Cristy Jean B.

Lapiz

AT-1 (TTH )

Auditing Theory:
B 1. Which of the following is an incorrect statement?
a.
The greater the inherent and control risks the auditor believes exists,
the less detection risk that can be detected.
b.
Detection risk cannot be changed at the auditor's discretion.
c.
The auditor might make separate or combined assessment of
inherent risk and control risk.
d.
If individual audit risk remains the same, detection risk bears an
inverse relationship to inherent and control risk.
D 2. Which
opinion?
a.
b.
c.
d.

of the following circumstances will least likely affect the auditor's

A circumstance imposed scope limitation.
Uncertainty arises about entity's continued existence.
A client imposed scope limitation.
Inadequacy of disclosure in the notes to financial statements.

A 3. Which of the following statements is NOT true to test data approach when
testing a
computerized accounting system?
a.
The test data must consist of all possible valid and invalid
conditions.
b.
Only one transaction of each type need be tested.
c.
The test needs to consist of only those valid and invalid conditions
which interest the auditor.
d.
The test data processed by the client's computed programs under
the auditor's control.
A 4. Totals of amount in computer-record data fields, which are not usually added
but only for data processing control processes are called.
a.
Hash totals
b.
Record totals
c.
Field totals
d.
Processing data totals
A 5. The primary concern of the auditor regarding related party transaction is
that
a.
Their existence and significance be adequately disclosed.
b.
Their effects are eliminated from the financial statements.
c.
They are reported to proper regulatory authorities because they are
illegal.
d.
Their formed be emphasized rather than their economic substance.
C 6. The overall objective of internal auditing is to
a.
Attest to the efficiency with which resources are employed.
b.
Provide assurance that financial data have been accurately
recorded.
c.
Assist members of the organization in the effective discharge of their
responsibilities.
d.
Ascertain that control are cost justified.

B 7. The primary factor that should be considered in determining the extent of

supervision needed by an assistant is the assistant's
a.
Independence
b.
Competence
c.
Willingness to exercise due care
d.
Professional certification
A 8. The deviation rate the auditor will permit in the population and still be willing
to reduce the assessed level of control risk is called the
a.
Tolerable deviation rate
b.
Sample deviation rate
c.
Acceptable sampling risk
d.
Estimated population deviation rate
B 9. The principal issue to be resolved in cases involving alleged negligence is
usually
a.
Whether to imposed punitive damages on defendant.
b.
The level of care required to be exercised.
c.
Whether defendant was involved in fraud.
d.
The amount of the damages suffered by the users of the financial
statement.
C 10. Which of the following procedures would an accountant most likely perform
in a compilation engagement?
a.
Assess risk components
b.
Apply analytical procedures
c.
Collect, classify and summarized financial information.
d.
Test the accounting records
A 11. Basic to a proper control environment are the quality and integrity of
personnel who must perform the prescribed procedures. Which is not a factor in
providing for competent personnel?
a.
Segregation of duties
b.
Hiring practice
c.
Performance evaluations
d.
Training programs
B 12. Which of the following would an auditor least likely perform as part of the
auditor's preliminary engagement activities?
a.
Establish an understanding of the terms of the engagement.
b.
Obtain understanding of the legal and regulatory framework
applicable to the entity.
c.
Evaluate compliance with ethical requirements including
independence.
d.
Perform procedures regarding the continuance of the client
relationship and the specific audit engagement.

C 13. According to PSA 3000, assurance engagements should exhibit five

elements including
a.
Financial information
b.
Financial reporting framework
c.
A written assurance report
d.
A two party relationship
D 14. The auditor uses his understanding of accounting and internal control
system together with the inherent and control risks assessments to perform all of
the following except
a.
Consider factors that affect the risk of material misstatements.
b.
Identify the types of misstatements that could occur.
c.
Design appropriate audit procedures.
d.
Evaluate the effectiveness of the accounting and control system.
A 15. Which of the following is not a general control?
a.
Processing controls
b.
Hardware controls
c.
The plan of organization and operation of CIS activity.
d.
Procedures for documenting, reviewing and approving systems and
programs.
B 16. Which of the following is a category of risk factors that should be
considered when assessing risk of misstatements arising from misappropriation
of assets?
a.
Financial stability of the entity
b.
Condition of internal control
c.
Management characteristic
d.
Industry condition
B 17. In pursuing its quality control objectives with respect to acceptance of a
client, a CPA firm is not likely to
a.
Make inquiries of the previous auditor.
b.
Make inquiries of the proposed client's legal counsel.
c.
Review the personnel practices of the proposed client.
d.
Review financial statements of the proposed client.
C 18. Material misstatements in the financial statement may arise from all of the
following conditions, except
a.
The appropriateness of the selected accounting policies.
b.
The application of selected accounting policies.
c.
The sufficiency and appropriateness of audit evidence.
d.
The appropriateness or adequacy of disclosures in the financial
statements.
C 19. The responsibility for the detection and prevention of errors, fraud and
noncompliance with laws and regulation rest with
a.
Auditor
b.
Internal auditor
c.
Client management
d.
Client's legal counsel

B 20. Arrangements concerning which of the following are least likely be included
in engagement letter?
a.
Auditor's responsibilities
b.
CPA investment in client securities
c.
Fees and billing
d.
Other forms of report to be issued in addition to the audit report.
D 21. To obtain an understanding of a continuing client's business in planning an
audit, an auditor most likely would
a.
Perform test if details of transaction and balances
b.
Read specialized industry journals
c.
Re-evaluate the client's internal control system
d.
Review prior year working papers and the permanent file for the
client.
B 22. Which of the following is not among the conditions that give rise to a
demand by external users for independent audit of financial statements?
a.
Consequences for making decisions.
b.
Remoteness of users.
c.
Complexity of making economic decision.
d.
Potential conflict of interest between users and preparers of the
statements.
B 23. Which
a.
b.
c.
d.

of the following assertions does not relate to balances at period end?

Existence
Valuation and allocation
Rights and obligation
Occurrence

A 24. The audit risk model is used primarily

a.
For planning purposes in determining how much evidence to
accumulate.
b.
To evaluate the evidence which has been gathered.
c.
While doing test of control.
d.
To determine the type of of opinion to express.
D 25. The information obtained by the auditor in arriving at the conclusion on
which the audit opinion is based is called
a.
Audit assertions
b.
Audit working papers
c.
Audit standard
d.
Audit evidence