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Which of the following types of audits is performed to determine whether an entitys financial
statements are fairly stated in conformity with generally accepted accounting principles?
a. Operational audit
c. Financial statement audit
b. Compliance audit
d. Performance audit
2. Which of the following types of audit uses as its criteria laws and regulations?
a. Operational audit
c. Financial statement audit
b. Compliance audit
d. Financial audit
3. Which of the following types of auditing is performed most commonly by CPAs on a contractual
basis?
a. Internal auditing
c. Government auditing
b. BIR auditing
d. External auditing
4. Which of the following statements does not properly describe an element of the theoritical
framework of auditing?
a. The data to be audited can be verified.
b. Short-term conflicts may exist between managers who prepare data and auditors who examine the
data.
c. Auditors act on behalf of management.
d. An audit benefits the public.
5. 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 consequences for a decision maker.
c. Expertise is often required for information preparation and verification.
d. Users can directly assess the quality of information.
6. Which of the following statements does not properly describe a limitation of an audit?
a. Many audit conclusions are made on the basis of examining a sample of evidence.
b. Some evidence supporting peso representations in the financial statements must be obtained by
oral or written representations of management.
c. Fatigue and carelessness can cause auditors to overlook pertinent evidence.
d. Many financial statement assertions cannot be audited.
7. When the financial statements contain a material departure from generally accepted accounting
principles, the auditor should issue either
a. an unqualified or qualified opinion
b. a qualified opinion or a disclaimer of opinion
c. a qualified opinion or adverse opinion
d. an adverse opinion or a disclaimer of opinion
8. The primary purpose of establishing quality control policies and procedures for deciding whether to
accept a new client is to
a. Enable the CPA firm to attest to the reliability of the client.
b. Satisfy the CPA firms duty to the public concerning the acceptance of new clients.
c. Minimize the likelihood of association with clients whose management lacks integrity.
d. Anticipate before performing any fieldwork whether an unqualified opinion can be expressed.
9. The acceptable level of detection risk is inversely related to the
a. Assurance provided by substantive tests.
b. Risk of misapplying auditing procedures.
c. Preliminary judgment about materiality levels.
d. Risk of failing to discover material misstatements.
10. Before accepting an audit engagement, a successor auditor should make specific inquiries of the
predecessor auditor regarding the predecessors
a. Opinion of any subsequent events occurring since the predecessors audit report was issued.
b. Understanding as to the reasons for the change of auditors.
c. Awareness of the consistency in the application of GAAP between periods.
d. Evaluation of all matters of continuing accounting significance.
11. Because an audit in accordance with generally accepted auditing standards is influenced by the
possibility of material misstatements, the auditor should plan the audit with an attitude of
a. Professional responsiveness
c. Conservative advocacy
b. Professional skepticism
d. Objective judgment
12. When planning an audit, the auditor needs to evaluate audit risk where the auditor may unknowingly
fail to appropriately modify his or her opinion on financial statements that are materially misstated.
Audit risk is composed of
23. When analytical procedures are used as substantive tests, some account relationships are more
predictable than others. For which of the following accounts is the prior-year balance likely to be the
best predictor of the current year-end balance
a. Accounts payable
c. Cash
b. Revenues
d. Inventory
24. If related party transactions are detected, the auditor cannot complete the audit until he or she
a. Sends confirmation to all parties
b. Determines what the comparable arms-length transactions would have been.
c. Understands the business purpose of the transaction.
d. Notifies the SEC.
25. Which evidence is the most persuasive to support inventory quantities?
a. Purchase invoices held by the client.
b. Canceled checks issued to vendors.
c. Observations of the clients physical count.
d. A written certification from the client that the amount shown as inventory is correct.
26. Sampling results could lead the auditor to believe erroneously that the account does not contain more
peso error than can be tolerated. Which of the following corresponds to the preceding statement?
a. The risk of incorrect acceptance
c. Estimated sampling
b. The risk of incorrect rejection
d. Projected misstatement
27. To determine an optimum sample size when sampling methods are used in a substantive test, all of the
following factors must be considered except the
a. Variation in the population
b. Risk levels the auditor is willing to accept
c. Deviation occurrence rate the auditor expects to exist in the sample
d. Tolerable misstatement
28. Which of the following sampling methods would be used to estimate a numerical measurement of a
population, such as a peso value?
a. Discovery sampling
c. Sampling for attributes
b. Sampling for variables
d. Numerical sampling
29. Sampling results could lead the auditor to believe erroneously that the account contains more peso
error than can be tolerated. Which of the following corresponds to the preceding statement?
a. The risk of incorrect acceptance
c. Estimation sampling
b. The risk of incorrect rejection
d. Projected misstatement
30. In assessing sampling risk, the risk of incorrect rejection of an account balance relates to the
a. Efficiency of the audit
c. Selection of the audit
b. Effectiveness of the audit
d. Audit quality controls
31. An auditors purpose in reviewing credit ratings of customers with delinquent accounts receivable most
likely is to obtain evidence concerning managements assertions about
a. Valuation or allocation
c. Existence or occurrence
b. Presentation and disclosure
d. Rights and obligations
32. In an audit of inventories, an auditor would least likely verify that
a. All inventory owned by the client is on hand at the time of the count.
b. The client has used proper inventory pricing.
c. The financial statement presentation of inventories is appropriate.
d. Damaged goods and obsolete items have been properly accounted for.
33. The auditor may conclude that depreciation charges are insufficient by noting
a. Large amounts of fully depreciated assets.
b. Continuous trade-ins of relatively new assets.
c. Excessive recurring losses on assets retired.
d. Insured values greatly in excess of book values.
34. An auditor analyzes repairs and maintenance accounts primarily to obtain evidence in support of the
audit assertion that all
a. Noncapitalizable expenditures for repairs and maintenance have been properly charged to expense.
b. Noncapitalizable expenditures for repairs and maintenance have been recorded in the proper
period.
c. Expenditures for property and equipment have not been charged to expense.
d. Expenditures for property and equipment have been recorded in the proper period.
35. During its fiscal year, a company issued a substantial amount of first-mortgage bonds at a discount.
When performing audit work in connection with the bond issue, the independent auditor should
a. Confirm the existence of the bondholders.
b. Trace the net cash received from the issuance to the bond payable account.