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11. Which is not an element of assurance engagements?

B. Assurance Report
C. Criteria
0. Two Party Relationship
12. In the element responsible party, what engagement is the responsible party is responsible
for the subject
matter only?
Assertion -based engagement
C. Direct reporting engagement
Positive assurance engagement
0. Negative assurance engagement
13. In the element responsible party, what engagement is the responsible party is responsible
for the subject
matter information, and may be responsible for the subject matter?
Assertion -based engagement
C. Direct reporting engagement
Positive assurance engagement
D. Negative assurance engagement
14. Which of the following is not a characteristic of suitable criteria?
C. Understandability
D. Neutrality
15. Subject matter, and subject matter information, of an assurance engagement can take many
form such as:
financial and Non financial Performance
C. Physical Characteristics
D. All of the Above
16. In Evidence,
is the measure of the quality of evidence; that is, its relevance and reliability.
B. Appropriateness

C. Soundness
0. Useiulness
17. In Evidence,
is the measure of quantity.
B. Appropriateness
C. Soundness
D. Usefulness relevant in determining the nature,,timing and extent of evidence -gathering procedures.
B. Engagement Risk
C. Subject Matter Information
D. Subject Matter
(Multiple Choice) Please write your answer before the number
1.The AA --_,C was created by Professional Regulation Conicai,sion up
Ule recorenendation of to assist the BOA in the establishment and promulgatiou of auditing
standards in

C... BOA
0_ PRC
E. No
of the above
2.Philippine Standards on Quality Control (PSQCs) are to be applied for services falling
under what standards?
0. PSRSs
E. All of the above
3.are to be applied in assurance engagements dealing with subject matters other than
financial information.

4.Issuance of exposure drafts requires approval by (a)

_ of the members of the council.
At least 10
B. Majority
C. at least 8
D. not member, but chairman
Issuance of final Philippine Standards and Practice Statements, as well as interpretations,
requires approval of members
At least 10
B. Majority
C.. at least 8
not member, but chairman
Reasonable. Assurance Engagements (audits)
ill. 1.irnited Assurance Engagements (review)
Compilation Engagements
IV. Agreed upon Procedures
Assurance Engagements regarding hiAoricol financial informatiou which ;gactitioner is
permitted to perform
is (are)?
Only I
B. Both I & Ill
C. I, II & IU
D. I, III & IV
Which engagement provides no assurance report?

Only IV
B. Both II & IV
C. II, Ut & IV
D. None
8.The objective is a reduction in assurance engagement risk to an acceptably low level in the
circumstances of
the engagement, as the basis of a positive form of expression of the practitioner's conclusion'
B. It

9.The objective is a reduction in assurance engagement risk to a level that is acceptable in the
of the engagement but where the risk is greater than for a reasonable assurance engagement, as
the basis
for a negative form of expression of practitioner's conclusion.
Whii..h Is not a fundamental ethical princlphn set out in Part A of Code of Ethics?
A.. Integrity
B. Confidentiality
C. Objectivity
D. Independence
The preliminary judgement
iy.ent about materiality and the amount of
e.4./idence accumulated are
le, orectly
In developing 'verall audit plan for a new client, factor not to be considered is
oty levels
elient's business, including the structure of the organization and accounting system
The amount of estimated audit fee
The audit risks of procedures to be performed to achieve audit objectives
9. Tne au0.teleam gathers information about a new client's business and industry in order to
An understanding of the client's internal control system for financial reporting
An understanding of how economic events and transactions affect the company's financial
Information about engagement risk
Information regarding whether the company is engaging in financial statement fraud

10. Each of the following may be relevant to an auditor when obtaining knowledge about the
client's business and industry except
ncussion with people within or outside the entity
Reading publications related to the industry
of the entity's premises
performing tests of control
formance materiality" is the term used to indicate materiality at the:
Balance sheet level
c. income statement level
Account balance level
d. company -wide level
12.In plan
g the audit, the auditor should assess materiality at two levels
3. )
he preliminary level and the final level
The company level and the divisional level
The account balance level and the detailed item level
The financial statement level and the account balance level
developing theepreliminary level of materiality in an audit, the auditor will
Look to audit standards for specific materiality guidelines
Increase the level of materiality if fraud is suspected
Rely primarily on professional judgment to determine the materiality level
Use the same materiality level as that used for different clients in the same industry
ept of materiality
14.: if
an auditor establishes a relatively high level of materiality, then the auditor will:
Accumulate more evidence than if a lower level had been set
Accumulate less evidence than if a lower level had been set
Accumulate approximately the same evidence as would be the case were materiality lower
Accumulate wa41
determined amount of evidence
15. The rela
nship between materiality and risk is ordinarib

c inverse
d. none
16. Which opthe following is the primary basis used to deci
materiality for a profit oriented entity?
a. }it sales
) net income before tax
Net assets
d. all of the above
17. The concept
plies only to publicly held firms
Has greater application to the standards of reporting than the other generally
auditing standards
c. Requires that relatively more effort be directed to those assertions that are more
susceptible to misstatement
Requires the auditor to make judgments as to whether misstatements affect the fairness of
the financial statements.
18. All else b
g equal, as the level of materiality decreases, die amount of evidence required will:
f-riain the same
Change in an unpredictable fashion
19. Which of t
flowing would an auditor most likely use in determining the auditor's preliminary
about materiality?
anticipated sample size of the planned substantive test
The entity's annualized interim financial statements.
The results of the internal control questionnaire.
The conWmts of the management representation letter.
f the following is not correct?

Materiality is a rather than an absolute concept.

The most important base used as the criterion for deciding materiality is total assets.
Qualitative factors as well as quantitative factors affect materiality.
Given e_stdal peso amounts, frauds are usually considered more important than errors.
21. AyKfitors frequently refer to the terms audit assurance, overall assurance, and level of
Co refer to
Detection risk
C acceptable audit risk
Audit report risk
u. inherent risk
22. Tl
The risk that financial statements are likely to be misstated materially without regard
to the
ffectiveness of internal control is the:
inherent risk
c. client risk
Audit risk
d. control risk
23. The risk
at the audit will fail to uncover a material misstatement is eliminated
;r a client has strong internal control
a client is not publicly accountable entity
When the auditor has complied with the Philippine Standard on Auditing
Under no circumstances
24. The risk of material misstatement refers to
Klerent risk
The combination of inherent and control risk
Inherent,risk and audit risk
25. \ivhisKof the following is not a primary consideration when assessing inherent risk?
Nature of client's business
Existence of related parties
Degree of separation of duties
Susceptibility to defalcation

Chapter 5:
Audit Pimming
Dr. Feiomino S. Belinario
/fiis involves developing an overall strategy for the expected conduct and scope of the
examinations; the nature, extent, and timing of which vary with the size and complexity, and
x perience with and knowledge of the entity
Audit planning
o.Audit procedure
c.Audit prograce"
d.Audil,w6ifing papers
2. audit planning involves four matters. Which of the following is not one of these?
Develop an overall audit strategy
Request that bank balances be confirmed
Schedule engagement staff and audit specialists
identify the client's reason for the audit
3. A CPA is conducting the first examination of a client's financial statements. The CPA hopes
to reduce the audit work by consulting with the predecessor auditor and reviewing the
predecessor's working papers. This procedure is
Acceptable if the client and the predecessor auditor agree to it
Acceptable if the CPA refers in the audit report to reliance upon the predecessor auditor's
Required if the CPA is to render an unmodified opinion.
Unacceptable becausetheCPAshouldbringanindependentviewpointtoanew
4.Early appointment of the independent auditor will enable:
more thorough examination to be performed
A proper study and evaluation of internal control to be performed
ifficient competent evidential matter to be obtained
A more efficien examination to be planned
5-which of following procedures would a CPA ordinarily perform diking audit planning?;
Obtain understanding of the client's business and industry
Review the client's b

lk reconciliation
Obtain client's rpfsentation letter
Review an
aluate client's internal control
6.In planning the audit engagement, the auditor should consider each of the following except:
Matters relating to the entity's business and the industries in which it operates
The entity's accounting policies and procedures
Anticipated levels of control risk and materiality
The kind of opinion that is likely to be expressed

MWJA1 fPnkQ Mar
The Auditor's Responsibility
Audits of financial statements are deigned to obtain assurance of detecting misstatement due to
Errors Yes
Fraudulent financial reporting Yes
Misappropriation of assets Yes
B2. Which of the following procedures would assist the auditor in identifying noncompliance with laws
Inquiring from the client's lawyers ,/
b7Inspecting correspondence with relevant regulatory agencies'
Inquire of management concerning entity's policies and procedures regarding compliance with
laws and regulations
Discuss with the client management the policies or procedures adopted for identifying,
evaluating, and accounting for litigation, claims and assessments.
Whichof the following is an "error" as distinguished from "fraud"?
a.Embezzlement of company's fund
b.Window dressing
c)Clerical mistakes in the processing of transactions mor

Fraudulent financial reporting is often called
a.Management fraud
c.Misappropriation of assets
d.Employee fraud
-C5A-the managementresponsibiaytosdetect and prevent frz
rror is accomplished by
n a.
Implementing adequate quality control system 1
Having an annual audit of financial statements
Implementing adequate accounting and internal control system /
presentation letter to_the auditore,
D6,.-' Which of the following statements about fraud or error is incorrect?
The auditor is not and cannot be held responsible for the prevention of fraud and error
The responsibility for the prevention and detection of fraud and error rests with management
The auditor should plan perform the audit with an attitude of professional skepticism,
recognizing that conditions or events may be found that fraud or error may existl"
The likelihood of detecting fraud is ordinarily higher than that of detecting error
7.When performing afinancial statement audit,auditors are required to explicitly a_ss_the risk of material
misstatement due to
Business risk

8. If theclient refuses to accept an audit report that is qualified due to noncompliance with
laws and
regulations, the auditor should:
a. Withdraw from the engagement and indicate the reasons to the audit committee in writing
Issue an adverse opinion if
the management agrees
to fully disclose the matter
Withdraw from the engagement and indicate the reason to the SEC or other regulatory body
Issue a disclaimer of opinion instead -171,
9.Which of the following terms relates to the embezzlin
of receipts?
( .a)
Misrepresentation X.

10aMisapplicatiomp Which of the following conditions would least likely indicate the
occurrence of
investigation by government agencies
Purchasing a real property for a price that is significantly higher than the seller's book value
Existence of an accounting system which fails to provide an adequate audit trail or sufficient
11. Most noncompliance affect the financial statements:
Only indirectly
Both directly and indirectlykk
Materially if direct; immaterially if indirect
12. What is an auditor's responsibility who discovers that management is involved in a

immaterial fraud?
.a-. Report the fraud to the audit committee
Report the fraud to the SEC
akvve, --, Report the fraud to a level of management at least one below those involved in the fraud
Determine that the amounts involved are immaterial, and if so, there is no reporting
13. Which of the following conditions or events increases the risk okerror or fraud?
Management is dominated by several individuals
There are frequent changes of auditors or legal counsel"
There is a significantly low turnover of senior accounting personnel
The entity does not correct internal control deficiencies that it knows about
14. The auditor's evaluation of the likelihood of material employee fraud is normally done
initially as part of:
Test of controls
Test of transactions
Understanding the entity's internal control
The assessmant_of whether to accept the audit engagement
15. Fraudulent financial reporting is most likely to be committed by whom?
me emproyees of th
de members of the entity's board of directors
WV/ Entity's management
The entity's auditors
16 Which of the following is most likely to be an overall response to fraud risks identified in
an audit?
Supervise members of the audit team less closely and rely more upon judgment
Use less predictable audit procedures
Only use certified public accountants on the engagement
Place increased
on the audit of objective transactions rather that subjective
17 If the auditor is precluded by the entity from obtaining evidence to evaluate whether fraud
or error that
may be material to the financial statements has occurred, the auditor should issue a report that
An adverse opinion

An unmodified opinion
Either qualified or adverse opinion
Either qualified opinion or a disclaimer of opinion
18 The level of assurance provided by an audit
Reasonable assurance
Moderate assurance
Absolute assurance
Negative assurance
19 which of the following is most likely to be a response to the auditor's assessment that the
risk of
ial misstatement due to fraud for the existencepf inventory is high?
Observe test counts of inventory at certain locations on an unannounced basis
Perform analytical procedures rather than taking test counts
Request that inventories be counted prior to year end
Request that inventory counts at the various locations be counted on different dates so as to
allow the same auditor to be present a
20 Which of the following circumstances is not an indication of possible noncom
Payment for unspecified services to corzultants, related parties, or government employees
Purchasing at prices significantly above or below market price
Payment for goods or services to the country from which the goods or services originated
21Generally the decision to notify parties outside the client's organization regarding
noncompliance with
id regulations is the responsibility of the
Independent auditor
Client's legal counsel
Internal auditors
22,when the auditor becomes aware of information concerning a possible instance of
noncompliance, the
auditor should
Notify the regulatory agencies

Determine who was responsible for the act

Obtain understanding of the nature of the act, and the circumstances in which it has occurred
and sufficient other information to evaluate the possible effect on the financial statements
Modify the opinion on the client's financial statements
23. Which of the following conditions identifieSurir(LL
orklf an audit is most likely to affect the
auditor's assessment of the risk of misstatement due to fraud?
Checks for significant amounts outstanding at year end
Computer generated documents
Missing documents
11, -Year-end adjusting journal entries.
24 which of the following is most correct regarding the distinction(s) between the auditor's
for searching for errors and fraud
A significant/
25/Which of the following is an example of an error?
Suppression or omission of the effects of transactions from the records or documents
vcording of transactions without substance
Misapplication of accounting policies
Which of the following is a category of risk factor
risk of misstatements arising from misappropriation of assets?
Condition of internal control
Management characteristics
Financial stability of the entity
Industry condition
27. Which of the following conditions would most likely indicate a possible

noncompliance with laws

a.Media comment
Purchasing land for a price significantly different from the seller's, recorded amount+
Payment of commission to sales agent
When a user sees that a unmodified opinion n expressed by an external auditor, he or she may
correctly infer that:
a. No material errors were found during the engagement
No embezzlements remain undetected
c.Any system defects encountered during the engagement have been corrected to the
Any differences between management and the auditor on accounting matters have been
resolved to the auditor's satisfaction
when comparing the auditor's responsibility for detecting employee fraud and for detecting
errors, the
profession has placed the responsibility:
More on discovering errors than employee fraud
More on discovering employee fraud than errors
Equally on discovering either one
On the senior auditor for detecting errors and on the manager for detecting employee fraud
30/Which of the following most likely to be considered
q risk factor relating to fraudulent
Domination of management by top executives
Large amount of cash processed
Negative cash flows from operations
Small high -peso inventory items

Auditing Theory The Professional

Dr. Feiornino S. Relined
1. In the auditing environment, failure to meet auditing standar& is often:
An ac:epted practice
A suggestion of negiigence,
Conclusive evidence of negligence
Tantarnomt to crirnina oehavkn2. Audittfindard requires an auditor to:
a.Perform proceoures that are designed to defect ail instances of freud.
Provide reasonable assurance that the financial statements are not materially misstated,
Issue an unmodified opinion only when the auditor is satisfied that
instances of fraud have
d.Design thejAudit program to meet financial statement users' expecations corning fraud.
3. Which of the following underlies the application of generally accepted auditing standerd3, r:articularly
anc!ards of field work and feportirtg
a.Element internel con; rol
Element . of materiality and risk
c.Elements of reasonable 7.1ssuran,:e
d.Elements of corroborathig

4. Which of the following best describes what is meant by generally acceted auditing 3andards?
a.Audit objecti:=es E,e3erally determined on audit enpgement5.
Acts to be performed by the auditor
c.Measures of the quality the au.Ttor's perfcrmance
Procedure_s-kitie used te.
evidence to support financial statemei tts,
5. requirements for training, independence and due professional care ,ere included in which..;roup of
generaPy accepted '3uditing standards?
d.Quality Cop..trol
6.the standard of due aud't care
require'. We

auditnr to
a.make perfect judgment in all cases.
b.Ensure thaL the financial statements are free from error.
c.Possess skills dearly above the average for the profession
1,Apply judgment in a conscientious manner, carefully weighing the relevant factors before
Reaching decision.

7. Ihe third standard Of field work states the sufficient competent evidential matter may in part be
obtained through the following methods except

8. Whiie performing a'xiit servic2s for their clients, professional accountants have a duty to provide a
level of care whichis
Greater than average
Guaranteed to he tree from error
9. The objective of consistency standard is tc provide assurance that
a. there are no varie.ions in the format and preseritatioil of financial statemens,
Substanciolly different ti ans
ctions and events are not accounted for on an identical basis.
The auditor is coniulted before material charges are ,rade in the application of accounting.
The comparability of fine.rcial statements bet keen periods in not materially affected by changes
in accocnting principles without disclosure.
10. The fourth generally accepted auditing standard of reporting requires an auditor to render a report
whenever an auditor's name is associated with financial statements. The overaj
ui pose of the fc.irth
standard of reporting is to require that reports:
State that thu examination of financial statements has been cc iiductec' in accoriance with
generally accepted auditing standards.,
Indicate the character of the auditor's examination and the degree of
responsibility ass imed oy
the auditc,:.
Imply thet the auditcr iF inde.peildent in rr ind as well as in appearar ce wit'l respect to the
financial statements unoer
Express whether the accounting priftiples used in preparing the frianc;alstetemcnts have been
applied consistently ir the period under examination.
11. pronouncements issued by AASC may be in the fcrm of
Yes lahat
1.2. An auditor need not abide with a specific requirement of PSA if the at...dh.or b?leves that
The amount is insignificant.
The requirement of the PSA is impractical to perform.
The requirement of the PS, is impossible to perform.
Any of the given three clioices is correct.

13. A deficiency in the firm's system of quality control is an indication that

A audit engagement was not performed in accordance the professional standads.
The audit reput issued were Plot appropr,ate
c.both a and b
d. Neither a or b
14. The failure of the auditor to meet the requisites of PSA is
-a.' An accepted practice
b.A suggestion of negligence
-An evidence of negligence
d.Tantamount to criminal behavior
15. Which of the following quality control objectives would be least important, it to the auditor?
Engagement perforrnat.
Human res:)urces
Determiiiatiois of audit fee
16. The objective of the quality contarol policies to be adoptel by an audit firm
will odinarily incorporate all of the foiloWing eAcept:
Risk assessment
Leadership responsibili'. es
Engagement performance
Human resources
Within the context of quality control, the primary purpose

continuing professiona! eduL.atiori

ctivities s tc enable a CPA firm to provide is personnel with:
Technical training that assures proficiency as

v:7...luat'on expert.
Profe:;sional education that is required in order to perform with due profe.;Eional car2

cKnowledge required to fulfill assigned responsibilities.

d. Knowledge recuired to perform a peer review.
18. Which of the fo!lowing is one of the elements of CPA firm's quality control system-'
leadership responsibilities
Computer assisted audit techniques
Control activities
d.Control environment
19. A quality control policy that requires personnel in the firm to adhere to independence, integrity,

objectivipnionfidentiality and professional behavior, relates to

Ethical Regairements
b.Human Resources
20 Which of the following quality control procedures relates to engagement performance?

Professional development

21. In connection with the element of engagement performance, n CPA firm's system of quality control

should or '
arily provide that all personnel
a.Have the kncwledge required to enable them to fulfill responsibiPties :issigned.
k.Review and test coinpliance with the firm's quality control policies and procedures.
Seek assistance from persons having appropriate levels of knowledge, judgment and authority
Appropriately maintain independence when providing assurance service;.
22. In connection with the element of monitoring, a CPA firm's
a.A file of :Tiinutes of staff meetings.
b.Updated personnel files
Documentaticn to demonstrate compliance with its policies and procedures.
d.Documentation to demonstrate compliance with pee: review directives.
23. It involves a study or appraisal by the board or its duly autho
-,zed ...eprasentntives, of tne ouality nf
linancial statements through an evaluation of the quality control meastire.s insti
aited by the
PA firm to ascertain cc mpliance with ethical and technical stendards of public practice.
a. Qtuality review
b.Peer review
c.Compliance audit
d.external audit
24. Which of the following is responsible for establishing auditing standards that will become generally
accepted in the,liPpines?
asecurities arid Exchange Commission
b Financial Reporting Standards Council
c.Commission on Pudit
d Auditing and Assurance Standards Council
25. A body created to conduct an oversight of the quality of audit of financi-i.1 statements by rev:ewing
the firms quality control is known as
a Quality Review Committee (QRC)
b.Educational Training Committee (ETC)
c.Financial Reporting Standards Council (FRSC)
d.Auditing and Assurznce Service Council (AASC)

Balance sheet audit

A partial audit invoNin;) tl ie complete verification of every item in balance sheet
together lAtth a review 0:' r
l account to the extent required by the audit of related
balance,sheet accounts.

Financial Audit

(Gehefal, Indeperident, External) eiamination conducted by an independent putlic

accountant, intended to serve as a basis for an expression ot opinion regardiig the
fairness, consistency and conformity with accepted accounting principles of statements
prepared by a corporation or other entity for submission to the public or other interested
Cash audit
Involves the examination of transactions affecting cash during a certain perioo and
verification of cash balance at the end of said period.

Internal audit
An independent appraisal :ictivity within an organization for the review of accounting,
financial and other operations as a basis for service to management.

Complete Audit
Auditor is given unre.iiricted scope as to the work which ne is to perform.
Vouching Audit
Involves examination or "vouching" of doeuments as weli as investigation of transactions to form a
representative proportion of the whole.

Continuous Audit
One in which the auditor vIsits a client frequently during a fiscal period and at the
time of his visit brings up to date all audit work since his preceding visit.
Detailed Audit
Involves the examination in detail of all transactions and records.
Test Audit
Involves the tests of selected records and transactions sufficient to obtain an opinion
as to the overall reliabili'y of the transactions and records.
Management Audit
A comprehensive and constructive examination of a company's organizational structure, plans,
objectives, means of operations and use of human and physical facilities.

Partial Audit
Auditor is instructed to carry out particular work only and is restricted as to his
powers of inquiry or examination.
System-Based Audit
One which emphasizes On investigating the system of internal control and its operation, backed
by test to substantiate the accuracy and reliability of the records.
Interim Audit
One that is conducted to cover a certain time or up to a certain data within a financial

To identify and c!assiiy items for further study; to resolve into elements or parts in
relation to the whole or one another.

To verify the accuracy of vertical subtotals and totals; to add a column.

Withholding of current cash receipts without entry being made in the books until a
subsequent cash receipt is received from which the cashier pays the previously withheld

Clients Representation Letter

A written statement of fact or opinion requested of and obtained from the rnaragement of a company
under audit.
Short Form Audit Report
Concise statement in which the auditor indicates the nature and scope of his examination and
expresses the opinion which he has formed in respect of the financial statements.
Any d cumentary evidence in support of a transaction or entry

A symbol utilized oy auditors for the purpose of indicating the nature of the work
performed or cross-referencing data found in separate paces on the working paper.

Occupation based upon specialized intellectual study and training the purpose of
Which to supply skilled si,q vices or advice to others for a definite fee or salary.
Negative Confirmation
Direct communication with the debtors about the amount of the receivable where he
is asked to respond only if he disagrees with the information.
Long form Audit Report

Detailed statement of the scope of examination and procedure followed by the

auditoi , the auditor's opinion on the financial statements which are appropriate in the
particular circurristance:.

To verify a portion of the accounting transaction; to sample.

Internal Control
Plan of organization and all the coordinate methods and measures adopted within a

business to safeguard its assets, check the accuracy and reliability of its accounting
data, promote operational efficiency and encourage adherence to prescribed managerial
Cverstatement of cash by recording a deposit without a corresponding record of the
withdrawal at year-end.

Intentional act or omission involving deception, misrepresentations, or trickery for the

purpose of taking away property from its rightful owner without his knowledge or consent
or falsifying financial statements.

To multiply.
Audit techniques
Basic methods or ways of obtaining audit evidence; tools which the auditor uses to
gather facie needed to ,iupport his opinion.

To observe similarities and differences between similar items such as In account
From one.year to the next.

Business approach auditing

Auditing where the auditor goes beyond the accounting figures and obtain an understanding of the
business as a whole, and that the auditor audits the business and also the accounting records.
Auditing standards
Criteria by which the quality ef performance of euditing engagements are measured.
Activity/Analytical Schedule
Schedule showing the beginning balance of the account, the additions and deductiorw during the
period and the ending balence.
Audit Report
A document in wN,..h the CPA indicates the nature and scope of the examination

which he has, made and expressos the opinion which he has formed in respect of the
Audit Procedure
Acts.performee in the ccnduct of the audit.

Bank Transfer Schedule

Schedule showing the dates of all deposits and withdrawals between the various
bank accounts of the
Compliance Test

Test designed to provide reesonable assurance that accounting control procedures

are being 4pptied as prescribed.
To review -critically; to make careful search or inquiry for the purpose of determining
the truth
Internal Control Questionnaire

Comprehensive series of questions relating to internal control which

he auditor .rses
as a guide to his review of the system of internal control.
Future Accounting group

Subsequent events which do not have direct effect on financial statements of the
prior year but their effect may be such that disclosure is advisable; they do not require

Refers to relative and absolute importance of a financial disclosure or representation;

in auditing, more stringent evidence should be gathered to determine the fairness and
dependability of material financial disclosures than is necessary for less significant
Procedural errors
Errors invoMng violations of internal controls.
To watch and test a diet it action.
Natural Business year

A twelve-month perim ending when the bus!ness 'activities of an enterprise have

reached their Icviest point in the accrual cycle.

Successor auditor
An auditor whc has accepted or has been invited to make a proposal for an engagement.
To establish agreen ant between separate sources of information.
Statistical Sampling
A methodology based on the mathematical theury el probabilities which iniicate that a moderately
large number of items selectee in accordance with known generally available and prescribed
procedures from a large mass will 5e almost certain to ophtain the characteristics of the large mass.
Piecemeal opinion
Opinion on specific.. hems

in the financial statements with which he is satisfied,

although he -disclaims a-, opinion with respect to the statements taker, as a whole_

transaction walkthrough
Involves selection of a transaction, its documentation followed horn beginning to end tracing such
through th'.-3 complete authorization, execution and recording process.
To prove accuracy of accounting entries by tracing to supporting documents.

To follow a transaction through the steps of the system.
Substantive Error
Errors which involve the correctness of peso amounts or the adequacy of informative
disclosures-in the financial,itatements

Relative Risk
Uncertainty regarding the occurrence of an undesirab:e event;
in auditing, more rigorous and extensive work shou;d be performed on certain types of transactions
and records wilich are more susceptible to errors and irregularities than others.
Subsequent Events

Events or transactions that occur between the balance 3heet date and the auditor's
report date that have a inateridl effect on the financial statements, and that may require

adjustment or disclasur6,in ;', r,,Incial statements.

Narrative Approach

The auditor -writes down in paragraph form the results olf his review of existing
internal cotitrols.
Positive Confirmation
Direct communication with the debtor about the amcunt of the receivable where he is
asked to respond whether or not the information is correct.
Engagement letter
Communication that documents and confirms the auditor's acceptance of the

appointment, outlines the objectives and scope of the audit, outlines the extent cf the
auditor responsibility to the client, and indicates the form of any reports to be issued by
the auditor:
To enumerate a characteristics, such as the number of items in the inventory.

Cut-off statement
A bank statement for the first 8-10 business days after year end.

To place a mark against an item after verification or a comparison of the same

number or numbers in two or more places.

Adjustment Accounting Group

Subseouent events which affect the financial statements directly and shouA be
recognized therein through adjusting journal entries.
Adverse Opinion

Opinion that the financiul statements do not present fairly the financial position or
results of operations in cot IfOirlthy with generally accepted accounting principles.
Audit Program
A step-by-step plan of audit procedures to be carried out by the auditor in verifying
financial statements items or in making tests of transactions.

Critical and systematic examination or review of accounting reports, documents,

records, procedure* aid controls, for the purpose of determining whether they conform

with prescribed criteria or io enable the expression of an opinion on the propriety of

financial statements
To communicate with outside parties; to authenticate internal evidence.
Internal Control Checklist
Detailed enumeration of the methods and practices which characterize good internal
control or of_the matters that should be considered in reviewing internal coWrols.
Interim Examination

Part of the auditor's examination performed before the year-end closing date cif the
period under audit.
Personal quality of being able to maintain an unassailable impartiality in the performance -of the
CPA's work.

Principal Auditor
The auditor who is considered to have performed the major portion a:. the examination as evidenced
by such things as the materiality of the portion he examined
and his knowledge of the overall financial statements.

Non-Accounting group
Subsequent events not likely to require disclosure in the financial statements nor
adjusting entries.

Predecessor Auditor
An auditorAAO has resigned or whose services have been terminated by the client.

Operational Auditing
Audit generally performed by internal auditors to evaluate the effectiveness and
efficiency of various accounting processes.

The field -of entries or documents from which the sampling is to be made.

Secret reverse
Deliberate attempt to a less favorable financial position ano/or operating
results-Than is actually the case.

To study critically records, documents, transaction, events or procedures.

To prove accuracy of numbers or existence of assets by examination or comparison
with standards or refer encr, to facts.

Unqualified Opinion
Opinion in which the CPA states without reservation that the financial statements
"fairly presenr financial position and operating results in accordance with generally
accepted accounting principles wh]ch have been applied on the basis consistent with
that of the preceding year.

Special report
An audjt feport with woi dir ig other than that used for short or long -form report.

Qualified opinion
Opinions in which the independent auditor states his belief that the financial statements as
whole are fairly presented, except as to certain items on which he reserves his opinion, or takes

Internal check

Sound practices in the performance of duties and functions incorporated into the

system to provide the ineans whereby the integrity of authorizations, recordings,' and custody
of assets may ba rQasonably assured.

To scrutinize, to investigate or critically examine a document or an asset.

Dividing -point between two accounting periods.

Cross foot
Tove rify the accuracy of horizontal subtotal and totals.

Audit evidence
Any available kern of fact or assertion of fact which tends to persuade the auditor's
mind that the propositions or representations in the financial statements under audit are
either true or false.

Application control
Specific' tasks pen'ornecl by EDP that provides reasonable assurance that the recording,
processing and reporting of data are pr.)perly performed.

Audit notes/agenda sheet

Contain notes and reminders for points that cannot be settled the moment they arise
but which must be disposed of prior to concluding the examination.