1.

Which of the following eliminates voluminous details from the auditor's working trial balance by
classifying and summarizing similar or related items?
a. Account analyses.
b. Lead schedules.
c. Control accounts.
d. Supporting schedules.

2.

An auditor who accepts an audit engagement and does not possess the industry expertise of the
business entity should
a. engage financial experts familiar with the nature of the business entity.
b. obtain a knowledge of matters that relate to the nature of the entity's business.
c. refer a substantial portion of the audit to another CPA who will act as the principal auditor.
d. first inform management that an unqualified opinion cannot be issued.

3.

Early
a.
b.
c.
d.

appointment of the independent auditor will enable

a more thorough examination to be performed.
a proper study and evaluation of internal control to be performed.
sufficient competent evidential matter to be obtained.
a more efficient examination to be planned.

4.

The first standard of fieldwork requires, in part, that audit work be properly planned. Proper planning
as intended by the first standard of fieldwork would occur when the auditor
a. physically observes the movement of securities already counted to guard against the
substitution of such securities for others that are not actually on hand.
b. uses negative accounts receivable confirmations instead of positive confirmations because the
latter require mailing of second requests and review of subsequent cash collections.
c. compares all cash as of a particular date to avoid performing time-consuming cash cutof
procedures.
d. eliminates the possibility of counting inventory items more than once by arranging to make
extensive test counts.

5.

A CPA is conducting the first examination of a non-public company's financial statements. The CPA
hopes to reduce the audit work by consulting with the predecessor auditor and reviewing the
predecessor's working papers. This procedure is
a. acceptable if the client and the predecessor auditor agree to it.
b. acceptable if the CPA refers in the audit report to reliance upon the predecessor auditor's work.
c. required if the CPA is to render an unqualified opinion.
d. unacceptable because the CPA should bring an independent viewpoint to a new engagement.

6.

Before applying principal substantive tests to the details of asset and liability accounts at an interim
date, the auditor should
a. assess the difficulty in controlling incremental audit risk.
b. investigate significant fluctuations that have occurred in the asset and liability accounts since
the previous balance-sheet date.
c. select only those accounts which can efectively be sampled during year-end audit work.
d. consider the tests of controls that must be applied at the balance-sheet date to extend the audit
conclusions reached at the interim date.

7.

Which of the following is not one of the three main reasons why the auditor should properly plan
engagements?
a. To enable proper on-the-job training of employees.
b. To enable the auditor to obtain sufficient competent evidence.

c.
d.

To avoid misunderstandings with the client.

To help keep audit costs reasonable.

8.

Which of the following would not be a consideration of a CPA firm in deciding whether to accept a new
client?
a. Client's standing in the business community.
b. Client's financial stability.
c. Client's relation with its previous CPA firm.
d. Client's probability of achieving an unqualified opinion.

9.

The working papers are

a. the property of client.
b. property of the auditor although prepared by client.
c. the primary means of documenting that an adequate audit was conducted in accordance with
GAAS.
d. used primarily as a basis for the partners to review and reward the work of the managers,
seniors, and staf.

10.

11.

Audit programs are modified to suit the circumstances on particular engagements. A complete audit
program for an engagement generally should be developed
a. prior to beginning the actual audit work.
b. after the auditor has completed an evaluation of the existing internal accounting control.
c. after reviewing the client's accounting records and procedures.
d. when the audit engagement letter is prepared.

Which of the following would ordinarily not be found in the permanent file?
a. The history of the company.
b. The name of the predecessor auditor.
c. A record of the most important accounting policies.
d. A list of the major lines of business.

12.

Transactions with related parties are important to the auditors because they will be disclosed in the
financial statements if material. Generally accepted accounting principles would not require disclosure of
a. the nature of the related-party relationship.
b. a description of transactions, including dollar amounts.
c. the amounts due from and to related parties.
d. Loans to officers during the year which had been repaid before the balance sheet date.

13.

Audit programs generally include procedures to test actual transactions and resulting balances. These
procedures are primarily designed to
a. gather corroborative evidence.
b. test the adequacy of internal control.
c. detect irregularities that result in misstated financial statements.
d. obtain information of informative disclosures.

14.

Which of the following items would not normally be included, in whole or in part, in the auditor's
permanent file on a client?
a. The articles of incorporation and bylaws.
b. Analyses of accounts such as long-term debt and stockholders' equity.
c. Organization charts and internal control questionnaires.

d.

The audit program.

15.

When a company changes auditors, SAS No. 7 requires communication between the predecessor and
successor auditors. The burden of initiating the communication rests with the
a. predecessor.
b. client.
c. successor.
d. SEC.

16.

A measure of how willing the auditor is to accept that the financial statements may be materially
misstated after the audit is completed and an unqualified opinion has been issued is the
a. inherent risk.
b. acceptable audit risk.
c. statistical risk.
d. financial risk.

17.

A measure of the auditor's assessment of the likelihood that there are material misstatements in an
account before considering the efectiveness of the client's internal control is
a. control risk.
b. acceptable audit risk.
c. statistical risk.
d. inherent risk.

18.

Investigation of new clients and reevaluation of existing ones is an essential part of deciding
a. inherent risk.
b. acceptable audit risk.
c. statistical risk.
d. financial risk.

19.

The largest portion of the auditor's working papers is the

a. lead schedules.
b. adjusting and reclassification entries.
c. supporting schedules.
d. working trial balance.

20.

The current file of the auditor's working papers generally should include
a. a flowchart of the internal controls.
b. organization charts.
c. a copy of the financial statements.
d. copies of bond and note indentures.

21.

Which of the following would not be classified as a related-party transaction?

a. An advance of one week's salary to an employee.
b. Sales of merchandise between affiliated companies.
c. Loans or credit sales to the principal owner or client.
d. Exchanges of equipment between two companies owned by the same person.

22.

Which of the following would not be found in the corporate charter?

a. The kinds and amount of capital stock authorized.
b. The date of incorporation.
c. The types of business activity that the corporation is allowed to conduct.
d. The rules and procedures adopted by the stockholders.

23.

During the course of an audit engagement an auditor prepares and accumulates audit working papers.
The primary purpose of the audit working papers is to
a. aid the auditor in adequately planning the work.
b. provide a point of reference for future audit engagements.
c. support the underlying concepts included in the preparation of the basic financial statements.
d. support the auditor's opinion.

24.

Ordinarily, the working papers can be provided to someone else only with the express permission of
the client. This is the case even if
a. the papers are subpoenaed by a court.
b. the papers are used as a part of an AICPA quality review program.
c. the papers are requested as evidence in an AICPA Trial Board hearing.
d. the papers are transferred as a result of a CPA selling his/her practice to another CPA firm.

25.

The purpose of an engagement letter is to

a. reduce the CPA firm's responsibility to external users of the audited financial statements.
b. reduce the terms of the engagement to writing in order to minimize misunderstandings.
c. notify the audit staf of an upcoming engagement so that personnel scheduling can be
facilitated.
d. satisfy the Statute of Frauds which requires that contracts for professional services must be in
writing to be enforceable.

26.

The auditor is likely to accumulate more evidence when the audit is for a company
a. whose stock is publicly held.
b. which has extensive indebtedness.
c. which is to be sold in the near future.
d. All three of the above.

27.

Which of the following is not an inherent risk that is common to all clients in certain industries?
a. Potential inventory obsolescence in the fashion clothes industry.
b. Reserve for loss in the casualty insurance industry.
c. Accounts receivable collection in the consumer loan industry.
d. Brand loyalty in the cosmetics industry.

28.

One means of informing the client that the auditor is not responsible for the discovery of all acts of
fraud is the
a. engagement letter.
b. representation letter.
c. responsibility letter.
d. client letter.

29.

Which of the following is the most likely first step an auditor would perform at the beginning of an
initial audit engagement?
a. Prepare a rough draft of the financial statements and of the auditor's report.
b. Study and evaluate the system of internal administrative control.
c. Tour the client's facilities and review the general records.
d. Consult with and review the work of the predecessor auditor prior to discussing the engagement
with the client management.

30.

The permanent section of the auditor's working papers generally should include
a. time and expense reports.

b.
c.
d.
31.

a copy of the engagement letter.

a copy of key customer confirmations.
names and addresses of all audit staf personnel on the engagement.

Which of the following would you expect to find in a corporation's bylaws?

a. The kinds and amounts of capital stock authorized.
b. The date of incorporation.
c. The rules and procedures adopted by the stockholders of the corporation.
d. The types of business activities that the corporation is authorized to conduct.

32.

Which of the following would not usually be included in the minutes of the board of directors and/or
stockholders?
a. The duties and powers of the corporate officers.
b. Declaration of dividends.
c. Authorization of long-term loans.
d. Authorization of individuals to sign checks.

33.

The purpose of the requirement in SAS No. 7 of having communication between the predecessor and
successor auditor is
a. to allow predecessor to disclose information which would otherwise be confidential.
b. to help the successor auditor to evaluate whether to accept the engagement.
c. to help the client by facilitating the change of auditors.
d. to ensure that information which is provided to the SEC on Form 8-K will be accurate.

34.

35.

An auditor should examine minutes of the board of directors' meetings

a. through the date of the financial statements.
b. through the date of the audit report.
c. only at the beginning of the audit.
d. on a test (sample) basis.
An extensive understanding of the client's business and industry and knowledge about the company's
operations are essential for doing an adequate audit. For a new client, most of this information is
obtained
a. from the predecessor auditor.
b. from the Securities and Exchange Commission.
c. from the permanent file.
d. at the client's premises.

36.

Most
a.
b.
c.
d.

auditors assess inherent risk as high for related parties and related-party transactions because
of the accounting disclosure requirement.
of the lack of independence between the parties.
both a and b.
it is required by generally accepted accounting principles.

37.

Which of the following would not fit the description of a related-party transaction?
a. An unusually large sale of merchandise to the company's best and largest customer.
b. Sales of merchandise between a parent company and its subsidiary.
c. Exchanges of equipment between two companies owned by the same person.
d. Loans to corporate officers at market rates of interest with a regular repayment schedule.

38.

One of the first things that the auditor will do after accepting a new client is
a. communicate with the client's predecessor auditor.

b.
c.
d.

contact the client's attorney to discover legal obligations.

study the client's internal controls.
tour the client's facilities.

39.

The first standard of field work recognizes that early appointment of the independent auditor has many
advantages to the auditor and the client. Which of the following advantages is least likely to occur as a
result of early appointment of the auditor?
a. The auditor will be able to plan the audit work so that it may be done expeditiously.
b. The auditor will be able to complete the audit work in less time.
c. The auditor will be able to better plan for the observation of the physical inventories.
d. The auditor will be able to perform the examination more efficiently and will be finished at an
early date after the year-end.

40.

The predecessor auditor is required to respond to the request of the successor auditor for information,
but the response can be limited to stating that no information will be provided when
a. predecessor auditor has poor relations with successor auditor.
b. client is dissatisfied with predecessor's work.
c. there are legal problems between client and predecessor.
d. predecessor believes that client lacks integrity.

41.

Permanent files contain all the data

a. about the most recent audits.
b. about the current audit and financial statements.
c. of a historical or continuing nature about the client.
d. of a historical or continuing nature pertinent to the current audit.

42.

With respect to records in a CPA's possession, rules of conduct provide that

a. copies of client records incorporated into audit working papers must be returned to the client
upon request.
b. worksheets in lieu of a general ledger belong to the auditor and need not be furnished to the
client upon request.
c. an extensive analysis of inventory prepared by the client at the auditor's request belongs to the
auditor and needs not be furnished to the client upon request.
d. the auditor who returns copies of client records must return the original records upon request.

43.

An example of a reclassification entry would be an entry

a. to reduce inventory when client failed to write down its obsolete raw materials.
b. to change material credit balances in accounts receivable accounts to accounts payable
accounts.
c. to increase the allowance for doubtful accounts when it was discovered that a customer had filed
for bankruptcy protection under Chapter 11.
d. to increase the federal income tax liability account when it was discovered that client would be
in a higher tax bracket than originally estimated.

44.

The engagement letter

a. afects the CPA firm's responsibility to external users of audited financial statements.
b. can be used to alter the auditor's responsibilities under generally accepted auditing standards.
c. can afect legal responsibilities to the client.
d. is useful only if it is an audit engagement, but has no efect for review or compilation services.

45.

The first standard of field work, which states that the work is to be adequately planned and assistants,
if any, are to be properly supervised, recognizes that

a.
b.
c.
d.

early appointment of the auditor is advantageous to the auditor and the client.
acceptance of an audit engagement after the close of the client's fiscal year is generally not
permissible.
appointment of the auditor subsequent to the physical count of inventories requires a disclaimer
of opinion.
performance of substantial parts of the examination is necessary at interim dates.

46.

The least efective method of identifying related parties would be

a. an inquiry of management.
b. a review of SEC filings.
c. a review of the purchases and sales journals for the period under audit.
d. an examination of stockholders' listings to identify principal stockholders.

47.

Which of the following is not a document or record that should be examined early in the engagement?
a. Management letter.
b. Corporate charter and bylaws.
c. Contracts.
d. Minutes of board of directors' and stockholders' meetings.

48.

Which of the following is not a potential efect of an auditor's decision that a lower acceptable audit
risk is appropriate?
a. More evidence is required.
b. Less evidence is required.
c. Special care is required in assigning experienced staf.
d. Review of the working papers by personnel who were not assigned to the engagement.

49.

The official record of the meetings of the board of directors and stockholders is contained in the
corporate
a. bylaws.
b. charter.
c. minutes.
d. license.

50.

Which of the following is a basic tool used by the auditor to control the audit work and review the audit
progress?
a. Audit program.
b. Engagement letter.
c. Time and expense summary.
d. Progress flowchart.

51.

Companies filing with the SEC are required by FASB 14 to

a. prepare financial statements for each diferent segment of the business.
b. disclose segment information for diferent lines of business in the financial statements.
c. disclose if there are segments of the business, but they are not required to disclose the
percentage of revenue generated by each segment.
d. disclose segment information on the 10-K filed with the SEC, but it is not required on the
financial statements which are published in the annual report.

52.

Reclassification entries are recorded in the

a. sales journal.
b. cash receipts journal.
c. general journal.

d.

financial statements but not in the general ledger.

53.

An auditor searching for related party transactions should obtain an understanding of each subsidiary's
relationship to the total entity because
a. the business structure may be deliberately designed to obscure related-party transactions.
b. this may reveal whether particular transactions would have taken place if the parties had not
been related.
c. intercompany transactions may have been consummated on terms equivalent to arm's-length
transactions.
d. this may permit the audit of intercompany account balances to be performed as of concurrent
dates.

54.

Since SAS No. 21 requires audit testing of segment information if client has diferent lines of business,
it is important for the auditor to
a. visit all the diferent business locations before the audit is completed.
b. identify the segments early.
c. develop an audit program for each line of business.
d. have an office in each city where a business segment is located.

55.

After preliminary audit arrangements have been made, an engagement confirmation letter should be
sent to the client. The letter usually would not include
a. a reference to the auditor's responsibility for the detection of errors or irregularities.
b. an estimation of the time to be spent on the audit work by audit staf and management.
c. a statement that management advisory services would be made available upon request.
d. a statement that a management letter will be issued outlining comments and suggestions as to
any procedures requiring the client's attention.

56.

57.

58.
59.

Which of the following would not be included in the auditor's working papers?
a. The accounting manual.
b. The results of the preceding year's audit.
c. Descriptive information about the internal control structure.
d. A time budget for the various audit areas.
It is easier and more common to implement increased evidence accumulation for inherent risk than for
acceptable audit risk because
a. inherent risk can usually be isolated to one or two accounts.
b. inherent risk applies to the entire audit.
c. acceptable audit risk and sample sizes are set statistically.
d. acceptable audit risk does not impact on the amount of evidence which must be accumulated.
Discuss the purpose of an audit engagement letter.
Define the term "related party" and discuss why an auditor should identify the client's related parties
early in the audit.

58.
The purpose of an audit engagement letter is to establish a clear understanding between the auditor
and the client of the terms of the engagement.
60.
A related party is an affiliated company, principal owner of the client company, or any other party with
which the client deals where one of the parties can influence the management or operating policies of
the other. Auditors need to be aware of who are the client's related parties early in the audit to enable
the auditor to identify related-party transactions, especially those that have not been disclosed.

https://www.scribd.com/doc/49063802/Auditing-Theory
http://www.pinoyexchange.com/forums/showthread.php?t=566199
https://www.scribd.com/document/50491391/NFJPIA-Mockboard-2011-BLT
http://study4smart-accountancy.blogspot.com/2013_11_01_archive.html
https://cpadiary.wordpress.com/2013/04/25/auditing-theory-cpar/
http://philippinecpareview.blogspot.com/2014/05/cpar-materials-auditing-theory-reviewers.html
http://philippinecpareview.blogspot.com/p/auditing-theory.html

Auditing Theory Test Bank

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

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
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

17. The independent auditor lends credibility to clients financial statements by

a) Maintaining a clear-cut distinction between managements representations and the auditors representation
b) Testifying under oath about clients financial statements
c) Stating in the auditors management letter that the examination was made in accordance with generally
accepted auditing standards
d) Attaching an auditors opinion to the clients 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

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

20. When an auditor expresses an adverse opinion he/sheshould disclose the substantive reasons for such
anopinion in an explanatory paragraph
a) Within the notes to the financial statements
b) Preceding the opinion paragraph
c) Following the opinion paragraph
d) Preceding the introductory paragraph

21. Tolerable error means

a) An error that arises from an isolated event that has not recurred other than on specifically identifiable occasions
and is therefore not representative of errors in the population
b) An error that the auditor expects to be present in the population
c) The maximum error in a population that the auditor is willing to accept
d) The possibility that the auditor's conclusion, based on a sample may be different from the conclusion reached if
the entire population were subjected to the same audit procedure

22. Examples of events or conditions, which individually or collectively, may cast significant doubt about the going
concern assumption include the following except
a) Net liability or net current liability position
b) Change from credit to cash-on-delivery transactions with suppliers
c) Labor difficulties or shortages of important supplies
d) Compliance with capital or other statutory requirements

23. Which of the following procedures is not included in a review engagement on a nonpublic entity
a) Inquiries of management
b) Inquiries regarding events subsequent to the balance sheet date
c) Any procedures designed to identify relationships among data that appear to be unusual
d) A study and evaluation of internal control structure

24. In planning the audit engagement, the auditor should consider each of the following except
a) The kind of opinion that will likely be given
b) Matters relating to the entitys business and the industry in which it operates
c) The entitys accounting policies and procedures
d) Anticipated levels of control risk and materiality

25. What assurance is provided by the practitioner in an agreed-upon procedures engagement?

a) Reasonable
b) Absolute
c) Moderate
d) No assurance
26. To test for unsupported entries in the journal, the direction of audit testing should be from the
a) Journal entries
b) Ledger entries
c) Original source documents
d) Externally generated documents

27. For good internal control, the purchasing department should not be responsible for
a) Authorizing the acquisition of goods
b) Finding the lowest cost vendor
c) Reviewing the vendors catalog descriptions and prices for standardized items
d) Designing the purchase order form

28. Involves tracing a few transactions through the accounting system

a) Test of controls
b) Walk-through test
c) Analytical procedures
d) Substantive procedures

29. This exists, when other information, not related to matters appearing in the financial statements, is incorrectly
stated or presented
a) Material inconsistency
b) Material misstatement
c) Material misstatement of fact
d) Material error affecting the other information

30. Who appoints the members of the Board of Accountancy

a) The chairman of BOA
b) The president of the Philippines
c) The chairman of the PRC
d) The president of PICPA

31. An auditor is required to obtain an understanding of the entity's business, including business cycles and
reasons for business fluctuations. What is the audit purpose most directly served by obtaining this understanding?
a) To enable the auditor to accurately identify significant deficiencies in internal control
b) To assist the auditor in accurately interpreting information obtained during an audit
c) To allow the auditor to more accurately perform tests of controls
d) To decide whether it will be necessary to perform analytical procedures

32. Which of the following is not true about the report release date?
a) It is defined as the date after which existing documentation must not be deleted, and additions to
the documentation file must be documented as such
b) It is often the date on which the report is delivered to the client
c) It is the date on which the auditor grants the client permission to use the report
d) It is used to define the beginning of the retention period

33. An auditor should not issue a report on

a) Quarterly financial information
b) Internal control
c) Management performance
d) The achievability of forecasts

34. Which of the following procedures would an auditor most likely perform to obtain evidence about the
occurrence of subsequent events?
a) Confirming a sample of material accounts receivable established after year-end
b) Comparing the financial statements being reported on with those of the prior period
c) Investigating personnel changes in the accounting department occurring after year-end
d) Inquiring as to whether any unusual adjustments were made after year-end

35. To which of the following matters would materiality limits not apply when obtaining written client
representations?
a) Violations of state labor regulations
b) Disclosure of line-of-credit arrangements
c) Information about related party transactions
d) Instances of fraud involving management
36. Who ultimately determines the scope of the audit?
a) The auditor
b) The client
c) Both a and b
d) Neither a nor b

37. Financial statements prepared in accordance with a financial reporting framework designed to meet the
financial information needs of specific users are referred to as
a) Special purpose financial statements
b) Special purpose framework
c) General purpose financial statements
d) Specific purpose financial statements

38. An auditor plans to apply substantive tests to the details of asset and liability accounts as of an interim date
rather than as of the balance sheet date. The auditor should be aware that this practice

a) Eliminates the use of certain statistical sampling methods that would otherwise be available
b) Presumes that the auditor will reperform the tests of the balance sheet date
c) Should be especially considered when there are rapidly changing economic conditions
d) Potentially increases the risk that errors that exist at the balance sheet date will not be detected

39. Close family include the following, except

a) Parent
b) Sibling
c) Non-dependent child
d) Spouse

40. A computer-assisted audit technique that is most likely to be effective in a continuous auditing environment is
a) Parallel simulation
b) Controlled reprocessing
c) Embedded audit modules
d) Transaction tripping
41. Which of the following is not prohibited by the Code of Professional Ethics for CPAs?
a) Advertising and solicitation of clients
b) Payment of commissions to obtain a client
c) Receiving a contingent fee on a tax case before the Bureau of Internal Revenue
d) Offering employment to a staff member of another CPA without first informing the CPA

42. The management's assessment of the entity's ability to continue as a going concern covers a period of
a) Not longer than 12 months from balance sheet date
b) At least 12 months from the balance sheet date
c) Not longer than 12 months from the date of audit report
d) At least 12 months from the date of audit report

43. To obtain evidential matter about control risk, an auditor selects tests from a variety of techniques including
a) Inquiry
b) Analytical procedures
c) Calculation
d) Confirmation

44. The need for independent audits of financial statements can be attributed to all of the following conditions
except
a) Remoteness
b) Consequence
c) Complexity of subject matter
d) Validity

45. After issuing a report an auditor includes that an auditing procedure considered necessary at the time of the
examination was omitted from the examination. The auditor should first
a) Undertake to apply the omitted procedure or alternative procedures that would provide a satisfactory basis for
the auditor's opinion
b) Assess the importance of the omitted procedure to the auditor's ability to support the opinion
expressed on the financial statements taken as a whole
c) Notify the audit committee or the board of directors that the auditor's opinion can no longer be relied upon
d) Review the results of other procedures that were applied to compensate for the one omitted or to make its
omission less important

46. This quality control element requires a CPA firm to establish policies and procedures to provide it with
reasonable assurance that engagements are performed in accordance with professional standards and regulatory
and legal requirements, and that the firm or the engagement partner issue reports that are appropriate in the
circumstances
a) Ethical requirements
b) Engagement performance
c) Monitoring
d) Human resources

47. Communication with a predecessor auditor is initiated by

a) Management
b) The successor auditor
c) The audit committee of the board of directors
d) The chair of the board of directors

48. In which of the following may confidential information not be disclosed?

a) To comply with the quality review of a member body or professional body
b) To submit evidence in the course of legal proceedings
c) Acquiring information in the course performing professional services and use that information for
personal advantages
d) When consent to disclose information is given by the client

49. The auditor should perform the following risk assessment procedures to obtain an understanding of the entity
and its environment, including its internal control, except
a) Inquiries of management and others within the entity
b) Reperformance
c) Analytical procedures
d) Observation and inspection

50. The auditor should determine overall responses to address the risks of material misstatement at the financial
statement level. Such responses most likely include
a) Assigning less experienced staff
b) Performing predictable further audit procedures
c) Performing substantive procedures at an interim date instead of at period end
d) Emphasizing to the audit team the need to maintain professional skepticism in gathering and
evaluating audit evidence
51. The need for assurance services arises for all of the following reason except
a) Potential bias in providing information
b) Closeness between a user and the organization
c) Complexity of the processing systems
d) Remoteness between a user and the organization

52. Which one of the following is not a key attribute needed to perform assurance?
a) Subject matter knowledge
b) Independence
c) Established criteria or standards
d) Accounting skills

53. Which one of the following is not part of the attest process?
a) Providing the accuracy of the books and records
b) Gathering evidence about assertions
c) Evaluating evidence against objective criteria
d) Communicating the conclusions reached

54. Users of the audit report can reasonably expect the audited financial statements to be
a) Complete and contain many of the important financial disclosures
b) Presented fairly according to the substance of GAAP
c) Free from all errors
d) All of the above

55. Which of the following services is the broadest and most inclusive
a) Audit
b) Attestation
c) Assurance
d) Compliance

56. One reason why an auditor makes an analytical review of the clients operations is to identify
a) Improper separation of accounting and other financial duties
b) Weakness of a material nature in the system of internal accounting control
c) Unusual transactions
d) Non-compliance with prescribed control procedures

57. Analytical procedures used in planning an audit should focus on identifying

a) Material weaknesses in the internal control structure
b) The predictability of financial data from individual transactions
c) The various assertions that are embodied in the financial statements
d) Areas that may represent specific risk relevant to audit

58. An integrated test facility (ITF) would be appropriate when the auditor needs to
a) Trace a complex logic path through an application system
b) Verify processing accuracy concurrently with processing
c) Monitor transactions in an application system continuously
d) Verify load module integrity for production programs

59. The rotation of senior accounting personnel can be regarded as a safeguard

a) Created by the profession
b) Within the clients systems and procedures
c) In the work environment
d) Created within the business community

60. If certain forms are not consecutively numbered

a) Systematic sampling may be appropriate
b) Selection of a random sample probably is not possible
c) Stratified sampling should be used
d) Random number tables cannot be used

61. A cash shortage may be concealed by transporting funds from one location to another or by converting
negotiable assets to cash. Because of this, which of the following is vital?
a) Simultaneous confirmations
b) Simultaneous bank reconciliations
c) Simultaneous verification
d) Simultaneous surprise cash count

62. Which of the following is most likely to indicate a significant deficiency relating to a client's anti-fraud
programs?
a) A broad scope of internal audit activities
b) A "whistle-blower" program that encourages anonymous submissions
c) Audit committee passivity when conducting oversight functions
d) Lack of performance of criminal background investigations for likely customers

63. Which of the following is not an attestation standard?

a) Sufficient evidence shall be obtained to provide a reasonable basis for the conclusion that is expressed in the
report
b) The report shall identify the subject matter on the assertion being reported on and state the character of the
engagement
c) The work shall be adequately planned and assistants, if any, shall be properly supervised
d) A sufficient understanding of internal control shall be obtained to plan the engagement

64. Proper segregation of functional responsibilities calls for separation of the functions of
a) Authorization, execution, and payment
b) Authorization, recording, and custody
c) Custody, execution, and reporting
d) Authorization, payment, and recording

65. Control risk should be assessed in terms of

a) Specific controls
b) Types of potential fraud
c) Financial statement assertions
d) Control environment factors
66. Which of the following is not a step in an auditor's assessment of control risk?
a) Evaluate the effectiveness of internal control with tests of controls
b) Obtain an understanding of the entity's information system and control environment
c) Perform tests of details of transactions to detect material misstatements in the financial statements
d) Consider whether controls can have a pervasive effect on financial statement assertions

67. Which of the following procedures would an auditor ordinarily perform first in evaluating management's
accounting estimates for reasonableness?
a) Develop independent expectations of management's estimates
b) Consider the appropriateness of the key factors or assumptions used in preparing the estimates
c) Test the calculations used by management in developing the estimates
d) Obtain an understanding of how management developed its estimates

68. An entity's income statements were misstated due to the recording of journal entries that involved debits and
credits to an unusual combination of expense and revenue accounts. The auditor most likely could have detected
this fraudulent financial reporting by
a) Tracing a sample of journal entries to the general ledger

b) Evaluating the effectiveness of internal control

c) Investigating the reconciliations between controlling accounts and subsidiary records
d) Performing analytical procedures designed to disclose differences from expectations

69. Which of the following is most likely to be unique to the audit work of CPAs as compared to work performed by
practitioners of other professions?
a) Due professional care
b) Competence
c) Independence
d) Complex body of knowledge

70. Which of the following would an auditor most likely use in determining the auditor's preliminary judgment
about materiality?
a) The anticipated sample size of the planned substantive tests
b) The entity's annualized interim financial statements
c) The results of the internal control questionnaire
d) The contents of the management representation letter
71. Which of the following conditions identified during fieldwork of an audit is most likely to affect the auditor's
assessment of the risk of misstatement due to fraud?
a) Checks for significant amounts outstanding at year-end
b) Computer generated documents
c) Missing documents
d) Year-end adjusting journal entries.

72. An auditor ordinarily uses a working trial balance resembling the financial statements without footnotes, but
containing columns for
a) Cash flow increases and decreases
b) Audit objectives and assertions
c) Reclassifications and adjustments
d) Reconciliations and tick marks

73. The risk that an auditor will conclude, based on substantive tests, that a material misstatement does not exist
in an account balance when in fact such misstatement does exist is referred to as
a) Detection risk
b) Sampling risk
c) Non-sampling risk
d) Inherent risk

74. The usefulness of the standard bank confirmation request may be limited because the bank employee who
completes the form may
a) Be unaware of all the financial relationships that the bank has with the client
b) Not believe that the bank is obligated to verify confidential information to a third party
c) Sign and return the form without inspecting the accuracy of the client's bank reconciliation
d) Not have access to the client's cutoff bank statement

75. A material weakness is a significant deficiency (or combination of significant deficiencies) that results in a
reasonable possibility that a misstatement of at least 'what amount will not be prevented or detected?
a) An amount greater than zero
b) An amount greater than zero, but at least inconsequential

c) An amount greater than inconsequential

d) A material amount
76. The existence of audit risk is recognized by the statement in the auditor's standard report that the auditor
a) Obtains reasonable assurance about whether the financial statements are free of material
misstatement.
b) Assesses the accounting principles used and also evaluates the overall financial statement presentation.
c) Realizes some matters either individually or in the aggregate, are important while other matters are not
important.
d) Is responsible for expressing an opinion on the financial statements, which arc the responsibility of
management.

77. Which of the following services would be most likely to be structured as an attest engagement?
a) Advocating a client's position in tax matter.
b) A consulting engagement to develop a new database system for the revenue cycle.
c) An engagement to issue a report addressing an entity's compliance with requirements of specified
laws.
d) The compilation of a client's forecast information.

78. Which of the following is ordinarily considered to be a fraud risk factor?

a) The company's financial statements include a number of last minute material adjustments.
b) Management regularly informs investors of forecast information.
c) The company has experienced increasing earnings over the previous five years.
d) The company's president is included as a member of the board of directors.

79. Which is least likely to be a question asked of client personnel during a walk-through in an audit of the internal
control of an issuer (public) company?
a) What do you do when you find an error'?
b) Who is most likely to commit fraud among your coworkers?
c) What kind of errors have you found?
d) Have you ever been asked to override the process or controls?

80. An auditor who uses the work of a specialist may refer to and identify the specialist ill the auditor's report if the
a) Specialist is also considered to be a related party.
b) Auditor indicates a division of responsibility related to the work of the specialist.
c) Specialist's work provides the auditor greater assurance of reliability.
d) Auditor expresses an "except for" qualified opinion or an adverse opinion related to the work of the
specialist.
81. Which of the following statements concerning evidential matter is correct?
a) Appropriate evidence supporting management's assertions should be convincing rather than merely persuasive.
b) Effective internal control contributes little to the reliability of the evidence created within the entity.
c) The cost of obtaining evidence is not an important consideration to an auditor in deciding what evidence should
be obtained.
d) A client's accounting data cannot be considered sufficient audit evidence to support the financial
statements.

82. Confirmations of accounts receivable address which assertion most directly?

a) Completeness
b) Existence
c) Valuation
d) Classification

83. When performing a review of an issuer company, which is least likely to be included in the CPA's inquires of
management members with responsibility for financial and accounting matters?
a) Subsequent events
b) Significant journal entries and other adjustments
c) Communications with related parties
d) Unusual or complex situations affecting the financial statements

84. The adverse effects of events causing an auditor to believe there is substantial doubt about an entity's ability to
continue as a going concern would most likely be mitigated by evidence relating to the
a) Ability to expand operations into new product lines in the future.
b) Feasibility of plans to purchase leased equipment at Jess than market value.
c) Marketability of assets that management plans to sell.
d) Committed arrangements to convert preferred stock to long-term debt.

85. One reason that an auditor only obtains reasonable, and not absolute, assurance that financial statements are
free from material misstatement is
a) Comprehensive basis reporting
b) Employee collusion
c) Material misstatements
d) Professional scepticism
86. When an auditor concludes there is substantial doubt about a continuing audit client's ability to continue as a
going concern for a reasonable period of time, the auditor's responsibility is to
a) Issue a qualified or adverse opinion, depending upon materiality, due to the possible effects on the financial
statements.
b) Consider the adequacy of disclosure about the client's possible inability to continue as a going
concern.
c) Report to the client's audit committee that management's accounting estimates may need to be adjusted.
d) Reissue the prior year's auditors report and add an explanatory paragraph that specifically refers to "substantial
doubt" and "going concern."

87. The accountant who is not independent may perform which of the following types of engagements?
a) Audit
b) Agreed-upon procedures
c) Compilation
d) Review

88. Which of the following should an auditor obtain from the predecessor auditor prior to accepting an audit
engagement?
a) Analysis of balance sheet accounts
b) Analysis of income statement accounts
c) All matters of continuing accounting significance
d) Facts that might bear on the integrity of management

89. Which is least likely to be a response when an auditor has obtained evidence indicating a risk of material
misstatement in the area of inventory?
a) Request inventory counts at the end of each month.
b) Discuss questions of inventory valuation with any other auditors involved with the audit.
c) Make oral inquiries of major suppliers in addition to written confirmations.
d) Perform inventory observations on an unannounced basis.

90. The independent auditor selects several transactions in each functional area and traces them through the entire
system, paying special attention to evidence about whether or not the controls are in operation. This is an example
of a(n)
a) Application test
b) Test of controls
c) Substantive test
d) Test of a function
91. Accounting control procedures within computer processing may leave no visible evidence indicating that the
procedures were performed. In such instances, the auditor should test these controls by
a) Making corroborative inquiries.
b) Observing the separation of duties of personnel.
c) Reviewing transactions submitted for processing and comparing them to related output.
d) Reviewing the run manual.

92. If information is for management's use only, which of the following forms of CPA association with financial
information is most likely to result in no report being issued?
a) An agreed-upon procedures engagement
b) An audit
c) A compilation
d) A review

93. In obtaining an understanding of a manufacturing entity's internal control over inventory balances, an auditor
most likely would
a) Review the entity's descriptions of inventory policies and procedures.
b) Perform test counts of inventory during the entity's physical count.
c) Analyze inventory turnover statistics-to identify slow-moving and obsolete items.
d) Analyze monthly production reports to identify variances and unusual transactions.

94. When auditing merchandise inventory at year-end, the auditor performs a purchase cutoff test to obtain
evidence that
a) All goods owned at year-end are included in the inventory balance.
b) All goods purchased before year-end are received before the physical inventory count.
c) No goods held on consignment for customers are included in the inventory balance.
d) No goods observed during the physical count are pledged or sold.

95. A company has changed its method of inventory valuation from an unacceptable one toone in conformity with
generally accepted accounting principles. The auditor's report on the financial statements of the year of the change
should include
a) No reference to consistency.
b) A reference to a prior period adjustment in the opinion paragraph.
c) An explanatory paragraph explaining the change.
d) A justification for making the change and the impact of the change on reported net income.
96. An abnormal fluctuation in gross profit that might suggest the need for extended audit procedures for sales and
inventories would most likely be identified in the planning phase of the audit by the use of
a) Tests of transactions and balances
b) A preliminary review of internal control
c) Specialized audit programs
d) Analytical procedures

97. Which of the following statements best describes the ethical standard of the profession pertaining to
advertising and solicitation?
a) All forms of advertising and solicitation are prohibited.
b) There are no prohibitions regarding the manner in which CPAs may solicit new business.
c) A CPA may advertise in any manner that is not false, misleading, or deceptive.
d) A CPA may only solicit new clients through mass mailings.

98. A note to the financial statements of a bank indicates that all of the records relating to its business operations
are stored on magnetic disks; and that there are no emergency back-up systems or duplicate disks stored since the
bank and their auditors consider the occurrence of a catastrophe to be remote. Based upon this, one would expect
the auditor's report to express
a) An adverse opinion
b) An "except for" opinion
c) An unqualified opinion
d) A qualified opinion

99. Which of the following is not typically performed when accountants are performing a review of the financial
statements of a nonissuer?
a) Analytical procedures applied to financial data
b) Inquiries about significant subsequent events
c) Inquiries of the client's attorney about legal matters
d) Obtaining an understanding of the accounting principles followed by the client's industry

100. Which of the following is least likely to be a restricted use report?

a) A report on financial statements prepared following a comprehensive basis of accounting other than
generally accepted accounting principles.
b) A report on internal control significant deficiencies noted in an audit.
c) A required communication with the audit committee.
d) A report on compliance with aspects of contractual agreements.

https://cpadiary.wordpress.com/page/4/
https://cpadiary.wordpress.com/2013/04/25/auditing-theory-cpar/
http://www.pinoyexchange.com/forums/showthread.php?t=566199&page=9
https://www.scribd.com/document/50491391/NFJPIA-Mockboard-2011-BLT
https://www.scribd.com/document/50491387/Nfjpia-Mockboard-2011-At
http://philippinecpareview.blogspot.com/2014/05/answer-key-assurance-engagement-by.html
http://philippinecpareview.blogspot.com/2014/05/answer-key-management-accounting.html