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
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
understanding of business principles.1.4. Preparing for Business ExamsPreparing for business exams involves mastering both conceptual understanding and practical
application. Students are encouraged
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
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
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
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
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
, 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
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
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
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
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
13. Relationship between control risk and detection risk is ordinarily
a) Parallel
b) Inverse
c) Direct
d) Equal
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
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
understanding of business principles.1.4. Preparing for Business ExamsPreparing for business exams involves mastering both conceptual understanding and practical
application. Students are encouraged
1. Broadly defined, the subject matter of any audit consists of
a) Financial statements
b) Economic data
c) Assertions
d) Operating data
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
understanding of business principles.1.4. Preparing for Business ExamsPreparing for business exams involves mastering both conceptual understanding and practical
application. Students are encouraged
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
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
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
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
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
, 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
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
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
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
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
13. Relationship between control risk and detection risk is ordinarily
a) Parallel
b) Inverse
c) Direct
d) Equal
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
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
understanding of business principles.1.4. Preparing for Business ExamsPreparing for business exams involves mastering both conceptual understanding and practical
application. Students are encouraged
