Professional Documents
Culture Documents
CHAPTER 1
1. Broadly defined, the subject matter of any audit consist of
a. Financial statements
b. Economic data
c. Assertions
d. Operating data
2. An audit of financial statements is conducted to determine if the
a. Organization is operating efficiency and effectively
b. Auditee is following specific procedures or rules set down by some higher
authority
c. Overall financial statement statements are stated in accordance with the
applicable financial reporting framework
d. Clients internal control is functioning as intended
3. Most of the independent auditors work in formulating an opinion on financial
statement consist of
a. Studying and evaluating internal control
b. Obtaining and examining evidential matter
c. Examining cash transaction
d. Comparing recorded accountability with assets
4. In financial statement audits, the audit process should be conducted in
accordance with
a. The audit program
b. Philippine standard on auditing
c. Philippine accounting standards
d. Philippine Financial Reporting Standards
5. Which of the following best describe the operational audit?
a. It requires the constant review by internal auditors of the administrative
controls as they relate to operations of the company.
b. It concentrates on implementing financial and accounting control in a
newly organized company.
c. In attempts and is designed to verify the fair presentation of a companys
results of operations.
d. It concentrates on seeking out aspects of operations in which waste would
be reduced by the introduction of controls.
6. The auditor communicates the results of his or her work through the medium if
the
a. Engagement letter
b. Audit report
c. Management letter
d. Financial statement
7. Which of the following types of auditing is performed most commonly by CPAs
on a contractual basis?
a. Internal Auditing
19.Which of the following statements does not describe a condition that creates a
demand for auditing?
a. Conflict between an information preparer and a user can result in biased
information.
b. Information can have substantial economic consequence for a decisionmaker.
c. Expertise is often required for information preparation and verification.
d. Users can directly assess the quality of information.
20.Which of the following statements does not properly describe an element of
theoretical framework of auditing?
a. The data to be audited can be verified.
b. Short-term conflicts may exist between mangers who prepare the data
and auditors who examine the data.
c. Auditors act on behalf of the management.
d. An audit benefits the public
CHAPTER 2
a.
b.
c.
d.
Unprofessional behavior
An attitude of professional skepticism
Due diligence
A rule in code of professional conduct.
18. Which of the following would be least likely to suggest to an auditor that
the clients financial statement are materially misstated?
a. There are numerous delays in preparing timely internal financial
reports.
b. Management does not correct internal control structure weaknesses
that it knows about.
c. Differences are reflected in the customers confirmation replies.
d. There have nee two new controllers this year.
19. Which of the following circumstances would least likely cause auditor to
consider whether a material misstatement exists?
a. The turnover of senior accounting personnel exceptionally low.
b. Management places substantial emphasis on meeting, earning
projections.
c. There are significant unusual transactions near year-end.
d. Operating and financing decisions are dominated by one person.
20. Which of the following conditions would not normally cause the auditor to
question whether material errors or possible fraud exists?
a. The accounting department is overstaffed.
b. Differences exist between control accounts and supporting
subsidiary records.
c. Transactions are not supported by proper documentation.
d. There are frequent changes of auditors lawyers.
CHAPTER 3:
1. The primary responsibility for establishing and maintaining an internal control
rests with
a. The external auditors
b. The internal auditors
c. Management and those charged with governance
d. The controller or the treasurer
2. The fundamental purpose of an internal control is to
a. Safeguard the resources of the organization
b. Provide reasonable assurance that the objectives of the organization are
achieved
c. Encourage compliance with organization objectives
d. Ensure the accuracy, reliability and timeliness of information
3. Which of the following is not one of the three primary objectives of effective
internal control?
a. Reliability of financial reporting
b. Efficiency and effectiveness of operations
c. Compliance with laws and regulations
d. Assurance of elimination of business risk.
4. Which of the following internal control objectives would be most relevant to the
audit?
a. Operational objective
b. Compliance objective
c. Financial reporting objective
d. Administrative control objective
5. An act of two or more employee to steal assets and cover their theft by
misstating the accounting records would be referred to as:
a. Collusion
b. A material weakness
c. A control deficiency
d. A significant deficiency
6. Which of the following is not one of the components of an entitys internal
control?
a. Control risk
b. Control activities
c. Information and communication
d. The control environment
7. The overall attitude and awareness of an entitys board of director concerning
the importance of the internal control usually is reflected in its
a. Computer-based controls
b. System of segregation of duties
c. Control environment
d. Safeguard over access of assets
8. In evaluating the design of the entitys internal control environment, the auditor
considers the certain subcomponents of control environment and how they have
been incorporated into the entitys processes. Subcomponents of control
environment would include
a. Integrity and ethical values
b. Commitment to competence
c. Organizational structure
d. Information and communications systems
9. Which of the following components of an entitys internal control structure
includes the development of employee promotion and training policies?
a. Control activities
b. Control environment
c. Information and communication
d. Quality control system
10.Which of the following subcomponents of the control environment define the
existing lines of responsibility and authority?
a. Organizational structure
b. Management philosophy and operating style
c. Human resource policies and practices
d. Management integrity and ethical values
11.Which of the following is not one of the subcomponents of the control
environment?
a. Management philosophy and operating style
b. Organizational structure
c. Adequate separation of duties
d. Commitment to competence
12.Which of the following deal with ongoing or periodic assessment of quality of
internal control by management?
a. Quality control activities
b. Monitoring activities
c. Oversight activities
d. Management activities
13.The policies and procedures that help ensure that management directives are
carried out are referred to as the:
a. Control environment
b. Control activities
c. Monitoring of controls
d. Information systems
14.Which of the following is not one of the specific control activities that are
relevant to financial statement audit?
a. Performance reviews
b. Physical controls
c. Segregation of duties
d. Monitoring
15.Proper segregation of functional responsibilities in an effective structure of
internal control calls for separation of functions of
a. Authorization, execution, and payment
b. Authorization, recording, and custody
c. Custody, execution, and reporting
d. Authorization, payment, and recording
16.Which of the following best describes the purpose of the control activities?
a. The actions, policies and procedures that reflect the overall attitudes of
the management
b. The identification and analysis of risks and relevant to the preparation of
the financial statements
c. The policies and procedures that help ensure that necessary actions are
taken in order to achieve the entitys objectives
d. Activities that deal with the ongoing assessment of the quality of internal
control by management
17.When the auditor attempts to understand the operation of the accounting
system by tracing a few transactions through the accounting system, the auditor
is said to be:
a. Tracing
b. Vouching
c. Performing a walk through
d. Testing controls
18.Which of the following is not a medium that can normally be used by an auditor
to record information concerning a clients internal control policies and
procedures?
a. Narrative memorandum
b. Flowchart
c. Procedures manual
d. Questionnaire
19.An auditor uses the knowledge provided by the understanding of internal control
and the final assessed level of control risk primarily to determine the nature,
timing and extent of the
a. Attribute tests
b. Tests of controls
c. Compliance tests
d. Substantive tests
20.Based on the requirement of PSA 3330, how frequently must an auditor test
operating effectiveness of controls that appear to functions as they have in past
years and on which the auditor wishes to rely in the current year?
a. Monthly
b. Each audit
CHAPTER 4:
1. These are acts of omission or commission by the entity being audited, either
intentional or unintentional, which are contrary to the prevailing laws and
regulations.
a. Fraud
b. Misappropriation
c. Noncompliance
d. Defalcation
a.
b.
c.
d.
Integrity
Objectivity
Confidentiality
Professional behaviour
CHAPTER 5
1. This consists of checking the mathematical accuracy of documents of records.
a. Reperformance
b. Confirmation
c. Recalculation
d. Inspection
2. Which of the following assertions does not relate to balances at period end?
a. Existence
b. Occurrence
c. Valuation or allocation
d. Rights and obligations
3. Which of the following assertions does not relate to classes of transactions and
events for the period?
a. Completeness
b. Valuation
c. Cut-off
d. Accuracy
4. An assertion that transactions are recorded in the proper accounting period is:
a. Classification
b. Occurrence
c. Accuracy
d. Cut-off
5. Which of the following is not normally performed in the preplanning or preengagement phase?
a. Deciding whether to accept or reject an audit engagement
b. Inquiring from predecessor auditor
c. Preparing an engagement letter
d. Making a preliminary estimate of materiality
6. Before accepting an engagement to audit a new client, a CPA is required to
obtain
a. A preliminary understanding of the prospective clients industry and
business
b. The prospective clients signature to the engagement letter
c. An understanding of the prospective clients control environment
d. A representation letter from the prospective client
7. Preliminary knowledge about the clients business and industry must be obtained
prior to the acceptance of the engagement primarily to
a. Determine the degree of knowledge and expertise required by the
engagement
b. Determine the integrity of management
c. Determine whether the firm is independent with the client
CHAPTER 6:
1. Which of the following statements is most correct regarding the primary purpose
of audit procedures?
a. To detect all errors or fraudulent activities as well as illegal activities
b. To comply with the SEC
c. To gather corroborative audit evidence about managements assertions
regarding the clients financial statements
d. To determine the amount of errors in the balance sheet accounts in order
to adjust the accounts to actual
a.
b.
c.
d.
irrefutable.
conclusive.
persuasive.
completely convincing.
16.It refers to the material (working papers) prepared by and for, or obtained and
retained by the auditor in connection with the performance of the audit.
a. Documentation
b. Audit report
c. Accounting data
d. Corroborative evidence
17.Which of the following best describes one of the primary objectives of audit
documentation?
a. Defend against claims of a deficient audit.
b. Provide a principal support for the income taxation return.
c. Provide documentation that the audit was conducted in accordance with
auditing standards.
d. Provide additional support or recorded amounts to the client.
18.Which of the following is not an expert upon whose work an auditor may relay?
a. Actuary
b. Internal auditor
c. Appraiser
d. Engineer
19.An expert whose expertise is used by the entity in preparing financial statements
is called a(n):
a. Financial expert
b. Management expert
c. Auditors expert
d. Specialist
20.External auditors must obtain evidence regarding what attributes of an internal
audit department if the external auditors intend to rely on internal auditors
work?
a. Integrity
b. Objectivity
c. Competence
d. All of the above
CHAPTER 7
1. This involves developing an overall strategy for the expected conduct and scope
of the examination; the nature, extent, and timing of which vary with the size
and complexity, and experience with and knowledge of the entity.
a. Audit planning
b. Audit procedure
c. Audit program
d. Audit working papers
2. Initial planning involves four matters. Which of the following is not one of these?
a. Develop an overall audit strategy
b. Request that bank balances be confirmed
8. When comparing level of materiality used for planning purposes and the level of
materiality used for evaluating evidence, one would most likely expect
a. The level of materiality to be always similar.
b. The level of materiality for planning purposes to be similar.
c. The level of materiality for planning purposes to be higher.
d. The level of materiality for planning purposes to be based on total
assets while the level of materiality for evaluating purposes to be
based on net income.
9. Qualitative factors can affect an auditors assessment of materiality. Which of
the following qualitative factors could influence the assessment of materiality?
I.
Misstatements that are otherwise immaterial may be material if affect
earnings trends.
II.
Minor misstatements resulting from the consequences of contractual
obligations.
a. I only
b. II only
c. I and II
d. neither I or II
10. Auditors frequently refer to the terms audit assurance, overall assurance, ad
level of assurance to refer to
.
a. detection risk
b. audit report risk
c. acceptable audit risk
d. inherent risk
11.The risk that financial statements are likely to be misstated materially without
regard to the effectiveness of internal control is the;
a. Inherent risk
b. Audit risk
c. Client risk
d. Control risk
12.When planning a financial statement audit, the auditor should assess inherent
risk at the
Financial statement level Account balance or transaction class level
a.
b.
c.
d.
YES
YES
NO
NO
YES
NO
NO
YES
c. The greater the inherent and control risk the auditor believes exist, the
less detection risk that can be accepted.
d. The auditor might make separate or combines assessments of inherent
risk and control risk.
14.Relationship between control risk and detection risk is ordinarily
a. Parallel
b. Direct
c. Inverse
d. Equal
15.Which of the following is not correct regarding an auditors decision that a lower
acceptable audit risk is appropriate?
a. More evidence is accumulated
b. Less evidence is accumulated
c. Special care is required in assigning experienced staff
d. Review of audit documentation is performed by personnel not assigned
to the engagement
16.These consist of the analysis of significant ratios and trends including the
resulting investigation of fluctuations and relationship that are inconsistent with
other relevant information or deviate from predictable amount.
a. Financial statement analysis
b. Variance analysis
c. Analytical procedures
d. Regression analysis
17. Which of the following statements about analytical procedures is incorrect?
a. Analytical procedures are required to be performed in the planning
phase of the audit.
b. Analytical procedures are required to be done during the testing phase
of the audit.
c. Analytical procedures are required to be done during the completion
phase of the audit.
d. Analytical procedures may be performed in the planning, testing and
completion phases of the audit.
18. In developing the overall audit plan and audit program, the auditor should
assess inherent risk at the:
Audit plan
a.
b.
c.
d.
Audit program
CHAPTER 8
1. This involves the application of the procedures to less than 100% of the items
within an account balance or class of transactions. This enables the auditor to
obtain and evaluate audit evidence about some characteristics of the selected
items in order to form an opinion about the characteristics of all items
supporting an account balance or transaction class.
a. Audit techniques
b. Selective testing
c. Audit sampling
d. Specific identification
2. Audit sampling for substantive tests is appropriate when
a. Analytical procedures are used
b. The auditor wants to eliminate sampling risks
c. A population contains small number of large value items
d. Tests of details are performed
3. Audit sampling for test of control is generally appropriate when
a. Control leaves evidence of performance
b. Control leaves no evidence of performance
c. 100% of the transactions is tested
d. Examining specific high value items in the population
4. In a sampling application, the group of items about which the auditor wants to
estimate some characteristic is called the
a. Population
c. Attribute of interest
b. Sample
d. Sampling unit
5. Non-sampling error occur when the audit tests do not uncover existing
exceptions in the
a. Population
b. Planning stage
c. Sample
d. Financial statement
6. PSA 530 identifies two general approaches to audit sampling. They are
a. Random & nonrandom
b. Statistical & nonstatistical
c. Precision & reliability
d. Risk and nonrisk
7. The relationship between sample size and the allowable sampling risks is
a. Direct
b. Inverse
c. Sample deviation rate
d. Expected deviation rate
8. Principal methods of sampling selection include all of the following except
a. Haphazard
b. Random number
c. Systematic
d. Statistical
9. A sample in which every possible combination of items in the population has a
chance of constituting the sample is a
a. Representative sample
b. Random sample
c. Statistical sample
d. Judgment sample
10.The process which requires the calculation of an interval and them selects the
items based on the size of the interval is
a. Statistical sampling
b. Systematic selection
c. Random selection
d. Computerized selection
11.A method of sampling in which all the items in the population are divided into
two or more sub-population is
a. Variable sampling
b. Stratified sampling
c. Attribute sampling
d. Divisible sampling
12.If the auditor is concerned that a population may contain exceptions, the
determination of a sample size sufficient to include at least one such exception is
a characteristic of
a. Discovery sampling
b. Random sampling
c. Variables sampling
d. Peso-unit sampling
13.Which of the following statistical sampling plans does not use a fixed sample size
for tests of controls?
a. PPS sampling
b. Value-weighted sampling
c. Sequential sampling
d. Variables sampling
14.Value weighted sampling is most appropriate when the auditor
a. Anticipates understatement errors
b. Expects no errors
c. Anticipate overstatement errors
d. Has assessed control risk at high level
15.The maximum amount of error in a population that the auditor is willing to
accept is referred to as the
a. Acceptable risk
b. Tolerable error
c. Expected error
d. Tolerable materiality
16.The deviation rate the auditor expects to find in the population, before testing
begins, is called the
a. Tolerable deviation rate
b. Computer upper deviation rate
c. Sample deviation rate
d. Expected deviation rate
17.Which of the following sampling methods would be most appropriate in
performing tests of controls over authorization of cash disbursements
a. Attributes
b. Variables
c. Ratio
d. Stratified
18.In assessing sample risk, alpha risk relate to the
a. Efficiency of the audit
b. Selection of the sample
c. Effectiveness of the audit
d. Audit quality controls