Auditing

Which one of the following is not a General Standard?

a. Proper planning and supervision.
b. Independence of mental attitude.
c. Adequate training and proficiency.
d. Due professional care.

Which one of the following is not a Field Work Standard?

a. Proper planning and supervision.
b. Due professional care.
c. Study the internal control structure.
d. Gather sufficient competent evidence.

The general standards stress the importance of

a. evidence accumulation.
b. the personal qualities which the auditor should possess.
c. communicating the auditors findings to the reader.
d. all of the above.

4
The generally accepted auditing standard that requires Adequate technical
training and proficiency is normally interpreted as requiring the auditor to have
a. formal education in auditing and accounting.
b. adequate practical experience for the work being performed.
c. continuing professional education.
d. all of the above.
5
In any case in which the CPA or the CPAs assistants are not qualified to perform
the work, a professional obligation exists to
a. acquire the requisite knowledge and skills.
b. suggest someone else who is qualified to perform the work.
c. decline the engagement.
d. any of the above.
6
A member CPA firm is required by the AICPA to belong to the SEC Practice
Section if it
a. wishes to audit companies whose assets exceed $250 million.
b. does any audits.
c. does any reviews or audits.
d. audits one or more publicly-held companies.
7
If it is probable that the judgment of a reasonable person would have been
changed or influenced by the omission or misstatement of information, then that
information is, by definition of FASB Statement No. 2,
a. material.
b. insignificant.

c. significant.
d. relevant.
8
The preliminary judgment about materiality is the
amount by which
the auditor believes the statements could be misstated and still not affect the decisions of
reasonable users.
a. minimum
b. maximum
c. mean average
d. median average
9
When auditors allocate the preliminary judgment about materiality to account
balances, the materiality allocated to any given account balance is referred to in SAS No.
39 as
a. the materiality range.
b. the error range.
c. tolerable materiality.
d. tolerable misstatement.
10

Why do auditors establish a preliminary judgment about materiality?

a. To help the auditor plan the appropriate evidence to accumulate.
b. So that the client can know what records to make available to the auditor.
c. To determine what level of staffing (i.e., work experience) is required for the

audit.
d. None of the above.
11

If an auditor establishes a relatively low level for materiality, then the auditor will
a. accumulate more evidence than if a higher level had been set.
b. accumulate less evidence than if a higher level had been set.
c. accumulate approximately the same evidence as would be the case were a
higher level set.
d. accumulate an undetermined amount of evidence.
12
may

After the preliminary judgment about materiality has been established, auditors
a. not adjust it.
b. adjust it downward only.
c. adjust it upward only.
d. adjust it either downward or upward.

13
Which of the following decisions are relevant to the auditors evidence
accumulation?
a. Type of audit procedure to use.
b. Number of items to examine.
c. Timing of audit procedures.
d. All of the above are relevant.

14

Audit procedures are normally performed

a. early in the accounting period being examined.
b. throughout the accounting period being examined, but with emphasis on the
transactions near the end.
c. within one to three months after the close of the accounting period.
d. during all three of the above periods.
15
The third standard of fieldwork requires the auditor to accumulate sufficient
competent evidence to support the opinion issued. Because of the nature of audit
evidence, it is
a. unlikely the auditor will be completely convinced that the opinion is correct.
b. likely the auditor will be completely convinced that the opinion is correct.
c. unlikely the auditor will arrive at a conclusion.
d. likely that the auditor would change his/her mind about the opinion if he/she
took the time to gather additional evidence.
16

Which of the following forms of evidence is most reliable?

a. General ledger account balances.
b. Confirmation of A/R balance received from a customer.
c. Internal memo explaining the issuance of a credit memo.
d. Copy of month-end adjusting entries.

17
Evidence obtained directly by the auditor is more competent than information
obtained indirectly. Which of the following is not an example of the auditors direct
knowledge?
a. Physical examination.
b. Observation.
c. Computation.
d. Inquiry.
18
When an auditor calculates the gross margin as a percent of sales and compares it
with previous periods, this type of evidence is called
a. physical examination.
b. computation.
c. observation.
d. inquiry
19
Which of the following is not one of the three main reasons why the auditor
should properly plan engagements?
a. To enable proper on-the-job training of employees.
b. To enable the auditor to obtain sufficient competent evidence.
c. To avoid misunderstandings with the client.
d. To help keep audit costs reasonable.

20
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
a. inherent risk.
b. acceptable audit risk.
c. statistical risk.
d. financial risk.
21
A measure of the auditors assessment of the likelihood that there are material
misstatements in an account before considering the effectiveness of the clients internal
control is
a. control risk.
b. acceptable audit risk.
c. statistical risk.
d. inherent risk.
22
The auditor is likely to accumulate more evidence when the audit is for a
company
a. whose stock is publicly held.
b. which has extensive indebtedness.
c. which is to be sold in the near future.
d. All three of the above.
23

Which of the following is not typically included initial audit planning?

a. Client acceptance/continuation decisions.
b. Determination of the purpose of the audit.
c. Schedule engagement staff and audit specialists.
d. Perform preliminary analytical procedures.

24
Most auditors assess inherent risk as high for related parties and related-party
transactions because
a. of the accounting disclosure requirement.
b. of the lack of independence between the parties.
c. both a and b.
d. it is required by generally accepted accounting principles.
25
Which of the following parties is responsible for establishing an entitys internal
controls?
a. Management.
b. Auditors.
c. Management and auditors.
d. Committee of Sponsoring Organizations.
26
staff

For an internal audit function to be effective, it is essential that the internal audit
a. be independent of the operating departments.

b. be independent of the accounting department.

c. report directly to a high level of authority within the organization such as the
audit committee.
d. achieve all of the above.
27
Management is often unwilling to implement an ideal system of internal controls
because
a. control failures are infrequent.
b. such a system is too expensive.
c. sufficient technology does not exist to afford an ideal system.
d. risks are often overstated.
28

Internal controls can never be considered as absolutely effective because

a. their effectiveness is limited by the competency and dependability of the
companys personnel.
b. controls always have inherent weaknesses that can be exploited.
c. controls are designed to prevent and detect only material misstatements.
d. none of the above.
29
A major control available in a small company, which might not be feasible in a
large company, is
a. a wider segregation of duties.
b. a voucher system.
c. fewer transactions to process.
d. the owner-managers personal interest and close relationship with personnel.
30
An auditors attempt to gain an understanding of the accounting system is
typically accomplished and documented by
a. a narrative description of the system.
b. a flowchart.
c. a questionnaire.
d. using any of the above.
31
IT has several significant effects on an organization. Which of the following
would not be important from an auditing perspective?
a. Organizational changes.
b. The visibility of information.
c. The potential for material misstatement.
d. None of the above; i.e., they are all important.
32
The audit procedure which is least useful in gathering evidence on significant
computer processes is
a. documentation.
b. observation.
c. test decks.
d. generalized audit software.

33

Which of the following is not a benefit of using IT based controls?

a. Ability to process large volumes of transactions.
b. Ability to replace manual controls with computer-based controls.
c. Reduction in misstatements due to consistent processing of transactions.
d. Over-reliance on computer generated reports.

34

Which of the following is not a risk specific to IT environments?

a. Reliance on the functioning capabilities of hardware and software.
b. Increased human involvement.
c. Loss of data due to insufficient backup.
d. Reduced segregation of duties.

35
Which of the following is not an enhancement to internal control that will occur
as a consequence of increased reliance on IT?
a. Computer controls replace manual controls.
b. Higher quality information is available.
c. Computer-based controls provide opportunities to enhance segregation of
duties.
d. All of the above are enhancements.
36

Which of the following are not an application control?

a. Processing controls.
b. Output controls.
c. Hardware controls.
d. Input controls.

37
A sample in which the characteristics of the sample are the same as those of the
population is a(n)
a. variables sample.
b. representative sample.
c. attributes sample.
d. random sample.
38
When the auditor decides to select less than 100 percent of the population for
testing, the auditor is said to be using
a. audit sampling.
b. representative sampling.
c. poor judgment.
d. none of the above.
39

One of the ways to eliminate nonsampling risk is through

a. proper supervision and instruction of the clients employees.
b. proper supervision and instruction of the audit team.
c. the use of attributes sampling rather than variables sampling.
d. controls which ensure that the sample drawn is random and representative.

40

One cause of nonsampling risk is

a. ineffective use of audit procedures.
b. testing less than the entire population.
c. use of extensive tests of controls.
d. any of the above.

41
When the auditor goes through a population and selects items for the sample
without regard to their size, source, or other distinguishing characteristics, it is called
a. block sample selection.
b. haphazard selection.
c. systematic sample selection.
d. statistical selection.
42
When the auditor intends to evaluate a sample statistically, the only acceptable
selection method is
a. probabilistic selection.
b. judgmental selection.
c. haphazard selection.
d. block sample selection.
43
When monetary-unit sampling has been concluded and the population is not
considered acceptable, which one of the following courses of action would not be
appropriate for the auditor?
a. Increase the sample size to see if this may satisfy the auditors tolerable
misstatement requirements.
b. Increase the tolerable misstatement amounts so that the error bounds are
acceptable.
c. Request the client to correct the population.
d. Refuse to give an unqualified opinion.
44

Both sampling and nonsampling risks are associated with

a. tests of controls.
b. substantive tests of transactions.
c. tests of details of balances.
d. all of the above.

45

Tolerable misstatements for overstatements and understatements

a. may be different amounts.
b. must be different amounts.
c. must be set at the same amount.
d. will be determined by the statistical tables.

46

Monetary-unit sampling is most commonly used when

a. zero or few exceptions are expected.
b. a dollar result is desired.

c. the population data are maintained on computer files.

d. all of the above.
47
Tests for rates of occurrence are appropriately used in all but which of the
following situations?
a. Testing of internal controls.
b. Substantive testing of transactions.
c. Substantive testing of details of balances.
d. Tests for rates of occurrence are appropriate for all of the above.
48
Which of the following is not a type of statistical method that provides results in
dollar terms?
a. Variables sampling.
b. Attributes sampling.
c. Monetary-unit sampling.
d. Sampling with probability proportional to size.
49

SAS 99 provides U.S. auditors expanded guidance

a. for detecting material fraud
b. how to strengthen internal control
c. audit sampling
d. both a and b

50
Fraud can be difficult to detect because it often involves concealment through
falsification of documents or collusion.
a. true
b. false