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AUDIT EVIDENCE AND DOCUMENTATION

1. Which statement is incorrect regarding audit evidence?
a. Audit evidence is all the information used by the auditor in arriving at the conclusions
on
which the audit opinion is based.
b. Audit evidence includes the information contained in the accounting records
underlying the
financial statements and other information.
c. Audit evidence is cumulative in nature.
d. Auditors are expected to address all information that may exist.
2. Accounting records least likely include
a. The records of initial entries and supporting records.
b. The general and subsidiary ledgers.
c. Work sheets and spreadsheets supporting cost allocations.
d. Comparable data about competitors (benchmarking).
3. Other information that the auditor may use as audit evidence least likely includes
a. Minutes of meetings.
b. Confirmations from third parties.
c. Information obtained by the auditor from such audit procedures as inquiry,
observation, and
inspection.
d. Adjustments to the financial statements that are not reflected in formal journal entries.
4. Which statement is correct regarding the sufficiency and appropriateness of audit
evidence?
a. Sufficiency is the measure of the quality of audit evidence.
b. Appropriateness is the measure of the quantity of audit evidence; that is, its relevance
and
its reliability in providing support for, or detecting misstatements in, the classes of
transactions, account balances, and disclosures and related assertions.
c. The quantity of audit evidence needed is affected by the risk of misstatement (the
greater
the risk, the more audit evidence is likely to be required) and also by the quality of
such
audit evidence (the higher the quality, the less may be required).
d. Merely obtaining more audit evidence may compensate for its poor quality.
5. Which of the following statements is incorrect regarding relevance of audit evidence?
a. A given set of audit procedures may provide audit evidence that is relevant to certain
assertions, but not others.
b. The auditor often obtains audit evidence from different sources or of a different nature
that
is relevant to the same assertion.
c. Obtaining audit evidence relating to a particular assertion is a substitute for obtaining
audit
evidence regarding another assertion.
d. None of the above.
6. Which of the following generalizations in assessing the reliability of audit evidence is
incorrect?
 a. Audit evidence is more reliable when it is obtained from independent sources outside
the
entity.
b. Audit evidence that is generated internally is not affected by the effectiveness of the
controls imposed by the entity.
c. Audit evidence obtained directly by the auditor is more reliable than audit evidence
obtained
indirectly or by inference.
d. Audit evidence is more reliable when it exists in documentary form.
7. Which statement is incorrect regarding audit evidence?
a. The auditor should obtain sufficient appropriate audit evidence to be able to draw
reasonable conclusions on which to base the audit opinion.
b. Accounting records alone do not provide sufficient audit evidence.
c. The auditor uses professional judgment and exercises professional skepticism in
evaluating
the quantity and quality of audit evidence, and thus its sufficiency and
appropriateness, to
support the audit opinion.
d. The matter of difficulty or expense involved is a valid basis for omitting an audit
procedure
for which there is no alternative.
8. The auditor uses assertions in assessing risks by considering the different types of
potential
misstatements that may occur, and thereby designing audit procedures that are
responsive to
the assessed risks. Assertions used by the auditor fall into the following categories:
I. Assertions about classes of transactions and events for the period under audit.
II. Assertions about account balances at the period end.
III. Assertions about presentation and disclosure.
a. I, II and III b. I and II only c. II and III only d. II only
9. Assertions about classes of transactions and events for the period under audit least
likely
include
a. Transactions and events that have been recorded have occurred and pertain to the
entity.
b. All transactions and events that should have been recorded have been recorded.
c. Transactions and events have been recorded in the correct accounting period.
d. All assets, liabilities and equity interests that should have been recorded have been
recorded.
10. Assertion about account balances at period end which means assets, liabilities, and
equity
interests are included in the financial statements at appropriate amounts is
a. Existence c. Completeness
b. Rights and obligations d. Valuation and allocation
11. Accuracy and valuation assertions about presentation and disclosure means
a. Disclosed events, transactions, and other matters have occurred and pertain to the
entity.
b. All disclosures that should have been included in the financial statements have been
 included.
c. Financial information is appropriately presented and described, and disclosures are
clearly
expressed.
d. Financial and other information are disclosed fairly and at appropriate amounts.
12. The auditor obtains audit evidence to draw reasonable conclusions on which to base
the audit
opinion by performing audit procedures to:
a. Obtain an understanding of the entity and its environment, including its internal
control, to
assess the risks of material misstatement at the financial statement and assertion
levels.
b. Test the operating effectiveness of controls in preventing, or detecting and
correcting,
material misstatements at the assertion level.
c. Detect material misstatements at the assertion level.
d. All of the above.
13. The auditor is not always required to perform
a. Risk assessment procedures. b. Test of controls.
c. Substantive procedures. d. Both a and c
14. Tests of controls are necessary
a. When the auditor’s risk assessment includes an expectation of the operating
effectiveness
of controls.
b. When substantive procedures alone provide sufficient appropriate audit evidence.
c. When risk assessment procedures by themselves do not provide sufficient
appropriate
audit evidence.
d. Under no circumstances.
15. Which statement is incorrect regarding Inspection as an audit procedure?
a. Inspection consists of examining records or documents or physical examination of
assets.
b. Inspection of tangible assets may provide reliable audit evidence with respect to their
existence and about the entity’s rights and obligations on the assets.
c. Inspection of individual inventory items ordinarily accompanies the observation of
inventory
counting.
d. Some documents represent direct audit evidence of the existence of an asset.
16. Which of the following audit procedures is used extensively throughout the audit and
often is
complementary to performing other audit procedures?
a. Inspection b. Observation c. Inquiry d. Confirmation
17. Which statement is incorrect regarding Inquiry?
a. Responses to inquiries may provide the auditor with information not previously
possessed
or with corroborative audit evidence.
b. Responses to inquiries might provide information that differs significantly from other
information that the auditor has obtained.
 c. Responses to inquiries may provide a basis for the auditor to modify or perform
additional
audit procedures.
d. Inquiry alone is sufficient to test the operating effectiveness of controls.
18. Observation
a. Consists of looking at a process or procedure being performed by others.
b. Consists of seeking information of knowledgeable persons, both financial and non-
financial,
throughout the entity or outside the entity.
c. Is the process of obtaining a representation of information or of an existing condition
directly
from a third party.
d. Is the auditor’s independent execution of procedures or controls that were originally
performed as part of the entity’s internal control.
19. This consists of checking the mathematical accuracy of documents or records.
a. Reperformance b. Recalculation c. Confirmation d. Inspection
20. Which of the following is a false statement about audit objectives?
a. Audit objectives should be developed in light of management assertions about the
financial
statement components.
b. Selection of tests to meet audit objectives should depend upon the understanding of
internal control.
c. The auditor should resolve any substantial doubt about any of management’s
material
financial statement assertions
d. There should be a one-to-one relationship between audit objectives and procedures.
21. Which of the following is the best explanation of the difference, if any, between audit
objectives
and audit procedures?
a. Audit procedures establish broad general goals, audit objectives specify the detailed
work
to be performed.
b. Audit objectives are tailor-made for each assignment, audit procedures are generic
in
application.
c. Audit objectives define specific desired accomplishments; audit procedures provide
the
means of achieving audit objectives.
d. Audit procedures and audit objectives are essentially the same.
22. Walastik, Inc. has significant information that is transmitted, processed, maintained,
and
accessed electronically. The auditor has concluded that it is not possible to reduce
detection
risk to an acceptable level by performing only substantive tests for a number of financial
statement assertions. The auditor’s alternative strategy is to
a. Increase the acceptable audit risk.
b. Focus audit tests on other assertions for which substantive tests prove to be
effective.
 c. Require management to change its information system to provide appropriate
evidence.
d. Perform tests of controls to gather evidential matter to use in assessing control risk
related
to those assertions.
23. The competence of evidence available to an auditor is least likely to be affected by
a. The relevance of such evidence to the financial statement assertion being
investigated.
b. The relationship of the preparer of such evidence to the entity being audited.
c. The timeliness of such audit evidence.
d. The sampling method employed by the auditor to obtain a sample of such evidence.
24. Which of the following procedures would provide the most reliable audit evidence?
a. Inquiries of the client’s internal audit staff held in private.
b. Inspection of prenumbered client purchase orders filed in the vouchers payable
department.
c. Analytical procedures performed by the auditor on the entity’s trial balance.
d. Inspection of bank statements obtained directly form the client’s financial institution.
25. The most reliable form of documentary evidence are those documents that are
a. Prenumbered c. Easily duplicated
b. Internally generated d. Authorized by a responsible official
26. Which of the following presumptions does not relate to the competence of audit
evidence?
a. The more effective internal control, the more assurance it provides about the
accounting
data and financial statements.
b. An auditor’s opinion, to be economically useful, is formed within a reasonable time
and
based on evidence obtained at a reasonable cost.
c. Evidence obtained from independent sources outside the entity is more reliable than
evidence secured solely within the entity.
d. The independent auditor’s direct personal knowledge, obtained through observation
and
inspection, is more persuasive than information obtained indirectly.
27. Assuming a low assessed level of control risk, which of the following audit procedures
is least
likely to be performed?
a. Physical inspection of a sample of inventory.
b. Search for unrecorded cash receipts.
c. Obtaining of a client representation letter.
d. Confirmation of accounts receivable.
28. You have been assigned to audit the maintenance department of an organization.
Which of the
following is likely to produce the least reliable audit evidence?
a. Notes on discussions with mechanics in the maintenance operation.
b. A schedule comparing actual maintenance expenses with budgeted expenses and
those of
the prior period and disclosing important differences.
c. A narrative covering review of user reports on maintenance service.
 d. An analysis of changes in certain maintenance department ratios.
29. Which of the following auditing procedures is ordinarily performed last?
a. Reading of the minutes of the directors’ meetings.
b. Confirming accounts payable.
c. Obtaining a management representation letter.
d. Testing of the purchasing function.
30. Before applying substantive tests to the details of asset accounts at an interim date,
an auditor
should assess
a. Control risk at below the maximum level.
b. Inherent risk at the maximum level.
c. The difficulty in controlling the incremental audit risk.
d. Materiality for the accounts tested as insignificant.
31. Before applying principal substantive tests to the details of accounts at an interim date
prior to
the balance sheet date, an auditor should
a. Assess control risk as below the maximum for the assertions embodied in the
accounts
selected for interim testing.
b. Determine that the accounts selected for interim testing are not material to the
financial
statements taken as a whole.
c. Consider whether the amounts of the year-end balances selected for interim testing
are
reasonably predictable.
d. Obtain written representations from management that all financial records and
related data
will be made available.
32. If an auditor conducts an audit of financial statements in accordance with generally
accepted
auditing standards, which of the following will the auditor most likely detect?
a. Misposting of recorded transactions c. Forgery
b. Unrecorded transactions d. Collusive fraud

Working Papers/PSA 230 – Documentation

1. It means the materials prepared by and for, or obtained and retained by the auditor in
connection with the performance of the audit.
a. Documentation c. Engagement letter
b. Audit evidence d. Audit report
2. Which of the following is not a purpose of working papers?
a. Assist in the planning and performance of the audit.
b. Assist in the supervision and review of the audit work.
c. Record the audit evidence resulting from the audit work performed to support the
auditor’s
opinion.
d. Support the client’s financial statements.
3. Why does an auditor document audit evidence?
 a. To comply with the requirements of gathering all available evidence.
b. To provide client reference for all account balances and correcting entries.
c. To support audit opinion and to provide evidence that the audit was carried out in
accordance with PSA.
d. To document all records of misstatements noted in the financial statements.
4. Working papers that record the procedures used by the auditor to gather evidence
should be
a. Considered the primary support for the financial statements being audited.
b. Viewed as the connecting link between the books of accounts and the financial
statements.
c. Designed to meet the circumstances of the particular engagement.
d. Destroyed when the audited entity ceases to be a client.
5. Which of the following conditions constitutes inappropriate working paper preparation?
a. Flowcharts are included in the working papers.
b. Findings are cross-referenced to supporting documentation.
c. Tick marks are explained in working papers.
d. All forms and directives used by the auditee department are included in the working
papers.
6. An auditor’s working papers will ordinarily be least likely to include documentation
showing how
the
a. Client’s schedules were prepared.
b. Engagement was planned.
c. Understanding of the client’s internal control was obtained and control risk was
assessed.
d. Unusual matters were resolved.
7. Which of the following is usually included or shown in the auditor’s working papers?
a. The procedures used by the auditor to verify the personal financial status of members
of the
client’s management team
b. Analyses that are designed to be a part of, or a substitute for, the client’s accounting
records
c. Excerpts from authoritative pronouncements that support the underlying generally
accepted
accounting principles used in preparing the financial statements
d. The manner in which exceptions and unusual matters disclosed by the auditor’s
procedures
were resolved or treated
8. The form and content of working papers are affected by matters such as the:
I. Nature of the engagement.
II. Form of the auditor’s report.
III. Nature and complexity of the business.
IV. Nature and condition of the entity’s accounting and internal control systems.
V. Needs in the particular circumstances for direction, supervision and review of work
performed by assistants.
VI. Specific audit methodology and technology used in the course of the audit.
a. All of the above c. I, II and III only
b. All except V and VI d. All except VI
9. Which of the following is not generally included in the working papers file?
a. An indication as to who performed the audit procedures and when they were
performed.
b. Documentation of the auditor’s understanding of the accounting and internal control
systems.
c. Copy of the internal audit’s audit program.
d. Analyses of significant ratios and trends.
10. Although the quantity and content of audit working papers vary with each particular
engagement, an auditor’s permanent files most likely include
a. Schedules that support the current year’s adjusting entries.
b. Prior years’ accounts receivable confirmations that were classified as exceptions.
c. Documentation indicating that the audit work was adequately planned and
supervised.
d. Analyses of capital stock and other owners’ equity accounts.
11. Audit working papers are indexed by means of reference numbers. The primary
purpose of
indexing is to
a. Permit cross-referencing and simplify supervisory review.
b. Support the audit report.
c. Eliminate the need for follow-up reviews.
d. Determine that working papers adequately support findings, conclusions, and
reports.
12. The audit working paper that reflects the major components of an amount reported in
the
financial statements is the
a. Interbank transfer schedule c. Supporting schedule
b. Carryforward schedule d. Lead schedule
13. An auditor ordinarily uses a working trial balance resembling the financial statements
without
footnotes, but containing columns for
a. Cash flow increases and decreases c. Reclassifications and
adjustments
b. Audit objectives and assertions d. Reconciliations and tickmarks
14. In the course of the audit of financial statements for the purpose of expressing an
opinion
thereon, the auditor will normally prepare a schedule of unadjusted differences for
which he did
not propose adjustment when they were uncovered. The primary purpose served by
this
schedule is to
a. Point out to the responsible client officials the errors made by various company
personnel.
b. Summarize the adjustments that must be made before the company can prepare
and
submit its income tax returns.
c. Identify the potential financial statement effects of errors or disputed items that were
considered immaterial when discovered.
 d. Summarize the errors made by the company so that corrections can be made after
the
audited financial statements are released.
15. Which of the following analyses appearing in a predecessor’s working papers is the
successor
auditor least likely to be interested in reviewing?
a. Analysis of noncurrent balance sheet accounts. c. Analysis of income statement
accounts.
b. Analysis of current balance sheet accounts. d. Analysis of
contingencies.
16. In an internal audit, the audit supervisor determines that working papers are complete
a. When satisfied that the audit objectives have been met and the working papers
support the
conclusions.
b. When working papers refer to the steps outlined in the audit program.
c. Only after the auditor who prepared the working papers has signed and dated them.
d. When proper cross-references to other working papers are noted.
17. Standardized working papers are often used, chiefly because they allow working
papers to be
prepared more
a. Efficiently b. Professionally c. Neatly d. Accurately
18. Ordinarily, the audit may use schedules, analyses and other documentation prepared
by entity
personnel in order to:
a. Lessen auditor’s responsibility.
b. Eliminate the need to apply any audit procedures on verifying their correctness.
c. Emphasize that the responsibility on financial statements rests with the client
management.
d. Improve audit efficiency.
19. Working papers which contain information relating primarily to the audit of a single
period.
a. Current audit files c. Financial reporting files
b. Permanent audit files d. Correspondence files
20. Which of the following is the least required of the audit working papers?
a. Substitute for the entity’s accounting records.
b. Confidentiality of information included in the working papers.
c. Safe custody of the working papers.
d. Retention for a period sufficient to meet the needs of the practice.
RESA
AT-14: FURTHER AUDIT PROCEDURES (SUBSTANTIVE TESTS)

1. Tests to determine whether the accounting transactions have been properly

authorized, correctly recorded and summarized in the journals, and correctly
posted to subsidiary ledgers and the general ledger are:
A. Tests of Controls
B. Substantive tests of transactions
C. Substantive tests of balances
D. Analytical procedures.

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

A. Balance sheet accounts
B. Income statement accounts
C. Cash flow statement accounts
D. All of these

3. As required by PSA 500, the auditor’s substantive procedures should

include the following:
A. Agreeing the financial statements to the underlying accounting records.
B. Examining material journal entries and other adjustments made during the
course o preparing the financial statements.
C. Both A and B
D. Neither A nor B
4. Ultimately, what is sufficient appropriate audit evidence depends on:
A. The users of the financial statements under audit.
B. The professional judgment of the client’s management and those
charged with governance.
C. The professional judgment of the auditor.
D. A combination of the professional judgments of the auditor and the
client’s management.

5. S1 A given set of audit procedures may provide audit evidence that is relevant to
certain assertions, but not to others.
S2 The auditor often obtains audit evidence from different sources or of a
different nature that is relevant to the same assertion.

S3 Obtaining audit evidence relating to a particular assertion (for example,

existence) is a substitute or obtaining audit evidence regarding another assertion
(such as ownership rights).

A. False, True, True

B. True, False, True
C. True, True, False
D. False, False, False

6. Which of the following statements on reliability is incorrect? Audit evidence (that)

is
A. Generally more reliable when it exists in documentary form as compared to
evidence consisting of oral representations from the client.
B. Generally more reliably when obtained directly by the auditor as compared
to audit evidence obtained indirectly (second-hand knowledge) or by
interference.
C. Generally more reliable when it is obtained from independent sources
outside the entity as compared to audit evidence obtained from within the
entity.
 D. Generally internally under conditions of good internal control does
not meet the required appropriateness of evidence mentioned in PSA
500.

7. Management assertions drive the auditor’s quest for audit evidence. These
assertions are:
A. Directly related to generally accepted auditing standards.
B. Directly related to generally accepted accounting principles.
C. Indirectly related to generally accepted auditing standards.
D. Indirectly related to generally accepted accounting principles.

8. Assertions about account balances at the period-end include valuation and

allocation, which means that
A. Assets, liabilities, and equity interests exist.
B. All assets, liabilities, and equity interests that should have been recorded
have been recorded.
C. Assets, liabilities, and equity interests are included in the financial
statements at appropriate amounts and any resulting valuation or
allocation adjustments are appropriately recorded.
D. The entity holds or controls the rights to assets, and liabilities are the
obligations of the entity.

9. The following are descriptions of assertions about classes of transactions and

events for the period under audit. Which of the following statements refer to cut-
off?
A. All transactions and events that should have been recorded have been
recorded.
B. Amounts and other data relating to recorded transactions and events
have been recorded appropriately.
C. Transactions and events have been recorded in the correct accounting
period.
D. Transactions and events have been recorded in the proper account.
E. Transactions and events that have been recorded have occurred, and
pertain to the entity.

10. The following are descriptions of assertions about presentation and

disclosure. Which one refers to completeness?
A. All disclosures that should have been included in the financial
statements have been included.
 B. Disclosed events, transactions. And others matters have occurred and
pertain to the entity.
C. Financial information is appropriately presented and described, and
disclosures are clearly expressed.
D. Financial and other information are disclosed fairly and at appropriate
amounts.

11. Which of the following audit procedures is used extensively throughout the
auditdoes not, by itself, provide sufficient appropriate evidence?
A. Inspection of records or documents.
B. Observation
C. Inquiry
D. Inspection of tangible assets.

12. Complete the statement. “the evidence gathering technique o 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”.

13. Physical examination o tangible assets is not a sufficient form of evidence

when the auditor wants to determine the:
A. Existence of the asset.
B. Quantity and description of the asset.
C. Condition or quality of the asset.
D. Ownership of the asset.

14. Confirmation is the process of obtaining a representative of information or of an

existing condition directly from the third party. Traditionally, confirmations are
used to verify:
A. Individual transactions between organizations, such as sales transactions.
B. Fixed asset additions.
C. Bank balances and accounts receivable.
D. All three of the above.

15. Confirmation is most likely to be the relevant form of evidence with regard to
assertions about accounts receivable when the auditor has concerns about the
receivables.
A. Valuation
B. Classification
C. Existence
D. Completeness

16. Who signs the confirmation request letter prior to sending the same to the
recipient?
A. The appropriate level of management.
B. The auditor partner.
C. The CEO/CFO of the client.
D. Both management and the auditor.
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iCPA PH

1. Who signs the confirmation request letter before sending the same to the recipient?

a) The appropriate level of management

b) Audit partner
c) CEO or CFO of the client
d) Both management and auditor

2. Physical examination of tangible assets is an insufficient form of evidence when the auditor wants to
determine the ___

a) Ownership of the asset

b) Condition or quality of the asset
c) The existence of the asset
d) Quality and description of the asset

3. The following are descriptions of the assertions about presentation and disclosure. Which one refers to
completeness?

a) All disclosures that should have been included in the financial statements have been included
b) Disclosed events, transactions and other matters have occurred and pertained to the entity
c) Financial information is appropriately presented and described, and disclosures are clearly
expressed
d) Financial and other information are disclosed fairly and at appropriate amounts

4. Complete the statement: “The evidence gathering technique of observation….”

a) Is limited to what the auditor sees

b) Requires the gathering of corroborative evidence
c) Is useful in most part of the audit
d) Is rarely sufficient by itself

5. Which of the following audit procedures is used extensively throughout the audit but does not, by itself,
provide sufficient appropriate evidence?

a) Inquiry
b) Inspection of tangible assets
c) Inspection of records or documents
d) Observation

6. Management assertions drive the auditor’s quest for audit evidence. These assertions are

a) Directly related to generally accepted accounting principles

b) Indirectly related to generally accepted auditing standards
c) Indirectly related to generally accepted accounting standards
d) Directly related to generally accepted auditing standards

7. Test of controls, for efficiency, is frequently done at the same time as

a) Substantive tests of transactions

 b) Substantive test of balances
c) Compliance tests
d) Analytical procedures

8. Working papers that record the procedures used by the auditor to gather evidence should be

a) Designed to meet the circumstances of the particular engagement

b) Destroyed when the audited entity ceases to be a client
c) Considered the primary support for the financial statements being examined
d) Viewed as the connecting link between the books of account and the financial statements

9. The permanent life section of the working papers that are kept for each audit client most likely contains

a) Narrative description of the client’s accounting procedures

b) Correspondence with the client’s legal counsel concerning pending litigation
c) A schedule of time spent on the engagement by each auditor
d) Review notes about questions and comments regarding the audit work performed

10. The primary emphasis in a most test of details of balances is on the

a) Balance sheet accounts

b) Income statement accounts
c) Cash flow statement accounts
d) All of the choices

11. Confirmation is the process of obtaining a representation of information or an existing condition

directly from a third party. Traditionally, confirmations are used to verify

a) Bank balances and accounts receivable

b) Individual transaction between organizations, such as sales transactions
c) Fixed asset additions
d) All of the choices are used

12 Management assertions are

a) Directly related to financial reporting standards

b) Directly related to standards on auditing
c) Indirectly related to standards on auditing
d) Indirectly related to financial reporting standards

13. Audit evidence can come in different forms with different degrees of persuasiveness. Which of the
following is the least persuasive type of evidence?

a) Pre-numbered client sales invoices

b) Vendor’s invoice
c) Bank statement obtained from the client
d) Computations made by the auditor

14. To be competent, evidence must be both

a) Valid and relevant

 b) Useful and objective
c) Timely and substantial
d) Reliable and documented

15. Which is a basic approach used by auditors to evaluate the reasonableness of accounting estimates?

a) Reviewing subsequent events

b) Observation
c) Confirmation
d) Analyze corporate organizational structure

16. As the acceptable level of detection risk increases, an auditor may change the

a) The timing of substantive tests from year-end to an interim date

b) Nature of substantive tests from a less effective to a more effective procedure
c) Assessed level of control risk from below the maximum to the maximum level
d) Assurance provided by tests of controls by using a larger sample size than planned

17. In testing the existence assertion for an asset, an auditor ordinarily works from the

a) Accounting records to the supporting evidence

b) Supporting evidence to the accounting records
c) Financial statements to the potentially unrecorded items
d) Potentially unrecorded items to the financial statements

18. The primary source of information to be reported about litigation claims, and assessments is the

a) Client’s management
b) Independent auditor
c) Client’s lawyer
d) Court records

19. Which of the following is not a function of working paper?

a) Aid seniors in reviewing and supervising the work of managers and partners
b) Provide support for the auditor’s report
c) Aid partners in planning and conducting future audits
d) Documents staff compliance with standards on auditing

20. A distinction must be made between general audit objectives and specific audit objectives for each
account balance

a) The general audit objectives apply to every account balance on the financial statements
b) The specific audit objectives apply to every account balance on the financial statements
c) The general audit objective is stated in terms in term tailored to the engagement
d) The specific audit objectives are stated terms in term tailored to the agreement

21. Which of the following is not a proper match of auditor’s objective with management assertion?
 a) Classification matches with the presentation
b) Ownership matches with rights and obligations
c) Completeness matches with completeness
d) Validity matches with existence/occurrence

22. Which of the following statements best describe the auditor’s responsibility concerning illegal acts that
do not have a material effect on the client’s financial statements?

a) Generally, the auditor is under no obligation to notify parties other than personnel within
the client’s organization
b) Generally, the auditor is under an obligation to see that stockholders are notified
c) Generally, the auditor is obligated to disclose the relevant facts in the auditor’s report
d) Generally, the auditor is expected to compel the client to adhere to requirement of the Board of
Accountancy

23. When an auditor has a question concerning a client’s ability to continue as a going concern, the
auditor considers management’s plan for dealing with the situation. That consideration is most likely to
include consideration of management’s plans to

a) Decrease ownership equity

b) Dispose of assets
c) Increase expenditures on key products
d) Invest in derivative securities

24. A practitioner may perform an agreed-upon procedures engagement on prospective financial

statements provided that which of the following is met?

a) Use of agreed-upon procedures report is not restricted

b) The practitioner sets the criteria to be used in the determination of findings
c) The client agrees that the practitioner will decide appropriate procedures to be performed
d) The prospective financial statements include a summary of significant assumptions

25. If interim substantive procedures for an account identified no exceptions, which of the following would
the auditor not perform on that account at year-end?

a) Tests of details for the entire year under audit

b) Tests of details of activity during the period since the interim testing date
c) Reconciliation of year-end balances to interim balances
d) Substantive analytical procedures of the period since the interim testing date

26. Which of the following procedures would an accountant least likely perform during an engagement to
review the financial statements of an entity?

a) Observing the safeguards over access to and use of asset and records
b) Comparing the financial statements with anticipated results in budgets and forecasting
c) Inquiring of management about actions taken at the board of directors’ meetings
d) Studying the relationships of financial statement elements expected to conform to predictable
patterns

27. An examination of a financial forecast is a professional service that involves

 a) Compiling or assembling a financial forecast that is based on management’s assumptions
b) Limiting the distribution of the accountant’s report to management and the board of directors
c) Assuming responsibility to update management on key events for one year after the reports date
d) Evaluating the preparation of a financial forecast and the support underlying management’s
assumptions

28. Which of the following statements is correct regarding an accountant’s working papers?

a) The accountants own the working papers and generally may disclose them as the accountant sees
fit
b) The client owns the working papers, but the accountant has custody of them until the accountant’s
bill is paid in full
c) The accountants owns working papers but generally may not disclose them without the client’s
consent or a court order
d) The clients own the working papers but, in the absence of the accountant’s consent, may
not disclose them without a court order

29. Which of the following is correct concerning requirements about auditor communications about fraud?

a) The fraud that involves senior management should be reported directly to the audit committee
regardless of the amount involved
b) Fraud with a material effect on the financial statements should be reported directly by the auditor to
the Securities and Exchange Commission
c) The auditor should ordinarily disclose fraud with a material effect on the financial statements
through use of an “emphasis of a matter” paragraph added to the audit report
d) The auditor has no responsibility to disclose fraud outside the entity under any
circumstances

30. Which of the following is the general principle relating to the reliability of audit evidence?

a) Audit evidence obtained from indirect sources rather than directly is more reliable evidence
obtained the auditor directly
b) Audit evidence provided by copies is more reliable than that provided by facsimiles
c) Audit evidence obtained from knowledgeable independent sources outside the client company is
more reliable than audit evidence obtained from non-independent sources
d) Audit evidence provided by original document is more reliable than audit evidence generated
through a system of effective controls

31. Which of the following procedures would an auditor most likely perform in searching for unrecorded
liabilities?

a) Trace a sample of accounts payable entries recorded just before year-end to the unmatched
receiving report file
b) Compare a sample of purchase orders issued just after year-end with the year-end accounts
payable trial balance
c) Vouch for a sample of cash disbursements entries recorded just after year-end to receiving reports
and vendor invoices
 d) Scan the cash disbursements entries recorded just before year-end for indications of
unusual transactions

32. In an accountant’s review of interim financial information the accountant typically performs each of the
following, except:

a) Reading the available minutes of the latest stockholders meeting

b) Applying financial ratios to the interim financial information
c) Inquiring of the accounting departments management
d) Confirming major receivables accounts

33. When a professional accountant learns of a material error or omission in a tax return of a prior year,
he/she has the responsibility to do the following except

a) Consider discounting association with the client if the client does not correct the error
b) Advise the employer to correct the error and recommend that disclosure is made to the revenue
authorities
c) Promptly advise the client or employer of the error or omission and recommend that
disclosure is made to the revenue authorities
d) Promptly inform the revenue authorities even without permission of the client

35. Which of the following statements regarding analytical procedures is not correct?

a) Analytical tests emphasize comparison of internal client controls to PFRS

b) Analytical procedures are required on all audits
c) Analytical procedures can be used as substantive tests
d) For certain accounts with small balances, analytical procedures alone may be sufficient evidence

36. An auditor is auditing a mutual fund company that uses a transfer agent to handle accounting for
shareholders. Which of the following actions by the auditor would be most efficient for obtaining
information about the transfer agent’s internal controls/?

a) Review reports on internal control placed in operation and its operating effectiveness produced by
the agent’s auditor
b) Review prior year work papers to determine whether the number of transactions processed by the
agent has materially increased
c) Perform an audit on the internal control function of the agent
d) Perform tests of controls on a sample of the audited firm’s transactions through the agent

37. Using laptop computers in conducting financial statement audits may affect the methods used to
review the work of staff assistants because

a) Supervisory personnel may not have an understanding of the capabilities and limitations of
computers
b) Working paper documentation may not contain readily observable details of calculations
c) The overall audit objectives may differ
 d) Documenting the supervisory review may require the assistance of management services
personnel

38. Audit documentation should possess certain characteristics. Which of the following is one of the
characteristics?

I. Audit documentation should be indexed and cross-referenced

II. Audit documentation should be organized to benefit the client’s staff

a) Yes; Yes
b) No; No
c) Yes; No
d) No; Yes

39. A client is a defendant in a patent infringement lawsuit against a major competitor. Which of the
following items would least likely be included in the attorney’s response to the auditor’s letter of inquiry?

a) A description of potential litigation in other matters or related to an unfavorable verdict in the patent
infringement lawsuit
b) A discussion of case progress and the strategy currently in place by client management to resolve
the lawsuit
c) An evaluation of the probability of loss and a statement of the amount or range of loss if an
unfavorable outcome is reasonably possible
d) An evaluation of the ability of the client to continue as a going concern if the verdict is
unfavorable and maximum damages are awarded

40. Which of the following procedures would an accountant most likely perform during an engagement to
review the financial statements of an entity?

a) Review the predecessor accountant’s working papers

b) Inquire of management about related party transactions
c) Corroborate litigation information with the entity’s attorney
d) Communicate internal control deficiencies to senior management

41. Which of the following is the most objective type of evidence?

a) A letter was written by the client’s attorney discussing the likely outcome of outstanding lawsuits
b) The physical count of securities and cash
c) Inquiries of the credit manager about collectability of noncurrent accounts receivable
d) Observation of cobwebs on time inventory bins

42. The most reliable procedure for an auditor to use to test the existence of a client’s inventory at an
outside location would be to

a) Observe physical counts of the inventory items

b) Trace the total on the inventory listing to the general ledger inventory account
c) Obtain a confirmation from the client indicating inventory ownership
d) Analytically compare the current-year inventory balance to the prior-year balance
43. The completeness assertion would be violated if

a) Fictitious sales transactions were included in accounts receivable

b) The allowance for doubtful accounts was understated
c) Unbilled shipments had occurred during the period
d) Disclosure in the statements of pledged receivables

44. In testing the existence assertion for an asset, an auditor ordinarily works from the

a) Financial statements to the potentially unrecorded items

b) Potentially unrecorded items to the financial statements
c) Accounting records to the supporting evidence
d) Supporting evidence to the accounting records

45. Which of the following auditor concerns most likely could be so serious that the auditor concludes that
a financial statement audit cannot be conducted?

a) The entity has a formal written code of conduct

b) The integrity of the entity’s management is suspect
c) Procedures requiring segregation of duties are subject to management override
d) Management fails to modify prescribed controls for changes in conditions

46. Which of the following is least likely to be comparable between similar corporations in the same
industry line of business?

a) Operating cycle
b) Earnings per share
c) Accounts receivable turnover
d) Return on total assets before interest and taxes