UNIT XI

THE AUDIT PROGRAM AND AUDIT WORKING PAPERS

1. An audit program provides proof that

a. Sufficient competent evidential matter was obtained.
b. The work was adequately planned.
c. There was compliance with generally accepted standards of reporting.
d. There was a proper study and evaluation of internal control.

2. Audit programs are modified to suit the circumstances on particular engagements. A

complete audit program for an engagement generally should be developed
a. prior to beginning the actual audit work.
b. After the auditor has completed an evaluation of the existing internal accounting
control
c. After reviewing the client’s accounting records and procedures.
d. When the audit engagement letter is prepared.

3. What do you call that type of working paper where matters of importance are noted down
for further verification?
a. Summary sheet.
b. Audit program.
c. Agenda sheet.
d. Supporting schedules.

4. The permanent file portion of the auditor’s working papers generally should include
a. A copy of the engagement letter.
b. A copy of key customer confirmation.
c. Names and addresses of all audit staff personnel on the engagement.
d. Time and expense reports.

5. During an audit engagement pertinent data are compile and included in the audit working
papers. The working papers primarily are considered to be
a. A client-owned record of conclusions reached by the auditors who performed the
engagement.
b. Evidence supporting financial statements.
c. Support for the auditor’s representations as to compliance with generally accepted
auditing standards.
d. A record to be used a basis for the following year’s engagement.

6. Audit work papers are used to record the results of the auditor’s evidence gathering work.
When preparing work papers the auditor should remember that
a. Work papers should be designed to meet the circumstances and the auditor’s needs on
each engagement.
 b. Work papers should be kept on the client’s premises so as to provide ready access to
them by the client.
c. Work papers should access to them by the client.
d. Work papers should be considered as a substitute for the client’s accounting records.

7. Audit working papers should not

a. Include any client-prepared papers or documents other than hose prepared by the CPA
or his assistant.
b. Be kept by the CPA after review and completion of the audit except for items required
for the income tax return or the permanent file.
c. Be submitted to the client to support the financial statements and to provide evidence
of the audit work performed.
d. Be themselves be expected to provide sufficient support for the auditor’s opinion.

8. An auditor’s working papers will generally be least likely to include documentation

showing how the
a. Client’s schedules were prepared.
b. Engagement had been planned.
c. Client’s system of internal control had been reviewed and evaluated.
d. Unusual matters were resolved.

9. Although the quantity, type, and content of worker paper will vary with the circumstances
, the working papers generally include the
a. Copies of those client records examined by the auditor during the course of the
engagement.
b. Evaluation of the efficiency and competence of the audit staff assistants by the partner
responsible for the audit.
c. Auditor’s comments concerning the efficiency and competence of client management
personnel.
d. Auditing procedures followed, and the testing performed in obtaining evidential
matter.

10. Which of the following is generally included or shown in the auditor’s working papers?
a. The procedures used by the auditor to verify the personnel financial status of
members of the client’s management team.
b. Analysis that are designed to be a part of, or a substitute for, the client’s accounting
records.
c. Excerpts from underlying generally accepted accounting principles used in preparing
the financial statements.
d. The manner in which exceptions and unusual matters disclosed by the auditor’s
procedures were resolved or treated.

11. Which of the following factors will least affect the independent auditor’s judgment as to
quantity, type, and content of working papers desirable for a particular employment?
 a. Nature of the auditor’s report.
b. Nature of the financial statements, schedules or other information upon which the
auditor is reporting.
c. Need for supervision and review.
d. Number of personnel assigned to the audit.

12. In planning an audit engagement, which of the following is a factor that affects the
independent auditor’s judgment as to the quantity, type, and content of working papers?
a. The estimated occurrence rate of attributes.
b. The preliminary evaluation based upon initial substantive testing.
c. The content of the client’s representation letter.
d. The anticipated nature of the auditor’s report.

13. Which is not one of the uses of audit working papers?

a. To serve as the basis for the preparation of the financial statements and the audit
report.
b. To analyze and organize accounting information so that it can be audited more easily.
c. To provide evidence of the audit work performed.
d. To provide the independence of the auditor.

14. A CPA is conducting the first examination of a nonpublic company’s financial statements
The CPA hopes to reduce the audit work by consulting with the predecessor auditor and
reviewing the predecessor’s working papers. This procedure is
a. Acceptable if the client and the predecessor auditor agree it.
b. Acceptable if the CPA refers in the audit report to reliance upon the predecessor
auditor’s work.
c. Required if the CPA is to render an unqualified opinion.
d. Unaccepted because the CPA should bring an independent viewpoint to a new
engagement.

15. Lopez, CPA, succeeded Cruz, CPA as auditor of Moonlight Corporation. Cruz had issued
an unqualified report for the calendar year 1993. What can Lopez do to establish the basis
for expressing an opinion on the 1994 financial statements with regard to opening
balances?
a. Lopez may review Cruz papers and thereby reduce the scope of audit tests Lopez
would otherwise have to do it respect to opening balances.
b. Lopez must appropriate auditing procedures to account balances at the beginning of
the period so as to be satisfied that they are properly stated and may not rely on the
work done by Cruz.
c. Lopez may rely on the prior year’s financial statements since an unqualified opinion
was issued and must make reference in the auditor’s report to Cruz’s report.
d. Lopez may rely on the prior year’s financial statements since an unqualified opinion
was issued and must refer in a middle paragraph of the auditor’s report to Cruz’s
report of the prior year.
16. A CPA may reduce the audit work on a first-time audit by reviewing the working papers
of the predecessor auditor. The predecessor should permit the successor to review
working papers relating to matters of continuing significance such as those that relate to
a. Extent of reliance on the work of specialists.
b. Free arrangements and summaries of payments.
c. Analysis of contingencies.
d. Staff hours required to complete the engagement.

17. For what minimum period should audit working papers be retained by the independent
CPA?
a. For the period during which the entity remains a client of the independent CPA.
b. For the period during which an auditor-client relationship exists but not more than six
years.
c. For the statutory period within which legal action may be brought against the
independent CPA.
d. For as long as the CPA is in public practice.

18. A listing of all the things which the auditor will use to gather sufficient, competent
evidence is the
a. Efficiency.
b. Effectiveness.
c. Efficiency and effectiveness.
d. Cost benefit ratio.

19. Test of controls are directed towards the control’s

a. Efficiency.
b. Effectiveness.
c. Efficiency and effectiveness.
d. Cost benefit ratio.

20. Which one of these is not a type of evidence that would be used for both obtaining an
understanding of the control structure and testing the controls?
a. Inquiries.
b. Inspection.
c. Observation.
d. Reperformance.

21. A procedure designed to test for peso errors or irregularities directly affecting the
correctness of financial statement balances is a
a. Substantive test.
b. Compliance test.
c. Test of controls.
d. Definition of peso-unit sampling.
22. Test to determine whether the accounting transactions have been properly authorized,
correctly recorded and summarized in the journals, and correctly posted to subsidiary
ledgers and the general ledger are
a. Test of controls.
b. Substantive tests of transactions.
c. Substantive test of balances.
d. Analytical procedures.

23. Tests of controls, for efficiency, are frequently done at the same time as
a. Analytical procedures.
b. Compliance tests.
c. Substantive tests of transactions.
d. Substantive tests of balances.

24. The primary emphasis in most tests of details of balances is on the

a. Balance sheet accounts.
b. Income statement accounts.
c. Cash flow statement account.
d. Three statements above.

25. Analytical procedures are defined in the Statements on Auditing Standards as

a. Compliance tests.
b. Substantive test.
c. Tests of controls.
d. Helpful procedures not possessing the validity of other tests available to the auditor.

26. More types of evidence are obtained by using this test than by using any other type of
test.
a. Test of controls.
b. Tests of transactions.
c. Tests of balances.
d. Analytical procedures.

27. This type of evidence can be gathered with every type of audit test.
a. Inquiries of client personnel.
b. Inspection of documents and records.
c. Observation of application of policies and procedures.
d. Reperformance of procedures.

28. Which of the following audit tests id usually the most costly to perform?
a. Analytical procedures.
b. Test of controls.
c. Test of balances.
d. Substantive tests o transactions.

29. Which of the following audit tests is usually the least costly to perform?
 a. Analytical procedures.
b. Test of controls.
c. Test of balances.
d. Substantive tests of transactions.

30. At what stage in audit are the analytical procedures performed?

a. In the planning stage.
b. In conjunction with tests of transactions and tests of details of balances.
c. Near the end.
d. During all three stages.

31. When planning tests of details of balances, the auditor forecasts the results of controls,
substantive tests of transactions, and analytical procedures. The prediction for these three
areas is usually that there will be
a. No exceptions.
b. Few or no exceptions.
c. An average number of exceptions.
d. Many exceptions.

32. Which of the following statements is not true?

a. Tests of transactions are often performed several months prior to the balance sheet
date.
b. It is common to use analytical procedures at any time during the audit.
c. When controls are not considered effective, or when control deviations are
discovered, substantive tests will be eliminated and replaced with tests of details of
balances.
d. Tests of details of balances are normally done last.

33. Auditors should request that an audit client send a letter of inquiry to those attorneys who
have been consulted litigation, claims, or assessments. The primary reason for this
request is to provide
a. Information concerning the progress of cases to date.
b. Corroborative evidential matter.
c. An estimate of the peso amount of the probable loss.
d. An expert opinion as to whether a loss is possible, probably, or remote.

34. A written clients representation letter most likely would be an auditor’s best source of
corroborative information of a client’s plans to
a. Terminate an employee pension plan.
b. Make a public offering of its common stock.
c. Settle an outstanding lawsuit for an amount less than the accrued loss contingency.
d. Discontinue a line of business.
35. An auditor concludes that the omission of a substantive procedure considered necessary
at the time of the examination may impair the auditor’s present ability to support the
previously expressed opinion. The auditor need not apply the omitted procedures if
a. The risk of adverse publicity or litigation is low.
b. The results of other procedures that were applied tend to compensate for the
procedure omitted.
c. The auditor’s opinion was qualified because of a departure from generally accepted
accounting principles.
d. The results of the subsequent period’s tests of controls make the omitted procedure
less important.

36. Which of the following documentation is required for an audit in accordance with
generally accepted auditing standards?
a. An internal control questionnaire.
b. A client engagement letter.
c. A planning memorandum or checklist.
d. A client representation letter.

37. The purpose of tests of compliance is to provide reasonable assurance that the
a. Accounting treatment of transactions and balances is valid and proper.
b. Accounting control procedures are functioning as intended.
c. Entity has complied with disclosure requirements of generally accepted accounting
principles.
d. Entity has complied with requirements of quality control.

38. The reliance placed on substantive tests in relation to the reliance placed on internal
control varies in a relationship that is ordinarily
a. Parallel.
b. Inverse.
c. Direct.
d. Equal.

39. 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 auditor program.
b. The auditor’s judgment.
c. Generally accepted auditing standards.
d. The auditor’s working papers.

40. After performing a study and evaluation of the client’s system of internal control an
auditor has concluded that the system is well designed and is functioning as anticipated.
Under these circumstances the audit would most likely
a. Cease to perform further substantive tests.
b. Not increase the extent of predetermined substantive tests.
c. Increase the extent of anticipated analytical review procedures.
 d. Perform all compliance tests to the extent outlined in the preplanned audit program.

41. Tests of compliance are concerned primarily with each of the following questions except
a. How were the procedures performed?
b. Why were the procedures performed?
c. Were the necessary procedures performed?
d. By whom were the procedures performed?

42. 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 which
will be performed.
d. It is an acceptable practice to carry out substantial parts of the examination at interim
dates.

43. The actual operation of an internal control system may be most objectively evaluated by
a. Completing a questionnaire and flowchart related to the accounting system in the year
under audit.
b. Review of the previous year’s audit work papers to update the report of internal
control evaluation.
c. Selection of items processed by the system and determination of the presence of
absence or errors and compliance deviations.
d. Substantive test of accounts balances based on the auditor’s assessment of internal
control strength.

44. At interim dates an auditor evaluates a client’s internal accounting control procedures and
finds them to be effective. The auditor then performs a substantial part of the audit
engagement on a continuous basis throughout the year. At a minimum, the auditor’s year-
end audit procedures must include.
a. Determination that the client’s internal accounting control procedures are still
effective at the year end.
b. Confirmation of those year-end accounts that were examined at interim dates.
c. Tests of compliance with internal control in the same manner as those tests made at
the interim dates.
d. Comparison of the responses to the auditor’s internal control questionnaire with a
detailed flowchart at year-end.

45. In the context of an audit of financial statements, substantive test are audit procedures
that
a. 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. Degree of reliance on the relevant internal controls.

46. Which of the following is ordinarily designed to detect possible material peso errors on
the financial statements?
a. Compliance testing.
b. Analytical review.
c. Computer controls.
d. Post audit working paper review.

47. Audit programs are modified to suit the circumstance on particular engagements. A
complete audit program for an engagement generally should be developed.
a. Prior to beginning the actual audit work.
b. After the auditor has completed an evaluation of the existing internal accounting
records and procedures.
c. After reviewing the client’s accounting records and procedures.
d. When the audit engagement letter is prepared.

48. Which of the following audit test would be regarded as a test of “compliance”?
a. Tests of the specific items making up the balance in a given general ledger account.
b. Tests of the inventory pricing to vendor’s invoices.
c. Tests of the signatures on canceled checks to board director’s authorizations.
d. Tests of the additions to property, plant, and equipment by physical inspections.

49. An auditor evaluates the existing system of internal control in order to

a. Determine the extent of substantive tests which must be performed.
b. Determine the extent of compliance tests which must be performed.
c. Ascertain whether irregularities are probable.
d. Ascertain whether any employees have incompatible functions.

50. After finishing the review phase of the study and evaluation of internal control in an audit
engagement, the auditor should perform compliance tests on
a. Those controls that the auditor plans to rely on.
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.

51. A CPA wishes to use a representation letter as substitute for performing other audit
procedures. Doing so:
a. Violates professional standards.
b. Is acceptable, but should only be done when cost justified.
c. Is acceptable, but for non-public clients.
d. Is acceptable and desirable under all conditions.
52. Which of the following is not a procedure that auditors typically perform to search for
significant events during the subsequent period?
a. Review minutes of board of director’s meeting.
b. Review the latest available interim financial statements.
c. Inquire about any unusual adjustments made subsequent to the balance sheet data.
d. Review subsequent to the balance sheet date.

53. Which of the following best describes the problem with the use of published industry
averages for analytical procedures?
a. Lack of comparability.
b. Lack of reliability.
c. Lack of competence.
d. Lack of availability.

54. Which of the following best describes the reason that auditors are concerned with the
detection of related party transactions?
a. A business combination with another company.
b. Loss on the sale of a closely-held investment.
c. Loss of plant and equipment due to a fire.
d. Retirement of bonds payable at a loss.

55. Which of the following best describes the reason that auditor are concerned with the
detection of related party transactions?
a. The financial statements must often adjusted for the effects of material related party
transactions.
b. Material related party transactions must be disclosed in the notes to the financial
statements.
c. The substance of related party transactions will differ from their form.
d. In a related party transaction one party has the ability to exercise significant influence
over the other party.

56. Which of the following is not a typical procedure for testing the general journal?
a. Foot column totals.
b. Scan for unusual entries.
c. Confirm.
d. Vouch selected entries to original documents.

57. The audit time budget is an example of:

a. A support schedule.
b. An administrative working paper.
c. A lead schedule.
d. A corroborative working paper.

58. A lease agreement would normally be filed in

a. The administrative working paper file.
 b. The permanent working paper file.
c. The current working paper file.
d. The bulk working file.

59. 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 as a
a. Supporting schedule.
b. Lead schedule.
c. Corroborating schedule.
d. Reconciling schedule.

60. Which of the following is not a function of working paper?

a. Provide support for the auditor’s report.
b. Aid seniors in reviewing a supervising the work of managers and partners.
c. Aid partners in planning and conducing future audits.
d. Document staff compliance with generally accepted audit standards.

61. A schedule listing account balances for the current and previous years, and columns for
adjusting and reclassifying entries proposed by the auditors to arrive at the final amount
that will appear in the financial statements, is referred to as a
a. Working trial balance.
b. Lead schedule.
c. Summarizing schedule.
d. Supporting schedule.

62. Authorization of which of the following is least likely to be found during a review of the
minutes of the board of directors?
a. Dividends.
b. New debt issuance.
c. New bank accounts.
d. Writhe-off of trade accounts receivable

63. In order to determine the authorized capital structure of a corporation the auditors would
review
a. The bylaws of the corporation.
b. The articles of incorporation.
c. The minutes of stockholders’ meetings.
d. The minutes of board of directors’ meetings.

64. An entity’s financial statements were misstated over a period of years due to large
amounts of revenue being recorded in journal entries that involved debits and would most
likely have been alerted to this irregularity by
a. Scanning the general journal for unusual entries.
b. Performing a revenue cutoff test of year end.
c. Tracing a sample of journal entries to the general ledger.
 d. Examining documentary evidence of sales returns and allowances recorded after year
end.

65. Which of the following is not a primary purpose of audit working papers?
a. To coordinate the examination.
b. To assist in preparation of the audit report.
c. To support the financial statements.
d. To provide evidence of the auditor work performed.

66. Which of the following has the least effect on the independent auditors’ judgement as to
the quantity, type, and content of audit working papers?
a. The needs in the particular circumstances for supervisor and review of the work
performed by any assistants.
b. The nature and condition of the client’s records and internal controls.
c. The expertise of client personnel and their expected audit participation.
d. The type of the financial statements, schedules, or other information upon which the
auditors are reporting.

67. During an audit engagement pertinent data are prepared and included in the working
papers. The working papers primarily are considered to be
a. A client-owed record of conclusions reached by the auditors who performed the
engagement.
b. Evidence supporting financial statements.
c. Support for the auditors’ representations as to compliance with generally accepted
auditing standards.
d. A record to be used as a basis for the following year’s engagement.

68. Although the quantity, type, and content of working papers will vary with the
circumstances, the working papers generally would include the
a. Copies of those client records examined by the auditor during the course of the
engagement.
b. Evaluation of the efficiency and competence of the audit assistants by the partner
responsible of the audit.
c. Auditor’s comments concerning the efficiency and competence of client management
personnel.
d. Auditing procedures followed, and the testing performed in obtaining evidential
matter.

69. 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 accounting procedures and internal controls.
70. 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 examined.
b. Viewed as the connecting link between the books of account and the financial
statements.
c. Designed to meet the circumstances of the particular engagement.
d. Destroyed when the audited entity ceases to be a client.

71. In general, which of the following statements is correct with respect to ownership,
possession, or access to working papers prepared by a CPA firm in connection with an
audit?
a. The working papers may be obtained by third parties where they appear to be relevant
to issues raised in litigation.
b. The working papers are subject to the privileged communication rule which, in a
majority of jurisdictions, prevents third-party access to the working papers.
c. The working papers are the property of the client after the client pays the fee.
d. The working papers must be retained by the CPA firm for a period of ten years.

72. To ascertain the exact name of the corporate client, the auditor relies primarily on
a. Corporate minutes.
b. Bylaws.
c. Articles of incorporation.
d. Tax returns.

73. Which of the following statements is not correct?

a. Cash is important to the audit process because of its vulnerability to misappropriation,
despite the fact that the balance of the balance sheet date may be immaterial.
b. Payroll cash account balances kept on an imprest basis are more easily controlled
than others not be immaterial.
c. Confirmation of cash should only be performed as of the balance statement date
because the auditor expresses an opinion as of that date.
d. Reviewing interbank transfers is important to be auditor because of the possibility
that the client may be engaged in kiting.

74. The auditors use a bank cutoff statement to compare

a. Deposits in transit on the year-end bank reconciliation to deposits in the cash receipts
journal.
b. Checks dated prior to year-end to the outstanding checks listed on the year-end bank
reconciliation.
c. Deposits listed on the cutoff statement to disbursements in the cash disbursements
journal.
d. Checks dated subsequent to year-end bank reconciliation.

75. The most practical and effective audit procedure for the detection of lapping is
a. Preparing an interbank transfer schedule.
 b. Comparing recorded cash receipts in detail against items making up the bank deposit
as shown on duplicate deposit slips validated by the bank.
c. Tracing recorded cash receipts to postings in customers’ ledger cards.
d. Preparing of proof of cash.

76. Which of the following is not an internal control procedure that generally is established
over cash transactions?
a. Separating cash handing from recordkeeping.
b. Centralizing the receipt of cash.
c. Depositing each day’s receipts intact.
d. Obtaining a receipt for every disbursement.

77. Which of the following is not a control that generally is established over cash receipts?
a. To prevent abstraction of cash, a control listing of cash receipts should be prepared by
mailroom personnel.
b. To insure accurate posting, the accounts receivable clerk should post the customers’
receipts from customers’ checks.
c. To insure accuracy of the accounts receivable records, the records should be
reconciled monthly to the accounts receivable controlling account.
d. To prevent theft of cash, receipts should be deposited daily.

78. Tracing recorded sales transactions in the sales journal to the shipping documents (bills of
landing) provides evidence about the
a. Completeness of recording of sales transactions.
b. Occurrence of sales transactions.
c. Billing of all sales transactions.
d. Presentation of payables.

79. By preparing of four column bank reconciliation (“proof of cash”) for the last month of
the year, an auditor will generally be able to detect
a. An unrecorded check written at the beginning of the month which was cashed during
the period covered by the reconciliation.
b. A cash sale which was not recorded on the recorded on the books and was stolen by a
bookkeeper.
c. An embezzlement of unrecorded cash receipts on receivable before they had been
deposited into the bank.
d. A credit sake before they had been recorded twice in the sales journal.

80. In October, three months before year-end, the bookkeeper erroneously recorded the
receipt of a one year bank loan with a debit to cash and a credit to miscellaneous revenue.
Select the most effective method for detecting this type of error.
a. Foot the cash receipts journal for October.
b. Send a bank confirmation as of year-end.
c. Prepare a bank confirmation as of year-end.
d. Prepare a bank transfer schedule as of year-end.
81. Jones embezzled P10,000 from his company’s account in Bank A. At year-end he hid the
shortage by making a deposit on December 31 in Bank A, drawn on Bank B. He has not
recorded the transaction on the books. This is an example of
a. Lapping.
b. Kiting.
c. Effective cash management.
d. Related party transaction.

82. Jones embezzled P10,000 from his company’s account Bank A. At year-end he hid the
shortage by making a deposit on December 31 in Bank A, drawn on Bank B. He has not
recoded the transaction on the books. Which of the following is most likely to be
effective in detecting this irregularity?
a. Bank confirmation.
b. Bank transfer schedule prepared using only the receipts and cash disbursements
journals.
c. Comparison of bank cutoff statement to the cash receipts and disbursements records.
d. Receivable confirmation.

83. Which of the following is not a universal rule for achieving internal control over cash?
a. Separate recordkeeping from accounting for cash to the extent possible.
b. Deposit each day’s cash receipts intact.
c. Separate cash handling from recordkeeping.
d. Have monthly bank reconciliations prepared by employees not responsible for the
issuance of checks.

84. Which of the following is not an internal control procedure for cash disbursements?
a. Disbursements should be made by check.
b. A check protecting machine should be used.
c. Documents supporting the payment of a disbursement should be canceled by the
person preparing the check to prevent reuse.
d. Voided checks should be defaced and filed with paid checks.

85. Which of the following is the best audit procedure for the detection of lapping?
a. Comparison of posting of cash receipts to accounts with the details of cash deposits.
b. Confirmation of the cash balance.
c. Reconciliation of the cash account balances.
d. Preparing a proof of cash.

86. Which of the following manipulations of cash transactions would overstate the cash
balance on the financial statements?
a. Understatement of outstanding checks.
b. Overstatement of outstanding checks.
c. Understatement of deposits in transit.
d. Overstatement of bank services charges.
87. Which of the following is not confirmed on the standard from used for cash balances at
financial institutions?
a. Cash checking account balances.
b. Cash saving account balances.
c. Loans payable.
d. Securities held for the client by the financial institution.

88. Internal control over marketable securities is enhanced when

a. Securities are held by the cashier.
b. Securities are registered in the name of the custodian.
c. Detailed records of securities are maintained by the custodian of the securities.
d. Securities are held under joint control of two or more officials.

89. The best audit procedure to detect the misuse of investment securities during the year and
replacement of the securities prior to the audit is
a. Vouching of purchased securities.
b. Reconciling the subsidiary ledge of securities to the controlling account.
c. Comparing the amount of investment revenue recorded by the client to the amount
independently computed by the auditors.
d. Confirming securities held by a custodian at year-end.

90. In a manufacturing company which one of the following audit procedures would give the
least assurance of the existence of the assets in the general ledger balance of investment
in stocks and bonds at the audit date?
a. Confirmation from the broker.
b. Inspection and count of stocks and bonds.
c. Vouching all charges during the year to brokers’ advises and statements.
d. Examination of paid checks issued in payment of securities purchased.

91. The standard Form of Confirm Account Balances with Financial Institutions includes
information on all of the following except
a. Date due of a direct liability.
b. The principal amount paid on a direct liability.
c. Description of collateral for a direct liability.
d. The interest rate of a direct liability.

92. The auditors should insist that a representative of the client be presented during the
physical examination of securities in order to
a. Lend authority of the auditor’s directives.
b. Detect forged securities.
c. Coordinate the return of all securities to proper locations.
d. Acknowledge the receipt of securities returned.

93. The auditors’ count o the client’s cash should be coordinated to coincide with the
a. Consideration of the internal controls with respect to cash.
b. Close of business on the balance sheet date
 c. Count of marketable securities.
d. Count of inventories.

94. The auditors compare information on canceled checks with information contained in the
cash disbursement journal. The objective of this test is to determine that
a. Recorded cash disbursement transactions are properly authorized.
b. Proper cash purchase discounts have been recorded.
c. Cash disbursements are for goods and services actually received.
d. No discrepancies exist between the data on the checks and the data in the journal.

95. Jones was engaged to examine the financial statements of Gamma Corporation for the
year ended June 30, 199X. Having completed an examination of the investment
securities, which of the following is the best method of verifying the accuracy of
recorded dividend income?
a. Tracing recorded dividend income to cash receipts records and validated deposit slips.
b. Utilizing analytical techniques and statistical sampling.
c. Comparing recorded dividends with amounts appearing on federal information form
1099s.
d. Comparing recorded dividends with a standard financial reporting service’s record of
dividends.

96. Which of the following is one of the better auditing techniques that might be used by an
auditor to detect kiting?
a. Review composition of authentic deposit slips.
b. Review subsequent bank statements and canceled checks received directly from the
banks.
c. Prepare a schedule of the transfers.
d. Prepare year-end bank reconciliations.

97. Which of the following would the auditor consider to be incompatible operation if the
cashier receives remittances from the mailroom?
a. The cashier prepares the daily deposit.
b. The cashier makes the daily deposit at a local bank.
c. The cahier posts the receipts to the accounts receivable subsidiary ledger.
d. The cashier endorses the checks.

98. As one of the year-end audit procedures, the auditor instructed the client’s personnel to
prepare a confirmation request for a bank account that had been closed during the year.
After the client’s treasurer has signed the request, it was mailed by the assistant treasurer.
What is the major flaw in this audit procedure?
a. The confirmation request was signed by the treasurer.
b. Sending the request was meaningless because the account was closed before the year
end.
c. The request was mailed by the assistant treasurer.
d. The CPA did not sign the confirmation request before it was mailed.
99. On receiving the bank cutoff statement, the auditor should trace
a. Deposits in transit on the year-end bank reconciliation to deposits in the cash receipt
journal.
b. Checks dated prior to year-end to the outstanding checks listed on the year-end bank
reconciliation.
c. Deposits listed on the cutoff statement to deposits in the cash receipt journal.
d. Checks dated subsequent to year-end to the outstanding checks listed on the year-end
bank reconciliation.

100. To gather evidence regarding the balance per bank in a bank reconciliation, an
auditor could examine all of the following except
a. Cutoff bank statement.
b. Year-end bank statement.
c. Bank confirmation.
d. General ledger.

101. Which of the following cash transfers results in a misstatement of cash at

December 31, 2003?

Bank Transfer Schedule

Disbursement Receipt
Recorded Paid by Recorded Received
in books bank in books in bank
a. 12/31/03 1/4/04 12/31/03 12/31/03
b. 1/4/04 1/5/04 12/31/03 1/4/04
c. 12/31/04 1/5/4 12/31/03 1/4/04
d. 1/4/04 1/11/04 1/4/04 1/4/04

102. Contact with banks for the purpose of opening company bank accounts should
normally be the responsibility of the corporate:
a. Board of Directors.
b. Treasurer.
c. Controller.
d. Executive committee.

103. In a properly designed internal control structure, the same employee may be
permitted to
a. Receive and deposit checks, and also approved write-offs of customer accounts.
b. Approve vouchers for payment, and also receive and deposit cash.
c. Reconcile the bank statements, and also receive and deposit cash.
d. Sign checks, and also cancel supporting documents.

104. Which of the following procedures in the cash disbursements cycle should not be
performed by the accounts payable department?
 a. Comparing the vendor’s invoice with the receiving report.
b. Canceling supporting documentation after payment.
c. Verifying the mathematical accuracy of the vendor’s invoice.
d. Preparing the check for signature by an authorized person.

105. For effective internal control, the billing function should not be performed by the
a. Sales department.
b. Accounting department.
c. Finance department.
d. Data processing departments.

106. Which procedure would be of most assistance to an auditor discovering a large

credit sale that has erroneously been recorded twice?
a. Footing the sales journal.
b. Sending accounts receivable confirmations.
c. Tracing the total sales in the sales journal to the general ledger.
d. Observation of the physical inventory counts at year-end.

107. An audit basically consists of having the auditor form an opinion regarding
management’s financial statement assertions. The auditor therefore develops general and
specific program steps to apply to the accounts and transactions. In a particular case, s/he
might do this by
a. Tracing sales invoices to shipping documents to tests the completeness of reported
sales.
b. Tracing shipping documents to sales invoices to test the occurrence of reported sales
c. Tracing sales invoices to shipping documents to test the occurrence of reported sales.
d. Tracing sales invoices to shipping documents to test the completeness of recorded
accounts receivable.

108. After the CPAs have selected particular accounts receivable for confirmation
a. As a control measure, the CPAs should carefully list the audited values of all those
accounts before turning the letters over to the client to type and mail.
b. It is important that every account selected that has a material balance ultimately by
verified by confirmation or the application of alternative procedures; immaterial
balances never require any follow-up through alternative procedures.
c. All requests for confirmation should be mailed in envelopes bearing the CPA firm’s
return address and should include a return envelope addressed to the CPA firm.
d. All differences between confirmation replies and book values should be reconciled by
the CPAs, rather than the client.

109. The confirmation of accounts receivable is most closely associated with

a. Business risk.
b. Detection risk.
c. Inherent risk.
d. Relative risk.
110. Which of the following manipulations would understate receivable on the
financial statements?
a. Understatement of cash sales.
b. Closing the sales journal prior to year-end.
c. Closing the cash receipts journal prior to year-end.
d. Underestimating the allowance for doubtful accounts.

111. You were surprised to note that approximately 95% of returned positive accounts
receivable confirmations indicated that the customers thought that they owed a larger
balance than the amount that had been printed by your client on the confirmation. This
might be explained by the fact at
a. The cash receipts journal was closed before year-end.
b. The cash receipts journal was held open after year-end.
c. There are many unrecorded liabilities.
d. The sales journal was held open after year-end.

112. Which of the following procedures is least likely to help auditors to assess the
adequacy of management’s accounting estimate of the allowance for doubtful accounts?
a. Investigate confirmation exceptions for indication of amounts in dispute.
b. Review accounts which have been written off as uncollectible prior to year-end.
c. Investigate credit ratings for large accounts receivable.
d. Discuss with the credit manager the current status of doubtful accounts.

113. Which of the following is consistent with effective internal control over sales
transactions?
a. The accounting department prepared a shipping report authorizing the shipment of
goods.
b. The accounting department accounts for all receiving reports.
c. The billing department accounts for all shipping documents.
d. The credit department annually approves the extension of credit to customers.

114. Tracing recoded sales transactions to the bills of lading provides evidence about
the
a. Completeness of sales transactions.
b. Collectability of sales transactions.
c. Occurrence of sales transactions.
d. Billing of all sales transactions.

115. To obtain the best evidence regarding the completeness of recorded accounts
receivable, the auditors
a. Trace a sample of the bills of lading to sales invoices.
b. Confirm a sample of accounts payable.
c. Review the aging of accounts receivable.
d. Trace a sample of recorded sales to shipping documents.
116. Which of the following generally provides the least evidence regarding the
valuation of accounts receivable?
a. Reviewing an aging of accounts receivable.
b. Examination of cash receipts subsequent to the balance sheet date.
c. Confirming current (0-30 day) year-end accounts receivable.
d. Reviewing credit files for selected account.

117. Which of the following would indicate the need to use positive accounts
receivable confirmations?
a. A large population consisting of small balances.
b. Good internal control over accounts receivable.
c. Most accounts are with large reputable companies.
d. A large number of accounts receivable are in dispute.

118. Which of the following is not true about the confirmation of accounts receivable?
a. Confirmation requests should bear auditor’s return address.
b. Confirmation request should be signed by the auditors.
c. Confirmation request should be mailed directly by the auditors.
d. Confirmation requests should include a return envelope addressed to the office of the
auditors.

119. Which of the following is not true about the auditor’s verification of notes
receivable?
a. The interest revenue on notes receivable is usually audited by independent
computation.
b. Inspecting the notes is sufficient evidence of existence of the notes.
c. The auditors may evaluate the collectability of notes by inspecting credit files.
d. Confirmation of notes payable to banks may be accomplished in conjunction with the
confirmation of cash balances.

120. To verify that all sales that have been shipped to customer have been recorded, a
test of transactions should be completed on a representative sample drawn from
a. The sales journal.
b. The billing clerk’s file of sales orders.
c. Duplicate copies of sales invoices.
d. The shipping clerk’s file of duplicate copes of bills of lading.

121. Auditor may use positive and/or negative forms of confirmation requests for
accounts receivable. Of the following, which combination is it most likely that the
auditors will use?
a. The positive form for small balances, and the negative form for large balances.
b. The positive form used for large balances and the negative form for the small
balances.
c. The positive form used for trace receivables and the negative form for other
receivables.
 d. The positive form when controls related to receivables are satisfactory, and the
negative form when controls related to receivables are unsatisfactory.

122. The auditors obtain corroborating evidential matter for accounts receivable by
using positive or negative confirmation requests. Under which of the following
circumstances might the negative form of the accounts receivable confirmation be useful?
a. A substantial number of accounts are in disputes.
b. The combination of inherent risk and control risk is high.
c. Client records include a large number of relatively small balances.
d. The auditors believe that recipients of the requests are unlikely to give them
consideration.

123. When scheduling the audit work to be performed on an engagement, the auditors
should consider confirming accounts receivable balances at an interim date if
a. Subsequent collections are to be reviewed.
b. Internal control over receivables is good.
c. Negative confirmations are to be used.
d. There is a simultaneous examination of cash and accounts receivable.

124. It is sometimes impossible for the auditors to use normal accounts receivable
confirmation procedures. In such situations the best alternative procedure the auditors
might resort to would be
a. Examining subsequent receipts of year-end accounts receivable.
b. Reviewing accounts receivable aging schedules prepared at the balance sheet date and
at subsequent date.
c. Requesting that management increase the allowance for uncollectible accounts by an
amount equal to some percentage of the balance in those accounts that cannot be
confirmed.
d. Applying analytical procedures to accounts receivable and sales on a year-end-to-year
basis.

125. The audit working papers often include a client-prepared, aged trial balance of
accounts receivable as of the balance sheet date. This aging is best used by the auditors to
a. Consider internal control over credit sales.
b. Test the accuracy of recorded charge sales.
c. Estimate credit loss.
d. Verify the validity of the recorded receivables.

126. Which of the following is not a primary objective of the auditors in the
examination of accounts receivable?
a. Determine the approximate realizable value.
b. Consider the adequacy of internal controls.
c. Establish the existence of receivables.
d. Determine the approximate time of collectability of the receivables.
127. Once a CPA has determined that accounts receivable have increased due to slow
collections in a “tight money” environment, the CPA would be likely to
a. Increase the balance in the allowance for bad debts accounts.
b. Review the going concern ramifications.
c. Review the credit and collection policy.
d. Expand tests of collectability.

128. Which of the following sets of duties would ordinarily be considered basically
incompatible in terms of good internal control?
a. Preparation of monthly statements to customers and maintenance of the accounts
receivable subsidiary ledger.
b. Posting to the general ledger and approval of additions and terminations relating to
the payroll.
c. Custody of receipts on account and maintaining accounts receivable records.

129. Tracing copies of sales invoices to shipping documents will provide evidence that
all
a. Shipments to customers were recorded as receivables.
b. Billed sales were shipped.
c. Debits to the subsidiary accounts receivable ledger are for sales shipped.
d. Shipments to customers were billed.

130. Which of the following is the best argument against the use of negative accounts
receivable confirmations?
a. The cost-per-response is excessively high.
b. There is no way of knowing if the intend recipients received them.
c. Recipients are likely to feel that in reality the confirmation is a subtle request for
payment.
d. The inference drawn from receiving no reply may not be correct.

131. When there are a large number of relatively small account balances, negative
confirmation of accounts receivable is feasible if the combination of inherent risk and
control risk is
a. Low, and the individuals receiving the confirmation requests are unlikely to give
them adequate consideration.
b. High, and the individuals receiving the confirmation requests are likely to give them
adequate consideration.
c. High, and the individuals receiving the confirmation requests are unlikely to give
them adequate consideration.
d. Low, and the individuals receiving the confirmation requests are likely to give them
adequate consideration.

132. An auditor should perform alternative procedures to substantiate the existence of

accounts receivable when
a. No reply to a positive confirmation request is received.
 b. No reply to a negative confirmation request is received.
c. Collectability of the receivables is in doubt.
d. Pledging of the receivables is probable.

133. Johnson is engaged in the audit of a utility which supplies power to a residential
community. All accounts receivable balances are small and internal control is effective.
Customers are billed bi-monthly. In order to determine the validity of the accounts
receivable balances at the balance sheet date, Johnson would most likely
a. Examine evidence of subsequent cash receipts instead of sending confirmation
requests.
b. Send positive confirmation requests.
c. Send negative confirmation requests.
d. Use statistical sampling instead of sending confirmation requests.

134. A CPA examines a sample of copies of December and January sales invoices for
the initial of the person who verified the quantitative data. This is an example of a
a. Test of a control.
b. Substantive test.
c. Cutoff test.
d. Statistical test.

135. Which of the following is not a reason for the special significance attached by the
auditors to the verification of investors?
a. The determination of inventory valuation directly affects net income.
b. The existence of inventories is inherently difficult to substantiate.
c. Special valuation problem often exist for inventories.
d. Inventories are often the largest current asset of an enterprise.

136. Which of the following is true about the auditors’ observation of the client’s
physical inventory?
a. The count must be made at year-end.
b. The auditors should supervise the client’s personnel.
c. The auditor’s observation addresses the existence assertion.
d. The auditors should justify any omission of the observation in the audit report.

137. In verifying debits to perpetual inventory records of a non-manufacturing firm,

the auditor would be most interested in examining the
a. Purchase journal.
b. Purchase requisitions.
c. Purchase orders.
d. Vendors’ invoices.

138. The client’s physical count of inventories is lower than the inventory quantities in
the perpetual records. This could be the result of a failure to record
a. Purchases.
b. Purchase discounts.
 c. Sales.
d. Sales discounts.

139. An auditor has accounted for a sequence of inventory tags is now going to trace
information on a representative number of tags to the inventory summary sheet. Which
assertion does this procedure relate to most directly?
a. Legality.
b. Completeness.
c. Valuation.
d. Presentation.

140. The use of a “blind” purchase order is designed to prevent errors by the
a. Purchase department.
b. Receiving department.
c. Stores department.
d. Accounting department.

141. If the auditors believe that supplementary information in the client’s financial
statements is not presented in accordance with FASB requirements, the auditors should
a. Qualify their opinion on the financial statements.
b. Expand their report to describe the problem and qualify their opinion on the financial
statements.
c. Expand their report to describe the problem, but not qualify their opinion on the
financial statements.
d. Prepare a note to the financial statements describing the problem.

142. To assure that all purchases are authorized before payment is made, accounting
department personnel should match the vendor’s invoice to
a. The purchase requisition.
b. The receiving order.
c. The voucher.

143. Which of the following is true about the auditors’ observation of the client’s
physical inventory?
a. The auditors should plan the physical inventory.
b. The auditors should segregate damaged and obsolete goods.
c. The auditors should evaluate the adequacy of the client’s counting procedures.
d. The auditors should supervise the client’s personnel.

144. Which of the following is not a procedure that typically is used by the auditors in
their examination of a client’s goods held in the custody of a public warehouse?
a. Confirmation.
b. Obtaining reports on internal control at the warehouse.
c. Observation.
d. Corresponding with the state agency regarding the authenticity of the public
warehouse.
145. Which of the following best describes the reason that the auditors record their
inventory test counts in the working papers?
a. The document every test count.
b. For subsequent comparison with the completed inventory listing.
c. To document compliance with generally accepted auditing standards.
d. For use in subsequent audits.

146. Which of the following best describes the auditors’ response to a client’s use of
statistical sampling techniques to estimate the inventory?
a. The auditors should satisfy themselves as to the statistical validity of the technique,
and the reasonableness of the allowance for sampling risk and sampling error used.
b. The auditors should qualify their opinion, because the client must perform a complete
count of the inventory.
c. The auditors should increase the extent of their test counts to compensate for the use
of a statistical technique.
d. The auditors would withdraw from the engagement.

147. Which of the following best describes the reason for the auditors’ review of the
client’s cost accounting system?
a. To obtain evidence regarding the quantities of good described as work-in-process.
b. To obtain evidence about the valuation of work-in-process, finished goods, and cost
of goods sold.
c. To obtain evidence about the profit margin on specific jobs.
d. To obtain evidence about compliance with Cost Accounting Standards.

148. Effective internal control for purchases generally can be achieved in a well-
planned organizational structure with a separate purchasing department that has
a. The ability to prepare payment vouchers based on the information on a vendor’s
invoice.
b. The responsibility of reviewing purchase orders issued by user departments.
c. The authority to make purchases of requisitioned materials and services.
d. A direct reporting responsibility to controller of the organization.

149. Purchas cutoff procedures should be designed to test that merchandise is included
in the inventory of the client company, if the company
a. Has paid for the merchandise.
b. Has physical possession of the merchandise.
c. Holds legal title to the merchandise.
d. Holds the sipping documents for the merchandise issued in the company’s name.

150. Which of the following is an internal control weakness for a company whose
inventory of supplies consists of a large number of individual items?
a. Supplies of relatively little are expensed when purchased.
b. The cycle basis is used for physical counts.
c. The storekeeper is responsible for maintenance of perpetual inventory records.
 d. Perpetual inventory records are maintained only for items of significant value.

151. The auditors will usually trace the details of the test counts made during the
observation of the physical inventory taking to a final inventory schedule. This audit
procedure is undertaken to provide evidence that items physically present and observed
by the auditors at the time of the physical inventory count are
a. Owned by the client.
b. Not obsolete.
c. Physically present at the time of the preparation of the final inventory schedule.
d. Included in the final inventory schedule.

152. An internal control questionnaire indicates that an approved receiving report is

required to accompany every check request for payment of merchandise. Which of the
following procedures provide the greatest assurance that this control is opening
effectively?
a. Select and examine receiving reports and ascertain that the related canceled checks
are dated no earlier than receiving reports.
b. Select and examine receiving reports and ascertain that the related canceled checks
are dated no later than the receiving reports.
c. Select and examine canceled checks and ascertain that the related receiving reports
are dated no earlier than the checks.
d. Select and examine canceled checks and ascertain that the related receiving reports
are dated no later than the checks.

153. A client’s physical count of inventories was higher than the inventory quantities
per the perpetual records. This situation could be the result of the failure to record
a. Sales.
b. Sales discounts.
c. Purchases.
d. Purchase returns.

154. Which of the following procedures would not be appropriate for the auditors in
discharging their responsibilities concerning the client’s physical inventories?
a. Confirmation of goods in the hands of public warehouses.
b. Supervising the taking of the annual physical inventory.
c. Carrying out physical inventory procedures at an interim date.
d. Obtaining written representation from the client as to the existence, quality, and peso
amount of inventory.

155. To best ascertain that a company has properly included merchandise that it owns
in its inventory, the auditors should review and test the
a. Terms of the open purchase orders.
b. Purchase cutoff procedures.
c. Contractual commitments made by the purchasing department.
d. Purchase invoices received on or around year end.
156. Which of the following is not one of the independent auditor’s objectives
regarding the examination of inventories?
a. Verifying that inventory counted is owned by the client.
b. Verifying that the client has used proper inventory pricing.
c. Ascertaining the physical quantities of inventory on hand.
d. Verifying that all inventory owned by the client is on hand at the time of the count.

157. Purchase cutoff procedure should be designed to test whether all inventory
a. Purchased and received before the year end was recorded.
b. On the year end balance sheet was carried at lower of cost or market.
c. On the year end balance sheet was paid for by the company.
d. Owned by the company is in the possession of the company.

158. Which of the following is an effective internal control measure that encourages
receiving department personnel to count and inspect all merchandise received?
a. Quantities ordered are excluded from the receiving department copy of the purchase
order.
b. Vouchers are prepared by the accounts payable department personnel only after they
match item counts on the receiving report with the purchase order.
c. Receiving department personnel are expected to match and reconcile the receiving
report with the purchase order.
d. Internal auditors periodically examine, on a surprise basis, the receiving department
copies of receiving reports.

159. The accuracy of perpetual inventory records may be established, in part, by

comparing perpetual inventory records with
a. Purchase requisitions.
b. Receiving reports.
c. Purchase orders.
d. Vendor payments.

160. An inventory turnover analysis is useful to the auditor because it may detect
a. Inadequacies in inventory pricing.
b. Methods of avoiding cyclical holding cost.
c. The optimum automatic reorder points.
d. The existence of obsolete merchandise.

161. After accounting for a sequence of inventory tags, an auditor traces a sample of
tags to the physical inventory listing to obtain evidence that all items
a. Are included in the listing have been counted.
b. Represented by inventory tags are included in the listing.
c. Included in the listing are represented by inventory tags.
d. Represented by inventory tags are bona fide.
162. An auditor performs a test to determine whether all merchandise for which the
client was billed was received. The population for this test consists of all
a. Merchandise received.
b. Vendor’s invoices.
c. Canceled checks.
d. Receiving reports.

163. Which of the following best describes the auditor’s approach to the audit of the
ending balance of property, plant and equipment for a continuing client?
a. Direct audit of the ending balance.
b. Agreement of the beginning balance to prior year’s working papers and audit of
significant changes in the accounts.
c. Audit of changes in the accounts since inception of the company.
d. Audit of selected purchases and retirements for the last few years.

164. Which of the following is not an internal control policy that should be established
for purchases of equipment?
a. Establishing a budget for capital acquisitions.
b. Requiring that the department in need of the equipment order the equipment.
c. Requiring that the receiving department receive the equipment.
d. Establishing an accounting policy regarding the minimum peso amount of purchase
that will be considered for capitalization.

165. Which of the following best describes the reason Accelerated Cost Recovery
System amounts generally should not be used for financial statement purposes?
a. The method is not systematic and rational.
b. The percentages used in the tables are too large in relation to the straight-line rate.
c. The recovery periods are too short.
d. The methods are tax methods, which should never be used for financial statements.

166. Which of the following is not one of the auditors’ objectives in auditing
depreciation?
a. Establishing the reasonableness of the client’s replacement policy.
b. Establishing that the methods used are appropriate.
c. Establishing that the methods are consistently applied.
d. Establishing the reasonableness of depreciation computations.

167. Which of the following is the best evidence of continuous ownership of property?
a. Examination of the deed.
b. Examination of rent receipts from lessees of the property.
c. Examination of the title policy.
d. Examination of canceled check in payment for the property.

168. Which of the following best describes the auditor’s typical observation of plant
and equipment?
a. The auditors observe a physical inventory of plant and equipment, annually.
 b. The auditors observe all additions to plant and equipment made during the year.
c. The auditors observe all major plant and equipment items in the client’s accounts
each year.
d. The auditors observe major additions to plant and equipment made during the year.

169. Which of the following is used to obtain evidence that the client’s equipment
accounts are not understated?
a. Analyzing repairs and maintenance expense accounts.
b. Vouching purchases of plant and equipment.
c. Recomputing depreciation expense.
d. Analyzing the miscellaneous revenue account.

170. Which of the following is not a test primarily used to test property, plant and
equipment accounts for overstatement?
a. Investigation of reductions in insurance coverage.
b. Review of property tax bills.
c. Examination of retirement work orders prepared during the year.
d. Vouching retirements of plant and equipment.

171. A continuing audit client’s property, plant and equipment and accounts receivable
accounts have approximately the same year-end balance. In this circumstance, when
compared to property, plant and equipment one would normally expect the audit of
accounts receivable to require
a. More audit time.
b. Less audit time.
c. Approximately the same amount of audit time.
d. Similar confirmation procedures.

172. When comparing an initial audit with a subsequent year audit for a particular
client, the scope of audit procedures for which of the following accounts would be
expected to decrease the most?
a. Accounts receivable.
b. Cash.
c. Marketable securities.
d. Property, plant and equipment.

173. When performing an audit of the property, plant and equipment accounts, and
auditor should expect which of the following to be most likely to indicate a departure
from generally accepted accounting principles?
a. A gain was recognized when a new asset was acquired in exchange for a similar plant
asset which had a fair market value in excess of its book value.
b. Interest has been capitalized for self-constructed equipment.
c. Assets have been acquired from affiliated corporations with the related transactions
recorded and described in the financial statements.
d. The cost of freight-in on an acquisition has been capitalized.
174. The most likely technique for the current year audit of goodwill which was
acquired three years ago by a continuing audit client.
a. Confirmation.
b. Observation.
c. Recomputation.
d. Inquiry.

175. For which of the following accounts is it most likely that most of the audit work
can be performed in advance of the balance sheet date?
a. Accounts receivable.
b. Cash.
c. Current marketable securities.
d. Property, plant and equipment.

176. The auditors may expect a proper debit to goodwill due to

a. Purchase of a trademark.
b. Establishment of an extraordinarily profitable product.
c. A business combination.
d. Capitalization of human resources.

177. 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 equipment.
d. Examination of deeds and title guaranty policies on hand.

178. In violation of company policy, Lowell Company erroneously capitalized the cost
of painting its warehouse. The auditors examining Lowell’s financial statements would
most likely detect this when
a. Discussing capitalization policies with Lowell’s controller.
b. Examining maintenance expense accounts.
c. Observing, during the physical inventory observation, that the warehouse had been
painted.
d. Examining the construction work orders supporting items capitalized during the year.

179. Which of the following best describes the independent auditors’ approach to
obtaining satisfaction concerning depreciation expense in the income statements?
a. Verify the mathematical accuracy of the amounts charged to income as a result of
depreciation expense.
b. Determine the method for computing depreciation expense and ascertain that is in
accordance with generally accepted accounting principles.
 c. Reconcile the amount of depreciation expense to those amounts credited to
accumulated depreciation accounts.
d. Establish the basis for depreciable assets and verify the depreciation expense.

180. The auditors are least likely to learn of retirements of equipment through which of
the following?
a. Review of the purchase returns and allowances account.
b. Review of depreciation.
c. Analysis of the debits to the accumulated depreciation account.
d. Review of insurance policy riders.

181. For which of the following ledger accounts would the auditor be most likely to
analyze the details?
a. Service Revenue.
b. Sales.
c. Repairs and maintenance expense.
d. Sales salaries expense.

182. Which of the following is the most important internal control procedure over
acquisitions of property, plant and equipment?
a. Establishing a written company policy distinguishing between capital and revenue
expenditures.
b. Using a budget to forecast and control acquisitions and retirements.
c. Analyzing monthly variances between authorized expenditures and actual costs.
d. Requiring acquisitions to be made by user departments.

183. In the examination of property, plant, and equipment, the auditor tries to
determine all of the following except the
a. Extent of the control risk.
b. Extent or property abandoned during the year.
c. Adequacy of replacement funds.
d. Reasonableness of the depreciation.

184. Property acquisitions that are misclassified as maintenance expense would most
likely be detected by an internal control system that provides for
a. Investigation of variances within a formal budgeting system.
b. Review and approval of the monthly depreciation entry by the plant supervisor.
c. Segregation of duties of employees in the accounts payable department.
d. Examination by the internal auditors of vendor invoices and canceled checks for
property acquisitions.

185. Which of the following audit procedures is aimed most directly at testing the
completeness assertion for accounts payable.
a. Footing the list of accounts payable.
b. Examining underlying documentation for cash disbursements in the period of after
year-end.
 c. Tracing shipping reports issued on or before year-end to related customer purchase
orders and invoices.
d. Tracing shipping reports after year-end to related customer purchase orders and
invoices.

186. Which of the following best describes the auditors’ approach to the audit of
accrued liabilities?
a. Test computations.
b. Confirmation.
c. Observation.
d. A low planned assessed level of control risk.

187. Which of the following statements is correct regarding accounts payable and the
auditor’s procedures?
a. Because it is generally more difficult to discover a transaction that has not been
recorded than to discover one that has been recorded incorrectly, the audit objective
of completeness drives many of the substantive procedures applied to these balances.
b. A judgment an unrecorded payable should be recorded before the financial statements
are prepared depends entirely upon the source of the payable.
c. The confirmation of accounts payable selected from the year-end trial balance of such
accounts is most effective in discovering unrecorded liabilities.
d. Unrecorded payables are often discovered through examining vouchers payable
entered into the voucher register prior to the balance sheet date.

188. Which of the following assertions is of principle concern to the auditors in the
examination of accounts payable?
a. Existence.
b. Completeness.
c. Valuation.
d. Authorization.

189. Which of the following best describes the specific accounts payable that are
selected for confirmation?
a. Accounts with large balances.
b. Accounts with zero balances.
c. Accounts with a large amount of activity regardless of their balances.
d. Accounts for which vendor statements are available.

190. Most of the audit work on accounts payable is typically performed

a. Before the balance sheet date.
b. At the balance sheet date in conjunction with inventory cutoff tests.
c. After the balance sheet date.
d. Simultaneously with the audit of accrued liabilities.

191. When the auditors discover an understatements of liabilities, they would most
likely also expect to find an
 a. Understatement of assets.
b. Understatement of owners; equity.
c. Overstatement of expenses.
d. Understatement of revenues.

192. Which of the following procedures for detecting unrecorded transactions at the
client’s December 31 year-end is least likely to result in discover of an unrecorded year-
end account payable?
a. Examination of invoices received after year-end.
b. Examination of vouchers payable entered in the January voucher register.
c. Examination of January receiving reports prepared for goods shipped FOB
destination in December to the client.
d. Confirmation of year-end accounts payable.

193. For good internal control, a copy of a receiving report should be sent to all of the
following departments except
a. Accounts payable.
b. Purchasing.
c. Stores.
d. Shipping.

194. Auditors should be aware that a voucher system may result in which of the
following at year-end
a. Understatement of liabilities.
b. Overstatement of assets.
c. Understatement of owners’ equity.
d. Overstatement of expenses.

195. Accrued liabilities generally differ from accounts payable in that accrued
liabilities
a. Accumulate over time.
b. Are usually confirmed at year-end.
c. Depend upon the existence of a transaction for original recording of the count.
d. Are never included in cost of goods sold.

196. The form typically used to confirm accounts payable.

a. Does not require a response from the vendor.
b. Confirms the balance recorded by the client at year-end.
c. Requires the vendor to indicate the amount of the payable.
d. Is the same as the form used to confirm accounts receivable.

197. Which of the following is an internal control procedure that is usually applied to
accounts payable?
a. Periodic confirmation of accounts payable.
b. Mailing statements to vendors detailing their accounts.
c. Periodic aging of accounts payable.
 d. Reconciliation of vendor statements with accounts payable.

198. Which of the following is the best internal control procedure to prevent the
payment of an invoice twice?
a. Review of supporting documentation by the person signing the check.
b. Requiring dual signatures on checks.
c. Use of a check protector.
d. Reconciliation of vendor statements to accounts payable.

199. The auditors’ search for unrecorded liabilities is completed

a. During an interim period.
b. At the balance sheet date.
c. Subsequent to the balance sheet date.
d. At any time during the examination.

200. When the auditors select a sample of items from the vouchers payable register for
the last month of the period under audit and trace items to underlying documents, the
auditors are gathering evidence primarily in support of the assertion that
a. Recorded obligations were paid.
b. Incurred obligations were recorded in the correct period.
c. Recorded obligations occurred prior to year-end.
d. Cash disbursements were recorded as incurred obligation.

201. Which of the following best explains why accounts payable confirmation
procedures are not always used?
a. Inclusion of accounts payable balances on the liability representations completed by
the client allows the auditor to refrain from using confirmation procedures.
b. Accept payable generally are insignificant and cane be audited by utilizing analytical
procedures.
c. The auditor may feel certain that the creditors will press for payment.
d. Reliable externally generated evidence supporting accounts payable balances in
generally available for audit inspection on the client’s premises.

202. Internal control over accounts payable is improved when

a. Purchase orders show approved prices.
b. Informal bids are obtained.
c. Annual trial balance of accounts payable subsidiary ledgers is required.
d. Payment is made upon approval of the purchasing agent.

203. In a properly designed internal control structure, the same employee should not be
permitted to
a. Sign checks and cancel supporting documents.
b. Receive merchandise and prepare a receiving report.
c. Prepare disbursement vouchers and sign checks.
d. Initiate a request to order merchandise and approve merchandise received.
204. Unrecorded liabilities are most likely to be found during the review of which of
the following documents?
a. Unpaid bills.
b. Shipping records.
c. Bills of lading.
d. Unmatched sales invoice.

205. Which of the following procedures is least likely to be completed before the
balance sheet date?
a. Observation of inventory.
b. Review of internal control over cash disbursements.
c. Search for unrecorded liabilities.
d. Confirmation of receivables.
206. Which of the following audit procedures is least likely to detect an unrecorded
liability?
a. Analysis and recomputation of interest expense.
b. Analysis and recomputation of depreciation expense.
c. Mailing of a cash confirmation form.
d. Reading of the minutes of meetings of the board of directors.

207. The auditor will most likely perform extensive tests for possible understatement
of
a. Revenues.
b. Assets.
c. Liabilities.
d. Capital.

208. Internal control over bonds payable is best when

a. The company utilizes the services of a bond trustee.
b. The company segregates approval from issuance of the bonds.
c. Bonds are countersigned by two officers.
d. Bonds are serially numbers.

209. Which of the following is not a procedure that is designed to provide evidence
about the existence of loss contingencies?
a. Obtaining a lawyers’ letter.
b. Confirming accounts payable.
c. Reviewing the minutes of board of directors’ meetings.
d. Review correspondence with banks.

210. Which of the following types of matters do not generally disclosure in the
financial statements?
a. General risk contingencies.
b. Commitments.
c. Loss contingencies.
d. Liabilities to related parties.
211. In which of the following accounts would one expect a related party transaction to
be easiest to detect?
a. Accounts receivable.
b. Accounts payable.
c. Notes payable.
d. Cash.

212. For audit purposes, a corporation’s articles of incorporation are normally

a. Copied and places on the owners’ equity lead schedule.
b. Copied and placed in the permanent file.
c. Confirmed with the transfer agent.
d. Ignored since they are not normally considered to be related to the internal control
structure.

213. The audit approach for acquired treasury stock will normally include
a. Confirmation with shareholders.
b. Inspection of certificates.
c. Inspection of cash receipts entries.
d. Recomputation of all gains and losses.

214. Material loss contingencies should be recorded in the financial statements if

available information indicates it is probable that a loss had been sustained prior to the
balance sheet date and the amount of such loss can be reasonably estimated. These
considerations will affect the audit report as follows:
a. If a loss has been recorded in accordance with these criteria, the auditor may issue an
unqualified opinion but is required to point out the contingency in an explanatory
paragraph of the report.
b. If a loss meets these criteria but is disclosed in the financial statement notes rather
than being recorded therein, the auditor may issue an unqualified opinion, but is
required to point out the contingency in a explanatory paragraph of the report.
c. If a loss meets these criteria but is disclosed in the financial statements notes rather
than being recorded therein, the auditor may issue an unqualified opinion, but is
required to pint out the contingency in a explanatory paragraph of the report.
d. If a loss is probable but the amount cannot be reasonably estimated and is disclosed in
the notes to the financial statements rather than being recorded therein, the auditor
may issue an unqualified opinion, but is required to point out the contingency in an
explanatory paragraph of the report.

215. A refusal by a lawyer to furnish information related to litigation included in the

letter of inquiry is likely to result in
a. Confirmation of related lawsuits with the claimants.
b. Qualification of the audit report.
c. An assessment that loss of the litigation is probable.
 d. An adverse opinion.

216. Changes in capital stock accounts should normally be approved by

a. The board of directors.
b. The audit committee.
c. The stockholders.
d. The president.

217. For a large publicly traded client the auditors’ examination of capital stock
accounts will not normally include
a. Analysis of capital stock accounts.
b. Confirmation of shares issued with the independent registrar.
c. Accounting for the proceeds of major stock issues.
d. Reconciliation of a stock certificate book with the general ledger.

218. For a corporation that does not utilize the services of an independent registrar and
stock transfer agent, which of the following represents a weakness in internal control over
stock issuance?
a. Stock certificates are prenumbered.
b. Stock certificates are signed immediately upon receipt from the printer.
c. Stock certificates are in the exclusive custody of a responsible officer.
d. Stock certificates require the signature of two officers.

219. The auditors’ program for the examination of long-term debt should include steps
require the
a. Verification of the existence of the bondholders.
b. Examination of any bond trust indenture.
c. Inspection of the accounts payable subsidiary ledger.
d. Investigation of credits to the bond interest income accounts.

220. During an examination of a publicly-held company, the auditors should obtain

written confirmation regarding debenture transactions from the
a. Debenture holders.
b. Client’s attorney.
c. Internal auditors.
d. Trustee.

221. Auditors often request that audit client send a letter of inquiry to those attorneys
who have been consulted with respect of litigation, claims, or assessments. The primary
reason for this request is to provide the auditor with
a. An estimate of the peso amount of the probable loss.
b. An expert opinion as to whether a loss is possible, probable or remote.
c. Information concerning the progress of cases to date.
d. Corroborative evidential matter.
222. The primary reason for preparing a reconciliation between interest-bearing
obligations outstanding during the year and interest expense presented in the financial
statements is to
a. Evaluate internal control over securities.
b. Determine the validity of prepaid interest expense.
c. Ascertain the reasonableness of imputed interest.
d. Detect unrecorded liabilities.

223. 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 stock dividends.
d. Gain or loss resulting from disposition of treasury shares.

224. During its fiscal year, a company issued, at a discount, a substantial amount of
first-mortgage bonds. When performing independent auditor should
a. Confirm the existence of the bondholders.
b. Review the minutes for authorization.
c. Trace the net cash received from the issuance to the bond payable account.
d. Inspect the records maintained by the bond trustee.

225. When no independent stock transfer agent is employed and the corporation issues
its own stock 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
c. Be destroyed to prevent fraudulent reissuance.
d. Be defaced and sent to the Secretary of state.

226. The auditor’s primary means of obtaining corroboration of management’s

information concerning litigation is a
a. Letter of auditor inquiry to the client’s lawyer.
b. Letter of corroboration from the auditor’s lawyer upon review of the legal
documentation.
c. Confirmation of claims and assessments from the other parties to the litigation.
d. Confirmation of claims and assessments from n officer of the court presiding over the
litigation.

227. Which of the following ledger accounts would probably not be analyzed by the
auditors?
a. Miscellaneous revenue.
b. Professional fees.
c. Travel expense.
 d. Repairs and maintenance.

228. An example of an internal control weakness is to assign the payroll department

the responsibility for
a. Preparing the payroll expense distribution.
b. Preparing the payroll checks.
c. Authorizing deductions from pay.
d. Interviewing employees for jobs.

229. An example of an internal control weakness is to assign the personnel department

responsibility for
a. Distribution of paychecks
b. Hiring personnel.
c. Authorizing deductions from pay.
d. Interviewing employees for jobs.

230. The review of audit working papers by the audit partner is normally competed
a. Prior to year-end.
b. Immediately as each working paper is completed.
c. Near the completion of field work.
d. After issuance of the audit report, but prior to required subsequent event review
procedures.

231. The audit of which of the following balance sheet accounts does not normally
result in verification of an income statement accounts?
a. Cash.
b. Accounts receivable.
c. Property, plant and equipment.
d. Intangible assets.

232. Which of the following audit procedures is aimed at determining whether every
name of the company payroll is a bona-fide employee on the job?
a. A surprise observation of a paycheck distribution.
b. A test of payroll extensions.
c. Analytical comparisons of budgeted to actual payroll expense.
d. Comparison of payee names on canceled payroll checks with the payroll register.

233. Which of the following is not a procedure performed by auditors on segment

information?
a. Evaluate reasonableness of management’s methods of compiling the information.
b. Apply analytical procedures to test its reasonableness.
c. Confirm major segments with appropriate creditors.
d. Evaluate the reasonableness of methods of allocating operating expense among
segments.
234. Which of the following is not a procedure normally performed while completing
the audit?
a. Obtain a lawyer’s letter.
b. Obtain a representations letter.
c. Perform an overall review using analytical procedures.
d. Obtain confirmation of capital stockholdings from shareholders.

235. Auditors must communicate internal control “reportable conditions” to

a. The audit committee.
b. The shareholders.
c. The SEC.
d. The Federal Trade Commission.

236. Which of the following procedures is not a procedure that is completed near the
end of the engagement?
a. Review cash transactions.
b. Review to identify subsequent events.
c. Obtain the lawyer’s letter.
d. Obtain the letter of representations.

237. Which of the following information must be reported on in the auditors’ report?
a. FASB-required supplementary information.
b. Other information in client-prepared documents.
c. Information accompanying financial statements in auditor-submitted documents.
d. GASB-required supplementary information.

238. In evaluating whether there is a sufficiently low probability of material

misstatement in the financial statements, the auditors accumulate.
a. Likely misstatements in the financial statements.
b. Known misstatements in the financial statements.
c. Known and likely misstatements in the financial statements.
d. Known, likely and potential misstatements in the financial statements in the financial
statements.

239. If would be appropriate for the payroll accounting department to be responsible

for which of the following functions?
a. Approval of records of employee time records.
b. Maintenance of records of employment, discharges, and pay increases.
c. Preparation of periodic governmental reports as to employees’ earnings and
withholding taxes.
d. Distribution of paychecks to employees.

240. One reason why the independent auditors perform analytical procedures on the
client’s operations is to identify
a. Weakness of a material nature in internal control.
 b. Non-compliance with prescribed control procedures.
c. Improper separation of accounting and other financial duties.
d. Unusual transactions.

241. Which of the following is the best reason why the auditors should consider
observing a client’s distribution of regular payroll checks?
a. Separation of payroll duties is less than adequate for effective internal control.
b. Total payroll costs are a significant part of total operating costs.
c. The auditors did not observe the distribution of the entire regular payroll during the
audit in the prior year.
d. Employee turnover is excessive.

242. To minimize the opportunities for fraud, unclaimed cash payroll should be
a. Deposited in a safe deposit box.
b. Held by the payroll custodian.
c. Deposited in a special bank account.
d. Held by the controller.

243. Which of the following auditing procedures is ordinarily performed last?

a. Reading of the minutes of the directors’ meetings.
b. Confirming accounts payable.
c. Obtaining a management representation letter.
d. Testing of the purchasing function.

244. The purpose of segregating the duties of distributing payroll checks and hiring
personnel is to
a. Separate the custody of assets from the accounting for the assets.
b. Established clear lines of authority and responsibility.
c. Separate duties within the accounting function.
d. Separate the authority and responsibility.

245. The auditors’ best course of action with respect to “other financial information “
included in a client prepared annual report containing the auditors’ report is to
a. Indicate in the auditors’ report, that the “other financial information” is unaudited.
b. Consider whether the “other financial information” is accurate by performing a
limited review.
c. Obtain written representations from management as to the material accuracy of the
“other financial information”.
d. Read and consider the manner of presentation of the “other financial information”.

246. In the course of the examination of financial statements for the purpose of
expressing an opinion thereon, the auditors will normally prepare a schedule of
unadjusted differences for which the auditors did not propose adjustment when they were
uncovered. What is the primary purpose served by this schedule?
 a. To point out to the responsible client officials the errors made by various company
personnel.
b. To summarize the adjustments that must be made before the company can prepare and
submit its federal tax return.
c. To identify the potential financial statement effects of errors or disputed items that
were considered immaterial when discovered.
d. To summarize the errors made by the company so that corrections can be made after
the audited financial statement are released.

247. A CPA reviews a client’s payroll procedures. The CPA would consider internal
control to be less than effective if a payroll department supervisor was assigned the
responsibility for
a. Reviewing and approving time reports for subordinate employees.
b. Distributing payroll checks to employees.
c. Hiring subordinate employees.
d. Initiating requests for salary adjustments for subordinate employees.

248. A common audit procedure in the audit of payroll transactions involves tracing
selected items from the payroll journal to employee time cards that have been approved
by supervisor personnel. This procedure is designed to provide evidence in support of the
audit proposition that
a. Only bona-fide employees worked and their pay was properly computed.
b. Jobs on which employees worked were charged with the appropriate labor cost.
c. Internal controls relating to payroll disbursements are operating effectively.
d. All employees worked the number of hours for which their pay was computed.

249. Which of the following analytical procedures should be applied to the income
statement?
a. Select sales and expense items and trace amounts to related supporting documents.
b. Ascertain that the net income amount in the statement of cash flows agrees with the
net income amount in the income statement.
c. Obtain from the proper client representatives, the beginning and ending inventory
amounts that were used to determine costs of sales.
d. Compare the actual revenues and expenses with the corresponding figures of the
previous year and investigate significant differences.

250. An auditor will ordinarily examine invoices from lawyers primarily in order to
a. Substantiate accruals.
b. Assess the legal ramifications of litigation in progress.
c. Estimate the peso amount of contingent liabilities.
d. Identify possible unasserted, claims and assessments.

251. A financial forecast is based on

a. One or more hypothetical assumptions.
b. Assumptions about expected conditions and expended courses of action.
 c. Multiple projections.
d. Expressing a condition and course of action the issuer expects could take place.

252. Clients can establish the nature and scope of forecasts and projections. In such
engagements, all of the following conditions must be present, except
a. The users of the statements and report must take responsibility for the adequacy of the
agreed-upon procedures for their purpose.
b. The report is to be restricted to these users.
c. The prospective statements must contain a summary of significant assumptions.
d. The report would not express any type of opinion.

253. An adverse opinion is given on prospective financial statements when

a. The forecast or projection omits some information required to be presented by PICPA
guidelines.
b. The prospective results were not achieved.
c. The presentation fails to disclose significant assumptions.
d. Necessary examination procedures are not performed.

254. Examination reposts on prospective financial statements would not

a. Express conclusions about presentation.
b. Express conclusions about the reasonableness of the assumptions.
c. Refer to procedures considered necessary to evaluate the assumptions.
d. Attest to the achievability of the prospective results.

255. The “Big GAAS-Little GAAS” question illustrated the need for standards for
a. Accounting and review services.
b. Forecasts and projections.
c. Current value financial statements.
d. Personal financial statements.

256. The accountant’s standard report for a review service would not include a
statement that
a. Service was performed in accordance with Statements on Standards for Accounting
and Review Services.
b. All information included is the representation of the management of the business.
c. A review service is substantially less in scope than an audit, and an opinion on
financial statements is not expressed.
d. The accountant is not aware of any material modification that should be made from
GAAP.

257. The accountant’s standard report for a compilation service would not include a
statement that
a. A compilation service has been performed in accordance with standards established
by the PICPA.
b. Financial statement information is the representation of the owners of the business.
 c. Compilation service consists primarily of inquiries of company personnel and
analytical procedures applied to financial data.
d. Financial statements have not been audited or reviewed and the accountant does not
express an opinion or any other form of assurance.

258. In reporting on comparative financial statements the combination of prior

year/current year order of same or higher level of service would not include
a. Compilation followed by compilation
b. Compilation followed by review.
c. Review followed by compilation.
d. Review followed by review

259. When current year service being performed is a lower level of service, the
accountant can describe the predecessor report in a paragraph that would include all of
the following except
a. Describes the type of service previously rendered.
b. States the procedures performed after the prior year service.
c. Explains any modifications or opinion qualifications expressed last year.
d. States that prior year financial statements were reviewed or audited by the same or
predecessor accountant.

260. When inquiries are going to be made between successor and predecessor auditors
client permission is necessary when
a. Successor does not know much about the new client.
b. Problems may have existed between client and predecessor.
c. Client changes accountants frequently.
d. Predecessor is asked to disclose confidential information.

END