Select the best answer for each
of the following questions.
1. Broadly defined, the subject
matter of any audit consists of
a) Financial statements
b) Economic data
c) Assertions
d) Operating data
c) Assertions
2. The third standard of field work states that sufficient competent evidential matter may
in part be obtained through the following methods except
a) Inspection
b) Observation
c) Confirmation
d) Reconciliation
d) Reconciliation
3. If an auditor believes that material error or fraud exist, the auditor should
a) Consider the implications and discuss the matter with appropriate levels of
management
b) Make the investigation necessary to determine whether errors or fraud have in fact
occurred
c) Request that management investigate whether errors or fraud have in fact occurred
d) Consider whether errors or fraud where the result of employee's failure to comply with
specific controls
a) Consider the implications and discuss the matter with appropriate levels of
management
4. Which of the following is not normally performed in the pre-planning or pre-
engagement phase?
a) Deciding whether to accept or reject an audit engagement
b) Inquiring from predecessor auditor
c) Preparing an engagement letter
d) Making a preliminary estimate of materiality
d) Making a preliminary estimate of materiality
5. On the basis of the audit evidence gathered and evaluated, an auditor decides to
increase the assessed level of control risk from that originally planned. To achieve an
overall audit risk level that is substantially the same as the planned audit risk level, the
auditor would
,a) Decrease substantive testing
b) Increase inherent risk
c) Decrease detection risk
d) Increase materiality levels
c) Decrease detection risk
6. An effective internal control
a) Cannot be circumvented by management
b) Can reduce the cost of an external audit
c) Can prevent collusion among employees
d) Eliminates risks and potential loss to the organization
b) Can reduce the cost of an external audit
7. In auditing through a computer, the test data method is used by auditors to test the
a) Accuracy of input data
b) Validity of the output
c) Procedures contained within the program
d) Normalcy of distribution of test data
c) Procedures contained within the program
8. An auditor's working papers will generally be least likely to include documentation
showing how the
a) Client's schedules were prepared
b) Engagement had been planned
c) Client's system of internal control had been reviewed and evaluated
d) Unusual matters were resolved
a) Client's schedules were prepared
9. Which of the following sampling methods would be most appropriate in performing
tests of controls over authorization of cash disbursements
a) Attributes
b) Variables
c) Ratio
d) Stratified
a) Attributes
10. Analytical procedures used in the overall review stage of an audit generally include
a) Considering unusual or unexpected account balances that were not previously
identified
,b) Performing test of transactions to corroborate management's financial statement
assertions
c) Gathering evidence concerning account balances that have not changed from the prior
year
d) Re-testing control procedures that appeared to be ineffective during the assessment of
control risk
a) Considering unusual or unexpected account balances that were not previously
identified
11. Results of the financial statement audit are communicated to users through
a) Financial statement
b) Written management assertion
c) Audit report
d) None of the above
c) Audit report
12. What is the primary difference between financial reporting risk and audit risk?
a) The application of accounting principles
b) Responsibilities of the respective parties involved
c) Demands of users of financial statements
d) Risks of being sued by third parties
b) Responsibilities of the respective parties involved
13. Relationship between control risk and detection risk is ordinarily
a) Parallel
b) Inverse
c) Direct
d) Equal
b) Inverse
14. A representation letter issued by a client
a) Is essential for the preparation of the audit program
b) Is a substitute for testing
c) Does not reduce the auditor's responsibility
d) Reduces the auditor's responsibility only to the extent that it is relied upon
c) Does not reduce the auditor's responsibility
15. The recruitment of senior management for an assurance client, such as those in a
position to affect the subject of the assurance engagement may least likely create
a) Self-interest threat
b) Advocacy threat
, c) Intimidation threat
d) Familiarity threat
b) Advocacy threat
16. In reviewing the audit work performed, the engagement partner
a) Must review all audit documentation
b) Need not review all audit documentation, but may do so
c) Need not review all audit documentation
d) Must ask the staff performing the audit work to sign the audit report
b) Need not review all audit documentation, but may do so
17. The independent auditor lends credibility to client’s financial statements by
a) Maintaining a clear-cut distinction between management’s representations and the
auditor’s representation
b) Testifying under oath about client’s financial statements
c) Stating in the auditor’s management letter that the examination was made in
accordance with generally accepted auditing standards
d) Attaching an auditor’s opinion to the client’s financial statements
d) Attaching an auditor’s opinion to the client’s financial statements
18. The most difficult type of misstatement to detect is fraud based on
a) The over-recording of transactions
b) The non-recording of transactions
c) Recorded transactions in subsidiaries
d) Related party receivables
b) The non-recording of transactions
19. Assuming a recurring audit, in which of the following situations would the auditor be
unlikely to send a new engagement letter to the client?
a) A recent change in partner and/or staff involved in the audit engagement
b) A change in the terms of engagement
c) A recent change of client management
d) A significant change in the nature or size of the client's business
a) A recent change in partner and/or staff involved in the audit engagement
20. When an auditor expresses an adverse opinion he/she should disclose the substantive
reasons for such an opinion in an explanatory paragraph
of the following questions.
1. Broadly defined, the subject
matter of any audit consists of
a) Financial statements
b) Economic data
c) Assertions
d) Operating data
c) Assertions
2. The third standard of field work states that sufficient competent evidential matter may
in part be obtained through the following methods except
a) Inspection
b) Observation
c) Confirmation
d) Reconciliation
d) Reconciliation
3. If an auditor believes that material error or fraud exist, the auditor should
a) Consider the implications and discuss the matter with appropriate levels of
management
b) Make the investigation necessary to determine whether errors or fraud have in fact
occurred
c) Request that management investigate whether errors or fraud have in fact occurred
d) Consider whether errors or fraud where the result of employee's failure to comply with
specific controls
a) Consider the implications and discuss the matter with appropriate levels of
management
4. Which of the following is not normally performed in the pre-planning or pre-
engagement phase?
a) Deciding whether to accept or reject an audit engagement
b) Inquiring from predecessor auditor
c) Preparing an engagement letter
d) Making a preliminary estimate of materiality
d) Making a preliminary estimate of materiality
5. On the basis of the audit evidence gathered and evaluated, an auditor decides to
increase the assessed level of control risk from that originally planned. To achieve an
overall audit risk level that is substantially the same as the planned audit risk level, the
auditor would
,a) Decrease substantive testing
b) Increase inherent risk
c) Decrease detection risk
d) Increase materiality levels
c) Decrease detection risk
6. An effective internal control
a) Cannot be circumvented by management
b) Can reduce the cost of an external audit
c) Can prevent collusion among employees
d) Eliminates risks and potential loss to the organization
b) Can reduce the cost of an external audit
7. In auditing through a computer, the test data method is used by auditors to test the
a) Accuracy of input data
b) Validity of the output
c) Procedures contained within the program
d) Normalcy of distribution of test data
c) Procedures contained within the program
8. An auditor's working papers will generally be least likely to include documentation
showing how the
a) Client's schedules were prepared
b) Engagement had been planned
c) Client's system of internal control had been reviewed and evaluated
d) Unusual matters were resolved
a) Client's schedules were prepared
9. Which of the following sampling methods would be most appropriate in performing
tests of controls over authorization of cash disbursements
a) Attributes
b) Variables
c) Ratio
d) Stratified
a) Attributes
10. Analytical procedures used in the overall review stage of an audit generally include
a) Considering unusual or unexpected account balances that were not previously
identified
,b) Performing test of transactions to corroborate management's financial statement
assertions
c) Gathering evidence concerning account balances that have not changed from the prior
year
d) Re-testing control procedures that appeared to be ineffective during the assessment of
control risk
a) Considering unusual or unexpected account balances that were not previously
identified
11. Results of the financial statement audit are communicated to users through
a) Financial statement
b) Written management assertion
c) Audit report
d) None of the above
c) Audit report
12. What is the primary difference between financial reporting risk and audit risk?
a) The application of accounting principles
b) Responsibilities of the respective parties involved
c) Demands of users of financial statements
d) Risks of being sued by third parties
b) Responsibilities of the respective parties involved
13. Relationship between control risk and detection risk is ordinarily
a) Parallel
b) Inverse
c) Direct
d) Equal
b) Inverse
14. A representation letter issued by a client
a) Is essential for the preparation of the audit program
b) Is a substitute for testing
c) Does not reduce the auditor's responsibility
d) Reduces the auditor's responsibility only to the extent that it is relied upon
c) Does not reduce the auditor's responsibility
15. The recruitment of senior management for an assurance client, such as those in a
position to affect the subject of the assurance engagement may least likely create
a) Self-interest threat
b) Advocacy threat
, c) Intimidation threat
d) Familiarity threat
b) Advocacy threat
16. In reviewing the audit work performed, the engagement partner
a) Must review all audit documentation
b) Need not review all audit documentation, but may do so
c) Need not review all audit documentation
d) Must ask the staff performing the audit work to sign the audit report
b) Need not review all audit documentation, but may do so
17. The independent auditor lends credibility to client’s financial statements by
a) Maintaining a clear-cut distinction between management’s representations and the
auditor’s representation
b) Testifying under oath about client’s financial statements
c) Stating in the auditor’s management letter that the examination was made in
accordance with generally accepted auditing standards
d) Attaching an auditor’s opinion to the client’s financial statements
d) Attaching an auditor’s opinion to the client’s financial statements
18. The most difficult type of misstatement to detect is fraud based on
a) The over-recording of transactions
b) The non-recording of transactions
c) Recorded transactions in subsidiaries
d) Related party receivables
b) The non-recording of transactions
19. Assuming a recurring audit, in which of the following situations would the auditor be
unlikely to send a new engagement letter to the client?
a) A recent change in partner and/or staff involved in the audit engagement
b) A change in the terms of engagement
c) A recent change of client management
d) A significant change in the nature or size of the client's business
a) A recent change in partner and/or staff involved in the audit engagement
20. When an auditor expresses an adverse opinion he/she should disclose the substantive
reasons for such an opinion in an explanatory paragraph
