1.

Any service that requires a CPA firm to issue a report about the
reliability of an assertion that is made by another party is a(an)
a. Accounting and bookkeeping service
b. Attestation service
c. Assurance service
d. Tax service

2. The audit of historical financial statements most commonly includes

the:
a. Balance sheet, the income statement and the retained earnings
statement
b. Income statement, statement of cash flows and statement of net
working capital
c. Statement of cash flows, the balance sheet and the retained earnings
statement
d. Balance sheet, the income statement and the statement of cash flows

3. An operational audit has one of its objectives to:

a. Determine whether the financial statements fairly present the
entity’s operation
b. Evaluate the feasibility of attaining the entity’s operational
objectives
c. Make recommendations for improving performance
d. Report on the entity’s relative success in attaining profit
maximization

4. An examination of part of an organization’s procedures and methods for

the purpose of evaluating efficiency and effectiveness is what type of
audit?
a. Operational audit
b. Compliance audit
c. Financial statement audit
d. Production audit

5. An audit to determine whether an entity is following specific

procedures or rules set down by some higher authority is classified as
a(n):
a. Audit of financial statements
b. Compliance audit
c. Operational audit
d. Production audit

6. Which of the following is a type of audit evidence?

a. Oral responses to the auditor from employees of the company under
audit
b. Written communications from company employees or outsiders
c. Observations made by an auditor
d. Evidence may take any of the above forms

7. Financial statements users often receive unreliable financial

information from companies. Which of the following is not a common
reason for this?
a. Complex business transactions
b. Large amounts of data
c. Lack of firsthand knowledge about the business
d. Each of these choices is a common reason for unreliable financial
information

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 8. Which of the following services provides the lowest level of assurance
on a financial statement?
a. A review
b. An audit
c. Neither service provides assurance on financial statements
d. Each service provides the same level of assurance on financial
statements.

9. Which one of the following is more difficult to evaluate objectively?

a. Presentation of financial statements in accordance with the
generally accepted accounting principles
b. Compliance with government regulations
c. Efficiency and effectiveness of operations
d. All three of the above are equally difficult

10. Which of the following can be significantly affected by an audit?

a. Business risk
b. Information risk
c. The risk-free interest rate
d. Inherent risk

11. The trait that distinguishes auditors from accountant is the:

a. Auditor’s ability to interpret accounting principles generally
accepted in the Philippines
b. Auditor’s education beyond the Bachelor’s degree
c. Auditor’s ability to interpret FASB Statements
d. Auditor’s accumulation and interpretation of evidence related to a
company’s financial statements

12. A basic objective of a CPA firm is to provide professional service to

conform to professional standards. Reasonable assurance of achieving
this basic objective is provided through:
a. Continuing professional education
b. Compliance with generally accepted reporting standards
c. A system of quality control
d. A system of peer review

13. Which of the following is not an essential component of quality

control?
a. Policies and procedures to ensure that firm personnel are actively
engaged in marketing strategies
b. Policies and procedures to ensure that the work performed by firm
personnel meet applicable professional standards
c. Policies to ensure that personnel maintain their independence in
fact and in appearance
d. Policies that ensure that monitoring activities are effectively
applied

14. Auditing standards require that the audit report must be titled and
that the title must:
a. Include the word “independent”
b. Indicate if the auditor is a CPA
c. Indicate if the auditor is a proprietorship, partnership or
incorporated
d. Indicate the type of audit opinion issued

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 15. When CPAs are able to maintain their actual independence, it is
referred to as independence in:
a. Conduct
b. Appearance
c. Fact
d. Total

16. Which of the following statements is true? The CPA firm will lose its
independence if:
a. A staff providing audit services to the client acquires stock in
that client
b. A staff tax preparer who provides 15 hours of non-audit services to
the client acquires stock in that client
c. An audit manager in an office different that the office providing
audit services has a direct, immaterial financial interest in that
audit client
d. A covered member has an indirect, immaterial financial interest in
an audit client

17. Interpretations of the rules regarding independence allow an auditor

to serve as:
a. Director or officer of an audit client
b. An underwriter for the sale of a client’s securities
c. A trustee of a client’s pension fund
d. An honorary director for a no-profit charitable or religious
organization

18. The CPA must not subordinate his or her professional judgment to that
of others in any:
a. Engagement
b. Audit engagement
c. Engagement excluding tax services
d. Engagement excluding management advisory services

19. CPAs may provide bookkeeping services to their non-public audit

clients, but there are a number of conditions that must be met if the
auditor is to maintain independence. Which of the following conditions
is not necessary?
a. The CPA must not assume a management role or function.
b. The client must hire an external CPA to approve all of the journal
entries prepared by the auditor.
c. The auditor must comply with GAAS when auditing work prepared by
his/her firm.
d. The client must accept responsibility for the financial statements.

20. The objective of the ordinary audit of financial statements is the

expression of an opinion on:
a. The fairness of the financial statements
b. The accuracy of the financial statements
c. The accuracy of the annual report
d. The balance sheet and income statement

21. To emphasize the fact that the auditor is independent, a typical

addressee of the audit report could be:
Company Controller Shareholders Board of Directors
a. No Yes Yes
b. No No Yes

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 c. Yes Yes No
d. Yes No No

22. An auditor determines the financial statements include a material

departure from GAAP. Which type of opinion may be issued?
Disclaimer Qualified Adverse
a. Yes No No
b. No Yes No
c. Yes No Yes
d. No Yes Yes

23. When determining whether an exception is “highly material”, the extent

to which the exception affects different elements of the financial
statements must be considered. This concept is called:
a. Materiality
b. Pervasiveness
c. Financial analysis
d. Ratio analysis

24. An auditor who issues a qualified opinion because sufficient

appropriate evidence was not obtained should describe the limitation in
an explanatory paragraph. The auditor should also refer to the
limitation in the:
Scope Paragraph Opinion Paragraph Notes to the Financial statements
a. Yes No Yes
b. No Yes Yes
c. No Yes No
d. Yes Yes No

25. When the auditor evaluates the affect of a change in accounting

principle, the materiality of the change should based on:
a. The prior years presented
b. The current year effect of the change
c. Guidelines included in GAAS
d. The effect on total assets

26. Conditions requiring a departure from an unqualified audit report

include all but which of the following?
a. Management refused to allow the auditors to confirm significant
accounts receivable for which there where no alternative procedures
performed.
b. Management decided not to allow the auditor to confirm significant
accounts receivable but the auditor obtained sufficient appropriate
evidence by examining subsequent cash receipts.
c. The audit partner’s dependent child received a gift of 100 shares of
a client’s stock for her birthday from a grandparent
d. Management has determined that fixed assets should be reported in
the balance sheet at their replacement value rather than historical
costs. The auditors do not concur.

27. Auditors sometimes encounter situations in which the outcome of a

matter cannot be reasonably estimated at the time the financial
statements are issued. These matters are referred to as:
a. Inestimable matters
b. Nin sequiturs
c. Uncertainties
d. In-suspense matters

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 28. When the auditor concludes that there is substantial doubt about the
entity’s ability to continue as a going concern, the appropriate audit
report would be:
a. An unqualified opinion with an explanatory paragraph
b. A disclaimer of opinion
c. Neither a nor b
d. Either a or b

29. Whenever the client imposes restriction on the scope of the audit, the
auditor should be concerned that management may be trying to prevent
discovery of misstatements. In such cases, the auditor will likely
issue a:
a. Disclaimer of opinion in all cases
b. Qualification of both scope and opinion in all cases
c. Disclaimer of opinion whenever materiality is in question
d. Qualification of both scope and opinion whenever materiality is in
question

30. Which of the following statement is true?

a. The auditor is required to issue a disclaimer of opinion in the
event of a material uncertainty.
b. The auditor is required to issue a disclaimer of opinion in the
event of a going concern problem.
c. The auditor is required to issue a disclaimer of opinion for a
material uncertainty and for a going concern problem.
d. The auditor has the option, but is not required, to issue a
disclaimer of opinion for a material uncertainty or for a going
concern problem.

31. Which of the following circumstances would ordinarily not impair the
auditor’s independence?
a. Litigation by a client against an audit related to tax services.
b. Litigation by a client against an audit firm claiming a deficiency
in the previous audit.
c. Litigation by an audit firm against a client claiming management
fraud or deceit.
d. Client’s intent to start a lawsuit at some future date, after the
current audit is completed, claiming a deficiency in the previous
audit.

32. Which of the following is not one of the reasons that auditors provide
only reasonable assurance on the financial statements?
a. The auditor commonly examines a sample, rather than the entire
population of transactions.
b. Accounting presentations contain complex estimates which involve
uncertainty.
c. Fraudulently prepared financial statements are often difficult to
detect.
d. Auditors believe that reasonable assurance is sufficient in the vast
majority of cases.

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 33. Predecessor auditor is required to respond to the request of the
successor auditor for information, but the response can be limited to
stating that no information will be provided when:
a. The predecessor auditor has poor relations with the successor
auditor
b. The client is dissatisfied with the predecessor’s work
c. There are actual or potential legal problems between the client and
the predecessor
d. The predecessor believes that the client lacks integrity

34. Early appointment of the independent auditor will enable:

a. A more thorough examination to be performed
b. A proper study and evaluation of internal control to be performed
c. Sufficient competent evidential matter to be obtained
d. A more efficient examination to be planned

35. An auditor who accepts an audit engagement and does not posses the
industry expertise of the business entity should:
a. Engage financial experts familiar with the nature of the business
entity
b. Obtain a knowledge of matters that relate to the nature of the
entity’s business
c. Refer he audit to another CPA who will act as the principal auditor
d. First inform management that an unqualified opinion cannot be issued

36. An auditor should recognize that the application of auditing

procedures mar produce evidence indicating the possibility of errors or
fraud and therefore should:
a. Plan and perform the engagement with an attitude of professional
skepticism
b. Not rely on internal controls that are designed to prevent or detect
errors or fraud
c. Design audit tests to detect unrecorded transactions
d. Extend the work to audit most recorded transactions and records of
an entity

37. If the auditor believes that the financial statements are not fairly
stated or is unable to reach a conclusion because of insufficient
evidence, the auditor:
a. Should withdraw from engagement
b. Should request an increase in audit fees so that more resources can
be used to conduct the audit
c. Has the responsibility of notifying financial statements users
through the auditor’s report
d. Should notify regulators of the circumstances

38. The auditor’s best defense when material misstatements are not
uncovered is to have conducted the audit:
a. In accordance with auditing standards
b. As effectively as reasonable possible
c. In a timely manner
d. Only after an adequate investigation of the management team

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 39. An engagement letter sent to an audit client usually would not include
a(n):
a. Reference to the auditor’s responsibility for the detection of
errors or irregularities
b. Estimation of the time to be spent on the audit work by audit staff
and management
c. Statement that management advisory services would be made available
upon request
d. Reference to management’s responsibility for the financial
statements

40. Which of the following statements is most correct regarding errors and
fraud?
a. An error is unintentional, whereas fraud is intentional
b. Frauds occur more often than errors in financial statements
c. Errors are always fraud and frauds are always errors
d. Auditors have more responsibility for finding fraud that errors

41. With respect to the detection of illegal acts, auditing standards

states that the auditor provides:
a. No assurance that they will be detected
b. The same reasonable assurance provided for other items
c. Assurance that they will be detected, if material
d. Assurance that they will be detected, if highly material

42. Most illegal acts affect the financial statements:

a. Directly
b. Only indirectly
c. Both directly and indirectly
d. Materially if direct; immaterially if indirect

43. The auditor’s evaluation of the likelihood of material employee fraud

is normally done initially as a part of:
a. Test of controls
b. Test of transactions
c. Understanding the entity’s internal control
d. The assessment of whether to accept the audit engagement

44. If several employees collude to falsify documents, the chance a normal

audit would uncover such acts is:
a. Very low
b. Very high
c. Zero
d. None of the above

45. Which of the following is not likely a source of information to assess

fraud risk?
a. Communications among audit team members
b. Inquiries of management
c. Analytical procedures
d. Consideration of fraud risk discovered during recent audits of other
clients

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 46. Which of the following is least likely to uncover fraud?
a. External auditors
b. Internal auditors
c. Internal controls
d. Management

47. Auditors may identify conditions during fieldwork that change or

support a judgment about the initial assessment of fraud risks. Which
of the following is not a condition which should alert an auditor that
the initial assessment should be changed?
a. The auditor’s lack of independence
b. Discrepancies in the accounting records
c. Unusual relationships between the auditor and management
d. Missing or conflicting evidence

48. Which of the following statements is not true with respect to audit
committees?
a. Individuals not on a firm’s board of directors should comprise the
audit committee.
b. The audit committee generally helps in resolving conflicts between
the auditors and company management.
c. All companies listed on the PSE are required to have an audit
committee.
d. Audit committee are required for all companies.

49. Which party has the primary responsibility to oversee an

organization’s financial reporting and internal control processes?
a. The board of directors
b. The audit committee
c. Management of the company
d. The financial statement auditors

50. Fraud awareness training should be:

a. Broad and all-encompassing
b. Extensive and include details for all functional areas
c. Specifically related to the employee’s job responsibility
d. Focused on employees understanding the importance of ethics

51. The most effective way to prevent and deter fraud is to:
a. Implement programs and controls that are based on core values
embraced by the company
b. Hire highly ethical employees
c. Communicate to all employees on an annual basis
d. Focused on employee’s understanding the importance of ethics

52. After fraud risks are identified and documented, the auditor should
evaluate factors that _______ fraud risk before developing an
appropriate responses to the risk of fraud.
a. Enhance
b. Reduce
c. Increase
d. Increase or decrease

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 53. In fraud triangle, fraudulent financial reporting and misappropriation
of assets:
a. Share little in common
b. Share most of the same risk factors
c. Share the same three conditions
d. Share most of the same conditions

54. Which of the following is a factor that relates to incentives to

misappropriate assets?
a. Significant accounting estimates involving subjective judgments.
b. Significant personal financial obligations.
c. Management’s practice of making overly aggressive forecasts.
d. High turnover of accounting internal audit and information
technology staff.

55. Which of the following is not a factor that relates to opportunities

to misappropriate assets?
a. Inadequate internal controls over assets.
b. Presence of large amounts of cash on hand.
c. Inappropriate segregation of duties or independent checks on
performance.
d. Adverse relationships between management and employees.

56. Which of the following is a factor that relates to attitudes or

rationalization to commit fraudulent financial reporting?
a. Significant accounting estimates involving subjective judgments.
b. Excessive pressure for management to meet debt repayment
requirements.
c. Management’s practice of making overly aggressive forecasts.
d. High turnover of accounting, internal audit and information
technology staff.

57. The most common technique used by management to misstate financial

information is:
a. Overstatement of expenses
b. Improper revenue recognition
c. Understatement of liabilities
d. Understatement of assets

58. Fraudulent financial reporting may be accomplished through the

manipulation of:
a. Assets
b. Revenues
c. Liabilities
d. All of the above

59. _________ is fraud that involves theft of an entity’s assets.

a. Fraudulent financial reporting
b. A “cookie jar” reserve
c. Misappropriation of assets
d. Income smoothing

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 60. _________ is a form of earnings management in which revenues and
expenses are shifted between periods to reduce fluctuations in
earnings.
a. Fraudulent financial reporting
b. Expense smoothing
c. Income smoothing
d. Each of the above is correct

61. To obtain an understanding of an entity’s control environment, an

auditor should concentrate on the substance of management’s policies
and procedures rather than their form because
a. Management may establish appropriate policies and procedures but not
act on them.
b. The board of directors may not be aware of management’s attitude
toward the control environment
c. The auditor may believe that the policies and procedures are
inappropriate for that particular entity.
d. The policies and procedures may be so weak that no reliance is
contemplated by the auditor.

62. An auditor searching for related party transactions should obtain an

understanding of each subsidiary’s relationship to the total entity
because:
a. The business structure may be deliberately designed to obscure
related party transactions
b. This may reveal whether transactions would have taken place if the
parties had been unrelated
c. Transactions may have been consummated on terms equivalent to arm’s-
length transactions
d. This may permit the audit of intercompany account balances to be
performed as of concurrent dates

63. When compensating control exists, the absence of a key control

a. Is no longer a concern because there is no longer a significant
deficiency or material weakness
b. Is still a major concern to the auditor
c. Could cause a material loss, so it must be tested using substantive
procedures
d. Is magnified and must be removed from the sampling process and
examined in its entity

64. When planning an audit, the auditor’s assessed level of control risk
is
a. Determined by using actuarial tables
b. Calculated by using the audit risk model
c. An economic issue, trading off the costs of testing controls against
the cost of testing balances
d. Calculated by using the formulas provided in the AICPA’s auditing
standards

65. To be effective, an internal audit department must be independent of

a. Operating departments
b. The accounting departments
c. Both a and b
d. Either a or b, but not both

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 66. An auditor should consider two keys issues when obtaining an
understanding of a client’s internal controls. These issues are
a. The effectiveness and efficiency of the controls
b. The frequency and effectiveness of the controls
c. The design and utilization of the controls
d. The implementation and efficiency of the controls

67. The primary emphasis by auditors is on controls over

a. Classes of transactions
b. Account balances
c. Both a and b, because they are equally important
d. Both a and b, because they vary from client to client

68. The Sarbanes-Oxley Act requires

a. All public companies to issue reports on internal controls
b. All public companies to define adequate internal controls
c. The IFCR
d. The auditor of public companies to provide recommendations to
correct material weaknesses

69. How must significant deficiencies and material weaknesses be

communicated to those charged with governance?
a. Either oral or written communication is acceptable
b. Oral communication is required
c. Written communication is required
d. Written communication is required for material weaknesses, but oral
communication is allowed for significant deficiencies

70. Which of the following statements about auditor documentation of the

client’s internal controls is correct?
a. Documentation must include flow charts
b. Documentation must include procedural write=ups
c. No documentation is necessary although it is desirable
d. No one particular form of documentation is necessary

71. Poor segregation of functional responsibilities calls for separation

of
a. Authorization, execution and payment
b. Authorization, recording and custody
c. Custody, execution and reporting
d. Authorization, payment and recording

72. Which of the following is not a subcomponent of control environment?

a. Management’s philosophy and operating style
b. Organizational structure
c. Adequate separation of duties
d. Commitment to competence

73. Which of the following is not a likely procedure to support the

operating effectiveness of internal controls?
a. Inquiry of client personnel
b. Observation of control-related activities
c. Reperformance of client procedures
d. Completing an internal control questionnaire

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 74. Which of the following is correct?
a. A significant deficiency is always a material weakness.
b. A control deficiency is always a material weakness.
c. A material weakness is less significant that a control deficiency.
d. A material weakness is always a significant deficiency.

75. If the results of test of controls support the design and operations
of controls as expected, the auditor uses ______ control risk as the
preliminary assessment.
a. Lower
b. The same
c. A higher
d. Either lower or higher

76. A(n) _______ deficiency exists if a necessary control is missing or

not properly formulated.
a. Control
b. Significant
c. Design
d. Operating

77. _______ deals with ongoing or periodic assessment of the quality of

internal control by management.
a. Quality monitoring activities
b. Monitoring activities
c. Oversight activities
d. Management activities

78. The essence of an effectively controlled organization lies in the

a. Effectiveness of its independent auditor
b. Effectiveness of its internal auditor
c. Attitude of its employees
d. Attitude of its management

79. The initial presumption in the audit of a public company is that

control risk is
a. Low
b. Moderate
c. High
d. Low or moderate, but not high

80. Two key concepts that underlie management’s design and implementation
of internal control are
a. Costs and materiality
b. Absolute assurance and costs
c. Inherent limitation and reasonable assurance
d. Collusion and materiality

81. The preliminary judgment about materiality is the ____ amount by which
the auditor believes the statements could be misstated and still not
affect the decisions of reasonable users.
a. Minimum
b. Maximum
c. Mean average
d. Median average

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 82. Auditor’s are responsible for determining whether financial statements
are materially misstated, so upon discovering a material misstatement
they must bring it to the attention of
a. Regulators
b. The audit firm’s managing partner
c. No one in particular
d. The client’s management

83. Tolerable misstatement as set by the auditor

a. Decreases acceptable audit risk
b. Increases inherent risk and control risk
c. Affects planned detection risk
d. Does not affect any of the four risks.

84. The risk of material misstatement refers to

a. Control risk and acceptable audit risk
b. Inherent risk
c. The combination of inherent risk and control risk
d. Inherent risk and audit risk

85. When setting a preliminary judgment about materiality

a. More evidence is required for a low amount than for a high amount
b. Less evidence is required for a low amount than for a high amount
c. The same amount of evidence is required for either low or high
amounts
d. There is no relationship between it and the amount of evidence
needed

86. Inherent risk is often low for an account such as

a. Inventory
b. Marketable securities
c. Cash
d. Accounts receivable

87. If planned detection risk is reduced, the mount of evidence the

auditor accumulates will
a. Increase
b. Decrease
c. Remain unchanged
d. Be indeterminate

88. When a different extent of evidence is needed for the various cycles,
the difference is caused by
a. Errors in the client’s accounting system
b. A client’s need to achieve an unqualified opinion
c. An auditor’s need to follow auditing standards
d. An auditor’s expectations of errors and assessment of internal
control

89. Auditors frequently refer to the terms audit assurance, overall

assurance and level of assurance to refer to ______.
a. Detection risk
b. Audit report risk
c. Acceptable audit risk
d. Inherent risk

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 90. Regardless of how the preliminary judgment about materiality is
allocated, the auditor must be confident that total combined
misstatements in all accounts are
a. Less than the preliminary judgment
b. Equal to the preliminary judgment
c. More than the preliminary judgment
d. Less than or equal to the preliminary judgment

91. Inherent risk is ______ related to detection risk and _______ related
to the amount of audit evidence.
a. Directly, inversely
b. Directly, directly
c. Inversely, inversely
d. Inversely, directly

92. Auditors generally allocate the preliminary judgment about materiality

to the
a. Balance sheet only
b. Income statement only
c. Income statement and balance sheet
d. Statement of cash flows

93. What is the primary means of dealing with risk in planning decisions
related to audit evidence?
a. Selection of more effective tests of details of balances
b. Application of the audit risk model
c. Establishing a lower preliminary judgment about materiality
d. Allocating materiality judgment to segments

94. In an audit area that has a lower inherent risk, it would be prudent
to
a. Increase th3e amount of audit evidence gathered
b. Assign more experienced staff to that area
c. Increase the tolerable misstatement for that area
d. Expand planning procedures

95. After the preliminary judgment about materiality has been established,
auditor’s may
a. Not adjust it
b. Adjust it downward only
c. Adjust it upward only
d. Adjust it either downward or upward

96. Which of the following is least likely to be appropriate as the basis

for determining the preliminary judgment about materiality in the audit
of financial statements?
a. Net income before taxes
b. Current assets
c. Owner’s equity
d. Inventory

97. Amounts involving fraud are usually considered ______ important than
unintentional errors of equal amounts.
a. Less
b. No less
c. No more
d. More

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 98. Which of the following statements is not correct?
a. Materiality is a relative rather than an absolute concept.
b. The most important base used as the criterion for deciding
materiality is total assets.
c. Qualitative factors as well as quantitative factors affect
materiality.
d. Given equal amounts, frauds are usually considered more important
than errors.

99. Which of the following is not a primary consideration when assessing

inherent risk?
a. Nature of client’s business
b. Existence of related parties
c. Frequency and intensity of management’s review of accounting
transactions and records
d. Susceptibility to defalcation

100. W hen allocating materiality, mort practitioners choose to allocate to

a. The income statement accounts because they are more important
b. The balance sheet accounts because there are fewer
c. Both balance sheet and income statement accounts because there could
be errors on either
d. All of the financial statements because there could be errors on
other statements besides the income statement and balance sheet

101. When are the auditors likely to encounter judgment problems in the use
of analytical procedures?
a. Whenever the auditor places reliance on management’s explanations
for unusual fluctuations in account balances without first
developing independent expectations
b. Whenever the auditor allows unaudited balances to unduly influence
his/her expectations of current balances
c. Whenever the auditor fails to consider the pattern reflected by
several unusual fluctuations when trying to explain what caused them
d. The auditor is likely to encounter judgment problems in each of the
above instances

102. Which of the following management assertions is not associated with

transaction-related audit objectives?
a. Occurrence
b. Classification and understandability
c. Accuracy
d. Completeness

103. The occurrence assertion applies to ______?

a. Presentation and disclosure matters
b. Classes of transactions and events during the period
c. Account balances
d. Proper classification of income statement accounts

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 104. Which of the following is not correct?
a. Analytical procedures used in planning phase of the audit are
primarily directed at understanding the client’s business and
directing the auditor’s attention to areas that may contain possible
misstatements.
b. Analytical procedures used in the completion phase are primarily
aimed at assessing going concern and secondarily aimed at directing
the auditor’s attention to areas that may contain possible
misstatements.
c. Analytical procedures must be used in the planning and completion
phases of the audit and are optional in the testing phase.
d. Analytical procedures used in the completion phase are primarily
aimed at directing the auditor’s attention to areas that may contain
possible misstatements and secondarily aimed at assessing going
concern.

105. In which stage(s) of an audit are analytical procedures not performed?

a. In the planning stage
b. In the test of controls stage
c. In the completion stage
d. In conjunction with tests of transactions and tests of details of
balances

106. A system walkthrough is used to

a. Test balances
b. Test details of transactions
c. Gain an understanding of internal controls
d. Determine acceptance of the client

107. The most important consideration in developing the audit program is

the
a. Client’s size
b. Clint’s industry
c. Audit firm’s available personnel
d. The audit risk model used in its planning form

108. Test of controls are directed toward the control’s

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

109. A procedure designed to test for monetary misstatements directly

affecting the correctness of financial statement balances is a
a. Test of controls
b. Substantive test
c. Test of attributes
d. Monetary-unit sampling test

110. Which of the following is not appropriate for purposes of testing the
effectiveness of controls?
a. Make inquiries of client personnel
b. Evaluate Prior experience with the client
c. Observe control-related activities
d. Reperform client procedures
e.

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 111. Which of the following is not a direct result of performing analytical
procedures?
a. Identify areas of potential misstatements
b. Reduce detailed audit tests
c. Understand the client’s business
d. Identify specific error in the accounts

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

a. Balance sheet accounts
b. Revenue accounts
c. Cash flow statement accounts
d. Expense accounts

113. Analytical procedures are define in the auditing standards as

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

114. Tests of transactions are used to determine whether ______ have been
satisfied.
a. Compliance test requirements
b. Balance coverage requirements
c. Transactions-related audit objectives
d. Existence assertions

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

116. Which of the following audit tests is usually the most costly to
perform?
a. Analytical procedures
b. Tests of controls
c. Tests of balances
d. Substantive tests of transactions

117. Analytical procedures must be performed in

a. The planning and test of control stages
b. Conjunction with tests of transactions and tests of details of
balances
c. The planning and completion stages
d. The planning, test of control and completion stages

118. Which of the following tests commonly occur together?

a. Substantive tests of transactions and tests of controls.
b. Substantive tests of transactions and obtaining an understanding of
internal controls.
c. Analytical procedures and tests of controls.
d. Tests of controls and tests of details of balances.

119. Which of the following relationships between types of test and audit
evidence is not correct?

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 a. Tests of details and documentation.
b. Tests of controls and observation.
c. Tests of details and observation.
d. Substantive tests of transactions and reperformance

120. An increased extent of tests of controls is most likely to occur when

a. It is a first-year audit
b. The auditor is doing a “fraud audit”
c. Controls are effective and preliminary control risk assessment is
low
d. Controls are ineffective and preliminary control risk assessment is
high

121. Many auditors perform extensive analytical procedures on audits

because
a. They are require by GAAS
b. They pinpoint errors in accounts
c. They indicate areas of potential risk and misstatement
d. They are required for tests of controls

122. Test of details of balances focus on

a. Beginning of the year balances
b. End of the year balances
c. Transaction details for the period under audit
d. Accounting cycles

123. If the results of the tests of controls, substantive tests of

transactions and analytical procedures are not consistent with the
predictions, test of details of balances will be
a. Eliminated
b. Increased
c. Unaffected
d. Changed

124. When controls are deemed ineffective and assessed control risk is at
the maximum for a private company, there will be ____ emphasis placed
on tests of controls.
a. No
b. Relatively little
c. Moderate
d. Heavy

125. Test of controls address each of the following questions except

a. How were the procedures performed?
b. Why were there procedures preformed?
c. Were the necessary procedures performed?
d. Who performed the procedures?

126. Which of the following audit tests would be regarded as a test of

controls?
a. Comparison of the inventory pricing to vendors’ invoices
b. Tests of the signatures on canceled checks to board of directors’
authorizations
c. Tests of additions to property, plant and equipment by physical
inspections
d. Review of the specific items making up the balance in a given
general ledger account

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 127. Which of the following tests from the basis for an auditor’s report on
internal control over financial reporting?
a. Analytical procedures
b. Test of transactions
c. Test of controls
d. Test of details of balances

128. After finishing the review phase of the study and evaluation of
internal control in an audit, the auditor should perform tests of
controls on
a. Those controls that the auditor wants and plans to rely upon
b. Those controls in which material weaknesses were identified
c. Those controls that have a material effect upon the financial
statement balances
d. A random sample of the controls that were reviewed.

129. At view point in the audit are tests of details most appropriately
designed?
a. Engagement evaluation
b. Planning
c. Testing
d. Communication of material weaknesses

130. The reliance placed on substantive tests in relation to the reliance

placed on internal control varies in a relationship that is ordinarily:
a. Parallel
b. Inverse
c. Direct
d. Equal

131. Which of the following is ordinarily designed to detect possible

material dollar errors on the financial statements?
a. Tests of controls
b. Analytical review procedures
c. Computer controls
d. None of the above

132. What type of test is used to obtain more types of evidence than any
other?
a. Substantive tests of transactions
b. Tests of controls
c. Analytical procedures
d. Tests of details

133. Only _______ involve physical examination and confirmation.

a. tests of controls
b. tests of transactions
c. tests of balances
d. analytical procedures

134. Documentation is used in every type of test except ________.

a. tests of controls
b. tests of transactions
c. analytical procedures
d. tests of details

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 135. 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. The auditor’s judgment
c. Generally accepted auditing standards
d. The auditor’s working papers

136. Which of the following is not a valid basis for omitting an audit
test?
a. The difficulty and expense involved in testing a particular item.
b. The relative risk involved.
c. The degree of reliance on the relevant internal controls
d. The relationship between the cost of obtaining evidence and its
usefulness.

137. An exception in a test of control indicates the _______ of

misstatements
a. The amount
b. The likelihood
c. The amount, likelihood, and classification
d. The amount and the classification

138. Which of the following types of evidence is not available when using
substantive tests of transactions?
a. Documentation
b. Confirmation
c. Inquiries of the client
d. Reperformance

139. For efficiency, test of controls are frequently done at the same time
as
a. Analytical procedures
b. Compliance tests
c. Tests of transactions
d. Tests of details of balances

140. Collectively, procedures performed to obtain an understanding of the

entity and its environment, including internal controls, represent the
auditor’s
a. Audit strategy
b. Test of controls
c. Risk assessment procedures
d. Test of transactions

141. In the application of statistical techniques to the estimation of

amounts, a preliminary sample is usually taken primarily for the
purpose of estimating the population
a. Mode
b. Range
c. Median
d. Variability

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 142. Why do auditors find MUS appealing?
a. MUS increases the likelihood of selecting a balance of high and low
amount items
b. MUS is easy to use in the audit environment
c. MUS provides a non statistical rather than a statistical conclusion
d. When misstatements are found, MUS rarely produces bounds in excess
of materiality

143. The major reason that the difference and ratio estimation methods
would be expected to produce audit efficiency is that the
a. Beta risk may be completely ignored
b. Variability of the populations of differences or ratios is less than
that of the populations of book values or audited values
c. Number of members of the populations of differences or ratios is
smaller than the number of members of the population of book values
d. Calculations required in using differences or ratio estimation are
less arduous and fewer than those required when using direct
estimation

144. Stratified sampling is applicable to difference, mean-per-unit and

ratio estimation, but it is most commonly used with
a. Ratio estimation
b. Discovery sampling
c. Difference estimation
d. Mean-per-unit estimation

145. Which of the following is not a disadvantage of monetary-unit

sampling?
a. It may be difficult to select samples from large population without
computer assistance.
b. The total misstatement bounds resulting when misstatements are found
may be too low to be useful to the auditor.
c. The total misstatement bounds resulting when misstatements are found
may be too high to be useful to the auditor.
d. Each of the above is a disadvantage.

146. While acceptable risk of incorrect acceptance is always important, the

risk of incorrect rejection is important when there is a _____ cost to
increase the sample size.
a. High
b. Low
c. Moderate
d. Marginal

147. If the auditor believes that there will be more than just a few
exceptions discovered and desires an accurate estimation of the amount
of the exceptions, he or she will use
a. Attribute sampling
b. Monetary-unit sampling
c. Block sampling
d. Variables sampling

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 148. The statistical methods used to evaluate monetary-unit samples
a. Neither exclude nor include units twice
b. Permit the inclusion of a unit in the sample more than once
c. Do not permit a unit to be included in the sample more than once
d. Ignore the possibility that a unit mau be included in a sample more
than once

149. Acceptable risk of incorrect rejection affects auditors’ action only

when they conclude that a population is
a. Fairly stated
b. Acceptable
c. Not fairly stated
d. Acceptable after certain adjustments

150. In MUS, the values of the estimated likely maximum misstatements are
referred to as the
a. Point estimates
b. Precision intervals
c. Confidence intervals
d. Misstatement bounds

151. PPS sample can be obtained in an efficient manner using all but which
of the following?
a. Hand selection by the auditor
b. Computer software
c. Random number tables
d. Systematic sampling techniques

152. The confidence limits in variable v=sampling are similar to the

monetary-unit sampling’s
a. Point estimate
b. Misstatement bounds
c. Standard deviation
d. Standard error of the mean

153. Which balance-related audit objective cannot be assessed using

monetary unit sampling?
a. Accuracy
b. Completeness
c. Existence
d. All of the above can be assessed using MUS

154. The acceptable risk of incorrect acceptance is reduced, the required

sample size ________.
a. Increases
b. Decreases
c. Is unaffected
d. Increases or decreases

155. Which of the following does not have to be considered in determining

the initial sample size of a test of details?
a. Tolerable misstatement
b. Acceptable risk of incorrect rejection
c. Estimate of misstatements in the population
d. Acceptable audit risk

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 156. The relationship between required sample size and the acceptable risk
of incorrect acceptance is
a. Inverse
b. Direct
c. Proportional
d. Indeterminate

157. Sampling used for tests of details provides results in terms of

a. Exception rates
b. Percentages
c. Peso
d. Expectation rates

158. Tolerable misstatements for overstatements and understatements

a. May be different amounts
b. Must be different amounts
c. Must be set at the same amount
d. Must be expressed in percentages

159. MUS is not particularly effective at detecting

a. Overstatements
b. Understatements
c. Errors in current assets
d. Errors in noncurrent assets

160. Which of the following is not a term relevant sampling for tests of
details?
a. Acceptable risk of incorrect rejection
b. Analysis of misstatements
c. Estimate misstatements in the population
d. Define the exception conditions

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