraph of the Audit

Reporting.

As a separate paragraph, preferably after the opinion paragraph, of the

Audit Reporting.

In the opinion paragraph

As a separate paragraph in the notes to

financial statements.
Auditing Theory - Audit Reporting (Uncategorized)

Question 8
An auditor would issue an adverse opinion if
The audit was begun by other independent auditors who withdrew from the
engagement.

The statements taken as a whole do not fairly present the financial

condition and results of operations of the company.

given because the auditor lacks independence.

A qualified opinion cannot be

The restriction on the scope of the

audit was significant.

Auditing Theory - Audit Reporting (Uncategorized)

Question 9
Which of the following statements is best described in the scope paragraph of the
independent auditors report?
The audit was planned and performed to obtain reliable assurance about whether
the financial statements are free of material misstatements.
in accordance with financial reporting framework.

The auditor makes the significant

estimates in the preparation of the financial statements.

that the audit provides a reasonable basis for the opinion.
Auditing Theory - Audit Reporting (Uncategorized)

The audit was conducted

A statement by the auditor

Question 10
When the financial statements of the prior period were not audited, the incoming auditor
should:
Insist that an audit of prior years financial statements must be made.

Not allow

the inclusion of the corresponding figures in the financial statements of the current
period.
Disclaim his opinion and treat the unaudited corresponding figures as basis
of scope limitation.

Obtain sufficient appropriate audit evidence that the

corresponding figures meet the requirements of the relevant financial reporting

framework.
Auditing Theory - Audit Reporting (Uncategorized)

Question 11
When management prepares financial statements on the basis of a going concern and
the auditor believes the company may not continue as a going concern, the auditor
should issue a(n)
qualified opinion
of opinion

unqualified opinion with an explanatory paragraph

disclaimer

adverse opinion

Auditing Theory - Audit Reporting (Difficult)

Question 12
When the financial statements of the prior period were not audited, the incoming auditor
should:
Insist that an audit of prior years financial statements must be made.

Not allow

the inclusion of the corresponding figures in the financial statements of the current
period.
Disclaim his opinion and treat the unaudited corresponding figures as basis
of scope limitation.

Obtain sufficient appropriate audit evidence that the

corresponding figures meet the requirements of the relevant financial reporting

framework.
Auditing Theory - Audit Reporting (Difficult)

Question 13
The entire set of data about which the auditor wishes to draw conclusions is called
Population
Sampling frame
Sample
Sampling unit
Auditing Theory - Audit Sampling (Average)

Question 14
Which of the following comments best illustrates the concept of sampling risk?
A randomly chosen sample may not be representative of the population as a whole
on the characteristic of interest

An auditor may select audit procedures that are not

appropriate to achieve the specific objective

An auditor may fail to recognize errors in

the documents examined for the chosen sample

The documents related to the

chosen sample may not be available for inspection

Auditing Theory - Audit Sampling (Average)

Question 15
Receipt of ordered materials by the receiving department will generate the completion of
a form called the:
bill of lading

receiving report

materials requisition

summary
Auditing Theory - Audit of Inventory (Average)

Question 16

inventory acquisition

The audit tests to verify that the client is using an inventory method which is generally
accepted and to verify that physical counts were correctly summarized are performed
during the audit of the:
acquisition and payments cycle
warehousing cycle

payroll and personnel cycle

inventory and

sales and collection cycle

Auditing Theory - Audit of Inventory (Average)

Question 17
After accounting for a sequence of inventory tags, an auditor traces a sample of tags to
the physical inventory listing to obtain evidence that all items:
included in the listing have been counted
represented by inventory tags actually
exist

represented by inventory tags are included in the listing

included in the listing

are represented by inventory tags

Auditing Theory - Audit of Inventory (Average)

Question 18
Controls which provide a means of ensuring that the physical counts are properly
summarized, priced at the same amount as the unit records, correctly extended and
totaled, and included in the general ledger at the proper amount are known as:
standard cost controls
pricing internal controls
compilation internal controls
count quantity internal controls
Auditing Theory - Audit of Inventory (Average)

Question 19
Compared to a public company, the most important difference in a nonpublic company
in assessing control risk is the ability to assess control risk at _______ for any or all
control-related objectives

Low

Moderately low

Medium

High

Auditing Theory - Internal Control (Difficult)

Question 20
To obtain an understanding of an entitys control environment, an auditor should
concentrate on the substance of managements policies and procedures rather than
their form because:
Management may establish appropriate policies and procedures but not act on them
The board of directors may not be aware of managements attitude toward the
control environment

The auditor may believe that the policies and procedures are

inappropriate for that particular entity

The policies and procedures may be so weak

that no reliance is contemplated by the auditor

Auditing Theory - Internal Control (Difficult)

Question 21
This type of inquiry often elicits yes or no responses to the auditors questions.
Assessment
Declarative
Interrogative
Informational
Auditing Theory - Evidence (Average)

Question 22
A CPA may wish to emphasize specific matters regarding the financial statements even
though an unqualified opinion will be issued. Normally, such explanatory information is:
Included in the scope paragraph
Included in the opinion paragraph
Included
in a separate paragraph in the report

Included in the introductory paragraph

Auditing Theory - Audit Reporting (Easy)

Question 23

When the auditor cannot perform procedures and the amounts are so material that a
disclaimer of opinion rather than a qualified opinion is required, the:
Opinion paragraph will state does not present fairly
Opinion paragraph will state
presents fairly
opinion

Scope paragraph will be unchanged from the standard unqualified

Scope paragraph will be deleted

Auditing Theory - Audit Reporting (Difficult)

Question 24
Which of the following sampling plans would be designed to estimate a numerical
measurement of a population, such as a peso value?
Numerical sampling
Discovery sampling
Sampling for attributes

Sampling

for variables
Auditing Theory - Audit Sampling (Average)

Question 25
Which of the following circumstances would ordinarily not impair the auditors
independence?
Litigation by a client against an audit firm related to tax services.
client against an audit firm claiming a deficiency in the previous audit.
an audit firm against a client claiming management fraud or deceit.

Litigation by a
Litigation by
Clients intent to

start a lawsuit at some future date, after the current audit is completed, claiming a
deficiency in the previous audit.
Auditing Theory - CPA Profession (Average)

Question 26
Many companies use outside payroll services to process payroll. Auditors _____ rely on
the internal controls of these outside payroll services.

Must

Cannot

Rarely

Can often

Auditing Theory - Audit of Payroll (Average)

Question 27
In rare cases, the auditor may believe it is necessary that a complete physical inventory
of fixed assets be taken to make sure they actually exist. If an inventory is taken, the
auditor normally:
Takes the inventory

Requires client to take the inventory and provide

documentation to the auditor

Observes the count

Requires that it be done by an

outside, independent third party

Auditing Theory - Audit of Property, Plant and Equipment (Average)

Question 28
Expense accounts analysis is closely related to tests of controls and substantive tests of
transactions. The major difference is:
The difference in the types of underlying documentation which is examined
degree of concentration on an individual account

The

The use or nonuse of cutoff tests

That one emphasizes transactions and the other emphasizes amounts

Auditing Theory - Audit of Property, Plant and Equipment (Average)

Question 29
Which of the following audit tests is usually the least costly to perform?
Analytical procedures
Tests of controls
Tests of balances
Substantive tests
of transactions
Auditing Theory - Evidence (Average)

Question 30

The reliance placed on substantive tests in relation to the reliance placed on internal
control varies in a relationship that is ordinarily:
Parallel
Inverse
Direct
Equal
Auditing Theory - Evidence (Average)

Question 31
A positive confirmation is more reliable evidence than a negative confirmation because:
Fewer confirmations can be sent out
The auditor has a document which can be
used in court
balance

The debtors lack of response indicates agreement with the stated

Follow-up procedures are performed if a response is not received from the

debtor
Auditing Theory - Audit of Accounts Receivable (Average)

Question 32
An auditor should perform alternative procedures to substantiate the existence of
accounts receivable when:
No reply to a positive confirmation request is received
confirmation request is received

No reply to a negative

Collectibility of the receivables is in doubt

Pledging of the receivables is probable

Auditing Theory - Audit of Accounts Receivable (Average)

Question 33
For most audits, a proper cash receipts cutoff is less important than the sales cutoff
because the improper cutoff of cash:
Is detected and correct when cash is separately audited
material impact on the balance sheet or the income statement

Is unlikely to have a
Affects on the cash

and accounts receivable balances on the balance sheet and does not affect net income
Rarely occurs given the control consciousness of most entities
Auditing Theory - Audit of Accounts Receivable (Average)

Question 34
Comparing expenses to prior years is an effective analytical procedure for accounts
payable because expenses from year to year are:
Erratic
Variable
Dynamic
Relatively stable
Auditing Theory - Audit of Current Liabilities (Average)

Question 35
At what point do most companies recognize liabilities in the acquisition and payment
cycle?
The issuance of a purchase order
vendor

Receipt of goods or services

Receipt of acknowledgement of order by

The receipt of a vendor statement

Auditing Theory - Audit of Current Liabilities (Average)

Question 36
Proper authorization for acquisition is essential because it:
Ensures that goods/services are used efficiently by company employees
that goods/services were purchased from approved vendors
goods/services are for authorized company purposes
were purchased at the lowest possible price
Auditing Theory - Audit of Current Liabilities (Average)

Question 37

Ensures

Ensures that

Ensures that goods/services

To gather evidence regarding the balance per bank in a bank reconciliation, an auditor
would examine all of the following except the:
General ledger
Bank confirmation
Cutoff bank statement

Year-end bank

statement
Auditing Theory - Audit of Cash (Average)

Question 38
Which of the following items would not normally appear on bank reconciliation?
Balance per bank
List of deposits in transit
Outstanding deposits
Outstanding checks
Auditing Theory - Audit of Cash (Average)

Question 39
Upon receipt of customers checks in the mailroom, a responsible employee should
prepare a remittance listing that is forwarded to the cashier. A copy of the listing should
be sent to the:
Internal auditor to investigate the listing for unusual transactions

Treasurer to

compare the listing with the monthly bank statement

Account receivable bookkeeper

to update the subsidiary accounts receivable records

Entitys banks to compare the

listing with the cashiers deposit slip.

Auditing Theory - Evidence (Average)

Question 40
An auditor concluded that no excessive costs for idle plant were charged to inventory.
This conclusion most likely related to the auditors objective to obtain evidence about the
financial statement assertions regarding inventory:
Rights and obligation
Valuation
Existence
Auditing Theory - Evidence (Average)

Completeness

Question 41
A client erroneously recorded a large purchase twice. Which of the following internal
accounting control measures would be most likely to detect this error in a timely and
efficient manner?
Footing the purchases journal

Reconciling vendors monthly statements with

subsidiary payable ledger accounts

ledger accounts

Tracing totals from the purchases journal to the

Sending written quarterly confirmations to all vendors

Auditing Theory - Evidence (Average)

Question 42
The following are the benefits claimed for the practice of determining materiality in the
initial planning stage of starting an audit, except
Avoiding the problem of doing too little work (underauditing)
problem of doing more work than necessary (overauditing)
early what kind of audit opinion to express

Avoiding the

Being able to decide

Being able to fine tune the audit work for

effectiveness and efficiency

Auditing Theory - Audit Planning (Average)

Question 43
Which of the following situations represents a risk factor that relates to misstatements
arising from misappropriation of assets?
A high turnover of senior management.

A lack of independent checks.

strained relationship between management and the predecessor auditor.

to generate cash flow from operations.
Auditing Theory - Risk Assessment (Average)

An inability

Question 44
When considering internal control an auditor must be aware of the concept of
reasonable assurance, which recognizes that
Employment of competent personnel provides assurance that the objectives of
internal control will be achieved.

Establishment and maintenance of internal control is

an important responsibility of the management and not of the auditor.

Cost of internal

control procedures should not exceed the benefits expected to be derived from the
control.
Segregation of incompatible functions is necessary to ascertain that the
control procedures are effective.
Auditing Theory - Internal Control (Average)

Question 45
General purpose financial statements may be prepared in accordance with the following
framework except:
International Financial Reporting Standards
Standards for SMEs

International Financial Reporting

International Auditing Standards

International Accounting

Standards
Auditing Theory - Audit Planning (Average)

Question 46
Fraudulent financial reporting is often called
Management fraud
Theft of assets
Defalcation
Auditing Theory - Internal Control (Average)

Question 47

Employee fraud

Which of the following should an auditor obtain from the predecessor auditor prior to
accepting an audit engagement?
Analysis of balance sheet accounts
of continuing accounting significance

Analysis of income statement

All matter

Facts that might bear on the integrity of

management
Auditing Theory - Audit Planning (Average)

Question 48
Which of the following would an auditor most likely use in determining the auditors
preliminary judgment about materiality?
The results of the initial assessment of control risk
for planned substantive tests

The anticipated sample size

The entitys financial statements of the prior year

The assertions that are embodied in the financial statements

Auditing Theory - Risk Assessment (Average)

Question 49
An effective procedure to test for unbilled shipments is to trace from the
Sales journal to the shipping documents
Shipping documents to the sales
invoice

Sales journal to the accounts receivable ledger

Sales journal to the

general ledger sales account

Auditing Theory - Evidence (Average)

Question 50
The element of the auditors report that distinguishes it from reports that might be issued
by others is
Title
Addressee

Auditors signature

Auditing Theory - Audit Reporting (Average)

Opinion paragraph

Question 51
What level of assurance is provided by the auditor in a review engagement?
No assurance
High, but not absolute
Reasonable
Limited
Auditing Theory - Audit Reporting (Average)

Question 52
In a compilation engagement, the accountant is engaged to use accounting expertise as
opposed to auditing expertise to collect, classify, and summarize financial information.
What type of assurance is provided by the accountant when he/she performs this
engagement?
Positive assurance

Negative assurance

No assurance

Limited assurance

Auditing Theory - Audit Reporting (Average)

Question 53
Which of the following is not one of the elements of an assurance engagement?
Sufficient appropriate evidence
A subject matter
Suitable criteria
An
opinion about whether the subject matter conform, in all material respects, with
identified criteria
Auditing Theory - Audit Planning (Average)

Question 54
During the initial planning for an audit, a CPA obtains a level of knowledge of the clients
business to help him evaluate:
The reasonableness of estimates, such as valuation of inventories and allowances
for bad debts.

Whether to accept the engagement or not

report he will issue

The profitability of the business

Auditing Theory - Audit Planning (Average)

The nature of the audit

Question 55
Most companies recognize sales when a/the:
Merchandise is received by the customer
Merchandise is shipped

Customer order is received

Cash is received on account

Auditing Theory - Evidence (Average)

Question 56
To strengthen control procedures over the custody of heavy mobile equipment, the client
would most likely institute a policy requiring a periodic
Increase in insurance coverage
Verification of liens, pledges, and
collateralizations

Accounting for work orders

Inspection of equipment and

reconciliation with accounting records

Auditing Theory - Evidence (Average)

Question 57
Reports that are designed to create an audit trail for each online transaction. Such
reports often document the source of a transaction (terminal, time and user) as well as
the transactions details.
Batch processing logs

Transmittal sheets

Transaction logs

Embedded

audit modules
Auditing Theory - Computerized Auditing (Average)

Question 58
The single feature that most clearly distinguishes auditing, attestation, and assurance is
Type of service
Training required to perform the service
Scope of services
CPAs approach to the service
Auditing Theory - Audit Planning (Easy)

Question 59
A CPA firm studies its personnel advancement experience to ascertain whether
individuals meeting stated criteria are assigned increased degrees of responsibility. This
is evidence of the firm's adherence to prescribed standards of
Supervision and review
Continuing professional education
development

Professional

Quality control

Auditing Theory - CPA Profession (Average)

Question 60
Accounting firms should establish quality control procedures for professional
development in order to provide reasonable assurance that
Persons promoted possess the appropriate characteristics to perform competently
Personnel will have the knowledge required to fulfill responsibilities assigned
extent of supervision and review in a given instance will be appropriate

The

Association

with a client whose management lacks integrity will be minimized

Auditing Theory - CPA Profession (Average)

Question 61
As part of audit planning, CPAs should design audit programs for each individual audit
and should include audit steps and procedures to
Detect and eliminate fraud
Increase the amount of management information
available

Provide assurances that the objectives of the audit are met

only material items are audited

Auditing Theory - Evidence (Average)

Question 62

Ensure that

In evaluating the reasonableness of advertising expense, which of the following would

be the best evidence?
Oral evidence obtained through discussions with company marketing executives and
representatives of the advertising agency retained

Documentary evidence obtained

by vouching charges to the account and by retracing charges from source documents to
the account
Analytical evidence developed by comparing the ratio of advertising
expenses to sales with historical data for the company and industry

Arithmetical

evidence developed by re-computing charges submitted by the advertising agency and

paid by the company
Auditing Theory - Evidence (Average)

Question 63
Which of the following is not a typical analytical procedure?
Study of relationships of financial information with relevant nonfinancial information
Comparison of financial information with similar information regarding the industry in
which the entity operates

Comparison of recorded amounts of major disbursements

with appropriate invoices

Comparison of recorded amounts of major disbursements

with budgeted amounts

Auditing Theory - Evidence (Average)

Question 64
Having evaluated inherent risk and control risk, the auditor determines detection risk
As the complement of overall audit risk
By performing substantive audit tests
As a product of further study of the business and industry and application of analytical
procedures
At a level that equates the joint probability of inherent risk, control risk,
and detection risk with overall audit risk

Auditing Theory - Risk Assessment (Average)

Question 65
The understanding between the client and the auditor as to the degree of
responsibilities to be assumed by each are normally set forth in a(an)
Representation letter
Engagement letter
Management letter

Comfort letter

Auditing Theory - Risk Assessment (Average)

Question 66
It would be appropriate for the payroll accounting department to be responsible for
which of the following functions?
Approval of employee time records
discharges, and pay increases

Maintenance of records of employment,

Preparation of periodic governmental reports as to

employees' earnings and withholding taxes

Temporary retention of unclaimed

employee paychecks
Auditing Theory - Internal Control (Average)

Question 67
Which of the following would lessen internal control in a CBIS?
The computer librarian maintains custody of computer program instructions and
detailed listings

Computer operators have access to operator instructions and

detailed program listings

all computer output

The control group is solely responsible for the distribution of

Computer programmers write and debug programs which

perform routines designed by the systems analyst

Auditing Theory - Computerized Auditing (Average)

Question 68

Based on a random sample, it is estimated that four percent, plus or minus two percent,
of a firm's invoices contain errors. The plus or minus two percent is known as the
estimate's
Precision

Accuracy

Confidence level

Standard error

Auditing Theory - Audit Sampling (Average)

Question 69
The accuracy of perpetual inventory records may be established in part by comparing
perpetual inventory records with
Purchase requisitions
Receiving reports

Purchase orders

Vendor

payments
Auditing Theory - Audit of Inventory (Average)

Question 70
Which of the following is a "Type I" subsequent event?
The client's Long Island warehouse was destroyed by fire two weeks following the
balance sheet date. The warehouse and its contents were uninsured and represented
15% of the client's total assets
As the result of an uninsured flood loss, one of the
client's major customers declared bankruptcy. The client doesn't expect to recover more
than 5% of the outstanding receivable which accounts for 30% of total accounts
receivable. The flood and bankruptcy declaration both occurred after the balance date
but before the release of the audit report. No additional provision for loss had been
made as of year end
Three weeks after the balance sheet date, a major strike was
called by the labor union representing 80% of the client's work force

After the

balance sheet date, but prior to release of the audit report, a product liability judgment
against the client was rendered by a judge. The judgment assessed damages and fines
totaling 30% of audited net income. The events giving rise to the judgment occurred
prior to the balance sheet date. The client does not plan to appeal the decision

Auditing Theory - Evidence (Difficult)

Question 71
An auditor who wishes to substantiate the gross balance of the account "Trade Notes
Receivable" is considering the advisability of performing the four procedures listed
below. Which pair of procedures is best suited to this objective?
I
II
III
IV

Age the receivables

Confirm the notes with the makers
Inspect the notes
Trace a sample of postings from the sales journal to the notes receivable
ledger
I and III
I and IV
II and III
II and IV

Auditing Theory - Audit of Accounts Receivable (Average)

Question 72
In a highly automated information processing system tests of control
Must be performed in all circumstances
May be required in some circumstances
Are never required

Are required in first year audits

Auditing Theory - Computerized Auditing (Average)

Question 73
An auditor most least likely use computer software to
Access client data files
Prepare spreadsheets

Assess computer control risk

Construct parallel simulations

Auditing Theory - Computerized Auditing (Average)

Question 74
System characteristics that may result from the nature of CIS processing include, except

Absence of input documents.

output.

Lack of visible transaction trail.

Lack of visible

Difficulty of access to data and computer programs.

Auditing Theory - Computerized Auditing (Average)

Question 75
A computer falls into the supercomputer category if it is, at the time of construction, one
of the ____ computers in the world.
biggest
fastest
both a. and b.

neither a. nor b.

Auditing Theory - Computerized Auditing (Average)

Question 76
Managers need information from the management accounting system because? (Tick
the one untrue answer)
They cannot get this from the financial accounts
detailed enough

The financial accounts are not

The financial accounts are prepared too late

The financial

accounts are prepared for each part of the organization and the management accounts
are prepared for the whole organization
Auditing Theory - Cost Concepts (Easy)

Question 77
Which of the following procedures concerning accounts receivable is an auditor most
likely to perform to obtain evidential matter in support of an assessed level of control risk
below the maximum level?
Sending confirmation requests to an entitys principal customers to verify the
existence of accounts receivable.

Inspecting an entitys analysis of accounts

receivable for unusual balances.

Comparing an entitys uncollectible accounts

expense to actual uncollectible accounts receivable.

Observing an entitys employee

prepare the schedule of past due accounts receivable.

Auditing Theory - Evidence (Average)

Question 78
Proper segregation of functional responsibilities calls for separation of the functions of
Authorization, execution, and recording.
Authorization, execution, and payment.
Custody, execution, and reporting.

Authorization, payment, and recording.

Auditing Theory - Internal Control (Average)

Question 79
The evaluation of deviations that were observed upon completing tests of controls
May require the need for doing more extensive understanding of control.
May
require more extensive tests of controls.
of assessment of control risk.

Always requires documentation of the basis

May require modification of the nature, timing, and

extent of planned substantive procedures.

Auditing Theory - Internal Control (Average)

Question 80
An auditor decides to increase the assessed level of control risk from that originally
planned on the basis of audit evidence gathered and evaluated. To achieve an overall
audit risk level that is substantially the same as the planned audit risk level, the auditor
would
Decrease substantive testing.
levels.

Increase inherent risk.

Decrease detection risk.

Auditing Theory - Risk Assessment (Average)

Increase materiality

Question 81
The professions ethical standards most likely would be considered to have been
violated when a CPA represents that specific consulting services will be performed for a
stated fee and it is apparent at the time of the representation that the
Actual fee would be substantially higher
Actual fee would be substantially lower
than the fees charged by other CPAs for comparable services.
independent

CPA would not be

Fee was a competitive bid

Auditing Theory - Audit Planning (Average)

Question 82
The responsibility for the preparation of the financial statements and the accompanying
footnotes belongs to:
The auditor
Management

Both management and the auditor equally

Management for the statements and the auditor for the notes
Auditing Theory - Audit Reporting (Average)

Question 83
Which of the following statements about the existence and completeness assertions is
not true?
The existence and completeness assertions emphasize different audit concerns
Existence deals with overstatements and completeness deals with understatements
Existence deals with understatements and completeness deals with overstatements
The completeness assertion deals with unrecorded transactions
Auditing Theory - Evidence (Average)

Question 84

Which of the following management assertions is not associated with transaction-related

audit objectives?
Occurrence

Classification and understandability

Accuracy

Completeness

Auditing Theory - Evidence (Average)

Question 85
The detail tie-in is part of the_______ assertion for account balances
Classification
Valuation and allocation
Rights and obligations
Completeness
Auditing Theory - Evidence (Average)

Question 86
After general audit objectives are understood, specific audit objectives for each account
balance on the financial statements can be developed. Which of the following
statements is true?
There should be at least one specific objective for each relevant general objective
There will be only one specific objective for each relevant general objective
There will be many specific objectives developed for each relevant general objective
There must be one specific objective for each general objective
Auditing Theory - Audit Planning (Difficult)

Question 87
A measure of how willing the auditor is to accept that the financial statements may be
materially misstated after the audit is completed and an unqualified opinion has been
issued is the:
Inherent risk

Acceptable audit risk

Statistical risk

Auditing Theory - Risk Assessment (Average)

Financial risk

Question 88
An auditor searching for related party transactions should obtain an understanding of
each subsidiarys relationship to the total entity because:
The business structure may be deliberately designed to obscure related party
transactions

This may reveal whether transactions would have taken place if the

parties had been unrelated

Transactions may have been consummated on terms

equivalent to arms-length transactions

This may permit the audit of intercompany

account balances to be performed as of concurrent dates

Auditing Theory - Evidence (Average)

Question 89
A CPA who is not independent and is associated with financial statements should
disclaim an opinion with respect to those financial statements. The disclaimer should:
Clearly state the specific reasons for lack of independence
Not mention any
reason for the disclaimer other than that the CPA was unable to conduct the
examination in accordance with generally accepted auditing standards
Not describe
the reason for lack of independence but should state specifically that the CPA is not
independent
Include a middle paragraph clearly describing the CPAs association
with the client and explaining why the CPA was unable to gather sufficient competent
evidential matter to warrant the expression of an opinion
Auditing Theory - Audit Reporting (Difficult)

Question 90
The auditor is responsible for communicating significant internal control deficiencies to
the audit committee, or those charged with governance. This communication:

May be oral or written

Must be oral

Must be written

Must be oral via direct

communication
Auditing Theory - Audit Reporting (Average)

Question 91
The auditors responsibility for reviewing the subsequent events of a public company
that is about to issue new securities is normally limited to the period of time:
Beginning with the balance sheet date and ending with the date of the auditors
report

Beginning with the start of the fiscal year under audit and ending with the

balance sheet date

Beginning with the start of the fiscal year under audit and ending

with the date of the auditors report

Beginning with the balance sheet date and

ending with the date the registration statement becomes effective

Auditing Theory - Audit Reporting (Difficult)

Question 92
Tests of controls are directed toward the controls:
Efficiency
Efficiency and effectiveness
Effectiveness

Cost benefit ratio

Auditing Theory - Evidence (Easy)

Question 93
Many auditors perform extensive analytical procedures on audits because:
They are required by Philippine Auditing Standards
They pinpoint errors in
accounts

They indicate areas of potential risk and misstatement

required for tests of controls

Auditing Theory - Evidence (Easy)

Question 94

They are

Documentation is used in every type of test except ________.

Tests of controls
Analytical procedures
Tests of transactions

Tests of

details
Auditing Theory - Evidence (Easy)

Question 95
Cutoff misstatements occur:
Either by error or fraud

By error only

By fraud only

Randomly without

causes related to errors or fraud

Auditing Theory - Evidence (Easy)

Question 96
If the clients internal control for recording sales returns and allowances is evaluated as
ineffective:
A larger sample is needed to verify cutoff

Sampling is not appropriate

sales returns must be traced to supporting documentation

All

All sales returns must be

confirmed with the customer

Auditing Theory - Evidence (Easy)

Question 97
An auditor should perform alternative procedures to substantiate the existence of
accounts receivable when:
No reply to a positive confirmation request is received
confirmation request is received

Collectibility of the receivables is in doubt

Pledging of the receivables is probable

Auditing Theory - Evidence (Easy)

Question 98

No reply to a negative

During the audit of prepaid insurance, the auditor should keep in mind that the amount
in insurance expense is based on:
The beginning balance in prepaid insurance
the year

The payment of premiums during

The ending balance in prepaid insurance

All three of the above

Auditing Theory - Evidence (Easy)

Question 99
In connection with a review of the prepaid insurance account, auditors would typically
not perform which of the following procedures?
Recompute the portion of the premium that expired during the year
excerpts of insurance policies for audit working papers
an independent insurance broker

Prepare

Confirm premium rates with

Examine support for premium payments.

Auditing Theory - Evidence (Average)

Question 100
In an IT system, automated equipment controls or hardware controls are designed to:
Correct errors in the computer programs
Monitor and detect errors in source
documents

Detect and control errors arising from the use of equipment

data in a logical sequential manner for processing purposes

Auditing Theory - Computerized Auditing (Average)

Arrange