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Auditing Theory SET A

RPCPA Syllabus in Auditing Theory
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1. For an entity's financial statements to be presented fairly in conformity with PFRS, the principles
selected should:
A. Be applied on a basis consistent with those followed in the prior year.
B. Be approved by the Auditing Standards Board or the appropriate industry subcommittee.
C. Reflect transactions in a manner that presents the financial statements within a range of
acceptable limits.
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2. Which of the following statements is correct concerning an auditor's responsibilities regarding

financial statements?
A. An auditor may not draft an entity's financial statements based on information from
Reviewer-Online e-classroom management's accounting system. | B. The adoption of sound accounting policies is an implicit part of an auditor's responsibilities.
C. An auditor's responsibilities for audited financial statements are confined to the expression
of the auditor's opinion.
D. Making suggestions that are adopted about an entity's internal control environment impairs
an auditor's independence.
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2F/3F Crme Bldg., Abella St., Naga City 3. Which of the following accurately depicts the auditor's responsibility with respect to Philippine
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A. The auditor is required to follow the guidance provided by the Standards, without
B. The auditor is generally required to follow the guidance provided by Standards with which
he or she is familiar, but will not be held responsible for departing from provisions of which
he or she was unaware.
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C. The auditor is generally required to follow the guidance provided by the Standards, unless
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following such guidance would result in an audit that is not cost-effective.
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D. The auditor is generally required to follow the guidance provided by the Standards, and
should be able to justify any departures.
4. Because of the risk of material misstatement, an audit of financial statements in accordance uc cpa review with PSA should be planned and performed with an attitude of:
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A. Objective judgment.
B. Independent integrity.
C. Professional skepticism.
D. Impartial conservatism.
Flaming enthusiasm, backed up by horse sense and persistence, is the quality that most often makes for
5. Issuance of exposure drafts on proposed Philippine Standards or Practice Statements requires success. Dale Carnegie
the approval by
A. A majority of the AASC members A mind troubled by doubt cannot focus on the course to victory.
B. At least 5 members of the AASC
C. At least 10 of the AASC Some people succeed because they are destined to, but most people succeed because they are determined
D. All members of the AASC to.

6. Which of the following is not an example of the application of professional skepticism?

A. Designing additional auditing procedures to obtain more reliable evidence in support of a
particular financial statement assertion.
B. Obtaining corroboration of management's explanations through consultation with a
specialist. -Done-
C. Inquiring of prior year engagement personnel regarding their assessment of management's Thank you for taking the certs Final Open Simulation Exams!
honesty and integrity.
D. Using third party confirmations to provide support for management's representations.

7. In the first audit of a client, an auditor was not able to gather sufficient evidence about the
consistent application of accounting principles between the current and prior year, as well as
the amounts of assets or liabilities at the beginning of the current year. This was due to the
client's record retention policies. If the amounts in question could materially affect current
operating results, the auditor would:
A. Be unable to express an opinion on the current year's results of operations and cash flows.
B. Express a qualified opinion on the financial statements because of a client-imposed scope
C. Withdraw from the engagement and refuse to be associated with the financial statements.
D. Specifically state that the financial statements are not comparable to the prior year due to
an uncertainty.

8. An auditor may not issue a qualified opinion when:

A. An accounting principle at variance with PFRS is used.
B. The auditor lacks independence with respect to the audited entity.
C. A scope limitation prevents the auditor from completing an important audit procedure.
D. The auditor's report refers to the work of a specialist.

9. Raymund Co. uses the FIFO method of costing for its international subsidiary's inventory and
weighted average for its domestic inventory. Under these circumstances, the auditor's report on
Raymund's financial statements should express an:
A. Unqualified opinion.
B. Opinion qualified because of a lack of consistency. uc cpa review uc cpa review

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95. In assessing sampling risk, the risk of incorrect rejection and the risk of assessing control risk too C. Opinion qualified because of a departure from PFRS.
high relate to the D. Adverse opinion.
A. Efficiency of the audit.
B. Selection of the sample. 10. In which of the following circumstances would an auditor not express an unqualified opinion?
C. Effectiveness of the audit. A. There has been a material change between periods in accounting principles.
D. Audit quality controls. B. Quarterly financial data required by the SEC has been omitted.
C. The auditor wishes to emphasize an unusually important subsequent event.
96. Auditors often utilize sampling methods when performing tests of controls. Which of the D. The auditor is unable to obtain audited financial statements of a consolidated investee.
following sampling methods is most useful when testing controls?
A. Attribute sampling. 11. In our opinion, internal control is effective, in all material respects, based on suitable criteria.
B. Variable sampling. this statement is an example of
C. Unrestricted random sampling with replacement. A. Limited assurance engagement
D. Stratified random sampling. B. Absolute assurance engagement
C. Reasonable assurance engagement
97. The independent audit is important to readers of financial statements because it D. Non-assurance engagement
A. Determines the future stewardship of the management of the company whose financial
statements are audited 12. Management of Francis Industries plans to disclose an uncertainty as follows:
B. Measures and communicates financial and business data included in financial statements The Company is a defendant in a lawsuit alleging infringement of certain patent rights and
C. Involves the objective examination of and reporting on management-prepared statements claiming damages. Discovery proceedings are in progress. The ultimate outcome of the litigation
D. Reports on the accuracy of all information in the financial statements cannot presently be determined. Accordingly, no provision for any liability that may result upon
adjudication has been made in the accompanying financial statements. The auditor is satisfied
98. Which of the following fundamental ethical principles prohibits association of professional that sufficient audit evidence supports management's assertions about the nature and
accountants with reports, returns, communications or other information that is believed to disclosure of the uncertainty. What type of opinion should the auditor express under these
contain a materially false or misleading statement? circumstances?
A. Integrity A. Unqualified without an explanatory paragraph.
B. Objectivity B. "Subject to" qualified.
C. Professional behavior C. "Except for" qualified.
D. Confidentiality D. Disclaimer of opinion.

99. Inquiry 13. An auditor issued an audit report that was dual dated for a subsequent event occurring after the
A. Consists of looking at a process or procedure being performed by others original date of the auditor's report but before issuance of the related financial statements. The
B. Consists of seeking information of knowledgeable persons, both financial and nonfinancial, auditor's responsibility for events occurring subsequent to the original report date was:
throughout the entity or outside the entity A. Limited to include only events occurring up to the date of the last subsequent event
C. Is the process of obtaining a representation of information or of an existing condition referenced.
directly from the third party B. Limited to the specific event referenced.
D. Is the auditors independent execution of procedures or controls that were originally C. Extended to subsequent events occurring through the later date.
performed as a part of the entitys internal control D. Extended to include all events occurring since the original report date.

100. Which of the following is true about alpha and beta errors?
A. The alpha error is of greater concern to the auditor than the beta error.
B. The beta error is greater concern to the auditor than the alpha error. 14. Which of the following auditing procedures most likely would assist an auditor in identifying
C. The beta error and the alpha error are of equal importance to the auditor. conditions and events that may indicate substantial doubt about an entity's ability to continue
D. Neither the alpha error nor the beta error need be considered by the auditor. as a going concern?
A. Inspecting title documents to verify whether any assets are pledged as collateral. uc cpa review uc cpa review
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B. Confirming with third parties the details of arrangements to maintain financial support. 89. Each of the following is a type of known misstatement, except:
C. Reconciling the cash balance per books with the cut-off bank statement and the bank A. An inaccuracy in processing data.
confirmation. B. The misapplication of accounting principles.
D. Comparing the entity's depreciation and asset capitalization policies to other entities in the C. Differences between management and the auditor's judgment regarding estimates.
industry. D. A difference between the classification of a reported financial statement element and the
classification according to generally accepted accounting principles.
15. When an independent CPA assists in preparing the financial statements of a publicly held entity,
but has not audited or reviewed them, the CPA should issue a disclaimer of opinion. In such 90. A client has capitalizable leases but refuses to capitalize them in the financial statements. Which
situations, the CPA has no responsibility to apply any procedures beyond: of the following reporting options does an auditor have if the amounts pervasively distort the
A. Documenting that internal control is not being relied on. financial statements?
B. Reading the financial statements for obvious material misstatements. A. Qualified opinion.
C. Ascertaining whether the financial statements are in conformity with PFRS. B. Disclaimer opinion.
D. Determining whether management has elected to omit substantially all required C. Unqualified opinion.
disclosures. D. Adverse opinion.

16. If a publicly held company issues financial statements that purport to present its financial 91. Which of the following courses of action is the most appropriate if an auditor concludes that
position and results of operations but omits the statement of cash flows, the auditor ordinarily there is a high risk of material misstatement?
will express a(an): A. Use smaller, rather than larger, sample sizes.
A. Disclaimer of opinion. B. Perform substantive tests as of an interim date.
B. Qualified opinion. C. Select more effective substantive tests.
C. Review report. D. Increase of tests of controls.
D. Unqualified opinion with a separate explanatory paragraph.
92. It is the process designed and effected by those charged with governance, management, and
17. An auditor includes a separate paragraph in an otherwise unmodified report to emphasize that
other personnel to provide reasonable assurance about the achievement of the entity's
the entity being reported on had significant transactions with related parties. The inclusion of
this separate paragraph:
A. Internal auditing
A. Is considered an "except for" qualification of the opinion.
B. Internal control
B. Violates PSA if this information is already disclosed in footnotes to the financial statements.
C. Business strategy
C. Necessitates a revision of the opinion paragraph to include the phrase "with the foregoing
D. Accounting process
D. Is appropriate and would not negate the unqualified opinion.
93. The auditor should perform which of the following as risk assessment procedure?
18. An entity changed from the straight-line method to the declining balance method of A. Analytical procedures
depreciation for all newly acquired assets. This change has no material effect on the current B. Confirmation
year's financial statements, but is reasonably certain to have a substantial effect in later years. If C. Recalculation
the change is disclosed in the notes to the financial statements, the auditor should issue a report D. Reperformance
with a(an):
A. "Except for" qualified opinion. 94. To prevent interrupted information systems operation, which of the following controls are
B. Explanatory paragraph. typically included in an organization's disaster recovery plan?
C. Unqualified opinion. A. Backup and data transmission controls.
D. Consistency modification. B. Data input and downtime controls.
19. Which of the following is not part of the control environment? C. Backup and downtime controls.
A. Management philosophy and operating style D. Disaster recovery and data processing controls.
B. Information and communication systems
C. Organizational structure uc cpa review uc cpa review
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83. To maximize independence, the director of internal auditing should report to the D. Assignment of authority and responsibility
A. Audit committee.
B. Controller. 20. In which of the following circumstances would an auditor most likely add an explanatory
C. Chief financial officer. paragraph to the standard report while not affecting the auditor's unqualified opinion?
D. Director of IT Department. A. The auditor is asked to report on the statement of financial position, but not on the other
basic financial statements.
84. This exists when other information (such as presented in an annual report) contradicts B. There is substantial doubt about the entity's ability to continue as a going concern.
information contained in the financial statements. C. Management's estimates of the effects of future events are unreasonable.
A. Material misstatement of fact D. Certain transactions cannot be tested because of management's records retention policy.
B. Material scope limitation
C. Material misstatements 21. When an entity changes its method of accounting for income taxes, which has a material effect
D. Material inconsistency on comparability, the auditor should refer to the change in an explanatory paragraph added to
the auditor's report. This paragraph should identify the nature of the change and:
85. The current periods auditor who did not audit the prior periods financial statements is called A. Explain why the change is justified under PFRS.
A. Predecessor auditor B. Describe the cumulative effect of the change on the audited financial statements.
B. Other auditor C. State the auditor's explicit concurrence with or opposition to the change.
C. Incoming auditor D. Refer to the financial statement note that discusses the change in detail.
D. Principal auditor
22. Raymund, CPA, was engaged to audit the financial statements of ABC Co. after its fiscal year had
86. Ash, CPA, was requested to perform a review engagement for ABC, Inc., a non-public entity. Ash ended. The timing of Raymund's appointment as auditor and the start of fieldwork made
has an immaterial direct financial interest with ABC. In this situation, Ash is: confirmation of accounts receivable by direct communication with the debtors ineffective.
A. Not independent, and therefore may not be associated with the financial statements. However, Raymund applied other procedures and was satisfied as to the reasonableness of the
B. Not independent, and therefore, may not issue a review report. account balances. Raymund's auditor's report most likely contained a(an):
C. Not independent, and therefore, may issue a review report, but may not issue an auditors A. Unqualified opinion.
report. B. Unqualified opinion with an explanatory paragraph.
D. Independent because the financial interest is immaterial, and therefore, may issue a review C. Qualified opinion due to a scope limitation.
report. D. Qualified opinion due to a departure from PSA.

87. Which of the following procedures would an auditor most likely perform in the planning stage of 23. When a qualified opinion results from a limitation on the scope of the audit, the situation should
an audit? be described in an explanatory paragraph:
A. Make a preliminary judgment about materiality. A. Preceding the opinion paragraph and referred to only in the scope paragraph of the
B. Confirm a sample of the entity's accounts payable with known creditors. auditor's report.
C. Obtain written representations from management that there are no unrecorded B. Following the opinion paragraph and referred to in both the scope and opinion paragraphs
transactions. of the auditor's report.
D. Communicate management's initial selection of accounting policies to the audit committee. C. Following the opinion paragraph and referred to only in the scope paragraph of the
auditor's report.
88. Which of the following situations most likely represents the highest risk of a misstatement D. Preceding the opinion paragraph and referred to in both the scope and opinion paragraphs
arising from misappropriations of assets? of the auditor's report.
A. A large number of bearer bonds on hand.
B. A large number of inventory items with low sales prices. 24. Restrictions imposed by a client prohibit the observation of physical inventories, which account
C. A large number of transactions processed in a short period of time. for 35% of all assets. Alternative audit procedures cannot be applied, although the auditor was
D. A large number of fixed assets with easily identifiable serial numbers. able to examine satisfactory evidence for all other items in the financial statements. The auditor
should issue a(an):
A. "Except for" qualified opinion. uc cpa review uc cpa review
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B. Disclaimer of opinion. 77. The following are examples of circumstances that may create familiarity threats, except
C. Unqualified opinion with a separate explanatory paragraph. A. Promoting shares in a listed entity when that entity is a financial statement audit client
D. Unqualified opinion with an explanation in the scope paragraph. B. Long association of senior personnel with the assurance client
C. A member of the engagement team having a close or immediate family relationship with a
25. Which of the following best describes what is meant by the term PSA? director or officer of the client
A. Rules acknowledged by the accounting profession because of their universal application. D. A former partner of the firm being a director or officer of the client or an employee in a
B. Pronouncements issued by the Auditing Standards Board. position to exert direct and significant influence over the subject matter of the engagement
C. Measures of the quality of the auditor's performance.
D. Procedures to be used to gather evidence to support financial statements. 78. In the financial statement audit of listed entities, the engagement partner and the individual
responsible for the engagement quality control review should be rotated after serving in either
26. Which of the following conditions or events most likely would cause an auditor to have capacity, or combination thereof, for a pre-defined period, normally no more than
substantial doubt about an entity's ability to continue as a going concern? A. 5 years
A. Cash flows from operating activities are negative. B. 7 years
B. Research and development projects are postponed. C. 10 years
C. Significant related party transactions are pervasive. D. 6 years
D. Stock dividends replace annual cash dividends.
79. The following forms of assistance to a financial statement audit client do not generally threaten
27. For an entity that does not receive governmental financial assistance, an auditor's standard
the firms independence, except
report on financial statements generally would not refer to:
A. Analyzing and accumulating information for regulatory reporting
A. Significant estimates made by management.
B. Assisting in resolving account reconciliation problems
B. An assessment of the entity's accounting principles.
C. Authorizing or approving transactions
C. Management's responsibility for the financial statements.
D. Assisting in the preparation of consolidated financial statements
D. The entity's internal control.
28. Which of the following services of a professional accountant is considered to provide moderate 80. They are not presented as complete financial statements capable of standing alone, but are an
level of assurance that the information is free of material misstatement? integral part of the current period financial statements intended to be read only in relationship
A. Audit to the current period figures.
B. Agreed upon procedures A. Corresponding figures
C. Review B. Comparatives
D. Compilation C. Prior period figures
D. Comparative FS
29. Which of the following procedures should an auditor generally perform regarding subsequent
events? 81. In conducting a fraud investigation the auditor should first:
A. Compare the latest available interim financial statements with the financial statements A. Obtain the facts
being audited.
B. Obtain a confession
B. Send second requests to the client's customers who failed to respond to initial accounts
C. Identify the perpetrators
receivable confirmation requests.
D. Notify a law enforcement agency
C. Communicate material weaknesses in the internal control structure to those charged with
82. An auditor completed fieldwork on February 10, 2012 for a December 31, 2011 yearend client. A
D. Review the cut-off bank statements for several months after the year-end. significant subsequent event occurred on February 22, 2012. In this case, which of the following
30. Grant Company's financial statements adequately disclose uncertainties that concern future
report dates would not be appropriate?
events, the outcome of which are not susceptible of reasonable estimation. The auditor's report
A. February 10, 2012.
should include a(an):
B. February 10, except Note 1, February 22, 2012.
A. Unqualified opinion.
C. February 22, 2012.
B. "Subject to" qualified opinion. D. December 31, 2011. uc cpa review uc cpa review
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72. When an auditor tests the internal controls of a computerized accounting system, which of the C. "Except for" qualified opinion.
following is true of the test data approach? D. Adverse opinion.
A. Test data are coded to a dummy subsidiary so they can be extracted from the system under
actual operating conditions. 31. When there is a significant change in accounting principle, an auditor's report should refer to the
B. Test data programs need not be tailor-made by the auditor for each client's computer lack of consistency in:
applications. A. The scope paragraph.
C. Test data programs usually consist of all possible valid and invalid conditions regarding B. An explanatory paragraph between the second paragraph and the opinion paragraph.
compliance with internal controls. C. The opinion paragraph.
D. Test data are processed with the client's computer and the results are compared with the D. An explanatory paragraph following the opinion paragraph.
auditor's predetermined results.
32. When a group engagement partner decides to make reference to another auditor's examination,
73. According to the Code of Ethics for Professional Accountants in the Philippines, a CPA who has a the group engagement partner's report should always indicate clearly, in the introductory,
financial interest in a partnership that invests in a client is considered to have scope, and opinion paragraphs, the:
A. An indirect financial interest in the client A. Magnitude of the portion of the financial statements examined by the other auditor.
B. A direct financial interest in the client. B. Disclaimer of responsibility concerning the portion of the financial statements examined by
C. No financial interest in the client. the other auditor.
D. A partial financial interest in the client. C. Name of the other auditor.
D. Division of responsibility.
74. When control risk is assessed at the maximum level for all financial statement assertions, an
auditor should document the auditors 33. Information accompanying the basic financial statements in an auditor-submitted document
A B C D should not include:
Understanding of the entitys A. An analysis of inventory by location.
internal control elements Yes Yes No Yes B. A statement that the allowance for doubtful accounts is adequate.
Conclusion that control risk C. A statement that the depreciable life of a new asset is 20 years.
is at high level Yes No Yes Yes D. An analysis of revenue by product line.
Basis for concluding that control
risk is at high level No Yes Yes Yes 34. PSA 315 requires the auditor to obtain an understanding of the clients internal controls
A. For every audit
75. Which of the following threats to independence is created when a member of the assurance B. For first-time audits
team participates in the assurance engagement while knowing, or having reason to believe, that C. Sufficient to find any frauds which may exist
he is to, or may, join the assurance client sometime in the future? D. Whenever it would be appropriate
A. Intimidation threat
35. Comfort letters ordinarily are signed by the client's:
B. Self- interest threat
A. Independent auditor.
C. Self-review threat
B. Underwriter of securities.
D. Familiarity threat
C. Audit committee.
D. Senior management.
76. Safeguards created by the profession, legislation or regulation include the following, except
A. Continuing professional development requirements 36. A CPA firm would be reasonably assured of meeting its responsibility to provide services that
B. Professional standards conform with professional standards by:
C. Firm-wide and engagement specific safeguards A. Adhering to PSA.
D. Educational, training and experience requirements for entry into the profession. 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. uc cpa review uc cpa review

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66. Which of the following tests of controls most likely would help assure an auditor that goods
37. Which of the following audit tests is usually the most costly to perform? shipped are properly billed?
A. Analytical procedures A. Scan the sales journal for sequential and unusual entries.
B. Tests of controls B. Examine shipping documents for matching sales invoices.
C. Tests of balances C. Compare the accounts receivable ledger to daily sales summaries.
D. Tests of transactions D. Inspect unused sales invoices for consecutive prenumbering.

38. CPAs should not be liable to any party if they perform their services with: 67. Analytical procedures used in the overall review stage of an audit generally include:
A. Ordinary negligence A. Gathering evidence concerning account balances that have not changed from the prior
B. Regulatory providence year.
C. Due professional care B. Retesting control activities that appeared to be ineffective during the assessment of control
D. Good faith risk.
C. Considering unusual or unexpected account balances that were not previously identified.
39. One of a CPA firm's basic objectives is to provide professional services that conform with
D. Performing tests of transactions to corroborate management's financial statement
professional standards. Reasonable assurance of achieving this basic objective is provided
A. A system of quality control.
68. Tracing copies of computer-prepared sales invoices to copies of the corresponding computer-
B. A system of peer review.
prepared shipping documents provides evidence that:
C. Continuing professional education.
A. Shipments to customers were properly billed.
D. Compliance with generally accepted reporting standards.
B. Entries in the accounts receivable subsidiary ledger were for sales actually shipped.
40. Which of the following is not a comprehensive basis of accounting other than PFRS?
C. Sales billed to customers were actually shipped.
A. Cash receipts and disbursements basis of accounting.
D. No duplicate shipments to customers were made.
B. Basis of accounting used by an entity to file its income tax return.
C. Basis of accounting used by an entity to comply with the financial reporting requirements of
69. Tests designed to detect purchases made before the end of the year that have been recorded in
a government regulatory agency.
the subsequent year most likely would provide assurance about management's assertion
D. Basis of accounting used by an entity to comply with the financial reporting requirements of
a lending institution.
A. Accuracy.
B. Obligations.
41. Which of the following factors most likely would lead a CPA to conclude that a potential audit
C. Cutoff.
engagement should be rejected?
D. Classification.
A. The details of most recorded transactions are not available after a specified period of time.
B. Internal control activities requiring the segregation of duties are subject to management
70. The refusal of a client's attorney to provide information requested in an inquiry letter generally
is considered:
C. It is unlikely that sufficient appropriate evidence is available to support an opinion on the
A. Grounds for an adverse opinion.
financial statements.
B. A limitation on the scope of the audit.
D. Management has a reputation for consulting with several accounting firms about significant
C. Reason to withdraw from the engagement.
accounting issues.
D. Equivalent to a significant deficiency in internal control.
42. Before accepting an engagement to audit a new client, a CPA is required to obtain:
71. In determining the sample size for a test of controls, an auditor should consider the likely rate of
A. An understanding of the prospective client's industry and business.
deviations, the allowable risk of assessing control risk too low, and the:
B. The prospective client's signature to the representation letter.
A. Tolerable deviation rate.
C. A preliminary understanding of the prospective client's control environment.
B. Risk of incorrect acceptance.
D. The prospective client's consent to make inquiries of the predecessor auditor, if any.
C. Nature and cause of deviations.
D. Population size. uc cpa review uc cpa review
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61. Which of the following procedures would an auditor most likely perform in searching for 43. Before accepting an audit engagement, a successor auditor should make specific inquiries of the
unrecorded liabilities? predecessor auditor regarding the predecessor's:
A. Vouch a sample of accounts payable entries recorded just before year-end to the A. Opinion of any subsequent events occurring since the predecessor's audit report was
unmatched receiving report file. issued.
B. Compare a sample of purchase orders issued just after year-end with the year-end accounts B. Understanding as to the reasons for the change of auditors.
payable trial balance. C. Awareness of the consistency in the application of PFRS between periods.
C. Vouch a sample of cash disbursements recorded just after year-end to receiving reports and D. Evaluation of all matters of continuing accounting significance.
vendor invoices.
D. Scan the cash disbursements entries recorded just before year-end for indications of 44. In considering materiality for planning purposes, an auditor believes that misstatements
unusual transactions. aggregating 10,000 would have a material effect on an entity's income statement, but that
misstatements would have to aggregate 20,000 to materially affect the statement of financial
62. To provide assurance that each voucher is submitted and paid only once, an auditor most likely position. Ordinarily, it would be appropriate to design auditing procedures that would be
would examine a sample of paid vouchers and determine whether each voucher is: expected to detect misstatements that aggregate:
A. Supported by a vendor's invoice. A. 10,000
B. Stamped "paid" by the check signer. B. 15,000
C. Prenumbered and accounted for. C. 20,000
D. Approved for authorized purchases. D. 30,000

63. Proper authorization of write-offs of uncollectible accounts should be approved in which of the 45. Which of the following statistical selection techniques is least desirable for use by an auditor?
following departments? A. Systematic selection.
A. Accounts receivable. B. Block selection.
B. Credit. C. Stratified selection.
C. Accounts payable. D. Sequential selection.
D. Treasurer.
46. Analytical procedures used in planning an audit should focus on:
64. Which of the following procedures most likely would not be an internal control designed to A. Evaluating the adequacy of evidence gathered concerning unusual balances.
reduce the risk of errors in the billing process? B. Testing individual account balances that depend on accounting estimates.
A. Comparing control totals for shipping documents with corresponding totals for sales C. Enhancing the auditor's understanding of the client's business.
invoices. D. Identifying material weaknesses in internal control.
B. Using computer programmed controls on the pricing and mathematical accuracy of sales
invoices. 47. An auditor's engagement letter most likely would include a statement regarding:
C. Matching shipping documents with approved sales orders before invoice preparation. A. Management's responsibility to provide certain written representations to the auditor.
D. Reconciling the control totals for sales invoices with the accounts receivable subsidiary B. Conditions under which the auditor may modify the preliminary judgment about
ledger. materiality.
C. Internal control activities that would reduce the auditor's assessment of risk.
65. Which of the following internal control activities is not usually performed in the vouchers D. Materiality matters that could modify the auditor's preliminary assessment of fraud risk.
payable department?
A. Matching the vendor's invoice with the related receiving report.
B. Approving vouchers for payment by having an authorized employee sign the vouchers.
C. Indicating the asset and expense accounts to be debited.
D. Accounting for unused prenumbered purchase orders and receiving reports. uc cpa review uc cpa review

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48. Control risk should be assessed in terms of: 55. An auditor's risk assessment is based on the assumption that controls are operating effectively.
A. Specific controls. Which of the following was not a step in making this assessment?
B. Financial statement assertions. A. Evaluate the effectiveness of the internal controls with tests of controls.
C. Types of potential irregularities. B. Obtain an understanding of the entity's accounting system and control environment.
D. Control environment factors. C. Perform tests of details of transactions to detect material misstatements in the financial
49. The acceptable level of detection risk is inversely related to the: D. Consider whether control activities can have a pervasive effect on financial statement
A. Assurance provided by substantive tests. assertions.
B. Risk of misapplying auditing procedures.
C. Preliminary judgment about materiality levels. 56. Which of the following procedures most likely would provide an auditor with evidence about
D. Risk of failing to discover material misstatements. whether an entity's internal control activities are suitably designed to prevent or detect material
50. Which of the following is not a type of financial statement assertion? A. Reperforming the activities for a sample of transactions.
A. Rights and obligations. B. Performing analytical procedures using data aggregated at a high level.
B. Valuation and allocation. C. Vouching a sample of transactions directly related to the activities.
C. Fairness and accuracy. D. Observing the entity's personnel applying the activities.
D. Understandability and classification.
57. Which of the following statements about internal control is correct?
51. An auditor who discovers that client employees have committed an illegal act that has a A. Properly maintained internal control reasonably ensures that collusion among employees
material effect on the client's financial statements most likely would withdraw from the cannot occur.
engagement if: B. The establishment and maintenance of internal control is an important responsibility of the
A. The illegal act is a violation of PFRS. internal auditor.
B. The client does not take the remedial action that the auditor considers necessary. C. Exceptionally strong internal control is enough for the auditor to eliminate substantive tests
C. The illegal act was committed during a prior year that was not audited. on a significant account balance.
D. The auditor has already assessed control risk at a high level. D. The cost-benefit relationship is a primary criterion that should be considered in designing
internal control.
52. Which of the following characteristics most likely would heighten an auditor's concern about the
risk of material misstatement arising from fraudulent financial reporting? 58. In assessing control risk, an auditor ordinarily selects from a variety of techniques, including:
A. There is a lack of interest by management in maintaining an earnings trend. A. Inquiry and analytical procedures.
B. Computer hardware is usually sold at a loss before being fully depreciated. B. Comparison and confirmation.
C. Management had frequent disputes with the auditor on accounting matters. C. Reperformance and observation.
D. Monthly bank reconciliations usually include several large checks outstanding. D. Inspection and verification.
59. The understanding with a client of an auditor's contractual obligation ordinarily is set forth in
53. Which of the following parties should request inquiry of a client's lawyer?
A. The auditor.
A. Management letter.
B. The stockholders.
B. Scope paragraph of the auditor's report.
C. Client management.
C. Engagement letter.
D. The auditor's attorney.
D. Introductory paragraph of the auditor's report.
54. An advantage of using systems flowcharts to document information about internal control 60. In testing controls over cash disbursements, an auditor most likely would determine that the
instead of using internal control questionnaires is that systems flowcharts: person who signs checks also:
A. Identify internal control weaknesses more prominently. A. Reviews the monthly bank reconciliation.
B. Provide a visual depiction of client's activities. B. Returns the checks to accounts payable.
C. Indicate whether control activities are operating effectively. C. Is denied access to the supporting documents.
D. Reduce the need to observe client's employees performing routine tasks. D. Is responsible for mailing the checks. uc cpa review uc cpa review