AUDIT REVIEWER THEORY
1. In determining the primary responsibility of the external
auditor for an audit of a company‟s financial statements, the
auditor owes primary allegiance to:
A. the management of the audit client because the auditor is
hired and paid by management.
B. the audit committee of the audit client because that
committee is responsible for coordinating and reviewing all
audit activities within the company.
C. stockholders,creditors,andtheinvestingpublic.
D. the Auditing and Assurance Standards Council, because it
determines auditing standards and auditor‟s responsibility.
2. Which of the following would not represent one of the
primary problems that would lead the users to ademand for
independent audits of a company‟s financial statements?
A. Management bias in preparing financial statements.
B. Thedownsizingofbusinessandfinancialmarkets.
C. Thecomplexityoftransactionsaffectingfinancialstatements.
D. The remoteness of the user from the organization and thus
the inability of the user to
directly obtain financial information from the company.
3. Assurance services involve all the following except:
A. improving the quality of information for decision purposes.
B. improvingthequalityofthedecisionmodelused.
C. improvingtherelevanceofinformation.
D. implementing a system that improves the processing of
information.
4. Which of the following is the broadest and most inclusive
concept?
A. Auditsoffinancialstatements.
B. Internal Control Audit.
C. Assurance-services.
D. Compilation services.
5. Which of the following is a correct statement?
A. An audit provides limited assurance by attesting to the
fairness of the client‟s
assertions.
B. A review provides positive assurance by attesting the
reliability of the client‟s
assertions.
C.
Managementconsultingservicesprovideattestationinallcases.
D. Accounting services do not provide attestation.
6. Unlike consulting services, assurance services:
A. make recommendation to management
B. reportonhowtouseinformation
C. reportonthequalityofinformation
D. are two -party contracts.
7. Financial statements audits:
A. reduce the cost of capital
B.reportoncompliancewithlawsandregulations
C. assess management efficiency
D. over lookin info risk
8. A summary of findings rather than assurance is most likely
to be included in a(n):
A. Agreed-upon procedures report
B. Compilation report
C. Examination report
D. Review report
9. The risk associated with a company's survival and
profitability is referred to as:
A. Business Risk. B. Information Risk
C. Detection Risk D. ControlRisk
10. An engagement in which a CPA firm arranges for a critical
review of its practices by another CPA firm is referred to as
a(n):
A. Peer Review Engagement
B. Quality Control Engagement
C. Quality Assurance Engagement
D. AttestationEngagement
11. Attestation risk is limited to a low level in which of the
following engagement(s)?
A. Both examinations and reviews
B. Examinations, but not reviews
C. Reviews, but not examinations
D. Neitherexaminationsnorreviews
12. .An operational audit differs in many ways from an audit
of financial statements. Which of the following is the best
example of one of these differences?
A. The usual audit of financial statements covers the four
basic statements, whereas the operational audit is usually
limited to either the balance sheet or the income statement
B. The boundaries of an operational audit are often drawn
from an organization chart and are not limited to a single
accounting period
C. Operational audits do not ordinarily result in the
preparation of a report
D. Theoperationalauditdealswithpre-taxincome
13. The review of a company's financial statements by a CPA
firm:
A. Issubstantiallylessinscopeofproceduresthananaudit
B. Requiresdetailedanalysisofthemajoraccounts
C.
Isofsimilarscopeasanauditandaddssimilarcredibilitytothestate
ments
D. Culminates in issuance of a report expressing the CPA's
opinion as to the fairness of the
statements
14. When performing an engagement to review a nonpublic
entity's financial statements, an accountant most likely
would:
A. Obtain an understanding of the entity's internal control.
B. Limit the distribution of the accountant's report.
C. Confirm a sample of significant accounts receivable
balances. D.
Askaboutactionstakenatboardofdirectors'meetings.
15. Which of the following professionals has primary
responsibility for the performance of an audit?
A. The managing partner of the firm
 AUDIT REVIEWER THEORY
B. The senior assigned to the engagement C. The manager
assigned to the engagement D.
Thepartnerinchargeoftheengagement
16. Assurance services may include which of the following?
A. attesting to financial statements
B. examination of the economy and efficiency of
governmental operations C. evaluation of a division's
performance for management
D. allofthegivenchoices
17. The auditor of financial statements must make very
difficult interpretations regarding authoritative literature.
Additionally, the auditor must
A. proceed beyond PFRS to assess how the economic activity
is portrayed in the financial
statements.
B. force management to make certain decisions regarding
their financial statements.
C. disregard independence in order to find the underlying
truth of the evidence.
D.
establishnewcriteriabywhichfinancialstatementsmaybecompa
red.
18. Which one of the following is not a part of the attest
process? A. gathering evidence about assertions
B. proving the accuracy of the books and records
C. evaluating evidence against objective criteria
D. communicatingtheconclusionsreached
19. Which one of the following is not a reason why the users
of financial statements desire for an independent assessment
of the financial statement presentation?
A. complexity of transactions affecting the financial
statements
B. lack of criteria on which to base information
C. remoteness of the user from the organization D.
allofthemarepotentialreasons
20. Independent professional services that are provided on
financial or other information that improve the quality of
decision making are known as
A. internal auditing.
B. financial auditing.
C. assurance services. D. attestationservices.
21. An audit which determines whether organizational
policies are being followed and whether external mandates
are being met is known as
A. a financial audit.
B. a compliance audit.
C. an operational audit. D. noneoftheabove
22. May a CPA hire for the CPA‟s public accounting firm a
non-CPA systems analyst who specializes in developing
computer systems?
A. Yes, provided the CPA is qualified to perform each of the
specialist‟s tasks.
B. Yes, provided the CPA is able to supervise the specialist
and evaluate the specialist‟s
end product.
C. No, because non-CPA professionals are not permitted to be
associated with CPA firms in public practice.
D. No, because developing computer systems is not
recognized as a service performed by public accountants.
23. Which of the following services may a CPA perform in
carrying out a consulting service for a client?
I. Analysis of the client‟s accounting system
II. Review of the client‟s proposed business plan
III. Preparation of information for obtaining financing
A. IandIIonly B. IandIIIonly C. IIandIIIonly D. I, II, and III
24. Which of the following describes how the objective of a
review of financial statements differs from the objective of a
compilation engagement?
A. The primary objective of a review engagement is to test
the completeness of the
financial statements prepared, but a compilation tests for
reasonableness.
B. The primary objective of a review engagement is to provide
positive assurance that the
financial statements are fairly presented, but a compilation
provides no such assurance.
C. In a review engagement, accountants provide limited
assurance, but a compilation
expresses no assurance.
D. In a review engagement, accountants provide reasonable
or positive assurance that the financial statements are fairly
presented, but a compilation provides limited assurance.
25. Which of the following factors most likely would cause a
CPA to decline a new audit engagement?
A. The CPA does not understand the entity's operations and
industry.
B. Management acknowledges that the entity has had
recurring operating losses. C. The CPA is unable to review the
predecessor auditor's working papers.
D. Managementisunwillingtopermitinquiryofitslegalcounsel.
26. When a firm or a member of the assurance team holds a
direct financial interest or a material indirect financial interest
in the assurance client as a trustee, a self-interest threat may
be created by the possible influence of the trust over the
assurance client. Accordingly, such an interest cannot be held
when:
A. The member of the assurance team, an immediate family
member of the member of the assurance team, and the firm
are beneficiaries of the trust.
B. The interest held by the trust in the assurance client is not
material to the trust.
C. The trust is not able to exercise significant influence over
the assurance client.
D. The member of the assurance team or the firm does not
have significant influence over
any investment decision involving a financial interest in the
assurance client.
27. An inadvertent violation of the Independence rules as it
relates to a financial interest in an assurance client would not
impair the independence of the firm, the network firm or a
member of the assurance team when:
A. The firm, and the network firm, has established policies
and procedures that require all professionals to report
promptly to the firm any breaches resulting from the
purchase, inheritance or other acquisition of a financial
interest in the assurance client.
B. The firm, and the network firm, promptly notifies the
professional that the financial interest should be disposed of.
C. The disposal occurs at the earliest practical date after
identification of the issue, or the professional is removed
from the assurance team.
D. Allofthegivenchoices.
28. If a firm, or a network firm, has a direct financial interest
in a financial statement audit client of the firm, the
appropriate safeguard against the self-interest threat created
would be:
 AUDIT REVIEWER THEORY
A. Dispose the entire financial interest.
B. Dispose of a sufficient amount of the financial interest so
that the remaining interest is no longer material.
C. Any of the two is appropriate.
D. Noneofthetwoisappropriate.
29. If a firm, or a network firm, has a material financial
interest in an entity that has a controlling interest in a
financial statement audit client, the self interest threat
created is so significant. The audit firm can only perform the
engagement if it:
I. Dispose of the entire financial interest.
II. Dispose of a sufficient amount of the financial interest so
that the remaining
interest is no longer significant.
A. Either I or II
B. Neither I nor II
C. I only
D. IIonly
30. Which of the following safeguards is inappropriate if a
firm has a material financial interest in an entity that has a
controlling interest in a financial statement audit client?
A. Discuss the presence of self-interest threat with the
client‟s board of directors.
B. Dispose of the financial interest in total.
C. Dispose of a sufficient amount of the financial interest.
D.
Eitherdisposeofasufficientamountofthefinancialinterestorthe
financialinterestin
total.
31. The retirement benefit plan of a firm, or a network firm,
has a financial interest in a financial statement audit client. If
the self-interest threat that is created by the financial interest
is significant, the firm that intends to continue the
engagement should:
A. Reduce the financial interest so that the remaining interest
is no longer material.
B. Discuss the matter with the audit committee of the
financial statement audit client.
C. Refer the audit of the stockholders‟ equity of the financial
statement audit client to
other CPA.
D. Either dispose of the financial interest in total or a
sufficient amount so that the remaining amount is no longer
material.
32. The following loans and guarantees would not create a
threat to independence, except:
A. A loan from, or a guarantee thereof by, an assurance client
that is a bank or a similar institution, to the firm, provided the
loan is made under normal lending procedures, terms and
requirements and the loan is immaterial to both the firm and
the assurance
client.
B. A loan from, or a guarantee thereof by, an assurance client
that is a bank or a similar
institution, to a member of the assurance team or their
immediate family, provided the
loan is made under normal lending procedures, terms and
requirements.
C. Deposits made by, or brokerage accounts of, a firm or a
member of the assurance team with an assurance client that
is a bank, broker or similar institution, provided the
deposit or account is held under normal commercial terms.
D. If the firm, or a member of the assurance team, makes a
loan to an assurance client that is not a bank or similar
institution, or guarantees such an assurance client's
borrowing.
33. Examples of close business relationships that may create
self-interest and intimidation threat least likely include:
A. Having a material financial interest in a joint venture with
the assurance client or a controlling owner, director, officer
or other individual who performs senior managerial functions
for that client.
B. Arrangements to combine one or more services or
products of the firm with one or more services or products of
the assurance client and to market the package with
reference to both parties.
C. Distribution or marketing arrangements under which the
firm acts as a distributor or marketer of the assurance client‟s
products or services, or the assurance client acts as the
distributor or marketer of the products or services of the
firm.
D. The purchase of goods and services from an assurance
client by the firm (or from an audit client by a network firm)
or a member of the assurance team, provided the transaction
is in the normal course of business and on an arm‟s length
basis.
34. When a firm or a member of the assurance team and the
audit client or one of its officers hold interest in a closely-held
entity, a threat to independence is not created, except:
A. The relationship is clearly insignificant to the firm or a
member of the assurance team and the audit client.
B. The relationship is other than insignificant which is
acceptable for indirect financial interest.
C. The interest held is immaterial to the investor or group of
investors.
D. The interest does not give the investor, or group of
investors, the ability to control the
closely-held entity.
35. When an immediate family member of a member of the
assurance team is a director or an officer of the assurance
client in a position to exert direct and significant influence
over the subject matter information of the engagement, the
threat to independence can only be reduced to an acceptable
level, aside from withdrawing from the engagement, by:
A. Removing the individual from the assurance team.
B. Reduce the participation of the professional.
C. Discuss the matter with the audit committee of the client
entity.
D. Request the audit client management to require the
immediate family member of the
professional to go on forced vacation leave.
36. Which of the following relationships is most likely to
impair a CPA‟s independence with respect to a particular
audit client on which the CPA works as a member of the
engagement team?
A. A close relative has a material investment in that client of
which the CPA is not aware. B. A cousin has an immaterial
investment in that client of which the CPA is not aware.
C. The CPA‟s father is the president of the audit client.
D.
TheCPA‟sspouseparticipatesinasavingsplansponsoredbythecli
ent.
37. An inadvertent violation of the rules on family and
personal relationships would not impair the independence of
a firm or a member of the assurance team when:
 AUDIT REVIEWER THEORY
A. The firm has established policies and procedures that
require all professionals to report promptly to the firm any
breaches resulting from changes in the employment status of
their immediate or close family members or other personal
relationships that create threats to independence.
B. Either the responsibilities of the assurance team are re-
structured so that the professional does not deal with
matters that are within the responsibility of the person with
whom he or she is related or has a personal relationship, or, if
this is not possible, the firm promptly removes the
professional from the assurance engagement.
C. Additional care is given to reviewing the work of the
professional.
D. Allofthegivenchoices.
38. If a member of the assurance team, partner or former
partner of the firm has joined the assurance client, the
significance of the self-interest, familiarity or intimidation
threats created is least likely affected by
A. The position the individual has taken at the assurance
client.
B. The amount of any involvement the individual will have
with the assurance team. C. The length of time that the
individual was a member of the assurance team or firm. D.
Theformerpositionoftheindividualwithintheassuranceteamor
firm.
39. Using the same senior personnel on an assurance
engagement over a long period of time may create a
familiarity threat. The significance of the threat will least
likely depend upon
A. The length of time that the individual has been a member
of the assurance team. B. The role of the individual on the
assurance team.
C. The structure of the client.
D. The nature of the assurance engagement.
40. A small CPA firm provides audit services to a large local
company. Almost 80 percent of the CPA firm‟s revenues
come from this client. Which statement is most likely to be
true?
A. Appearance of independence may be lacking.
B. The small CPA firm does not have proficiency to perform a
larger audit.
C. The situation is satisfactory if the auditor exercises due
skeptical negative assurance
care in the audit.
D. The auditor should provide an “emphasis of a matter
paragraph‟ to his audit report
adequately disclosing this information and then it may issue
an unqualified opinion.
41. A professional accountant has been the partner-in-charge
of a particular audit client for the past eight years. This
situation could result to the following threat to professional
independence:
A. Self-review B. Advocacy C. Intimidation D. Familiarity
42. Which statement is incorrect regarding long association of
senior personnel with audit clients that are listed entities?
A. Using the same lead engagement partner on an audit over
a prolonged period may create a familiarity threat.
B. The lead engagement partner should be rotated after a
pre-defined period, normally no more than six years.
C. A partner rotating after a pre-defined period should not
participate in the audit until a further period of time,
normally two years, has elapsed.
D. When audit client becomes a listed entity the length of
time the lead engagement partner has served the audit client
in that capacity should be considered in determining when
the partner should be rotated.
43. The professional accountant who has been the lead
engagement partner for an audit engagement for a prolonged
period of time may continue to serve as the lead engagement
partner before rotating off the engagement for how many
years after the audit client becomes a listed entity?
A. One year
B. Three years C. Two years D. Fouryears
44. While the lead engagement partner should be rotated
after such a pre-defined period, some degree of flexibility
over timing of rotation may be necessary in certain
circumstances. Examples of such circumstances include:
A. Situations when the lead engagement partner‟s continuity
is especially important to the audit client, for example, when
there will be major changes to the audit client‟s structure
that would otherwise coincide with the rotation of the lead
engagement partner.
B. Situations when, due to the size of the firm, rotation is not
possible or does not constitute an appropriate safeguard.
C. Both choices are correct.
D. Bothchoicesareincorrect.
45. A CPA can continue to be an engagement partner on the
audit of financial statements of listed entities over a
prolonged period of engagement. In order to avoid a creation
of familiarity threat, subject to transitional provisions, how
many years are prescribed by the as maximum for the CPA to
continue serving as engagement partner for a listed entity?
A. Five years B. Three years C. Seven years D. Tenyears
46. An engagement partner who is rotated in the audit of
financial statements of listed entity can only participate in the
audit engagement for the same client after a period of:
A. Twelve months B. Two years
C. Three years
D. Fiveyears
47. The following activities would generally create self-
interest or self-review threats that are so significant and that
only avoidance of the activity or refusal to perform the
assurance engagement would reduce the threats to an
acceptable level, except
A. Authorizing, executing or consummating a transaction, or
otherwise exercising authority on behalf of the assurance
client, or having the authority to do so.
B. Determining which recommendation of the firm should be
implemented.
C. Reporting, in a management role, to those charged with
governance.
D.
Providingtechnicalassistanceandadviceonaccountingprinciples
forauditclients.
48. Which of the following may not create a self-review
threat?
A. Supervising assurance client employees in the performance
of their normal recurring
duties.
B. Preparing source documents in electronic or other form
evidencing a business
transaction.
C. Prolonged period of assignment as member of engagement
team in one particular audit engagement.
D. Performingcorporatefinancialservicesfortheauditclient.
 AUDIT REVIEWER THEORY
49. If firm, or network firm, personnel providing such
assistance make management decisions, the self-review
threat created could not be reduced to an acceptable level by
any safeguards. Examples of such managerial decisions
include the following, except
A. Determining or changing journal entries, or the
classifications for accounts or transactions or other
accounting records without obtaining the approval of the
audit clients
B. Authorizing or approving transactions.
C. Preparing source documents or originating data (including
decisions on evaluation assumptions), or making changes to
such documents or data.
D.
Assistinganauditclientinresolvingaccountreconciliationproble
ms.
50. The following services are considered to be a normal part
of the audit process and do not, under circumstances,
threaten independence, except
A. Analyzing and accumulating information for regulatory
reporting. B. Assisting in the preparation of consolidated
financial statements. C. Drafting disclosure items.
D. Havingcustodyofanassuranceclient‟sassets.
51. Which of the following will an auditor least likely discuss
with the former auditors of a potential client prior to
acceptance of an audit engagement?
A. Integrityofthemanagement
B. Feeschargedfortheservices
C. Disagreements between the predecessor auditor and the
management regarding accounting principles
D. Reasons for changing audit firms
52. What is the most likely course of action to be taken by an
auditor in assessing management integrity?
A. Tour the plant
B. Reviewtheminutesoftheboardofdirectors
C. Researchthebackgroundandhistoriesofofficers
D. Review the bank reconciliation statements
53. An
A. it may limit the auditor‟s legal liability by specifying the
auditor‟s responsibilities.
B. it specifies the client‟s responsibility for preparing
schedules and making the records
available to the auditor.
C. itspecifiesthebasisforbillingtheauditfortheupcomingyear.
D. All of the choices given are correct
54. When a CPA is approached to perform an audit for the
first time, the CPA should make inquiries of the predecessor
auditor. This is a necessary procedure because the
predecessor may be able to provide the successor with
information that will assist the successor in determining
whether:
A. the predecessor's work should be utilized.
B. thecompanyfollowsthepolicyofrotatingitsauditors.
C.
inthepredecessor'sopinion,internalcontrolofthecompanyissati
sfactory. D. the engagement should be accepted.
55. A written understanding between the auditor and the
client concerning the auditor's responsibility for the discovery
of noncompliance to laws is usually set forth in a(an)
A. client representation letter.
B. letterofauditinquiry.
C. management letter.
D. engagement letter.
engagement letter should be written before the start of an
audit because
56. Prior to acceptance of an audit engagement with a client
who has terminated the services of the predecessor auditor,
the CPA should
A. contact the predecessor auditor without advising the
prospective client and request a
complete report of the circumstances leading to the
termination of the engagement with
an understanding that all information disclosed will be kept
confidential.
B. accept the engagement without contacting the
predecessor auditor since the CPA can include audit
procedures to verify the reason given by the client for the
termination of
the engagement.
C. not communicate with the predecessor auditor because
this would in effect be asking
the auditor to violate the confidential relationship between
an auditor and the client.
D. advise the client of the intention to contact the
predecessor auditor and request a permission for the contact.
57. Before accepting an audit engagement, a successor
auditor should make specific inquiries of the predecessor
auditor regarding the predecessor‟s
A. opinion of any subsequent events occurring since the
predecessor‟s audit report was issued.
B. understandingastothereasonsforthechangeofauditors.
C.
awarenessoftheconsistencyintheapplicationofPFRSbetweenp
eriods.
D. evaluationofallmattersofcontinuingaccountingsignificance.
58. A successor auditor would most likely make specific
inquiries of the predecessor auditor regarding
A. specialized accounting principles being used by the client‟s
industry. B. thecompetencyoftheclient‟sinternalauditstaff.
C. theuncertaintyinherentinapplyingsamplingprocedures.
D. disagreements with management as to auditing
procedures.
59. Which of the following statements concerning materiality
thresholds is incorrect?
A. Aggregate materiality thresholds are a function of the
auditor's preliminary judgment
concerning audit risk.
B. In general, the more misstatements the auditor expects,
the higher should be the aggregate materiality threshold.
C. The smallest aggregate level of errors or fraud that could
be considered material to any of the financial statements is
referred to as a "materiality threshold."
D. Materiality thresholds may change between the planning
and review stages of the audit. These changes may be due to
quantitative and/or qualitative factors.
60. Which of the following concepts about materiality is
incorrect?
A.
Materialityisdirectlyrelatedtotheacceptablelevelofdetectionri
sk.
B. Materialitydoesnotapplyifinternalcontrolishighlyeffective.
C. Materialityisamatterofprofessionalauditjudgment.
D. Materiality is more closely related to fieldwork and
reporting standards than to general
standards.
 AUDIT REVIEWER THEORY
61. Which of the following would not be a source of B. Application of analytical procedures reveals a significant
information about the risk of a potential new audit client? increase in sales revenue in December, the last month of the
A. The predecessor auditor fiscal year.
B. Management C.
C. The internet Internalcontrolovershipping,billing,andrecordingofsalesreven
D. The new auditor‟s permanent file ueisweak.
62. In comparing management fraud with employee fraud, D. Study of the business reveals that the client recently
the auditor‟s risk of failing to discover the fraud is greater for: acquired a new company in an
A. employee fraud because of the larger number of unrelated industry.
employees in the organization. 68. Which of the following does an auditor least likely
B. perform in assessing audit risk?
employeefraudbecauseofthehighercrimerateamongbluecollar A. Gather audit evidence in support of recorded transactions.
workers. B.
C. management fraud because of management‟s ability to Obtainanunderstandingoftheclient'ssystemofinternalcontrol.
override existing internal controls. C.
D. management fraud because managers are inherently Understandtheeconomicsubstanceofsignificanttransactionsco
smarter than employees. mpletedbytheclient. D. Understand the entity and the
63. Management‟s integrity affects all of the following risks industry in which it operates.
except: A. enterprise risk 69. Which type of risk does the management of a company
B. financialreportingrisk have the most control over in the short term?
C. engagement risk A. Inherent risk
D. all of the above risks are affected B. Controlrisk
64. The auditor is most likely to presume that a high risk of C. Detectionrisk D. Sufficiencyrisk
irregularities exists if 70. In which of the following order would the auditors
A. the client is a multinational company that does business in perform the following steps?
numerous foreign countries. A. Determine audit risk; assess control risk; determine
B. theclientdoesbusinesswithseveralrelatedparties. detection risk; set materiality. B.
C. inadequate segregation of duties places an employee in a Setmateriality;determineauditrisk;assesscontrolrisk;determin
position to perpetrate and edetectionrisk. C.
conceal thefts. Setmateriality;assesscontrolrisk;determinedetectionrisk;deter
D. inadequate employee training results in lengthy EDP mineauditrisk. D. Determine audit risk; set materiality; assess
exception reports each month. control risk; determine detection risk.
65. Which of the following audit risk components may be 71. If the results of the auditor's tests of controls induce the
assessed in non-quantitative terms? auditor to change the assessed level of control risk for
A. B. C. D. inventory from 0.2 to 0.4 and audit risk and inherent risk
Inherent Risk Yes remain constant, what is the effect on the acceptable level of
Yes detection risk?
No A. A change in detection risk cannot be calculated because
Yes audit risk and inherent risk
Control Risk Yes values are not given.
No B. Detectionriskwouldincreasefrom0.3to0.6.
Yes Yes C. Detectionriskwoulddecreasefrom0.4to0.2.
Detection Risk No D. Detection risk would not change since audit risk and
Yes inherent risk do not change.
Yes 72. Which of the following may cause the management to
Yes intentionally understate profits? A. Management wants to
66. Which of the following combinations of engagement risk, create "cookie jar" reserves for a rainy day.
audit risk, and materiality would lead the auditor to most B. Thecompanyisunderscrutinybytaxauthorities.
audit work? C.
Engagement Risk Low Moderate Low Thecompanyissufferingalargelossandwantstotakea"bigbath."
High D. Allofthegivenchoices
Audit Risk 73. Which of the following is true?
High High Low Low A. Auditors are responsible for detecting all fraudulent
Moderate Low High High financial reporting.
Materiality B.
A. Auditorsmustspecificallyconsiderfraudriskfromoverstatingliab
B. ilities.
C. D. C.
67. Which of the following conditions justifies an auditor‟s Auditorsmustspecificallyconsiderfraudriskfrommanagemento
decision of raising the materiality level? verrideofcontrols.
A. Internalcontroloverrevenueandreceiptscycleisexcellent. D. All of them are true
 AUDIT REVIEWER THEORY
74. Why should the auditor plan more work on individual
accounts as lower acceptable levels of both audit risk and
materiality are established?
A. To find smaller errors
B. Tofindlargererrors
C. Toincreasethetolerableerrorintheaccounts D. To decrease
the risk of overreliance
75. With respect to errors and fraud, the auditor should plan
to
A. search for errors or fraud that would have a material effect
on the financial statements.
B.
discovererrorsorfraudthatwouldhaveamaterialeffectonthefin
ancialstatements.
C. search for errors that would have a material effect and for
fraud that would have either
material or immaterial effects on the financial statements.
D. search for fraud that would have a material effect and for
errors that would have either
material or immaterial effects on the financial statements.
76. The auditor‟s responsibility for identifying "direct-effect"
non-compliance to laws and regulations differs from their
responsibility for detecting
A. errors.
B. indirect-effectnon-compliancetolawsandregulations.
C. fraud.
D. management fraud.
77. The element of the audit planning process most likely to
be agreed upon with the client before the implementation of
the audit strategy is the determination of the
A. timing of inventory observation procedures to be
performed.
B.
evidencetobegatheredtoprovideasufficientbasisfortheauditor'
sopinion.
C.
procedurestobeundertakentodiscoverlitigation,claims,andass
essments. D. pending legal matters to be included in the
inquiry of the client's attorney.
78. Which of the following concepts is most useful in
assessing the scope of an auditor's program relating to
various accounts?
A. Attribute sampling
B. Materiality
C. Thereliabilityofinformation D. Management fraud
79. With respect to the auditor's planning of a year-end
examination, which of the following statements is always
true?
A. An engagement proposed after the fiscal year ends should
not be accepted.
B. Aninventorycountmustbeobservedatthebalancesheetdate.
C. The client's audit committee should not be told of the
specific audit procedures that will be performed.
D. It is an acceptable practice to carry out substantial parts of
the examination at interim dates.
80. Which of the following is not a consideration in the
development of audit programs?
A. Internal control over the recording of plant asset additions
and repairs and maintenance expenditures is found to be
weak.
B. The client constructed a major addition to its central
manufacturing facility during the year under audit.
C. TheclientisaprivateuniversitylocatedinSouthernPhilippines.
D. The members of the board of directors are elected by the
stockholders during the annual meeting.
81. An audit program provides a proof that
A. sufficient competent evidential matter is obtained.
B. theworkisadequatelyplanned.
C. there is compliance with generally accepted standards of
reporting. D. there is a proper study and evaluation of
internal control.
82. The principal reason for developing a written audit
program is to help assure that the A. audit work is properly
supervised.
B. auditworkisproperlyplannedanddocumented.
C. auditreportcontainsonlysignificantfindings.
D. work of different auditors is properly coordinated.
83. One of the primary uses of an audit program is to
A. serve as a tool for planning, directing, and controlling the
audit work.
B. documentanauditor'sunderstandingoftheinternalcontrol. C.
provideforastandardizedapproachtotheauditengagement. D.
delineate the audit risk accepted by the auditor .
84. Which of the following questions would an auditor most
likely include in an internal control questionnaire for notes
payable?
A. Are assets that collateralize notes payable critically needed
for the entity‟s continued existence?
B.
Aretwoormoreauthorizedsignaturesrequiredonchecksthatrep
aynotespayable?
C.
Aretheproceedsfromnotespayableusedforthepurchaseofnonc
urrentassets?
D. Are direct borrowings on notes payable authorized by the
board of directors?
85. In an auditor‟s consideration of internal control, the
completion of a questionnaire is most closely associated with
which of the following?
A. Separationofduties
B. Flowchart accuracy
C. Understandingthesystem D. Testsofcontrols
86. During the review of the client‟s system of internal
control, the auditor observes the client employees as they
apply the operating controls in order to
A. prepare a flowchart.
B.
updateinformationcontainedintheorganizationandprocedure
manuals. C.
corroboratetheinformationobtainedduringtheinitialreviewoft
hesystem. D. determine the extent of compliance with quality
control standards.
87. An auditor‟s flowchart of a client‟s internal controls is a
diagram depicting the auditor‟s
A. understanding of the internal controls.
B. programfortestsofcontrols.
C. documentationofconsiderationofinternalcontrols.
D. understanding of the types of irregularities that are
probable.
88. Which of the following statements regarding the
auditor‟s documentation of the client‟s internal control
structure is correct?
A. Documentation must include flow charts.
B. Documentationmustincludeproceduralwrite-ups.
C. Nodocumentationisnecessaryalthoughitisdesirable.
 AUDIT REVIEWER THEORY
D. No one particular form of documentation is necessary, and
the extent of documentation
may vary.
89. Which of the following is the auditor‟s purpose of further
testing the internal control procedures?
A. Provide a basis for reducing the assessed level of control
risk.
B. Reduce the risk that error or fraud that has not been
prevented or detected by the internal control system is not
detected by the independent audit.
C. Provide assurance that transactions are executed in
accordance with management's authorization and access to
assets is limited by a segregation of functions.
D. Provide assurance that transactions are recorded as
necessary to permit the preparation of the financial
statements in conformity with PFRS.
90. Tests of controls are concerned primarily with each of the
following questions except: A. Howwerethecontrolsapplied?
B. Whywerethecontrolsapplied?
C. Werethenecessarycontrolsconsistentlyperformed?
D. Bywhomwerethecontrolsapplied?
91. The objective of tests of details of transactions that are
being performed as tests of controls procedures is to
A. monitorthedesignanduseofentitydocumentssuchaspre-
numberedshippingform. B.
determinewhethercontrolshavebeenplacedinoperation.
C.
detectmaterialmisstatementsintheaccountbalancesinthefinan
cialstatements.
D. evaluate whether controls operate effectively.
92. Which of the following is ordinarily considered a test of
internal control procedures? A. Send confirmation letters to
banks.
B. Countandlistcashonhand.
C. Examinesignaturesonchecks.
D. Obtain or prepare reconciliation of bank accounts as of the
balance sheet date.
93. Auditors can use several types of audit procedures to test
controls. Which of the following type of audit procedures is
least likely to be used during tests of controls?
A. Physicalexaminationofassets
B. Inquiriesofclientpersonnel
C. Examinationofdocuments,records,andreports D.
Observation of control-related activities.
94. The objective of dual-purpose tests is to:
A. Evaluate whether internal controls are operating
effectively.
B. Detectmaterialmisstatementsinthefinancialstatements.
C.
Identifyunusualtrendsorpatternsincomparativefinancialstate
ments.
D. Test internal controls as well as transactions and balances
using the same test
procedures.
95. Which of the following types of evidence will be gathered
in order to test internal controls? A.
Confirmationsofaccountsreceivablewithcustomers.
B. Observationofclientpersonnelreceivinginventoryshipments.
C. Observationofinventorycounts.
D. Inquiry of management regarding significant litigation.
96. Tests of controls least likely include:
A. Inquiries of appropriate client vendors.
B. Reperformanceofacontrol.
C. Observationoftheapplicationofanaccountingprocedure. D.
Inspectionofdocuments.
97. A procedure that would most likely be used by an auditor
in performing tests of control regarding segregation of
functions on which no audit trail is available:
A. inspection.
B. observation.
C. reprocessing.
D. reconciliation.
98. The primary purpose of performing further control tests is
to provide
A. a basis for reducing the assessed level of control risk below
the maximum level.
B.
abasisforunderstandingtheflowoftransactionsthroughtheacco
untingsystem. C.
assurancethattransactionsareproperlyrecorded.
D. all accounting control procedures leave visible evidence.
99. Which of the following procedures most likely would be
included as part of an auditor's tests of control procedures?
A. Inspection
B. Reconciliation
C. Confirmation
D. Analytical procedures
100. Which of the following audit tests would be a test of
controls?
A. Tests of the specific items making up the balance in a
financial statement account. B.
Comparinginventorypricestovendors‟invoices.
C.
Tracingsignaturesoncanceledcheckstoboardofdirectors‟autho
rizations.
D. Tests of the additions to property, plant, and equipment by
physical inspections.
101. Foraparticularassertion,controlriskistheriskthat
A. controls will not detect a material misstatement that
occurs.
B. auditprocedureswillfailtodetectaweakcontrolsystem.
C.
theprescribedcontrolprocedureswillnotbeapplieduniformly.
D. a material misstatement will occur in the accounting
process.
102. Which of the following is an incorrect statement?
A. An example of a completeness assertion would be that
notes payable in the balance
sheet includes all such obligations of the entity.
B. An example of an occurrence assertion would be that sales
in the income statement
represent exchanges of goods or services that actually take
place.
C. An example of a rights/obligations assertion would be that
amounts capitalized for
leases in the balance sheet represent the cost of the entity‟s
rights to leased property.
D. An example of a valuation/allocation assertion would be
that property, plant, and equipment are recorded at market
value.
103. A distinction must be made between general audit
objectives and specific audit objectives for each account
balance. Which of the following is an incorrect statement?
A. The general audit objectives are applicable to every
account balance on the financial statements.
 AUDIT REVIEWER THEORY
B. The specific audit objectives are applicable to every
account balance on the financial statements.
C. Thegeneralauditobjectivesaretailoredtotheengagement.
D. The specific audit objectives are tailored to the
engagement.
104. Which of the following “general transaction-related
audit objectives” is not part of the valuation or allocation
assertion?
A. Completeness
B. Accuracy
C. Classification D. Timing
105. Only three of the following management assertions are
associated with transaction-related audit objectives. Which
one of the following is not?
A. Existence or occurrence
B. Completeness
C. Valuationorallocation
D. Presentation and disclosure
106. Which of the following statements is incorrectly stated?
A. Balance-related audit objectives are applied to account
balance.
B. Transaction-
relatedauditobjectivesareappliedtoclassesoftransactions.
C. Balance-related audit objectives are applied to the ending
balance in balance sheet
accounts.
D. Balance-related audit objectives are applied to both
beginning and ending balances in the balance sheet accounts.
107. The detail tie-in objective is not concerned that the
details in the account balance A. agree with related subsidiary
ledger accounts.
B. areproperlydisclosed,inaccordancewithPFRS.
C. foottothetotalintheaccountbalance.
D. agree with the total in the general ledger.
108. The disclosure objective is concerned that
A. the account balance is properly presented in the financial
statements.
B. disclosure requirements are properly presented in the
financial statements and in the
footnotes.
C. bothresponsesarecorrect.
D. both responses are incorrect.
109. If a long-term note receivable is included in the account
receivable listing, there is a violation of the
A. existence objective.
B. completenessobjective. C. classificationobjective. D. timing
objective.
110. After the general objectives are understood, specific
objectives for each account balance on the financial
statements can be developed. Which of the following
statements is true?
A. There should be at least one specific objective for each
relevant general objective.
B.
Therewillbeonlyonespecificobjectiveforeachrelevantgeneralo
bjective.
C.
Therewillbemanyspecificobjectivesdevelopedforeachrelevant
generalobjective. D. There must be one specific objective for
each general objective.
111. Which of the following is not a proper matching of
auditor‟s objective with management‟s assertion?
A. Validitymatcheswithexistenceoroccurrence
B. Completenessmatcheswithcompleteness
C. Ownershipmatcheswithrightsandobligations
D. Classification matches with presentation/disclosure
112. An audit process is a well-defined methodology for
organizing an audit to ensure that A. the evidence gathered is
both sufficient and competent.
B. allappropriateauditobjectivesarespecified.
C. allappropriateauditobjectivesaremet.
D. All of the responses are correct
113. Which of the following is correct?
A. The evidence that the auditor accumulates remains the
same from audit to audit, but the
general objectives vary, depending on the circumstances.
B. The general audit objectives remain the same from audit to
audit, but the evidence varies, depending on the
circumstances.
C.
Thecircumstancesmayvaryfromaudittoaudit,buttheevidencea
ccumulatedremains the same.
D. The general audit objectives may vary from audit to audit,
but the circumstances remain the same.
114. Auditing standards require the auditor to accumulate
sufficient competent evidence to support the opinion issued.
Because of the nature of audit evidence, it is
A. unlikely that the auditor will be completely convinced that
the opinion is correct.
B.
likelythattheauditorwillbecompletelyconvincedthattheopinio
niscorrect.
C. unlikelythattheauditorwillarriveataconclusion.
D. likely that the auditor would change his/her mind about
the opinion if he/she takes the
time to gather additional evidence.
115. Which of the following ultimately determines the
specific audit procedures necessary to provide an
independent auditor with a reasonable basis for the
expression of an opinion?
A. The audit program
B. Theauditor'sjudgment
C. PhilippineStandardsonAuditing D. The auditor's working
papers
116. In the final analysis, the amount and kinds of evidential
matter that are required to support the auditor‟s opinion
should be determined by
A. the audit committee.
B. auditor‟sjudgment.
C. professionalstandards. D. standardsofauditing.
117. To adequately plan the extent of the audit evidence to
gather, the generally accepted auditing standards require the
auditor to gain an understanding of
A. theinternalcontrolstructure.
B. client‟sorganizationcharts. C. client‟sproceduralmanuals.
D. Allofthese
118. When unable to obtain sufficient competent evidential
matter to determine whether certain client management‟s
acts are non-compliance to laws and regulations, the auditor
would most likely issue
A. anunqualifiedopinionwithaseparateexplanatoryparagraph.
B. eitheraqualifiedopinionoranadverseopinion.
C. eitheradisclaimerofopinionoraqualifiedopinion.
D. either an adverse opinion or a disclaimer of opinion.
119. An audit evidence is generally considered relevant when
it is A. derivedthroughvalidstatisticalsampling.
 AUDIT REVIEWER THEORY
B. objectiveandunbiased.
C. factual,adequate,andconvincing. D. consistent with the
audit objectives.
120. Two overriding considerations that affect an auditor‟s
judgment in accumulating evidence are:
1. Sufficient competent evidence must be accumulated to
meet the auditor‟s professional responsibility.
2. Cost of accumulating evidence should be minimized.
In evaluating these conditions,
A. the first is more important than the second.
B. thesecondismoreimportantthanthefirst. C.
theyareequallyimportant.
D. it is impossible to prioritize one.
121. Most of the independent auditor's work in formulating
an opinion on the financial statements consists of
A. studying and evaluating internal control.
B. obtainingandexaminingevidentialmatter.
C. examiningcashtransactions.
D. comparing recorded accountability with assets.
122. There are four subcategories of decisions that the
auditors must make in accumulating audit evidence. Which of
the following is not one of those subcategories?
A. Audit procedures to be used
B. Reasonsfordecidingnottotestcontrols
C. Samplesize
D. Timing of the audit procedures
123. Evidential matter supporting the financial statements
consists of the underlying accounting data and all
corroborating information available to the auditor. Which of
the following is an example of corroborating information?
A. Minutesofmeetingsoftheboardofdirectors
B. Generalandsubsidiaryledgers
C. Accounting manuals
D. Worksheets supporting cost allocations
124. Which of the following is not one of the major phases in
anaudit process?
A. Plan and design an audit approach
B. Testcontrolsandtransactions
C.
Informclientofanyadjustmentsorcorrectionstobemadeinthefin
ancialstatements D. Complete the audit and issue the report
125. Evidential matter is generally considered sufficient when
A. it is competent.
B. there is enough of it to afford a reasonable basis for an
opinion on the financial statements.
C.
ithasthequalitiesofbeingrelevant,objective,andfreefromknow
nbias.
D. it has been obtained through random selection.
126. In making decisions about evidence for a given audit, the
auditor‟s goal is to obtain a sufficient amount of timely,
reliable evidence that is relevant to the information being
verified, and to do so
A. no matter what the cost involved in obtaining such
evidence. B. onlyifthecostisreasonable.
C. atthelowestpossibletotalcost.
D. at any cost because the costs are billed to the client.
127. Which of the following is not a distinguishing feature of
risk-based auditing?
A. Identifying areas posing the highest risk of financial
statement errors
B. Analysisofinternalcontrol
C. Collectingandevaluatingevidence
D. Concentrating audit resources in those areas presenting
the highest risk of financial statement errors
128. The competence of evidence available to an auditor is
least likely affected by
A. the relevance of such evidence to the financial statement
assertion being investigated.
B.
therelationshipofthesourceofsuchanevidencetotheentitybein
gaudited.
C. thetimelinessoftheauditevidenceobtained.
D. the sampling method employed by the auditor to obtain a
number of samples as
evidence.
129. Which of the following procedures would provide the
auditor the most reliable audit evidence?
A. Inquiries of the client‟s internal audit staff held in private.
B. Inspection of prenumbered client purchase orders filed in
the vouchers payable
department.
C.
Analyticalproceduresperformedbytheauditorontheentity‟stri
albalance.
D. Inspection of bank statements obtained directly from the
client‟s financial institution.
130. The most reliable forms of documentary evidence are
those documents that are A. prenumbered.
B. easilyduplicated.
C. internallygenerated.
D. authorized by a responsible official.
131. You have been assigned to audit the maintenance
department of an organization. Which of the following is
likely to produce the least reliable audit evidence?
A. Notes on discussions with mechanics in the maintenance
operation.
B. A schedule comparing actual maintenance expenses with
budgeted expenses and those of the prior period and
disclosing important differences.
C.
Anarrativecoveringreviewofuserreportsonmaintenanceservic
e.
D. An analysis of changes in certain maintenance department
ratios.
132. Before applying substantive tests to the details of asset
accounts at an interim date, an auditor should assess
A. control risk at below the maximum level.
B. inherentriskatthemaximumlevel.
C. thedifficultyincontrollingtheincrementalauditrisk. D.
materiality for the accounts tested as insignificant.
133. Before applying principal substantive tests to the details
of accounts at an interim date, an auditor should
A. assess control risk as below the maximum for the
assertions embodied in the accounts selected for interim
testing.
B. determine that the accounts selected for interim testing
are not material to the financial statements taken as a whole.
C. consider whether the amounts of the year-end balances
selected for interim testing are reasonably predictable.
D. obtain written representations from management that all
financial records and related data will be made available.
134. If an auditor conducts an audit of financial statements in
accordance with generally accepted auditing standards,
which of the following will the auditor most likely detect?
 AUDIT REVIEWER THEORY
A. Mispostingofrecordedtransactions
B. Forgery
C. Unrecordedtransactions D. Collusive fraud
135. Which of the following best explains the difference
between audit objectives and audit procedures?
A. Audit procedures establish broad general goals; audit
objectives specify the detailed work to be performed.
B. Audit objectives are tailor-made for each assignment; audit
procedures are generic in application.
C.
Auditobjectivesdefinespecificdesiredaccomplishments;auditp
roceduresprovidethe means of achieving audit objectives.
D. Audit procedures and audit objectives are essentially the
same.
136. In gathering audit evidence in the performance of
substantive tests, the auditor
A. should use the test month approach.
B.
reliesonpersuasiveratherthanconvincingevidenceinthemajorit
yofcases.
C. would consider the client‟s documentary evidence more
competent than evidence
gathered from observation and physical inspection.
D. would express an adverse opinion if he has substantial
doubt as to any significant
assertion.
137. The auditor will not ordinarily initiate discussion with the
audit committee concerning the
A. extent to which the work of internal auditors will affect the
scope of the examination.
B. extent to which a change in the company‟s organization
will influence the scope of the
examination.
C.
detailsofpotentialproblemsthattheauditorbelievesmightcause
aqualifiedopinion.
D. details of the procedures that the auditor intends to apply.
138. Theobjectiveofdual-purposetestsisto
A. evaluate whether internal controls are operating
effectively.
B. detectmaterialmisstatementsinthefinancialstatements.
C.
identifyunusualtrendsorpatternsincomparativefinancialstate
ments.
D. test internal controls as well as transactions and balances
using the same test
procedures.
139. To test for unsupported entries in the ledger, the
direction of audit testing should be from the
A. ledger entries.
B. journalentries.
C. externallygenerateddocuments.
D. originalsourcedocuments.
140. The least costly form of testing is usually A.
testsofcontrols.
B. testsofdetailsofbalances.
C. testsofdetailsoftransactions. D. analytical procedures.
141. Tracing from source documents to journals most directly
addresses which financial statement assertion?
A. Valuation
B. Completeness
C. Existence D. Rights
142. An auditor is examining the detailed debit and credit
entries in an account. The auditor is most likely performing
A. analyticalprocedures.
B. testsofdetailsofbalances.
C. testsofdetailsoftransactions. D. testsofcontrols.
143. Choices about audit evidence are influenced by all of the
following except: A. The auditor‟s understanding of the
business and industry
B. Assessmentofinherentandcontrolrisk
C. Comparisons of the auditor‟s expectation of the financial
statements with the client‟s books and records
D. Decisions about immaterial risk factors
144. The auditor is performing substantive tests several
months before the end of the year. This most likely means
that
A. inherent risk is set at moderate to high.
B. detectionriskissetatmoderatetohigh.
C. controlriskissetatmaximum.
D. detection risk is set at low to very low.
145. In testing the existence assertion for an asset, an auditor
ordinarily works from the A.
financialstatementstothepotentiallyunrecordeditems.
B. potentiallyunrecordeditemstothefinancialstatements.
C. accountingrecordstothesupportingevidence.
D. supporting evidence to the accounting records.
146. WB Industries has significant information that is
transmitted, processed, maintained, and accessed
electronically. The auditor has concluded that it is not
possible to reduce detection risk to an acceptable level by
performing only substantive tests for a number of financial
statement assertions. The auditor‟s alternative strategy is to
A. increase the acceptable audit risk.
B.
focusaudittestsonotherassertionsforwhichsubstantivetestspro
vetobeeffective.
C.
requiremanagementtochangeitsinformationsystemtoprovide
appropriateevidence.
D. perform tests of controls to gather evidential matter to be
used as basis of assessing
control risk related to those assertions.
147. The decision on the part of the auditor to perform
substantive tests during the interim period will be based
upon
A. audit risk control and cost effectiveness.
B. theapproachfollowedinthepast.
C. theauditor‟stimeconvenience.
D. the cooperation extended by the client staff.
148. Choose the best illustration of objective audit evidence
from the following:
A. The paid invoice file containing invoices matched with
receiving reports and purchase orders.
B. Management's assertion that payment procedure requires
matching of invoice with receiving report and purchase order.
C. Clerical staff assurances that management policy regarding
payment of invoices-- matching of invoice with receiving
report and purchase order--is always followed.
D. The treasurer's statement of not remembering any
exceptions in which an invoice was submitted for payment
that is not accompanied by a covering receiving report and
purchase order.
149. Which of the following audit procedures best supports
the valuation objective?
 AUDIT REVIEWER THEORY
A. Performing a lower of cost or market test of the client's
inventories
B. Reviewingacontingentliabilitydisclosureforproperwording
C. Searchingforunrecordedliabilities
D. Observing the client's year-end physical inventory taking
150. Which of the following is not an appropriate auditing
procedure supporting the fairness of financial-statement
presentation?
A. Inspecting plant asset additions for existence
B. Recalculatingaccruedinterestonnotespayable
C.
Examininginvoicesinsupportoflegalfeesrecordedduringthefisc
alyear D.
Reviewingtheclient'sproductionqualitycontrolprogram
151. Audit procedures are normally performed
A. early in the accounting period being examined.
B. throughout the accounting period being examined, but
with emphasis on the
transactions near the end.
C. within one to three months after the close of the
accounting period.
D. During all three of the above periods
152. The auditor would unlikely perform early substantive
testing of account balances when:
A. A number of significant deviations from control policies
and procedures were detected during tests of controls.
B. Due to economic factors, the fourth quarter activity this
year is expected to be somewhat sluggish.
C. Theclientusesanaturalbusinessyear.
D. The taking of the client‟s inventory is performed at an
early date.
153. As the acceptable level of detection risk decreases, an
auditor may change the
A. timing of substantive tests by performing them at an
interim date rather than at year-
end.
B.
natureofsubstantivetestsfromalesseffectivetoamoreeffectivep
rocedure.
C.
timingoftestsofcontrolsbyperformingthematseveraldatesrath
erthanatonetime.
D. assessed level of inherent risk to a higher amount.
154. The auditor is concerned that a client usually fails to bill
customers for shipments. An audit procedure that would
gather relevant evidence would be to
A. select a sample of duplicate sales invoices and trace each
to related shipping documents.
B.
traceasampleofshippingdocumentstorelatedduplicatesalesinv
oices.
C.
traceasampleofSalesJournalentriestoAccountsReceivablesubsi
diaryledger.
D. compare the total of the Schedule of Accounts Receivable
with the balance of the
Accounts Receivable account in the general ledger.
155. The extent of testing normally applies
A. exclusively to the number of items to be tested.
B.
toboththenumberofitemstestedandthenumberoftestsperfor
med.
C. exclusivelytothenumberofsubstantivetestsperformed.
D. to both the nature of items tested and the number of tests
performed.
156. Which of the following, when performed by the auditor,
is not a test of mechanical accuracy?
A. Extending sales invoices
B. Adding journals and ledgers
C. Tracingamountsfromjournalstoledgers D. Calculating the
current ratio
157.
that in performing a test of internal control effectiveness, the
rate of error in the sample does not support the auditor's
preconceived notion of a tolerable occurrence rate when, in
fact, the actual error rate in the population does meet the
auditor's notion of effectiveness. This situation illustrates the
risk of
A. underassessmentofcontrolrisk.
B. overassessmentofcontrolrisk.
C. incorrectrejection. D. incorrect acceptance.
158. Several risks are inherent in the evaluation of audit
evidence which has been obtained through the use of
statistical sampling. Which of the following risks is an
example of the risk of underassessment of control risk?
A. Failuretoproperlydefinethepopulationtobesampled.
B. Failuretodrawarandomsamplefromthepopulation.
C. Failure to accept the statistical hypothesis that internal
control is unreliable when, in
fact, it is.
D. Failure to accept the statistical hypothesis that a book
value is not materially misstated when the true book value is
not materially misstated.
In the examination of the financial statements of Delta
Company, the auditor determines
159.
substantive testing. This underassessment occurred because
the true occurrence rate in the population was
As a result of tests of controls, an auditor underassessed
control risk and decreased
A. Less than the risk of underassessment in the auditor's
sample. B. Lessthantheoccurrencerateintheauditor'ssample.
C. Morethantheriskofunderassessmentintheauditor'ssample.
D. More than the occurrence rate in the auditor's sample.
160. Which of the following sampling plans would be
designed to estimate a numerical measurement of a
population, such as a peso value?
A. Numericalsampling. B. Discoverysampling.
C. Sampling for attributes. D. Sampling for variables.
161. Which of the following statements is an advantage of
classical variables sampling?
162.
A. If no errors are expected, classical variables sampling will
result in a smaller sample size than probability-proportional-
to-size sampling.
B. A classical variables sampling plan can begin before the
completed population is available.
C. Classical variables sampling may result in a smaller sample
size than probability- proportional-to-size sampling if there
are many differences between recorded and audited
amounts.
D. Classical variables sampling does not require recorded
values for individual sampling units.
What is the primary objective of using stratification as a
sampling method in auditing?
 AUDIT REVIEWER THEORY
A. To increase the confidence level at which a decision will be preferable to the mean-per-unit estimation method?
reached from the results of When are the ratio estimation and difference estimation
the sample selected. techniques most likely to be
B. To determine the occurrence rate for a given characteristic A. The choice between any of the methods is irrelevant, since
in the population being they all provide similar results.
studied. B.
C. Todecreasetheeffectofvarianceinthetotalpopulation. Whendifferencesbetweenbookandauditedvaluesareinfrequen
D. To determine the precision range of the sample selected. t.
163. C.
following is not necessary? Whendifferencesbetweenbookandauditedvaluesarefrequent.
An auditor is applying PPS sampling. In determining the D. When differences between book and projected
sample size, which of the misstatement is estimated to be small.
A. a reliability factor for overstatement errors 170.
B. areliabilityfactorforunderstatementerrors technique over the classical variables approach?
C. tolerableerror D. anticipated error What is one of the main advantages of the probability-
164. In a variable sampling plan, an auditor must generally proportional-to-size sampling
consider each of the following except A. It provides a more accurate estimation of the sample
A. variationwithinthepopulation. mean.
B. acceptableriskofincorrectacceptance. C. tolerableerror. B. It provides a wider range for acceptance so that less
D. Population. substantive testing needs to be
165. When sampling methods are used in a substantive test, done.
all of the following factors must be considered in determining C. It provides a smaller range for acceptance so that more
an optimum sample size, except the errors are discovered.
166. D. It often requires a smaller sample size to be selected.
A. variation in the population. 171. selected?
B. risklevelsthattheauditoriswillingtoaccept. Probability-proportional-to-size sampling will result in what
C. type of sample items being
deviationoccurrenceratethattheauditorexpectstoexistinthesa A.
mple. D. tolerable misstatement. Highlyrepresentativeofthepopulationbecauseitiswhollyrando
PPS sampling is most appropriate when the auditor A. mized.
anticipates understatement errors. B. A higher proportion of small value items then large value
B. anticipatesoverstatementerrors. items because of the
C. expectsnoerrors. sampling interval used.
D. has assessed control risk at the maximum. C. A higher proportion of large value items than small value
167. items because of the sampling interval used.
population of accounts receivable as: D. A biased sample means that may not be representative of
The mean-per-unit estimation method calculates the the population.
estimated total audited value of a 172.
the sample results supported the conclusion that the
168. recorded account balance was materially misstated. It was, in
A. fact, not materially misstated. This situation illustrates the
Asummationofthetotalindividualaccountsvaluesinthepopulati risk of
on. While performing a substantive test of details during an audit,
B. the auditor determined that
Thesamplemeanauditedvaluemultipliedbythenumberofitemsi A. alpha risk.
nthepopulation. B. assessingcontrolrisktoolow.
C. The estimated total audited value of the population
multiplied by the number of items in the sample. 173.
D. The summation of the sample multiplied by the number of C. betarisk.
discrete samples in the population. D. assessing control risk too high.
What is the best description of "tolerable misstatement" for The risk of incorrect acceptance relates to the:
mean-per-unit estimation? A. Effectivenessoftheaudit.
A. The maximum misstatement that may exist without B. Efficiencyoftheaudit.
causing an account to be materially misstated. C. Preliminaryestimateofmateriality. D. Allowable risk of
B. The "bounds" around the sample mean that we would tolerable error.
expect the value to fall within to be correct. 174.
C. misstated but, unknown to the auditor, the account is not
The"projected"misstatementinthepopulationbaseduponthesa misstated, suggesting the risk of
mplechosen. Sample results support the conclusion that a recorded
D. The upper limit (or lower limit for liabilities) of asset values account balance is materially
for which the book value A. incorrect rejection.
may exceed that sample mean without being materially B. assessingcontrolrisktoohigh. C. incorrectacceptance.
misstated. D. assessing control risk too low.
169.
 AUDIT REVIEWER THEORY
175. Which of the following business functions is associated
with the revenue/receipt cycle? A. Obligations are paid to
vendors and employees.
B.
Resourcesaredistributedtooutsidersinexchangeforpromisesoff
uturepayments. C. Resourcesareused,held,ortransformed.
D. Capital funds are received from investors and creditors.
176. Which of the following is not a common activity in the
revenue/receipt cycle? A. Order entry
B. Receiving
C. Inventorycontrol D. cashcollection
177. The cash account is involved in which cycle? A. Revenue
and collection.
B. Acquisitionandexpenditure.
C. Productionandconversion.
D. Allofthegivenchoices.
178. Which of the following is an appropriate audit procedure
to test cancelled checks for authorized signatures?
A. Compare the check date with the first cancellation date.
B.
Determinethatallchecksaretobesignedbyindividualofficerswh
oareauthorizedby
the board.
C. Examine a representative sample of signed checks and
trace their signatures to the specimen signature book of
authorized signatories.
D.
Confirmthesignaturesfromasampleofchecksdirectlywiththeba
nk.
179.
Whichofthefollowingisnotlikelyasourceofinformationaboutthe
accountingsystemin the revenue area?
A. Directinquiryofcustomers.
B. Priorexperiencewiththeclient.
C. SystemsflowchartspreparedbytheEDPdepartment. D.
Financial reporting manuals.
180.
Whichofthefollowinggivesanindicationofapotentialfraudulent
activity?
A. Numerous credit memoranda have been issued to the
company's biggest customer.
B. Internal auditor cannot locate several credit memoranda to
support reductions of
customers' balances.
C. The year-end bank reconciliation has no outstanding
checks or deposits older than 15 days.
D. No one was absent the day the auditors handed out the
paychecks.
181. Which of the following control procedures could prevent
or detect errors or frauds arising from shipments made to
unauthorized parties?
A. Document policies and procedures for scheduling the
shipments of goods.
B. Establish procedures for reviewing and approving the
prices and sales terms before
sale.
C. Prenumber the bills of lading and assure that the related
billings are made on a
periodic basis.
D. Prepare and periodically update the lists of authorized
customers.
182. Which of the following control procedures would most
likely assure that access to shipping, billing, inventory control,
and accounting records is restricted to personnel authorized
by management?
A. Segregate the responsibilities for authorization, execution,
and recording, and prenumber and control the custody of
documents.
B. Establish the cash receipts function in a centralized
location and require a daily reconciliation of cash receipts
records with deposit slips.
C. Establish policy and procedures manuals, organization
charts, and supporting documentation.
D. Periodically substantiate and evaluate the recorded
account balances.
183. An entity has implemented a control procedure which
requires that authorized personnel reconcile the total of
individual customer accounts receivable with control totals.
This control relates to which of the following control
objectives?
A. Sales, cash receipts, and related transactions should be
recorded at the correct amounts, in the proper period, and
should be properly classified.
B. Recorded accounts receivable balances should reflect
underlying transactions and events.
C. Billings, collections, and related adjustments transactions
should be posted accurately to individual customer accounts.
D. Access to cash and cash-related records should be
restricted to personnel authorized by management.
184. Which of the following internal control procedures most
likely would deter lapping of collections from customers?
A. Independent internal verification of dates of entry in the
cash receipts journal with dates of daily cash summaries.
B. Authorization of writeoffs of uncollectible accounts by a
supervisor who is independent of credit approval.
C. Segregation of duties between receiving cash and posting
collections to the accounts receivable ledger.
D. Supervisor‟s comparison of the daily cash summary with
the sum of the cash receipts journal entries.
185.
Whatsequenceofstepsdoesanauditorundertakewhenidentifyi
ngcontrolproceduresthat are potentially reliable in assessing
control risk below the maximum?
A. Consider the errors or frauds that might occur, determine
control procedures, identify
control objectives, and design tests of controls.
B. Determine control procedures, design tests of controls,
consider the errors or frauds
that might occur, and identify control objectives.
C. Identify control objectives, consider the errors or frauds
that might occur, determine control procedures, and design
tests of controls.
D. Design tests of controls, determine control procedures,
consider the errors or frauds that might occur, and identify
control objectives.
186. Assuming cash receipts from credit sales have been
misappropriated, which of the following is likely to conceal
the misappropriation and unlikely to be detected?
A. Understating the sales journal.
B. Overstatingtheaccountsreceivablecontrolaccount. C.
Overstatingtheaccountsreceivablesubsidiaryledger. D.
Overstating the cash receipts journal.
187. Which of the following is most likely to provide
management with incentives to overstate earnings?
A. Projectedquarterlydividends.
B. Issuanceofpreferredstock.
 AUDIT REVIEWER THEORY
C. Unbudgetedincreaseinmaterialsprices. D. A projected stock
split.
188. Under which of the following circumstances does
management have some discretion in timing the recognition
of revenue?
A. The timing of revenue is not reasonably determinable and
the earnings process is not
complete.
B. Theamountandtimingofrevenueisreasonablydeterminable.
C. Theearningprocessiscompleteorreasonablycomplete.
D. The transaction is at arm‟s length.
189. After preparing a flowchart of internal control for sales
and cash receipts transactions and evaluating the design of
the system, the auditor would perform tests of controls on all
control procedures
A. That are documented in the flowchart.
B. that are considered to be deficiencies that might allow
errors to enter the accounting system.
C. that are considered to be strengths that the auditor plans
to rely on in assessing control risk.
D. that would help in preventing irregularities.
190. Which of the following would the auditor consider to be
an incompatible operation if the cashier receives remittances
from the mail room?
A.
Thecashierpoststhereceiptstotheaccountsreceivablesubsidiar
yledger.
B. Thecashiermakesthedailydepositatalocalbank.
C. Thecashiermakesthedailydepositofcashcollections. D. The
cashier endorses the checks.
191.
Whichofthefollowingisnotauniversalruleforachievingcontrolov
ercash? A. Separate the cash-handling and record-keeping
functions.
B. Decentralizethereceivingofcashasmuchaspossible.
C. Depositeachday‟scashreceiptsbytheendoftheday.
D. Have bank reconciliation prepared by employees who do
not handle cash.
192. On conducting an audit in which point in an ordinary
sales transaction of a wholesaling business is a lack of specific
authorization of least concern to the auditor?
A. Grantingofcredit.
B. Shipmentofgoods.
C. Determinationofdiscounts.
D. Selling of goods for cash.
193. An auditor who examines check disbursements discovers
a missing check number. Upon inquiry to the person
responsible for disbursements and reconciliation of the cash
account, he is told that the check number is missing because
the check was voided. What is the auditor's next step?
A. Prepare a bank transfer schedule to identify the check.
B.
Examinethebankconfirmationtodeterminewhetherthecheckcl
eared.
C. Since the person responsible for disbursements also
reconciles the account, no
additional procedures are necessary.
D. Examine the voided checks file to determine whether the
check is in the file.
194.
Ofthefollowing,whichprocedureordocumentismosteffectivefo
rdetectingkiting?
A. Abankcut-offstatement.
B. Abankstatement.
C. Abankkitingstatement.
D. Confirmation of bank balance.
195. Which of the following is confirmed on the standard
form used for cash balances at financial institution?
A. Factoredaccountsreceivable. B. Losscontingencies.
C. Loanspayable.
D. Safe deposit boxes controlled by the entity.
196. When counting cash on hand, the auditor must exercise
control over all cash and other negotiable assets to prevent
A. theft.
B. irregularendorsement. C. substitution.
D. deposits in transit.
197. Which of the following is not a primary objective of the
auditor in the tests of accounts receivable?
A. Determining the approximate realizable value.
B. Determiningtheadequacyofinternalcontrol.
C. Establishingthevalidityofthereceivables.
D. Determining the approximate time of collectibility of the
receivables.
198.
Thenegativeformofaccountsreceivableconfirmationrequestisp
articularlyusefulexcept when
A. control procedures surrounding accounts receivable are
considered to be effective.
B. alargenumberofsmallbalancesareinvolved.
C. the auditor has reason to believe the persons receiving the
requests are likely to give
them consideration.
D. individual account balances are relatively large.
199. Asalescutofftestcomplementstestsof A. sales returns.
B. Cash
C. accountsreceivable
D. sales allowances
200. Mostpartoftheauditofsalesandcollectioncycle
A. cannot be performed until the audit of cash is completed.
B. canbeperformedindependentlyoftheauditofothercycles.
C. must be performed simultaneously with the audit of the
purchases and disbursements
cycle.
D. must be performed first so that the audit of the other
cycles can rely on the data.
201. The audit objective: “The accounts receivable balance
represents gross claims on customers and agrees with the
sum of the accounts receivable subsidiary ledger” is derived
from the assertion of
A. presentationanddisclosure. B. completeness.
C. valuationorallocation.
D. existence.
202.
Ashippingdocumentusedinvouchingwillprimarilymeetthe:
A. completeness assertion.
B. valuationorallocationassertion. C.
rightsandobligationsassertion. D. occurrence assertion.
203. Ashippingdocumentusedintracingwillprimarilymeetthe:
A. completeness assertion.
B. valuationorallocationassertion. C.
rightsandobligationsassertion. D. occurrence assertion.
204. An auditor is examining accounts receivable. Which one
is the most competent type of evidence in this situation?
A. Interviewing the personnel who records accounts
receivable.
 AUDIT REVIEWER THEORY
B.
Verifyingthatpostingstothereceivableaccountfromjournalshav
ebeenmade. C. Receiptbytheauditorofapositiveconfirmation.
D. No response received for a request for a negative
confirmation.
205.
Negativeconfirmationofaccountsreceivableislesseffectivethan
positiveconfirmationof accounts receivable because
A.
amajorityofrecipientsusuallylackthewillingnesstorespondobje
ctively.
B.
somerecipientsmayreportincorrectbalancesthatrequireextens
ivefollow-up.
C. the auditor can not infer that all nonrespondents have
verified their account
information.
D. negative confirmations do not produce evidential matter
that is statistically quantifiable.
206. Although most substantive testing is performed during
the final audit, some substantive tests may be done during
the interim period. Which of the following statements
concerning the timing of substantive tests is true?
A. When internal control is weak, extensive substantive
testing should be performed during the interim audit.
B.
Substantivetestingshouldbeperformedduringtheinterimaudit
onlyunderconditions of excellent internal control.
C. As a general rule, the auditor performs substantive tests of
balances as of the balance sheet date and tests of
transactions during the interim as well as the year-end audit.
D. If internal control is weak, the auditor should confirm
accounts receivable as of a point
in time at least one month prior to the client's fiscal year-end.
207. Before applying principal substantive tests to the details
of asset and liability accounts at an interim date, the auditor
should
A. assess the difficulty in controlling incremental audit risk.
B. investigate significant fluctuations that have occurred in
the asset and liability accounts since the previous balance
sheet date.
C. select only those accounts which can effectively be
sampled during year-end audit work.
D. consider the control tests that must be applied at balance
sheet date to extend the audit conclusions reached at the
interim date.
208. Confirmingaccountsreceivableisrequiredwhenever:
A. they are material and it is practicable and reasonable to do
so.
B. theyarematerialinamount. C. it is practicable to do so.
D. it is reasonable to do so.
209. In the processing of accounts receivable confirmations,
the auditor would not normally be expected to:
A. reconcile the information to the corresponding customer‟s
account. B. personallydeposittherequestsinthemail.
C. includehisownreturnaddressenvelope.
D. personally prepare the confirmation letter.
210.
Theauditorshouldordinarilymailconfirmationrequeststoallban
kswithwhichtheclient has conducted any business during the
year, regardless of the year-end balance, since
A. the confirmation form also seeks information about
indebtedness to the bank.
B.
thisprocedurewilldetectkitingactivitieswhichwouldotherwisen
otbedetected.
C. the mailing of confirmation forms to all the client‟s
depository banks is required by
Philippine standards on auditing.
D. this procedure relieves the auditor of any responsibility
with respect to non-detection
of forged checks.
211. An analysis of the aged accounts receivables is most
directly related to which substantive test objective?
A. Existence and occurrence. B. Presentationanddisclosure. C.
Rightsandobligations.
D. Valuation.
212.
Thetestsofbalancestoevaluatetheadequacyoftheallowancefor
uncollectibleaccounts do not involve which of the following?
A. Considering the evidence concerning the collectibility of
past due amounts.
B. Testing the aging of the amounts shown in the aging
categories on the aged trial
balance.
C.
Consideringtheevidenceconcerningthecollectibilityofcurrenta
mounts.
D. Assessing the reasonableness of the percentages used to
compute the allowance component required for each aging
category and the adequacy of the overall allowance.
213. When scheduling audit work, the auditors are most likely
to confirm accounts receivable balances at an interim date if:
A. negative confirmations are being used. B.
internalcontrolisweak.
C. internalcontrolisstrong.
D. there is a simultaneous examination of cash and accounts
payable.
214.
Whichofthefollowingisthebestargumentagainsttheuseofnega
tiveaccountsreceivable confirmations?
A. The cost-per-response is excessively high.
B.
Thereisnowayofknowingiftheintendedrecipientsactuallyreceiv
ethem.
C. The 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.
215.
Whichofthefollowingproceduresleastlikelyhelpstheauditorsto
assesstheadequacyof management's accounting estimate of
the allowance for doubtful accounts?
A.
Investigateconfirmationexceptionsforanyindicationofamounts
indispute.
B.
Reviewtheaccountswhichhavebeenwrittenoffasuncollectiblep
riortoyear-end.
C. Investigatecreditratingsforlargeaccountsreceivable.
D. Discuss with the credit manager the current status of
doubtful accounts.
216.
Whichofthefollowingisaproperalternativeauditprocedureforn
 AUDIT REVIEWER THEORY
oresponsestopositive accounts receivable confirmation
requests?
A.
Examinationofsubsequentcashreceiptsinpaymentofthereceiva
ble.
B. Mailingofnegativeconfirmationrequeststononrespondents.
C. Expansionofthesamplebythenumberofnonrespondents.
D. Reduction of accounts receivable by the amount of the no
responses.
217. Which of the following might be detected by an auditor's
review of the client's sales cut- off?
A. Excessive goods returned for credit.
B. Unrecordedsalesdiscounts.
C. Lappingofyearendaccountsreceivable. D. Inflated sales for
the year.
218. During the process of confirming receivables as of
December 31, 2009, a positive confirmation was returned
indicating that the "balance owed as of December 31 was
paid by a customer on January 9, 2010." The auditor would
most likely
A. determine whether there were any changes in the account
between January 1 and January 9, 2010.
B. determine whether a customary trade discount was taken
by the customer.
C. reconfirmthezerobalanceasofJanuary10,2010.
D. verify that the amount was received.
219. Which of the following analytical audit findings would
most likely indicate a possible problem?
A. A material decrease in the receivables turnover.
B. Amaterialincreaseininventoryturnover.
C. Amaterialdecreaseindays'salesoutstanding. D. A material
increase in the acid test ratio.
220.
Whentheobjectiveoftheauditoristoevaluatetheappropriatene
ssofadjustmentstosales, the best available evidence would
normally be
A. oral evidence obtained by discussing adjustment-related
procedures with controller personnel.
B. analytical evidence obtained by comparing sales
adjustments to gross sales for a period of time.
C.
physicalevidenceobtainedbyinspectionofgoodsreturnedforcre
dit.
D. documentary evidence obtained by inspecting documents
supporting entries to adjustment accounts.
221.
Twotypesofaccountsreceivableconfirmationrequestsareusedi
npractice-positiveand negative. Negative confirmations may
be used
A. when internal control over sales and accounts receivable is
weak.
B. only when the auditor has assessed inherent risk and
control risk as low, the auditor believes that the recipients
will review the request, and a large number of small balances
are involved.
C.
onlywheninternalcontroloversalesandaccountsreceivableisstr
ong.
D. only when the auditor has assessed inherent risk and
control risk as low, the auditor believes that the recipients
will review the request, and a small number of large
balances are involved.
222.
Anauditorhasfoundmanynewassetsontheplantfloor,whichcoin
cideswithanincrease in the equipment subsidiary ledger.
However, the auditor has noticed that lease payments are
being made to an equipment leasing company. The auditor
should primarily be concerned with which financial statement
assertion?
A. Rights and obligations.
B. Relevance.
C. Clericalaccuracy. D. Completeness.
223. The accuracy of perpetual inventory records may be
established in part by comparing perpetual inventory records
with
a.
b.
c. d.
purchase requisitions.
receiving reports.
purchase orders. vendor payments.
224. When auditing merchandise inventory at year end, the
auditor performs a purchase cutoff test to obtain evidence
that
a. all goods purchased before year end are received before
the physical inventory count.
b. no goods held on consignment for customers are included
in the inventory balance.
c. no goods observed during the physical count are pledged
or sold.
d. all goods owned at year end are included in the inventory
balance.
225. 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. salesdiscounts. C. purchases.
D. purchase returns.
226. Which of the following audit procedures is not
appropriate for addressing the assertion of valuation?
A. verifying accounts payable trial balance B.
confirmingwithcreditors
C. testingforunrecordedliabilities
D. performinganalyticalprocedures.
227. When there are few property and equipment
transactions during the year, the continuing auditor usually
makes a
a. complete review of the related internal controls and
assesses control risk relative to them.
b. complete review of the related internal controls and
performs analytical review tests to verify current year
additions to property and equipment.
c. preliminary review of the related internal controls and
performs a thorough examination of the balances at the
beginning of the year.
d. preliminary review of the related internal controls and
performs extensive tests of current year property and
equipment transactions.
228. In analyzing the plant assets account, why is the
examination of repairs and maintenance records important?
A. Rights.
B. Existence.
C. Valuation.
D. Presentation and disclosure.
 AUDIT REVIEWER THEORY
229. In examining the miscellaneous revenue account, an
auditor discovers income from plant assets. What should be a
primary audit concern?
A.
Thatsuchassetshavebeenremovedfromtheledgerofpropertyo
wned.
B. Thatsuchassetsarenotavailableforphysicalexamination.
C.
Thattheassetssoldwerefullydepreciatedpriortothedecisiontos
ellthem. D. That such assets have been replaced by
comparable equipment.
230.
Whichofthefollowingstatementsisnotcorrectconcerningintang
ibleassets? A. Auditors review the reasonableness of the
client's amortization program. B. Alackofphysicalsubstance.
C. Valuationisaprimaryauditconcern.
D. Proper presentation as current assets.
231. When performing an audit of the property, plant, and
equipment accounts, an 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 at a
price lower than its listed retail price.
B. Interesthasbeencapitalizedforself-constructedequipment.
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.
232. 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. Reviewofdepreciation.
C. Analysisofthedebitstotheaccumulateddepreciationaccount.
D. Review of insurance policy riders.
233. A weakness in internal accounting control over the
recording of retirements of equipment may cause the auditor
to
a. inspect certain items of equipment in the plant and trace
those items to the accounting
records.
b. review the subsidiary ledger to ascertain whether
depreciation was taken on each item
of equipment during the year.
c. trace additions to the "other assets" account to search for
equipment that is still on hand
but no longer being used.
d. select certain items of equipment from the accounting
records and locate them in the plant.
234. When auditing inventories of raw materials, purchased
parts, and/or merchandise inventory, the auditor's most
effective means for evaluating the valuation assertion is to
a. examine recent invoices from vendors, along with freight
bills and compare with
client's unit costs, as adjusted for freight and discount.
b. compare purchases with prior year and with industry
averages and account for significant fluctuations.
c. trace quantities from tags or count sheets to final inventory
listings.
d. scan inventory listings for large extended amounts, and
trace related quantities to
auditor's copy of the inventory tag or listing.
235. The auditor tests the quantity of materials charged to
work in process by tracing these quantities to
a. cost ledgers.
b. perpetual inventory records.
c. receiving reports.
d. material requisitions.
236. Which of the following accounts would most likely be
reviewed by the auditor to gain reasonable assurance that
additions to the equipment account are not understated?
a.
b. c. d.
Repairs and maintenance expense.
Depreciation expense.
Gain on disposal of equipment. Accounts payable.
237. The most significant audit step in substantiating
additions to the office furniture account balance is
a.
b. c. d.
examination of vendors' invoices and receiving reports for
current year's acquisitions.
review of transactions near the balance sheet date for proper
period cutoff. calculation of ratio of depreciation expense to
gross office equipment cost. comparison to prior year's
acquisitions.
238.
Insteadoftakingaphysicalinventorycountonthebalancesheetda
te,theclientmaytake physical counts prior to the year end if
internal controls are adequate and
a. computerized records of perpetual inventory are
maintained.
b. inventory is slow moving.
c. CBIS error reports are generated for missing pre-numbered
inventory tickets.
d. obsolete inventory items are segregated and excluded.
239. Which of the following matters do auditors need not
communicate to the audit committee of a public company?
A. Allcriticalaccountingpolicies
B.
Compensationarrangementsrelatedtothechiefexecutiveofficer
C. Scheduleofunadjusteddifferences D. Management letter
comments
240.
Analyticalproceduresarerequiredtobeperformedduringthe: A.
planning and substantive test stages.
B. substantivetestandoverallreviewstages.
C. planningandoverallreviewstages.
D. planning stage only.
241. Which of the following factors would least influence an
auditor‟s consideration of the reliability of data for purposes
of analytical procedures?
A. Whether the data are processed in a computer system or
in a manual accounting system
B. Whether sources within the entity are independent of
those who are responsible for the
amount being audited
C.
Whetherthedataaresubjectedtoaudittestinginthecurrentorpri
oryear
D. Whether the data are obtained from independent sources
outside the entity or from
sources within the entity
242. Analyticalproceduresare
 AUDIT REVIEWER THEORY
A. substantivetestsdesignedtoevaluateasystemof
internalcontrol.
B. tests of control procedures designed to evaluate the
validity of management's representation letter.
C.
substantivetestsdesignedtoevaluatethereasonablenessoffinan
cialinformation.
D. tests of control procedures designed to detect errors in
reported financial information.
243. The auditor notices significant fluctuations in key
elements of the company's financial statements. If
management is unable to provide an acceptable explanation,
the auditor should
A. consider the matter as a scope limitation.
B. perform additional audit procedures to investigate the
matter further.
C.
intensifytheexaminationwiththeexpectationofdetectingmana
gementfraud. D. withdraw from the engagement.
244. Who is responsible for establishing the process and
controls for preparing accounting estimates?
E. Theindependentauditor F. The internal auditor
G. The management
H. The controller
245.
Theauditorshouldadoptoneoracombinationofthefollowingapp
roachesintheauditof an accounting estimate:
I. Review and test the process used by management to
develop the estimate.
II. Use an independent estimate for comparison with what
the management prepares.
III. Review subsequent events which confirm the estimate
made.
I. Any of them
J. None of them
K. Either I or II
L. Ionly
246. Which of the following is not one of the primary
approaches that the auditors may use when evaluating the
reasonableness of accounting estimates?
A. Review and test management's process of developing
estimates.
B. Confirmestimatesdirectlywithoutsiders.
C. Independently develop an estimate of the amount to be
compared to management's estimate.
D. Review subsequent events or transactions that have
bearing on the estimate.
247. The auditor should normally concentrate on the key
factors and assumptions used by management including all of
the following except those that are
M. insignificant to the accounting estimates.
N. sensitive to variations.
O. deviations from historical patterns.
P. susceptibletomisstatementsandbiases.
248. In evaluating the assumptions on which the estimate is
based, the auditor would need to pay particular attention to
assumptions which are
Q. reasonable in light of actual results in prior periods.
R. consistentwiththoseusedforotheraccountingestimates.
S.
consistentwithmanagement‟splanswhichappearappropriate.
T. subjectiveorsusceptibletomaterialmisstatement.
249. Subsequenteventsreferto
A. only significant events that occur between the balance
sheet date and the date of the
auditor‟s report which have been discovered by the auditor
during the same period.
B. only significant events that occur between the balance
sheet date and the date of the auditor‟s report irrespective
of the date they have been discovered by the auditor.
C. only significant events that occur between the balance
sheet date and the date the audited financial statements
have been released to the client, irrespective of the date of
their discovery by the auditor.
D. all significant events that occur after balance sheet date.
250.
WhichofthefollowingisnotcorrectconcerningatypeIandatypeIIs
ubsequentevent?
A. A type I may require adjustment to financial statements
while a type II would not.
B.
BothatypeIandatypeIIsubsequenteventmayrequirenotedisclos
ure.
C. A type I is an event that occurred prior to year end, but was
discovered after, while a
type II is one that arises subsequent to year end.
D. A type II event may require adjustment to the financial
statements and a type I may require note disclosure.
251. Which of the following statements that relates to
subsequent events is inappropriately described?
A. The auditor is expected to conduct a continuing review of
all matters to which previously applied procedures have
provided satisfactory conclusions.
B. The auditor should consider the effect of subsequent
events on the financial statements and on the auditor‟s
report.
C. The procedures to identify events that may require
adjustment of, or disclosure in, the financial statements
would be performed as near as practicable to the date of the
auditor‟s report.
D. The procedures that are designed to obtain sufficiently
appropriate audit evidence that all events up to the date of
the audit report that may require adjustment of, or disclosure
in, the financial statements are in addition to routine
procedures which may be applied to specific transactions.
252.
Theauditor'sformalreviewofsubsequenteventsnormallyshould
beextendedthroughthe date of the
U. auditor's report.
V. next formal interim financial statements.
W. delivery of the audit report to the client.
X. mailing of the financial statements to the stockholders.
253. Which of the following appropriately describes the
auditor‟s procedures with respect to subsequent events?
A. The procedures to identity events that may require
adjustments of, or disclosure in, the financial statements
would be performed as early as practicable.
B. Those routine procedures that are applied to specific
transactions occurring after the period ends are designed to
obtain sufficient appropriate audit evidence that all events up
to the date of the audit report have been identified.
C. When a component is audited by another CPA, the auditor
would consider the other auditor‟s procedures regarding
events after period end and the need to inform the other
auditor of the planned date of the audit report.
 AUDIT REVIEWER THEORY
D. The auditor is responsible to inquire regarding the financial
statements after the date of the auditor‟s report.
254. Which of the following is least likely a procedure that
would be performed by the auditor near the auditor‟s report
date?
A. Reading the minutes of the meetings of shareholders, the
board of directors and audit
executive committees held throughout the audit year.
B.
Readingtheentity‟slatestavailableinterimfinancialstatements.
C.
Inquiringoftheclient‟slegalcounselconcerninglitigationsandcla
ims.
D. Reviewing the procedures that management has
established to ensure that subsequent
events are identified.
255. Which of the following procedures would an auditor
most likely perform to obtain evidence about the occurrence
of subsequent events?
A. Confirming a sample of material accounts receivable
established after year-end.
B.
Comparingthefinancialstatementsbeingreportedonwiththose
ofthepriorperiod.
C.
Investigatingpersonnelchangesintheaccountingdepartmentoc
curringafteryear-end.
D. Inquiring as to whether any unusual adjustments were
made after year-end.
256.
Whichofthefollowingshouldtheauditordotheleastwhen,aftert
hefinancialstatements have been issued, the auditor becomes
aware of a fact that existed at the date of the auditor‟s
report?
A. Consider whether the financial statements need revisions.
B. Discussthematterwiththemanagement.
C. Taketheactionappropriateinthecircumstance.
D. Inform those users who are currently relying on the
financial statements about the fact
that has been discovered.
257. If subsequent to the issuance of the audited financial
statements, the auditor becomes aware of material
misstatements in the financial statements that exist prior to
the date of the audit report, the auditor should
Y. notify the parties who are currently relying on the financial
statements.
Z. discuss the matter with the management, and should take
the action appropriate in the circumstances.
AA. document such information in the audit plan for
succeeding audit.
BB. submit a revised copies of the financial statements and
audit report to the
stockholders.
258. If, after the audited financial statements have been
issued, the auditor becomes aware that some information
included in the statements is materially misleading, he or she
has
CC. no obligation to disclose it, assuming he or she acted in
good faith and without
negligence in arriving at the audit opinion.
DD. an obligation to inform the board of directors of the
misleading statements.
EE.an obligation to inform all users who are relying on the
financial statements.
FF. an obligation to make certain that users who are relying
on the financial statements are
informed.
259.
Whenanewauditreportisissuedonfinancialstatementsbecause
ofsubsequentdiscovery of material misstatements on
previously issued financial statements, the audit report
should include
A. no modification.
B. qualifiedopinionbecauseofscopelimitation.
C. qualifiedopinionbecauseofinadequatedisclosure.
D. emphasis of a matter paragraph that refers to a note to the
financial statements that
more extensively discusses the reason for the revision of the
previously issued financial statements.
260. When a fact, that existed before the date of the report is
discovered and the management revises the previously issued
audited financial statements, the following are appropriate
except the:
A. new auditor‟s report should include an emphasis of a
matter paragraph that refers to a
note to the financial statements that discusses the reason for
the revision of the
financial statements and to the earlier report issued by the
auditor.
B. newauditor‟sreportshouldcontaintheoriginaldate.
C. performance of the procedures that are designed to obtain
sufficient evidence as to subsequent events would ordinarily
be extended to the date the revised financial statements are
approved by the entity‟s management.
D. auditor is permitted to restrict the audit procedures
regarding the financial statements to the effects of the
subsequent event that necessitated the revision.
261. The management should assess those events that may
cast significant doubt about the entity‟s ability to continue as
a going concern for at least
A. two years from the balance sheet date.
B. twoyearsfromthedateoftheauditreport.
C. oneyearfromthebalancesheetdate.
D. one year from the date of the audit report.
262. Which of the following is incorrect about the
management‟s responsibility to make an assessment of an
entity‟s ability to continue as a going concern?
A. In assessing whether the going concern assumption is
appropriate, the management takes into account all the
available information for the foreseeable future, which
should be at least twelve months from the balance sheet
date.
B. Though there is a history of profitable operations and a
ready access to financial resources, management must make
its assessment with detailed analysis.
C. Management‟s assessment of the going concern
assumption involves making a judgment, at a particular point
of time, about the future outcomes of events or conditions
which are inherently uncertain.
D. Management should make explicit assessment of its ability
to continue as a going- concern entity.
263. Which of the following least likely indicate a potential
going-concern problem of an entity?
A. Historical negative operating cash flows
B. Failuretocomplywithloancovenants
 AUDIT REVIEWER THEORY
C. Refinancingoflargeshort-termobligationwithamedium-
termloan D. Pending regulatory proceedings against the
entity
264. Which of the following is correct about the auditor‟s
responsibility with respect to the entity‟s ability to continue
as a going concern?
A. The auditor is responsible to make an assessment of the
entity‟s ability to continue as a
going concern.
B. The auditor‟s responsibility is to consider the
appropriateness of the management‟s use of the going
concern assumption in the preparation of the financial
statements.
C. The auditor can predict future events or conditions that
may cause an entity to discontinue as a going concern.
D. The auditor may allow the management to make an
assessment of its ability to continue as a going concern if the
management is believed to be objective in doing such an
assessment.
265. In evaluating the management‟s assessment of the
entity‟s ability to continue as a going concern, he should
consider the following, except:
A. theindependenceofthemanagement.
B.
theprocessthatthemanagementhasfollowedtomakeitsassess
ment.
C. the assumptions on which the assessment is based and
management‟s plan for future action.
D. whether the assessment has taken into account all
relevant information of which the auditor is aware of as a
result of the audit procedures.
266. Which of the following is an appropriate procedure to
test for an indication of events or conditions that cast
significant doubt on the entity‟s ability to continue as a going
concern beyond the period assessed by management?
A. Inspection
B. Inquiry
C. Observing D. Analysis
267. When events or conditions have been identified to cast
significant doubt on the entity‟s ability to continue as a going
concern, the auditor should
A. consider reassessing control risk at the maximum.
B.
considertheissuanceofdisclaimerofopinionduetoscopelimitati
on.
C. reviewmanagementplansforfutureactionsbasedonitsgoing-
concernassessments.
D. report the matter to the board of directors and
stockholders.
268. Which of the following audit procedures would most
likely assist an auditor in identifying conditions and events
that may indicate that there could be substantial doubt about
an entity‟s ability to continue as a going concern?
A. Review compliance with the terms of debt agreements
B. Confirmaccountsreceivablefromprincipalcustomers C.
Reconcileinterestexpensewithdebtoutstanding
D. Confirm bank balances
269. Theauditorreliesontheclientrepresentationletterto:
A. confirmwrittenrepresentationsgiventotheauditor.
B. documentthecontinuingmaterialityofclientrepresentations.
C. guaranteetheabsenceofmanagementfraud.
D. reduce the possibility of misunderstanding concerning
management‟s representations.
270. The auditors are required to obtain a letter of
representation from their clients. Which of the following
statements regarding the letter of representation is correct?
GG. A letter of representation should impress upon
management its responsibility for
the assertions in the financial statements.
HH. A letter of representation should be signed by a
company‟s financial officials and attorneys.
II. A letter of representation documents the responses from
the management to inquiries about various aspects of the
audit.
JJ. A letter of representation is a written statement from a
non-independent party and as such should not be regarded
as a valid evidence.
271. Apurposeofamanagementrepresentationletteristoreduce
A. audit risk to an aggregate level of misstatement that could
be considered material.
B. an auditor‟s responsibility to detect material
misstatements only to the extent that the
letter is relied on.
C. the possibility of a misunderstanding concerning
management‟s responsibility for the financial statements.
D. the scope of an auditor‟s procedures concerning related
party transactions and subsequent events.
272.
Whichofthefollowingstatementsistruewithrespecttomanagem
entrepresentations?
A. Management representations are dated as of the balance
sheet date.
B. Management representations may serve as a substitute for
various types of substantive
procedures.
C. Management representations are signed by the auditor
and delivered to the client's officers.
D. Management representations are used to corroborate
information obtained during the audit.
273.
Whenconsideringtheuseofmanagement‟swrittenrepresentati
onsasauditevidenceabout the completeness assertion, an
auditor should understand that such representations
A. complement, but do not replace, substantive tests
designed to support the assertion.
B. constitute sufficient evidence to support the assertion
when considered in combination
with a sufficiently low assessed level of control risk.
C. arenotpartoftheevidenceconsideredtosupporttheassertion.
D. replace a low assessed level of control risk as evidence to
support the assertion.
274. The auditor should obtain evidence that the
management acknowledges its responsibility for the fair
presentation of the financial statements in accordance with
PFRS, and has approved the financial statements. The auditor
can obtain evidence of management's acknowledgment of
such responsibility and approval
I. From relevant minutes of meetings of the board of directors
or similar body.
II. By obtaining a written representation from the
management.
III. By obtaining a signed copy of the financial statements.
KK. Any of the given procedures
LL.Either I or II
MM. I only
NN. None of the procedures given
 AUDIT REVIEWER THEORY
275.
Amanagementrepresentationletterwouldordinarilybedatedas
ofthe
A. datethereportisdeliveredtotheentityaudited.
B.
datethefinancialstatementswereapprovedbytheclientmanage
ment.
C. balancesheetdateofthelatestperiodreportedon.
D. date a letter of audit inquiry is received from the entity‟s
attorney of record.
276. A written representation from a client‟s management
that, among other matters, acknowledges its responsibility
for the fair presentation of the financial statements, should
normally be signed by the
A. chiefexecutiveofficerandthechieffinancialofficer.
B. chieffinancialofficerandthechairoftheboardofdirectors.
C. chairoftheauditcommitteeoftheboardofdirectors.
D. chief executive officer, the chair of the board of directors,
and the client‟s lawyer.
277. If the management refuses to furnish certain written
representations that the auditor believes are essential, which
of the following is appropriate?
A. The auditor can rely on oral evidence relating to the matter
as a basis for an unqualified opinion.
B. The client‟s refusal does not constitute a scope limitation
that may lead to a modification of the opinion.
C. The client‟s refusal may have an effect on the auditor‟s
ability to rely on other representations of the management.
D. The auditor should express an adverse opinion because of
management‟s refusal.
278. For representations?
which of the following matters should an auditor obtain
written management
A. Management‟s cost-benefit justifications for not correcting
internal control weaknesses.
B. Management‟s knowledge of future plans that may affect
the price of the entity‟s stock.
C. Management‟s compliance with contractual agreements
that may affect the financial statements.
D. Management‟s acknowledgment of its responsibility for
employee‟s violations of laws.
279.
Awrittenmanagementrepresentationletterismostlikelytobean
auditor‟sbestsourceof corroborative information of a client‟s
intention to
A. terminateanemployeepensionplan.
B. makeapublicofferingofitscommonstock.
C.
settleanoutstandinglawsuitforanamountlessthantheaccruedlo
sscontingency. D. discontinue a line of business.
280. Which of the following matters would an auditor most
likely include in a management representation letter?
A. Communications with the audit committee concerning
weaknesses in the internal control structure.
B.
Thecompletenessandavailabilityofminutesofstockholders‟and
directors‟meetings.
C.
Planstoacquireormergewithotherentitiesinthesubsequentyea
r.
D. Management‟s acknowledgment of its responsibility for
the detection of employee
fraud.
281.
Howareotherreportingresponsibilitiesaddressedwithintheaudi
tor‟sreport?
a. They should be addressed in a separate section that follows
the opinion paragraph.
b. They should be addressed within the introductory
paragraph.
c. They should be addressed within the scope paragraph.
d. They should be addressed within the scope paragraph and
separately described in a
separate paragraph.
282.
Whichofthefollowingisincorrectregardingtheauditor‟ssignatur
e?
A. The auditor‟s signature is either in the name of the audit
firm, the personal name of the
auditor, or both, as appropriate.
B. The auditor‟s signature is either in the name of the audit
firm or the personal name of the auditor, but not both.
C. In addition to the auditor‟s signature, the auditor may be
required to declare the auditor‟s professional accountancy
designation.
D. The auditor‟s report filed with the Securities and Exchange
Commission (SEC) must be manually signed.
283. Which of the following information is(are) required
when an auditor‟s report is issued on financial statements to
be filed with the Securities and Exchange Commission?
A.
B. C. D.
1. Audit report is manually signed.
2. Certifying partner to sign his name.
3. Partner‟s Tax Identification Number.
4. PRC registration number
5. Accreditation with SEC
1,2,3,4,5
2,4,5 1,3,4,5 2,3,4,5
284. Anauditreportshouldbedatedasofthe
A. date the stockholders approve the audited financial
statements.
B.
dateofmanagementapprovingtheauditedfinancialstatements.
C. balancesheetdateofthelatestperiodreportedon.
D. date a letter of audit inquiry is received from the entity‟s
attorney.
285. Whyisthedateoftheauditor‟sreportimportant?
a. To have a basis of determining the audit fees to be paid to
the auditor.
b. The date of the auditor‟s report informs the readers that
the auditor has considered the
effect of events and transactions of which the auditor
became aware and that occurred up
to that date.
c. To emphasize completeness assertion.
d. To inform the users of the financial statements that the
auditor complied with the
applicable Philippine Standards on Auditing.
286. How is the auditor‟s report on the financial statements
that require final approval by stockholders before such
financial statements are issued publicly dated?
A.
Theauditor‟sreportshouldbedatedcoincidingthedateofapprov
alofthefinancial statements by the stockholders.
 AUDIT REVIEWER THEORY
B.
Theauditor‟sreportshouldbedatedaftertheapprovalofthefinan
cialstatementsby the stockholders.
C.
Thedateoftheauditor‟sreportcoincidesthedateofapprovalofth
efinancial statements by the board of directors.
D. The audit report should be dual dated, the first date
coinciding the approval by the board of directors and the
second date to coincide with the approval by the
stockholders.
287.
288.
289.
290.
Theauditor‟saddressisindicatedintheauditor‟sreportby:
A. naming the location in the country where the auditor
practices his profession.
B. includingthecompletemailingaddressoftheauditor.
C.
identifyingthecountryfromwheretheauditorhadsecuredhispro
fessionallicense. D. the auditor‟s address is omitted in the
report.
Whichofthefollowingisordinarilytrueofamodificationoftheaudi
treportbyaddingan emphasis of matter paragraph?
A. The modification by adding an emphasis of matter
paragraph is an “except for” qualification of opinion.
B.
Theemphasisofmatterparagraphisa“subjectto”qualificationof
opinion.
C. The emphasis of matter paragraph would ordinarily refer
to the fact that the auditor‟s opinion is not qualified.
D. The emphasis of matter paragraph is presented before the
opinion paragraph.
When additional language is added to the auditor's report
without modifying the opinion, the additional language
should be included in:
A. the introductory paragraph.
B. the scope paragraph.
C. the opinion paragraph.
D.
oneormoreadditionalparagraphsthatfollowtheopinionparagra
ph.
Whichofthefollowingstatementsisnottrue?
A. A one-paragraph report is generally used when the auditor
is not independent.
B. A modification of the audit report that involves modified
wordings may contain an
unqualified opinion.
C. An addition of another paragraph to an otherwise standard
audit report always requires a modification of an unqualified
opinion.
D. An unqualified opinion may be issued though the audit
report requires an additional explanatory paragraph.
291.
that the entity being reported on had significant transactions
with related parties. The inclusion of this separate paragraph
An auditor includes a separate paragraph in an otherwise
unmodified report to emphasize
A. is considered an “except for” qualification of the opinion.
B.
violatesgenerallyacceptedauditingstandardsifthisinformationi
salreadydisclosedin
the footnotes to the financial statements.
C. necessitates a revision of the opinion paragraph to include
the phrase “with the
foregoing explanation.”
D. is appropriate and would not negate the unqualified
opinion.
292.
as a going concern for a reasonable period of time. If the
entity‟s disclosures concerning this matter are adequate, the
audit report should include a(an)
An auditor concludes that there is substantial doubt about an
entity‟s ability to continue
Adverse opinion “Except for” qualified opinion
A. Yes Yes
B. No No
C. No Yes D. Yes No
293. Under certain circumstances, the CPA may wish to
emphasize specific matters regarding the financial statements
even though he or she intends to express an unqualified
opinion. Normally, such an explanatory information should be
included in
A. theintroductoryparagraph.
B.
aseparateparagraphfollowingtheopinionparagraphintherepor
t.
C. theopinionparagraph.
D. A separate paragraph preceding the opinion paragraph.
294. Salmon Company‟s financial statements adequately
disclose uncertainties that concern future events, the
outcome of which cannot reasonably be estimated. The
auditor‟s report should include a(an)
A. unqualified opinion
B. “exceptfor”qualifiedopinion C. “subjectto”qualifiedopinion
D. adverse opinion
295. The paragraphs of the report which is modified for
uncertainties are the same as the standard unqualified
report. The explanatory paragraph as a form of the
modification to describe the uncertainty is added as the
A. first paragraph
B. last paragraph
C. thirdparagraphwiththeopinionparagraphlast D. second
paragraph with the opinion paragraph last
296. An explanatory paragraph following an opinion
paragraph that describes an uncertainty is as follows:
As discussed in Note X to the financial statements, the
company is a defendant in a lawsuit alleging infringement of
certain patent rights and claiming damages. Discovery
proceedings are in progress. The ultimate outcome of the
litigation cannot presently be determined. Accordingly, no
provision for any liability that may result upon adjudication
has been made in the accompanying financial statements.
What type of opinion should the auditor express in this
circumstance?
A. Unqualified
B. Disclaimer C. Qualified D. adverse
297.
followed the opinion paragraph:
The audit report issued by Lozano and Co., CPAs, included the
following paragraph that
Without qualifying our opinion we draw attention to Note 11
to the financial statements. The Company is the defendant in
a lawsuit alleging infringement of certain patent rights ...
This paragraph is considered:
 AUDIT REVIEWER THEORY
A. an inappropriate reporting practice
B.
anadditionalinformationtobeapartofthenotestofinancialstate
ments.
C. an emphasis of matter regarding uncertainty which is
considered an acceptable
reporting practice
D. inappropriate because it contradicts the unqualified
opinion issued by the auditor
298. In extreme cases such as situations involving multiple
uncertainties that are significant to the financial statements,
the auditor
A. may consider to express a disclaimer of opinion
B.
mayqualifyhisopinioninsteadofissuinganunqualifiedopinionwi
themphasisof matter paragraph
C. mayissueanadverseopinionbecauseoftheirsignificance
D. may issue a “subject to” opinion because the situations
related to uncertainties
299. A client company has issues that cause substantial doubt
regarding the entity's ability to continue as a going concern. If
this is the only major audit issue, which type of opinion will
the auditor usually refrain from issuing?
A. Adverse
B. Unqualified with explanatory language C. Cleanopinion
D. Disclaimer of opinion
300. Which of the following situations, the effect of which is
significant, least likely require a decision of whether to issue a
qualified or adverse opinion?
A. Any disagreement with entity management regarding the
acceptability of the accounting policies selected by the
management.
B. Limitationonthescopeoftheauditor‟swork.
C. Inadequatedisclosuresoffinancialinformation. D. Unjustified
changes in accounting policies.
301.
made in the audit report. Which of the following situations,
would the auditor likely modify his opinion?
The auditor may continue to express unqualified opinion
though there are modifications
A. The existence of multiple uncertainties that are adequately
described in the notes to financial statements.
B.
Theprioryear‟sfinancialstatementswereauditedbyotherCPAs.
C. An important subsidiary whose financial statements were
included in the consolidated
financial statements were audited by other CPAs.
D. A substantial doubt about the client‟s ability to continue as
a going concern that is
adequately disclosed in the financial statements.
302.
In which of the following situations would qualified opinion
be inappropriate?
A. Financial statements are materially misstated.
B. A doubt that is more than substantial about the ability of
the company to continue as a
going concern.
C. Asignificantscopelimitation.
D. The management insisted of not attaching the statement
of cash flows.
303.
than unqualified opinion?
Which of the following is not a reason to issue a modified
audit report with opinion other
A. The scope of the auditor‟s work is restricted by the client.
B. The amount of inventories at cost as presented in the
balance sheet significantly
exceeded their market values.
C. Certain significant matter is omitted from either the
financial statements or notes to
financial statements.
D. An adequately disclosed significant uncertainty, the
resolution of which is dependent upon future events and
which may affect the financial statements.
304.
Whichofthefollowingsituationsmaylikelyrequireamodifiedaudi
treportwithmodified wordings or an emphasis of matter
paragraph?
A. A significant uncertainty, not adequately disclosed in the
financial statements.
B. An audit of inventory is restricted by the client. The auditor
was satisfied about the
balance of the inventory by doing alternative audit
procedures.
C.
Achangeintheapplicationofgenerallyacceptedaccountingprinci
plethatisjustified.
D. A less than substantial doubt regarding the ability of the
entity to continue as a going concern.
305.
Whichofthefollowingcircumstancesmaynotresulttoadisclaime
rofopinion?
A. A significant scope limitation in auditing the existence of
inventories. The inventory
amount comprises 75 percent of the total assets of the client.
B. The auditor believes that there are multiple uncertainties
that are significant to the
financial statements.
C. The accounts receivable of the client comprises 80 percent
of the total assets. The auditor was instructed by the client
not to confirm account balances. The auditor, however, was
satisfied by the results of alternative audit procedures.
D. The auditor‟s wife owns very a few number of common
shares of the client.
306. Anauditormayexpressaqualifiedopinionbecauseof
Departure from PFRS
A. YES
Lack of Consistency YES
Scope Limitation YES
B. NO YES NO C. YES NO NO D. NO YES YES
307. Wheneveranauditorissuesaqualifiedreport,heorshe
A. must use the term “subject to” in the opinion paragraph.
B. may use either the terms “subject to” or “ except for” in
the opinion paragraph,
depending on the nature of the qualification.
C. mustusetheterm“exceptfor”intheopinionparagraph.
D. must not use the terms “subject to” or “except for” in the
opinion paragraph.
308.
Anexplanatoryparagraphmaybeaddedtotheauditreportwhilea
tthesametimeissuing an unqualified opinion in all cases
except when:
A. the client has changed an accounting principle with the
agreement of the auditor.
 AUDIT REVIEWER THEORY
B. there is an immaterial departure from GAAP to ensure fair
presentation with the
agreement of the auditor.
C. theauditopinionispartlybasedontheworkofanotherauditor.
D. the audit work has been significantly limited by
management.
309.
Underwhichofthefollowingsetsofcircumstancesmightanaudito
rdisclaimanopinion?
A. The financial statements contain a departure from PFRS,
the effect of which is
material.
B. The principal auditor decides to make reference to the
report of another auditor who
audited a subsidiary.
C. There has been a material change between periods in the
method of the application of
accounting principles.
D. There were significant limitations on the scope of the
audit.
310. If an auditor is engaged to audit a client‟s financial
statements after the annual physical inventory count was
made and the accounting records are not sufficiently reliable
to enable the auditor to become satisfied as to the year-end
inventory balances, the opinion to be expressed is
A. either an “except for” qualified opinion or an adverse
opinion.
B.
eitheradisclaimeroropinionoran“exceptfor”qualifiedopinion.
C. eitheranadverseopinionordisclaimerofopinion. D. an
unqualified opinion.