AUDIT EVIDENCE AND AUDIT PROGRAM
The auditor often obtains audit evidence from different sources or of a different
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.
D b. Audit evidence that is generated internally is not affected by the effectiveness of
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).
D 7. Which statement is incorrect regarding audit evidence?
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.
D D
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.
C A
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.
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.
C
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.
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.
B
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. audit evidence.
d. All assets, liabilities and equity interests that should have been recorded have d. Under no circumstances.
been recorded. A
D 15. Which statement is incorrect regarding Inspection as an audit procedure?
10. Assertion about account balances at period end which means assets, liabilities, a. Inspection consists of examining records or documents or physical examination of
and equity interests are included in the financial statements at appropriate amounts assets.
is b. Inspection of tangible assets may provide reliable audit evidence with respect to
a. Existence their
c. Completeness existence and about the entity's rights and obligations on the assets.
b. Rights and obligations c. Inspection of individual inventory items ordinarily accompanies the observation of
d. Valuation and allocation inventory counting.
D d. Some documents represent direct audit evidence of the existence of an asset.
11. Accuracy and valuation assertions about presentation and disclosure means B
a. Disclosed events, transactions, and other matters have occurred and pertain to 16. Which of the following audit procedures is used extensively throughout the audit
the entity. b. All disclosures that should have been included in the financial and often is complementary to performing other audit procedures?
statements have been a. Inspection b. Observation c. Inquiry d. Confirmation
included. C
c. Financial information is appropriately presented and described, and disclosures 17. Which statement is incorrect regarding Inquiry?
are clearly a. Responses to inquiries may provide the auditor with information not previously
expressed. possessed or with corroborative audit evidence.
d. Financial and other information are disclosed fairly and at appropriate amounts. b. Responses to inquiries might provide information that differs significantly from
D other information that the auditor has obtained.
12. The auditor obtains audit evidence to draw reasonable conclusions on which to c. Responses to inquiries may provide a basis for the auditor to modify or perform
base the audit opinion by performing audit procedures to: additional audit procedures.
a. Obtain an understanding of the entity and its environment, including its internal d. Inquiry alone is sufficient to test the operating effectiveness of controls.
control, to D
assess the risks of material misstatement at the financial statement and assertion 18. Observation
levels. a. Consists of looking at a process or procedure being performed by others.
b. Test the operating effectiveness of controls in preventing, or detecting and b. Consists of seeking information of knowledgeable persons, both financial and non-
correcting, financial, throughout the entity or outside the entity.
material misstatements at the assertion level. c. Is the process of obtaining a representation of information or of an existing
c. Detect material misstatements at the assertion level. condition directly from a third party.
d. All of the above. d. Is the auditor's independent execution of procedures or controls that were
D originally performed as part of the entity's internal control.
13. The auditor is not always required to perform A
a. Risk assessment procedures. c. Substantive procedures. b. Test of controls. d. Both 19. This consists of checking the mathematical accuracy of documents or records.
a and c a. Reperformance b. Recalculation c. Confirmation d. Inspection
B B
14. Tests of controls are necessary 20. Which of the following is a false statement about audit objectives?
a. When the auditor's risk assessment includes an expectation of the operating a. Audit objectives should be developed in light of management assertions about the
effectiveness of controls. financial
b. When substantive procedures alone provide sufficient appropriate audit evidence. statement components.
c. When risk assessment procedures by themselves do not provide sufficient b. Selection of tests to meet audit objectives should depend upon the understanding
appropriate 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.
D b. Internally generated
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.
C than evidence secured solely within the entity.
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.
D a. Notes on discussions with mechanics in the maintenance operation.
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.
D b. Confirming accounts payable.
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.
D
25. The most reliable form of documentary evidence are those documents that are
a. Prenumbered
c. Easily duplicated
d. Authorized by a responsible official
D
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
d. The independent auditor's direct personal knowledge, obtained through
observation and inspection, is more persuasive than information obtained indirectly.
B
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.
B
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?
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.
A
29. Which of the following auditing procedures is ordinarily performed last? a.
Reading of the minutes of the directors' meetings.
c. Obtaining a management representation letter.
d. Testing of the purchasing function.
C
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. 4. Working papers that record the procedures used by the auditor to gather
c. The difficulty in controlling the incremental audit risk. evidence should be
d. Materiality for the accounts tested as insignificant. a. Considered the primary support for the financial statements being audited.
C b. Viewed as the connecting link between the books of accounts and the financial
31. Before applying principal substantive tests to the details of accounts at an statements.
interim date prior to the balance sheet date, an auditor should c. Designed to meet the circumstances of the particular engagement.
a. Assess control risk as below the maximum for the assertions embodied in the d. Destroyed when the audited entity ceases to be a client.
accounts selected for interim testing. C
b. Determine that the accounts selected for interim testing are not material to the 5. Which of the following conditions constitutes inappropriate working paper
financial statements taken as a whole. preparation?
c. Consider whether the amounts of the year-end balances selected for interim a. Flowcharts are included in the working papers.
testing are reasonably predictable. b. Findings are cross-referenced to supporting documentation.
d. Obtain written representations from management that all financial records and c. Tick marks are explained in working papers.
related data will be made available. d. All forms and directives used by the auditee department are included in the
C working papers.
32. If an auditor conducts an audit of financial statements in accordance with D
generally accepted auditing standards, which of the following will the auditor most 6. An auditor's working papers will ordinarily be least likely to include documentation
likely detect? showing how the
a. Misposting of recorded transactions a. Client's schedules were prepared.
c. Forgery b. Engagement was planned.
b. Unrecorded transactions c. Understanding of the client's internal control was obtained and control risk was
d. Collusive fraud assessed.
A d. Unusual matters were resolved.
1. It means the materials prepared by and for, or obtained and retained by the A
auditor in connection with the performance of the audit. 7. Which of the following is usually included or shown in the auditor's working
a. Documentation c. Engagement letter papers?
b. Audit evidence d. Audit report a. The procedures used by the auditor to verify the personal financial status of
A members of the client's management team
Which of the following is not a purpose of working papers? b. Analyses that are designed to be a part of, or a substitute for, the client's
a. Assist in the planning and performance of the audit. accounting records
b. Assist in the supervision and review of the audit work. c. Excerpts from authoritative pronouncements that support the underlying
c. Record the audit evidence resulting from the audit work performed to support the generally accepted accounting principles used in preparing the financial statements
auditor's d. The manner in which exceptions and unusual matters disclosed by the auditor's
opinion. procedures were resolved or treated
d. Support the client's financial statements. D
D 8. The form and content of working papers are affected by matters such as the:
3. Why does an auditor document audit evidence? I. Nature of the engagement.
a. To comply with the requirements of gathering all available evidence. II. Form of the auditor's report.
b. To provide client reference for all account balances and correcting entries. III. Nature and complexity of the business.
c. To support audit opinion and to provide evidence that the audit was carried out in IV. Nature and condition of the entity's accounting and internal control systems.
accordance with PSA. V. Needs in the particular circumstances for direction, supervision and review of
d. To document all records of misstatements noted in the financial statements. work
C performed by assistants.
VI. Specific audit methodology and technology used in the course of the audit.
 personnel.
a. All of the above c. I, II and III only b. Summarize the adjustments that must be made before the company can prepare
b. All except V and VI d. All except VI and submit its income tax returns.
A c. Identify the potential financial statement effects of errors or disputed items that
9. Which of the following is not generally included in the working papers file? were considered immaterial when discovered.
a. An indication as to who performed the audit procedures and when they were d. Summarize the errors made by the company so that corrections can be made after
performed. the audited financial statements are released.
b. Documentation of the auditor's understanding of the accounting and internal C
control 15. Which of the following analyses appearing in a predecessor's working papers is
systems. the successor auditor least likely to be interested in reviewing?
c. Copy of the internal audit's audit program. a. Analysis of noncurrent balance sheet accounts.
d. Analyses of significant ratios and trends. c. Analysis of income statement accounts.
C b. Analysis of current balance sheet accounts.
10.Although the quantity and content of audit working papers vary with each d. Analysis of contingencies.
particular engagement, an auditor's permanent files most likely include C
a. Schedules that support the current year's adjusting entries. 16. In an internal audit, the audit supervisor determines that working papers are
b. Prior years' accounts receivable confirmations that were classified as exceptions. complete
c. Documentation indicating that the audit work was adequately planned and a. When satisfied that the audit objectives have been met and the working papers
supervised. support the conclusions.
d. Analyses of capital stock and other owners' equity accounts. b. When working papers refer to the steps outlined in the audit program.
D c. Only after the auditor who prepared the working papers has signed and dated
11. Audit working papers are indexed by means of reference numbers. The primary them.
purpose of indexing is to d. When proper cross-references to other working papers are noted.
a. Permit cross-referencing and simplify supervisory review. A
b. Support the audit report. 17. Standardized working papers are often used, chiefly because they allow working
c. Eliminate the need for follow-up reviews. papers to be prepared more
d. Determine that working papers adequately support findings, conclusions, and a. Efficiently b. Professionally c. Neatly d. Accurately
reports. A
A 18. Ordinarily, the audit may use schedules, analyses and other documentation
12. The audit working paper that reflects the major components of an amount prepared by entity personnel in order to:
reported in the financial statements is the a. Lessen auditor's responsibility.
a. Interbank transfer schedule c. Supporting schedule b. Eliminate the need to apply any audit procedures on verifying their correctness.
b. Carryforward schedule d. Lead schedule c. Emphasize that the responsibility on financial statements rests with the client
D management.
13. An auditor ordinarily uses a working trial balance resembling the financial d. Improve audit efficiency.
statements without footnotes, but containing columns for D
a. Cash flow increases and decreases c. Reclassifications and adjustments 19. Working papers which contain information relating primarily to the audit of a
b. Audit objectives and assertions d. Reconciliations and tickmarks single period. a. Current audit files c. Financial reporting files
C b. Permanent audit files d. Correspondence files
14. In the course of the audit of financial statements for the purpose of expressing A
an opinion thereon, the auditor will normally prepare a schedule of unadjusted 20. Which of the following is the least required of the audit working papers?
differences for which he did not propose adjustment when they were uncovered. a. Substitute for the entity's accounting records.
The primary purpose served by this schedule is to b. Confidentiality of information included in the working papers.
a. Point out to the responsible client officials the errors made by various company
c. Safe custody of the working papers. 7. The following statements are correct, except:
d. Retention for a period sufficient to meet the needs of the practice. A. The greater the risk of misstatement, the more audit evidence is likely to be
A required.
1. All the information used by the auditor in arriving at the conclusion on which the B. The higher the quality of audit evidence, the less may be required.
audit opinion is based. It includes the information contained in the accounting C. Obtaining more audit evidence will compensate for its poor quality.
records underlying the financial statements (underlying accounting data) and other D. The sufficiency and appropriateness of audit evidence are interrelated.
information (corroborating information). C
A. Audit evidence C. Audit opinion 8. The appropriateness of audit evidence available to an auditor is least likely to be
B. Audit risk D. Audit program affected by:
A A. The relationship of the source or prepare of the evidence to the entity being
2. Which of the following statements is/are correct? audited.
B. The relevance of the evidence to the financial statement assertion being
Statement 1: Audit evidence comprises source documents and accounting records, investigated.
underlying the financial statements and corroborating information from other C. The timeliness of the audit evidence.
sources. D. The sampling method employed by the auditor to obtain a sample of the
evidence.
Statement 2: Audit evidence is obtained to form an appropriate mix of tests of D
control and substantive procedures. 11. Ultimately, what is sufficient appropriate audit evidence depends on:
A. The users of the financial statements under audit.
Statement 3: The auditor should obtain sufficient appropriate audit evidence to be B. The professional judgment of the client's management and those charged with
able to draw reasonable conclusions on which to base the audit opinion. governance.
C. The professional judgment of the auditor.
A. Statements 1 and 2 only C. Statement 2 and 3 only D. A combination of the professional judgment of the auditor and the client's
B. Statements 1 and 3 only D. All statements are correct management.
D C
3. All of the following are underlying accounting data, except: 12. The auditor's judgment as to what is sufficient appropriate audit evidence is
A. Records of initial entries and supporting documents influenced by such factors as:
B. General and subsidiary ledgers
C. Worksheets and spreadsheets for cost allocations A. The auditor's assessment of the nature and level of inherent risk at both the
D. Minutes of meetings financial statement level and the account balance or class of transaction level.
D B. The nature of the internal control structure and the assessment of control risk.
4. The measure of the quantity of audit evidence is: C. The materiality of the item being examined.
A. Sufficiency C. Appropriateness D. The experience gained during previous audits.
B. Competence D. Relevance E. The results of the audit procedures, including fraud or error which may have been
A found.
5. The measure of the quality of audit evidence is: F. The source and reliability of information available.
A. Sufficiency C. Appropriateness
B. Competence D. Relevance A. A, B, D, F, G C. A, B, F
C B. A, B, D, E, F D. A, B, C, D, E, F
6. An evidence to be considered appropriate must be: D
A. Relevant C. Reliable 13. Which of the following statements regarding reliability of evidence is incorrect?
B. Relevant and reliable D. Relevant or reliable A. Audit evidence is more reliable when it is obtained from independent sources
B outside the entity.
B. The condition of internal control of the entity does not contribute to the reliability
of audit evidence. 18. Management assertions are:
C. Audit evidence that is generated internally is more reliable when the related A. Directly related to PSAs
controls are effective. C. Directly related to GAAP
D. Audit evidence obtained directly by the auditor is more reliable than audit B. Indirectly related to PSAs
evidence obtained indirectly. D. Indirectly related to GAAP
B C
14. Which of the following is the least reliable evidence? 19. Assertions about account balances at the period-end include valuation and
A. Confirmation from third parties allocation, which means that
C. Documentary form evidence A. Assets, liabilities and equity interest exist.
B. Observation of the inventory count B. All assets, liabilities and equity interests that should have been recorded have
D. Photocopies and facsimiles been recorded.
D C. Assets, liabilities and equity interests are included in the financial statements at
15. Which of the following statement is/are correct? appropriate amounts and any resulting valuation or allocation adjustments are
appropriately recorded.
Statement 1: The auditor considers the relationship between the cost of obtaining D. The entity holds or controls the rights to assets, liabilities are the obligations of
audit evidence and the usefulness of the information obtained. the entity.
C
Statement 2: The difficulty and the expense involved are valid basis of omitting an 20. The assertion of cut-off means that:
audit procedure for which there is no alternative. A. All transactions and events that should have been recorded
B. Amounts and other data relating to recorded transactions and events have been
Statement 3: The auditor relies on audit evidence that is persuasive rather than recorded appropriately
conclusive. C. Transactions and events have been recorded in the correct accounting period
D. Transactions and events have been recorded in the proper accounts.
Statement 4: The auditor uses professional judgment and exercise professional C
skepticism to determine the sufficiency and appropriateness of evidence. 21. The assertion of occurrence means that:
A. All transactions and events that should have been recorded are recorded
A. Only one statement is correct B. Amounts and other data relating to recorded transactions and events have been
C. Only three statements are correct recorded appropriately
B. Only two statements are correct C. Transactions and events that have been recorded have occurred, and pertain to
D. All statements are correct the entity
C D. Transactions and events have been recorded in the proper accounts
16. Assertions used by the auditor fall into the following categories, except: C
A. Assertions about the faithful representations 22. Which description refers to the completeness assertion?
B. Assertions about account balances A. All disclosures that should have been included in the financial statements have
C. Assertions about classes of transactions and events been included.
D. Assertions about presentation and disclosure B. Disclosed events, transactions and other matters have occurred and pertain to the
A entity,
17. Management assertions are: C. Financial information is appropriately presented and described, and disclosures
A. Stated in the footnotes to the financial statements are clearly expressed.
B. Implied or express representations about the accounts in the financial statements. D. Financial and other information are disclosed fairly and at appropriate amounts.
C. Explicitly expressed representations about the financial statements. A
D. Provided to the auditor in the assertions letter, but are not disclosed in the 23. Confirming proper title to equipment supports which of the following assertions?
financial statements. A. Existence or occurrence
B C. Presentation and disclosure
B. Insurance or coverage B. To comply with generally accepted accounting principles
D. Rights and obligations C. To gather corroborative evidence to support the audit opinion
D D. To verify the accuracy of account balances
25. The completeness assertion addresses whether C
A. All of the assets on the balance sheet exist. 32. Audit procedures performed to obtain an understanding of the entity and its
B. All recorded transactions occurred. environment, including its internal control.
C. The entity has property rights to all assets on the balance sheet. A. Risk assessment procedures
D. All of the transactions, which occurred during the period, were recorded. C. Substantive procedures
D B. Tests of control
26. The auditor notices that a client's cash basis financial statements are prepared D. Analytical procedures
with accrual basis financial titles. This situation bears on which financial statement A
assertion? 33. Audit procedures to test the operating effectiveness in preventing or detecting
A. Valuation or allocation and correcting material misstatements at the assertion level.
C. Rights and obligations A. Risk assessment procedures
B. Presentation and disclosure C. Substantive procedures
D. Completeness B. Tests of control
B D. Analytical procedures
27. When vouching, B
A. The direction of the test is from recorded item back to the underlying support. 34. Audit procedures to detect material misstatements at the assertion level.
B. A complete examination of the transactions in the account is performed. A. Risk assessment procedures
C. Recomputations are performed. C. Substantive procedures
D. The auditor selects a transaction and follows it forward to recording in the B. Tests of control
accounting records. D. Analytical procedures
A C
28. Which of the following statements relating to the competence of evidential 36. It includes test of details of classes of transactions, account balances, and
matter is always true? disclosures and analytical procedures.
A. Evidence gathered by auditors must be both valid and relevant to be considered A. Risk assessment procedures
competent. C. Substantive procedures
B. Properly designed analytical procedures will detect material misstatements. B. Tests of control
C. Evidential matter gathered by an auditor from outside a client is reliable. D. Analytical procedures
D. Oral representations made by management are not valid. C
A 37. Test of controls are necessary to be performed:
29. The process of vouching helps establish that all recorded transactions A. When auditor's risk assessment includes an expectation of the operating
A. Have been completed effectiveness of controls.
C. Are valid B. When substantive procedures alone do not provide sufficient appropriate audit
B. Are complete evidence.
D. Are presented properly C. Both a and b
C D. No circumstance will require tests of controls.
30. Acts to be performed in order to obtain audit evidence C
A. Audit standards C. Audit program 38. Examining records or documents, whether internal or external, in paper form,
B. Audit procedures D. Audit strategy electronic form, or other media.
B A. Inspection of records or documents C. Observation
31. Which of the following best describes the primary purpose of audit procedures? B. Inspection of tangible assets D. Inquiry
A. To detect fraud A
39. Physical examination of the assets. C. The more the reliance of the auditor on information generated by the entity.
A. Inspection of records or documents C. Observation D. The less the reliance of the auditor on information generated by the entity.
B. Inspection of tangible assets D. Inquiry A
B 48. In the context of an audit of financial statements, substantive tests are audit
40. Consists of looking at a process or procedures being performed by others. procedures that
A. Inspection of records or documents C. Observation A. May be eliminated under certain conditions.
B. Inspection of tangible assets D. Inquiry B. Are designed to discover significant subsequent events.
C C. May be either tests of transactions, direct tests of financial balances, or analytical
41. Consists of seeking information from knowledgeable persons, both financial and tests.
nonfinancial, within the entity or outside the entity. D. Will increase proportionately with the auditor's reliance on internal control.
A. Inspection of records or documents C. Observation C
B. Inspection of tangible assets D. Inquiry 49. Which of the following methods is considered the best combination in obtaining
D audit evidence assuming documentary evidence is available to the auditor?
42. The process of obtaining a representation of information or of an existing A. Inspection and reperformance C. Inquiry and inspection
condition directly from third party. It is a specific type of inquiry. B. Observation and inquiry D. Inquiry and analytical procedures
A. Reperformance C. Reconciliation C
B. Confirmation D. Recomputation 50. As required by PSA 500, the auditor's substantive procedures should include the
B following:
44. Auditor's independent execution of procedures or controls that were originally A. Agreeing the financial statements to the underlying accounting records.
performed as part of the entity's internal control. B. Examining material journal entries and other adjustments made during the course
A. Reperformance C. Reconciliation of preparing the financial statements.
B. Confirmation D. Recomputation C. Both a and b.
A D. Neither a nor b.
45. Evaluation of financial information made by study of plausible relationships C
among both financial and non-financial data. 52. Physical examination of tangible assets is not a sufficient form of evidence when
A. Reperformance C. Reconciliation the auditor wants to determine the:
B. Confirmation D. Analytical procedures A. Existence of the asset
D C. Condition or quality of the asset
46. Which statement is incorrect regarding the nature of further audit procedures? B. Quantity and description of the asset
A. The nature of further audit procedures refers to their purpose and type. D. Ownership of the asset
B. Certain audit procedures may be more appropriate for some assertions than D
others. 53. Which of the following audit procedures is used extensively throughout the audit
C. The auditor is required to obtain audit evidence about the accuracy and but does not, by itself, provide sufficient appropriate evidence?
completeness of information produced by the entity's information system when that A. Inspection of records or documents C. Inquiry
information is used in performing audit procedures. B. Observation D. Inspection of tangible assets
D. The higher the auditor's assessment of inherent and control risks, the less reliable C
and relevant is the audit evidence sought by the auditor from substantive 54. Evidence obtained directly by the auditor is more reliable than information
procedures. obtained indirectly. Which of the following is not an example of the auditor's direct
D knowledge?
47. The more the planned reliance of the auditor on the operating effectiveness of A. Inspection C. Computation
internal controls, B. Observation D. Inquiry
A. The more the extent of the auditor's tests of controls. D
B. The less the extent of the auditor's tests of controls. 55. 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' 62. The primary source for evidence to corroborate the existence of pending
A. Valuation C. Existence litigation is:
B. Classification D. Completeness A. Vendor confirmations C. management representation letters
C B. Disclosures in financial statements D. attorney confirmations
56. Confirmation is the process of obtaining a representation of information or of an D
existing condition directly from a third party. Traditionally, confirmation is used to 63. The following are purposes of analytical procedures, except:
verify: A. Assist the auditor in planning the nature, timing and extent of other audit
A. Individual transactions between organizations, such as sales transactions. procedures
B. Fixed asset additions. B. As a test to obtain audit evidence about the suitability of design and effective
C. Bank balances and accounts receivables. operation of internal controls.
D. All three of the above. C. As a substantive procedure when their use can be more effective or efficient that
C tests of details in reducing detection risk for specific financial statement assertions
57. Who signs the confirmation requests: D. As an overall review of the financial statements in the final review stage of the
A. The appropriate level of management C. The CEO/CFO of the client audit.
B. The audit partner D. Both management and the auditor B
A 64. Where there are unusual fluctuations and relationships ordinarily begins with
58. A confirmation requests letter should always be sent under the control of: inquiries of management, followed by
A. The client C. The recipient ABCD
B. The auditor D. Both a and b Corroboration of management's responses Yes No Yes No
B Consideration of the need to apply other audit
59. Negative confirmation requests may be used when: procedures based on the results of management Yes Yes No No
A. The assessed levels of inherent and control risks are high inquiries
B. A large number of large balances is involved A
C. A substantial number of errors is expected 65. Evidential matter consists of both underlying accounting data and corroborating
D. The auditor has no reason to believe that the respondents will disregard these information, which support the accounting data. Which of the following is
requests considered corroborating information?
D A. Data files C. Subsidiary ledgers
60. When the recipient has accomplished the confirmation request, replies should B. Records of electronic fund transfers D. General ledger
be: B
A. Sent directly to the auditor 69. In testing for lower-of-cost-or-net realizable value, the auditor is gathering
B. Sent directly to the client, after which the client gives the replies to the auditor evidence to support which of the following assertions?
C. Sent directly to the auditor, with another copy of the reply going to the client A. Pricing C. Valuation
D. Not sent back since a confirmation request does not necessitate replies B. Accuracy D. Rights and obligations
A C
61. Where no response is received to a positive confirmation request, the auditor 70. When performing trend analysis,
should A. Profitability ratios are required C. Comparison to budget may be performed
A. Contact the recipient to elicit a response and perform alternative procedures as B. Expected values are calculated D. Solvency ratios are computed
necessary C
B. Issue a qualified opinion or an adverse opinion, depending on the materiality 1. Which of the following statements concerning audit evidence is correct?
involved A. To be appropriate, audit evidence should be either reliable or relevant, but it need
C. Issue a qualified opinion or a disclaimer of opinion on grounds of a scope not be both.
limitation B. The measure of validity of audit evidence lies in the auditor's judgment.
D. Contact the recipient/respondent in order to force a response from such recipient C. The difficulty and expense of obtaining audit evidence concerning an account
A balance is a valid basis for omitting the test.
D. A client's accounting records can be sufficient audit evidence to support the 7. Which of the following statements concerning evidential matter is true?
financial statements. A. Appropriate evidence supporting management's assertions should be convincing
B rather than merely persuasive.
2. Which of the following statements concerning audit evidence is correct? B. Effective internal control contributes little to the reliability of the evidence created
within the entity
Statement 1: The quantity of audit evidence is affected by the risk of misstatement C. The cost of obtaining evidence is not an important consideration to an auditor in
and also by the quality of such audit evidence. deciding what evidence should be obtained
D. A client's accounting records cannot be considered sufficient evidence to support
Statement 2: The reliability of audit evidence is influenced by its source and by its the financial statements
nature and is dependent on the individual circumstances under which it is obtained. D
8. Which of the following is an example of "other information" that could be used by
A. Both statements are true C. True; False an auditor as evidential matter supporting financial statements
B. Both statements are false D. False; True A. Worksheet supporting cost allocations C. Special journals
A B. Confirmation of accounts receivable D. Accounting manuals
3. Management makes certain assertions that are embodied in financial statement B
components; for example, two such categories of assertions are completeness and 9. Audit evidence can come in different forms with different degrees of
valuation and allocation. Which of the following is not a broad category of persuasiveness. Which of the following is the least persuasive type of evidence?
management assertions? A. Bank statement obtained from the client
A. Rights and obligations B. Test counts of inventory made by the auditor
C. Existence C. Prenumbered purchase order forms
B. Completeness D. Correspondence from the client's attorney about litigation
D. Error or fraud C
D 10. Which of the following statements concerning audit evidence is correct?
4. The objective of tests of details of transactions performed as substantive tests is A. An audit usually involves the authentication of documentation
to B. A given set of procedures may provide audit evidence that is relevant to certain
A. Comply with generally accepted auditing standards assertions, but not others
B. Attain assurance about the reliability of the accounting s system C. Audit evidence obtained from an independent external source is always reliable
C. Detect material misstatements in the financial statements D. An entity's accounting records can be sufficient audit evidence to support the
D. Evaluate whether management's policies and procedures operated effectively financial statements
C B
5. In testing the existence assertion for an asset, an auditor ordinarily works from 11. In which of the following circumstances would be the use of the negative form of
the accounts receivable confirmation most likely be justified?
A. Financial statements to the potentially unrecorded items A. A substantial number of accounts may be in dispute and the accounts receivable
B. Potentially unrecorded items to the financial statements balance arises from sales to a few major customers
C. Accounting records to the supporting evidence B. A substantial number of accounts may be in dispute and the accounts receivable
D. Supporting evidence to the accounting records balance arises from sales to many customers with small balances
C C. A small number of accounts may be in dispute and the accounts receivable
6. In determining whether transactions have been recorded, the direction of the balance arises from sales to a few major customers
audit testing should be from the D. A small number of accounts may be in dispute and the accounts receivable
A. General ledger balance balance arises from sales to many customers with small balances
C. Original source documents D
B. Adjusted trial balance 12. Which of the following might be detected by an auditor's review of the client's
D. General journal entries sale cut-off?
C A. Excessive goods returned for credit
B. Unrecorded sales discounts B
C. Lapping of year-end accounts receivable 19. The primary source of information to be reported about litigation, claims, and
D. Inflated sales for the year assessments is the
D A. Client's lawyer C. Client's management
13. Which of the following most likely would give the most assurance concerning the B. Courts records D. Independent auditor
valuation and allocation assertion of accounts receivable? C
A. Vouching amounts of accounts subsidiary ledger to details on shipping 20. Which of the following is an audit procedure that an auditor most likely would
documents perform concerning litigation, claims and assessments?
B. Comparing receivable turnover ratios with industry statistics for reasonableness A. Request the clients lawyer to evaluate whether the client's pending litigations,
C. Inquiring about receivables pledged under loan agreements claims and assessment indicate a going concern problem
D. Assessing the allowance for uncollectible accounts for reasonableness B. Examine the legal documents in the client's lawyer's possession concerning
D litigations, claims and assessment to which the lawyer has devoted substantive
14. Confirmation is "the process of obtaining and evaluating a direct communication attention
from a third party in response to a request about a particular item affecting financial C. Discuss with management its policies and procedures adopted for evaluating and
statement assertions." Two assertions for which confirmation of accounts receivable accounting for litigations, claims and assessments
balances provides primary evidence are D. Confirm directly with the client's lawyer that all litigations, claims and assessment
A. Completeness and valuation have been recorded or disclosed in the financial statements
C. Rights and obligations and existence C
B. Valuation and rights and obligations 22. Although the validity of evidential matter is dependent on the circumstances
D. Existence and completeness under which it is obtained, there are three general presumptions that have some
C usefulness. The situations given below indicate the relative reliability a CPA has
15. Which of the following procedures would an auditor most likely perform for year- placed on two types of evidence obtained in different situations. Which of these is
end accounts receivable confirmations when the auditor did not receive replies to an exception to one of the general presumptions?
second requests A. The CPA places more reliance on the balance in the scrap sales account at Plant A,
A. Review the cash receipts journal for the month prior to year-end where the CPA has made limited tests of transactions because of effective controls,
B. Intensity the study of internal control concerning the revenue cycle than at Plant B, where the CPA has made extensive tests of transactions because of
C. Increase the assessed level of detection risk for the existence assertion ineffective controls.
D. Inspect the shipping records documenting the merchandise sold to the debtors B. The CPA places more reliance on the CPAs computation of interest payable on
D outstanding bonds than on the amount confirmed by the trustee.
16. Which of the following is an essential control procedure to ensure the accuracy C. The CPA places more reliance on the report of an expert on an inventory of
of the recorded inventory quantities? precious gems than on the CPA's physical observation of the gems.
A. Calculating unit costs and valuing obsolete or damaged inventory items in D. The CPA places more reliance on a schedule of insurance coverage obtained from
accordance with inventory policy. the company's insurance agent than on one prepared by the internal audit staff.
B. Testing inventory extensions. C
C. Performing a gross profit test 24. An auditor audits an accounting estimate by any of the following means except
D. Established a cutoff for goods received and shipped. A. Testing the process used by management to develop the estimate.
D B. Obtaining a confirmation from an independent source.
17. Effective internal controls over inventories are designed and implemented for C. Developing an independent expectation.
the following reasons, except D. Reviewing subsequent events or transactions.
A. Inventories typically represent a large component of an entity's current tasks. B
B. Inventories are the most liquid asset. 25. When analytical procedures are used as substantive tests, some account
C. Inventories directly affect the financial directly affect the financial performance of relationships are more predictable than others. For which of the following accounts
an entity. is the prior-year balance likely to be the best predictor of the current year-end
D. Inventories typically represent a large portion of an entity's total assets. balance?
A. Accounts payable C. Revenues 15. Audit working papers are used to record the results of the auditor's evidence
B. Cash D. Inventory gathering work. When preparing working papers, the auditor should remember that
C A. Working papers should be designed to meet the circumstances and the auditor's
26. Which of the following best describes the most important stage of an auditor's need for each engagement
statistical analysis of significant ratios and trends? B. Working papers should be kept on the client's premises so as to provide ready
A. Computation of significant ratios and trends. access to them by the client.
B. Reconciliation of statistical data to the client's accounting ratios. C. Working papers should be at the primary support for the financial statements
C. Interpretation of significant variations and unusual relationships. being examined.
D. Comparison of statistical data to prior-year statistics and to similar data published D. Working papers should be considered as a substitute for the client's accounting
by government and private sources. records.
C A
11. According to PSA 230 ''Documentation'', working papers do not 16. The primary purpose of audit working papers is to
A. Assist in the planning and performance of the audit. A. Provide evidence of compliance with auditing standards
B. Assist in the supervision and review of the audit work. B. Provide management with an independent copy of financial records.
C. Record the audit evidence resulting from the audit work performed to support an C. Provide protection against litigation
auditor's opinion. D. Document deficiencies in client policies and procedures
D. Prove the independence of the auditor. A
D 17. Which of the following is incorrect?
12. Statement 1: Working papers are the property of the auditor. A. Documentation prepared at the time the work is performed is likely to be more
Statement 2: Although portions of or extracts from the working papers maybe made accurate than documentation prepared subsequently.
available to the entity at the discretion of the auditor, they may be substitute for the B. The auditor ordinarily includes from audit documentation superseded drafts of
entity's accounting records. working papers and financial statements, notes that reflect incomplete or
A. Only statement one is correct C. Both statements are correct preliminary thinking, previous copies of documents corrected for typographical or
B. Only statement two is correct D. Both statements are incorrect other errors, and duplicates of documents.
A C. It is neither necessary nor practicable to document every matter the auditor
13. Statement 1: The auditor should prepare working papers which are sufficiently considers during the audit.
complete and detailed to provide an overall understanding of the audit. D. Oral explanations by the auditor, on their own, do not represent adequate
Statement 2: The auditor should record in the working papers information on support for the work the auditor performed or conclusions the auditor reached, but
planning the audit work, the nature, timing and extent of the audit procedures may be used to explain or clarify information contained in the audit documentation.
performed, the results thereof, and the conclusions drawn from the audit evidence B
obtained. 18. During an audit engagement, pertinent data are compiled and included in the
A. Only statement one is correct audit working papers. The working papers primarily are considered to be
B. Only statement two is correct A. A client-owned record of conclusions reached by the auditors who performed the
C. Both statements are correct engagement
D. Both statements are incorrect B. Evidence supporting financial statements
C C. Support for the auditor's representations as to compliance with generally
14. The form and content of working papers are affected by matters such as the accepted auditing standards.
following except: D. A record to be used as a basis for the following year's engagement.
A. Nature of the engagement C
B. Type of opinion to be rendered by the auditor 19. Audit working papers should not
C. Nature and complexity of the business A. Include any client-prepared papers or documents other than those prepared by
D. Needs in the particular circumstances for the direction, supervision and review of the CPA or his assistant.
work performed by assistants. B. Be kept by the CPA after review and completion of the audit except for items
B required for the income tax return or the permanent file.
C. Be submitted to the client to support the financial statements and to provide A. Current audit file C. Electronic audit file
evidence of the audit work performed. B. Permanent audit file D. Planning memorandum file
D. Be themselves be expected to provide sufficiency support for the auditor's B
opinion.
C
21. Which of the following is not a factor affecting the independent auditor's
judgement about the quantity, type and content of audit working papers?
A. The needs for supervision and review of the work performed by assistants.
B. The nature and condition of the client's records and internal control.
C. The expertise of the client personnel and their participation in preparing
schedules.
D. The type of financial statements, schedules, or other information on which the
auditor is reporting.
C
22. Although the quantity, type and content of working paper will vary with the
circumstance, the working papers generally include the
A. Copies of those client records examined by the auditor during the course of the
engagement.
B. Evaluation of the efficiency and competence of the audit staff assistants by the
partner responsible for the audit.
C. Auditor's comments concerning the efficiency and competence of client
management personnel.
D. Auditing procedures followed, and the testing performed in obtaining evidential
matter.
D
26. Documentation is a form of evidence
A. Used in every financial statement audit
B. Used in most financial statement audit
C. Used on the rare occasions when it is both readily available and less costly than
other procedures.
D. Used when nothing is available that is more competent
A
27. An audit working paper that shows the detailed evidence and procedures
regarding the balance in the accumulated depreciation account in the year under
audit will be found in the
A. Current file of working papers
B. Permanent file of working papers
C. Other information working papers in the current file
D. Planning memorandum in the current file.
A
28. In the case of recurring audits, some working papers files may be classified as
audit files which are updated with new information of continuing importance. This
type of audit file is known as: