Francheska Ysabel Zeta QUIZ FOR NOVEMBER 26,2022

1. Audit risk has three components: inherent risk, control risk and detection risk. Which of
following statements is correct?
a. Detection risk is a function of the efficiency of an audit procedure.
b. Cash is more susceptible to theft than an inventory of coal because it has a greater
inherent risk.
c. The risk that material misstatement will not prevent or detected on a timely basis by
internal control can be reduced to a zero by effective controls.
d. Levels of inherent risk, control risk and detection risk can be changed at the
discretion of the auditor.
2. During the initial planning for an audit, a CPA obtains a level of knowledge of the client’s
business to help him evaluate:
a. The reasonableness of estimates, such as valuation of inventories and allowances for
doubtful accounts.
b. Whether to accept the engagement or not.
c. The probability of the business.
d. The nature of the audit report he will issue.
3. Which of the following procedures would an auditor most likely perform in planning an
audit of financial statements?
a. Inquiring of the client’s legal counsel concerning pending litigation.
b. Comparing the financial statement to anticipated results.
c. Examining computer generated exception reports to verify the effectiveness of
internal controls.
d. Searching for unauthorized transactions that may aid in detecting unrecorded
liabilities.
4. Which of the following results from analytical procedures might indicate inventory
obsolescence?
a. A decline in inventory turnover
b. A decline in the gross margin ratio
c. A decline in days’ sales in inventory
d. An increase in operating margin
5. Inherent risk and control risk differ from detection risk in that inherent risk and control
risk are:
a. Elements of audit risk while detection risk is not.
b. Changes at the auditor’s discretion while detection risk is not.
c. Considered at the individual account balance level while detection risk is not.
d. Functions of the clients and its environment while detection risk is not.
6. Which of the following statements concerning the relevance of various types of controls
to a financial statement audit is correct?
a. All controls are ordinarily relevant to a financial statement audit.
b. Controls over the reliability of assets and liabilities are the primary importance,
while controls over the reliability of the financial reporting may also be relevant.
 c. Controls over the reliability of financial reporting are ordinarily most directly
relevant to a financial statement audit, but other controls may also be relevant.
d. An auditor may ordinarily ignore a consideration of controls when a substantive
audit approach is taken.
7. Which of the following most likely would not be considered an inherent limitation of the
potential effectiveness of an internal control?
a. Incompatible duties
b. Management override
c. Mistakes in judgement
d. Collusion among employees
8. In an audit of financial statements, an auditor’s primary consideration regarding a
control is whether it:
a. Enhances management’s decision-making process.
b. Affects management’s financial statement assertions.
c. Reflects management’s philosophy and operating style.
d. Provides adequate safeguards over access to assets.
9. PSA 315 requires the auditors to obtain an understanding of the client’s internal
controls.
a. For every audit
b. For first-time audits
c. Whenever it would be appropriate
d. Sufficient to find any frauds which may exists
10. Audit evidence concerning proper segregation of duties normally be best obtained by
a. Preparation of a flowchart of duties performed and available personnel.
b. Direct personal observation of the employees who applies control procedures.
c. Making inquiries of co-workers about the employee who applies control procedures.
d. Inspection of third-party documents containing the initials of who applied control
procedures.
11. For appropriate segregation of duties, journalizing and posting summary payroll
transactions should be assigned to the
a. Treasurer’s department
b. Payroll accounting
c. General accounting
d. Timekeeping department
12. The physical count of inventory of a retailer was higher than shown by the perpetual
records. Which of the following could explain the difference?
a. Inventory items had been counted, but the tags placed on the items had not been
taken off the items and added to the inventory accumulation sheets.
b. Credit memos for several items returned by customers had not been recorded.
c. No journal entry had been made on the retailer’s books for several items returned to
its suppliers.
 d. An item purchased “FOB shipping point” had not arrived at the date of the inventory
count and had not been reflected in the perpetual records.
13. When no independent stock transfer agents are employed and the corporation issues its
own stocks and maintain stock records, cancelled stock certificates should
a. Not be defaced but segregated from other stock certificates and retained in a
canceled certificates file.
b. Be destroyed to prevent fraudulent reissuance.
c. Be defaced and sent to the secretary of state.
d. Be defaced to prevent reissuance and attached to their corresponding stubs.
14. Tracing shipping documents to prenumbered sales invoice provides evidence that
a. No duplicate shipments or billings occurred.
b. Shipments to customers were properly invoiced.
c. All goods ordered by customers were shipped.
d. All prenumbered sales invoices were accounted for
15. A company holds bearer bonds as a short-term investment. Responsibility for custody of
these bonds and submission of coupons for periodic interest collections probably should
be delegated to the
a. Chief Accountant
b. Internal Auditor
c. Cashier
d. Treasurer
16. Which ISA deals with the auditor’s responsibility relating to fraud in an audit of financial
statements?
a. ISA 200
b. ISA 204
c. ISA 250
d. ISA 33O
17. When conducting an audit, errors that arouse suspicion of fraud should be given greater
attention than other errors. This is an example of applying the criterion of
a. Reliability of evidence
b. Materiality
c. Risk
d. Dual-purpose testing
18. It refers to acts of omission or commission by the entity being audited, either intentional
or unintentional, which are contrary to prevailing laws or regulations.
a. Noncompliance
b. Illegal acts
c. Deplorable acts
d. Unforgivable acts
19. If the auditor concludes that the noncompliance has a material effect on the financial
statements, and has not been properly reflected in the financial statements, the auditor
should express
a. A disclaimer of opinion
b. A qualified or an unqualified opinion
c. A qualified opinion or an adverse opinion
d. A qualified opinion or a disclaimer of opinion
20. Fraud involving one or more members of management or those charged with
governance is referred to as
a. Management fraud
b. Fraudulent financial reporting
c. Employee fraud
d. Misappropriation of assets
21. Test for possible understatement will most likely be performed for
a. Income
b. Equity
c. Expenses
d. Assets
22. Which account is least likely to be evaluated by the auditor to obtain evidence relating
to retirement of property?
a. Insurance expense
b. Accumulated depreciation
c. Purchased returns and allowances
d. Loss on retirement
23. Which of the following statements is correct concerning the use of negative
confirmation of negative requests?
a. Unreturned negative confirmation requests rarely provide significant explicit
evidence.
b. Negative confirmation requests are effective when detection risks is low.
c. Unreturned negative confirmation requests indicate that alternative procedures are
necessary.
d. Negative confirmation requests are effective when understatements of account
balances are suspected.
24. Choose the type of audit evidence that is considered most persuasive
a. Prenumbered receiving report
b. Management representation letter
c. Client calculation of cost of goods sold
d. Bank statements submitted by the client
25. Which of the following is least likely to be an approach followed when auditing the fair
values of assets and liabilities?
a. Review and test management’s process of valuation.
b. Confirm valuation with audit committee members.
c. Independent develop an estimate of the value of the account.
d. Review subsequent events relating to the account.