Professional Documents
Culture Documents
MODULE 8
PSA-BASED QUESTIONS
1. When reviewing audit working papers, the primary responsibility of an audit supervisor is to detemine that
2. A difference of opinion concerning accounting and auditing matters relative to a particular phase of the audit
arises between an assistant auditor who is and the senior auditor responsible for the engagement. After
appropriate consultation, the assistant auditor asks to be disassociated from the resolution of the matter. The
working papers would probably be
A. silent on the matter because it is an internal matter for the auditing firm.
B. expanded to document that the assistant auditor is completely disassociated from
responsibility for the auditor’s opinion.
C. expenaded to document the additional work required because all disagreements of this
type will require further substantive testing.
D. expanded to document the assistant auditor’s position and the manner in which the
difference of opinion was resolved.
3. During the course of an audit engagement, an auditor prepares and accumulates audit working papers. The
primary purpose of audit working papers is to
4. Which of the following characteristics is most important in assuring the achievement of the primary purpose of
working papers?
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A. Provide a reasonable assurance that the audit is conducted in accordance with PSAs.
B. Provide a basis for determining the appropriate audit report.
C. Provide the supervisory personnel an opportunity to assess the suffciency of evidence
obtained duting an audit.
D. Audit documentation serves all the given choices.
A. All forms and memoranda used/issued by the auditee department are included in the
working papers.
B. Flowcharts are included in the working papers.
C. The findings are cross-referenced to the supporting documnetation.
D. Tick marks are explained in the working papers.
9. Working papers that record the procedures used by the auditor to gather evidence should be
A. considered the primary support for the financial statements being audited.
B. viewed as the connecting link between the books of accounts and the financial
statements.
C. designed to meet the circumstances of the particular engagement.
D. destroyed when the particular audit engagement is terminated.
10. Which of the following factors will least affect the independent auditor’s judgment as to the quantity, type, and
content of the working papers desirable for a particular engagement?
11. During an audit engagement, data are compiled and included in the audit working papers. The working papers
are
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12. Which of the following is not a factor affecting the independent auditor’s judgment about the quantity, type, and
content of audit working papers?
A. The need for supervision and review of the work performed by assistants.
B. The nature and condition of the client’s records and internal controls.
C. The expertise of the client personnel and their participation in preparing the schedules.
D. The type of financial statements, schedules, or other information on which the auditor is
reporting.
13. Which of the following factors most likely affects the auditor’s judgment about the quantity, type, and content of
working papers?
14. Audit working papers are used to record the results of the auditor’s evidence-gathering procedures. When
preparing working papers, the auditor should remember that working papers should be
A. kept on the client’s premises so that the client can have access to them for reference
purposes.
B. the primary support for the financial statements being examined.
C. considered as part of the client’s accounting records that are retained by the auditor.
D. designed to meet the circumstances and the auditor’s needs on each engagement.
15. Audit working papers are indexed by means of reference numbers. The primary purpose of indexing is to
16. The principal purpose for cross-indexing the audit working papers is to
17. Documentation may not be deleted from the working papers after the
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A. Sufficient
B. Reliable
C. Relevant
D. Unbiased
20. Which of the following is not one of the determinants of the persuasiveness of evidence?
A. Competence
B. Physical examination
C. Relevance
D. Sufficiency
21. In determining the sufficiency of evidential matter, which of the following would not normally be a factor?
A. Cost/benefit considerations
B. The sampling technique used
C. Audit risk
D. Materiality of the account
22. Which of the following statements is not true regarding the competence of audit evidence?
A. Evidence obtained from an independent source outside the client organization is more reliable than that
obtained from within.
B. Documentary evidence is more reliable, when it is received by the auditor derectly from an independent
third party.
C. Documents the originate outside the company are considered more reliable than those that originate within
the client’s organization.
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D. External evidence, such as communications from banks, is generally regarded as more reliable than the
information obtained from the client.
25. Which of the following factors is most important in determining the competence of audit evidence?
27. Which of the following is not one of the characteristics of competent evidence?
28. Which of the following presumptions does not relate to the competence of audit evidence?
A. The more effective the internal control is, the more assurance it provides about the
accounting data and financial statements.
B. An auditor’s opinion, to be economically useful, is formed within a reasonable time and
based on evidence obtained at a reasonable cost.
C. Evidence obtained from independent sources outside the entity is more reliable than
evidence secured solely within the entity.
D. The independent auditor’s direct personal knowledge, obtained through observation
and inspection, is more persuasive than information obtained indirectly.
29. Which of the following statements relating to the competence of evidential matter is always true?
30. Although the validity of evidential matter is dependent on the circumstances under which it is obtained, there are
three general presumptions that have some usefulness. The situations given below indicate the relative
reliability that a CPA has placed on two types of evidence obtained in different situations. Which of these is an
exception to one of the general presumptions?
A. The CPA places more reliance on the balance in the scrap sales account at Plant A,
where the CPA has made limited tests of transactions because of effective controls, than
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at Plant B, where the CPA has made extensive tests of transactions because of
ineffective controls.
B. The CPA places more reliance on the CPAs computation of interest payable on
outstanding bonds than on the amount confirmed by the trustee.
C. The CPA places more reliance on the report of an expert on an inventory of precious
gems than on the CPA’s physical observation of the gems.
D. The CPA places more reliance on a schedule of insurance coverage obtained from the
company’s insurance agent than on one prepared by the internal audit staff.
31. Which of the following would not be a factor in determining the competence of evidential matter?
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 mnimizing costs are equally important.
33. Each of the following might, by itself, form a valid basis for an auditor of deciding to omit a test except for the:
34. The following statements were made in a discussion of audit evidence by two independent auditors. Which of
these statements is not valid?
A. “I am seldom convinced beyond all doubt about all aspects of the financial statements
being audited.”
B. “I would not undertake that procedure because at best the results would only be
persuasive and I’m looking for convincing evidence.”
C. “I evaluate the degree of risk involved in deciding the kind of evidence I will gather.”
D. “I evaluate the usefulness of the evidence I can obtain against the cost to obtain it.”
35. Management assertions that are embodied in the financial statements are
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37. As used in auditing, which of the following statements best describes “assertions”?
A. Occurrence
B. Presentation and disclosure
C. Consistency and comparability
D. Completeness
39. The audit objective “that all transactions and accounts that should be presented in the financial statements are
included” is related to which assertion?
A. Occurrence
B. Rights and obligations
C. Completeness
D. Presentation and disclosure
40. The audit objective “that all footnotes have been included in the financial statements” is related most closely to
which assertion?
A. Existence or occurrence
B. Rights and obligations
C. Completeness
D. Presentation and disclosure
41. Which of the following is a management assertion that relates to the valuation or allocation of fixed assets?
42. Which of the following statements about the existence and completeness objectives is incorrect?
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43. If reported sales for 2009 erroneously include sales that occurred in 2010, the assertion violated on the 2009
statements would be
A. occurrence
B. completeness
C. presentation and disclosure
D. rights and obligation
47. Which of the following best describes the primary purpose of audit procedures?
48. Physical examination of assets is not a sufficient form of evidence when the auditor wants to determine the
A. quantity
B. description
C. condition or quality
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D. ownership
50. Which one of the following statements is not true? “The evidence gathering technique of observation
A. physical evidence
B. confirmation evidence
C. documentary evidence
D. analytical evidence
52. A CPA, who is performing an independent audit, would most likely use recalculation as a substantive test for
which of the following expense-related accounts?
A. Purchase of supplies
B. Interest expense
C. Advertising expense
D. Repairs and maintenance expense
53. “Evaluation of financial information made by a study of plausible relationships among financial and
nonfinancial data involving comparisons of recorded amounts to expectations developed by the auditor” refers
to:
A. auditing
B. tests of balances
C. tests of transactions
D. analytical procedures
54. External auditors often confirm assertions contained in the organization’s financial statements and accounting
records with third parties. Which of the following best explains why confirmation produces an evidence of high
quality?
55. When comparing the reliability of external versus internal documents, the external documents are generally
considered
A. more reliable
B. less reliable
C. equally reliable
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D. unreliable
57. Analytical procedures are so important that they are required during
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QUIZZERS
DOCUMENTATION
1. In determining the quantity and qualify of evidence to gather, the auditor will be satisfied when the evidence is
A. irrefutable
B. highly persuasive
C. conclusive
D. completely convincing
2. The current file of the auditor’s working papers generally should include
3. It refers to the detailed instructions for the collection of a particular type of audit evidence that is to be obtained at
some time during the audit
A. sampling plan
B. audit procedure
C. audit program
D. audit plan
4. The auditor’s working papers will least likely include documentation showing how the
5. Although the quantity and content of audit working papers vary with each particular engagement, an auditor’s
permanent files most likely include
6. The audit working paper that reflects the major components of an amount reported in the financial statements is
the
7. An auditor ordinarily uses a working trial balance resembling the financial statements without footnotes, but
containing columns for
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8. In the course of an audit of financial statements for the purpose of expressing an opinion thereon, the auditor will
normally prepare a schedule of unadjusted differences for which he did not propose adjustments when they were
uncovered. The primary purpose of this schedule is to
A. point out to the responsible client officials the errors made by various company
personnel.
B. summarize the adjustments that must be made before the company can prepare and
submit its income tax returns.
C. identify the potential effects on the financial statement of errors or disputed items that
were considered immaterial when discovered.
D. summarize the errors made by the company so that corrections can be made after the
audited financial statements are released.
9. Which of the following analyses appearing in a predecessor’s working papers would the successor auditor least
likely review?
10. Using personal computers in auditing may affect the methods used to review the work of staff assistants because
11. In an internal audit, the audit supervisor determines that the working papers are complete
A. when satisfied that the audit objectives have been met and the working papers support
the conclusions.
B. when working papers refer to the steps outlined in the audit program.
C. only after the auditor who prepared the working papers has signed and dated them.
D. when proper cross-references to other working papers are noted.
12. Standardized working papers are often used, chiefly because they allow working papers to be prepared more
A. efficiently.
B. comprehensively.
C. neatly.
D. accurately.
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13. After the fieldwork audit procedures are completed, a partner of the CPA firm who has not been involved in the
audit performs a second or wrap-up working paper review. This second review usually focuses on
15. “The detailed description of the results of the various evidence decisions for a specific audit” is called an
A. audit procedure.
B. audit plan.
C. audit program.
D. audit guide.
16. In using the work of a specialist, an understanding should exist among the auditor, the client, and the specialist
as to the nature of the work to be performed by the specialist. Preferebly, the understanding should be
documented and would include all of the following except
17. Which of the following is an invalid description of why working papers are developed?
18. During the working paper review, an audit supervisor finds that the auditor’s reported findings are not
adequately cross-referenced to supporting documentation. The supervisor will most likely instruct the auditor to
A. prepare a working paper to indicate that the full scope of the audit was carried out.
B. familiarize himself with the sequence of working papers so that he will be able to answer
questions about the conclusions stated in the report.
C. eliminate any cross-references to other working papers since the system is unclear.
D. provide a working paper indexing system that shows the relationship between findings,
conclusions, and the related facts.
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A. Working papers are not permitted to be used as a reference source by the client.
B. The auditor should document his understanding of the client’s internal control which is to be used to plan
the audit.
C. Working papers may be regarded as a substitute for the client’s accunting records.
D. When reporting on comparative financial statements, the independent auditor may discard working papers
after two years.
21. Which of the following is a basic tool used by the auditor to control the audit work and review the progress of
the audit?
22. Which of the following working papers would one normally expect to find in the permanent file?
23. The permanent file section of the working papers that is kept for each audit client most likely contains
A. review notes pertaining to questions and comments regarding the audit work performed.
B. a schedule of time spent on the engagement by each individual auditor.
C. correspondence with the client’s legal counsel concerning pending litigation.
D. narrative descriptions of the client’s internal control policies and procedures.
24. Which of the following statements is correct with respect to ownership of audit documentation?
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 managemetn assertions.
D. Assertions about presentation and disclosure deal with whether the accounts have been included in the
financial statements at appropriate amounts.
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27. Which of the following asseertions is least likely to be tested exclusively at an interim date?
28. Assuming a low assessed level of control risk, which of the following audit procedures is least likely to be
performed?
A. Reading the minutes of the directors’ meetingd held during the audit year
B. Confirming accounts payable balances
C. Obtaining a management representation letter
D. Testing of control procedures on purchasing function
30. Which of the following is not one of the broad categories of assertions?
31. Determining whether amounts are in conformity with GAAP addresses the proper measurement of assets,
liabilities, revenues, and expenses which includes all of the following except:
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34. A distinction must be made between general audit ojectives and specific audit objectives for each account
balance. Which of the following is an incorrect statement?
A. The general audit objectives are applicable to every account balance on the financial
statements.
B. The specific audit objectives are applicable to every account balance on the financial
statements.
C. The general audit objectives are tailored to the engagement.
D. The specific audit objectives are tailored to the engagement.
35. Which of the following “general transaction-related audit objectives” is not part of the valuation or allocation
assertion?
A. Completeness
B. Accuracy
C. Classification
D. Timing
36. Only three of the following management assertions are associated with transaction-related audit objectives.
Which one of the following is not?
A. Existence or occurrence
B. Completeness
C. Valuation or allocation
D. Presentation and disclosure
38. The detail tie-in objective is not concerned that the details in the account balance
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40. If a long-term note receivable is included in the account receivable listing, there is a violation of the
A. existence objective.
B. completeness objective.
C. classification objective.
D. timing objective.
41. After the general objectives are understood, specific objectives for each account balance on the financial
statements can be developed. Which of the following statements is true?
A. There should be at least one specific objective for each relevant general objective.
B. There will be only one specific objective for each relevant general objective.
C. There will be many specific objectives developed for each relevant general objective.
D. There must be one specific objective for each general objective.
42. Which of the following is not a proper matching of auditor’s objective with management’s assertion?
43. An audit process is a well-defined methodology for organizing an audit to ensure that
AUDIT EVIDENCE
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45. Auditing standards require the auditor to accumulate sufficient competent evidence to support the opinion
issued. Because of the nature of audit evidence, it is
a. unlikely that the auditor will be completely convinced that the opinion is correct.
b. likely that the auditor will be completely convinced that the opinion is correct.
c. unlikely that the auditor will arrive at a conclusion.
d. likely that the auditor would change his/her mind about the opinion if he/she takes the time to gather
additional evidence
46. Which of the following ultimately determines the specific audit procedures necessary to provide an
independent auditor with a reasonable basis for the expression of an opinion?
a. The audit program
b. The auditor’s judgment
c. Philippine Standards on Auditing
d. The auditor’s working papers
47. In the final analysis, the amount and kinds of evidential matter that are required to support the auditor’s
opinion should be determined by
a. the audit committee.
b. auditor’s judgment.
c. professional standards.
d. standards of auditing.
48. To adequately plan the extent of the audit evidence to gather, the generally accepted auditing standards
require the auditor to gain an understanding of
a. the internal control structure.
b. client’s organization charts.
c. client’s procedural manuals.
d. All of these
49. When unable to obtain sufficient competent evidential matter to determine whether certain client
management’s acts are non-compliance to laws and regulations, the auditor would most likely issue
a. an unqualified opinion with a separate explanatory paragraph.
b. either a qualified opinion or an adverse opinion.
c. either a disclaimer of opinion or a qualified opinion.
d. either an adverse opinion or a disclaimer of opinion.
51. Two overriding considerations that affect an auditor’s judgment in accumulating evidence are:
1. Sufficient competent evidence must be accumulated to meet the auditor’s professional
responsibility.
2. Cost of accumulating evidence should be minimized.
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52. Most of the independent auditor’s work in formulating an opinion on the financial statement consists of
a. studying and evaluating internal control.
b. obtaining and examining evidential matter.
c. examining cash transactions.
d. comparing recorded accountability with assets.
53. There are four subcategories of decisions that the auditors must make in accumulating audit evidence. Which
of the following is not one of those subcategories?
a. Audit procedures to be used
b. Reasons for deciding not to test controls
c. Sample size
d. Timing of the audit procedures
54. Evidential matter supporting the financial statements consists of the underlying accounting data and all
corroborating information available to the auditor. Which of the following is an example of corroborating
information?
a. Minutes of meetings of the board of directors
b. General and subsidiary ledgers
c. Accounting manuals
d. Worksheets supporting cost allocations
55. Which of the following is not one of the major phases in an audit process?
a. Plan and design an audit approach
b. Test controls and transactions
c. Inform client of any adjustments or corrections to be made in the financial statements
d. Complete the audit and issue the report
57. In making decisions about evidence for a given audit, the auditor’s goal is to obtain a sufficient amount of
timely, reliable evidence that is relevant to the information being verified, and to do so
a. no matter what the cost involved in obtaining such evidence.
b. only if the cost is reasonable.
c. at the lowest possible total cost.
d. at any cost because the costs are billed to the client.
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60. Which of the following procedures would provide the auditor the most reliable audit evidence?
a. Inquires of the client’s internal audit staff held in private.
b. Inspection of prenumbered client purchase orders filled in the vouchers payable department.
c. Analytical procedures performed by the auditor on the entity’s trial balance.
d. Inspection of bank statements obtained directly from the client’s financial institution.
61. The most reliable forms of documentary evidence are those documents that are
a. prenumbered.
b. easily duplicated.
c. internally generated.
d. authorized by a responsible official.
62. You have been assigned to audit the maintenance department of an organization. Which of the following is
likely to produce the least reliable audit evidence?
a. Notes on discussions with mechanics in the maintenance operation.
b. A schedule comparing actual maintenance expenses with budgeted expenses and those of the prior period
and disclosing important differences.
c. A narrative covering review of user reports on maintenance service.
d. An analysis of changes in certain maintenance department ratios.
63. Before applying substantive tests to the details of asset accounts at an interim date, an auditor should assess
a. control risk at below the maximum level.
b. inherent risk at the maximum level.
c. the difficulty in controlling the incremental audit risk.
d. materiality for the accounts tested as insignificant.
64. Before applying principal substantive tests to the details of accounts at an interim date, an auditor should
a. assess control risk as below the maximum for the assertions embodied in the accounts selected for interim
testing.
b. determine that the accounts selected for interim testing are not material to the financial statements taken as
a whole.
c. consider whether the amounts of the year-end balances selected for interim testing are reasonably
predictable.
d. obtain written representations from management that all financial records and related data will be made
available.
65. If an auditor conducts an audit of financial statements in accordance with generally accepted auditing
standards, which of the following will the auditor most likely detect?
a. Misposting of recorded transactions
b. Forgery
c. Unrecorded transactions
d. Collusive fraud
66. Which of the following best explains the difference between audit objectives and audit procedures?
a. Audit objectives establish broad general goals; audit objectives specify the detailed work to be performed.
b. Audit objectives are tailor-made for each assignment; audit procedures are generic in application.
c. Audit objectives define specific desired accomplishments; audit procedures provide the means of
achieving audit objectives.
d. Audit procedures and audit objectives are essentially the same.
67. In gathering audit evidence in the performance of substantive tests, the auditor
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68. The auditor will not ordinarily initiate discussion with the audit committee concerning the
a. extent to which the work of internal auditors will affect the scope of the examination.
b. extent to which a change in the company’s organization will influence the scope of the examination.
c. details of potential problems that the auditor believes might cause a qualified opinion.
d. details of the procedures that the auditor intends to apply.
69. With respect to the auditor’s planning of a year-end examination, which of the following statements is always
true?
a. An engagement should not be accepted after the fiscal year ends.
b. An inventory count must be observed at the balance sheet date.
c. The client’s audit committee should not be told of the specific audit procedures that will be performed.
d. It is an acceptable practice to carry out substantial parts of the examination at interim dates.
70. An auditor test counts a batch of inventory. This is an example of what kind of evidence?
a. Analytical
b. Documentary
c. Physical
d. Testimony
72. Each audit program should have a column for all of the following except:
a. Audit procedures to be performed
b. The initials of the auditor who performs each procedure
c. The date that the performance of the procedure is performed and completed
d. The test of controls related to each procedure
74. Accounting for the numeric sequence in the issuance of the sales invoices meets primarily the
a. completeness assertion.
b. valuation or allocation assertion.
c. occurrence.
d. presentation or disclosure assertion.
75. Which of the following factors affects the competence of evidence obtained by an auditor?
a. The independence of the information source
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76. Which one of the following is the least persuasive type of audit evidence?
a. Documents mailed by outsiders to the auditor
b. Correspondence between the auditor and vendors
c. Copies of sales invoices inspected by the auditor
d. Computations made by the auditor
77. Audit evidence takes different forms and varies in persuasiveness. Which of the following is the least
persuasive type of evidence?
a. Vendor’s evidence
b. Computations made by the auditor
c. Bank statement obtained from the client
d. Canceled checks
80. Which of the following statements about the competence of evidence is not correct?
a. To be competent, an evidence must be both valid and relevant.
b. Competence can be improved by selecting a larger sample size.
c. Competence can be improved by selecting audit procedures that contain a higher quality of the
characteristics sought.
d. Competence cannot be improved by selecting different population items to include in the sample size.
81. Which one of the following forms of evidence would be least reliable?
a. Monthly bank statement
b. Positive confirmation of customer’s balance
c. A letter from the client’s attorney stating that there are no known lawsuits pending against the client
d. Client’s file copy of a purchase requisition
82. Which one of the following forms of evidence would be most reliable?
a. An insurance policy in the client’s file
b. The file copy of a purchase requisition
c. The file copy of a receiving room report
d. The file copy of sales invoices
83. Evidence obtained directly by the auditor is more competent than information obtained indirectly. Which of
the following is not an example of the auditor’s direct knowledge about an evidence?
a. Physical examination
b. Observation
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c. Computation
d. Inquiry
84. When the auditor is gathering evidence, he will conclude that if the source of information is independent, the
evidence will
a. be reliable.
b. not be reliable.
c. be reliable if the provider has no reason to be biased.
d. not be reliable unless the provider is qualified.
86. Evidence is usually more persuasive for balance sheet accounts when it is obtained
a. from various times throughout the client’s year.
b. only from transactions occurring on the balance sheet date.
c. as close to the balance sheet date as possible.
d. from the time period when transactions in that account were most numerous during the fiscal period.
87. For income statement accounts; evidence is more persuasive if there is a sample from
a. the entire period under audit.
b. the period closest to the end of the fiscal period.
c. at least three months of the fiscal year.
d. December, since this would include large holiday sales.
89. Generally, what source of evidence would most persuasively support audit conclusions?
a. External
b. Inquiry
c. Oral
d. Informal
90. Observation, though considered a reliable audit procedure, has limited usefulness. However, it is used in a
number of different audit situations. Which of the following statements is true regarding observation as an
audit technique?
a. It is the most effective audit methodology to use in filling out internal control questionnaires.
b. It is the most persuasive technique to learn how transactions are really processed during the period under
audit.
c. It is rarely sufficient to satisfy any audit assertion other than existence.
d. It is the most persuasive audit technique for determining if fraud has really occurred.
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91. Which of the following would be the most relevant form of evidence to evaluate the reasonableness of
account balances?
a. Analytical
b. Documentary
c. Physical
d. Representation
92. When an auditor calculates the gross margin as a percent of sales and compares it with previous periods, this
type of evidence is called
a. physical examination.
b. computation.
c. observation.
d. inquiry.
93. Objective evidence is more reliable than evidence that requires considerable judgment to determine whether it
is correct. Which of the following is not an example of an objective evidence?
a. Confirmation of accounts receivable
b. Confirmation of bank balances
c. Confirmation by client’s attorney of the likely outcome of outstanding lawsuits against the client.
d. Adding a list of accounts payable to determine the total reconciles with the general ledger balance.
95. Physical examination refers to the inspection or count by the auditor of assets such as
a. cash or inventory only.
b. cash, inventory, canceled checks, and sales documents.
c. cash, inventory, securities, notes receivable, and tangible fixed assets.
d. cash, inventory, canceled checks, and tangible fixed assets
96. The distinction between physical examination of assets and examination of documents is dependent on the
item being examined. If the object being examined has no inherent value, the evidence is called
a. physical examination.
b. documentation.
c. confirmation.
d. garbage.
97. Confirmations are a highly regarded and often-used type of evidence because
a. they are inexpensive.
b. cause no inconvenience for auditor or third party.
c. come from independent sources.
d. all of the given sources.
If they were placed in the order of their reliability, from highest to lowest, the sequence would be
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Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City
a. 1, 2, 3
b. 3, 2, 1
c. 2, 3, 1
d. 3, 1, 2
99. Whenever practicable and reasonable, the CPA must confirm a sample of
a. accounts receivable.
b. accounts payable.
c. both accounts receivable and accounts payable.
d. client’s bank accounts.
101. When the auditor examines the client’s documents and records to substantiate the information on the financial
statements, it is commonly referred to as
a. inquiry.
b. confirmation.
c. vouching.
d. physical examination.
103. A document which the auditor receives from the client, but which is prepared by someone outside the client’s
organization, is a(n)
a. confirmation.
b. internal document.
c. external document.
d. inquiry.
105. Which of the following statements is not true? “The evidence-gathering technique of inquiry
a. cannot be regarded as conclusive.”
b. requires the gathering of corroborative evidence.”
c. is the auditor’s principal method of evaluating the client’s internal control structure.”
d. does not provide evidence from an independent source.
106. An auditor would be least likely to use confirmations in connection with the examination of
a. inventories.
b. long-term debt.
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Mindanao State University
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DEPARTMENT OF ACCOUNTANCY
Marawi City
107. Which of the following is an example of internal evidence that the auditor would obtain in an audit of
accounts receivable?
a. The carrier’s bill of lading
b. Sales invoice copies
c. A customer’s purchase order
d. A vendor’s month-end statement
108. Ordinarily, what source of evidence should least affect audit conclusions?
a. External
b. Inquiry of management
c. Auditor-prepared analysis
d. Inquiry of company legal counsel
AUDIT PROCEDURES
109. A list of audit procedures that the auditors need to perform to produce evidence is called an
a. audit plan.
b. audit program.
c. audit standard.
d. audit budget.
110. The procedures specifically outlined in an audit program are primarily designed to
a. protect the auditor in the event of litigation.
b. detect errors or irregularities.
c. test internal control structure.
d. gather evidence.
111. In the context of an audit of financial statements, substantive tests are audit procedures that
a. may be eliminated under certain conditions.
b. are designed to discover significant subsequent events.
c. may be either tests of transactions, direct tests of financial balances, or analytical tests.
d. will increase proportionately with the auditor’s assessment of control risk.
112. When evaluating the planned level of substantive tests for each significant assertion, the auditor will consider
the evidence obtained from all of the following except:
a. Procedures to understand the business and industry and related analytical procedures that have been
completed.
b. Evidence about the effectiveness of internal controls gained while obtaining an understanding of internal
control structure.
c. The assessment of detection risk.
d. Evidence of effectiveness of computer control procedures and related follow-up.
113. A revision of the planned level of detection risk will be necessary whenever
a. accounts are affected by more than one transaction class.
b. the multiple control risk assessments for the same account balance assertion differ.
c. the final assessed control risk is not the same as the actual level.
d. the final assessed control risk does not support the planned level.
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Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City
116. To test for unsupported entries in the ledger, the direction of audit testing should be from the
a. ledger entries.
b. journal entries.
c. externally generated documents.
d. original source documents.
118. Tracing from source documents to journals most directly addresses which financial statement assertion?
a. Valuation
b. Competence
c. Existence
d. Rights
119. An auditor is examining the detailed debit and credit entries in an account. The auditor is most likely
performing
a. analytical procedures.
b. tests of details of balances.
c. tests of details of transactions.
d. tests of controls.
120. Choices about audit evidence are influenced by all of the following except:
a. The auditor’s understanding of the business and industry
b. Assessment of inherent and control risk
c. Comparisons of the auditor’s expectation of the financial statements with the client’s books and records
d. Decisions about immaterial risk factors
121. The auditor is performing substantive tests several months before the end of the year. This most likely means
that
a. inherent risk is set at moderate to high.
b. detection risk is set at moderate to high.
c. control risk is set at maximum.
` d. detection risk at low to very low.
122. 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.
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College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City
123. WB Industries has significant information that is transmitted, processed, maintained, and accessed
electronically. The auditor has concluded that it is not possible to reduce detection risk to an acceptable
level by performing only substantive tests for a number of financial statement assertions. The auditor’s
alternative strategy is to
a. increase the acceptable audit risk.
b. focus audit tests on other assertions for which substantive tests prove to be effective.
c. require management to change its information system to provide appropriate evidence.
d. perform tests of controls to gather evidential matter to be used as basis of assessing control risk related to
those assertions.
124. The decision on the part of the auditor to perform substantive tests during the interim period will be based
upon
a. audit risk control and cost effectiveness.
b. the approach followed in the past.
c. the auditor’s time convenience.
d. the cooperation extended by the client staff.
125. Choose the best illustration of objective audit evidence from the following:
a. The paid invoice file containing invoices matched with receiving reports and purchase orders.
b. Management’s assertion that payment procedure requires matching of invoice with receiving report and
purchase order.
c. Clerical staff assurances that management policy regarding payment of invoices—matching of invoice
with receiving report and purchase order—is always followed.
d. The treasurer’s statement of not remembering any exceptions in which an invoice was submitted for
payment that is not accompanied by a covering receiving report and purchase order.
126. Which of the following audit procedures best supports the valuation objective?
a. Performing a lower of cost or market test of the client’s inventories
b. Reviewing a contingent liability disclosure for proper wording
c. Searching for unrecorded liabilities
d. Observing the client’s year-end physical inventory taking
127. Which of the following is not an appropriate auditing procedure supporting the fairness of financial statement
presentation?
a. Inspecting plant asset additions for existence
b. Recalculating accrued interest on notes payable
c. Examining invoices in support of legal fees recorded during the fiscal year.
d. Reviewing the client’s production quality control program
129. The auditor would unlikely perform early substantive testing of account balances when:
a. A number of significant deviations from control policies and procedures were detected during tests of
controls.
b. Due to economic factors, the fourth quarter activity this year is expected to be somewhat sluggish.
c. The client uses a natural business year.
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Mindanao State University
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DEPARTMENT OF ACCOUNTANCY
Marawi City
130. As the acceptable level of detection risk decreases, an auditor may change the
a. timing of substantive tests by performing them at an interim date rather than at year-end.
b. nature of substantive tests from a less effective to a more effective procedure.
c. timing of tests of controls by performing them at several dates rather at one time.
d. assessed level of inherent risk to a higher amount.
131. The auditor is concerned that a client usually fails to bill customers for shipments. An audit procedure that
would gather relevant evidence would be to
a. select a sample of duplicate sales invoices and trace each to related shipping documents.
b. trace a sample of shipping documents to related duplicate sales invoices.
c. trace a sample of Sales Journal entries to Accounts Receivable subsidiary ledger.
d. compare the total of the Schedule of Accounts Receivable with the balance of the Accounts Receivable
account in the general ledger.
133. Which of the following, when performed by the auditor, is not a test of mechanical accuracy?
a. Extending sales invoices
b. Adding journals and ledgers
c. Tracing amounts from journals to ledgers
d. Calculating the current ratio
134. Which of the following audit procedures would provide the least reliable evidence about legal title to
inventories?
a. Confirmation of inventories at locations outside the client’s facilities
b. Analytical procedures comparing inventory balances to purchasing and sales activities
c. Observation of physical inventory counts
d. Examination of paid vendors’ invoices
136. Which of the following types of audit tests are not used to satisfy planned detection risk?
a. Analytical procedures
b. Tests of controls
c. Substantive tests of transactions
d. Tests of details of balances
137. Substantive tests aid the auditor in all, but which of the following ways?
a. Identify monetary misstatements in an account
b. Obtain an understanding of internal control structure
c. Satisfy planned detection risk
d. All of the given choices
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Mindanao State University
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DEPARTMENT OF ACCOUNTANCY
Marawi City
138. Auditors usually try to plan the audit to minimize the use of tests of details of balances because
a. other types of audit tests are more reliable.
b. other types of audit tests are less costly.
c. other types of audit tests require less experienced audit personnel.
d. All of the given choices are true
139. The independent auditor selects several transactions in each functional are and traces them through the entire
accounting system, paying special attention to evidence about whether or not the control features are in
operation. This audit procedure is an example of a
a. sequence test.
b. test of controls.
c. substantive test.
d. functional test.
140. Ending account balances may be audited through the use of which of the following types of audit procedures?
a. Tests of details of balances
b. Analytical procedures
c. Tests of controls
d. Analytical procedures and tests of details of balances
141. Which of the following represents an incorrect pairing of a type of audit test and evidence?
a. Procedures to obtain an understanding of internal controls – Documentation
b. Analytical procedures – Ratio analysis
c. Substantive tests of transactions – Confirmation
d. Tests of details of balances – Physical examination
142. After finishing the procedures to obtain an understanding of internal control, the auditor should perform tests
of control on
a. key controls that have a material effect on the financial statements.
b. a random sample of key controls that were reviewed.
c. key controls upon which the auditor intends to rely and plans to assess control risk below maximum.
d. key controls which represent material weaknesses.
143. Where the auditor has assessed control risk of a particular area at a reduced level, he will then
a. eliminate the need to gather evidence in that area.
b. test the effectiveness of the controls in that area.
c. proceed to expand the sample sizes in that area.
d. negotiate with management to determine which controls will be tested in that area.
144. Many tests of controls involve inspecting documents. These tests are commonly referred to as
a. tests of transactions.
b. tests of documentation.
c. tests of balances.
d. tests of analytical procedures.
145. Upon completion of all the necessary audit procedures, the auditor should combine the information obtained
to reach an overall conclusion as to whether the financial statements are fairly presented. This is a highly
subjective process that relies heavily on
a. Philippine Standards on Auditing.
b. Philippine financial reporting standards.
c. the auditor’s professional judgment.
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Mindanao State University
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DEPARTMENT OF ACCOUNTANCY
Marawi City
146. Which of the following is not an information source for developing analytical procedures used in the audit?
a. Relationships among financial statement elements
b. Relationships between financial and relevant nonfinancial data
c. Comparison of financial data with anticipated results (e.g. budgets and forecasts)
d. Comparison of current year financial data with projections for next year’s financial resorts.
147. The objective of performing analytical procedures in planning and audit is to identify the existence of
a. unusual transactions and events,
b. noncompliance to laws that went undeleted because of internal control weaknesses.
c. related party transactions.
d. recorded transactions that were not properly authorized.
149. When performing analytical procedures, an auditor observes that operating income has declined significantly
between the preceding year and the current year, the auditor should
a. require that the decline be disclosed in the financial statements.
b. consider the possibility that the financial statements may be materially misstated.
c. inform the management that a qualified opinion on the financial statements will be necessary.
d. determine the management’s responsibility for the decline and discuss the issue with the audit committee.
150. Which of the following is ordinarily designed to detect possible material misstatements in the financial
statements?
a. Tests of controls
b. Computer controls
c. Analytical procedures
d. Post audit working paper review
152. Which of the following statements regarding analytical procedures is not correct?
a. The definition of analytical tests places of the emphasis on whether the client’s recorded data comply with
PFRS.
b. Analytical procedures are required on all audits.
c. Analytical procedures are required on all review service engagements.
d. For small accounts with small balances, analytical procedures alone may be sufficient evidence.
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Mindanao State University
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DEPARTMENT OF ACCOUNTANCY
Marawi City
c. areas of improvements.
d. areas that need more detailed procedures.
154. When an analytical procedure reveals no unusual fluctuations, the implication is that
a. there are no material errors or irregularities.
b. there are no material errors.
c. there are no material irregularities.
d. the possibility of a material error or irregularity is minimized.
155. Which of the following is not one of the major types of analytical procedures?
a. Compare client’s financial information with industry averages
b. Compare client’s financial information with prior year
c. Compare client’s actual data with budget
d. Compare client’s data with SEC averages
157. Most auditors prefer to replace tests of details with analytical procedures whenever possible because
a. the analytical procedures are more reliable.
b. the tests of details are more expensive.
c. the analytical procedures are more persuasive.
d. the tests of details are more difficult to interpret.
159. A schedule set up to combine similar general ledger accounts, the total of which appears on the working trial
balance as a single amount is referred to as a:
a. Supporting schedule
b. Lead schedule
c. Audit note
d. Reconciling schedule
160. The auditors use analytical procedures during the course of an audit. The most important phase of performing
these procedures is the:
a. Vouching of all data supporting various ratios.
b. Investigation of significant variations and unusual relationships.
c. Comparison of client computed statistics with the industry data on quarterly basis.
d. Recalculation of industry data.
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