[AT-Supernova] 100

1. An auditor compares 2010 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. An increase in property tax rates has not been recognized in the client's accrual.

B. The 2010 provision for uncollectible accounts is inadequate, because of worsening economic conditions.

C. Fourth quarter payroll taxes were not paid.

D. The client changed its capitalization policy for small tools in 2010.

D. The client changed its capitalization policy for small tools in 2010.

2. An abnormal fluctuation in gross profit that might suggest the need for extended audit procedures for sales and inventories would most likely be identified in the planning phase of the audit by the use of

A. tests of transactions and balances.

B. a preliminary review of internal control.

C. specialized audit programs.

D. analytical procedures.

D. analytical procedures.

3. 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. A technological development that could affect the entity's future - ability to continue as a going concern.

B. The discovery of information regarding a contingency that existed before the financial statements were issued.

C. The entity's sale of a subsidiary that accounts for 30% of the entity's consolidated sales.

D. The final resolution of a lawsuit which is adequately explained in a separate paragraph of the auditor's report.

B. The discovery of information regarding a contingency that existed before the financial statements were issued.

4. Which of the following statements concerning litigation, claims and assessments which were extracted from a letter from a client's lawyer is most likely to cause the auditor to request clarification?

A. "I believe that the possible liability to the company is nominal in amount."

B. "I believe that the action can be settled for less than the damages claimed."

C. "I believe that the plaintiff's case against the company is without merit."

D. "I believe that the company will be able to defend this action successfully."

B. "I believe that the action can be settled for less than the damages claimed."

5. Road, CPA, believes there is "substantial doubt about the ability of Kennon Company to continue as a going concern for a reasonable period of time. In evaluating Kennon's plan for dealing with the adverse effects of future conditions and events, Rood most likely would consider, as a mitigating factor, Kennon's plans to:

A. Make the credit terms for sales on account more lenient.

B. strengthen internal controls over cash disbursements.

C. purchase the production facilities currently being leased from a related party.

D. postpone those expenditures for research and development projects.

D. postpone those expenditures for research and development projects.

6. The auditor is most likely to discover omitted audit procedures

during:

A. preparation of the management letter.

B. follow-up procedures performed in compliance with generally accepted

auditing standards.

C. a post engagement review performed as part of the firm's quality

control inspection program.

D. the final review of the working papers.

C. a post engagement review performed as part of the firm's quality

control inspection program.

7. Internal auditors are most likely to issue a report on which of the following?

A. Annual financial statement reporting B. Internal control

C. Tax compliance

D. Quarterly financial statement reporting

B. Internal control

8. You have been selected to develop an internal auditing department for your company. Your approach would most likely be to hire:

A. internal auditors each of whom possesses all the skills required to handle all audit assignments. B

. inexperienced personnel and train them the way the company wants them trained.

C. degreed accountants since most audit work is accounting related.

D. internal auditors who collectively have the knowledge and skills needed to complete all internal audit assignments.

D. internal auditors who collectively have the knowledge and skills needed to complete all internal audit assignments.

9. In performing an operational audit, internal auditors are most likely to focus upon which of the following attributes?

A. Controls relating to the adequacy of the financial statements.

B. All controls and not just those relating to financial statements.

C. Efficiency of operations.

D. Operations of the business including efficiency, effectiveness, internal control, and others.

D. Operations of the business including efficiency, effectiveness, internal control and others.

10. An operational auditor is most likely to be concerned with whether o transaction was

A. necessary.

B. reasonable.

C. properly approved.

D. properly supported with documentation.

A. necessary.

11. An auditor who was engaged to perform an examination of the financial statements of a non-public entity has been asked by the client to refrain from performing various audit procedures and changed the nature of the engagement to a review of financial statements. The client made the request because of the significant cost of completing the examination. The auditor would most likely

A. qualify the auditor's report and refer to the scope limitation

B. view the request as an indication of possible irregularity

C. complete the examination in progress

D. grant the client request

D. grant the client request

12. The circumstance most likely to make it impossible for a practitioner to issue a review report is when the

A. criteria are only available to specified users

B. subject matter contains a departure from the criteria

C. company faces a going concern uncertainty

D. scope of the engagement has been significantly limited

D. scope of the engagement has been significantly limited

13. Accepting an engagement to examine an entity's financial projection most likely would be appropriate if the projection were to be distributed to

A. all employees who work for the entity

B. potential stockholders who request a prospectus or a registration statement C. a bank with which the entity is negotiating for a loan

D. all stockholders of record as of the report date

C. a bank with which the entity is negotiating for a loan

14. An auditor will most likely estimate the tolerable failure rate in order to:

A. determine which type of sampling approach to use

B. calculate the probable control risk

C. determine the population to be tested

D. determine the appropriate sample size

D. determine the appropriate sample size

15. The product of inherent risk and control risk is assessed as low. How would an auditor with this assessment most likely test depreciation expense?

A. As a ratio of total assets

B. As a percent of sales

C. By re-computing all depreciation figures

D. By fagging and tracing transactions through the system

A. As a ratio of total assets

16. What kind of threat to independence most likely occurs when any product or judgment of a previous assurance engagement or non-assurance engagement needs to be re-evaluated in reaching conclusions on the assurance engagement or when a member of that, assurance team was previously a director or officer of the assurance client, or was an employee in a position to exert direct and significant influence over the subject matter of the assurance engagement?

A. Self-interest threat

B. Advocacy threat

C. Self-review threat

D. Familiarity threat.

C. Self-review threat

17. Which of the following is most likely a violation of the Code of Ethics?

A. The professional accountant in public practice bills a client a fee, lower than what previously has been charged for similar services

B. The professional accountant makes a representation that specific professional services in the current or future periods will be performed for a stated fee if it is likely at the time of representation that such fee will be substantially increased

C. The professional accountant in public practice is the one who determines the appropriate billing rates of each professional staff engaged in performing services

D. The professional accountant agrees to the client's proposal for a professional fee that is dependent to the number of service hours rendered

B. The professional accountant makes a representation that specific professional services in the current or future periods will be performed for a stated fee if it is likely at the time of representation that such fee will be substantially increased

18. Which of the following circumstances would most likely cause an auditor to suspect that material fraud exists in a client's financial statements?

A. Property and equipment items are usually sold at a loss before being fully depreciated.

B. Significantly fewer responses to a positive confirmation requests are received than what is expected.

C. Monthly bank reconciliations usually include several in-transit items.

D. Clerical errors are listed on a CBIS-generated exception report.

B. Significantly fewer responses to a positive confirmation requests are received than what is expected.

19. When the auditor performs tests of control regarding the policy counting materials received from the supplies, the auditor most likely

A. inspect the receiving reports.

B. verify that cash-vouchers are accompanied by receiving reports

C. inquire with the receiving clerk of whether count of incoming deliveries is being made.

D. observe several times as the receiving section is receiving the incoming deliveries.

D. observe several times as the receiving section is receiving the incoming deliveries.

20. Which of the following accounts would most likely be reviewed by the auditor to gain reasonable assurance that additions to the equipment account are not understated?

A. Repairs and maintenance expense

B. Depreciation expense

C. Gain on disposal of equipment

D. Accounts payable

A. Repairs and maintenance expense

21. An audit of the General Lizard Company, a home appliance manufacturer company, detects material misapplication of the measurement of the lower of cost or market principle. General Lizard's executive and financial management will not change the recorded amounts or disclosures to the auditor's satisfaction. Such a situation will most likely result in which type of report?

A. Unqualified

B. Disclaimer

C. Qualified or adverse

D. Negative assurance

C. Qualified or adverse

22. The auditors of White Stained Sheets, Inc. are unable to obtain evidence regarding accounts receivable which is a material balance. Instead, the auditors are able .to satisfy themselves with other alternative procedures relating to the White Stained Sheets audit. Which report will the auditors most likely issue in this situation?

A. Qualified

B. Unqualified

C. Adverse

D. Disclaimer

B. Unqualified

23. Which one of the following subsequent events will most likely result to an adjustment to the financial statements?

A. Material change in the amount of settlement, of a lawsuit which had been estimated at year end

B. Entry into a significant-new line of products and business

C. Proceeds received-from a 'related party note payable

D. Signing of a letter-of-intent by the' client to acquire 55% of another entity for stock

A. Material change in the amount of settlement, of a lawsuit which had been estimated at year end

24. Which one of the following is a key condition indicating doubt regarding an entity's ability to continue as a going-concern?

A. Improvement in key financial ratios

B. Litigation in the normal course of business

C. The company's auditors were voted out in the most previous shareholder's meeting

D. Inability to make principal and interest payments as they become due

D. Inability to make principal and interest payments as they become due

25. A successor auditor would most likely make specific inquiries of the predecessor auditor regarding

a. Specialized accounting principles of the client's industry.

b. The competency of the client's internal audit staff

c. The uncertainty inherent in applying sampling procedures.

d. Disagreements With management as to auditing procedures.

d. Disagreements With management as to auditing procedures.

26. Which of the following factors most likely would cause an auditor not to accept a new audit engagement?

a. An inadequate understanding of the entity's internal control structure.

b. The close proximity to the end of the entity's fiscal year.

c. Concluding that the entity's management probably lacks integrity.

d. An inability to perform preliminary, analytical assessing control risk.

c. Concluding that the entity's management probably lacks integrity.

27. Which of the following procedures would an auditor most likely perform in planning a financial statement audit?

a. Inquiring of the client's legal counsel concerning pending, litigation.

b. Comparing the financial statements to anticipated-results

c. Examining computer generated exception reports to verify the effectiveness of internal controls.

d. Searching for unauthorized transactions that may aid in detecting unrecorded liabilities

b. Comparing the financial statements to anticipated-results

28. Inquiries directed towards those charged with governance may most likely

a. Relate to their activities concerning the design and effectiveness of the entity's internal control and whether management has satisfactorily responded to any findings from these activities

b. Help the auditor understand the environment in which the financial statements are prepared.

c. Relate to changes in the entity's marketing strategies, sales trends or contractual arrangements with its customers.

d. Help the auditor in evaluating the appropriateness of the selection and application of certain accounting policies

b. Help the auditor understand the environment in which the financial statements are prepared.

29. In auditing accounts payable, an auditor's procedures most likely will focus primarily on management's assertion of

a. Existence or occurrence

b. Completeness

c. Presentation and disclosure

d. Valuation or allocation

b. Completeness

30. An auditor is most likely to inspect loan' agreements under which an entity's inventories are pledged to support management's financial statement assertion of

a. Existence or occurrence

b. Presentation and disclosure

c. Completeness

d. Valuation or allocation

b. Presentation and disclosure

31. An auditor selected items for test counts while observing a client's physical inventory. The auditor then traced the test counts to the client's inventory listing. This procedure most likely obtained evidence concerning

a. Rights and obligations

b. Existence or occurrence

c. Completeness

d. Valuation

c. Completeness

32. Confirmation is most likely to be a relevant form of evidence with regard to assertions about accounts receivable when the auditor has concern about the receivables

a. Valuation

b. Classification

c. Existence

d. Completeness

c. Existence

33. The auditor most likely performs extensive tests for possible understatement of

a. Revenues

b. Assets.

c. Capital

d. Liabilities

d. Liabilities

34. Which of the following procedures would on auditor most likely perform in planning a financial statement audit?

a. Inquiring of the client's legal counsel concerning pending litigation.

b. Examining computer generated exception reports to verify the effectiveness of internal control

c. Searching for unauthorized transactions that may aid in detecting unrecorded liabilities

d. Comparing the financial statements to anticipated results.

d. Comparing the financial statements to anticipated results.

35. Which of the following characteristics would most likely heighten an auditors concern about the risk of material misstatements in an entity's financial statements?

a. the entity industry is experiencing declining customer demand

b. employees who handle cash receipts are not bonded

c. bank reconciliations usually include in- transit deposits.

d. equipment is often sold at a loss before being fully depreciated

a. the entity industry is experiencing declining customer demand

36. Management philosophy and operating style most likely would have a significant influence on an entity's control environment when:

a. the internal auditor reports directly to management

b. management is dominated by one individual

c. accurate management job descriptions delineate specific duties.

d. the audit committee actively oversees the financial reporting process

b. management is dominated by one individual

37. Assessing control risk at below he maximum level most likely would involve:

a. performing more extensive substantive test with large sample sizes that originally planned

b. reducing inherent risk for most of the assertions relevant to significant account balances

c. changing the timing of substantive test by omitting interim-date testing and performing the test year-end

d. identifying specific internal controls relevant to specific assertions

d. identifying specific internal controls relevant to specific assertions

38. Which of the following controls most likely could prevent EDP personnel from modifying programs to bypass programmed controls?

a. Periodic management review of computer utilization reports and systems documentation

b. Segregation of duties within EDP for computer programming and computer operations

c. Participation of user department personnel in designing and approving new systems

d. Physical security of EDP equipment

b. Segregation of duties within EDP for computer programming and computer operations

39. Which of the following would most likely be an advantage in using classical variables sampling rather than probability-proportional-tosize (PPS) sampling?

A. An estimate of the standard deviation of the population's recorded amounts is not required.

B. The auditor rarely needs the assistance of a computer program to design an efficient sample.

C. inclusion of zero and negative balances generally does not require special design considerations.

D. Any amount that is individually significant is automatically identified and selected.

C. inclusion of zero and negative balances generally does not require special design considerations.

40. A third party sues a public accounting firm for negligence under common law on the basis of materially false financial statements. Which of the following is the firm's defense?

A. Lack of privity

B. Lack of reliance

C. Lack of intent

D. Contributory negligence

A. Lack of privity

41. Mainframe computer systems include several advanced processing procedures. Two of the most common processing procedures are multiprocessing and multiprogramming. Which one of the following statements about these processing procedures is false?

A. Multiprogramming allows multiple programs to be executed at exactly the same time.

B. Multiprogramming switches back and forth between programs during processing.

C. Multiprocessing allows the sharing of a central memory during processing.

D. Multiprocessing allows multiple programs to be executed at exactly the same time.

A. Multiprogramming allows multiple programs to be executed at exactly the same time.

42. Which is not true of the intended user?

A. The intended user is the person or class of persons for whom the professional accountant prepares the report for a specific use or purpose.

B. The intended user(s) is (are) always limited to the addressee of the professional accountant's report.

C. The responsible party may also be the one of the intended users.

D. The intended user(s) may not be the addressee of the professional accountant's report.

B. The intended user(s) is (are) always limited to the addressee of the professional accountant's report.

43. Which of the following statements is true concerning a compliance audit?

A. Compliance audits are only performed by government auditors.

B. Risks such as inherent risk, control risk, and detection risk are not appropriate in planning and performance of a compliance audit.

C. Materiality is difficult to measure in a compliance audit.

D. A report on compliance can only include negative assurance.

C. Materiality is difficult to measure in a compliance audit.

44. Which of the following is true of the conceptual framework approach?

A. It is impossible to define every situation that creates specific threats and and specify the appropriate mitigating action.

B. A professional accountant should take qualitative but not quantitative factors into account when considering the significance of a threat.

C. A professional accountant should take quantitative but not qualitative factors into account when considering the significance of a threat.

D. All inadvertent violations of the code of Ethics, irrespective of their nature and significance, always compromise compliance with the fundamental principles

A. It is impossible to define every situation that creates specific threats and and specify the appropriate mitigating action.

45. The following statements relate to RA 9298. Which statement is true?

A. The Professional Regulation Commission has the authority to remove any member of the Board of Accountancy for negligence, incompetence, or any other just cause.

B. Insanity is not a ground for proceeding against a CPA.

C. A person shall be considered to be in the professional practice of accounting if, as an officer in a private enterprise, he makes decisions requiring professional accounting knowledge.

D. After three years, subject to certain conditions, the Board of Accountancy may order the reinstatement of a CPA whose certificate of registration has been revoked.

C. A person shall be considered to be in the professional practice of accounting if, as an officer in a private enterprise, he makes decisions requiring professional accounting knowledge.

46. Which of the following statements is true?

A. It is usually easier for the auditor to uncover irregularities than errors.

B. It is usually easier for the auditor to uncover errors than irregularities.

C. It is usually equally difficult for the auditor to uncover errors or irregularities.

D. It is usually, none of the given statements is true.

B. It is usually easier for the auditor to uncover errors than irregularities.

47. Which of the following statements is true when the CPA has been engaged to do an attestation engagement?

A. The CPA firm is engaged and paid by the client; therefore, the firm has primary responsibility to be an advocate for the client.

B. The CPA firm is engaged and paid by the client, but the primary beneficiaries of the audit are the statement users.

C. Should a situation arise where there is no convincing authoritative standard available, and there is a choice of actions, which could impact client's financial statements either positively or negatively, the CPA is free to endorse the choice which is best in the client's interest.

D. As long as CPA firms are competent, it is not required that they remain unbiased.

B. The CPA firm is engaged and paid by the client, but the primary beneficiaries of the audit are the statement users.

48. Which of the following statement(s) is (are) true?

A. Gross negligence may constitute constructive fraud.

B. Constructive fraud is also termed recklessness.

C. Fraud requires the intent to deceive.

D. All the responses are true.

D. All the responses are true.

49. Which of the following is ordinarily true of a modification of the audit report by adding an emphasis of matter paragraph?

A. The modification by adding an emphasis of matter paragraph is an "except for" qualification of opinion

B. The emphasis of matter paragraph is a "subject to qualification of opinion

C. The emphasis of matter paragraph would ordinarily refer to the fact that the auditor's opinion is not qualified

D. The emphasis of matter paragraph is presented before the opinion paragraph

C. The emphasis of matter paragraph would ordinarily refer to the fact that the auditor's opinion is not qualified

50. Which of the following-statements is not true?

A. A one-paragraph report is generally used when the auditor is not independent

B. A modification of the audit report that involves modified wordings may contain an unqualified opinion

C. An addition of another paragraph to an otherwise standard audit report always requires a modification of an unqualified opinion

D. An unqualified opinion may be issued though the audit report requires an additional explanatory paragraph

C. An addition of another paragraph to an otherwise standard audit report always requires a modification of an unqualified opinion

51. Which of the following-statements is not true?

A. A one-paragraph report is generally used when the auditor is not independent

B. A modification of the audit report that involves modified wordings may contain an unqualified opinion

C. An addition of another paragraph to an otherwise standard audit report always requires a modification of an unqualified opinion

D. An unqualified opinion may be issued though the audit report requires an additional explanatory paragraph

C. An addition of another paragraph to an otherwise standard audit report always requires a modification of an unqualified opinion

52. Which of the following is not a true statement? "In the opinion paragraph of the standard unqualified report, required to state

A. an opinion about the financial statements taken as whole

B. a conclusion about whether the company follows Philippine financial reporting standards.

C. whether the management has or has not made adequate disclosure.

D. That the financial statements are presented fairly.

C. whether the management has or has not made adequate disclosure.

53. Which of the following statements 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.

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.

54. Which of the following statement is true with regard to the relationship among audit risk, audit evidence, and materiality?

a. The lower the inherent risk and control risk, the lower the aggregated materiality threshold

b. Under conditions of high inherent and control risk, the auditor should place more emphasis on obtaining external evidence and should reduce reliance on internal evidence

c. Where inherent risk is high and control risk is low, the auditor may safely ignore inherent risk

d. Aggregated materiality thresholds should not change under conditions of changing risk levels

b. Under conditions of high inherent and control risk, the auditor should place more emphasis on obtaining external evidence and should reduce reliance on internal evidence

55. Which of the following is true?

a. Auditors are responsible for detecting all fraudulent financial reporting

b. Auditors must specifically consider fraud risk from overstating liabilities

c. Auditor must specifically consider fraud risk from management override of controls

d. All of them are true

c. Auditor must specifically consider fraud risk from management override of controls

56. With respect to the auditors planning of a year-end examination, which of the following statements is always true?

a. An engagement proposed after the fiscal year ends should not accepted.

b. An inventory count must be observed at the balance sheet date

c. The client's audit committee should not be told of the specific audit procedures that will be performed.

d. It is an acceptable practice to-carry out substantial parts of the examination at interim dates

d. It is an acceptable practice to-carry out substantial parts of the examination at interim dates

57. Which of the following is not true regarding planning in an electronic environment?

a. The definition of auditing is not changed

b. The purposes of auditing is not changed

c. The procedures used are not changed

d. Auditing standards are not changed

c. The procedures used are not changed

58. Which of the following statements is true?

a. Tests of controls are necessary if the auditor plans to use the primarily substantive approach

b. Tests of controls are necessary if the auditor plans to assess the level of control risk at maximum

c. The auditor can simultaneously obtain an understanding of internal control and perform tests of controls.

d. After performing tests of controls, the auditor will always assess control risk at maximum.

c. The auditor can simultaneously obtain an understanding of internal control and perform tests of controls.

59. Which of the following statements is true? If control risk is assessed of the maximum, the

a. nature of related substantive tests should be changed from more to less effective

b. nature of related substantive tests should be changed from less to more effective.

c. timing of related substantive tests should be changed from year-end to an interim date.

b. nature of related substantive tests should be changed from less to more effective.

60. When testing a computerized accounting system, which of the following is not true of the test data approach?

A. The test data need consist pf only those valid and invalid conditions in which the auditor is interested

B. Only one transaction of each type need be tested

C. Test data are processed by the client's computer programs under the auditor's control

D. The test data must consist of all possible valid and invalid conditions

D. The test data must consist of all possible valid and invalid conditions

61. When an auditor tests a computerized accounting system, which of the following is true of the test data approach?

A. Test date must consist of all possible valid and invalid conditions B. The program tested is different from the program used throughout the year by the client

C. Several transactions of each type must be tested

D. Test data are process by the client's computer programs under the auditor's control

D. Test data are process by the client's computer programs under the auditor's control

62. Which of the following statements is not true regarding the competence of audit evidence?

A. Relevance is enhanced by an effective information system.

B. To be competent, evidence must be both valid and relevant.

C. Validity is related to the quality of the client's information system.

D. Relevance must always relate to audit objectives.

A. Relevance is enhanced by an effective information system.

63. Which of the following statement relating to the competence of evidential matter is always true?

A. Evidential matter gathered by an auditor from outside an enterprise is reliable.

B. Accounting data developed under satisfactory conditions of internal control are more relevant than data developed under unsatisfactory conditions.

C. Oral representations made by managements are not valid

D. Evidence gathered by auditors must be both valid and relevant to be considered competent.

D. Evidence gathered by auditors must be both valid and relevant to be considered competent.

64. Which of the following statements is not true? "The evidence gathering technique of observation

A. Is useful in most parts of the audit."

B. Is rarely sufficient by itself."

C. Is limited to what the auditor sees."

D. Requires the gathering of corroborative evidence."

C. Is limited to what the auditor sees."

65. Which of the following statements is true?

A. The auditor's objectives follow and are closely related to management assertions

B. Management's assertions follow and are closely related to the auditor's objectives

C. The auditor's primary responsibility is to find and disclose fraudulent management assertions

D. Assertions about presentation and disclosure deal with whether the accounts have been included in the financial statements at appropriate amounts

A. The auditor's objectives follow and are closely related to management assertions

66. After the general objectives are understood, specific objectives for each account balance on the financial statements can be developed. Which of the following statements is true?

A. There should be at least one specific objective for each relevant general objective

B. There will be only one specific objective for each relevant general objective

C. There will be many specific objectives developed for each relevant objective

D. There must be one specific objective for each general objective

A. There should be at least one specific objective for each relevant general objective

67. With respect to the auditor's planning of a year-end examination, which of the following statements is always true?

A. An engagement should not be accepted after the fiscal year ends

B. An inventory count must be observed at the balance sheet date

C. The client's audit committee should not be told of the specific audit procedures that will be performed

D. It is an acceptable practice to carry out substantial parts of the examination at interim dates

D. It is an acceptable practice to carry out substantial parts of the examination at interim dates

68. Which one of the following statements is true?

A. Evidence must pertain to the objective that the auditor is testing before it can be persuasive

B. Relevance can be considered only in terms of specific audit objectives

C. Evidence may be relevant to one objective but not to other objective

D. All the responses are true

D. All the responses are true

69. Which of the following statements is not true?

A. A large sample of highly competent evidence is not persuasive unless it is relevant to the objective being tested

B. A large sample of evidence that is neither competent nor timely is not persuasive

C. A small sample of only one or two pieces of relevant competent, and timely evidence lacks persuasiveness

D. The persuasiveness of evidence can be evaluated after considering its competence and its sufficiency

D. The persuasiveness of evidence can be evaluated after considering its competence and its sufficiency

70. Observation, though considered a reliable audit procedure, has limited usefulness. However, it is used in a number of different audit situations. Which of the following statements is true regarding observation as an audit technique

A. It is the most effective audit methodology to use in filling out internal control questionnaires

B. It is the most persuasive technique to learn how transactions are really processed during the period under audit

C. It is rarely sufficient to satisfy any audit assertion other than existence

D. It is the most persuasive audit technique for determining if fraud has really occurred

C. It is rarely sufficient to satisfy any audit assertion other than existence

71. Which of the following statements is not true? "The evidence gathering technique of inquiry

A. Cannot be regarded as conclusive."

B. Requires the gathering of corroborative evidence."

C. Is the auditor's principal method of evaluating the client's internal control structure."

D. Does not provide evidence from an independent source."

C. Is the auditor's principal method of evaluating the client's internal control structure."

72. Which of the following statements concerning the sample size is true?

A. An increase in the tolerable occurrence rate, other factors remaining unchanged, increases the sample size.

B. The higher the expected occurrence rate, other factors remaining unchanged, the larger will be the sample size.

C. The more critical the attribute being tested, the higher will be the tolerable occurrence rate set by the auditor, and the larger will be the sample size.

D. The lower the acceptable risk of underassessment of control risk, the smaller will be the sample size be.

B. The higher the expected occurrence rate, other factors remaining unchanged, the larger will be the sample size.

73. Which of the following statements regarding statistical sampling in auditing is true?

A. In as much as audits are test-based, generally accepted auditing standards require the use of statistical sampling methods whenever the auditor decided to examine only a part of the population.

B. Although statistical sampling may be applied to test controls, it is required for substantive testing purposes.

C. Sampling methods are used by auditors in both testing of controls and substantive testing.

D. Statistical sampling methods are more appropriate for testing of controls when the auditor elects to reprocess transactions, than when controls are tested by means of document examination.

C. Sampling methods are used by auditors in both testing of controls and substantive testing.

74. Which of the following statement is true?

A. The audit procedures will vary as a result of using either statistical or non-statistical sampling.

B. The audit procedures will be the same for either statistical or non statistical sampling, but they must be performed differently for each. C. Statistical sampling requires quantitative audit procedures whereas non-statistical sampling requires judgmental audit procedures.

D. The same audit procedures are performed in the same manner for either statistical or non-statistical sampling.

D. The same audit procedures are performed in the same manner for either statistical or non-statistical sampling.

75. Which of the following statements is true about non-statistical sampling, in tests of controls?

A. Non-statistical sampling plans provide a quantitative measure of sampling risk.

B. The auditor's judgment in non-statistical sampling is guided by classical statistical sampling concepts.

C. The calculated non-statistical sample should never be altered by the auditor.

D. The auditor considers the same parameters when determining a non statistical sample size as when determining a statistical sample size

D. The auditor considers the same parameters when determining a non statistical sample size as when determining a statistical sample size

76. An auditor is testing credit authorization procedures by examining sales invoices for credit approval by the credit department. The procedures will be considered to be working adequately if 96% of all sales invoices either indicate approval or are cash sales. The auditor selects a random sample of 100 invoices. In this situation, which of the following outcomes illustrates underassessment?

A. The auditor finds five deviations and concludes that procedures work inadequately. The actual population deviation rate is 2%.

B. The auditor finds no deviations and concludes that, procedures work adequately. The true population deviation rate is 5%.

C. The auditor finds no deviations and concludes that the procedures work adequately. The true population deviation rate is 2%.

D. The auditor finds five deviations and concludes that procedures work inadequately. The true population deviation rate is 6%.

B. The auditor finds no deviations and concludes that, procedures work adequately. The true population deviation rate is 5%.

77. At times a sample may indicate that the auditor's assessed level of control risk for a given control is reasonable when, in fact, the true

compliance rate does not justify the assessed level. This situation illustrates the risk of

A. assessing control risk too low

B. incorrect precision

C. assessing control risk too high

D. incorrect rejection

A. assessing control risk too low

78. As a result of tests of controls, an auditor under assessed control risk and decreased substantive testing. This underassessment occurred because the true occurrence rate in the population was

A. Less than the risk of underassessment in the auditor's sample.

B. Less than the occurrence rate in the auditor's sample.

C. More than the risk of underassessment in the auditor's sample.

D. More than the occurrence rate in the auditor's sample.

D. More than the occurrence rate in the auditor's sample.

79. For variables sampling purposes, changes in certain parameters affect sample size positively while changes in others have a negative effect. In this regard, which of the following statements is true?

A. An increase in beta risk reduces sample size.

B. Population size affects sample size inversely, i.e., as population size increases, sample size decreases.

C. An increase in alpha risk, increases sample size.

D. As materiality (M) increases, sample size increases.

A. An increase in beta risk reduces sample size.

80. Although most substantive testing is performed during the final audit, some substantive tests may be done during the interim period. Which of the following statements concerning the timing of substantive tests is true?

A. When internal control is weak, extensive substantive testing should be performed during the interim audit.

B. Substantive testing should be performed during the interim audit only under conditions of excellent internal control.

C. As a general rule, the auditor performs substantive tests of balances as of the balance sheet date and tests of transactions during the interim as well as the year-end audit.

D. If internal control is weak, the auditor should confirm accounts receivable as of a point in time at least one month prior to the client's fiscal year-end.

C. As a general rule, the auditor performs substantive tests of balances as of the balance sheet date and tests of transactions during the interim as well as the year-end audit.

81. Which of the following is true about the audit procedure of confirming accounts payable?

A. Confirmation of payables is most appropriate when the auditor expects understatement errors.

B. It is not productive to mail second requests.

C. The auditor is not required by current professional pronouncements to justify his or her opinion on financial statements when payables are not confirmed.

D. Payables are usually confirmed as of an interim date.

C. The auditor is not required by current professional pronouncements to justify his or her opinion on financial statements when payables are not confirmed.

82. Assume an auditor's interim consideration of internal control in the expenditure/disbursement cycle reveals that control risk can be assessed below the maximum and detection risk above the minimum for some assertions. Based on the foregoing, which of the following is true about the substantive tests applied to accounts payable?

A. The auditor is more apt to confirm payable balances.

B. The auditor is less apt to perform substantive tests at the balance sheet date.

C. The auditor is more apt to increase the extent of substantive tests. D. The auditor is more apt to ignore the risk of incorrect acceptance when sampling accounts payable.

B. The auditor is less apt to perform substantive tests at the balance sheet date.

83. Which of the following statements is true with respect to management representations?

A. Management representations are dated as of the balance sheet date.

B. Management representations may serve as a substitute to various types of substantive procedures.

C. Management representations are signed by the auditor and delivered to the client's officers.

D. Management representations are used to corroborate information obtained during the audit.

D. Management representations are used to corroborate information obtained during the audit.

84. Which of the following statements is true?

A. It is more difficult to discover unrecorded transactions or events than to verify recorded information

B. It is more difficult to verily recorded information than to discover unrecorded transactions or events

C. It is equally difficult to verify recorded information and to discover unrecorded transactions or events.

D. None of the given choices is true.

A. It is more difficult to discover unrecorded transactions or events than to verify recorded information

85. Which of the following statements is true concerning analytical procedures?

A. Analytical procedures usually involve comparisons of ratios developed from recorded amounts with assertions developed by the management.

B. Analytical procedures used in planning an audit ordinarily use data aggregated at a high level.

C. Analytical procedures can replace tests of controls in gathering evidence to support the assessed level of control risk.

D. Analytical procedures are more efficient, but not more effective, than tests of details and transactions

B. Analytical procedures used in planning an audit ordinarily use data aggregated at a high level.

86. Which of the following statements regarding assurance services is/are true with respect to internal auditors?

I. Assurance services by internal auditors can be provided only to internal management and the audit committee: that is. They cannot be provided to outside entities.

II. Assurance services require the specification of assertions to be tested.

III. Assurance services can be provided bray in the areas of controls and financial reporting.

A. I and II

B. II only

C. I, II, and III

D. None of the above

B. II only

87. Which of the following statements is/are true regarding independence and objectivity as applied to internal auditing?

I. Independence is a departmental feature that affects the scope of audits.

II. Only the audit committee can determine independence.

III. Objectivity is a personal feature that is to be exhibited by all internal audit team members on an audit.

A. I and II

B. I and III

C. I, II, and III

D. Ill only

B. I and III

88. Which of the following statements is true concerning interim financial information?

A. An audit of interim financial information is required for SEC registered companies.

B. The accountant needs to obtain sufficient knowledge of the entity's business and industry before undertaking an engagement on interim financial information.

C. An accountant may not report on financial information presented separately from the audited financial statements.

D. Interim financial information may not be included as part of a note to audited financial statements.

B. The accountant needs to obtain sufficient knowledge of the entity's business and industry before undertaking an engagement on interim financial information.

89. Which of the following statement is true?

A. If the auditor assesses the level of control risk at the maximum, no documentation of the reason is necessary

B. If the auditor assesses the level control risk at less than maximum, no documentation of the reason is necessary

C. If the auditor assesses the level of control risk at the maximum, documentation of the reason is necessary

D. All of the given choices

A. If the auditor assesses the level of control risk at the maximum, no documentation of the reason is necessary

90. Which of the following statements about the existence and completeness objectives are not true?

A. The existence and completeness objectives emphasize opposite audit concerns

B. Existence deals with overstatements and completeness deals with understatements

C. Existence deals with understatements and completeness' deals with overstatements

D. The completeness objective deals with unrecorded transactions

C. Existence deals with understatements and completeness' deals with overstatements

91. Which of the following statements about the failure of the auditor of detecting material misstatements always true?

A. The auditor's failure to discover material misstatements is an evidence of inadequate planning: performance or judgment.

B. The auditor did not comply with Philippine Standards on Auditing.

C. The auditor has the burden of defending the quality of his audit.

D. Such a failure is an indication of the absence of the auditor's, professional competence and due care.

C. The auditor has the burden of defending the quality of his audit.

92. Which of the following statements concerning analytical procedures is true?

A. Analytical procedures may be omitted entirely for some financial statement audits

B. Analytical procedures used in planning the audit should not use nonfinancial information

C. Analytical procedures usually are effective and efficient for tests of controls

D. Analytical procedures alone may provide the appropriate level of assurance for some assertions

D. Analytical procedures alone may provide the appropriate level of assurance for some assertions

93. Which of the following is true of the report based on-an agreed-upon procedures engagement?

A. The report is restricted to those parties who have agreed to those specific procedures to be performed.

B. The CPA provides the recipients of the report a tinged assurance reasonableness of the assertion(s) presented in the financial information.

C. The report states that the auditor has not recognized any basis that requires revision of financial statements.

D. The report should state that the procedures performed are limited to analytical procedures and inquiry.

A. The report is restricted to those parties who have agreed to those specific procedures to be performed.

94. Audit risk consists of inherent risk, control risk; and detection risk. Which of the following statements is true?

a. Cash is more susceptible to theft than an inventory of coal because it has a greater inherent risk.

b. The risk that material misstatement will not be prevented or detected on a timely basis by internal control can be reduced to zero by effective controls

c. Detection risk is a function of the efficiency of an auditing procedure.

d. The existing levels of inherent risk, control risk, and detection risk can be changed at the discretion of the auditor.

a. Cash is more susceptible to theft than an inventory of coal because it has a greater inherent risk.

95. An internal auditor is testing purchase order to detect possible instances of fraudulent activity by an employee. Believing the occurrence rate of the fraudulent purchase orders to be quite low (almost zero) the internal auditor would like to specify the probability of observing at least one irregularity if its true rate of occurrence is greater than expected. The most appropriate sampling technique for this situation is

a. Sequential sampling

b. Variable estimation sampling

c. Attribute estimation sampling

d. Discovery sampling

d. Discovery sampling

96. Which of the following is a true statement?

a. The extent of the audit procedures performed on the corresponding figures is significantly less than scope of the audit for the current figures.

b. When the financial statements of the prior period have been audited by another auditor, the current auditor must insist that there would be division of responsibility with respect to audit

c. When the financial statements of the prior period have been audited by another auditor, the successor auditor must insist that audit of the financial statements of the prior periods be performed by the successor.

d. When the comparatives are presented as corresponding figures, the auditor must specifically refer to the predecessor in the introductory paragraph of the auditor's report.

a. The extent of the audit procedures performed on the corresponding figures is significantly less than scope of the audit for the current figures.

97. Holding other planning considerations equal, a decrease in the amount of misstatement in a class of transactions that an auditor could tolerate most likely would cause the auditor to

A. the planned substantive tests prior to the balance sheet date

B. Perform the planned auditing procedures close to the balance sheet date

C. increase the assessed level of control risk for relevant financial statement assertions

D. decrease the extent of auditing procedures to be applied to the class of transactions

B. Perform the planned auditing procedures close to the balance sheet date

98. Which of the following is most likely to be a response to the auditor's assessment that the risk of material misstatement due to fraud for the existence of inventory is high?

A. Request that inventories be counted prior to year-end.

B. Perform analytical procedures rather than taking test counts

C. Observe test counts of inventory at certain location on an unannounced basis

D. Request that inventory counts at the various locations be counted on different dates so as to allow the same auditor to be present at every count.

C. Observe test counts of inventory at certain location on an unannounced basis

99. After obtaining an understanding of internal control and assessing the risk of material misstatement, an auditor decided to perform tests of controls. The auditor MOST likely decided that

A. additional evidence to support a further reduction in the risk of material misstatement is not available

B. it would be efficient to perform test of controls that would result in a reduction in planned substantive tests

C. there were many internal control weaknesses that could allow misstatements to enter the accounting system.

D. an increase in the assessed level of the risk of material misstatement is justified for certain financial statement assertions

A. additional evidence to support a further reduction in the risk of material misstatement is not available

100. An auditor selected items for test counts while observing a client's physical inventory. The auditor then traced the test counts to the client's inventory listing. This procedure most likely obtained evidence concerning management's assertion of

A. completeness

B. rights

C. existence

D. valuation

A. completeness