Name: __________________ Date: __________ Score: ________

1. It serves as a set of instructions to assistants involved in the audit and as a means to control the
proper execution of the work.
a. Audit program c. Engagement letter
b. Overall audit plan d. Internal control questionnaire

2. Refers to the audit procedures deemed necessary in the circumstances to achieve the objective of
the audit.
a. Scope of an audit c. Audit program
b. Scope of a review d. Scope limitation

3. Which of the following is the best criterion for evaluating a staff auditor’s work performance?
a. Quantity of deficiency findings.
b. Ability to get along with clients.
c. Working papers appearance.
d. Fulfillment of requirements set forth in the audit programs.

4. 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

5. 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.

6. 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.

7. 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.

8. 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.

9. 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.

10. 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.

11. 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.

12. 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.

13. 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

14. 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.

15. 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.

16. 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.

17. 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.

18. The primary objective of analytical procedures used in the final review stage of an audit is to
a. Obtain evidence from details tested to corroborate particular assertions.
b. Identify areas that represent specific risks relevant to the audit.
c. Assist the auditor in assessing the validity of the conclusions reached.
d. Satisfy doubts when questions arise about a client's ability to continue in existence.

19. An auditor is concerned with completing various phases of the examination after the balance-sheet date.
This "subsequent period" extends to the date of the
a. Auditor's report.
b. Final review of the audit working papers.
c. Public issuance of the financial statements
d. Delivery of the auditor's report to the client.

20. Which of the following procedures would most likely be performed in connection with a review of
subsequent events?
a. Test of shipping cut-offs.
b. Review of cut-of bank statements.
c. Vouching of subsequent payments of accounts payable
d. Reading of minutes of meetings of stockholders and board of directors up to the date of the audit
report.

21. Which of the following material events occurring subsequent to the balance sheet date would require
an adjustment to the financial statements before they are issued?
a. Sale of long-term debt or capital stock.
b. Loss of a plant as a result of a flood.
c. Major purchase of a business which is expected to double sales volume.
d. Settlement of litigation, in excess of the recorded liability.

22. The auditor's primary means of obtaining corroboration of management's information concerning
litigation is a
 a. Letter of audit inquiry to the client's lawyer.
b. Letter of corroboration from the auditor's lawyer upon review of the legal documentation.
c. Confirmation of claims and assessments from the other parties to the litigation.
d. Confirmation of claims and assessments from an officer of the court presiding over the litigation.

23. Which of the following conditions or events most likely would cause an auditor to have substantial
doubt about an entity’s ability to continue as a going concern?
a. Cash flows from operating activities are negative.
b. Research and development projects are postponed.
c. Significant related party transactions are pervasive.
d. Stock dividends replace annual cash dividends.

24. Cooper, CPA, believes there is substantial doubt about the ability of Zero Corp. to continue as a going
concern for a reasonable period of time. In evaluating Zero’s plans for dealing with the adverse
effects of future conditions and events, Cooper most likely would consider, as a mitigating factor,
Zero’s plans to
a. Discuss with lenders the terms of all debt and loan agreements.
b. Strengthen internal controls over cash disbursements.
c. Purchase production facilities currently being leased from a related party.
d. Postpone expenditures for research and development projects.

25. When an auditor concludes there is a substantial doubt a continuing audit client’s ability to continue
as a going concern for a reasonable period of time, the auditor’s responsibility is to
a. Issue a qualified or adverse opinion, depending upon materiality, due to the possible effects on
the financial statements.
b. Consider the adequacy of disclosure about the client’s possible inability to continue as a going
concern.
c. Report to the client’s audit committee that management’s accounting estimates may need to be
adjusted.
d. Reissue the prior year’s auditor’s report and add an explanatory paragraph that specifically refers
to “substantial doubt” and “going concern”.

26. It is an accepted practice for external auditors to request letter of representation from their clients. A
principal purpose of a letter of representation form the client is to
a. Discharge the auditor from legal liability of his examination.
b. Confirm in writing management’s approval of limitations on the scope of audit.
c. Serve as an introduction to company’s personnel and authorization to examine the records.
d. Remind management for its primary responsibility for financial statements.

27. Items for inclusion in management representation letter are normally:

a. Determined by management.
b. Covering all the accounts in the financial statements
c. Determined by auditors based on the circumstances of the engagement.
d. Based on ASPC’s standard list.

28. Which of the following events occurring after the issuance of an auditor’s report most likely would
cause the auditor to make further inquiries about the previously issued financial statements?
a. An uninsured natural disaster occurs that may affect the entity’s ability to continue as a going
concern.
b. A contingency is resolved that had been disclosed in the audited financial statements.
c. New information is discovered concerning undisclosed lease transactions of the audited period.
d. A subsidiary is sold that accounts for 25% of the entity’s consolidated net income.

29. A common difficulty in auditing a computerized accounting system is:

a. Data can be erased from the computer with no visible evidence.
b. Because of the lack of an audit trail, computer systems have weaker controls and more
substantive testing is required.
c. Because of the uniform nature of transaction processing, computer systems have strong controls
and less substantive testing is required.
d. The large dissemination of entry points into the computer system leads to weak overall reliance
on information generated by a computer.

30. Which of the following would not be an appropriate procedure for testing the general control activities
of an information system?
a. Inquiries of client personnel.
b. Inspecting computer logs.
c. Testing for the serial sequence of source documents.
d. Examination of the organizational chart to determine the segregation of duties.
31. If an auditor is using test data in a client's computer system to test the integrity of the systems output,
which of the following types of controls is the auditor testing?
a. General controls. c. User controls.
b. Quantitative test controls. d. Application controls.

32. When erroneous data are detected by computer program controls, such data may be excluded from
processing and printed on an error report. This error report should be reviewed and followed up by the
a. Computer operator. c. EDP control group.
b. Systems analyst. d. Computer programmer.

33. The computer is sometimes blamed for making errors. In reality, computers make very few mechanical
errors. The most likely source of errors in a fully operational computer-based system is due to
a. Systems analysis. c. Input.
b. Programming. d. Processing.

34. The characteristics that distinguish computer processing from manual processing include the
following:
(1) Computer processing uniformly subjects like transactions to the same instructions.
(2) Computer systems always ensure that complete transaction trails useful for audit purposes are
preserved for indefinite period
(3) Computer processing virtually eliminates the occurrence of clerical errors normally associated
with manual processing.
(4) Control procedures as to segregation of functions may no longer be necessary in a computer
environment.
a. All of the above statements are true. c. Only statements (2) and (4) are true.
b. Only statements (1) and (3) are true. d. All of the above statements are false.

35. The increased use of database processing systems makes managing data and information a major
information service function. Because the databases of an organization are used for many different
applications, they are coordinated and controlled by a database administrator. The functions of a
database administrator are
a. Data input preparation, database design, and database operations.
b. Database design, database operation, and database security.
c. Database design, database operation, and equipment operations.
d. Database design, software support, and database security.

36. When a new application is being created for widespread use in a large organization, the principal
liaison between the Information Systems (IS) department and the rest of an organization is normally
a(n)
a. End user. c. Maintenance programmer.
b. Application programmer. d. Systems analyst.

37. Which of the following procedures would enhance the control structure of a computer operations
department?
I. Periodic rotation of operators.
II. Mandatory vacations.
III. Controlled access to the facility.
IV. Segregation of personnel who are responsible for controlling input and output.
a. I, II. b. III, IV. c. I, II, III. d. I, II, III, IV.

38. The most critical aspect of the separation of duties within a mainframe information systems
environment is between
a. Programmers and project leaders. c. Programmers and users.
b. Programmers and systems analysts. d. Programmers and computer operators.

39. Which of the following best describes the primary reason that organizations develop contingency
plans for their EDP operations?
a. To ensure that they will be able to process vital transactions in the event of any type of disaster.
b. To ensure the safety of important records.
c. To help hold down the cost of insurance.
d. To plan for sources of capital for recovery from any type of disaster.

40. A critical aspect of a disaster recovery plan is to be able to regain operational capability as soon as
possible. In order to accomplish this, an organization can have an arrangement with its computer
hardware vendor to have a fully operational facility available that is configured to the user's specific
needs. This is best known as a(n)
a. Uninterruptible power system. c. Cold site.
 b. Parallel system. d. Hot site.

41. Which of the following is a general control that would most likely assist an entity whose systems
analyst left the entity in the middle of a major project?
a. Grandfather-father-son record retention. c. Systems documentation.
b. Input and output validation routines. d. Check digit verification.

42. Program documentation is a control designed primarily to ensure that

a. Programmers have access to the tape library or information on disk files.
b. Programs do not make mathematical errors.
c. Programs are kept up to date and perform as intended.
d. Data have been entered and processed.

43. A company's labor distribution report requires extensive corrections each month because of labor
hours charged to inactive jobs. Which of the following data processing input controls appears to be
missing?
a. Completeness test. c. Limit test.
b. Validity test. d. Control total.

44. Bank tellers and their supervisors sign on to an online deposit system with their employee numbers,
which are readily available to all tellers. The bank wants to prevent teller access to certain approval
functions, such as withdrawals over a specified dollar limit. The best control for implementing this
restriction would be
a. Tagging. b. Passwords. c. Callback. d. Logs.

45. Which of the following tasks could not be performed when using a generalized audit software package?
a. Selecting inventory items for observation.
b. Physical count of inventories.
c. Comparison of inventory test counts with perpetual records.
d. Summarizing inventory turnover statistics for obsolescence analysis.

46. Parallel simulation is an audit technique employed to verify processing logic by making use of audit
test programs. These audit test programs “simulate” the processing logic of an application program
or programs under review. Which statement indicates the use of parallel simulation audit technique?
a. Live transactions are processed using live programs.
b. Live transactions are processed using test master file.
c. Test transactions are processed using test programs.
d. Live transactions are processed using test programs.

47. Which of the following computer-assisted auditing techniques allows fictitious and real transactions
to be processed together without client operating personnel being aware of the testing process?
a. Parallel simulation c. Test data approach
b. Integrated test facility approach d. Exception report tests

48. Which of the following statement is not true about test data?
a. Test data should consist only of conditions that interest the auditor.
b. Only one transaction of each type need be tested.
c. Test data must consist of all possible valid and invalid conditions.
d. Test data are processed by the client’s software under the auditor’s control.

49. Which of the following is an incorrect statement regarding testing strategies related to auditing
through the computer?
a. The test data approach involves processing the client’s data on a test basis to determine the
integrity of the system.
b. The test data approach involves processing the auditor’s test data on the client’s computer
system to determine whether computer-performed controls are working properly.
c. Test data should include all relevant data conditions that the auditor is interested in testing.
d. When the auditor uses the embedded audit module approach, an audit module is inserted in the
client’s system to capture transactions with certain characteristics.

50. Auditing by testing the input and output of a computer system--i.e., auditing "around" the computer--
instead of the computer software itself will
a. Not detect program errors that do not appear in the output sampled.
b. Detect all program errors, regardless of the nature of the output.
c. Provide the auditor with the same type of evidence.
d. Not provide the auditor with confidence in the results of the auditing procedures.

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