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    Audit theory preboard

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    Audit theory preboard

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    539 Ansichten12 Seiten

    1st PB-AT

    Hochgeladen von

    Lovenia Magpatoc
    Audit theory preboard

    Copyright:

    © All Rights Reserved
    Als PDF herunterladen oder online auf Scribd lesen
    Markieren Sie unangemessene Inhalte
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    MHtOerVace. can aruall add; ere PUDITING THEORY OCTOBER 2014 BATCH FIRST PRE-BOARD. EXAMINATION sSskr m JULY 24, 2014; 3:30PM -4:30PM INSTRUCTIONS: “Select the correct answer for each of the following qustlions. Mark only one answer for each item by Shading the corresponding letter of your choice on the Snswer sheet provided. STRICTLY NO ERASURES ALLOWED, Wier PorsllNo. 2 only. The basic intent of the Code of Professional Ethics, which is to set standards of conduct for Professional accountants and state the fundamental principles that should be observed by professional Sccountants in order to achieve common objectives af the profession, should always be respected amidst the operation of the accountancy profexsion In an environment with different cultures and Tegulatory requirements. Which of the following statements {f most likely trud about the international (ie. the IFAC Code) and national requirements? _ : @ Generally, in instances where a national law prohibits full compliance with Section 8.0 of the Code, the section in its entirety shall be deemed unenforceable for national practitioners, b. In matters concerning the independence of the auditor, where a national requirement is in Conflict with a provision in the Cocle, the national requirement would prevail. ¢. In matters of conflict concerning the Independence requirements of the auditor, the stricter ‘ fequirement of the Code and the national would prevail, 4. Generally, in instances where a national requirement Is in conflict with a provision in the Code, the Code would prevail, 2. In the preparation of an income tax return, the CPA Is expected to a. take a position of client advocacy b, take a position of independent neutrality C: present the taxable net income in the audited financial statements conform with the taxable net income in the income tax return, present the expenses in the audited financial statements conform with the deductions in the income tax return, 3. The risk of misappropriation of assets increases in the presence of * a. Incentive systems based on operating Income —_¢, Substantial increases in sales b. Weak internal control condition 4, Frequent changes in suppliers « 4 The prevailing Code of Ethics for professfonal accountants states the following as the bases of charging professional fees, except for: >) a. The skills required for the type of work engaged b. The certifications obtained by the persons engaged on the work . The consumed time by each person engaged on the work d. The urgency and degree of responsibility that the work entails 5. Which of the following would provide the Weakest evider a. During an inventory count, an auditor personally ver sheet and re-calculates the balance. b. A client prepares a schedule of obsolete inventory for the auditor. Negative confirmations of accounts receivable are sent by the auditor to the client’s customers, 4d. Ending balances of inventory are taken from the working papers of the predecessor auditor, nce in terms of appropriateness? fies the items tisted on an inventory count 6. Which of the following items would fot likelyjbe Included in an auditor's planning memorandum? a. Materiality assessment wa b._ Assessed level of control risk c. Accounts receivable confirmations d._ Significant company or industry risks 7. Which of the following audit procedures would be Yegst Ukely to be used for the purpose of obtaining an understanding of the client’s business? + a. Inquiry of management b, Review of the prior year's working paper files . ¢.. Review of calculations d. Review of pertinent legislation and discussions with industry. regulators CRC-ACE/AT: First Pre-board Exams (October 2014 Batch) a o. 8. Which of the following is false concerning an auditor's test of internal controls? fa. Interral controls are tested to identify types of potential misstatements. é b. Internat controls are tested to determine the nature, timing, and extent of audit procedures. ‘c. Internal controls are tested to caiculate the acceptable audit risk ep 4. Control risk i assessed atthe financial statement assertion level Ty) ry 9. Which of the following statements best describes the auditor's use of the audit risk model? a. The auditor determines an acceptable OR, measures IR and CR, and calculates AR. b. The auditor determines an acceptable AR, measures IR and CR, and calculates DR. €. The auditor determines an acceptable CR, measures IR and DR, and calculates AR. 4. The auditor determines an acceptable IR, measures DR and AR, and calculates CR. 10. Which of the following is the risk that a company will fail because of poor economic conditions or increased competition? = a. Audit risk c. Business risk b. “Operational risk i. industry risk 11. An audit firm has a policy that all audits will be conducted such that the risk that they will fail to express an appropriate opinion when the financial statements are materially misstated will be no greater than 4%. If the risk of a material misstatement occurring in the first place is assessed at 0.5, and the risk that the internal controls wilt fail to prevent/detect a material misstatement is assessed at 0.2, how should the firm ensure that their policy is followed? We WI gos 4 OR a. “Adjust audit risk to 0.4 . Adjust inherent risk to 0.4 : D. Adjust detection risk to 0.4 ¢ Adjust controt risk to 0.4 12. How should materiality be defined in the context of an external audit? a. An amount is material if it leads the auditor to obtain additional evidence. : b. An amount is material if it leads the financial statement users to change their resource allocation decisions. . AN amount fs material ff ft fs clearly not presented according to financial reporting standards. 4d. An amount is material if itis incorrect. 13. How can sampling risk be reduced? 2. By decreasing sample size b. By increasing the “randomness” of a non-statistical sample c. By reducing materiality 4. By selecting the sample at year end instead of after year end 14, Which of the following dates is best for obtaining the legal representation lett ‘a. As scon as the audit firm has decided to accept the audit engagement b. At the interim date c. At the balance sheet date d. At the audit report date 415. Which of the fotlowing dates {s best for obtaining the client’s written representations? _ ‘a. As soon as the audit firm has decided to accept the audit engagement b. At the interim date ; . At the balance’ sheet date d. At the audit report date 16. Materiality for an audit was set at P600,000, identified misstatements at P450,000, and likely misstatement estimated at P750,000. In this case, what audit opinion should you recommend? a. Unqualified c. Adverse or disclaimer 1b. Quatified or adverse 4. Disclaimer only 47. Which of the fotlowing would be described as “the risk of a material misstatement occurring in the first Lodht risk . Business risk for the client 'b. Business risk for the audit firm d. Inherent risk 18. Which of the following statements is true?” increasing controt risk will increase detection risk Detection rish is inversely related to the amount of evidence required. Increasing inherent risk will increase detection risk. Inherent risk and control risk are inversely related to audit risk aoge 9 20. 2 22, 23, 24. 25. 26. PPP Inc. sells all of its products through its website. The company sells specialty tea, mostly inortee from China. Most of its customers are in North America, and the rest are in Europe. The company ¢ website is attractive and receives hundreds of hits every day, including some from Russia, Africa, a0. South America. PPP has instituted a firewall to protect its website. Which of the following is, false " / concerning firewalls in a situation similar to PPP's? . a. They can monitor the data traffic both into and out of the organization's network. b. They can block certain kinds of data. c. They can block ali traffic from particular location: - d. They are an effective alternative for other security measures such as digital certificates. JGS Inc. changed to a new computerized accounting system during the past year because JGS was acquired by another company, and the parent company required all subsidiaries to have the same accounting system. What are the likely implications for an auditor designing a test of controls for t year in this situation? a. The auditor should treat both systems as one system (ignore the conversion) because controls need to be tested for the entire year. b. The auditor can safely ignore the first system and the conversion because the year-end balances depend on the final system in use at year end, : ¢. The auditor should set control risk to maximum. 4. The auditor should test both systems and the conversion (three tests). Which of the following actions is most likely to be required in recognition of recent changes to the audit risk model? Ms ‘a. Spending more time understanding a client's business risks b._ increasing sample sizes for tests of internal controls C. Increasing sample sizes for substantive tests of details 4. Reducing assessed levels of planning materiality Which of the fottowing is most likely to be of concern when a CPA audits an.e-commerce application? a. The nature of products being traded nen b. The type of software being used in the application ©. The efficiency of the e-commerce application 4. The integrity of e-commerce transactions An auditor who has not been able to obtain sufficient appropriate evidence with respect to several material balances on a client's opening balance sheet is most likely to issue which of the following opinions? a. An adverse opinion b. A disclaimer of opi ._ An unquatified opinion with an emphasis of matter paragraph 4. A qualified opinion due to departure from financial reporting standards. Which of the following factors i& most likely to indicate that an investor company has significant influence over the operations of another company? a. The investor company owns 5% or more of the other company's voting shares. b. There are material intercompany transactions between the two companies. ¢. The investor company and the other company operate in the same industry. d. The investor company and the other company use the same audit firm, Which of the following factors is likely to be the most important for maintaining good relations with an audit client? a. Understanding the client’s business b. Agreeing with the client’s choice of accounting principles . Minimizing the audit fee d. Seeking an independent second opinion to resolve difficult matters that arise during an audit Which of the following statements is got true with respect to audited financial statements that contain comparative figures? a. The comparative figures must be audited. b. The auditor's opinion normally covers only the current period, not the comparative figures. . If the comparative figures were audited by another audit firm, this should be disclosed. 4G. The auditor may need to investigate whether accounting principles followed in the current year were also used to prepare the comparative figures. sire —— CRC-ACE/AT: First Pre-board Exams (October 2014 Batch) Page 40f12 + 27. Which of the following is most likely to be a qualitative factor that could render an otherwise immaterial peso amount to be deemed material? . a. A misstatement that involves cash b. A misstatement that is not identified but results from the projection of an amount from a sample to the population cc. Amisstatement resulting from a client's illegal act d. A misstatement that increases net income 28. Which of the following are_most likely.to be considered ‘computer operations controls; in an IT environment? . + : a. Access controls ¢. Program change controls b. Systems development controls d. Organizations controls 29. The difference estimation sampling technique is most likely to be useful in which of the following audit areas? = a. “Testing internal controls b. Confirming accounts receivable balances ¢. Searching for fraud when very few fraudulent items are expected in a population 4. Assessing inherent risk 30. Value weighted Sampling is most likely to be useful in which of the following audit areas? Testing internal controls Assessing audit risk Testing proper authorization of transactions Testing inventories pose 31. Which of the following is most likely to be an audit area where a CPA places reliance on the work of @ client’s internat auditors? a. When assessing control risk b, When choosing a random sample for substantive testing ¢. When judgmentally setecting accounts receivable for confirmation 4. When evaluating a client's contingent liabilities 32. Which of the following elements of the audit risk model fs most likely to take the lowest numeric value? a, Audit risk ¢. Control risk . Inherent risk 4, Detection risk 33. Which of the following is not among the ethical principtes governing an audit of financial statements? a. Integrity c. Independence b. Objectivity d. Professional skepticism 34. If an auditor assesses the risk of material misstatement to be relatively low, which of the following steps or modifications to an audit program is likely to be the most appropriate? ‘a. Performing relatively more audit work at interim dates ~~ — b. Performing less intensive tests of control ¢. Reducing the level of detection risk $ 4d. Increasing the acceptable level of audit risk 35. Which of the following factors is Teast likely to influence the appropriateness of audit evidence? a. Cost of the evidence Pecan c. Nature and source of the evidence: b. Objectivity of the evidence d. Effectiveness of relevant internal controls 36. A client settles an outstanding lawsuit after the fiscal year end but before the audit fieldwork Is completed. The settlement is considerably greater that the recorded liability at the balance sheet date. Which of the following statements would best describe this situation? a, This will require adjustment of the financial statements under audit b.. This will require disclosure but no adjustment c. This is a situation that likely requires double-dating of the auditor's report. d. ‘This is a subsequent discovery of facts that existed at the balance sheet date. 39. at 42, 43. 45. 46. Under what conditions (if any) would an auditor have a responsibility to directly contact known users of financial statements (such as cteditors) when there is a subsequent discovery of facts that existed at the haiance sheet date? Whenever the subsequent discovery of facts results in a reissue and double-dating of the auditor's report b Whonever the subsequent discovery of facts relates to a material area of the financial statements ¢. Whenever the client refuses to cooperate in recalling the financial statements 6. Under no conditions does the auditor have such a responsibility Am audit ctient is a small business enterprise with few employees. What effect (if any) is this fact most likely to have on the auditor's assessment of the risk of material misstatement? a. Increase inherent risk but decrease control risk: b. Decrease inherent risk but increase control risk ¢. No effect on inherent risk but increase control risk 4d. .No effect on inherent risk but decrease control risk Analysis performed at the planning stage of an audit engagement is most closely linked to which element of the audit risk model? ‘ co a. inherent risk ¢. Detection risk b. Control risk d. Audit risk Which of the following statements best describes when an auditor should perform tests of controls? a. When the client's internal controls are weak b. When substantive procedures alone do not provide sufficient appropriate evidence with respect to an assertion or when it is impracticable to rely primarily on substantive procedures. <:_When the auditor wishes to emphasize a control matter in her management letter 4. Whenever a client uses a sophisticated IT control system Which of the following ig not among the qualifications of a member of the Board of Accountancy? a. Must have at least 10 years of experience in the practice of public accountancy b. Must be a natural-born Filipino citizen and a resident of the Philippines €. Must not be a director or officer of the accredited national professional organization at the time of appointment. 4. Must be of good moral character Which of the following tasks is most likely to be performed by an audit manager. on an audit team? a. Performing test of controt ae b, Reviewing the audit work performed ¢. Observing the client's inventory-taking 4. Deciding on the appropriate audit opinion Which of the following regulatory agencies fs not represented in the Auditing and Assurance Standards Council (ASC)? a. Bureau of internal Revenue , Securities and Exchange Commission b. Commission on Audit d. Banko Sentral ng Pitipinas Which of the following statements about the relationship between a client's business risk (BR) and the appropriate level of audit risk (AR) is, most likely to be true? a. If BR increases, AR increases. wf c. If BR increases, AR decreases. b. IFBR decreases, AR increases. fi{(P AI d. There is no relationship between BR and AR Which of the following organizations does not betong to the group? a. Auditing and Assurance Standards Council c. Quality Review Committee b. Financial Reporting Standards Council . Phitippine Institute of CPAs Which of the following statements dest describes ap auditor's responsibilities with respect to material party transactions? weed ator would treat related-party transactions the same as al other transactions. a an aftr would issue an adverse opinion on financial statements containing material related-party transactions. : c. An auditor would inqui reasonable assurance 0 dd. An auditor would discuss m auditor's report. : re of the client and perform other audit procedures so as to obtain’ ifying alt material related-party transactions. Ke sry transactions an explanatory paragraph i the moses: sET B CRC. ACE/AT: First Pre-board Exams (October 2014 Batch) Page 6 of 12 B47. Which of the following is NOT a required documentation in ALL engagements? Oo «# A 50 Do 5 0 52. A 3 54, B y ae K B . Audit evidence concerning segregati . A person 1 understanding of internal controt system Il, risk assessment Wi. basis of risk assessment IV. flowchart of transaction flow a. |, tll b. 1 thonly . Lonly 4. N,V onty . CPAs, firms and partnerships of CPAs engaged in the practice of public accountancy including partners and staff members thereof, shall register with the Commission and the Board, such registration to be renewed every a. year ¢. three years b. two years 4. five years Sufficient direction, supervision and review of work at all levels to provide reasonable assurance that the work performed meets appropriate standards of quality relates to a. assignment b. professional requirements . skills and competence d, delegation |. When the total fees generated by an assurance client represent a large proportion of a firm's total fees, the dependence on that client or client group and concern about the possibility of losing the client will most likely create: a, self-interest threat c. _ intimidation threat b.self-review threat d. familiarity threat . The auditor uses his understanding of accounting and internal control systems together with the inherent and control risks assessments in order to a. Identify the types of misstatements that could occur b. Consider factors that affect the risk of material misstatements c. Design appropriate audit procedures d. Allof the above assessment procedures would include all of the following except ‘a. Inquiries of management and others within the entity. b. Analytical procedures. ¢c. Observation and inspection, 4. Inquiries of client's legal counsel regarding the status of litigations, claims and assessment. Which of the following is not one of the seven broad categories of financial statement assertions, as Classified in Glossary of Terms? a. Ownership + c. Valuation b, Existence d. Presentation and disclosure This refers to the financial information based or assumption’ Sbout events that may occur in the future and possible actions by an entity ern a. projected data cc. financial forecast b. prospective financial information d. financial projection ion of duties ordinarily is best obtained by : 2 performing tests of transactions that corroborate management's financial statement assertion? b. Observing the employees as they apply control procedures Obtaining a flowchart of activities performed by available personnel 4, Developing audit objectives that reduce control risk i han co firm possessing special skill, knowledge and experience in a particular field other t accounting and auditing is called a/an professional b. expert c.consultant —d. guy B 57. Materiatity at the account balance level is stated in planning an audit because: 0 e B AS Miest Fre-board Exams (October 2014 Batch) Page 7 of 12 a. some users make decisions based upon individual account balances, ' b, the auditor verifies account batances in reaching an overall conclusion on the fairness of the financial statements, ¢. the opinion on the fairn balances, 4. official pronouncements have statement items, 'ess of the financial statements extends to the individual account Specified different levels of materiality for various financial 58. This refers to an approximation of the. amount of an item in the absence of a precise means of measurement : a. projection b. forecast —_c. probable amount —_d. accounting estimate 539. During the review of a small business client's internal control system, the auditor discovered that the accounts receivable clerk approves credit memos and has access to cash. Which of the following controls would be most effective in offsetting this weakness? a. The owner reviews errors in billings to customers and postings to the subsidiary ledgers. b. The controller receives the monthly bank statement directly and reconciles the checking accounts . The owner reviews credit memos after they are recorded 4. The controller reconciles the total of the detailed accounts receivables to the amount shown in the ledger, 60. In the following excerpted flowchart, “X" would most probably ... a. Be a computerized process. b. Refer to the manual preparation of a bill. €. Pertain to the credit approval of sales on account. d. Represent a decision process. 61, Incidents regarding technology fraud in automated teller m: unscrupulous individuals, have been reported as being carri attached to the ATM card slot and a pinhole camera. lachine (ATM) systems, perpetrated by ied out by using a specialized scanner The specialized scanner captures the stored personal identification number (PIN), card number, and ther relevant information from the magnetic strip of the ATM card. The hidden pinhole camera is used {0 capture actual input of the PIN into the ATM by the cardholder. The captured information from the specialized scanner is then copied into another ATM card, thereby producing a duplicate of the original card. Using the replicated ATM card and the captured PIN from the pinhote camera, the fraudsters then make unauthorized withdrawals from the ATMS. ‘The most appropriate control measure for this case will have to be... 2. Placement of surveillance cameras inside ATM booths. b. Regular physical inspection of their ATMS. : Marking the money dispensed by the ATMS. 4, Sample ATM accounts and check for unusual transactions as found in the monthly bank

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