You are on page 1of 17


2F Ritzleen Building, Lukban Street, General Santos City, Philippines

+639228753812 | +639065703473
CPA Review
General Santos City, Region XII Auditing Theory

1. Which of the following statements best describes the primary purpose of Philippine Standards on Auditing?
A. They are guides intended to set forth auditing procedures which are applicable to a variety of situations
B. They are procedural outlines which are intended to narrow the areas of inconsistency and divergence of
auditor opinion
C. They are authoritative statements, enforced through the Code of Professional Conduct, and are intended
to limit the degree of auditor judgment
D. They are interpretations which are intended to clarify the meaning of “generally accepted auditing

2. Generally Accepted Auditing Standards Philippine Standards on Auditing should be looked upon by practitioners
A. Ideals to work towards, but which are not achievable
B. Maximum standards which denote excellent work
C. Benchmarks to be used on all audits, reviews, and compilations
D. Minimum standards of performance which must be achieved on each audit engagement

3. The auditor’s judgment concerning the overall fairness of presentation of financial positions results of
operations, and changes in cash flow is applied within the framework of
A. Quality control
B. Generally accepted auditing standards which include the concept of materiality
C. The auditor’s evaluation of the audited company’s internal control
D. Generally accepted accounting principles

4. The auditor’s responsibility for failure to detect fraud arises

A. Whenever the amounts involved are material
B. Only when such failure clearly results from negligence so gross as to sustain an inference of fraud on the
part of the auditor
C. When such failure clearly results from failure to comply with generally accepted auditing standards
D. Only when the examination was specifically designed to detect fraud

5. Which of the following best describes the operational audit?

A. It requires the constant review by internal auditors of the administrative controls as they relate to
operations of the company.
B. It concentrates on implementing financial and accounting control in a newly organized company.
C. It attempts and is designed to verify the fair presentation of a company's results of operations.
D. It concentrates on seeking out aspects of operations in which waste would be reduced by the introduction
of controls.

6. To maximize independence, the director of internal auditing should report to the

A. Audit committee C. Chief financial officer
B. Controller D. Director of information systems

7. The best description of the scope of internal auditing is that it encompasses

A. Primarily operational auditing
B. Both financial and operational auditing
C. Primarily the safeguarding of assets and verifying the existence of such assets
D. Primarily financial auditing

8. Which of the following best describes what is meant by generally accepted auditing standards?
A. Audit objectives generally determined on audit engagements
B. Acts to be performed by the auditor
C. Measures of the quality of the auditor's performance
D. Procedures to be used to gather evidence to support financial statements

9. Which of the following is not a key attribute that is essential to perform an assurance engagement?
A. Subject matter knowledge C. Established criteria or standards
B. Independence D. Accounting skills

10. Which of the following does not describe a condition that creates a demand for auditing?
A. Conflict between an information provider and a user can result in biased information.

SELF-TEST Page 1 of 17 - PW
B. Information can have substantial economic consequences for a decision maker.
C. Expertise is often required for information preparation and verification.
D. Users can directly access the quality of information.

11. The members of a client’s “audit committee” should be

A. Members of management C. Directors who are not a part of company management
B. Non-directors and non-managers D. Directors and managers

12. Which of the following services would be most likely to be structured as an attest engagement?
A. Advocating a client’s position in tax matter
B. A consulting engagement to develop a new database system for the revenue cycle
C. An engagement to issue a report addressing an entity’s compliance with requirements of specified laws
D. The compilation of a client’s forecast information


1. One means of informing the client that the auditor is not responsible for the discovery of all acts of fraud
is the
A. Engagement letter C. Responsibility letter
B. Representation letter D. Client letter

2. The term “objectivity” in the code refers to a CPA’S ability

A. To choose independently between alternate accounting principles and auditing standards
B. To distinguish independently between accounting practices that are acceptable and those that are not
C. To be unyielding in all matters dealing with auditing procedures
D. To maintain an impartial attitude on all matters that come under the CPA’s review

3. Which of the following statements is correct?

A. All members should be independent in fact and in appearance at all times
B. All members in public practice should be independent in fact and in appearance at all times
C. All members in public practice should be independent in fact and in appearance when providing auditing,
tax, and MAS services
D. All members in public practice should be independent in fact and in appearance when providing auditing
and other attestation services

4. In which of the following circumstances would a CPA be bound by ethics to refrain from disclosing any
confidential information obtained during the course of a professional engagement?
A. The CPA is issued a summons enforceable by a court order which orders the CPA to present confidential
B. A major stockholder of a client company seeks accounting information from the CPA after management
declined to disclose the requested information
C. Confidential client information is made available as part of a quality review by the BOA
D. An inquiry by disciplinary body of a national CPA society requests confidential client information

5. A CPA firm should decline an offer to perform management advisory services engagement for a non-public
company if
A. The CPA firm audits the financial statements of a subsidiary of the prospective client
B. Recommendations made by the CPA firm are to be subject to review by the client
C. Acceptance would require the CPA firm to make management decisions for an audit client
D. The proposed engagement is not accounting-related

6. When determining whether independence is impaired because of an ownership interest in client company,
materiality will affect whether ownership is a violation of ethical principles
A. In all circumstances C. Only for indirect ownership
B. Only for direct ownership D. Under no circumstances

7. The scope and nature of an auditor's contractual obligation to a client is ordinarily set forth in the
A. Scope paragraph of the auditor’s report C. Management letter
B. Opinion paragraph of the auditor’s report D. Engagement letter


1. When planning the audit, if the auditor has no reason to believe that illegal acts exist, the auditor should
A. Include audit procedures which have a strong probability of detecting illegal acts
B. Still include some audit procedures designed specifically to uncover illegalities
C. Ignore the topic
D. Make inquiries of management regarding their policies for detecting and preventing illegal acts and
regarding their knowledge of violations, and then rely on normal audit procedures to detect errors,
irregularities, and illegalities

2. Which of the following is the auditor least likely to do when aware of an illegal act?
A. Discuss the matter with the client’s legal counsel
B. Obtain evidence about the potential effect of the illegal act on the financial statements

Page 2 of 17 - PW
C. Contact the local law enforcement officials regarding potential criminal wrongdoing
D. Consider the impact of the illegal act on the relationship with the company’s management

3. Which of the following best describes what is meant by the term “fraud risk factor?”
A. Factors whose presence indicates that the risk of fraud is high
B. Factors whose presence often have been observed in circumstances where frauds have occurred
C. Factors whose presence requires modification of planned audit procedures
D. Material weaknesses identified during an audit

4. Which of the following statements is true?

A. It is usually easier for the auditor to uncover fraud that errors
B. It is usually easier for the auditor to uncover errors than fraud
C. It is usually equally difficult for the auditor to uncover errors or fraud
D. Usually, none of the above statements is true

5. An auditor’s examination performed in accordance with generally accepted auditing standards generally should
A. Be expected to provide assurance that illegal acts will be detected where internal control is effective
B. Be relied upon to disclose violations of truth-in-lending laws
C. Encompass a plan to search actively for illegalities which relate to operating aspects
D. Not be relied upon to provide assurance that illegal acts will be detected

6. 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?
A. Failure to correct known significant deficiency on a timely basis
B. Nonfinancial management’s preoccupation with the selection of accounting principles
C. Significant portion of management’s compensation represented by bonuses based upon achieving unduly
aggressive operating results
D. Use of unusually conservative accounting practices

7. Which of the following factors is most important concerning an auditor’s responsibility to detect errors and
A. The susceptibility of the accounting records to intentional manipulations, alterations, and the
misapplication of accounting principles
B. The probability that unreasonable accounting estimates result from unintentional bias or intentional
attempts to misstate the financial statements
C. The possibility that management fraud, defalcations, and the misappropriation of assets may indicate the
existence of illegal acts
D. The risk that mistakes, falsifications, and omissions may cause the financial statements to contain
material misstatements

8. Auditing standards regarding the detection of indirect-effect illegal acts clearly state that the auditor provides
A. No assurance that they will be detected
B. The same assurance provided for other items
C. Assurance that they will be detected, if material
D. Assurance that they will be detected, if highly material

9. Which of the following is a “self-review” threat to member independence?

A. An engagement team member has a spouse that serves as CFO of the attest client
B. A second partner review is required on all attest engagements
C. An engagement team member prepares invoices for the attest client
D. An engagement team member has a direct financial interest in the attest client

10. This refers to the communication to the public of facts about a professional accountant which are not designed
for the deliberate promotion of that professional accountant.
A. Advertising B. Publicity C. Solicitation D. Referral

11. Which of the following will not be found in the Certificate of Registration issued to successful examinees?
A. Indication that the CPA named therein is entitled to the practice of the profession
B. Signature of the PRC chairperson
C. Date of issuance and expiry date
D. Signature of the BOA chairman and members

12. Per RA 9298: A certified public accountant engaged in the practice engaged in the practice of public accountancy
under his/her name, by himself/herself only or with one or more staff members.
A. Individual CPA B. CPA C. Practitioner D. Professional accountant

13. Which of the following is the least required in attaining professional competence?
A. High standard of general education
B. Specific education, training and examination in professionally relevant subjects
C. Period of meaningful work experience


Page 3 of 17 - PW
D. Continuing awareness of development in the accountancy profession

14. “A professional accountant should be straightforward and honest in all his professional and business
relationships.” This description appropriately describes the fundamental principal of
A. Integrity C. Confidentiality
B. Objectivity D. Professional behavior

15. If a firm, or a network firm, has a direct financial interest in an audit client of the firm, the self-interest threat
created would be so significant no safeguard could reduce the threat to an acceptable level. The action
appropriate to permit the firm to perform the engagement would be to
A. Dispose of the financial interest
B. Dispose of a sufficient amount of it so that the remaining interest is no longer material
C. Either of the given choices
D. Neither of the given choices

16. Which of the following is not a requisite in applying for the CPA licensure examinations?
A. Natural-born citizen of the Philippines
B. Good moral character
C. Holder of the degree of BS Accountancy
D. Has not been convicted of any criminal offense involving moral turpitude

17. Which of the following is not an element of quality control?

A. Acceptance and continuance of client relationships and specific engagements
B. Human resources
C. Internal control
D. Monitoring

18. Quality control for a CPA firm, as referred to in Philippine Standards on Quality Control 1 , applies to
A. Auditing services only C. Auditing and tax services
B. Auditing and management advisory services D. Auditing and accounting and review services

19. Who has the power to remove any member of the BOA from position?
A. BOA B. PICPA C. PRC D. Philippine president

20. Prior to the acceptance of an audit engagement with a client who has terminated the services of the predecessor
auditor, the auditor should
A. Contact the predecessor auditor without advising the prospective client and request a complete report of
the circumstance leading to the termination with the understanding that all information disclosed will be
kept confidential.
B. Accept the engagement without contacting the predecessor auditor since the CPA can include audit
procedures to verify the reason given by the client for the termination.
C. Not communicate with the predecessor auditor because this would in effect be asking the auditor to
violate the confidential relationship between auditor and client.
D. Advise the client of the intention to contact the predecessor auditor and request permission for the

21. Which of the following is not an element of a system of quality control?

A. Leadership responsibilities for quality within the firm
B. Acceptance and continuance of client relationships and specific engagements
C. Engagement performance
D. Measurement and review of performance

22. Which of the following is not a fundamental ethical principle?

A. Objectivity C. Professional competence and due care
B. Professional behavior D. Independence

23. Leadership responsibilities within the firm shall be assumed by the

A. Chief executive officer C. Junior partners
B. Human resource personnel D. Board of Accountancy


1. Philippine Standards on Auditing require auditors to assess the risk of material misstatements due to fraud
A. For every audit C. Sufficient to find any frauds which may exist
B. For first-time audits D. Whenever it would be appropriate

2. A measure of how willing the auditor is to accept that the financial statements may be materially misstated after
the audit is completed and an unmodified opinion has been issued is the
A. Inherent risk C. Statistical risk
B. Acceptable audit risk D. Financial risk

Page 4 of 17 - PW

3. When discussing inherent risk (IR) and the audit risk model, which of the following is not true?
A. IR is inversely related to planned detection risk
B. IR is inversely related to evidence
C. IR is the susceptibility of the financial statements to material error, assuming no internal controls
D. IR is the auditor’s assessment of the likelihood that errors exceeding a tolerable amount exist in a
segment before considering the effectiveness of internal accounting controls

4. When discussing acceptable audit risk (AAR) and the audit risk model, which of the following statements
is true?
A. The terms audit assurance, overall assurance, or level of assurance are synonyms for AAR
B. AAR is objectively determined by the auditor
C. AAR is the risk that the auditor is willing to take that the financial statements are fairly stated after the
audit is completed and an unqualified opinion has been reached
D. When the auditor decides on a lower acceptable audit risk, it means the auditor wants to be more certain
that the financial statements are not materially misstated

5. If planned detection risk is reduced, the amount of substantive evidence the auditor accumulates will
A. Increase B. Decrease C. Remain unchanged D. Be indeterminate

6. Which statement is correct concerning the relevance of various types of controls to a financial audit?
A. An auditor may ordinarily ignore a consideration of controls when a substantive audit approach is taken
B. Controls over the reliability of financial reporting are ordinarily most directly relevant to an audit, but
other controls may also be relevant
C. Controls over safeguarding of assets and liabilities are of primary importance, while controls over the
reliability of financial reporting may also be relevant
D. All controls are ordinarily relevant to an audit

7. Effective internal control in a small company that has an insufficient number of employees to permit
proper division of responsibilities can best be enhanced by
A. Employment of temporary personnel to aid in the separation of duties
B. Direct participation by the owner of the business in the record-keeping activities of the business
C. Engaging a CPA to perform monthly “write-up” work
D. Delegation of full, clear-cut responsibility to each employee for the functions assigned to each

8. After finishing the review phase of the study and evaluation of internal control in an audit, the auditor
should perform tests of controls on
A. Those controls that the auditor plans to rely upon
B. Those controls in which material weaknesses were identified
C. Those controls that have a material effect upon the financial statement balances
D. A random sample of the controls that were reviewed

9. Which of the following types of evidence would an auditor most likely examine to determine whether controls
are operating as designed?
A. Confirmations of receivables verifying account balances
B. Letters of representations corroborating inventory pricing
C. Attorneys’ responses to the auditor’s inquiries
D. Client records documenting the use of computer programs

24. When obtaining an understanding of an entity’s control environment, an auditor should concentrate on
the substance of management’s policies and procedures rather than their form because
A. Management may establish appropriate policies and procedures but not act on them
B. The board of directors may not be aware of management’s attitude toward the control environment
C. The auditor may believe that the policies and procedures are inappropriate for that particular entity
D. The policies and procedures may be so weak that no reliance is contemplated by the auditor

25. In an audit of financial statements in accordance with generally accepted auditing standards, an auditor is
required to
A. Document the auditor’s understanding of the entity’s internal control
B. Search for significant deficiencies in the operation of internal control
C. Perform tests of controls to evaluate the effectiveness of the entity’s internal control
D. Determine whether controls are suitably designed to prevent or detect material misstatements

26. Which of the following procedures would an auditor least likely perform while obtaining an understanding of a
client in a financial statement audit?
A. Coordinating the assistance of entity personnel in data preparation
B. Discussing matters that may affect the audit with firm personnel responsible for non-audit services to the
C. Selecting a sample of vendors’ invoices for comparison to receiving reports
D. Reading the current year’s interim financial statements


Page 5 of 17 - PW

27. Which of the following audit risk components may be assessed in nonquantitative terms?
Control risk Detection risk Inherent risk
A. Yes Yes No
B. Yes No Yes
C. Yes Yes Yes
D. No Yes Yes

28. On the basis of the audit evidence gathered and evaluated, an auditor decides to increase the assessed level of
control risk from that originally planned. To achieve an overall audit risk level that is substantially the same as
the planned audit risk level, the auditor would
A. Decrease substantive testing C. Increase inherent risk
B. Decrease detection risk D. Increase materiality levels

29. Which of the following is a function of the risks of material misstatement and detection risk?
A. Internal control C. Quality control
B. Corroborating evidence D. Audit risk

30. Which of the following statements is correct concerning an auditor’s assessment of control risk?
A. Evidence about the operation of internal control in prior audits may not be considered during the current
year’s assessment of control risk
B. The basis for an auditor’s conclusions about the assessed level of control risk need not be documented
unless control risk is assessed at the maximum level
C. The lower the assessed level of control risk, the less assurance the evidence must provide that the control
procedures are operating effectively
D. Assessing control risk may be performed concurrently during an audit with obtaining an understanding
of the entity’s internal control

31. Which of the following procedures concerning accounts receivable would an auditor most likely perform to obtain
evidence in support of an assessed level of control risk below the maximum?
A. Observing an entity’s employee prepare the schedule of past due accounts receivable
B. Sending confirmation requests to an entity’s principal customers to verify the existence of accounts
C. Inspecting an entity’s analysis of accounts receivable for unusual balances
D. Comparing an entity’s uncollectible accounts expense to actual uncollectible accounts receivable

32. Of the following conditions, which one does not increase inherent risk?
A. The client has entered into numerous related party transactions during the year under audit.
B. The client has lost a major customer accounting for approximately 30% of annual revenue.
C. The board of directors approved a substantial bonus for the president and chief executive officer, and
also approved an attractive stock option plan for themselves.
D. Internal control over shipping, billing, and recording of sales revenue is weak.

33. The risk of fraudulent financial reporting increases in the presence of

A. Incentive systems based on operating income C. Substantial increases in sales
B. Improved control systems D. Frequent changes in suppliers

34. The auditor should determine overall responses to address the risks of material misstatement at the financial
statement level. Such responses least likely include
A. Emphasizing to the audit team the need to maintain professional skepticism in gathering and evaluating
B. Assigning more experienced staff or those with special skills or using experts
C. Incorporating additional elements of unpredictability in the selection
D. Performing substantive procedures at an interim date instead of at period end

35. Which of the following is the most important consideration in responding to the assessed risks?
A. The nature of audit procedures C. The extent of the audit procedures
B. The timing of audit procedures D. All of these are equally important

36. Whom should the auditors contact when they suspect a fraud?
A. Senior management C. Audit committee of the BOD
B. Expected perpetrators of fraud D. Either A or C


1. Which of the following forms of evidence is most reliable?
A. General ledger account balances
B. Confirmation of A/R balance received from a customer
C. Internal memo explaining the issuance of a credit memo
D. Copy of month-end adjusting entries


Page 6 of 17 - PW

2. When the auditor examines the client’s documents and records to substantiate information on the financial
statements, it is commonly referred to as
A. Inquiry C. Physical examination
B. Confirmation D. Vouching

3. Evidence may take which of the following forms?

A. Oral responses to the auditor from employees of the company under audit
B. Written communications from company employees or outsiders
C. Observations made by an auditor
D. Evidence may take any of the above forms

4. Which one of the following is not one of the characteristics of competent evidence?
A. Independence of provider C. Size of the sample
B. Effectiveness of internal control structure D. Degree of objectivity

5. Which of the following statements is not correct?

A. There are many ways an auditor can accumulate evidence to meet the overall audit objectives
B. Sufficient competent evidence must be accumulated to meet the auditor’s professional responsibility
C. The cost of accumulating the evidence should be minimized
D. Gathering evidence and minimizing costs are equally important considerations that affect the approach
the auditor selects

6. Evidence is generally considered competent when

A. It has been obtained by random selection
B. There is enough of it to afford a reasonable basis for an opinion on financial statements
C. It has the qualities of being relevant, objective, and free from known bias
D. It consists of written statements made by managers of the enterprise under audit

7. Which of the following statements about the competence of evidence is not correct?
A. Competence can be improved by selecting a larger sample size
B. Competence deals only with the audit procedures selected
C. Competence can be improved by selecting audit procedures that contain higher quality of the
characteristic sought
D. Competence cannot be improved by selecting different population items to include in the sample size

8. The detailed description of the results of the four evidence decisions for a specific audit is called an
A. Audit procedure B. Audit program C. Audit plan D. Audit guide

9. A listing of all the things which the auditor will do to gather sufficient, competent evidence is the
A. Audit plan B. Audit program C. Audit procedure D. Audit risk model

10. An audit program provides a proof that

A. Sufficient competent evidential matter is obtained
B. There is compliance with generally accepted standards of reporting
C. The work is adequately planned
D. There is a proper study and evaluation of internal control

11. An audit plan is a

A. Detailed plan of analytical procedures and all substantive tests to be performed in the course of the audit
B. Document that provides an overview of the company and a general plan for the audit work to be
accomplished, timing of the work, and other matters of concern to the audit
C. Generic document that auditing firms have developed to lead the process of the audit through a
systematic and logical process
D. Budget of the time that should be necessary to complete each phase of the audit procedures

12. In designing written audit programs, an auditor should establish specific audit objectives that relate primarily
to the
A. Timing of audit procedures C. Selected audit techniques
B. Cost-benefit of gathering evidence D. Financial statement assertions

13. Which of the following statements is true?

A. The auditor’s objectives follow and are closely related to management assertions
B. Management’s assertions follow and are closely related to the auditor’s objectives
C. The auditor’s primary responsibility is to find and disclose fraudulent management assertions
D. Assertions about presentation and disclosure deal with whether the accounts have been included in the
financial statements at appropriate amounts

opinion on audited financial statements, an auditor discovered that the

14. Six months after issuing an unmodified
engagement personnel failed to confirm several of the client’s material accounts receivable balances. The
auditor should first

Page 7 of 17 - PW
A. Request the permission of the client to undertake the confirmation of accounts receivable.
B. Perform alternative procedures to provide a satisfactory basis for the unqualified opinion.
C. Assess the importance of the omitted procedures to the auditor’s ability to support the previously
expressed opinion
D. Inquire whether there are persons currently relying, or likely to rely, on the unqualified opinion

15. Which one of the following is not considered a valid source of information about the client’s processes?
A. Confirmation from third parties C. A tour of the client’s plant facility
B. Review of the client’s budget D. Management inquiry

16. Which of the following would not be a source of information about the risk of a potential new audit client?
A. The predecessor auditor C. The internet
B. Management D. The new auditor’s permanent client

17. Which of the following statements is not true regarding the competence of audit evidence?
A. Relevance is enhanced by an effective information system.
B. To be competent, evidence must be both valid and relevant.
C. Validity is related to the quality of the client’s information system.
D. Relevance must always relate to audit objectives.

18. Audit evidence can come in different forms with different degrees of persuasiveness. Which of the following is the
least persuasive type of evidence?
A. Documents mailed by outsiders to the auditor
B. Correspondence between the auditor and vendors
C. Sales invoices inspected by the auditor
D. Computations made by the auditor

19. During the course of an audit engagement, an auditor prepares and accumulates audit working papers. The
primary purpose of the audit working papers is to
A. Aid the auditor in adequately planning his work
B. Provide a point of reference for future audit engagements
C. Support the underlying concepts included in the preparation of the basic financial statements
D. Support the auditor's opinion

1. Which of the following statements is correct concerning statistical sampling in tests of controls?
A. Deviations from control procedures at a given rate usually result in misstatements at a higher
B. As the population size doubles, the sample size should also double
C. The qualitative aspects of deviations are not considered by the auditor
D. There is an inverse relationship between the sample size and the tolerable rate

2. An auditor plans to examine a sample of twenty purchase orders for proper approvals as prescribed by the
client’s control procedures. One of the purchase orders in the chosen sample of twenty cannot be found, and the
auditor is unable to use alternative procedures to test whether that purchase order was properly approved. The
auditor should
A. Choose another purchase order to replace the missing purchase order in the sample.
B. Consider this test of control invalid and proceed with substantive tests since internal control cannot be
relied upon.
C. Treat the missing purchase order as a deviation for the purpose of evaluating the sample.
D. Select a completely new set of twenty purchase orders.

3. The objective of the tolerable rate in sampling for tests of controls of internal control is to
A. Determine the probability of the auditor’s conclusion based upon reliance factors.
B. Determine that financial statements taken as a whole are not materially in error.
C. Estimate the reliability of substantive tests.
D. Estimate the range of procedural deviations in the population.

4. When an auditor has chosen a random sample and is using nonstatistical attributes sampling, that auditor
A. Need not consider the risk of assessing control risk too low
B. Has committed a nonsampling error
C. Will have to use discovery sampling to evaluate the results
D. Should compare the deviation rate of the sample to the tolerable deviation rate

5. A number of factors influence the sample size for a substantive test of details of an account balance. All other
factors being equal, which of the following would lead to a larger sample size?
A. Greater reliance on internal control C. Smaller expected frequency of errors
B. Greater reliance on analytical procedures D. Smaller measure of tolerable misstatement


Page 8 of 17 - PW
1. Conditions requiring a departure from an unmodified audit report include all, but which of the following?
A. Management refused to allow the auditor to confirm significant accounts receivable for which there were
no alternative procedures performed
B. Management has determined that fixed assets should be reported in the balance sheet at their
replacement values rather than historical costs. The auditors do not concur.
C. The audit partner’s dependent child received a gift of 10 shares of a client’s stock for her birthday from a
D. Management has decided to not allow the auditor to confirm significant accounts receivable, but the
auditor examined subsequent cash receipts related to the accounts in question

2. When the client’s financial statements are misstated by a highly material amount, the auditor should issue
A. An adverse opinion
B. A disclaimer of opinion
C. Either a qualified opinion or an adverse opinion, depending on which conditions exist
D. Either a qualified opinion or an unqualified opinion with modified wording, depending on which conditions

3. If the auditor is determined to lack independence, a disclaimer of opinion must be issued

A. If the client requests it C. Only if it is material but not highly material
B. Only if it is highly material D. In all cases

4. Whenever there is a scope restriction, the appropriate response is to issue

A. A disclaimer of opinion
B. An adverse opinion
C. A qualified opinion
D. An unmodified report, a qualification of scope and opinion, or a disclaimer, depending on materiality

5. Items that materially affect the comparability of financial statements generally require disclosure in the footnotes.
If the client refuses to properly disclose the item, the auditor may be required to issue
A. Disclaimer B. Adverse opinion C. Unmodified opinion D. Qualified opinion

6. Under which of the following circumstances would a disclaimer of opinion not be appropriate?
A. The auditor is unable to determine the amounts associated with an employee fraud scheme
B. Management does not provide reasonable justification for a change in accounting principles
C. The client refuses to permit the auditor to confirm certain accounts receivable or apply alternative
procedures to verify their balances
D. The chief executive officer is unwilling to sign the management representation letter

7. An entity changed from the straight-line method to the declining balance method of depreciation for all newly
acquired assets. This change has no material effect on the current year’s financial statements, but is reasonably
certain to have a substantial effect in later years. If the change is disclosed in the notes to the financial
statements, the auditor should issue a report with a(n)
A. “Except for” qualified opinion C. Unmodified opinion
B. Emphasis-of-matter paragraph D. Consistency modification

8. When audited financial statements are presented in a client’s document containing other information, the
auditor should
A. Perform inquiry and analytical procedures to ascertain whether the other information is reasonable
B. Add an emphasis-of-matter paragraph to the auditor’s report without changing the opinion on the
financial statements
C. Perform the appropriate substantive auditing procedures to corroborate the other information
D. Read the other information to determine that it is consistent with the audited financial statements

9. The predecessor auditor, who is satisfied after properly communicating with the successor auditor, has reissued
a report because the audit client desires comparative financial statements. The predecessor auditor’s report
should make
A. Reference to the report of the successor auditor only in the scope paragraph
B. Reference to the work of the successor auditor in the scope and opinion paragraphs
C. Reference to both the work and the report of the successor auditor only in the opinion paragraph
D. No reference to the report or the work of the successor auditor

10. An investor, while reading the financial statements of Silver Corporation, learned that the statements are
accompanied by an unmodified auditor’s report. From this, the investor may conclude that
A. Any dispute over significant accounting issues have been settled to the auditor’s satisfaction.
B. The auditor is satisfied that Silver is operationally efficient.
C. Informative disclosures in the financial statements but not necessarily in the notes to financial
statements are to be regarded as reasonably adequate.
D. The auditor has ascertained that Silver’s financial statements have been prepared accurately.

Page 9 of 17 - PW

11. The expertise that distinguishes auditors from accountants is in terms of the
A. Ability to interpret GAAP
B. Requirement to possess education beyond the bachelor’s degree
C. Accumulation and interpretation of evidence
D. Ability to interpret accounting standards

12. Auditors focus on

A. Areas where the risk of material errors and irregularities is least
B. Areas where the risk of material errors and irregularities is greatest
C. All areas equally
D. A random selection of all areas

13. The PSAs issued by the AASC

A. Are interpretations of generally accepted auditing standards
B. Are the equivalent of laws for audit practitioners
C. Must be followed in all situations
D. Are optional guidelines which an auditor may choose not to follow when conducting an audit

14. When financial statements of a company that follows FRSC standards would be misleading due to unusual
circumstances depart from those standards, the auditor should explain the unusual circumstances in a separate
paragraph and express an opinion that is
A. Unmodified C. Adverse
B. Qualified D. Qualified or adverse, depending on materiality

15. When management does not provide reasonable justification that a change in accounting principle is preferable
and it presents comparative financial statements, the auditor should express a qualified opinion
A. Only in the year of the accounting principle change
B. Each year that the financial statements initially reflecting the change are presented
C. Each year until management changes back to the accounting principle formerly used
D. Only if the change is to an accounting principle that is not generally accepted

16. An auditor concludes that a client’s illegal act, which has a material effect on the financial statements, has not
been properly accounted for or disclosed. Depending on the materiality of the effect on the financial
statements, the auditor should express either a(n)
A. Adverse opinion or a disclaimer of opinion
B. Qualified opinion or an adverse opinion
C. Disclaimer of opinion or an unmodified opinion with a separate explanatory paragraph
D. Unmodified opinion with a separate explanatory paragraph or a qualified opinion


1. The adverse effects of events causing an auditor to believe there is substantial doubt about an entity’s ability to
continue as a going concern would most likely be mitigated by evidence relating to the
A. Ability to expand operations into new product lines in the future
B. Feasibility of plans to purchase leased equipment at less than market value
C. Marketability of assets that management plans to sell
D. Committed arrangements to convert preferred stock to long-term debt

2. An auditor wants to develop an audit test to evaluate the reasonableness of the quantity of scrap material
resulting from a certain production process compared to industry standards. Which would be the most
competent type of evidence available to satisfy this objective?
A. Documentary B. Physical C. Hearsay D. Analytical


1. Controls which are designed to assure that the information processed by the computer is authorized,
complete, and accurate are called
A. Input controls C. Processing controls
B. Output controls D. General controls

2. Which of the following is not an example of an applications control

A. An equipment failure causes an error message on the monitor
B. There is a preprocessing authorization of the sales transactions
C. There are reasonableness tests for the unit selling price of a sale
D. After processing, all sales transactions are reviewed by the sales department

3. Which of the following is not an application control?

A. Preprocessing authorization of sales transactions
B. Reasonableness test for unit selling price of sale
C. Post-processing review of sales transactions by the sales department


Page 10 of 17 - PW
D. Separation of duties between computer programmer and operators

4. An auditor anticipates assessing control risk at a low level in a CIS environment. Under these circumstances, on
which of the following procedures would the auditor initially focus?
A. Programmed control procedures C. Output control procedures
B. Application control procedures D. General control procedures

5. It involves application of auditing procedures using the computer as an audit tool. This includes computer
programs and data the auditor uses as part of the audit procedures to process data of audit significance
contained in an entity’s information systems.
A. Test data approach C. Generalized audit software
B. Computer-assisted audit techniques D. Auditing around the computer

6. A primary reason auditors are reluctant to use an ITF is that it requires them to
A. Reserve specific master file records and process them at regular intervals
B. Collect transactions and master file records in a separate file
C. Notify user personnel so they can make manual adjustments to output
D. Identify and reserve the fictitious entries to avoid contamination of master file

7. Which of the following statements is not true of the test data approach when testing a computerized accounting
A. The test need consist of only those valid and invalid conditions which interest the auditor.
B. Only one transaction of each type need be tested.
C. Test data must consist of all possible valid and invalid conditions.
D. Test data are processed by the client’s computer programs under the auditor’s control.

8. An auditor who wishes to capture an entity’s data as transactions are processed and continuously test the
entity’s computerized information system most likely would use which of the following techniques?
A. Snapshot application C. Integrated data check
B. Embedded audit module D. Test data generator

9. To obtain evidence that on-line access controls are properly functioning, an auditor most likely would
A. Create checkpoints at periodic intervals after live data processing to test for unauthorized use of the
B. Examine the transaction log to discover whether any transactions were lost or entered twice due to a
system malfunction.
C. Enter invalid identification numbers or passwords to ascertain whether the system rejects them.
D. Vouch a random sample of processed transactions to assure proper authorization.


1. When performing an engagement to review an entity’s financial statements, an accountant most likely would
A. Confirm a sample of significant accounts receivable balances.
B. Ask about actions taken at board of directors’ meetings.
C. Obtain an understanding of internal control.
D. Limit the distribution of the accountant’s report.

2. When compiled financial statements are accompanied by an accountant’s report, that report should state that
A. A compilation includes assessing the accounting principles used and significant management estimates,
as well as evaluating the overall financial statement presentation.
B. The accountant compiled the financial statements in accordance with PSRSs.
C. A compilation is substantially less in scope than an audit in accordance with PSAs, the objective of which
is the expression of an opinion.
D. The accountant is not aware of any material modifications that should be made to the financial
statements to conform with GAAP.

3. An accountant’s compilation report should be dated as of the date of

A. Completion of fieldwork.
B. Completion of the compilation.
C. Transmittal of the compilation report.
D. The latest subsequent event referred to in the notes to the financial statements.

4. A summary of findings rather than assurance is most likely to be issued on which engagement?
A. Agreed-upon procedures C. Examination
B. Compilation D. Review

5. Which of the following is least likely to be included in an agreed-upon procedures attestation engagement
A. The specified party takes responsibility for the sufficiency of procedures
B. Use of the report is restricted
C. Limited assurance on the information presented
D. A summary of procedures performed


Page 11 of 17 - PW

6. Which of the following reports may be issued only by an accountant who is independent of a client?
A. Standard report on an examination of a financial forecast
B. Report on consulting services
C. Compilation report on historical financial statements
D. Compilation report on a financial projection

1. Tracing shipping documents to prenumbered sales invoices provides evidence that
A. No duplicate shipments or billings occurred
B. Shipments to customers were properly invoiced
C. All goods ordered by customers were shipped
D. All prenumbered sales invoices were accounted for

2. An auditor suspects that a client’s cashier is misappropriating cash receipts for personal use by lapping
customer checks received in the mail. In attempting to uncover this embezzlement scheme, the auditor most
likely would compare the
A. Dates checks are deposited per bank statements with the dates remittance credits are recorded
B. Daily cash summaries with the sums of the cash receipts journal entries
C. Individual bank deposit slips with the details of the monthly bank statements
D. Dates uncollectible accounts are authorized to be written off with the dates the write-offs are actually

3. Which of the following controls most likely would be effective in offsetting the tendency of sales personnel to
maximize sales volume at the expense of high bad debt write-offs?
A. Employees responsible for authorizing sales and bad debt write-offs are denied access to cash
B. Shipping documents and sales invoices are matched by an employee who does not have authority to write
off bad debts
C. Employees involved in the credit-granting function are separated from the sales function
D. Subsidiary accounts receivable records are reconciled to the control account by an employee independent
of the authorization of credit

4. Employers bond employees who handle cash receipts because fidelity bonds reduce the possibility of employing
dishonest individuals and
A. Protect employees who make unintentional misstatements from possible monetary damages resulting
from their misstatements
B. Deter dishonesty by making employees aware that insurance companies may investigate and prosecute
dishonest acts
C. Facilitate an independent monitoring of the receiving and depositing of cash receipts
D. Force employees in positions of trust to take periodic vacations and rotate their assigned duties

5. An auditor most likely would assess control risk at a high level if the payroll department supervisor is
responsible for
A. Examining authorization forms for new employees
B. Comparing payroll registers with original batch transmittal data
C. Authorizing payroll rate changes for all employees
D. Hiring all subordinate payroll department employees

6. In meeting the control objective of safeguarding of assets, which department should be responsible for
Distribution of paychecks Custody of unclaimed paychecks
A. Treasurer Treasurer
B. Payroll Treasurer
C. Treasurer Payroll
D. Payroll Payroll

7. Which of the following questions would an auditor most likely include on an internal control questionnaire for
notes payable?
A. Are assets that collateralize notes payable critically needed for the entity’s continued existence?
B. Are two or more authorized signatures required on checks that repay notes payable?
C. Are the proceeds from notes payable used for the purchase of noncurrent assets?
D. Are direct borrowings on notes payable authorized by the board of directors?

8. The primary responsibility of a bank acting as registrar of capital stock is to

A. Ascertain that dividends declared do not exceed the statutory amount allowable in the state of
B. Account for stock certificates by comparing the total shares outstanding to the total in the shareholders
subsidiary ledger
C. Act as an independent third party between the board of directors and outside investors concerning


Page 12 of 17 - PW
mergers, acquisitions, and the sale of treasury stock
D. Verify that stock is issued in accordance with the authorization of the board of directors and the articles
of incorporation

9. The usefulness of the standard bank confirmation re quest may be limited because the bank employee who
completes the form may
A. Not believe that the bank is obligated to verify confidential information to a third party
B. Sign and return the form without inspecting the accuracy of the client’s bank reconciliation
C. Not have access to the client’s cutoff bank statement
D. Be unaware of all the financial relationships that the bank has with the client

10. The auditor is most likely to seek information from the plant manager with respect to the
A. Adequacy of the provision for uncollectible accounts
B. Appropriateness of physical inventory observation procedures
C. Existence of obsolete machinery
D. Deferral of procurement of certain necessary insurance coverage

11. A weakness in internal control over recording retirements of equipment may cause an auditor to
A. Inspect certain items of equipment in the plant and trace those items to the accounting records
B. Review the subsidiary ledger to ascertain whether depreciation was taken on each item of equipment
during the year
C. Trace additions to the “other assets” account to search for equipment that is still on hand but no longer
being used
D. Select certain items of equipment from the accounting records and locate them in the plant

12. An audit program for the examination of the retained earnings account should include a step that requires
verification of the
A. Market value used to charge retained earnings to account for a two-for-one stock split
B. Approval of the adjustment to the beginning balance as a result of a write-down of an account receivable
C. Authorization for both cash and stock dividends
D. Gain or loss resulting from disposition of treasury shares

13. During the audit of a publicly held company, the auditor could obtain written confirmation regarding long-term
bond transactions from the
A. Bond holders C. Internal auditors
B. Client's attorney D. Trustee

14. Traditionally, confirmations are used to verify

A. Individual transactions between organizations, such as sales transactions
B. Bank balances and accounts receivables
C. Fixed asset additions
D. All three of the above

15. The auditor's program for examining long-term debt should include
A. Verification of the existence of the bondholders
B. Examination of any bond trust agreement
C. Inspection of the accounts payable subsidiary ledger
D. Investigation of credits to the bond interest income account

16. Which of the following controls most likely would help ensure that all credit sales transactions of an entity are
A. The billing department supervisor sends copies of approved sales orders to the credit department for
comparison to authorized credit limits and current customer account balances
B. The accounting department supervisor independently reconciles the accounts receivable subsidiary ledger
to the accounts receivable control account monthly
C. The accounting department supervisor controls the mailing of monthly statements to customers and
investigates any differences reported by customers
D. The billing department supervisor matches pre-numbered shipping documents with entries in the sales

17. In assessing control risk for purchases, an auditor vouches a sample of entries in the voucher register to the
supporting documents. Which assertion would this test of controls most likely support?
A. Completeness C. Valuation or allocation
B. Existence or occurrence D. Rights and obligations

18. A client maintains perpetual inventory records in both quantities and pesos. If the assessed level of control risk
is high, an auditor would probably
A. Insist that the client perform physical counts of inventory items several times during the year


Page 13 of 17 - PW
B. Apply gross profit tests to ascertain the reasonableness of the physical counts
C. Increase the extent of tests of controls of the inventory cycle
D. Request the client to schedule the physical inventory count at the end of the year

19. Sound internal control dictates that defective merchandise returned by customers should be presented initially
to the
A. Salesclerk C. Receiving clerk
B. Purchasing clerk D. Inventory control clerk

20. Which of the following is a control that most likely could help prevent employee payroll fraud?
A. The personnel department promptly sends employee termination notices to the payroll supervisor
B. Employees who distribute payroll checks forward unclaimed payroll checks to the absent employees’
C. Salary rates resulting from new hires are approved by the payroll supervisor
D. Total hours used for determination of gross pay are calculated by the payroll supervisor

21. Where no independent stock transfer agents are employed and the corporation issues its own stocks and
maintains stock records, canceled stock certificates should
A. Be defaced to prevent reissuance and attached to their corresponding stubs
B. Not be defaced but segregated from other stock certificates and retained in a canceled certificates file
C. Be destroyed to prevent fraudulent reissuance
D. Be defaced and sent to the secretary of state

22. Which of the following controls would a company most likely use to safeguard marketable securities when an
independent trust agent is not employed?
A. The investment committee of the board of directors periodically reviews the investment decisions delegated
to the treasurer
B. Two company officials have joint control of marketable securities, which are kept in a bank safe deposit
C. The internal auditor and the controller independently trace all purchases and sales of marketable
securities from the subsidiary ledgers to the general ledger
D. The chairman of the board verifies the marketable securities, which are kept in a bank safe-deposit box,
each year on the balance sheet date

23. Which of the following is a responsibility that should not be assigned to only one employee?
A. Access to securities in the company's safe deposit box
B. Custodianship of the cash working fund
C. Reconciliation of bank statements
D. Custodianship of tools and small equipment

24. During its fiscal year, a company issued, at a discount, a substantial amount of first-mortgage bonds. When
performing audit work, the independent auditor
A. Confirms the existence of the bondholders
B. Reviews the minutes for authorization
C. Traces the net cash received from the issuance to the bonds payable account
D. Inspects the records maintained by the bond trustee

25. All corporate capital stock transactions should ultimately be traced to the
A. Minutes of the board of directors C. Cash disbursements journal
B. Cash receipts journal D. Numbered stock certificates

26. Which of the following controls is not usually performed in the vouchers 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 pre-numbered purchase orders and receiving reports

27. A company holds bearer bonds as a short-term investment. Responsibility for custody of these bonds and
submission of coupons for periodic interest collections probably should be delegated to the
A. Chief Accountant C. Cashier
B. Internal Auditor D. Treasurer

28. An auditor would consider a cashier’s job description to contain compatible duties if the cashier receives
remittance from the mailroom and also prepares the
A. Daily deposit slip C. Remittance advices
B. Prelist of individual checks D. Monthly bank reconciliation


Page 14 of 17 - PW
29. Which of the following internal control procedures will most likely prevent the concealment of a cash shortage
resulting from improper write-off of a trade account receivable?
A. Write-offs must be approved by a responsible officer after review of credit department recommendations
and supporting evidence
B. Write-offs must be supported by an aging schedule showing that only receivables overdue for several
months have been written off
C. Write-offs must be approved by the cashier who is in a position to know if the receivables have, in fact,
been collected
D. Write-offs must be authorized by company field sales employees who are in a position to determine the
financial standing of the customers

30. Which of the following audit procedures would provide the least reliable evidence that the client has legal title to
A. Confirmation of inventories at locations outside the client's facilities
B. Observation of physical inventory counts
C. Examination of paid vendors' invoices
D. Analytical review of inventory balances compared to purchasing and sales activities

31. Which of the following accounts would most likely be reviewed by the auditor to gain reasonable assurance that
additions to the equipment account are not understated?
A. Repairs and maintenance expense C. Gain on disposal of equipment
B. Depreciation expense D. Equipment

32. A company has temporarily excess funds to invest. The board of directors decided to purchase marketable
securities and assigned the future purchase and sale decisions to a responsible financial executive. The best
person(s) to make periodic reviews of the investment activity would be
A. The investment committee of the board of directors
B. The treasurer
C. The corporate controller
D. The chief operating officer of the company

33. An essential phase of the audit of the cash balance at the end of the year is the auditor's review of cutoff bank
statement. This specific procedure is not useful in determining if
A. Lapping has occurred
B. Kiting has occurred
C. The cash receipts journal was held open
D. Disbursements per the bank statement can be reconciled with total checks written

34. Audit tests performed on trade liabilities places main emphasis on

A. Completeness B. Existence C. Valuation D. Presentation

35. Which of the following is a customary audit procedure for the verification of the legal ownership of real property?
A. Examination of correspondence with the corporate counsel concerning acquisition matters
B. Examination of ownership documents registered and on file at a public hall of records
C. Examination of corporate minutes and resolutions concerning the approval to acquire property, plant and
D. Examination of deeds and title guarantee policies on hand

36. In testing the existence assertion for an asset, an auditor ordinarily works from the
A. Financial statements to the potentially unrecorded items
B. Potentially unrecorded items to the financial statements
C. Accounting records to the supporting evidence
D. Supporting evidence to the accounting records

37. Which of the following pairs of accounts would an auditor most likely analyze on the same working paper?
A. Notes receivable and interest income C. Notes payable and notes receivable
B. Accrued interest receivable and accrued interest payable D. Interest income and interest expense

38. An auditor most likely would limit substantive audit tests of sales transactions when control risk is assessed as
low for the occurrence assertion concerning sales transactions and the auditor has already gathered evidence
A. Opening and closing inventory balances C. Shipping and receiving activities
B. Cash receipts and accounts receivable D. Cutoffs of sales and purchases

39. The primary purpose of sending a standard confirmation request to financial institutions with which the client
has done business during the year is to
A. Detect kiting activities that may otherwise not be discovered
B. Corroborate information regarding deposit and loan balances


Page 15 of 17 - PW
C. Provide the data necessary to prepare a proof of cash
D. Request information about contingent liabilities and secured transactions

40. When an auditor does not receive replies to positive requests for year-end accounts receivable confirmations,
the auditor most likely would
A. Inspect the allowance account to verify whether the accounts were subsequently written off
B. Increase the assessed level of detection risk for the valuation and completeness assertions
C. Ask the client to contact the customers to request that the confirmations be returned
D. Increase the assessed level of inherent risk for the revenue cycle

41. To gain assurance that all inventory items in a client’s inventory listing schedule are valid, an auditor most likely
would trace
A. Inventory tags noted during the auditor’s observation to items listed in the inventory listing schedule
B. Inventory tags noted during the auditor’s observation to items listed in receiving reports and vendors’
C. Items listed in the inventory listing schedule to inventory tags and the auditor’s recorded count sheets
D. Items listed in receiving reports and vendors’ invoices to the inventory listing schedule

42. An auditor concluded that no excessive costs for idle plant were charged to inventory. This conclusion most
likely related to the auditor’s objective to obtain evidence about the financial statement assertions regarding
inventory, including presentation and disclosure and
A. Valuation C. Existence
B. Completeness D. Rights

43. An auditor selected items for test counts while observing a client’s physical inventory. The auditor then traced
the test counts to the client’s inventory listing. This procedure most likely obtained evidence concerning
management’s assertion of
A. Valuation C. Existence
B. Completeness D. Rights

44. When an auditor is unable to inspect and count a client’s investment securities until after the balance sheet
date the bank where the securities are held in a safe-deposit box should be asked to
A. Verify any differences between the contents of the box and the balances in the client’s subsidiary ledger
B. Provide a list of securities added and removed from the box between the balance sheet date and the
security-count date
C. Confirm that there has been no access to the box between the balance sheet date and the security count
D. Count the securities in the box so the auditor will have an independent direct verification

45. In testing long-term investments, an auditor ordinarily would use analytical procedures to ascertain the
reasonableness of the
A. Completeness of recorded investment income
B. Classification between current and noncurrent portfolios
C. Valuation of marketable equity securities
D. Existence of unrealized gains or losses in the portfolio

46. In testing for unrecorded retirements of equipment, an auditor most likely would
A. Select items of equipment from the accounting records and then locate them during the plant tour
B. Compare depreciation journal entries with similar prior year entries in search of fully depreciated
C. Inspect items of equipment observed during the plant tour and then trace them to the equipment
subsidiary ledger
D. Scan the general journal for unusual equipment additions and excessive debits to repairs and
maintenance expense

47. Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities?
A. Trace a sample of accounts payable entries recorded just before year-end to the unmatched receiving
report file
B. Compare a sample of purchase orders issued just after year-end with the year-end accounts payable trial
C. Vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor
D. Scan the cash disbursements entries recorded just before year-end for indications of unusual transactions

48. When using confirmations to provide evidence about the completeness assertion for accounts payable, the
appropriate population most likely would be
A. Vendors with whom the entity has previously done business


Page 16 of 17 - PW
B. Amounts recorded in the accounts payable subsidiary ledger
C. Payees of checks drawn in the month after the year-end
D. Invoices filed in the entity’s open invoice file

49. Which of the following is a substantive test that an auditor most likely would perform to verify the existence and
valuation of recorded accounts payable?
A. Investigating the open purchase order file to ascertain that pre-numbered purchase orders are used and
accounted for
B. Receiving the client’s mail, unopened, for a reasonable period of time after the year-end to search for
unrecorded vendors’ invoices
C. Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving
D. Confirming accounts payable balances with known suppliers who have zero balances

50. In performing tests concerning the granting of stock options, an auditor should
A. Confirm the transaction with the stock registrar
B. Verify the existence of option holders in the entity’s payroll records or stock ledgers
C. Determine that sufficient treasury stock is available to cover any new stock issued
D. Trace the authorization for the transaction to a vote of the board of directors

51. Recorded entries in which of the following accounts are most likely to relate to the property, plant, and
equipment completeness assertion?
A. Allowance for doubtful accounts C. Property, plant, and equipment
B. Marketable securities D. Repairs and maintenance expense



Page 17 of 17 - PW