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7. In auditing through a computer, the test data method is used by auditors to test the
a) Accuracy of input data
b) Validity of the output
c) Procedures contained within the program
d) Normalcy of distribution of test data
c) Procedures contained within the program
8. An auditor's working papers will generally be least likely to include documentation showing how the
a) Client's schedules were prepared
b) Engagement had been planned
c) Client's system of internal control had been reviewed and evaluated
d) Unusual matters were resolved
a) Client's schedules were prepared
9. Which of the following sampling methods would be most appropriate in performing tests of controls over
authorization of cash disbursements
a) Attributes
b) Variables
c) Ratio
d) Stratified
a) Attributes
10. Analytical procedures used in the overall review stage of an audit generally include
a) Considering unusual or unexpected account balances that were not previously identified
b) Performing test of transactions to corroborate management's financial statement assertions
c) Gathering evidence concerning account balances that have not changed from the prior year
d) Re-testing control procedures that appeared to be ineffective during the assessment of control risk
a) Considering unusual or unexpected account balances that were not previously identified
11. Results of the financial statement audit are communicated to users through
a) Financial statement
b) Written management assertion
c) Audit report
d) None of the above
c) Audit report
12. What is the primary difference between financial reporting risk and audit risk?
a) The application of accounting principles
b) Responsibilities of the respective parties involved
c) Demands of users of financial statements
d) Risks of being sued by third parties
b) Responsibilities of the respective parties involved
13. Relationship between control risk and detection risk is ordinarily
a) Parallel
b) Inverse
c) Direct
d) Equal
b) Inverse
19. Assuming a recurring audit, in which of the following situations would the auditor be unlikely to send a new
engagement letter to the client?
a) A recent change in partner and/or staff involved in the audit engagement
b) A change in the terms of engagement
c) A recent change of client management
d) A significant change in the nature or size of the client's business
a) A recent change in partner and/or staff involved in the audit engagement
20. When an auditor expresses an adverse opinion he/sheshould disclose the substantive reasons for such
anopinion in an explanatory paragraph
a) Within the notes to the financial statements
b) Preceding the opinion paragraph
c) Following the opinion paragraph
d) Preceding the introductory paragraph
b) Preceding the opinion paragraph
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21. Tolerable error means
a) An error that arises from an isolated event that has not recurred other than on specifically identifiable occasions
and is therefore not representative of errors in the population
b) An error that the auditor expects to be present in the population
c) The maximum error in a population that the auditor is willing to accept
d) The possibility that the auditor's conclusion, based on a sample may be different from the conclusion reached if
the entire population were subjected to the same audit procedure
c) The maximum error in a population that the auditor is willing to accept
22. Examples of events or conditions, which individually or collectively, may cast significant doubt about the
going concern assumption include the following except
a) Net liability or net current liability position
b) Change from credit to cash-on-delivery transactions with suppliers
c) Labor difficulties or shortages of important supplies
d) Compliance with capital or other statutory requirements
d) Compliance with capital or other statutory requirements
23. Which of the following procedures is not included in a review engagement on a nonpublic entity
a) Inquiries of management
b) Inquiries regarding events subsequent to the balance sheet date
c) Any procedures designed to identify relationships among data that appear to be unusual
29. This exists, when other information, not related to matters appearing in the financial statements, is incorrectly
stated or presented
a) Material inconsistency
b) Material misstatement
c) Material misstatement of fact
d) Material error affecting the other information
c) Material misstatement of fact
30. Who appoints the members of the Board of Accountancy
a) The chairman of BOA
b) The president of the Philippines
c) The chairman of the PRC
d) The president of PICPA
b) The president of the Philippines
31. An auditor is required to obtain an understanding of the entity's business, including business cycles and reasons
for business fluctuations. What is the audit purpose most directly served by obtaining this understanding?
a) To enable the auditor to accurately identify significant deficiencies in internal control
b) To assist the auditor in accurately interpreting information obtained during an audit
c) To allow the auditor to more accurately perform tests of controls
d) To decide whether it will be necessary to perform analytical procedures
b) To assist the auditor in accurately interpreting information obtained during an audit
32. Which of the following is not true about the report release date?
a) It is defined as the date after which existing documentation must not be deleted, and additions to the
documentation file must be documented as such
b) It is often the date on which the report is delivered to the client
c) It is the date on which the auditor grants the client permission to use the report
d) It is used to define the beginning of the retention period
a) It is defined as the date after which existing documentation must not be deleted, and additions to the
documentation file must be documented as such
33. An auditor should not issue a report on
a) Quarterly financial information
b) Internal control
c) Management performance
d) The achievability of forecasts
d) The achievability of forecasts
34. Which of the following procedures would an auditor most likely perform to obtain evidence about the
occurrence of subsequent events?
a) Confirming a sample of material accounts receivable established after year-end
b) Comparing the financial statements being reported on with those of the prior period
c) Investigating personnel changes in the accounting department occurring after year-end
d) Inquiring as to whether any unusual adjustments were made after year-end
d) Inquiring as to whether any unusual adjustments were made after year-end
35. To which of the following matters would materiality limits not apply when obtaining written client
representations?
a) Violations of state labor regulations
42. The management's assessment of the entity's ability to continue as a going concern covers a period of
a) Not longer than 12 months from balance sheet date
b) At least 12 months from the balance sheet date
c) Not longer than 12 months from the date of audit report
d) At least 12 months from the date of audit report
b) At least 12 months from the balance sheet date
43. To obtain evidential matter about control risk, an auditor selects tests from a variety of techniques including
a) Inquiry
b) Analytical procedures
c) Calculation
d) Confirmation
a) Inquiry
44. The need for independent audits of financial statements can be attributed to all of the following conditions
except
a) Remoteness
b) Consequence
c) Complexity of subject matter
d) Validity
d) Validity
45. After issuing a report an auditor includes that an auditing procedure considered necessary at the time of the
examination was omitted from the examination. The auditor should first
a) Undertake to apply the omitted procedure or alternative procedures that would provide a satisfactory basis for the
auditor's opinion
b) Assess the importance of the omitted procedure to the auditor's ability to support the opinion expressed on the
financial statements taken as a whole
c) Notify the audit committee or the board of directors that the auditor's opinion can no longer be relied upon
d) Review the results of other procedures that were applied to compensate for the one omitted or to make its
omission less important
b) Assess the importance of the omitted procedure to the auditor's ability to support the opinion expressed on
the financial statements taken as a whole
46. This quality control element requires a CPA firm to establish policies and procedures to provide it with
reasonable assurance that engagements are performed in accordance with professional standards and regulatory and
legal requirements, and that the firm or the engagement partner issue reports that are appropriate in the
circumstances
a) Ethical requirements
b) Engagement performance
c) Monitoring
d) Human resources
b) Engagement performance
47. Communication with a predecessor auditor is initiated by
a) Management
b) The successor auditor
c) The audit committee of the board of directors
d) The chair of the board of directors
54. Users of the audit report can reasonably expect the audited financial statements to be
a) Complete and contain many of the important financial disclosures
b) Presented fairly according to the substance of GAAP
c) Free from all errors
d) All of the above
b) Presented fairly according to the substance of GAAP
55. Which of the following services is the broadest and most inclusive
a) Audit
b) Attestation
c) Assurance
d) Compliance
c) Assurance
56. One reason why an auditor makes an analytical review of the clients operations is to identify
a) Improper separation of accounting and other financial duties
b) Weakness of a material nature in the system of internal accounting control
c) Unusual transactions
d) Non-compliance with prescribed control procedures
c) Unusual transactions
57. Analytical procedures used in planning an audit should focus on identifying
a) Material weaknesses in the internal control structure
b) The predictability of financial data from individual transactions
c) The various assertions that are embodied in the financial statements
d) Areas that may represent specific risk relevant to audit
d) Areas that may represent specific risk relevant to audit
58. An integrated test facility (ITF) would be appropriate when the auditor needs to
a) Trace a complex logic path through an application system
b) Verify processing accuracy concurrently with processing
c) Monitor transactions in an application system continuously
d) Verify load module integrity for production programs
b) Verify processing accuracy concurrently with processing
59. The rotation of senior accounting personnel can be regarded as a safeguard
a) Created by the profession
b) Within the clients systems and procedures
c) In the work environment
d) Created within the business community
c) In the work environment
60. If certain forms are not consecutively numbered
a) Systematic sampling may be appropriate
b) Selection of a random sample probably is not possible
c) Stratified sampling should be used
d) Random number tables cannot be used
a) Systematic sampling may be appropriate
61. A cash shortage may be concealed by transporting funds from one location to another or by converting
negotiable assets to cash. Because of this, which of the following is vital?
a) Simultaneous confirmations
b) Simultaneous bank reconciliations
c) Simultaneous verification
d) Simultaneous surprise cash count
c) Simultaneous verification
62. Which of the following is most likely to indicate a significant deficiency relating to a client's anti-fraud
programs?
a) A broad scope of internal audit activities
b) A "whistle-blower" program that encourages anonymous submissions
c) Audit committee passivity when conducting oversight functions
d) Lack of performance of criminal background investigations for likely customers
c) Audit committee passivity when conducting oversight functions
63. Which of the following is not an attestation standard?
a) Sufficient evidence shall be obtained to provide a reasonable basis for the conclusion that is expressed in the
report
b) The report shall identify the subject matter on the assertion being reported on and state the character of the
engagement
c) The work shall be adequately planned and assistants, if any, shall be properly supervised
d) A sufficient understanding of internal control shall be obtained to plan the engagement
d) A sufficient understanding of internal control shall be obtained to plan the engagement
64. Proper segregation of functional responsibilities calls for separation of the functions of
a) Authorization, execution, and payment
b) Authorization, recording, and custody
c) Custody, execution, and reporting
d) Authorization, payment, and recording
b) Authorization, recording, and custody
65. Control risk should be assessed in terms of
a) Specific controls
b) Types of potential fraud
c) Financial statement assertions
d) Control environment factors
c) Financial statement assertions
66. Which of the following is not a step in an auditor's assessment of control risk?
a) Evaluate the effectiveness of internal control with tests of controls
b) Obtain an understanding of the entity's information system and control environment
c) Perform tests of details of transactions to detect material misstatements in the financial statements
d) Consider whether controls can have a pervasive effect on financial statement assertions
c) Perform tests of details of transactions to detect material misstatements in the financial statements
67. Which of the following procedures would an auditor ordinarily perform first in evaluating management's
accounting estimates for reasonableness?
a) Develop independent expectations of management's estimates
b) Consider the appropriateness of the key factors or assumptions used in preparing the estimates
c) Non-sampling risk
d) Inherent risk
a) Detection risk
74. The usefulness of the standard bank confirmation request may be limited because the bank employee who
completes the form may
a) Be unaware of all the financial relationships that the bank has with the client
b) Not believe that the bank is obligated to verify confidential information to a third party
c) Sign and return the form without inspecting the accuracy of the client's bank reconciliation
d) Not have access to the client's cutoff bank statement
a) Be unaware of all the financial relationships that the bank has with the client
75. A material weakness is a significant deficiency (or combination of significant deficiencies) that results in a
reasonable possibility that a misstatement of at least 'what amount will not be prevented or detected?
a) An amount greater than zero
b) An amount greater than zero, but at least inconsequential
c) An amount greater than inconsequential
d) A material amount
d) A material amount
76. The existence of audit risk is recognized by the statement in the auditor's standard report that the auditor
a) Obtains reasonable assurance about whether the financial statements are free of material misstatement.
b) Assesses the accounting principles used and also evaluates the overall financial statement presentation.
c) Realizes some matters either individually or in the aggregate, are important while other matters are not important.
d) Is responsible for expressing an opinion on the financial statements, which arc the responsibility of management.
a) Obtains reasonable assurance about whether the financial statements are free of material misstatement.
77. Which of the following services would be most likely to be structured as an attest engagement?
a) Advocating a client's position in tax matter.
b) A consulting engagement to develop a new database system for the revenue cycle.
c) An engagement to issue a report addressing an entity's compliance with requirements of specified laws.
d) The compilation of a client's forecast information.
c) An engagement to issue a report addressing an entity's compliance with requirements of specified laws.
78. Which of the following is ordinarily considered to be a fraud risk factor?
a) The company's financial statements include a number of last minute material adjustments.
b) Management regularly informs investors of forecast information.
c) The company has experienced increasing earnings over the previous five years.
d) The company's president is included as a member of the board of directors.
a) The company's financial statements include a number of last minute material adjustments.
79. Which is least likely to be a question asked of client personnel during a walk-through in an audit of the internal
control of an issuer (public) company?
a) What do you do when you find an error'?
b) Who is most likely to commit fraud among your coworkers?
c) What kind of errors have you found?
d) Have you ever been asked to override the process or controls?
b) Who is most likely to commit fraud among your coworkers?
80. An auditor who uses the work of a specialist may refer to and identify the specialist ill the auditor's report if the
a) Specialist is also considered to be a related party.
b) Auditor indicates a division of responsibility related to the work of the specialist.
c) Specialist's work provides the auditor greater assurance of reliability.
d) Auditor expresses an "except for" qualified opinion or an adverse opinion related to the work of the specialist.
d) Auditor expresses an "except for" qualified opinion or an adverse opinion related to the work of the
specialist.
81. Which of the following statements concerning evidential matter is correct?
a) Appropriate evidence supporting management's assertions should be convincing rather than merely persuasive.
b) Effective internal control contributes little to the reliability of the evidence created within the entity.
c) The cost of obtaining evidence is not an important consideration to an auditor in deciding what evidence should
be obtained.
d) A client's accounting data cannot be considered sufficient audit evidence to support the financial statements.
d) A client's accounting data cannot be considered sufficient audit evidence to support the financial
statements.
82. Confirmations of accounts receivable address which assertion most directly?
a) Completeness
b) Existence
c) Valuation
d) Classification
b) Existence
83. When performing a review of an issuer company, which is least likely to be included in the CPA's inquires of
management members with responsibility for financial and accounting matters?
a) Subsequent events
b) Significant journal entries and other adjustments
c) Communications with related parties
d) Unusual or complex situations affecting the financial statements
c) Communications with related parties
84. The adverse effects of events causing an auditor to believe there is substantial doubt about an entity's ability to
continue as a going concern would most likely be mitigated by evidence relating to the
a) Ability to expand operations into new product lines in the future.
b) Feasibility of plans to purchase leased equipment at Jess than market value.
c) Marketability of assets that management plans to sell.
d) Committed arrangements to convert preferred stock to long-term debt.
c) Marketability of assets that management plans to sell.
85. One reason that an auditor only obtains reasonable, and not absolute, assurance that financial statements are free
from material misstatement is
a) Comprehensive basis reporting
b) Employee collusion
c) Material misstatements
d) Professional skepticism
b) Employee collusion
86. When an auditor concludes there is substantial doubt about a continuing audit client's ability to continue as a
going concern for a reasonable period of time, the auditor's responsibility is to
a) Issue a qualified or adverse opinion, depending upon materiality, due to the possible effects on the financial
statements.
b) Consider the adequacy of disclosure about the client's possible inability to continue as a going concern.
c) Report to the client's audit committee that management's accounting estimates may need to be adjusted.
d) Reissue the prior year's auditors report and add an explanatory paragraph that specifically refers to "substantial
doubt" and "going concern."
b) Consider the adequacy of disclosure about the client's possible inability to continue as a going concern.
87. The accountant who is not independent may perform which of the following types of engagements?
a) Audit
b) Agreed-upon procedures
c) Compilation
d) Review
c) Compilation
88. Which of the following should an auditor obtain from the predecessor auditor prior to accepting an audit
engagement?
a) Analysis of balance sheet accounts
b) Analysis of income statement accounts
c) All matters of continuing accounting significance
d) Facts that might bear on the integrity of management
d) Facts that might bear on the integrity of management
89. Which is least likely to be a response when an auditor has obtained evidence indicating a risk of material
misstatement in the area of inventory?
a) Request inventory counts at the end of each month.
b) Discuss questions of inventory valuation with any other auditors involved with the audit.
c) Make oral inquiries of major suppliers in addition to written confirmations.
d) Perform inventory observations on an unannounced basis.
a) Request inventory counts at the end of each month.
90. The independent auditor selects several transactions in each functional area and traces them through the entire
system, paying special attention to evidence about whether or not the controls are in operation. This is an example of
a(n)
a) Application test
b) Test of controls
c) Substantive test
d) Test of a function
b) Test of controls
91. Accounting control procedures within computer processing may leave no visible evidence indicating that the
procedures were performed. In such instances, the auditor should test these controls by
a) Making corroborative inquiries.
b) Observing the separation of duties of personnel.
c) Reviewing transactions submitted for processing and comparing them to related output.
d) Reviewing the run manual.
c) Reviewing transactions submitted for processing and comparing them to related output.
92. If information is for management's use only, which of the following forms of CPA association with financial
information is most likely to result in no report being issued?