CPA REVIEW eae OF THE PHILIPPINES anita AUDITING THEORY FEBRUARY FIRST PREBOARD EXAMINATION SATURDAY, 5:00PM "comm SETA INSTRUCTIONS: CHOOSE THE BEST ANSWER FOR EACH OF THE FOLLOWING, FULLY SHADE ONLY ONE BOX FOR EACH ITEM. STRICTLY NO ERASURES ALLOWED, 4 1. When Issuing an unmodified opinion, the auditor who evaluates the audit findings should be satisfied that the A amount of known misstatement is documented in the management representation B._amount of known misstatement Is acknowledged and recorded by the client. G inated ie total likely misstatement includes the adjusting entries already recorded 1D. estimate of the total likely misstatement Is less than @ material amount. aud 3 tnancia statements are designed to obtain assurance of detecting misstatement CC “due to 7 x Fraudulent Misappropriation _- Enos financial reparing ofassets A Yes ‘Yes ‘No B. Yes No Yes ca No Yes No DB. Yes Yes Yes 3, An attitude that Includes/a questioning mind and a critical assessment of audit evidence Is referred to as ‘A. due professional care. B. reasonable assurance. C. professional skepticism. — By supervision. 3, When considering fraud risk factors relating to management's characteristics, which of the) following Is least likely to indicate a risk of possible misstatement due to fraud? ~~. Fallure to correct known significant deficiency on a timely basis. 8. Ronfinancial management's preoccupation with the selection of accounting principles. . Significant partion of management's compensation represented by bonuses based upon achieving unduly aggressive operating results. D. Use of unusually conservative accounting practices. ~ — Leuk Weel, « When corisidering internal.control, an auditor should be aware of the concept of reasonable assurance, which recognizes that =— x assittermal ‘control may be Ineffective due to mistakes In judgment and personal carelessness. a, adequate safeguards over access to assets and records should permit an entity to ‘maintain proper accountability. C. establishing and maintaining intemal control's an_ Important responsibilty of \ management. . a naaert an entity's intemal ctrl should net excted the benefits expected to be wed. ) deri (eam of the following questions would an auditor most likely Include on an Internal control 5 ‘questionnaire for notes payable? ‘A. Ave assets that collateralize notes payable critically needed for the entity’s continued existence? Page 1 of 10 Pages ijSania FIRST PREBOARD EXAMINATION FEBRUARY LL 2017 / SATURDAY. 5:00PM = 6:00 t repay notes payable? rhoncurrent assets? of directors? 9% craneview so100t oF THe 5 oF NES “3. Are two or more aythoized natures required on checks th C, Are the proceeds from notes payable used for the purchase oF |B. Are drect borrowings on notes payable authored by the board Which of the followang controls would a company most likely use to safeguard marketable 7 \ © securities when an i trust agent Is not employed? A. The investment committee of the board of directors periodically reviews the Investment decisions delegated to the treasurer. & Two company officals have jont control of marketable securities, which are kept in @ bb nk safe-deposit box. — 2 cc. SR RENS Soaiter and the controller independently trace all purchases and sales of L marketable securities from the subsidiary ledgers to the general ledger. , The chairman of the board verifies the marketable securities, which are kept in 2 bank safe-deposit box, each year on the balance sheet date. | 8. Which of the following matters does an aueltor usually include in the engagement letter? | A. Arrangements regarding fees and billing. i {8 Anaivicel procedures thatthe autor plans to perfor . Indications of negative cash flows from operating activites. ._Identification of working capital deficiencies. > 9.)yNyich OF the following would + auditor ask the predecessor. auditor to provide ah ‘accepting an audit. ? - a Acs ‘A. Disagreements between the predecessor auditor and management about significant y accounting policies and principles. | \\ The predecessor auctor’s understanding of the reasons for the change of auditors. Fy © Facts known to the predecessor auctor that might bear on the integrity of manageme?t. 1D. Matters that may facitate the evaluation of financial reporting consistency Petwee! Vv ‘current and prior years. Saal 10.” Which of the following tyes of risk increases, when an autor | ivocat auritt procedures for fisarieal statement accounts at an Interim. date? | = ‘A Tnierent. C. Detection. ‘ e 8. Control. D. Sampling. 11, Which of the following would be considered-an analytical procedure” ©" ‘Testing purchasing, shipoing, and receiving cutoff activities. ~ BL Comparing inventory balances to recent sales activities. > statistical sample to the population, ~ Sore CC. Projecting the deviation rate of counts to perpelual records and general ledger balances. 1D. Reconciling physical 12.) While performing an audit of the financial statements of @ company for the VEO" ended \Decomber 31, Year the auaitor notes that the company's seles increased substantially ‘Year 2. In assessing the risk December, Year 1, with a corresponding decrease if January, isappropriation oF assets, what should be the auditor's MS of fraudulent financial reporting or mi inital indication about the potential ‘or fraud in sales revenue? nar ‘on of misappropriation of assets. Ns \ wee ¥ wo ( A. There is a broad indicat B. There is an indication of theft of the entity's assets, G. There is an indication of embezzling receipts. D. There is a broad indication of financial reporting fraud. y 13): an auditor Is evaluating a dient intemal controls. Which of the following situations be the most difficult incernal control issue for an. auditor to detect? A. The accounting staff neglects the control due to increased transactions to be processed. B. The technology department writes @ program that does not properly implement the control due to a lack of understanding. departments, are circumventing an intemal * C. Two employees, who work in different i Page 2 of 10 PagesC (CPA REVIEW SCHOOL OF THE PHILIPPINES, Fy (CPA) Manta FIRST PREBOARD EXAMINATION rae PUMRUARY 11.2017 / SATURDAY 5.00PM = 6.000 D. Someone erroneously disables edit cecks re progr —— a ‘edit checks in a sofware program designed to identity 14) of he ator pea rol environment? Pal hater dak 8, Information processing. . Performance reviews. ' 1D. Management's philosophy and operating style. ~~ cohol Crue 15, Which of the following documents. the procedures that afe applied and the conclusions, reached in an audit engagement? ‘A. Management representation letter. B. Auditor's report. C. Audit guide, D. Working papers, » a=»! 0 An auditor aces ier numbers on equipment to an entity's sub-ledger. Which of the following management assertions \s supported by this test? ‘A. Valuation and allocation. B. Completeness. €. Rights and obligations. . Presentation and disclosure. pocunaeey 16, 17. Which of the following. procadures would an auditor mast likely complete to test the ‘existence assertion for property, plant, and equipment? Je ‘A. Obtaining a detailed fixed-asset register end ensuring Items are appropriately capitalized. B. Obtaining a listing of current-year additions and verifying that items are recorded in the proper period. sa © Obtaining a listing of all current-year additions, vouching significant adaitions to original invoices, and determining that they have been placed in service. D. Obtaining a detailed fixed-asset register and ensuring depreciation methods are applied consistently. 18. Which of the following agoigs to a practitioner conducting a review of interim financial RT ia Anformation? ~“h, The practitioner must indicate in the report those circumstances in which generally accepted accounting principles have not been consistently observed in the current period in relation to the preceding period. B. The practitioner must express an opinion on the financial statements taken as a whole. C. The practitioner must maintain independence in mental attitude in all matters relating to the engagement. a D. The practitioner must obtain sufficient appropriate evidence by performing procedures to afford a reasonable basis for an opinion. When an auditor has substantial doubt about an entity's ability to continue as @ going 19. ‘concern because of the probable discontinuance of operations, the auditor most likely ‘would express a qualified opinion if A. the effects of the adverse financial conditions likely will cause a bankruptcy filing. B._ management has no plans to reduce or delay future expenditures. S negative trends and recurring operating losses appear to be irreversible. |. information about the entity's ability to continue as a going concem Is not disclosed. « = 20. To which of the fllowing’matters would materia limits not apply when obtaining wh vr dllent representations? ~ WhO) — wheres A. Violations of state labor regulations. 8, Disclosure of line-of-crealt arrangements. C. Information about related party transactons, D. Instances of fraud involving management % Paye 8 of 10 Pages21 acmecne’s report on areet-upon procedures that sn the form of procedures and ‘A negative assurance that the procedures did not necessarily disclose all reportable 5. an acknowledgment of the practitioner's for the art responsibility sufficency of the 2 Sotemert of resticnons on the use ofthe report ~ 2 Gisciaimer of opinion on the on the entity's financial statements. orn useeriOrT 22. Which of the following factors would most likely be Peo eas likely be considered an inherent: limitation to an The complety cf the information processing system.“ & Human judgment in the decision making process.» ~ | The ineffectiveness of the board of directors. ©. The lack of management incentives to improve the control environment. 3 Which of the follomng factors woul: affect the Gterk-of the auditor's consideranon of the client's memal ~A The emount cf tme budgeted to complete the engagement” The sze and complenity of the client. ‘© The nature of speamic retevant controls. ©. The auditor's prior experience with dient operations. 24. The most reliable procedure for an aucitor to usé to stence of a client's inventory & sasade locaton wad bb eee oe A. observe physica! counts of the inventory items. 5. Tace tne total on the inventory listing to the gerféral ledger inventory account. © obtain 2 confirmation from the cent indicating inventory ownership. 1D. analytically compare the current-year inventory balance to the prior-year balance. 25. Which &f the following procedures Yield the most competent efence? A. A scanning of tral balences. 7 «Mey B. Artinguiry of clent personnel, * —- «ay C. A companson ot beginning and ending retained earnings. < D. A recalouetion of bac debt expense... — ge et 26. An auditor who uses 2 transaction cycle approach tp assessing Contrsi asic most ety wenukt test controi activities related to transactions involving the sate cf coces t= cuscmers waif the es A. collection of rece'vabies. mo B. purchase of merchandise it Wary. CC. payment of accounts payable. 2 />D. sale of long-term debt. ‘ ed i aS py og wel mee 27. “Fracing Copies of computer-prepared sales invodes to copes oF te ore Deere, shipping documents provides evidence that_- ~~o<"* __~ A. Shipments to Customers were property oiled. ~~ entries in the accounts receivable subsichary ledger were for sales actualy sipped. C. sales billed to customess were actually shipped. y D. no duplicate shipments to customers were made. 28. in auditing a manifectunng|entity, which of the following procedures would an auditor least-{ikely perfor to determine whether siow-moving, defective, and obsolete Items in invento, are property idenufted>— yy A. Test the compurstion of standard avemead rates. B. Tour the mani’ -cturing plant ar prouuction facility. C. Compare inventory balances to anucipeted sales volume. D. Review inventory experience and trends. ae Page 4 of 10 Pages‘CPA REVIEW SCHOO AUDITING THEORY Mt PHIXPPINES (CPAR) - MAKILA FIRST PREBOARD EXAMINATION SATURDAY 5:00PM = 6:00 29.\ After testi \After testing a clients intemal ns Itemal contra actives, an autor discovers 2 number of significant Sefceaes Me cern eis era co, Under ese reuneances the | A iss issue a disclaimer of opinion about the internal controls as part of the auditor's report, | + 1 | > B: increase the ‘assessment of conta isk and increase the extent of subsa 5 e substantive tet, S: Issue a qualified opmon of cing as part of te ut ep \ = as ass from. the audit becaus ie internal controls are ineffective. Seba aoe ses See Ree erarcl, audit ~ Waverdghs plawtitte 1 | 3 the following describes how the objective pf a review of financial statements afers, yp eer {rom te jective of a complaton engagement? a he primary ebjcive of 2 revew engagements es the completeness of the | ip, Mencia Satements por, bat 9 elation for reasonableness. | imary objective of a review engagement is to provide positive assurance cat te \ ‘Smameizh stakemvers are fahy presente, bdk 2 Completion prOA Ges NO such VETER. | & . Ina review engagement, accountants provide limited assurance, but a compilation expresses _ D. Ina revi rant, accountants provide reasonable or positive assurance that the financial statements are fairly presented, but a compilation provides limited assurance. 31. Prior to commencing fieldwork, an auditor usually discusses the the client's management. Which of the following matters do the agree upon at this time? y ‘A. The appropriateness of the entity's plans | B. The determination of the fraud risk fectors t CC. The control weaknesses to be included in the commun! governance. . The coordination of the assistance of the client's ‘personnel in data preparation. > yaintenance expense accounts 1S for dealing with adverse economic conditions. hat exist within the client's operations. ication with those charged with ap | | 32, An auditors prncpal ‘objective in analyzing repairs and mi oS to {2 setermine that all obsolete plant and equipment assets were written off before the year- end. 4) verify that all recorded plant and equipment assets actually Sxst- tat C. discover expenditures that were expensed but should have been capitalized.” D, identify plant and equipment jssets that cannot be repaired and should be written off. + ped ~ sureth wv - 33. Asia 6f controls, an auditor Control isk too high. This incorrect assessment most likely occurred because ase ol risk based on the auditors sample is less than the true operating effectiveness of the client's control activity. a the auditor believes that the control activity relates tO the client's assertions when, in fact, it does not. C. the auctor believes that the control activity will reduce the extent of substantive testing when, in fact, i will not. eater than the true operating D. control risk based on the auditor's sample is gt effectiveness of the client's control activity. -/ a 34, Which of the following statements it regarding analytical procedures in 2 review engagement? f analytical procedures are not required to be used 3s ¢ substantive test. B. Analytical procedures do not involve comparisons ‘of recorded amounts to expected amounts. cial procedures are required to be used inthe final TOV TI yaa, ___ Analytical procedures involve the use ‘of both financial and nonfinancial data. \, 35, /anaudit client failed to. maintain copies of its procedures manuals and organizational Ane hat should the auditor doin an auc of finance SAE gt basis of a scop® limitation. ‘A. Issue a qualified opinion on the a y B. Document the auditor's understanding of internal controls. » seaterSRA REVIEW SCHOOL OF THE PHILIPPINES (CPA) ~ MANILA FIRST PREBOARD EXAMINATION FEBRUARY 11, 2017,/ SATURDAY. /5.000H = 6.0008 Assess control risk at the maximum level, ©. Restrict the auditor's ibility to letter SPonsiblity to assess the effectiveness of controls In Uve aut 36. In.evaluating the reasonableness of an entity’s concentrat ‘aécounting estimates, an auditor most likey ‘on key factors end assur — A gable and ore assumptions that are . ‘and not susceptible to bias, C. deviations from historical patterns, . ‘similar to industry guidelines, ae an accountant Is not independent with respect to an entity, which of the following ‘types of compilation reports may be Issued? A. The standard compilation report may be issued, regardless of independence. “ 8. A compilation report with negative assurance may be Issued, C. A compilation report with special wording that notes the accountant’s lack of Independence may be issued. —- ) D. Acompilation report may be issued if the engagement Is upgraded to a review.” 38. Which ofthe following Is an element x6 cass quality.control policies and procedures applicable to the firm's accounting and auditing practice? PR intomatin poss B. Engagement performance. . Technology selection. D. Professional skepticism. 38, Which of the folowiag frocedures woud best deter. tality oqvsion by management? \._ Inquiry of senior staff and Pecently departed! employees. ~ Review and check mathematical accuracy of financial statements. . Review artides of incorporation and corporate bylaws. Review purchase contracts and other legal documents. > 40. Which of the following procedures. Is onnarty performed by 2p! accountant during an ‘to compile the finandal Statements of an entity? -®" vm __-“R. Make inquiries of the employees and senior management regarding transactions with related parties. B. Determine whether there is substantial doubt about the entity's ability to continue as a going concern. C. Scan the entity's records for the period just after the balance sheet date to identify D. pop> ‘subsequent events requiring disclosure. » Consider whether the finandal statements are ffee from obvious material mistakes in the application of accounting principles. » ~ ~- 41. Which of the followir epresents_a key control for ensurk sals) are Property authorized when hve ee a ‘A. The separation of duttes between the billing department and the cash receipts approval department. B. The use of an approved price list to determine unit selling price. C. Copies of approved sales orders sent to the shipping, billing, and accounting departments. » a D. Sales orders are sent to the it department. Sa ike de 42\. When providing limited assurance that the financial statements of_an entity require no ‘material modifications to be in accordance with BERS, the accountant should ‘A. assess the risk of material misstatement in the financial statements due to fraud. B. perform tests of controls to evaluate the effectiveness of the controls. © C. Understand the accounting principles of the industry in which the entity operates. D. communicate with the audit committee regarding material weaknesses in internal control. (wortareney AT OF THE ree Cnn) — MLA FIRST PREBOARD EXAMINATION FEBRUARY 11, 2017 / SATURDAY / 5.00PM — 6:00PM (2) cetera secs cry were acini via pty (So {Tian auditor best determine the effectiveness ofthis contrat activity? by Inspect the policy manual establishing this control activity ( B. Ask the chief technology officer about known problems, C Observe whether the data center is monitored, > D. Obtain a list of current data center employees. - 41 76 provide assurance that each 's Submitted and paid only once, an auditor most likely would examine a sample of ‘and determine whether each voucher is A ‘Stamped “paid” by the check signer. 4 8. ‘returned to the vouchers payable department. c ‘Supported by @ vendor's invoice and purchase order. D. prenumbered and accounted for. ( To Solkuer 45. Which of the following is an inherent limtation of interna ? B57 mera amping SS oe ae 7 8. Collusion. D. Employee peer review. 46. Ar the;condlusigrof an audit, an auditor is reviewing the evidence gathered in support of the finandat- With regard to the valuation of inventory, the auditor condudes ‘ that the evidence obtained is not sufficient to support management's representations. Which ey Of the following actions is the auditor mast likely to.take? A. Consult with the audit committee and issue a disclaimer of opinion. 8. Consult with the audit committee and issue a qualified opinion. C. Obtain aduitional evidence regarding the valuation of inventory. D. Obtain a statement from management supporting their inventory valuation. wr 47. Tne auditors inventory observation test counts ere treced to the client's inventory listing to test for which of the following financial statement assertions? f A. Completeness. 8. Rights and obligations. C. Allocation and valuation. D. Understandability and classification. 48. Which of the following is an analytical procedure that an auditor mast likely would perform when planning an audit? : A. Confirming bank balances with the finandal institutions. > B. Scanning accounts receivable for amounts over credit limits. C. Recalculating inventory extensions of physical inventory counts. . Comparing the current-year account balances for conformity with predictable patterns. X 49. Ip,which of the following circumstances is substantive testing of accounts receivable before balance sneat date most appropriate? ‘A. The client has a new sales incentive program in place. 2. ef &. Internal.cantrals during the remrainng peed are effective. C. There is a high turnover of senior management D. It isa first engagement of a new, client. { 50), After making inquiries about granting policies, an auditor selects a sample of sales ) transactions and examines evidence of Cledit approval: This test of controls mast likely © supports management's financial staternent asseition(s) of: Rights and Allocation and ‘Qhligations veluation ureter hancachw & A Yes Yes 8 Yes No eed orppre ak $ ‘No Yes ~ Y D. No No Page 7 of 10 Pages(CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) ~ MAKILA FIRST PREBOARD BUMIMATION 51. An auditor is determining if intemal control relative to the revenue cyde of @ wholesaling. entity s opérating effectively in minimizing the failure to’ sales "The aucstor ros Healy would seer 9 sompe of tensacbons form the popclaten represert bythe A. cash receipts file. C. customer order file. B. ing document file. D. sales it file. PRE Par edie ADIN (sound tanta 52. wre ete: be ing procedures would an auditor most likely perform prior to the balance ‘A. Review subsequent events. . ot B. Perform search for unrecorded labiltes. Yotrhs cand wey bet Send inquiry letter to dient’s legal counsel. D. Review detail and test significant travel and entertainment expenses \ ra 53) When performing analytical procedures in the planning stage, the auditor most lkby would develop expectations by reviewing which of the following sources of information? ‘A. Unaudited information from internal eee B. Various account assertions in the p memorandum. Comments in the prior-year's management lette. . The control risk assessment relating to specific financial assertions. 54, A financier byt, pbenectsigcevahted tb help an ator esse ch of ing: ‘A. The internal-audit department's objectivity in reporting a material misstatement of 2 financial statement assertion it detects to the audit committee. B. The risk that the internal control system will not detect 2 material misstatement of 2 financial statement assertion. C. The risk that the audit procedures implemented will not detect 3 material misstatement of a financial statement assertion. D. The susceptibility of a financial statement assertion to a material misstatement assuming there are no related controls. = + 55. AS a result of sampling tures applied as ‘tests of contra, an auditor incorectty f ‘assesses control risk higher than appropriate. The most likely explanation for this sixzation is that- A. thedeviation rate in the auditor's sample is less than the tolerable rate, but the deviation rate in the population exceeds the tolerable rate. B. the deviation rate in the auditors sample exceeds the tolerable rate, but the deviation rate in the population is less than the tolerable rate. “ C. the deviation rates of both the auditor's semple and the population exceed the tolerable D. rate. the deviation rates of both the auditor’s sample and the population are fess than the of tolerable rate. "56. Under which of the following circumstances would the éxpression of a disclaimer of opinion 5 be inappropriate? 5 A” The auditor is unable to obtain the audited financial statements of 2 consolidated investee. B. Management does not provide reayonble justification for 2 change ln accruing principles. C. The company failed to make a count of its physical inventory during the year and the auditor was unable to apply alternative procedures to verify inventory quantities. -~ D. Management refuses to allow the auditor to have access to the company’s canceled checks and bank statements. _ 57. Which of the following s ts likely. would be included in an engagement letter NO ee cee ee A. The CPA firm will provide absolute assurance about whether the financial statements are free of material misstatement. B. The CPA firm is responsible for ensuring that the client complies with applicable laws. Page 8 of 10 PagesCPA REVIEW Say — MANILA SIRNRGLARIENEOF MEMES OHM gyn TSR SC C. The CPA firm will Involve information technology specialists In the performance of the aud, D. The CPA firm will adjust the financial statements to correct misstatements before Issuing ‘report. ) 8 Which of the folowing rleresefe an ineredtumitason totaal Zoro? ‘A. Bank reconciliations are not performed on & timely basis. | B. The CEO can request a check with no purchase order.» ? C. Customer credit checks are not performed. | D. Shipping documents are not matched to sales invoices. 59, (An auditors tests of controls for completeness for the revenue cycle usually incude | ‘determining whether | A. each receivable Is collected subsequent to the year end, ek tert ee ee CC. each invoice is supported by a customer purchase order. | 1. each credit memo is properly approved. 60. | When assessing the competence of the internal auditors, an ieerec Gena ah information about the pee ‘A. organizational level to which the internal auditors report. A B. quality ofthe internal auditors’ working paper documentation. C. policies prohibiting internal auditors from auditing sensitive matters. ~ D. internal auditors’ preliminary assessed level of control risk. (Ca) Which of the following is most relevant when an auditor considers the client's ‘organizational structure ih.the context of control risk? ‘AY Management's attitude toward information processing and accounting departments. B. The organization's recruiting and hiring practices. C. Physical ity of the accounting function to upper management. the client's lines of reporting. 62. r who uses the work of an expert may refer to the expert in the auditor's report if A. auditor believes that the expert's findings are reasonable in the circumstances. B. expert's findings support the related assertions in the financial statements. c D. . auditor modifies the report because of the difference between the client's and the cpr’ vahantons of oe . expert's. findings the auditor with greater assurance of reliability about management's representations. . | A CPA firm is completing the fieldwork for an audit of Swedert Co. for the current year ended December 31. The manager in charge of the audit is performing the final steps In the evidence accumulation phase of the audit and notes that there have been several changes in Sweden during the year under audit. Which of the following items would indicate there could be substantial doubt about Sweden's ability to continue as ‘a going concern for a reasonable period of time? A. Cash infusion by a venture capital frm. 'B- Recurring working capital shortages. C. A lack of significant contracts with new customers, D. Term debt refinanced with a.new bank.” blank form of accaufits receivable confi e Se en a ee ‘A. shipping documents need to be inspected. 8. recipients may sign the forms without proper investigation. C. more nonresponses to the requests are likely to occur. ~ D. subsequent cash receipts need to be verified, lent than the positive Page 9 of 10 Pages,Neer FIRST PREBOARD EXAMINATION FEBRUARY 11,2017 / SATURDAY / 0:00PM ~ 6.0014 ‘accountant agrees to the client’s request to change an engagement renew compilation of financial statements. The complation report ahead melnge et 8 ‘A. no reference to the original engagement. B._eference to a departure from PSAS. + Scope limitations that may have resulted in the change of engagems . Information about review procedures already performed, vane REVIEW SCHOOL OF THE PHILIPPINES (CPAR) (CPAR)~ MANILA Which of the following describes a weakness ih accounts proceed Y payable es? A. The accounts payable clerk files invoices and supporting documentation after payment B_The accounts payable clerk manually verifies arithmetic on the vendor invoice, . The accounts payable system compares the receiving report to the vendor invoice. D. The accounts payable manager Issues purchase orders. ‘ + A Successor auditor's inquiries of the predecessor auditor should include questions fegarding ‘A. the predecessor's evaluation of audit risk and judgment about materiality B. subsequent events that occurred since the predecessor's audit report was issued. * C. the predecessor's understanding as to the reasons for the change In auditors, D. the predecessor's knowledge of accounting matters of continuing significance }.) Which of the following most likely would cause an auditor to consider whether a client's financial statements contain material misstatements? A. Management did not disclose to the auditor that it consulted with other accountants about significant accounting matters. B, The chief financial officer will not sign the management representation letter until the last day of the auditor's field work. C. Audit trails of computer-generated transactions exist only for a short time. D, The results of an analytical procedure disdose unexpected differences, ¢ ane” . Which of the following statements is correct regarding ates? A. The auditor's objectiye is to evaluate whether accounting estimates arg reasonable in the circumstances. B. Accounting estimates should be used when data concerning past events can be accumulated in a timely, cost-effective manner. C. An important accounting estimate is management's listing of accounts receivable greater than 90 days past due. D. Accounting estimates should not be used when the outcome of future events related to the estimated item Is unknown. |. A practitioner has been: engaged to apply agreed-upon procedures to prospective financial statements. Which of the following conditions must be met for the practitioner to perform the engagement? a The prospective financial statement indudes a summary of significant accounting policies. The practitioner takes responsibility for the sufficiency of the agreed-upon procedures, The practitioner and specified parties agree upon the procedures to be performed by the practitioner. “ ‘The practitioner reports on the criteria to be used In the determination of findings. 9 9m > ~-- END OF EXAMINATION -—~