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Assessment Task

Quiz

Multiple Choice. Highlight with color yellow the letter of your choice.

1. Adequate audit planning helps ensure that appropriate attention is devoted:

a. b. c. d.
To important areas of the audit Yes Yes Yes Yes
So that potential problems are promptly identified Yes Yes No No
So that the work is completed expeditiously No Yes No Yes

2. In planning an examination, the auditor would consider all of the following matters, except
a. Anticipated reliance on internal controls.
b. Preliminary judgment about materiality levels for audit purposes.
c. Financial statement items likely to require adjustment.
d. The kind of opinion (unqualified, qualified, disclaimer, or adverse), likely to be given.

3. Which of the following situations would most likely require special audit planning by the
auditor?
a. Some items of factory and office equipment do not bear identification numbers.
b. Depreciation methods used on the client’s tax return differ from those used on the books.
c. Assets costing less than P5,000 are expensed even though the expected life exceeds one year.
d. Inventory is comprised of precious stones.

4. This includes distributing assignments among staff assistants and reviewing the progress of
such assignments on a periodic basis.
a. Supervision
b. Staff training
c. CPE
d. Planning.

5. The senior auditor responsible for coordinating the fieldwork usually schedules a pre-audit
conference with the audit team primarily to
a. Give guidance to the staff regarding both technical and personnel aspects of the audit.
b. Discuss staff suggestions concerning the establishment and maintenance of time budgets.
c. Establish the need for using the work of specialists and internal auditors.
d. Provide an opportunity to document staff disagreements regarding technical issues.

6. An auditor obtains knowledge about a new client’s business and its industry to
a. Make constructive suggestions concerning improvements to the client’s internal control.
b. Develop an attitude of professional skepticism concerning management’s financial
statement assertions.
c. Evaluate whether the aggregation of known misstatements causes the financial statements
takes as a whole to be materially misstated.
d. Understand the events and transactions that may have an effect on the client’s financial
statements.

7. A CPA may reduce the audit work on a first-time audit by reviewing the working papers of
the predecessor auditor. The predecessor should permit the successor to review working papers
relating to matters of continuing accounting significance such as those that relate to
a. Extent of reliance on the work of specialists.
b. Fee arrangements and summaries of payments.
c. Analysis of contingencies.
d. Staff hours to complete the engagement.

8. Which of the following procedures would an auditor most likely perform in planning a
financial statement audit?
a. Reviewing investment transactions of the audit period to determine whether related parties
were credited.
b. Performing analytical procedures to identify areas that may represent specific risks.
c. Reading the minutes of stockholder and director meetings to discover whether any unusual
transactions have occurred.
d. Obtaining a written representation letter from the client to emphasize management’s
responsibilities.

9. Which of the following procedures would an auditor least likely perform in planning a
financial statement audit?
a. Coordinating the assistance of entity personnel in data preparation.
b. Discussing matters that may affect the audit with firm personnel responsible for non-audit
services to the entity.
c. Selecting a sample of vendor’s invoices for comparison to receiving reports.
d. Reading the current year’s interim financial statements.

10. In developing the overall audit plan for a new client, factor not to be considered is
a. The terms of the engagement and any statutory responsibilities.
b. The client's business, including the structure of the organization and accounting system used.
c. The amount of estimated audit fee.
d. The audit risk and procedures to be performed to achieve audit objectives.

11. The element of the audit planning process most likely to be agreed upon with the client
before implementation of the audit strategy is the determination of the (E)
a. Evidence to be gathered to provide a sufficient basis for the auditor’s opinion.
b. Procedures to be undertaken to discover litigation, claims and assessments.
c. Pending legal matters to be included in the inquiry of the client’s attorney.
d. Timing of inventory observation procedures to be performed.

12. A basic tool used by the auditor to control the audit work and review the progress of the
audit.
a. Audit program c. Engagement letter.
b. Progress flowchart d. Time and Expense Summary

13. Those procedures specifically outlined in an audit program are primarily designed to
a. Gather evidence.
b. Detect errors or irregularities.
c. Test internal systems.
d. Protect the auditor in the event of litigation.

14. An audit program provides proof that

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

15. Audit programs should be designed so that

a. Most of the required procedures can be performed as interim work.
b. Inherent risk is assessed at a sufficiently low level.
c. The auditor can make constructive suggestions to management.
d. The audit evidence gathered supports the auditor’s conclusions.

16. The audit program usually cannot be finalized until the

a. Consideration of the entity’s internal control has been completed.
b. Engagement letter has been signed by the auditor and the client.
c. Reportable conditions have been communicated to the audit committee of the board of
directors.
d. Search for unrecorded liabilities has been performed and documented.

17. In designing written audit programs, an auditor should establish specific audit objectives
that related primarily to the
a. Timing of audit procedures. c. Selected audit techniques.
b. Cost-benefit of gathering evidence. d. Financial statement assertions.

18. Which item would not be contained in an audit program?

a. Staff assigned to the audit.
b. List of specific tasks to be performed.
c. Documentation of system being reviewed.
d. Estimated time required to perform each task.

19. When planning an examination, an auditor should

a. Consider whether the extent of substantive tests may be reduced based on the results of the
internal control questionnaire.
b. Make preliminary judgments about materiality levels for audit purposes.
c. Conclude whether changes in compliance with prescribed control procedures justifies
reliance on them
d. Prepare a preliminary draft of the management representation letter.
20. The concept of materiality will be least important to the CPA in determining the
a. Scope of his audit of specific accounts.
b. Specific transactions that should be reviewed.
c. Effects of audit exceptions upon his opinion.
d. Effects of his direct financial interest in a client upon his independence.

21. In considering materiality for planning purposes, an auditor believes that misstatements
aggregating P100,000 would have a material effect on an entity’s income statement, but the
misstatements would have to aggregate P200,000 to materially affect the balance sheet.
Ordinarily, it would be appropriate to design auditing procedures that would be expected to
detect misstatements that aggregate
a. P100,000 b. P200,000 c. P150,000 d. P300,000

22. The concepts of audit risk and materiality are interrelated and must be considered together
by the auditor. Which of the following is true?
a. Audit risk is the risk that the auditor may unknowingly express a modified opinion when in
fact the financial statements are fairly stated.
b. The phrase in the auditor's standard report "present fairly, in all material respects, in
conformity with generally accepted accounting principles" indicates the auditor's belief
that the financial statements taken as a whole are not materially misstated.
c. If misstatements are not important individually but are important in the aggregate, the
concept of materiality does not apply.
d. Material fraud but not material errors cause financial statements to be materially
misstated.

23. Which of the following procedures would an auditor most likely include in the initial
planning of a financial statement audit?
a. Obtaining a written representation letter from the client’s management.
b. Examining documents to detect illegal acts having a material effect on the financial
statements.
c. Consider whether the client’s accounting estimates are reasonable in the circumstances.
d. Determining the extent of involvement of the client’s internal auditors.

24. If the independent auditors decide that the work performed by the internal auditor may have
a bearing on their own procedures, they should consider the internal auditor’s
a. Competence and objectivity. c. Independence and review skills.
b. Efficiency and experience. d. Training and supervisory skills.

25. When assessing an internal auditor’s objectivity, an independent auditor should

a. Evaluate the adequacy of the internal auditor’s audit programs.
b. Inquire about the internal auditor’s educational background and professional certification.
c. Consider the organizational level to which the internal auditor reports.
d. Review the internal auditor’s working papers.
26. For which of the following judgments may an independent auditor share responsibility with
an entity’s internal auditor who is assessed to be both competent and objective?
a. b. c. d.
Materiality of misstatements Yes No No Yes
Evaluation of accounting estimates No Yes No Yes

27. Which of the following is not a specialist upon whose work an auditor may rely?
a. Lawyer. b. Internal auditor. c. Actuary. d. Appraiser.

28. Which of the following statements is correct concerning an auditor’s use of the work of a
specialist?
a. The auditor need not obtain an understanding of the methods and assumptions used by
the specialist.
b. The auditor may not use the work of a specialist in matters material to the fair presentation of
the financial statements.
c. The reasonableness of the specialist’s assumptions and their applications are strictly the
auditor’s responsibility.
d. The work of a specialist who has a contractual relationship with the client may be
acceptable under certain circumstances.

29. When using the work of another auditor, the principal auditor should ordinarily perform the
following procedure
a. Obtain information regarding the professional competence of the other auditor in the
context of the specific assignment undertaken by the other auditor.
b. Advise the other auditor of the applicable independence requirements as regards both the
entity and the component and obtain representation as to his compliance with them.
c. Advise the other auditor of the applicable accounting, auditing and reporting requirements
and obtain representation as to compliance with them.
d. All of the above.

30. The audit risk against which the auditor and those who rely on his/her opinion require
reasonable protection is a combination of three separate risks at the account-balance or
class-of-transactions level. The first risk is inherent risk. The second risk is that material
misstatements will not be prevented or detected by internal control. The third risk is that
a. The auditor will reject a correct account balance as incorrect.
b. Material misstatements that occur will not be detected by the audit.
c. The auditor will apply an inappropriate audit procedure.
d. The auditor will apply an inappropriate measure of audit materiality.

31. Audit risk consists of inherent risk, control risk, and detection risk. Which of the following
statements is true?
a. Cash is more susceptible to theft than an inventory of coal because it has a greater
inherent risk.
b. The risk that material misstatement will not be prevented or detected on a timely basis by
internal control can be reduced to zero by effective controls.
c. Detection risk is a function of the efficiency of an auditing procedure.
d. The existing levels of inherent risk, control risk, and detection risk can be changed at the
discretion of the auditor.

32. Control risk should be assessed in terms of

a. Specific controls. c. Financial statement assertions.
b. Types of potential fraud. d. Control environment factors.

33. After obtaining a sufficient understanding of internal control, the auditor assesses
a. The need to apply GAAS.
b. Detection risk to determine the acceptable level of inherent risk.
c. Detection risk and inherent risk to determine the acceptable level of control risk.
d. Control risk to determine the acceptable level of detection risk.

34. An auditor may decide to assess control risk at the maximum level for certain assertions
because the auditor believes
a. Control policies and procedures are unlikely to pertain to the assertions.
b. The entity’s control environment, accounting system, and control procedures are
interrelated.
c. Sufficient evidential matter to support the assertions is likely to be available.
d. More emphasis on tests of controls than substantive tests is warranted.

35. When control risk is assessed at the maximum level for all financial statement assertions, an
auditor should document the auditor’s
a. b. c. d.
Understanding of the entity’s internal control structure elements Yes Yes No Yes
Conclusion that control risk is at the maximum level No Yes Yes Yes
Basis for concluding that control risk is at the maximum level No No Yes Yes

36. When an auditor increases the assessed level of control risk because certain control
activities were determined to be ineffective, the auditor would most likely increase the
a. Extent of tests of controls. c. Extent of tests of details.
b. Level of detection risk. d. Level of inherent risk.

37. The auditor faces a risk that the examination will not detect material errors which occur in
the accounting process. In regard to minimizing this risk, the auditor primarily relies on
a. Substantive tests. c. Internal control.
b. Compliance tests. d. Statistical analysis.

38. The auditor uses the assessed level of control risk (together with the assessed level of
inherent risk) to determine the acceptable level of detection risk for financial statement
assertions. As the acceptable level of detection risk decreases, the auditor may do one or
more of the following except change the
a. Nature of substantive tests to more effective procedures.
b. Timing of substantive tests, such as performing them at year-end rather than at an interim
date.
c. Extent of substantive tests, such as using larger sample sizes.
d. Assurances provided by substantive tests to a lower level.

39. While performing an audit, Sebastian decides to restrict the risk of misstatement to 3%.
What must the acceptable level of detection risk be if inherent risk is 25% and control risk is
40%?
a. 0.3% b. 30% c. 12% d. 33.3%

40. A basic tool used by the auditor to control the audit work and review the progress of the
audit.
a. Audit program c. Engagement letter.
b. Progress flowchart d. Time and Expense Summary