Vous êtes sur la page 1sur 19

AUDITING THEORY 1. An auditor is planning an audit engagement for a new client in a business unfamiliar to the auditor.

Which is the least useful source of information for the auditor during the preliminary planning stage, when the auditor is trying to obtain a general understanding of audit problems that might be encountered? a. Textbooks and periodicals related to the industry. b. Industry audit and Accounting Guides. c. Financial statements of other entities in the industry. d. Results of performing substantive tests. 2. Audit working papers are indexed by means of reference numbers. The primary purpose of indexing is to a. Permit cross-referencing and simplify supervisory review. b. Support the audit report. c. Eliminate the need for follow-up reviews. d. Determine that working papers adequately support findings, conclusions, and reports. 3. The following statements relate to assurance engagements. Choose the incorrect statements. 1. The objective of an assurance engagement is for a professional accountant to evaluate or measure a subject matter that is the responsibility of another party against suitable criteria, and to express a conclusion that provides the intended user with a level of assurance about the subject matter. 2. Assurance engagements performed by professional accountants are intended to enhance the credibility of information about a subject matter. 3. Assurance engagements involve two parties: a professional accountant and an intended user. 4. The subject matter of an assurance engagement is limited to historical or prospective financial information. 5. The intended user in an assurance engagement is the person or class of persons for whom the professional accountant prepares the report for a specific use or purpose. a. 2, 3, 4, and 5. c. 3 and 4. b. 2, 4 and 5. d. 1, 2, 3, and 4. 2. The following statements relate to the audit preparation of audit engagement letters. Which is correct? a. It is in the interest of both client and auditor that the auditor obtains an engagement letter, preferably before the commencement of the engagement, to help in avoiding misunderstandings with respect to the engagement.

b. Audit engagement letters confirm the oral representations given by management during the course of the auditors examination of the entitys financial statements. c. On recurring audits, the auditor may decide not to send a new engagement letter each period. d. When the auditor of a parent entity is also the auditor of its subsidiary, branch, or division (component), a separate engagement letter should be sent to the component. 3. Assistants to whom work is delegated need appropriate direction. Direction involves a. Informing assistants of their responsibilities and the objectives of the procedures they are to perform. b. Informing assistants of matters, such as the nature of the entitys business and possible accounting or auditing problems that may affect the nature, timing, and extent of auditing procedures with which they are involved. c. Both A and B. d. Neither A nor B. 4. The following statements relate to audit working papers. Which statement is incorrect? a. The auditor is prohibited from utilizing schedules, analyses and other documentation prepared by the entity. b. The nature and complexity of the business of the audit client may affect the form and content of working papers. c. The term documentation in PSA 230 means the material (working papers) prepared by and for, or obtained and retained by the auditor in connection with the performance of the audit. d. The extent of working papers is a matter of professional judgment since it is neither necessary nor practical to document every matter the auditor considers. 5. Fraud refers to an intentional act by one or more individuals among management, employees or third parties, which results in a misrepresentation of financial statements while error refers to unintentional mistakes in financial statements. Fraud may involve 1. Manipulation, falsification or alteration of records or documents. 2. Misappropriation of assets. 3. Mathematical or clerical mistakes in the underlying records and accounting data. 4. Suppression or omission of the effects of transactions from records or documents. 5. Oversight or misinterpretation of facts. 6. Recording of transactions without substance. 7. Misapplication of accounting policies.

a. 1, 2, 4, 6, and 7. b. 1, 2, 3, 4, 6, and 7.


1, 2, 3, and 6. d. 1, 2, 4, 5, and 6.

2. The following are control environment factors, except a. Limiting direct physical access to assets and records. b. The function of the board of directors and its committees. c. Managements philosophy and operating cycle. d. Managements control system including the internal audit function, personnel policies and procedures and segregation of duties. 3. The following statements relate to the auditors inquiry regarding litigation and claims. Which is correct? a. When litigation or claims have been identified or when the auditor believes they may exist, the auditor should seek direct communication with entitys lawyers. b. The auditor considers the status of legal matters up to the balance sheet date. c. If management refuses to give the auditor permission to communicate with the entitys lawyers, this would be a scope limitation and should ordinarily lead to a qualified or adverse opinion. d. The letter of audit inquiry, which should be prepared by the auditor and sent by management, should request the lawyer to communicate directly with the auditor. 4. If the current periods accounting policies have not been consistently applied in relation to opening balances and if the change has not been properly accounted for and adequately disclosed, the auditor should express a/an a. Unqualified opinion. b. Qualified opinion. c. Disclaimer of opinion. d. Qualified opinion or an adverse opinion, as appropriate. 5. According to PSA 520, Analytical Procedures, analytical procedures means the analysis of significant ratios and trends including the resulting investigation of fluctuations and relationships that are inconsistent with other relevant information or deviate from predicted amounts. These procedures are used for the following purposes, except a. As tests of control to determine the effectiveness of the design and operation of the entitys accounting and internal controls. b. As substantive procedures when their use can be more effective or efficient than tests of details in reducing detection risk for specific financial statement assertions.

c. To assist the auditor in planning the nature, timing and extent of other audit procedures. d. As an overall review of the financial statements in the final review stage of the audit. 6. The following statements to relate to the auditors consideration of the work of internal auditing. Which is incorrect? a. The role of internal auditing is determined by management, and its objectives differ from those of the external auditor who is appointed to report independently on the financial statements. b. The external auditor should obtain a sufficient understanding of internal audit activities to assist in planning the audit and developing an effective audit approach. c. During the course of planning the audit, the external auditor should perform a preliminary assessment of the internal audit function when it appears that internal auditing is relevant to the external audit of the financial statements in specific audit areas. d. Internal auditing activities do not include review of the economy, efficiency, and effectiveness of the entitys operations. 7. The following statements relate to the auditors use of the work of an expert: 1. The auditor should assess the appropriateness of the experts work as audit evidence regarding the financial statement assertion being considered. 2. If the results of the experts work do not provide sufficient appropriate audit evidence or if the results are not consistent with other audit evidence, the auditor should resolve the matter. 3. When issuing an unmodified auditors report, the auditor should not refer to the work of an expert. Statement 1 Statement 2 Statement 3 a. True True True b. True False True c. False True False d. False False True 2. The primary purpose of an independent financial statement audit is to a. Provide a basis for assessing managements performance. b. Comply with regulatory requirements. c. Assure management that the financial statements are unbiased and free from material error. d. Provide users with an unbiased opinion about the fairness of information reported in the financial statements. 3. An operational audit is designed to

a. Assess the efficiency and effectiveness of managements operating procedures. b. Assess the presentation of managements financial statements in accordance with generally accepted accounting principles. c. Determine whether management has compiled with applicable laws and regulations. d. Determine whether the audit committee of the board of directors is effectively discharging its responsibility to oversee managements operations. 4. In a financial statement audit, audit risk represents the probability that a. Internal control fails and the failure is not detected by the auditors procedures. b. The auditor unknowingly fails to modify an opinion on materially misstated financial statements. c. Inherent and control risk cause errors that could be material to the financial statements. d. The auditor is not retained to conduct a financial statement audit in the succeeding year. 5. The objective quality control mandates that a public accounting firm should establish policies and procedures for professional development that provide reasonable assurance that all entry-level personnel a. Prepare working papers that are standardized in form and content. b. Have the knowledge required to enable them to fulfill responsibilities assigned. c. Will advance within the organization. d. Develop specialties in specific areas of public accounting. 6. The procedures specifically outlined in an audit program are primarily designed to a. Protect the auditor in the event of litigation. b. Detect errors and irregularities. c. Test internal control system. d. Gather evidence. 7. In the context of an audit of financial statements, substantive tests are audit procedures that a. May be eliminated under certain conditions. b. Are designed to discover significant subsequent events. c. May be either tests of transactions, direct tests of financial balances, or analytical tests. d. Will increase proportionately with the auditors assessment of control risk.

8. 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 proposed clients legal counsel. b. Review financial statements of the proposed client. c. Make inquiries of previous auditors. d. Review the personnel practices of the proposed client. 9. Internal control procedures are not designed to provide reasonable assurance that a. Transactions are executed in accordance with managements authorization. b. Irregularities will be eliminated. c. Access to assets is permitted only in accordance with managements authorization. d. The recorded accountability for assets is compared with the existing assets at reasonable intervals. 10.When considering internal control an auditor must be aware of the concept of reasonable assurances, which recognizes that a. Employment of competent personnel provides assurance that the objectives of internal control will be achieved. b. Establishment and maintenance of internal control is an important responsibility of the management and not of the auditor. c. Cost of internal control procedures should not exceed the benefits expected to be derived from the control. d. Segregation of incompatible functions is necessary to attain that the control procedures are effective. 11.The auditor is examining copies of sales invoices only for the initials of the person responsible for checking the extensions. This is an example of a. Test of controls c. Dual-purpose test b. Substantive test d. Test of balances 12.In connection with the audit of financial statements by an independent auditor, the client suggests that members of the internal audit staff be utilized to minimize audit costs. Which of the following tasks could most appropriately be delegated to the internal audit staff? a. Selection of accounts receivable for confirmation, based on the internal auditors judgment as to how many accounts and which accounts will provide sufficient coverage. b. Preparation of schedules for negative accounts receivable responses. c. Evaluation of the internal control for accounts receivable and sales.

d. Determination of the adequacy of the allowance for doubtful accounts. 13.Analytical procedures performed in the overall review stage of an audit suggest that several accounts have unexpected relationships. The results of these procedures most likely indicate that a. Irregularities exist among the relevant account balances. b. Internal control procedures are not operating effectively. c. Additional tests of details are required. d. The communication with the audit committee should be revised. 14.While this type of engagement involves the application of audit skills and techniques and the gathering of evidence, it does not ordinarily involve an assessment of accounting and internal control systems, tests of records, and of responses to inquiries by obtaining corroborating evidence through inspection, observation, confirmation, and computation. a. Compilation c. Agreed-upon procedures b. Review d. Consultancy 15.After considering internal control, an auditor might decide to a. Increase the extent of tests of controls and substantive tests in areas where internal control is strong. b. Reduce the extent of tests of controls in areas where internal control is strong. c. Reduce the extent of both substantive tests and tests of controls in areas where internal control is strong. d. Increase the extent of substantive tests in areas where internal control is weak. 16.In connection with the audit of financial statements, an independent auditor could be responsible for failure to detect a material fraud if a. Statistical sampling techniques were not used on the audit engagement. b. The auditor planned to work in a hasty and inefficient manner. c. The auditors performing important parts of the work failed to discover a personal relationship between the treasurer and the cashier. d. The fraud was perpetrated by one of the clients employees, who circumvented existing internal control. 17.In performing an attestation engagement, a CPA typically a. Supplies litigation support services. b. Assesses control risk at a low level. c. Express a conclusion about an assertion.

d. Provides management consulting advice. 18.Which of the following circumstances is most likely to cause an auditor to consider whether a material misstatement exists? a. Transactions selected for testing are not supported by proper documentation. b. The turnover of senior management is low. c. Management places little emphasis on meeting earnings projections. d. Operating and financing decisions are dominated by several persons. 19.Which of the following procedures can be performed only in the subsequent period? a. Examination of data to determine that a proper cutoff has been made. b. Tests of the details of balances. c. Tests of the details of transactions. d. Reading of the minutes of the board of directors meetings. 20.An auditor obtains knowledge about a new clients business and its industry to a. Make constructive suggestions concerning improvements to the clients internal control system. b. Develop an attitude of professional skepticism concerning managements financial statement assertions. c. Evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole to be materially misstated. d. Understand the events and transactions that may have an effect on the clients financial statements. 21.On recurring audits, the following factors may take it appropriate to send a new engagement letter, except a. Any indication that a client misunderstands the objective and scope of the audit. b. Any revised or special terms of the engagement. c. A recent change of senior management or those charged with governance. d. Whether a separate auditors report is to be issued to the entitys subsidiary. 22.The establishment of an overall audit strategy or plan involves I. Determining the characteristics of the engagement that define its scope.


Ascertaining to the reporting objectives of the engagement to plan the timing of the audit and the nature of the communications required. Considering the important factors that will determine the focus of the engagement teams efforts. a. I and II only c. I and III only b. II and III only d. I, II and III

1. Which of the following is a reason to establish internal control? a. To provide reasonable assurance that the entitys objectives are achieved. b. To safeguard the resources of the organization. c. To encourage compliance with organizational objectives. d. To ensure the accuracy, reliability, and timeliness of information. 2. In obtaining an understanding of internal control relevant to the audit, the auditor may trace several transactions through the system, including how the transactions interface with any service organizations whose services are part of the entitys information system. The primary objective of this procedure is to a. Evaluate the design of internal control and determine whether it has been implemented. b. Determine the effectiveness of internal control. c. Detect fraud. d. Replace substantive tests. 3. As part of its purchasing system, an entitys receiving department receives copies of purchase orders for use in identifying and recording goods received. The purchase orders list the name of the vendor and the quantities of the materials ordered. A possible error that this system could allow is a. Payment for unauthorized purchases. b. Payment to unauthorized vendors. c. Overpayment of partial deliveries. d. Delay in recording purchases.

4. Which of the following questions would an auditor most likely include in the production cycle internal control questionnaire? a. Are details of individual disbursements for raw materials compared to the total for posting to the general ledger? b. Are vendor invoices for raw materials approved before payment? c. Are all issuances of raw materials to production based on approved requisition forms? d. Are signed checks for the purchase of raw materials sent directly to intended payees after signing, without being returned to the person who authorized the invoice processing?

5. Which of the following controls would most likely detect equipment acquisitions that are misclassified as maintenance expense? a. Segregation of duties of employees in the accounts payable department. b. Authorization by the board of directors of significant equipment acquisitions. c. Independent verification of invoices for disbursements recorded as equipment acquisitions. d. Investigation of variances within a formal budgeting system. 6. The engagement partner should be satisfied that appropriate procedures regarding the acceptance and continuance of client relationships and specific audit engagements have been followed and that conclusions reached in this regard are appropriate and have been documented. Acceptance and continuance of client relationships and specific audit engagements include considering: I. The integrity of the principal owners, key managements, and those charged with governance of the entity. II. Whether engagement team is competent to perform the audit engagement and has the necessary time and resources. III. Whether the firm and the engagement team can comply with ethical requirements. a. I only c. II and III only b. I and II only d. I, II and III. 2. In designing written audit programs, an auditor should establish specific audit objectives that relate primarily to the a. Selected audit techniques. b. Cost-benefit of gathering audit evidence. c. Timing of audit procedures. d. Financial statement assertions.

3. The statements below describe the interrelationship of audit risk components. Which is false? a. There is an inverse relationship between detection risks and the combined level of inherent and control risks. b. When inherent and control risks are high, the acceptable level of detection risk needs to be low to reduce audit risk to an acceptably low level. c. When inherent and control risks are low, an auditor can accept a higher detection risk and still reduce audit risk to an acceptably low level. d. The assessed level of inherent and control risks can be sufficiently low to eliminate the need for the auditor to perform any substantive procedures.

4. All the information used by the auditor in arriving at the conclusion on which the opinion is based is called a. Audit information c. accounting records b. Audit evidence d. corroborating information 5. Which of the following forms of documentary evidence would be considered the most reliable by an auditor? a. Internally generated b. Prenumbered c. Easily duplicated d. Authorized by a responsible official

6. The audit risk against which the auditor and those who rely on his/her opinion require reasonable protection is a combination of three separate risks at the account-balance or class-of-transactions level. The first risk is inherent risk. The second risk is that material misstatements will not be prevented or detected by internal control. The third risk is that a. The auditor will reject a correct account balance as correct. b. Material misstatements that occur will not be detected by the audit. c. The auditor will apply an inappropriate audit procedure. d. The auditor will apply an inappropriate measure of audit materiality. 7. Which of the following statements describes why a properly planned and performed audit may not detect a material misstatement resulting from fraud? a. Audit procedures that are effective for detecting an unintentional misstatement may be ineffective for an intentional misstatement that is concealed through collusion. b. An audit is planned and performed to provide reasonable assurance of detecting material misstatements caused by errors but not fraud. c. The factors are considered in assessing control risk indicated an increased risk of intentional misstatements but only a low risk of unintentional errors in the financial statements. d. The auditor did not consider factors influencing audit risk for account balances that have effects pervasive to the financial statements as a whole.

8. Prior to beginning in the field work on a new audit engagement in which a CPA does not possess expertise in the industry in which the client operates, the CPA should

a. Reduce audit risk by lowering the preliminary levels of materiality. b. Design special substantive tests to compensate for the lack of industry expertise. c. Engage financial experts familiar with the nature of the industry. d. Obtain a knowledge of matters that relate to the nature of the entitys business. 9. As part of understanding the internal control, an auditor is not required to a. Consider factors that affect the risk of material misstatement. b. Ascertain whether internal control policies and procedures have been placed in operation. c. Identify the types of potential misstatements that can occur. d. Obtain knowledge about the operating effectiveness of internal control. 10.A secondary result of the auditors consideration of internal control is that the consideration may a. Provide a basis for determining the nature, timing, and extent of audit tests. b. Assure that managements procedures to detect fraud are properly functioning. c. Bring to the auditors attention possible significant deficiencies in the design of operation of internal control. d. Develop evidence to support the assessed level of control risk. 11.Which of the following types of evidence would an auditor most likely examine to determine whether controls are operating as designed? a. Confirmations of receivables verifying account balances. b. Letters of representations corroborating inventory pricing. c. Attorneys responses to the auditors inquiries. d. Client records documenting the use of computer programs. 12.Which of the following questions would not be appropriate for an internal control questionnaire concerning inventory? a. Are goods stored in locked storage areas? b. Are disbursement vouchers approved before payment? c. Is access to the storeroom limited to authorized personnel? d. Are there independent, periodic comparisons of inventory records with goods on hand? 13.In gathering evidence in the performance of substantive tests, the auditor a. Should use the test month approach.

b. Relies on persuasive rather than convincing majority of cases. c. Would consider the clients documentary competent than evidence gathered from physical inspection. d. Would express an adverse opinion if s(he) has as to any assertion of material significance.

evidence in the evidence more observation and substantial doubt

14.When would the auditor refer to the work of an appraiser in the auditors report? a. An unqualified opinion is expressed an no explanatory paragraph is added, but the auditor wishes to disclose the use of an expert. b. A qualified opinion is expressed because of a matter unrelated to the work of the appraiser. c. An adverse opinion is expressed based on a difference of opinion between the client and the outside appraiser as to the value of certain assets. d. A disclaimer of opinion is expressed because of a scope limitation imposed on the auditor by the appraiser. 15.In the audit of financial statements, the auditor is only concerned with those policies and procedure within the accounting and internal control systems that are relevant to the financial statement assertions. The understanding of relevant aspects of the accounting and internal control systems, together with the inherent and control risk assessments and other considerations, will enable the auditor to a. Identify the types of potential misstatements that could occur in the financial statements. b. Consider factors that affect the risk of material misstatements. c. Design appropriate audit procedures. d. All of the above. 16.The following statements relate to the performance of tests of control and assessment of control risk. Which statement is correct? a. The auditor should obtain audit evidence through tests of control to support any assessment of control risk that is less than high. b. The higher the assessment of control risk, the more support the auditor should obtain that accounting and internal control systems are suitably designed and operating effectively. c. When obtaining evidence about the effective operation of internal controls, the auditor considers why they were applied, by whom they were applied, and the consistency with which they were applied during the period. d. The preliminary assessment of control risk for a financial statement assertion should be low unless the auditor is able to

identify internal controls relevant to the assertion which are likely to prevent or detect and correct a material misstatement. 17.Which of the following statements is incorrect? a. When inventory is material to the financial statements, the auditor should obtain sufficient appropriate audit evidence regarding its existence and condition by attendance at physical inventory counting unless impracticable. b. Where attendance at physical inventory count is impracticable, the auditor should consider expressing a qualified opinion or a disclaimer of opinion. c. When inventory is situated in several locations, the auditor would consider at which locations attendance is appropriate, taking into account the materiality of the inventory and the assessment of inherent and control risk at different locations. d. In planning attendance at the physical inventory count, the auditor would consider whether an experts assistance is needed. 18.Although the quantity and content of audit working papers vary with each particular engagement, an auditors permanent files most likely include a. Schedules that support the current year adjusting entries. b. Prior years accounts receivable confirmations that were classified as exceptions. c. Documentation indicating that the audit work was adequately planned and supervised. d. Analyses of capital stock and other owners equity accounts. 19.An auditor who has accepted an engagement to audit financial statements wishes to review the predecessors working papers. Such a review is a. Permitted if the client and predecessor consent. b. Permitted if the successor auditor refers in the audit report to the predecessor auditors report and work. c. Required if the successor auditor is to express an unqualified opinion. d. Not permitted because the successor auditor should be independent. 20.When considering internal control over securities, the auditor is especially concerned about a. Access to stock certificates by the corporate controller. b. Access to stock certificated by the corporate treasurer. c. Preparation of accrual adjustments on bonds by the corporate controller.

d. Approval of temporary stock investment purchases by the corporate treasurer or company president. 21.Which of the following is the best explanation of the difference, if any, between audit objectives and audit procedures? a. Audit procedures establish broad general goals; audit objectives specify the detailed work to be performed. b. Audit objectives are tailor-made for each assignment; audit procedures are generic in application. c. Audit objectives define specific desired accomplishments; audit procedures provide the means of achieving audit objectives. d. Audit procedures and audit objectives are essentially the same. 22.As a result of analytical procedures, the independent auditor determines that the gross profit percentage has declined from 30% in the preceding year to 20% in the current year. The auditor should a. Document managements intentions with respect to plans for reversing this trend. b. Evaluate managements performance in causing this decline. c. Require note disclosure. d. Consider the possibility of misstatement in the financial statements. 23.An audit of the financial statements of Canton Corporation is being conducted by an external auditor. The external auditor is expected to a. Express an opinion as to the fairness of Cantons financial statements. b. Express an opinion as to the attractiveness of Canton for investment purposes. c. Certify to the correctness of Cantons financial statements. d. Critique the wisdom and legality of Cantons business decisions. 24.Which one of the following statements does not correctly describe the relationship of the internal auditor and the scope of the external audit of a companys financial statements? a. The nature, timing, and extent of the external auditors substantive tests may depend upon the work of the internal auditors. b. The internal auditors may assist the external auditor in performing substantive tests under certain circumstances. c. The internal auditors may assist the external auditor in performing tests of controls under certain circumstances. d. The internal auditors may determine the extent to which audit procedures should be employed by the external auditor.

25.Analytical procedures are audit methods of evaluating financial statement accounts by studying and comparing relationships among financial and nonfinancial data. The purpose of analytical procedures is to a. Decide on matters to be covered in an engagement letter. b. Identify the appropriate schedules to be prepared by the client. c. Identify the types of errors or fraud that can occur in transactions. d. Identify unusual conditions that deserve additional audit effort. 26.In verifying a November 30 sales cutoff date, an auditor would be most concerned with comparing records of a. November cash receipts with December bank deposits. b. November purchases with December shipments. c. November accounts receivable with November sales. d. November sales with November shipping documents. 27.In performing an audit, which one of the following procedures would be considered a substantive test? a. Comparing last years interest expense with this years interest expense. b. Comparing signatures on checks with the signatures of authorized check signers. c. Reviewing initials on receiving documents. d. Reviewing procedures followed in receiving, depositing, and disbursing of cash. 28.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 c. training programs b. Hiring practices d. performance evaluations 29. Which of the following procedures is most likely to give the greatest assurance that securities held as investments are safeguarded? a. There is no access to securities between year-end and the date of the auditors security count. b. Proceeds from the sale of investments are received by an employee who does not have access to securities. c. Investment acquisitions are authorized by a member of the board of directors before execution. d. Access to securities requires the signatures and presence of two designated officials. 30.The diamond-shaped symbol is commonly used in flowcharting to show or represent a

a. b. c. d.

Process or a single step in a procedure or program. Terminal output display Decision point, conditional testing, or branching. Predefined process.

31.Most of the independent auditors work in formulating an opinion in financial statements consists of a. Considering internal control. b. Obtaining and examining evidential matter. c. Examining cash transactions. d. Comparing recorded accountability with assets. 32.Certain management characteristics may heighten the auditors concern about the risks of material misstatements. The characteristic that is likely to cause concern is that management a. Operating and financing decisions are made by numerous individuals. b. Commits to unduly aggressive forecasts. c. Has an excessive interest in increasing the entitys stick price through use of unduly aggressive accounting practices. d. Is interested in inappropriate methods of minimizing earnings for tax purposes. 33.A CPA firm is reasonably assured of meeting its responsibility to provide services that conform with professional standards by a. Adhering to generally accepted auditing standards. b. Having an appropriate system of quality control. c. Joining professional societies that enforce ethical conduct. d. Maintaining an attitude of independence in its engagements. 34.Which of the following is an element of a CPA firms quality control system that should be considered in establishing its quality control policies and procedures? a. Complying with laws and regulations. b. Using statistical sampling techniques. c. Acceptance and retention of clients. d. Considering audit risk and materiality. 35.Which of the following is an auditor least likely to perform in planning a financial statement audit? a. Coordinating the assistance of entity personnel in data preparation. b. Discussing matters that may affect the audit with firm personnel responsible for non-audit services to the entity. c. Selecting a sample of vendors invoices for comparison with receiving reports.

d. Reading the current year interim financial statements. 36.Which of the following is an effective audit planning and control procedure that helps prevent misunderstandings and inefficient use of audit personnel? a. Make copies, for inclusion in the working papers, of those client supporting documents examined by the auditor. b. Provide the client with copies of the audit programs to be used during the audit. c. Arrange a preliminary conference with the client to discuss audit objectives, fees, timing, and other information. d. Arrange to have the auditor prepare and post any necessary adjusting or reclassification entries prior to final closing. 37.Which of the following provides the best form of evidence pertaining to the annual valuation of an investment in which the independent auditors client owns a 30% voting interest? a. Market quotations of the investee companys stock. b. Current fair value of the investee companys assets. c. Historical cost of the investee companys assets. d. Audited financial statements of the investee company. 38.In the audit of property, plant, and equipment, the auditor tries to do all of the following except to a. Obtain an understanding of internal control. b. Determine the extent of property abandoned during the year. c. Assess the adequacy of replacement funds. d. Judge the reasonableness of the depreciation. 39.An inappropriate audit objective relative to accounts receivable is to determine that a. The accounts exist and are properly valued. b. The accounts represent the complete transaction process. c. The accounts are collected by the balance sheet date. d. The client has rights in the accounts receivable. 40.In the audit of which of the following general ledger accounts will tests of controls be particularly appropriate? a. Equipment c. bank charges b. Bonds payable d. sales 41.An auditors working papers will ordinarily be least likely to include documentation showing how the a. Clients schedules were prepared. b. Engagement was planned. c. Understanding of the clients internal control was obtained and control risk was assessed.

d. Unusual matters were resolved. --- END OF EXAMINATION ---