ACC 139 SAS Day 26 1152021 JLMD - Docx-1

ACC 139: Assurance and Audit Principles
Student Activity Sheet #26
Name: John Lorenz M. Dayanghirang Class number: 019-0059

Section: 3A-A8 Schedule: FRIDAY 5:00-7:00 PM Date: 11/15/2021
Student Activity Sheet;

ACC 139: Assurance and Audit Principles calculator;
pencil with eraser, ball
Departmental Exam pen and Scantron Answer
Sheet
Instruction: Kindly read each question and shade/input the letter of your choice
on the answer sheet provided. Answers with erasure or superimposition of any kind
will be deemed incorrect.
1. Which of the following is not a basic element of an audit report?

a. Title of the report. c. Client’s address.
b. Introductory paragraph. d. Auditor’s address.
2. A measure of uniformity in the form and content of the auditor’s report is desirable
because
a. it helps the auditors avoid legal liability.
b. it helps the readers understand the report.
c. it helps the auditor identify the usual circumstances that are expected to occur.
d. it makes the auditors more informed of their responsibilities with respect to audit
report.
3. Which of the following is not explicitly included in the opening paragraph of an audit
report?
a. Identification of the financial statements that have been audited.
b. Statement that the financial statements are the responsibility of the entity’s
management.
c. Statement that the responsibility of the auditor is to express an opinion on the
financial statements based on his audit.
d. A statement by the auditor that the audit provides a reasonable basis for the
opinion.
4. Where do you find the following sentence?

“Those standards require that we plan and perform the audit to obtain a reasonable
assurance about whether the financial statements are free of material
misstatements.”
a. Introductory paragraph of the auditor’s report.
b. Scope paragraph of the auditor’s report.
c. Management’s representation letter.
d. Audit program.
5. Whenever an auditor issues an adverse opinion, the implication is that the auditor
a. does not know if the statements are presented fairly.
b. does not believe the statements are presented fairly.
c. is satisfied that the statements are presented fairly except for a specific aspect
of them.
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d. is satisfied that the statements are presented fairly.

6. When there are multiple uncertainties that are significant to the financial statements,
the auditor may consider it appropriate to
a. withdraw from the engagement. c. disclaim an opinion.
b. issue an adverse opinion. d. issue a qualified opinion.
7. When an auditor expresses an opinion other than unqualified opinion, a clear

description of all substantive reasons for the modification of the opinion should be
included in the report. This explanation should be presented
a. as a separate paragraph that precedes the opinion paragraph of the audit report.
b. as a separate paragraph, preferably after the opinion paragraph of the audit report.
c. in the opinion paragraph.
d. as a separate paragraph in the notes to financial statements.
8. Which of the following does not warrant a modification of an unqualified opinion?

a. A significant doubt about the ability of the company to continue as a going concern;
such concern is adequately disclosed by the entity in the notes to financial
statements.
b. A limitation of the scope of the audit, the possible effect of which is material to
the financial statements.
c. The auditor has disagreement with management regarding the acceptability of the
accounting policies, the effect of which is material.
d. The omission of significant information in the financial statement.
9. An auditor’s report on financial statements prepared in accordance with another

comprehensive basis of accounting should include all of the following except
a. an opinion as to whether the basis of accounting used is appropriate under the
circumstances.
b. an opinion as to whether the financial statements are presented fairly in
conformity with the comprehensive basis of accounting.
c. reference to the note to the financial statements that describes the basis of
presentation.
d. a statement that the basis of presentation is a comprehensive basis of accounting
other than generally accepted accounting principles.
10. 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. c. the opinion paragraph.
a. the scope paragraph. d.one or more additional paragraphs that follow
the opinion paragraph.
11. When the principal auditor decides to refer to another auditor in his/her report,
the report should always include
a. a qualified or adverse opinion.
b. a disclaimer of opinion regarding the financial statements audited by the other
auditor.
c. the percentage and monetary amounts of the portion of the financial statements
examined by the other auditor.
d. reference to a footnote where the division of responsibility between the principal
auditor and the other auditor is described in detail.


12. Hernandez, CPA, concludes that there is substantial doubt about JKL Co.’s ability to
continue as a going concern. If JKL’s financial statements adequately disclose its
financial difficulties, Hernandez’s auditor’s report should
Include an explanatory Specifically use Specifically use
paragraph following the words the words
the opinion paragraph Going concern substantial doubt
a. Yes Yes Yes
b. Yes Yes No
c. Yes No Yes
d. No Yes Yes
13. Davis, CPA, believes there is substantial doubt about the ability of Hill Co. to
continue as a going concern for a reasonable period of time. In evaluating Hill’s plans
for dealing with the adverse effects of future conditions and events, Davis most likely
would consider, as a mitigating factor, Hill’s plan to
a. accelerate research and development projects related to future products.
b. accumulate treasury stock at prices favorable to Hill’s historic price range.
c. purchase equipment and production facilities currently being leased.
d. negotiate reductions is required dividends being paid on preferred stock.
14. A limitation on the scope of an audit sufficient to preclude an unqualified opinion

will usually result when management
a. is unable to obtain audited financial statements supporting the entity’s investment
in a foreign subsidiary.
b. refuses to disclose in the notes to the financial statements related-party
transactions authorized by the board of directors.
c. does not sign an engagement letter specifying the responsibilities of both the
entity and the auditor.
d. fails to correct a reportable condition committed after the prior year’s audit.
15. The existence of audit risk is recognized by the statement in the auditor’s standard
report that the auditor
a. obtains reasonable assurance about whether the financial statements are free of
material misstatement.
b. assesses the accounting principle used and also evaluates the overall financial
statement presentation.
c. realizes some matters, either individually or in the aggregate, are important while
other matters are not important.
d. is responsible for expressing an opinion on the financial statements that are the
responsibility of management.
16. An auditor was unable to obtain sufficient competent evidential matter concerning
certain transactions due to an inadequacy in the entity’s accounting records. The
auditor would choose between issuing a(n)
a. qualified opinion and unqualified opinion with an explanatory paragraph.
b. unqualified opinion with explanatory paragraph and an adverse opinion.
c. adverse opinion and a disclaimer of opinion.
d. disclaimer of opinion and a qualified opinion.


17. If the auditor believes that the entity will not be able to continue as a going
concern and the financial statements are prepared on a going concern basis, the
auditor’s report should include
a. unqualified opinion with explanatory paragraph. c. adverse opinion.
b. qualified opinion. d. disclaimer of opinion.
18. When the auditor’s report on the prior period, as previously issued, included a
modified opinion and the matter which gave rise to the modification is unresolved, and
results in a modification of the auditor’s report regarding the current period figures
a. the auditor’s report should be unmodified regarding the corresponding figures.
b. the auditor’s report should also be modified regarding the corresponding figures.
c. the auditor’s report does not refer to the previous modification.
d. the auditor should omit the comparatives as corresponding figures.
19. In relation to comparatives as corresponding figures, which of the following is

incorrect?
a. When the prior period financial statements are not audited, the incoming auditor
should state in the auditor’s report that the corresponding figures are unaudited.
b. The incoming auditor must refer to the predecessor auditor’s report on the
corresponding figures in the incoming auditor’s report for the current period.
c. When the financial statements of the prior period were audited by another auditor,
the incoming auditor’s report should state that the prior period was audited by
another auditor.
d. In situations where the incoming auditor identified that the corresponding figures
are materially misstated, the auditor should request management to revise the
corresponding figures or if management refuses to do so, appropriately modify the
report.
20. If after performing procedures, the auditor is unable to obtain sufficient,

appropriate evidence concerning opening balances, the auditor may express modified
opinion on financial statements during and as of year end of the current period
a. either qualified or disclaimer for balance sheet and income statement.
b. qualified or disclaimer of opinion for balance sheet only.
c. qualified or disclaimer of opinion for income statement only.
d. no modification.
21. How should generally accepted auditing standards and the Philippine Standards on
Auditing be looked on by CPA practitioners?
a. They are maximum standards that must be complied with.
b. They are minimum standards of performance.
c. They are clearly defined guidelines for determining the extent of evidence to be
accumulated.
d. They are minimum specific audit procedures that the auditors are expected to
perform.
22. What is the overriding objective of the International Auditing Standards that are
issued by the International Auditing Practices Committee of the International
Federation of Accountants?


a. To improve the uniformity of auditing practices and related services throughout the
world.
b. To override a count’s regulations governing the audit of financial statements.
c. To replace the generally accepted auditing standards.
d. To provide uniformity of specific audit procedures that are acceptable worldwide.
23. Which of the following least likely requires an additional explanatory paragraph in
a standard unqualified report?
a. Substantial doubt about going-concern ability of the entity.
b. Reports involving other auditors.
c. Emphasis of a matter.
d. Auditor agrees with change in generally accepted accounting principles.
24. Which of the following requires a modified wording report?

a. Substantial doubt about going-concern problems of the entity.
b. Reports involving other auditors.
c. Emphasis of a matter.
d. All of the above.
25. Which of the following changes would affect comparability but not consistency?
a. Variations in format and presentation of financial information.
b. Change from FIFO to LIFO inventory costing.
c. Changes in reporting entity, such as the inclusion of a company in consolidated
financial statements.
d. Correction of errors involving accounting principles.
26. When a significant portion of the financial statements have been audited by other
auditors and the principal auditor is not willing to assume the whole responsibility,
the auditor report should include
a. modified wording in the introductory paragraph.
b. a modified wording in the introductory and opinion paragraphs but not on opinion
paragraph.
c. modified wordings on the three paragraphs.
d. separate paragraph to indicate a divided responsibilities.
27. Which of the following types of report is mostly uncommon?

a. Adverse report. c. Standard unqualified report with modified wordings.
b. Qualified report. d. Unqualified report.
28. Which of the following scope limitation that is beyond the auditor and the client’s
control may mostly occur on a late engagement?
a. Review of bank reconciliation prepared by client personnel.
b. Request for cutoff bank statement.
c. Tests of sales transactions.
d. Observation of year-end inventory.
29. In which of the following type of audit report would omission of scope paragraph is
required?
a. An except for opinion due to possible significant effect of a client-imposed
limtation.


b. A disclaimer of opinion due to possible significant effect of client-imposed scope

limitation.
c. An audit report limited to income statement only.
d. A and B.
30. If the principal auditor’s report refers to the audit of another auditor, he is
required to disclose the
a. name of another auditor.
b. portion of the financial statements audited by the other auditor.
c. opinion expressed by the other auditor and the reason if the opinion is other than
unqualified.
d. reason for being unwilling to assume the responsibility for the other auditor’s
work.
31. Under which of the following circumstances would an unqualified opinion be entirely
appropriate?
a. The principal auditor decides to make reference to the qualified report of another
auditor, who audited a subsidiary
b. There are significant uncertainties affecting the financial statements.
c. There has been material effect between periods of the change in the methods of
application of GAAP.
d. There has been a material effect of a departure from generally accepted accounting
principle.
32. Celia, CPA, is auditing Lyka Corporation for the first time. Lyka has been in the
business for several years but has never had an audit before. After the audit is
completed, Celia concludes that the current year balance sheet is stated correctly in
accordance with GAAP. The client did not authorize Celia to do test work for any of the
previous years. Reporting on the current year’s financial statements, Celia most likely
would express
a. Qualified opinion on the financial statements of Lyka Corporation.
b. Unqualified opinion on the balance sheet and qualified opinion on the income
statement.
c. Unqualified opinion on the income statement and qualified opinion on the balance
sheet.
d. Unqualified opinion on Lyka Corporation’s financial statements.
33. Millard, CPA, is engaged in the audit of the financial statements of Alpha Company,
a manufacturing entity with branch offices in many widely separated cities. Millard was
not able to count the substantial undeposited cash receipts on the last day of the
fiscal year at all branch offices. As an alternative procedures, Millard verified all
the reported undeposited cash collections in the cut-off bank statements and was
satisfied as to cut-off of cash receipts.
How should Millard prepare his audit report?
a. Issue an unqualified opinion with an emphasis of matter paragraph that refers to
the use of alternative audit procedure.
b. Issue a qualified opinion due to scope limitation.
c. Issue an unqualified opinion on income statement and a qualified opinion on the
balance sheet.
d. Issue a standard unqualified opinion.


34. Trulav Company has prepared financial statements but has decided to omit the
statement of cash flows. The management believes that the users of the financial
statements the statement of cash flows confusing and prefer not have it included.
The omission of the statement of cash flows would require the auditor to
a. Include an unqualified report on emphasis of matter paragraph that explains the
reasons for such an omission of the statement.
b. Issue an adverse opinion due to inadequate disclosure.
c. Issue a qualified opinion due to inadequate disclosure.
d. Issue an unqualified opinion based on limited reported objective.
35. Due to recurring operating losses and working capital deficiencies, an auditor has
substantial doubt about the ability of the entity to continue as a going concern for a
reasonable period of time. However, the financial statement disclosures concerning
these matters are adequate.
The auditor should issue his report that contains
a. Disclaimer of opinion. c. Standard unqualified opinion.
b. Adverse opinion. d.Unqualified opinion with an emphasis of matter paragraph.
36. A continuing auditor has just completed the audit of the entity. The audit report
for the past three years included an emphasis of matter paragraph that referred to a
substantial doubt about the ability of the entity to continue as a going concern. At
the middle of the current audit year, the major stockholders infused substantial
capital that made the company stable. The continuing auditor should report on the
comparative financial statements by
a. Updating the audit report by issuing a standard three-paragraph audit report.
b. Including an emphasis of matter paragraph that refers to prior years’ going concern
problem.
c. Issue an unqualified opinion with an emphasis of matter paragraph that describes the
steps the management did in solving its going concern problem.
d. Qualify the audit report due to questionable strategy of strengthening the entity’s
financial stability.
37. An auditor assesses control risk to do which of the following?

a. Determine the tests of controls to perform
b. Determine the nature, timing, and extent of substantive tests to perform
c. Ascertain whether reportable conditions exists
d. Ascertain whether there is an appropriate segregation of duties among employees
38. Which of the following auditing procedures should not be considered a test of
control?
a. Observing preparation of the bank reconciliation
b. Inquiring about the entity’s organization structure
c. Inspecting customer order forms for the signature of the credit manager
d. Confirming with the customer the amount owed to the client


39. One of the company’s internal control structure procedures requires that shipping
documents be matched with customer invoices. To which of the following is that
procedure relevant?
a. The completeness assertion for revenue
b. The existence assertion for inventory
c. The occurrence assertion for purchases
d. The presentation and disclosure assertion for accounts receivable
40. Tests of controls are primarily concerned with all but which of the following
questions?
a. How were policies or procedures performed?
b. Were the policies or procedures performed?
c. How were the policies or procedures designed?
d. Do policies or procedures exist?
41. Which of the following is not a reason an auditor should obtain an understanding of
the elements of an entity’s internal control structure when planning an audit?
a. To identify types of potential misstatements that can occur,
b. To design substantive tests
c. To consider the operating effectiveness of the internal control structure
d. To consider factors that affect the risk of material misstatements
42. The sequence of the steps in the auditor’s consideration of the internal control
structure is as follows:
a. Obtain an understanding, design substantive tests, perform tests of controls,
determine assessed level of control risk.
b. Design substantive tests, obtain an understanding, perform tests of control,
determine assessed level of control risk.
c. Obtain an understanding, performs tests of controls, determine assessed level of
control risk, design substantive tests.
d. Perform tests of controls, obtain an understanding, determine assessed level of
internal control, design substantive tests
43. When documenting the assessed level of control risk, the auditor should
a. Express the assessed level of control risk in either quantitative of qualitative
terms for all assertions.
b. State the basis for the conclusion when the assessed level of control risk is below
the maximum level for an assertion
c. State the basis for the conclusion when the assessed level of control risk is at the
maximum level for an assertion
d. Describe how the planned substantive test have been affected by the assessed level
of control risk
44. In determining the assessed level f control risk, which of the following statements
is correct?


a. The knowledge obtained from the understanding of the internal control structure
cannot be used
b. The knowledge obtained about the internal control structure from the prior audits
can be used
c. The auditor evaluates the design of a policy and whether it has been placed in
operation
d. Observation provides more persuasive evidence about the operating effectiveness of a
policy or procedure than expecting documentation
45. After considering a client’s internal control system, an auditor has concluded that
it is well designed and is functioning as intended. Under these circumstances the
auditor would most likely
a. Determine the control policies and procedures that should prevent or detect errors
and irregularities
b. Determine whether transactions are recorded to permit preparation of financial
statements in conformity with GAAP
c. Not increase the extent of predetermined substantive tests
d. Perform tests of controls to the extent outlined in the audit program
46. Ideally, tests of controls should be applied to transactions and controls
a. at each quarterly interim period c. at the beginning of the fiscal year
b. at the balance sheet date d. for the entire period under audit
47. A procedure that would most likely be used by an auditor in performing tests of
control procedures that involve segregation of functions and that leave no transaction
trail is
a. Inspection c. Reconciliation
b. Observation d. Reperformance
48. Each key control that the auditor intends to rely on must be supported by sufficient
a. analytical review procedures c. tests of transactions
b. tests of controls d. reperformance procedures
49. When controls leave no documentary evidence or trail

a. it is impossible for the auditor to verify them so he/she will have to rely on
substantive tests
b. it is important to audit that area of client’s system
c. the auditor generally observes them being applied
d. the only thing available as verification of their effectiveness is inquiry of
management
50. When the compensating control exists, a weakness in the system

a. could cause a material loss, so it must be tested using substantive procedures
b. is magnified and must be removed from the sampling process and examined in its
entirety


c. is no longer a concern because the potential for misstatements has been sufficiently
reduced
d. is reduced but not removed; therefore, it is still of concern to the auditor
51. One of the ways to eliminate nonsampling risk is through

a. control which ensure that the sample drawn is random and representative
b. proper supervision and instruction of the audit team
c. proper supervision and instruction of the client’s employees
d. the use of attributes sampling rather than variables sampling
52. Sampling risk is an inherent part of sampling that results from

a. failure to recognize exceptions c. testing less than the entire population
b. inappropriate audit procedures d. weaknesses in client’s internal control
system
53. If the auditor decides to assess control risk at the maximum level, tests of control
are
a. Increased in number c. Reduced in number
b. Not performed d. Unchanged from prior planned settings
54. An auditor selects a sample from the file of shipping documents to determine whether
invoices were prepared. This test is performed to satisfy the audit objective of
a. Accuracy b. Existence c. Completeness d. Control
55. An auditor examining inventory may appropriately apply sampling for attributes in
order to estimate the
a. Average price of inventory items c. Percentage of slow-moving inventory items
b. Physical quantity of inventory items d. Peso value of inventory
56. A principal advantage of statistical methods of attributes sampling over

nonstatistical method is that they provide a scientific basis for planning the
a. Expected population exception rate c. Sample price
b. Risk of assessing control risk too low d. Tolerable exception rate
57. A basic premise underlying analytical procedure is that:
a. These procedures cannot replace tests of balances and transactions
b. Statistical tests of financial information may lead to the discovery of material
misstatements in the financial statements
c. The study of financial ratios is an acceptable alternative to the investigation of
unusual fluctuations
d. Plausible relationships among data may reasonably be expected to exist and continue
in the absence of known conditions to the contrary


58. One reason why an auditor makes an analytical review of the client’s operations is
to identify
a. improper separation of accounting and other financial duties
b. weakness of a material nature in the system of internal accounting control
c. unusual transactions
d. non-compliance with prescribed control procedures
59. At what stage in the audit are the analytical procedures performed?
a. In planing stage
b. In conjunction with tests of transactions and tests of details of balances
c. Near the end
d. During all three states
60. “Unusual fluctuations” occur when

a. significant differences are not expected but do exist
b. significant differences are expected but do not exist
c. there is a material accounting error or irregularity
d. any one of the above three situations may occur
61. To help plan the nature, timing and extent of substantive auditing procedures,
preliminary analytical procedures should focus on:
a. Enhancing the auditors understanding of the client’s business and events that have
occurred since the last audit date
b. Developing plausible relationships that corroborate anticipated results with a
measurable amount of precision
c. Applying ration analysis to externally generated data such as published industry
statistics or price indices
d. Comparing recorded financial information to the results of other tests of
transactions and balances
62. Which of the following tends to be most predictable for purposes of analytical
procedures applied as substantive tests?
a. Relationships involving balance sheet accounts
b. Transactions subject to management discretion
c. Relationships involving income statement accounts
d. Data subject to audit testing in the prior year
63. An auditor compares the 20x3 revenues and expenses with those of the prior year and
investigates all changes exceeding 10%. By this procedure the auditor would be most
likely to learn that:
a. Fourth payroll taxes were not paid
b. The client changed its capitalization policy for small tools in 20x3
c. An increase in property tax rates has not been recognized in the client’s accrual


d. The 20x3 provision for uncollectible accounts were inadequate because of worsening
economic conditions
64. For which of the following account balances are substantive tests of details least
likely to be performed unless analytical review procedures indicate the need to extend
details testing?
a. Payroll expense c. Research and development
b. Marketable securities d. Legal expense
65. Which of the following comparisons would be most useful to an auditor in evaluating
the results of an entity’s operations?
a. Prior year accounts payable to current year accounts payable
b. Prior year payroll expense to budgeted current year payroll expense
c. Current year revenue to budgeted current year revenue
d. Current year warranty expense to current year contingent liabilities
66. Where an unusual fluctuation is indicated by analytical procedures and management is
unable to provide a satisfactory explanation, the auditor must assume that there is a
high probability that an error or irregularity exists. In this case, the auditor must:
a. Issue either a qualified or an adverse opinion
b. Issue a disclaimer
c. Issue either a qualified opinion or a disclaimer
d. Design other appropriate audit procedures to determine if such errors do exist
67. 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 a scope limitation
b. Perform additional audit procedures to investigate the matter further
c. Intensify the examination with the expectation of detecting management fraud
d. Withdraw from the engagement
68. Auditors sometimes use comparison of ratios as audit evidence. For example, an
unexplained decrease in the ratio of gross profit to sales may suggest which of the
following possibilities?
a. unrecorded purchases
b. unrecorded sales
c. merchandise purchases being charged to selling and general expense
d. fictitious sales
69. Sampling results could lead to the auditor to believe erroneously that the account
does not contain more monetary error that can be tolerated. Which of the following
corresponds to the preceding statement?
a. The risk of incorrect rejection c. Estimation sampling
b. The risk if incorrect acceptance d. Projected misstatement


70. The auditor generally gives most emphasis to ratio and trend analysis in the
examination of the statement of?
a. Retained earnings c. Financial position
b. Income d. Cash flows
71. Analytical procedures used in the overall review stage of an audit generally
include:
a. Considering unusual or unexpected account balances that were not previously
identified.
b. Performing tests of transactions to corroborate management’s financial statement
assertions
c. Gathering evidence concerning account balances that have not changed from the prior
year
d. Re-testing control procedures that appeared to be ineffective during the assessment
of control risk
72. An aging analysis of accounts receivable would provide an indication as to the:

a. Validity of the accounts c. Integrity of the credit grantors
b. Collectibility of the accounts d. Solvency of the customers
73. Evidential matter supporting the financial statements consists of underlying

accounting data and all corroborating information available to the auditor. An example
of corroborating information is:
a. General and subsidiary ledgers
b. Worksheets supporting cost allocation
c. Minutes of meetings
d. Accounting manuals
74. Which of the following is an accepted audit procedure that involves the analysis if
two records independent of one another?
a. Observation c. Reconciliation
b. Statistical sampling d. Vouching
75. The primary difference between an audit of the balance sheet and the audit of income
statement is that the audit of the balance sheet date more with the verification of
a. Transactions c. Costs
b. Authorizations d. Balances
76. An auditor encounters the following four accounts listed among the assets of a
client. Most likely the auditor would take exception to the asset recognition of:
a. Excess cost over the book value of a subsidiary
b. Research and development costs incurred by an oil exploration company


c. Goodwill arising from appraisal

d. Organization cost
77. One of this procedures is not deemed proper:

a. Cash count should be made at a time not known in advance to the custodians of cash.
b. Cash should be counted only in the presence of the custodian or responsible
representative of the client. If any of them were personally present, there is no
need for them to check the cash count.
c. Cash fund at distant branch offices should be confirmed in writing with the
custodian, where it is not practicable for the auditor to visit the said office
d. The auditor should determine beforehand the appropriate amounts and locations of
company funds not recorded on the books which are in the possession of the custodian
of company funds.
78. The examination of underlying documentary evidence in order to verify the entries
which are based upon the evidence
a. Testing b. Auditing c. Tracing d. Vouching
79. Several types of documentary evidence were received by the auditor, but of these
only one is considered most reliable:
a. Working papers prepared by the Chief Accountant and reviewed personally by the VP-
Finance.
b. A check issued by the Treasurer, with the payee’s endorsement, included in the
statement mailed by the bank directly to the auditor.
c. A delivery receipt issued by the shipping department, signed by the customer, with
an accompanying copy of the sales invoice.
d. Confirmation of the balance of an accounts payable mailed by and returned directly
to the auditor.
80. A written request and acknowledgment requiring a letter reply only in the event of a
discrepancy.
a. negative confirmation c. letter confirmation
b. positive confirmation d. Client’s representation letter
81. By a cut-off review and close examination of sales journal entries for several days
before and after a balance sheet date, and auditor might detect
a. Kiting cash sales receipts c. Inflating sales for the year
b. Lapping sales receipts d. Misappropriation of sales stocks
82. A positive account receivable confirmation returned without exception attest to the
a. collectibility of the receivable balance


b. accuracy of the receivable balance

c. accuracy of the aging of the accounts receivable balance
d. accuracy of the allowance for bad debts
83. Which of the following is the best audit procedure for determining the existence of
unrecorded liabilities?
a. Examine confirmation requests returned by creditors whose accounts appear on a
subsidiary trial balance of accounts payable
b. Examine unusual relationships between monthly accounts payable balance and recorded
purchases
c. Examine a sample of vendors’ invoices a few days prior to and subsequent to year
end to ascertain whether they have been properly recorded
d. Examine a sample of cash disbursements in the period subsequent to the year end
84. The physical count of the inventory of a retailer was higher than that shown by the
perpetual records. Which of the following could explain this differences?
a. Inventory items had been counted but the tags placed on the items had not been taken
off the items and added to the inventory compilation sheets.
b. Credit memos for several items returned by the customers had not been prepared.
c. No journal entry had been made on the retailer’s books for several items returned to
the suppliers.
d. An item purchased “FOB shipping point” had not arrived at the date of the inventory
count and had not been reflected in the perpetual records
85. Cut-off tests designed to detect credit sales made before the end of the year that
have been recorded in the subsequent year provide assurance about management’s
assertion of
a. Completeness b. Existence c. Presentation d. Rights
86. In the context of an audit of financial statements, substantive tests are audit
procedures that
a. may be either tests of transactions, direct tests of financial balances or
analytical tests
b. may be estimated under certain conditions
c. are designed to discover significant subsequent events
d. will increase proportionately with increase in assessed control risk
87. If the objective of a test of details is to detect overstatement of sales, the

auditor should vouch transactions from the
a. Accounting records to the source documents
b. Cash receipts journal to the sales journal
c. Sales journal to the cash receipts journal
d. Source documents to the accounting records


88. Which of the following combinations of procedures would an auditor most likely
perform to obtain about plant asset additions?
a. Inspecting documents and physically examining plant assets
b. Recalculating and obtaining written management representations
c. Observing operating activities and comparing balances to prior period balances
d. Confirming ownerships and corroborating transactions through inquiries of client
personnel
89. An auditor who selects a sample of items from the vouchers payable register for the
last month of the period under audit and traces these items to underlying documents is
gathering primarily in support of the assertion that
a. Cash disbursements were recorded as incurred obligations
b. Incurred obligations were recorded in the correct period
c. Recorded obligations were valid
d. Recorded obligations were paid
90. Which of the following statements is correct concerning the use of negative
confirmation requests?
a. Negative confirmation requests are effective when detection risk is low
b. Negative confirmation requests are effective when understatements of account
balances are suspected
c. Unreturned negative confirmation requests indicate that alternative procedures are
necessary
d. Unreturned negative confirmation requests rarely provide significant explicit
evidence
91. In the audit of inventories, an auditor would least likely verify that
a. All inventory owned by the client is on hand at the time of the count
b. Damaged goods and obsolete items of inventories have been properly accounted for
c. The client has used proper inventory pricing
d. The financial statement presentation of the inventories is appropriate
92. A client company has not paid its 2002 audit fees. According to the Code of
Professional Conduct, for the auditor to be considered independent with respect to the
2003 audit, the 2002 audit fees must be paid before the
a. 2002 report is issued c. 2003 field work is started
b. 2003 report is issued d. 2004 field work is started
93. Inclusion of which of the following in promotional brochure published by a public

accounting firm would be most likely to result in a violation of the rules of conduct?
a. Reprints of newspaper articles that praise the firm’s expertise.
b. Services offered and fees for such services including hourly rates and fixed fees
c. Educational and professional attainments of partners
d. Testimonial and endorsements


94. According to the Code of Professional Conduct, a member who has a financial interest
in a partnership that invests in a potential client is considered to have
a. An indirect financial interest in the client c. No financial interest in the client
b. A direct financial interest in the client d. A partial financial
interest in the client
95. The Rules of Conduct will ordinarily be considered to have been violated when the
member represents that specific consulting services will be performed for a stated fee
and it is apparent at the time of the representation that the
a. actual fee would be substantially higher
b. actual fee would be substantially lower than the fees charged by other members for
comparable services
c. fee was a competitive bid
d. member would not be independent
96. In which of the following instances would the independence of the CPA not be
considered to be impaired? The CPA has been retained as the auditor of a brokerage firm
a. Which owes the CPA audit fees for more than one year
b. In which the CPA has a large active margin account
c. In which the CPA’s brother is the controller
d. Which owes the CPA audit fees for services in the current year and ha just filed a
petition for bankruptcy
97. Which of the following most completely describes how the profession has defined
independence?
a. Performing an audit from the viewpoint of the public
b. Avoiding the appearance of significant interests in the affairs of an audit client
c. Possessing the ability to act with integrity and objectivity
d. Accepting responsibility to act professionally and in accordance with a professional
code of ethics
98. The appearance of independence of a CPA, or that CPA’s firm, could be impaired if
the CPA
a. owns a unit in a cooperative apartment house where each unit has a vote in the
cooperative, and the CPA, who does not participate in the management, has been
retained as the auditor for the cooperative
b. joins a trade association that is a client and serves in a non management capacity
c. accepts a gift from a client
d. none of the above
99. The Code of Professional Conduct states that a CPA shall not disclose any
confidential information obtained in the course of a professional engagement except
with the consent of his or her client. In which of the situations that follow would
disclosure by a CPA be in violation of the Code?
a. Disclosing confidential information to property discharge the CPA’s responsibilities
in accordance with the profession’s standards.


b. Disclosing confidential information in compliance with a subpoena issued by a court.

c. Disclosing confidential information to another accountant interested in purchasing
the CPA’s practice
d. Disclosing confidential information in a review of the CPA’s professional practice
by a peer review team.
100. Which of the following fee arrangements is in violation of the Code of Professional
Conduct?
a. A fee based on whether the CPA’s report on the client’s financial statements results
in the approval of a bank loan
b. A fee based on the outcome of a bankruptcy proceeding
c. A fee based on the nature of the service rendered and the CPA’s particular expertise
instead of the actual time spent on the engagement.
d. A fee based on the charged by the prior auditor.

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ACC 139: Assurance and Audit Principles

Student Activity Sheet #26

Name: John Lorenz M. Dayanghirang Class number: 019-0059

Student Activity Sheet;

1. Which of the following is not a basic element of an audit report?

4. Where do you find the following sentence?

This document is the property of PHINMA EDUCATION

Name: John Lorenz M. Dayanghirang Class number: 019-0059

d. is satisfied that the statements are presented fairly.

7. When an auditor expresses an opinion other than unqualified opinion, a clear

8. Which of the following does not warrant a modification of an unqualified opinion?

9. An auditor’s report on financial statements prepared in accordance with another

This document is the property of PHINMA EDUCATION

Name: John Lorenz M. Dayanghirang Class number: 019-0059

14. A limitation on the scope of an audit sufficient to preclude an unqualified opinion

This document is the property of PHINMA EDUCATION

Name: John Lorenz M. Dayanghirang Class number: 019-0059

19. In relation to comparatives as corresponding figures, which of the following is

20. If after performing procedures, the auditor is unable to obtain sufficient,

This document is the property of PHINMA EDUCATION

Name: John Lorenz M. Dayanghirang Class number: 019-0059

24. Which of the following requires a modified wording report?

27. Which of the following types of report is mostly uncommon?

This document is the property of PHINMA EDUCATION

Name: John Lorenz M. Dayanghirang Class number: 019-0059

b. A disclaimer of opinion due to possible significant effect of client-imposed scope

This document is the property of PHINMA EDUCATION

Name: John Lorenz M. Dayanghirang Class number: 019-0059

37. An auditor assesses control risk to do which of the following?

This document is the property of PHINMA EDUCATION

Name: John Lorenz M. Dayanghirang Class number: 019-0059

This document is the property of PHINMA EDUCATION

Name: John Lorenz M. Dayanghirang Class number: 019-0059

49. When controls leave no documentary evidence or trail

50. When the compensating control exists, a weakness in the system

This document is the property of PHINMA EDUCATION

Name: John Lorenz M. Dayanghirang Class number: 019-0059

51. One of the ways to eliminate nonsampling risk is through

52. Sampling risk is an inherent part of sampling that results from

56. A principal advantage of statistical methods of attributes sampling over

This document is the property of PHINMA EDUCATION

Name: John Lorenz M. Dayanghirang Class number: 019-0059

60. “Unusual fluctuations” occur when

This document is the property of PHINMA EDUCATION

Name: John Lorenz M. Dayanghirang Class number: 019-0059

This document is the property of PHINMA EDUCATION

Name: John Lorenz M. Dayanghirang Class number: 019-0059

72. An aging analysis of accounts receivable would provide an indication as to the:

73. Evidential matter supporting the financial statements consists of underlying

This document is the property of PHINMA EDUCATION

Name: John Lorenz M. Dayanghirang Class number: 019-0059

c. Goodwill arising from appraisal

77. One of this procedures is not deemed proper:

This document is the property of PHINMA EDUCATION

Name: John Lorenz M. Dayanghirang Class number: 019-0059

b. accuracy of the receivable balance

87. If the objective of a test of details is to detect overstatement of sales, the

This document is the property of PHINMA EDUCATION

Name: John Lorenz M. Dayanghirang Class number: 019-0059

93. Inclusion of which of the following in promotional brochure published by a public

This document is the property of PHINMA EDUCATION

Name: John Lorenz M. Dayanghirang Class number: 019-0059

This document is the property of PHINMA EDUCATION