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The objective of the ordinary audit of financial statements is the expression of an opinion on:
a. the fairness of the financial statements in all material respects.
b. the accuracy of the financial statements.
c. the accuracy of the annual report.
d. the accuracy of the balance sheet and income statement.
The responsibility for the preparation of the financial statements and the accompanying footnotes belong
to:
a. the auditor.
b. management.
c. both management and the auditor equally.
d. management for the statements and the auditor for the notes.
Auditors accumulate evidence to:
a. defend themselves in the event of a lawsuit.
b. justify the conclusions they have otherwise reached.
c. satisfy the requirements of the Securities and Exchange Commission.
d. enable them to reach conclusions about the fairness of the financial statements.
Management assertions are:
a. directly related to the financial reporting framework used by the company.
b. stated in the footnotes to the financial statements.
c. explicitly expressed representation about the company’ financial condition.
d. provided to the auditor in the assertions letter, but are not disclosed on the financial statements.
This assertion addresses whether all transactions that should be included in the financial statements are in
fact include.
a. occurrence
b. completeness
c. rights and obligations
d. existence
Which of the following statements is not correct?
a. It would be a violation of the completeness assertion if management would record a sale that did not
take place.
b. The completeness assertion deals with matters opposite from those of the existence assertion.
c. The completeness assertion is concern with the possibility of omitting items from the financial
statements that should behave been included.
d. The existence assertion is concerned with inclusion of amount that should not have been.
Which of the following assertions does not relate to balance at period end?
a. Existence
b. Occurrence
c. Valuation or allocation
d. Rights and obligation
Which of the following statements is correct?
a. Existence relates to whether the amounts in accounts are understated.
b. Completeness relates to whether balances exist.
c. Existence relates to whether the balances are valid.
d. Occurrence relates to whether the amounts in accounts occurred in proper year.
Which of the following management assertions is not associated with transaction-related audit objectives?
a. Occurrence
b. Classification and understandability
c. Accuracy
d. Completeness
An assertion that transactions are recorded in proper accounting period is:
a. classification
b. accuracy
c. occurrence
d. cut-of
The auditor is determining that the record sales are for the amount of goods shipped are correctly billed
and recorded. The auditor is gathering evidence about which transaction related audit objective?
a. existence
b. completeness
c. accuracy
d. cut-of
In testing the cut-of , the objective is to determine:
a. whether all of the current period’s transactions are recorded.
b. whether transactions are recorded in the correct accounting period.
c. the proper cut-of between capitalizing and expensing expenditure.
d. the proper cut-of between disclosing items in footnotes or in account balances.
Which of the following statements are not correct?
a. There are many ways an auditor can accumulate evidence to meet the overall audit objectives.
b. Sufficient appropriate evidence must be accumulated to meet the auditor’s professional responsibility.
c. The cost of accumulating evidence should be minimized.

Completeness c. d. vouching d. tracing b. Consist of seeking information of knowledgeable persons. Is the auditor’s independent execution of procedures or controls that were originally performed as part of the entity’s internal control This consists of checking the mathematical accuracy of documents or records. 14. Which of the following audit procedures is used extensively throughout the audit and often is complementary to performing other audit procedures? a. Responses to inquiries may provide a basis for the auditor to modify or perform additional audit procedures. 23. When the auditors develops supporting evidence for amounts posted to account balances with documentary evidence. confirmation c. PFRS d. Inquiry alone is sufficient to test the operating efectiveness of controls. the process is usually called: a. physical examination When the auditor uses tracing as an audit procedure for test of transactions. c. Rights and obligations d. b. Inspection . Observation a. Existence After the auditor has completed all audit procedures. 17. Consist of looking at a process or procedure being performed by others. it is necessary to combine the information obtained to reach an overall conclusion as to whether the financial statements are fairly presented. Responses to inquiries might provide information that difers significantly from other information that the auditor has obtained. Classification When auditor use documentation to support recorded transactions and amounts. Confirmation Which statement is incorrect regarding inquiry? a. Authorization d. vouching d. Inspection b. Completeness c. c. Gathering evidence and minimizing costs are equally important considerations that afect the approach the auditor selects. the auditor is primarily concerned with which audit objective? a. Accuracy c.d. inquiry b. Reperformance b. b. Cut-of d. 20. Observation c. 21. Completeness b. 19. generally accepted auditing standards. the auditor is primarily concerned with which of the following audit objectives when testing classes of transactions? a. 18. throughout the entity or outside the entity. Classification In performing your audit for a privately-held firm your inquiries have yielded that one of the company’s owner’s primary motivations is to pay the least amount of income tax that is possible. Inquiry d. Occurrence b. Is the process of obtaining a representation of information or of an existing condition directly from a third party? d. Based on this observation which audit objective for ending inventory would the auditor be most concerned about ascertaining? a. This is a highly subjective process that relies heavily on: a. that process is called: a. c. the Code of Professional Ethics. 15. conformations c. 22. 16. reperformance When the auditor used the audit procedure vouching. Occurrence b. Recalculation c. Confirmation d. both financial and non-financial. the auditor’s professional judgment. a. Responses to inquiries may provide the auditor with information not previously possessed or with corroborative audit evidence. b.

Consideration of whether sufficient competent evidential matter may be obtained to aford a reasonable basis for an opinion. 30. b. Develop an overall strategy for the expected conduct and scope of the audit C. such as the prospective client’s bankers and attorneys. the auditor must obtain audit evidence. d. about information regarding the prospective client and its management. D. for every: a.24. c. financial statements account c. A CPA firm’s quality control procedures pertaining to the acceptance of a prospective audit client would most likely include a. The sequence of steps in gathering evidence as the basis of the auditor’s opinion is a. b. d. financial statement account that will be relied upon by third parties. In making a decision to accept or to continue with a client. B. C 27. and substantive tests c. A representation letter from the prospective client. Its competence YES YES YES YES Its independence YES NO YES NO Its ability to serve the client properly YES YES YES NO The integrity of client’s management YES YES NO YES 31. A. and tests of controls d. D. Perform tests of control B. substantive tests . beyond testing the controls. Obtain understanding of the legal and regulatory framework applicable to the entity. E. d. 29. c. material financial statements account d. Preliminary knowledge about the clients business and industry must be obtained prior to the acceptance of the engagement primarily to a. b. b. Gather evidence about the fairness of the financial statements. d. B. Inquiry of management as to whether disagreements between the predecessor auditor and the prospective client were resolved satisfactorily. a CPA is required to obtain a. tests of controls. B. Inquiring from predecessor auditor. and tests of controls b. Documentation of control structure. Which of the following is the correct order of steps in the audit process? A. D. C. A preliminary understanding of the prospective client’s industry and business. D. The prospective client’s signature to the engagement letter c. Established an understanding of the terms of the engagement. A. Which of the following is not normally performed in the preplanning or pre-engagement phase? a. Which of the following would an auditor least likely perform as part of the auditor’s preliminary engagement activities? a. A. 25. 32. Perform substantive tests a. To ensure that sufficient appropriate evidence will be obtained to support the auditor’s opinion on the financial statements. 28. c. B. . To help ensure that there are no issues with management integrity that may afect the auditor’s willingness to continue the engagement. Preparing an engagement letter. the auditor should consider: a. E d. Determine the integrity of management. b. 33. An understanding of the prospective clients control environment. Before accepting an engagement to audit a new client. transaction b. and substantive tests 26. Determine whether the firm is independent with the client. To ensure that there is no misunderstanding with the client as to the terms of the engagement. C c. documentation of control structure. E. d. Inquiry of third parties. Perform procedures regarding the continuance of the client relationship and the specific audit engagement. Tests of controls. Even with the most efectively designed internal control. Which of the following is not one of the reasons why auditor should perform preliminary engagement activities? a. A. Determine the degree of knowledge and expertise required by the engagement. Substantive tests. b. Deciding whether to accept or reject an audit engagement. d. Prepare engagement letter E. Evaluate compliance with ethical requirements. Making a preliminary estimate of materiality. C b. c. Obtain client’s written representation D. To ensure that the auditor maintains the necessary independence and ability to perform the engagement. E. b. c. including independence. Documentation of control structure. documentation of control structure. c.

b. Accept the engagement without contacting the predecessor auditor since the CPA can include audit procedures to verify the reason given by the client for the termination. c. Not communicate with the predecessor auditor because this would in efect be asking the auditor to violate the confidential relationship between the auditor and the client. d. Evaluation of all matters of continuing accounting significance An incoming auditor most likely would make specific inquiries of the predecessor auditor regarding . Understanding as to the reasons for the change of auditors c. Von and Arnel consents Upon discovering material misstatements in a client’s financial statements that the client would not revise. Indicate that a misunderstanding occurred Before accepting an engagement to audit a new client. Von and Jin consent b. a successor auditor should make specific inquiries of the predecessor auditor regarding a. authorized in an engagement letter b. Von consents d. d. 36. 43. acknowledged in a representation letter c. communication between the predecessor and incoming auditor should be a. The chairman of JMV’s board of directors In an audit. Jenna. a CPA is required to obtain a. JMV’s predecessor auditor was Moshe. Suggest that the incoming auditor ask the client c. Prior to the acceptance of an audit engagement with a client who has terminated the services of the predecessor auditor. has been retained to audit the financial statements of JMV Co. The degree of cooperation the predecessor received concerning the inquiry of the client’s lawyer. but the response can be limited to stating that no information will be provided when: a.d. State that he found material misstatements that the client would not revise b. The prospective clients consent to make inquiries of the predecessor auditor. Before accepting an audit engagement. if any. ensure the predecessor collects all unpaid fees prior to a change in auditor. 41. A preliminary understanding of the prospective client’s control environment d. c. 34. CPA. c. 40. Advise the client of the intention to contact the predecessor auditor and request permission for the contact. Moshe. Suggest that the incoming auditor obtain the client’s permission to discuss the reasons d. either written or oral d. written and included in the working papers the predecessor auditor is required to respond to the request of the successor auditor fo9r information. CPA. the predecessor auditor has poor relations with the successor auditor. which party should initiate the communication between Jenna and Moshe? a. An understanding of the prospective client’s industry and business b. Arnel may do so if a. Consideration of whether the internal control structure is sufficiently efective to permit a reduction in the required substantive tests. b. CPA. the CPA should a. d. Jenna. 39. the client is dissatisfied with the predecessor’s work. the predecessor believes that the client lacks integrity. b. c. is succeeding Von. the predecessor auditor should a. help the successor auditor evaluate whether to accept the engagement. Arnel. help the client by facilitating the change of auditors. the incoming auditor. who has been notified by JMV that Moshe’s services have been terminated. c. allow the predecessor to disclose information which would otherwise be confidential. the predecessor auditor c. If asked by the incoming auditor about the termination the engagement. d. the auditor withdrew from the engagement. 38. The prospective client’s signature to the engagement letter. Opinion of any subsequent events occurring since the predecessor’s audit report was issued b. 44. there are actual or potential legal problems between the client and the predecessor. on the audit engagement o f Jin Corporation. Awareness of the consistency in the application of PFRS between periods d. JMV’s controller. a successor auditor should make specific inquiries of the predecessor auditor regarding the predecessor’s a. b. Disagreements the predecessor had with the client concerning auditing procedures and accounting principles b. CPA. Jin consents c. Contact the predecessor auditor without advising the prospective client and request a complete report of the circumstance leading to the termination with the understanding that all information disclosed will be kept confidential. 42. 37. The predecessor’s evaluation of matters of continuing accounting significance. Arnel plans to consult Von and to review Von’s prior year working papers. d. The purpose of the requirement in having communication between the predecessor and successor auditors is to: a. The predecessor’s assessments of inherent risk and judgments about materiality Before accepting an audit engagement. 35. Under these circumstances.

52. An inadequate understanding of the entity’s interval control structure b. b. the client’s business risk and the CPA firm’s engagement risk. Yes No c. Disagreement with management concerning auditing procedures IV. b. Ability to established consistency in application of accounting principles between years c. audit risk to the CPA Firm. No No c. Integrity of management Ordinarily. The prospective client’s refusal to permit this will bear directly on Hawkin’s decision concerning the: a. No No In making client acceptance decisions the audit firm will consider: a. The adequacy of the accounting records d. c. No Yes d. 47. Facts that bear on the integrity of management What information should an incoming auditor obtain during the inquiry of the predecessor auditor prior to acceptance of the audit? I. d. I and III c. Land discovered information lending Land to believe that Star’s prior year’s financial statements. b. The uncertainty inherent in applying sampling procedures. Yes Yes b. Disagreements with management as to auditing procedures. Facts that bear in the integrity of the management II. The complexity of the accounting system b. The operating efectiveness of control procedures In auditing the financial statements of Star Corp. document the CPA firm’s responsibility to external users of the audited financial statements. 54. inherent and control risk of the client. The efect of the client’s internal audit function on the scope of the independent auditor’s examination a. Analysis of income statements accounts c. Adequacy of the preplanned audit program b. Land should a. the predecessor auditor permits the successor auditor to review the predecessor’s working paper analysis relating to Contingencies Balance sheet accounts a. Concluding that that entity’s management probably lacks integrity d. d. 50. III and IV An incoming auditor should request the new client to authorize the predecessor auditor to allow a review of the predecessor’s Engagement letter Working Paper a.45. Notify Jell about the information and make inquiries about the integrity of Star’s management. Specialized accounting principles of the client’s industry b. An inability to perform preliminary analytical procedures before assessing control risk Which of the following factors most likely would influence an auditor’s determination of the auditability of entity’s financial statements a. I and IV d. require substantial revisions. 46. I and II b. Whether statistical or non-statistical sampling was used to gather evidence III. document the terms of the engagement . Request star to arrange a meeting among the three parties to resolve the matter. c. All matters of continuing accounting significance d. Apparent scope limitation d. d. 53. Notify Star’s audit committee and stockholders that the prior year’s financial statements cannot be relied on. The close proximity to the end of the entity’s fiscal year c. which are audited by Jell. a. CPA Firms The purpose of an engagement letter is to: a. c. 49.. The competency of the client’s internal audit staf. Under these circumstances. The existence of related party transactions c. Request Star to reissue the prior year’s financial statements with the appropriate revisions. 51. No No Which of the following factors most likely would cause an auditor not to accept a new audit engagement”? a. 48. Which of the following should an incoming auditor obtain from the predecessors auditor prior to accepting an audit engagement a. No Yes d. Hawkins requested permission to communicate with the predecessor auditor and review certain portions of the predecessor auditor’s work papers. Analysis of balance sheet accounts b. Yes Yes b.

may be either oral or written b. Written communication with the client c. 63. c. he or she should ordinarily a. Decline to accept or perform the audit c. The agreed terms would need to be recorded in a(n) a. responsibility letter d. Management’s explicit liability for illegal acts committed by its employees d. 64. Corporate treasurer If an auditor believes that an understanding with the client has not been established. 66. c. 59. Yes No Yes c. must be written c. at the end of the field work d. b. Assess the control risk at the maximum level and perform a primarily substantive audit d. engage letter c. 57. Written or oral communication with the client d. Oral communication with the client b. Board of directors representative c. Yes Yes Yes b. No Yes d. Perform the audit with increased professional skepticism b. must be written if the client is regulated by the Securities and Exchange Commission According to PSA 210. 65. 61. memorandum to be placed in the permanent section of the auditing working papers b. the auditor and the client should agree on the terms of engagement. Completely detailed audit plan Which of the following is (are) valid reasons why an auditor sends to his client an engagement letter? a. representation letter c. Forms of the report . engagement letter b. notify the audit staf of an upcoming engagement so that personnel scheduling can be facilitated d. The factors to be considered in setting preliminary judgments about materiality c. before the commencement of the engagement an engagement letter should ordinarily include information on the objectives of the engagement and CPA’s responsibility Clients responsibility Limitation of engagement a. The auditor and the client should agree on the Type of opinion to be expressed Terms of the engagement a. Audit committee representative d. Yes No No d. comfort letter The auditor should document the understanding established with a client through a(n) a. emphasize management’s responsibility for approving the audit program Before performing any audit procedures. client letter Which of the following normally signs the engagement letter for an audit of a private company? a. Yes Yes b. Modify the scope of the audit to reflect an increased risk of material misstatement due to fraud Engagement letter that documents and confirms the auditor’s acceptance of the engagement would normally be sent to the client. 60. No No No Which of the following matters is generally included in an auditor’s engagement letter? a. b. Yes Yes Engagement letters a. 58. Management’s responsibility for the entity’s compliance with laws and regulations b. a. 62. Management. d.55. client representation d. must be written and notarized d. 56. No Yes c. after the audit report is issued c. before the audit report issued b. The auditor’s responsibility to search for significant internal control deficiencies Which of the following would be least likely to be included in the auditor’s engagement letter? a. To avoid misunderstanding with respect to engagement Yes Yes No Yes To confirm the auditor’s acceptance of the appointment Yes Yes Yes No To document the objective and scope of the audit Yes Yes Yes Yes To ensure CPA’s compliance to PSA Yes No No Yes Written communication that the auditor will provide reasonable assurance for the detection of fraud is found in: a.

Legal requirements c. Other forms of reports to be issued in addition to the audit report The use of an engagement is the best method of documenting I. Geographical location of the component. b. 69. 72. auditor’s responsibilities b. arrangements have been made. arrangement concerning client’s assistance c. Fees and billing c. a recent change of client management d. a significant change in the nature or size of the client’s business c. 75. A statement that a management letter will be issued outlining comments and suggestions as to any procedures requiring the client’s attention Arrangements concerning which of the following are least likely to be included in engagement letters? a. The risk that material misstatements may remain undiscovered After preliminary audit. Notification of any changes in the original arrangements of the audit a. expectation of receiving a representation letter from management The audit engagement letter should generally include a reference to each of the following except a. Extent of his responsibilities to his client c. details of the procedure that will be performed d. An estimate of the time to be spent on the audit work by audit staf and management c. The required communication of significant deficiencies in internal control structure II. The letter usually would not conclude a. management’s responsibility for the financial statements An engagement letter would not normally include a. The expectation of receiving a written management representation letter b. a recent change in the partner and/or staf in the audit engagement In continuing engagement. an engagement confirmation letter should be sent to the client. there is a change in the partner assigned to the engagement b. III and IV In which of the following situations would be the auditor be unlikely to send a new engagement letter to a continuing client? a. A description of the auditor’s method of sample selection d. 71. Significantly lower materiality levels than those used in the prior audit III. 74. which of the following factors would least likely influence the auditor’s decision to send separate letter to a component of a parent entity? a. 73. Degree of independence of component’s management. II and III d. CPA investment in client securities d. there are expected minor changes in the nature or size of the client’s business When the auditor of a parent entity is also the auditor of its subsidiary. I and II b. Degree of ownership by parent d. A statement that management advisory services would be made available upon request d. billing arrangement b. I and IV c. limitation of the engagement d. there is a recent change in client’s management c. b. A request for the client to confirm the terms of the engagement c. . branch or division (component). the continuing auditor would most likely send a new engagement letter when a. Objectives and scope of the audit d. objective of the financial statements b. there are new accounting pronouncements afecting the client’s financial statements d. unrestricted access to records and documents c. 70. 68. a change in terms of the engagements b. A reference to the auditor’s responsibility for the detection of errors or irregularities b. Type of opinion to be issued Which of the following is not one of the principal contents of an engagement letter? a. The description of any letters or reports that the auditor expects to issue IV.67.