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AUDITING THEORY

1. How are management’s responsibility and the auditor’s responsibility represented in the standard auditor’s report?
Management’s responsibility Auditor’s responsibility
A. Implicitly Explicitly
B. Explicitly Implicitly
C. Explicitly Explicitly
D. Implicitly Implicitly

2. When an auditor has a question concerning a client’s ability to continue as a going concern, the auditor considers management plans for dealing with
the situation. That consideration is most likely to include consideration of management’s plans to
A. decrease ownership equity. C. increase expenditures on key products.
B. dispose of assets. D. invest in derivative securities.

3. Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal controls in the revenue cycle?
A. Fictitious transactions may be recorded that cause an understatement of revenues and an overstatement of receivables.
B. Claims received from customers for goods returned may be intentionally recorded in other customers’ accounts.
C. Authorization of credit memos by personnel who receive cash may permit the misappropriation of cash.
D. The failure to prepare shipping documents may cause an overstatement of inventory balances.

4. During an engagement to review the financial statements of an entity, an accountant becomes aware that several leases that should be capitalized are
not capitalized. The accountant considers these leases to be material to the financial statements. The accountant decides to modify the standard
review report because management will not capitalize the leases. Under these circumstances, the accountant should
A. issue an adverse opinion because of the departure from PFRS.
B. express no assurance of any kind on the entity’s financial statements.
C. emphasize that the financial statements are for limited use only.
D. disclose the departure from PFRS in a separate paragraph of the accountant’s report.

5. A practitioner may perform an agreed-upon procedures engagement on prospective financial statements provided that which of the following is not
met?
A. Use of the agreed-upon procedures report is not restricted.
B. The practitioner sets the criteria to be used in the determination of findings.
C. The client agrees that the practitioner will decide appropriate procedures to be performed.
D. The prospective financial statements include a summary of significant assumptions.

6. Which of the following would cause an auditor of an entity’s financial statements to issue either a qualified opinion or a disclaimer of opinion?
A. Scope limitation involving a recorded uncertainty. C. The use of inappropriate accounting principle.
B. Inadequate disclosure of an uncertainty. D. Unreasonable accounting estimate.

7. If interim substantive procedures for an account identified no exceptions, which of the following would the auditor not perform on that account at
year-end?
A. Test of details for the entire year under audit.
B. Test of details of activity during the period since the interim testing date.
C. Reconciliation of year-end balances to interim balances.
D. Substantive analytical procedures of the period since the interim testing date.

8. A client is presenting comparative (two-year) financial statements. Which of the following is correct concerning reporting responsibilities of a
continuing auditor?
A. The auditor should issue one audit report that is on both presented years.
B. The auditor should issue two audit reports, one on each year.
C. The auditor should issue one audit report, but only on the most recent year.
D. The auditor may issue either one audit report on both presented years, or two audit reports, one on each year.

9. Which of the following procedures would an accountant at least likely perform during an engagement to review the financial statements of an entity?
A. Observing the safeguards over access to and use of assets and records.
B. Comparing the financial statements with anticipated results in budgets and forecasts.
C. Inquiring of management about actions taken at the board of directors’ meetings.
D. Studying the relationships of financial statement elements expected to conform to predictable patterns.

10. Which of the following statements is correct concerning statistical sampling in test of controls?
A. As the population size increases the sample size should increase proportionately.
B. Deviations from specific internal controls procedures at a given rate ordinarily result in misstatements at a lower rate.
C. There is an inverse relationship between the expected population deviation rate and the sample size.
D. In determining tolerable rate, an auditor considers detection risk and the sample size.

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


A. compiling or assembling a financial forecast that is based on management’s assumptions.
B. limiting the distribution of the accountant’s report to management and the board of directors.
C. assuming responsibility to update management on key events for one year after the report’s date.
D. evaluating the preparation of a financial forecast and the support underlying management’s assumptions.

12. Which of the following statements is correct regarding an accountant’s working papers?
A. The accountant owns the working papers and generally may disclose them as the accountant sees fit.
B. The client owns the working papers but the accountant has custody of them until the accountant’s bill is paid in full.
C. The accountant owns the working papers but generally may not disclose them without the client’s consent or a court order.
D. The client owns the working papers but, in the absence of the accountant’s consent, may not disclose them without a court order.

13. Which of the following would an auditor most likely use in determining the auditor’s preliminary judgment about materiality?
A. The results of the initial assessment of control risk. C. The entity’s financial statements of the prior year.
B. The anticipated sample size for planned substantive tests. D. The assertions that are embodied in the financial statements.
14. If an audit firm discovers threats to independence with respect to an audit engagement, the Code of Ethics indicates that the firm should
A. immediately resign from the engagement.
B. notify the appropriate regulatory body.
C. document the issue.
D. evaluate the significance of the threats and apply appropriate safeguards to reduce them to an acceptable level.

15. Which of the following is correct concerning requirements about auditor communications about fraud?
A. Fraud that involves senior management should be reported directly to the audit committee regardless of the amount involved.
B. Fraud with a material effect on the financial statements should be reported directly by the auditor to the Securities and Exchange
Commission.
C. Fraud with a material effect on the financial statements should ordinarily be disclosed by the auditor through the use of an “emphasis of a
matter” paragraph added to the audit report.
D. The auditor has no responsibility to disclose fraud outside the entity under any circumstances.

16. Assessing control risk at a low level most likely would involve
A. performing more extensive substantive tests with larger sample sizes than originally planned.
B. reducing inherent risk for most of the assertions relevant to significant account balances.
C. changing the timing of substantive tests by omitting interim-date testing and performing the tests at year-end.
D. identifying specific controls relevant to specific assertions.

17. Which of the following is a general principle relating to the reliability of audit evidence?
A. Audit evidence obtained from indirect sources rather than directly is more reliable than evidence obtained directly by the auditor.
B. Audit evidence provided by copies is more reliable that that provided by facsimiles.
C. Audit evidence obtained from knowledgeable independent sources outside the client company is more reliable than audit evidence
obtained from nonindependent sources.
D. Audit evidence provided by original documents is more reliable than audit evidence generated through a system of effective controls.

18. Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities?
A. Trace a sample of accounts payable entries recorded just before year-end to the unmatched receiving report file.
B. Compare a sample of purchase orders issued just after year-end with the year-end accounts payable trial balance.
C. Vouch a sample of cash disbursements record just after year-end to receiving reports and vendor invoices.
D. Scan the cash disbursements entries recorded just before year-end for indications of unusual transactions.

19. In an accountant’s review of interim financial information, the accountant typically performs each of the following, except
A. reading the available minutes of the latest stockholders’ meeting.
B. applying financial ratios to the interim financial information.
C. inquiring of the accounting departments’ management.
D. confirming major receivable accounts.

20. As a result of sampling procedures applied as test of controls, an auditor incorrectly assesses control risk higher than appropriate. The most likely
explanation for this situation is that:
A. The deviation rate in the auditor’s sample is less than the tolerable rate, but the deviation rate in the population exceeds the tolerable rate.
B. The deviation rates of both the auditor’s samples and the population exceed the tolerable rate.
C. The deviation rates of both the auditor’s sample and the population are less than the tolerable rate.
D. The deviation rate in the auditor’s sample exceeds the tolerable rate, but the deviation rate in the population is less than the tolerable
rate.

21. A client decides not to make an auditor’s proposed adjustments that collectively are not material, and wants the auditor to issue the report based on
the unadjusted numbers. Which of the following statements is correct regarding the financial statements presentation?
A. The financial statements do not conform with PFRS.
B. The financial statements contain unadjusted misstatements that should result in a qualified opinion.
C. The financial statements are free from material misstatement, but disclosure of the proposed adjustments is required in the notes to the
financial statements.
D. The financial statements are free from material misstatement, and no disclosure is required in the notes to the financial statements.

22. Indicate which changes should require an emphasis of matter paragraph in the audit report.
The CPA concludes there is substantial doubt about the entity’s The CPA makes reference to the work of an expert to indicate shared
ability to continue as a going concern responsibility in an unmodified opinion.
A. Yes Yes
B. No Yes
C. Yes No
D. No No

23. When a professional accountant learns of a material error or omission in a tax return of a prior year, he/she has the responsibility to do the following,
except
A. consider discontinuing association with the client if the client does no correct the error.
B. advise the employer to correct the error and recommend that disclosure be made to the revenue authorities.
C. promptly advise the client or employer of the error or omission and recommend that disclosure be made to the revenue authorities.
D. promptly inform the revenue authorities even without the permission of the client.

24. When auditing “around” the computer, the independent auditor focuses solely upon the source documents and
A. Test data.
B. IT processing.
C. IT output.
D. Compliance techniques.

25. If the statement of financial position if a company is dated December 31, 2018, the audit report is dated February 18, 2019, and both are released on
February 25, 2019, this indicates that the auditor has searched for subsequent events that occurred up to
A. December 31, 2018 B. January 1, 2019 C. February 18, 2019 D. February 25, 2019
26. Using your knowledge of the relationships among acceptable audit risk, inherent risk, control risk, planned detection risk, tolerable misstatement, and
planned evidence, determine the effect on planned evidence (increase or decrease) of changing each of the following factors, while the other factors
remain unchanged.
A B C D
1. An increase in acceptable audit risk. Increase Decrease Increase Decrease
2. An increase in inherent risk. Decrease Decrease Increase Increase
3. A decrease in control risk. Increase Increase Decrease Decrease
4. An increase in planned detection risk. Increase Decrease Increase Decrease
5. An increase in tolerable misstatement Increase Increase Decrease Decrease

27. A requirement that working paper be reviewed by the supervisor, and any deficiencies be discussed with the preparer is an example of a quality
control procedure in the area of
A. acceptance and continuance of client relationships and specific engagements.
B. engagement performance.
C. human resources.
D. relevant ethical requirements.

28. Which of the following statements regarding analytical procedures is not correct?
A. Analytical tests emphasizes a comparison of client internal controls to PFRS.
B. Analytical procedures are required on all audit procedures.
C. Analytical procedures can be used as substantive tests.
D. For certain accounts with small balances, analytical procedures alone may be sufficient evidence.

29. An auditor is auditing a mutual fund company that uses a transfer agent to handle accounting for shareholders. Which of the following actions by the
auditor would be most efficient for obtaining information about the transfer agent’s internal control?
A. Review reports on internal control placed in operation and its operating effectiveness produced by the agent’s own auditor.
B. Review prior-year workpapers to determine whether the number of transactions processed by the agent has materially increases.
C. Perform an audit on the internal control function of the agent.
D. Perform tests of controls on a sample of the audited firm’s transactions through the agent.

30. Using laptop computers in conducting financial statement audits may affect the methods used to review the work of staff assistants because
A. Supervisory personnel may not have an understanding of the capabilities and limitations of computers.
B. Working paper documentation may not contain readily observable details of calculations.
C. The overall audit objectives may differ.
D. Documenting the supervisory review may require assistance of management services personnel.

31. If requested to perform a review engagement for an entity in which an accountant has an immaterial direct financial interest, the accountant is
A. not independent and, therefore, may issue a review report, but may not issue and auditor’s report.
B. not independent and, therefore, may not be associated with the entity’s financial statements.
C. not independent and, therefore, may not issue a review report.
D. independent because the financial interest is immaterial and, therefore, may issue a review report.

32. When the audited financial statements of the prior year are presented together with those of the current year, the continuing auditor’s report should
cover
A. only the current year, but the prior year’s report should be referred to.
B. only the current year, but the prior year’s report should be presented.
C. only the current year.
D. both years.

33. In which circumstance will the auditor not consider the need to modify the report?
A. The client’s legal counsel is requested to advise whether a material act is legal or illegal but refuses to do so.
B. The auditor concludes that the effect of an illegal act creates substantial doubt about the entity’s ability to continue as a going concern.
C. The auditor concluded that the effect of an illegal act, taken alone or with similar acts, is material in amount, and has not been properly
accounted for or disclosed in the financial statements.
D. All the circumstances require modification of the auditor’s report.

34. Audit documentation should process certain characteristics. Which of the following is one of the characteristics?
Audit documentation should be indexed Audit documentation should be organized
and cross-referenced to benefit the client’s staff.
A. Yes Yes
B. No No
C. Yes No
D. No Yes

35. VGR Corporation has numerous customers. A customer file is kept on disk. Each customer file contains name, address, credit limit, and account
balance. The auditor wishes to test this file to determined whether credit limits are being exceeded. The best procedure for the auditor to follow
would be to
A. develop the test data that should cause some account balances to exceed the credit limit and determine if the system properly detects
B. develop program to compare credit limits with account balances and print-out the details of any account with a balance exceeding its credit
limit.
C. request a printout of all account balances so they can be manually checked against the credit limits.
D. request a printout of a sample account balances so they can be individually checked against the credit limits.

36. Which of the following statements is not correct.


A. It is possible to vary the sample size from 1 unit to 100% of the terms in the population.
B. The decision of how many times to test must be made by the auditor for each audit procedure.
C. The decision of how many items to test should not be influenced by the increased costs of performing the additional tests.
D. The sample size for any given procedure is likely to vary from one audit to audit.

37. The following are the benefits claimed for the practice of determining materiality in the initial planning stage of starting an audit, except
A. avoiding the problem of doing too little work (underauditing).
B. avoiding the problem of doing more work than necessary (overauditing).
C. being able to decide early what kind of audit opinion to express.
D. being able to fine tune the audit work for effectiveness and efficiency.

38. A client is a defendant in a patent infringement lawsuit against a major competitor. Which of the following items would least likely be included in the
attorney’s response to the auditor’s letter of inquiry?
A. A description of potential liquidation in other matters or related to an unfavourable verdict in the patent infringement lawsuit.
B. A discussion of case progress and the strategy currently in place by client management to resolve the lawsuit.
C. An evaluation of the probability of loss and a statement of the amount or range of loss if an unfavourable outcome is reasonably possible.
D. An evaluation of the ability of the client to continue as a going concern if the verdict is unfavourable and maximum damages are awarded.

39. During the year, the research staff of Buni Co. devoted its entire member toward developing a skin cancer ointment. All costs that could be attributed
directly to the project were accounted for as deferred charges and classified on the statement of financial position as an asset. If the amounts involved
are material, the auditor should
A. express an unmodified opinion with an emphasis of matter paragraph explaining the uncertainty of cost recovery.
B. disclaim an opinion.
C. express an adverse opinion.
D. express an unmodified opinion provided that the uncertainty about ultimate realization of the deferred charges is disclosed in the notes.

40. When discussing control risk and the audit risk model, which one of the following statements is false?
A. The relationship between control risk and evidence is direct.
B. If the auditor concludes that an internal control system is completely ineffective to prevent or detect errors, he/she should assign a 0% to
control risk.
C. The relationship between control risk and detection risk is inverse.
D. Control risk is a measure of the auditor’s

41. Which of the following procedures would an accountant most likely perform during an engagement to review the financial statements of an entity.
A. Review the predecessor accountant’s working papers.
B. Inquire of management about related party transactions.
C. Corroborate litigation information with the entity’s attorney.
D. Communicate internal control deficiencies to senior management.

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


A. A letter written by the client’s attorney discussing the likely outcome of outstanding lawsuits.
B. The physical count of securities and cash.
C. Inquiries of the credit manager about the collectability of noncurrent accounts receivable.
D. Observation of cobwebs on some inventory bins.

43. A CPA started to audit the financial statements of an entity. After completing certain audit procedures, the client requested the CPA to change the
engagement to a review because of a scope limitation. The CPA concludes that there is a reasonable justification for the change. Under theses
circumstances, the CPA’s review report should include a
A. statement that a review is substantially in scope than an audit.
B. reference to the scope limitation that caused the changed engagement.
C. description of the auditing procedures that were completed before the engagement was changed (was)
D. reference to the CPAs’ justification for agreeing the change engagement was charged.

44. An auditor expressed a qualified opinion on the prior year’s financial statement because of a lack of adequate lack of adequate disclosure. These
financial statements are probably restated in the current year and presented in comparative form with the current year’s financial statements. The
auditor’s updated report on the prior year’s financial statement should
A. be accompanied by the auditor’s original plan on the prior’ years financial statement.
B. continue to express a qualified opinion on the ‘prior year’s financial statements.
C. make no reference to the type of opinion expressed on the prior year’s financial statements.
D. express an unmodified opinion on the restated financial statements of the prior year.

45. Which of the following statements is true?


A. Audit procedures on the sample item will vary as a result of using either statistical or nonstatistical sampling.
B. Audit procedures on the sample item will not vary as a result of using either statistical or nonstatistical sampling.
C. The audit procedures will be the same for either statistical or nonstatistical sampling but they must be performed differently for each.
D. Statistical sampling requires quantitative audit procedures wheras nonstatistical sampling requires judgmental audit procedures.

46. The most reliable audit procedure for an auditor to use to test the existence of a client’s inventory at an outside location would be to
A. observe physical counts of the inventory items.
B. trace the total on the inventory listing to the general ledger inventory account.
C. obtain a confirmation from the client indicating inventory ownership.
D. analytically compare the current-year inventory balance to the prior-year balance.

47. An auditor concludes that there is a material inconsistency in the other information in an annual report to shareholders containing audited financial
statements. The auditor believes that the financial statements do not require revision, but the client is unwilling to revise or eliminate the material
inconsistency in the other information. Under these circumstances, what action would the auditor most likely take?
A. Consider the situation closed because the other information is not in the audited financial statements.
B. Issue an “except for” qualified opinion after discussing the matter with the client’s audit committee.
C. Disclaim and opinion on the financial statements after explaining the material inconsistency in a separate “other matter” paragraph.
D. Revise the auditor’s report to include a separate “other matter” paragraph describing the material inconsistency.

48. Which of the following statements is correct about the sample size in statistical sampling when testing internal controls?
A. The auditor should consider the tolerable rate of deviation from the controls being tested in determining sample size.
B. As the likely rate of deviation decreases, the auditor should increase the planned sample size.
C. The allowable risk of assessing control risk too low has no effect on the planned sample size.
D. Of all the factors to be considered, the population size has the greatest effect on the sample size.

49. When an auditor suspects material misstatement in the financial statements resulting from management fraud, he/she may direct inquiries from the
following personnel, except
A. top executives who initiated, approved, and authorized recording of complex and unusual transactions.
B. in-house legal counsel.
C. chief ethics officer or equivalent person.
D. operating personnel not directly involved in the financial reporting process.

50. An accountant has been engaged to compile pro forma financial information. During the accountant’s acceptable procedures, it is discovered that the
accountant is not independent with respect to the company. What action should the accountant take with regard to compilation?
A. The accountant should discuss the lack of independence with legal counsel to determine whether it is appropriate to accept the
engagement.
B. The accountant should disclose the lack of independence in the accountant’s compilation report.
C. The accountant should withdraw from the engagements.
D. The accountant should compile the pro forma information but should not provide a compilation report.

51. Under the Code of Ethics, independence is most likely impaired when
A. an immediate family member of a member of the audit team is a director of the client.
B. the firm purchases goods and services from the client.
C. the firm prepares a client’s tax returns.
D. the firm and the client have an insignificant business relationship involving an immaterial financial interest.

52. Tracing copies of computer-prepared sales invoices to copies of the corresponding computer-prepared shipping documents provides evidence that
A. shipments to customers were properly billed.
B. entries in the accounts receivable subsidiary ledger were for sales actually shipped.
C. sales billed to customers were actually billed.
D. no duplicate shipments to customers were made.

53. When an auditor tests the internal controls of a computerized system, which of the following is true to the test data approach?
A. Test data are coded to a dummy subsidiary so they can be extracted from the system under actual operating conditions.
B. Test data programs need not be tailor-made by the auditor for each client’s computer applications.
C. Test date programs usually consist of all possible valid and invalid conditions regarding compliance with internal controls.
D. Test data are processed with the client’s computer and the results are compared with the auditor’s predetermined results.

54. An auditor reconciles the total of the accounts receivable subsidiary ledger to the general ledger control account as of October 31, 20x1. By this
procedure the auditor would be most likely to learn which of the following?
A. An October invoices was improperly computed.
B. An October check from a customer was posted in error to the account of another customer.
C. An opening balance in a subsidiary ledger account was improperly carried forward from the previous accounting period.
D. An account balances is past due and should be written-off.

55. A client maintains a large data center where access is limited to authorized employees. How may an auditor best determine the effectiveness of this
control activity?
A. Inspect the policy manual establishing this control activity. C. Observe whether the data center is monitored.
B. Ask the chief technology officer about known problems. D. Obtain a list of current data center employees.

56. The Code of Ethics for Professional Accountants in the Philippines provides the categories of threats that could compromise or could be received to
compromise of a professional accountant’s compliance with the fundamental principles. The threat that the professional accountant will not
appropriately evaluate the results of a previous judgment made or service performed on which the accountant will rely when forming a judgment as
part of providing a current service is called
A. advocacy threat. B. familiarity threat. C. self-review threat. D. Intimidation threat.

57. In a practitioner’s review of interim financial information, the practitioner typically performs each of the following, except
A. reading the minutes of the meetings of shareholders, those charged with governance, and other appropriate committees to identify matters
that may affect the interim financial information.
B. obtaining corroborating external evidence.
C. Inquiring of members of management responsible for financial and accounting matters.
D. applying financial ratios to the interim financial information.

58. An auditor concludes that the omission of a substantive procedure considered necessary at the time of the audit may impair the auditor’s current
ability to support the previously expressed opinion. The auditor need not apply the omitted procedure if the
A. risk of adverse publicity or litigation is low.
B. results of other procedures that were applied tend to compensate for the procedure omitted.
C. auditor's opinion was qualified because of a departure from PFRS.
D. Results of the subsequent period’s tests of controls make the omitted procedure less important.

59. There are many kinds of statistical estimates that an auditor may find useful, but basically every accounting estimate is either of a quantity or of an
error rate. The statistical terms the roughly correspond to “quantities” and “error rate,” respectively, are
A. attributes and variables. C. constants and attributes
B. variables and attributes. D. constants and variables.

60. At the conclusion of an audit, an auditor is reviewing the evidence gathered in support of the financial statements. With regard to the valuation of
inventory, the auditor concludes that the evidence obtained is not sufficient to support management’s representations. Which of the following actions
is the auditor most likely to take?
A. Consult with the audit committee and issues a disclaimer of opinion.
B. Consult with the audit committee and issue a qualified opinion.
C. Obtain additional evidence regarding the valuation of inventory.
D. Obtain a statement from management supporting their inventory valuation.

61. Which of the following questions would most likely be included in an internal control questionnaire concerning the completeness assertion for
purchases?
A. Is an authorized purchase order required before the receiving department can accept a shipment or the vouchers payable department can
record a voucher?
B. Are purchase requisition prenumbered and independently matched with vendor invoices?
C. Is the unpaid voucher file periodically reconciled with inventory records by an employee who does not have access to purchase requisitions?
D. Are purchase orders, receiving reports, and vouchers prenumbered and periodically accounted for?

62. An auditor learns that collections of accounts receivable during the first ten days of January were debited to cash and credited to accounts receivable
as of December 31. The effect generally will be able to
A. overstate the current ratio with no effect on working capital at December 31.
B. overstate both working capital and the current ratio at December 31.
C. overstate working capital with no effect on the current ratio at December 31.
D. leave both working capital and current ratio unchanged at December 31.

63. Familiarity threat could be created under the following circumstances, except
A. A member of the engagement team is the spouse of the accounting manager of the client.
B. A member of the engagement team is the spouse of one of the members of the Board of Directors of the client.
C. Senior personnel of the engagement team having a long association with the assurance client.
D. A professional accountant accepting gifts from a client whose value is inconsequential or trivial.

64. Which of the following fundamental ethical principles prohibits association of professional accountants with reports, returns, communications or
other information that is believed to contain a materially false or misleading statement?
A. Integrity C. Professional competence and due care
B. Objectivity D. Confidentiality

65. Ariel, CPA, was engaged by a group of royalty recipient to apply agreed-upon procedures to financial data supplied by Modesta Co. regarding
Modesta’s written assetioin about its compliance with contractual requirements to pay royalties. Ariel’s report on these agreed-upon procedures
should contain a(an)
A. Disclaimer of opinion about the fair presentation of Modesta’s financial statements.
B. List of the procedures performed and Ariel’s findings.
C. Opinion about the effectiveness of Modesta’s internal control activities concerning royalty payments.
D. Acknowledgement that the sufficiency of the procedures is solely Ariel’s responsibility.

66. The purpose of the audit procedure to “examine underlying documentation for subsequent cash disbursements” is to
A. Uncover liabilities on the balance sheet which should not have been recorded until a subsequent period.
B. Find the documentation relating to a cash disbursement.
C. Uncover payments made in a subsequent accounting period for liabilities that existed at the balance sheet date.
D. Uncover cash disbursements recorded in a subsequent accounting period which should be recorded in this period.

67. When companies use information technology (IT) extensively, evidence may be available only in electronic form. What is an auditor’s best course of
action in such situation?
A. Assess the control risk as high.
B. Use audit software to perform analytical procedures.
C. Use generalized audit software to extract evidence from client databases.
D. Perform limited tests of controls over electronic data.

68. Which of the following matters is an auditor required to communicate to those charged with governance?
A. Adjustments that were suggested by the auditor and record by management that have a significant effect on the entity’s financial
reporting process.
B. The auditor’s consideration of risk factors in assessing the risk of material misstatement arising from the misappropriation of assets.
C. The results of the auditor’s analytical procedures performed in the review stage of the engagement that indicate significant variances from
expected amounts.
D. Changes in the auditor’s preliminary judgment about materiality that were caused by protecting the results of statistical sampling for test of
transactions.

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