AUDITING - THEORIES

An example of a substantive analytical test for a hotel would be: a. determine if the occupancy rate exceeded 100% for a given time period. b. determine if the rate charged is in excess of that published. c. determine if the food and beverage charges correspond to the occupancy rate. d. All of the above.

A

An example of a substantive analytical test for a hotel would be: a. determine if the occupancy rate exceeded 100% for a given period. b. determine if the rate charged is more than that published. c. determine if the food and beverage charges correspond to the occupancy rate. d. All of the above.

A

Analysis performed during the planning stage of an audit engagement is most closely linked to which of the elements of the audit risk model? a. Inherent risk b. Control risk c. Detection risk d. Audit risk

A

Which of the following items are included in the audit planning meeting? a. brainstorming about fraud risks. b. establishing responsibility for preparing the financial statements. c. establishing responsibility for monitoring of internal controls. d. all of the above

A

Which of the following statements is generally correct about audit evidence? a. The auditor's direct personal knowledge, obtained through observation and inspection, is more persuasive than information obtained indirectly from independent outside sources. b. To be appropriate, audit evidence must be sufficient. c. Accounting data alone may be considered sufficient appropriate audit evidence to issue an unqualified opinion on financial statements. d. Appropriateness of audit evidence refers to the amount of corroborative evidence to be obtained and is primarily based on the auditor's professional judgment and skepticism.

A

The word auditing comes from the Latin audire, which means: A. To see B. To hear C. To detect D. To test

B

In an audit area that has a lower inherent risk, it would be prudent to: a. increase the amount of audit evidence gathered. b. assign more experienced staff to that area. c. increase the tolerable misstatement for the area. d. expand planning procedures

C

Which of the following is least likely to be used as a source of information about a potential new audit client? a. The potential client company's predecessor auditor. b. The potential client's management and directors. c. Former employees and shareholders of the potential client company. d. Published financial information of the potential client company.

C

In evaluating the reasonableness of an accounting estimate, an auditor most likely would concentrate on key factors and assumptions that are A. Consistent with prior periods. B. Similar to industry guidelines. C. Objective and not susceptible to bias. D. Deviations from historical patterns.

D

The negative form of accounts receivable confirmation is not useful when A. Internal control is considered to be effective. B. A large number of small balances are involved. C. The auditor has reason to believe that persons receiving the requests are likely to consider them. D. Individual account balances are relatively large.

D

Each of the following might, by itself, form a valid basis for an auditor to decide to omit a test except for the A. Difficulty and expense involved in testing particular item. B. Assessment of control risk at a low level. C. Inherent risk involved. D. Relationship between the cost of obtaining evidence and its usefulness.

A

Ignoring any particular legal or regulatory requirement, audit documentation should be retained A. A minimum of five years. B. As long as lead schedules have relevance to forth coming audits. C. Until three years after the client selects another auditor. D. Working papers must be maintained indefinitely.

A

Planning is a continuous process that must occur throughout the audit engagement because: a. disconfirming information is likely to arise. b. the audit committee is likely to point out flaws in the original audit plan. c. all information affecting the audit occurs concurrently. d. auditor skill levels are continuously fluctuating

A

Planning is a continuous process that must occur throughout the audit engagement because: a. disconfirming information is likely to arise. b. the audit committee is likely to point out flaws in the original audit plan. c. all information affecting the audit occurs concurrently. d. auditor skill levels are continuously fluctuating.

A

After testing a client's internal control activities, an auditor discovers a number of significant deficiencies in the operation of a client's internal controls. Under these circumstances the auditor most likely would A. Issue a disclaimer of opinion about the internal controls as part of the auditor's report. B. Increase the assessment of control risk and increase the extent of substantive tests. C. Issue a qualified opinion of this finding as part of the auditor's report. D. Withdraw from the audit because the internal controls are ineffective.

B

As the acceptable level of detection risk decreases, an auditor may A. Reduce substantive testing by relying on the assessments of inherent risk and control risk. B. Postpone the planned timing of substantive tests from interim dates to the year-end. C. Eliminate the assessed level of inherent risk from consideration as a planning factor. D. Lower the assessed level of control risk from the maximum level to below the maximum.

B

As the acceptable level of detection risk decreases, an auditor may change the A. Timing of substantive tests by performing them at an interim date rather than at yearend B. Nature of substantive tests from a less effective to a more effective procedure C. Timing of tests of controls by performing them at several dates rather than at one time D. Assessed level of inherent risk to a higher amount

B

If an auditor establishes a relatively high level for materiality, then the auditor will: A. accumulate more evidence than if a lower level had been set. B. accumulate less evidence than if a lower level had been set. C. accumulate approximately the same evidence as would be the case were materiality lower. D. accumulate an undetermined amount of evidence.

B

RIEL, CPA, has audited ABC Semiconductors, Inc. During the course of the audit, RIEL enlisted the services of RIAN, an expert on electronics. As a result of RIAN's services, RIEL issued a modified report. While drafting the explanation to the modification, RIEL decided that reference to the expert is required. In these circumstances, A. RIEL should obtain the permission of RIAN before making such a reference. B. RIEL may refer to the RIAN without permission, but RIAN's identity must be concealed. C. RIEL should seek legal advice on whether to make reference to the work of RIAN. D. RIEL cannot refer to RIAN under any circumstance

A

The audit plan generally is modified when A. Results of tests of control differ from expectations. B. An engagement letter has been signed by the auditor and the client. C. A significant deficiency has been communicated to the audit committee of the board of directors. D. The search for unrecorded liabilities has been performed and obtained results as had been expected during the planning of the audit.

A

The most important consideration in performing further audit procedure is its A. Nature B. Cost C. Timing D. Extent

A

When the auditor performs risk assessment on the controls, the auditor is required to understand which aspects of the controls? I. Design and implementation II. Consistent and effective functioning A. I only B. II only C. Both I and II D. Neither I nor II

A

Which of the following items are included in the audit planning meeting? a. brainstorming about fraud risks. b. establishing responsibility for preparing the financial statements. c. establishing responsibility for monitoring of internal controls. d. all of the above.

A

Which of the following matters would the overall audit strategy include? a. The applicable financial reporting framework b. The nature, timing and extent of audit procedures at the assertion level c. The timetable of planned audit work d. None of the above

A

Which of the following statements are true? Statement 1: Most entities make use of IT systems for financial reporting and operational purposes. Statement 2: There will always be a manual element to IT systems that audit client uses. Statement 3: Consistency of application of a manual control element can be assumed. A. 1 and 2 only B. 2 and 3 only C. 1 and 3 only D. 1, 2 and 3

A

Which of the following statements is correct relating to the auditor's consideration of fraud? A. The auditor's interest in fraud consideration relates to fraudulent acts that cause a material misstatement of financial statements. B. A primary factor that distinguishes fraud from error is that fraud is always intentional, while errors are generally, but not always, intentional. C. Fraud always involves a pressure or incentive to commit fraud, and a misappropriation of assets. D. While an auditor should be aware of the possibility of fraud, management, and not the auditor, is responsible for detecting fraud.

A

You are auditing the financial statements of a small rural municipality. The receivable balances represent residents' delinquent real estate taxes. Control risk is at the maximum. To determine the existence of the accounts receivable balances at the balance sheet date, you would most likely A. Send positive confirmation requests. B. Send negative confirmation requests. C. Examine evidence of subsequent cash receipts. D. Inspect internal records such as copies of tax invoices that had been mailed to the residents.

A

Internal auditors review the adequacy of the company's internal control system primarily to A. Help determine the nature, timing, and extent of tests necessary to achieve audit objectives. B. Determine whether the internal control system provides reasonable assurance that the company's objectives and goals are met efficiently and economically. C. Ensure that material weaknesses in the system of internal control are corrected. D. Determine whether the internal control system ensures that financial statements are fairly presented.

B

One of the auditor's objectives in observing the actual distribution of payroll checks is to determine that every name on the payroll is that of a bona fide employee. The payroll observation is an auditing procedure that is generally performed for which of the following reasons? A. The professional standards that are generally accepted require the auditor to perform the payroll observation. B. The various phases of payroll work are not sufficiently segregated to afford effective control. C. The independent auditor uses personal judgment and decides to observe the payroll distribution on a particular audit. D. The standards that are generally accepted by the profession are interpreted to mean that payroll observation is expected on an audit unless circumstances dictate otherwise.

B

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 skepticism.

B

The purpose of the requirement in auditing standards of having communication between the predecessor and successor auditor is to: a. allow the predecessor to disclose information which would otherwise be confidential. b. help the successor auditor to evaluate whether to accept the engagement. c. help the client by facilitating the change of auditors. d. ensure the predecessor collects all unpaid fees prior to a change in auditor.

B

To obtain an understanding of a continuing client's business in planning an audit, an auditor most likely would: a. Perform tests of details of transactions and balances. b. Review prior-year audit documentation and the permanent file for the client. c. Read specialized industry journals. d. Reevaluate the client's internal control environment.

B

What is the primary means of dealing with risk in planning decisions related to audit evidence? A. Selection of more effective tests of details of balances. B. Application of the audit risk model. C. Establishing a lower preliminary judgment about materiality. D. Allocating materiality judgment to segments

B

When discussing control risk (CR) and the audit risk model, which of the following is false? A. CR is a measure of the auditor's assessment of the likelihood that misstatements will not be prevented or detected by internal control. B. If the auditor concludes that internal control is completely ineffective to prevent or detect errors, he/she would assign a low value to CR. C. The relationship between control risk and detection risk is inverse. D. The relationship between control risk and evidence needed to support account balances is direct

B

Which is not true of the intended user? A. The intended user is the person or class of persons for whom the professional accountant prepares the report for a specific use or purpose B. The intended user(s) is (are) always limited to the addressee of the professional accountant's report C. The responsible party may also be one of the intended users D. The intended user(s) may not be the addressee of the professional accountant's report

B

Which of the following comes closest to outlining the auditors' responsibility for considering internal control in all financial statement audits? a. An understanding of the control environment, information and communication, risk assessment and monitoring are necessary; an understanding of control activities is only necessary for areas in which the auditor is performing tests of controls. b. The auditor must obtain an understanding of each of the five internal control components sufficient to assess the risks of material misstatement for the audit. c. When tests of controls have been performed, control risk must be assessed at a level less than the maximum. d. An understanding of the control environment is necessary, but no understanding of the other components is necessary unless control risk is to be assessed at a level less than the maximum

B

Which of the following comes closest to outlining the auditors' responsibility for considering internal control in all financial statement audits? a. An understanding of the control environment, information and communication, risk assessment and monitoring is necessary; an understanding of control activities is only necessary for areas in which the auditor is performing tests of controls. b. The auditor must obtain an understanding of each of the five internal control components sufficient to assess the risks of material misstatement for the audit. c. When tests of controls have been performed, control risk must be assessed at a level less than the maximum. d. An understanding of the control environment is necessary, but no understanding of the other components is necessary unless control risk is to be assessed at a level less than the maximum.

B

Which of the following is likely to be determined first when performing tests of details for accounts receivable? A. Recorded accounts receivable exist. B. Accounts receivable in the aged trial balance agree with related master file amounts, and the total is correctly added and agrees with the general ledger. C. Accounts receivable are owned. D. Existing accounts receivable are included.

B

Which of the following is not a correct statement regarding the allocation of the preliminary judgment about materiality to balance sheet accounts? A. Auditors expect certain accounts to have more misstatements than others. B. The allocation has virtually no effect on audit costs because the auditor must collect sufficient appropriate audit evidence. C. Auditors expect to identify overstatements as well as understatements in the accounts. D. Relative audit costs affect the allocation

B

The accountant who is not independent may perform which of the following types of engagements? a. Audit. b. Attestation. c. Compilation. d. Review.

C

A consideration of internal control made during an audit is usually not sufficient to express an opinion on an entity's controls because A. Weaknesses in the system may go unnoticed during the audit engagement. B. A consideration of internal control is not necessarily made during an audit engagement. C. Only those controls on which an auditor intends to rely are reviewed, tested, and evaluated. D. Controls can change each year.

C

An audit engagement letter least likely include: A. A reference to the inherent limitations of an audit that there is an unavoidable risk that some material misstatements may remain undiscovered B. Description of any letters or reports that the auditor expects to submit to the client C. Identification of specific audit procedures that the auditor needs to undertake D. Basis on which fees are computed and any billing arrangements

C

Audit working papers should not A. Include any client-prepared papers or documents other than those prepared by the CPA or his assistant. B. Be kept by the CPA after review and completion of the audit except for items required for the income tax return or the permanent file. C. Be submitted to the client to support the financial statements and to provide evidence of the audit work performed. D. By themselves be expected to provide sufficient support for the auditor's opinion.

C

During the course of audit engagement, the CPA needed additional studies and consultation with experts. This additional study and consultation is deemed to be A. An unusual practice which should have voided the audit engagement B. Lack of competence on the part of the CPA C. An appropriate part of the professional conduct of the audit engagement D. Undertaken as a responsibility of management

C

During which of the following phases of an audit is the performance of analysis not mandatory, but rather a matter of professional judgment? a. Internal control evaluation phase b. Planning phase c. Substantive testing phase d. Completion phase

C

In an assertion-based engagement A. The practitioner either directly evaluates or measures the subject matter or obtains a representation from the responsible party that has performed the evaluation. B. The evaluation by the responsible party of the subject matter is not available to the intended users. C. The subject matter is in the form of an assertion by the responsible party that is made available to the intended users. D. The subject matter information is provided to the intended users in the assurance report.

C

In an audit area that has a lower inherent risk, it would be prudent to: a. increase the amount of audit evidence gathered. b. assign more experienced staff to that area. c. increase the tolerable misstatement for the area. d. expand planning procedures.

C

Of the following, which is the least persuasive type of audit evidence? a. Documents mailed by outsiders to the auditor. b. Correspondence between auditor and vendors. c. Copies of sales invoices inspected by the auditor. d. Computations made by the auditor.

C

Segregation of duties deals with the segregation of which functions? a. Recording and physical custody of assets. b. Authorizing and recording assets. c. Authorizing, recording, and physical custody of assets. d. Authorizing, recording, physical custody, and access to assets

C

Segregation of duties deals with the segregation of which functions? a. Recording and physical custody of assets. b. Authorizing and recording assets. c. Authorizing, recording, and physical custody of assets. d. Authorizing, recording, physical custody, and access to assets.

C

Substantive audit procedures are performed so that the auditor may identify: a. deficiencies in the design or operating effectiveness of internal controls. b. weaknesses in the effectiveness of the client company's audit committee. c. material misstatements in the client company's financial statements. d. Calculations and controls that mitigate the risk of fraud.

C

The accounts receivable turnover ratio increased during 2021. This is consistent with: A. Items shipped on consignment during December were recorded as credit sales; no cash receipts have yet been received on these consignments. B. The company increased credit sales by 10% by allowing more lenient credit terms—30 days are now allowed whereas previously only 20 days were allowed. C. A major credit sale on which title passed as of December 31, 2021 was recorded in January of 2022. D. Sales for each month are approximately 25% higher than those of the preceding year.

C

The auditor who becomes aware of reportable conditions is required to communicate this to the A. Audit committee and client's legal counsel. B. Board of directors and internal auditors. C. Senior management and board of directors. D. Internal auditors and senior management.

C

The sequence of steps in gathering evidence as the basis of the auditor's opinion is: A. Substantive tests, documentation of control structure, and tests of controls. B. Documentation of control structure, substantive tests, and tests of controls. C. Documentation of control structure, tests of controls, and substantive tests. D. Tests of controls, documentation of control structure, and substantive tests.

C

Which of the following characterize sequential sampling? A. One benefit of this approach to defining the sampling unit is that audit effort is directed to the larger value items because they have a greater chance of selection, and can result in smaller sample sizes. B. The determination of a sample size sufficient to include at least one exception. C. For test of controls, it does not use a fixed sample size. D. It is used to estimate a numerical measurement of a population, such as a peso value.

C

Which of the following does not result to reduction of non-sampling risk? A. Adequate planning B. Proper direction, supervision and review of the audit team C. Testing a larger sample size than initially planned D. Adherence to firm's quality control standards

C

Which of the following factors most likely would lead a CPA to conclude that a potential audit engagement should be rejected? A. The details of most recorded transactions are not available after a specified period of time. B. Internal control activities requiring the segregation of duties are subject to management override. C. It is unlikely that sufficient appropriate evidence is available to support an opinion on the financial statements. D. Management has a reputation for consulting with several accounting firms about significant accounting issues.

C

Which of the following is always present in an assurance engagement? a. Assertion about the subject matter. b. Generally accepted assurance principles. c. Subject matter. d. An examination report.

C

Which of the following is an assertion? a. The audit firm's estimation of the client's inventory obsolescence. b. The statement by management regarding the appointment of auditors. c. A statement made by management regarding the collectability of accounts receivable. d. The statement by management that the firm will close its branch office because of snow.

C

Which of the following is an example of the concept of inherent risk? A. Humans make more errors than computers; therefore, a manual accounting system is riskier than a computerized system. B. Accounting systems with vouchers have many more controls built in, so the risk that there will be errors on the financial statements is reduced. C. Loans receivable for a finance company are less likely to be collectible than those of a bank. D. Audits with larger sample sizes are less risky than those with smaller sample sizes.

C

Which of the following is least likely to be used as a source of information about a potential new audit client? a. The potential client company's predecessor auditor. b. The potential client's management and directors. c. Former employees and shareholders of the potential client company. d. Published financial information of the potential client company

C

Which of the following is most likely to occur 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. Determine the client's reason for an audit. d. Consult with and review the work of the predecessor auditor prior to discussing the engagement with the client management.

C

Which of the following pertains to distributed processing? A. A type of data processing that is performed periodically, after transaction documents are grouped, and due to the delay between time of transaction and time of processing, the results of processing are not available soon enough to influence the particular course of action being taken or the decision being made? B. A data processing technique where transactions are processed immediately and is considered interactive because the transactions are instantaneously updated and transferred to the general ledger and financial statements. C. A type of data processing which makes use of two or more computers that are networked together and are functioning as a group on a single task in a well-coordinated manner. D. This refers to the processing and accumulation of source documents and records which allows the organization to trace accounting entries back to their initiation.

C

Which of the following statements about internal control is not correct? a. The costs of the control should not exceed the benefits. b. The auditor's assessment of detection risk is inversely related to the assessment of control risk. c. Stronger internal controls result in an increase in the number of required substantive audit procedures. d. Management is responsible for the maintenance of internal control.

C

Which of the following statements concerning working papers is incorrect? A. An auditor may support an opinion by other means in addition to working papers. B. The form of working papers should be designed to meet the circumstances. C. An auditor's working papers may not serve as reference source for the client. D. Working papers should show that the internal accounting control system has been studied and evaluated to the degree necessary.

C

Which of the following statements is correct concerning the understanding of internal control needed by auditors? a. The auditors must understand the information system, not the accounting system. b. The auditors must understand monitoring and all preliminary accounting controls. c. The auditors must have a sufficient understanding to assess the risks of material misstatement. d. The auditors must understand the control environment, risk assessment, and all control activities.

C

Which of the following statements is correct in relation to external statutory audits? a. External audits give absolute assurance that the financial statements are free from all misstatement. b. External audits give limited assurance that the financial statements are free from material misstatement. c. External audits give reasonable assurance that the financial statements are free from material misstatement. d. External audits give no assurance that the financial statements are free from material misstatement.

C

A primary objective of analytical procedures used in the final review stage of an audit is to a. Identify account balances that represent specific risks relevant to the audit. b. Gather evidence from tests of details to corroborate financial statement assertions. c. Detect fraud that may cause the financial statements to be misstated. d. Assist the auditor in evaluating the overall financial statement presentation.

D

A significant deficiency: a. Differs from a material weakness in that it involves internal control over operations rather than internal control over financial reporting. b. Involves an amount of discovered misstatements greater than the amount used as the planning measure of materiality. c. Is identical to a material weakness except that it need not be communicated to those responsible for oversight of the company's financial reporting. d. Is less severe than a material weakness.

D

AMOR, CPA, is performing a compilation service for Clean and Green Corporation. In the course of performing compilation procedures, AMOR became aware that some of the information provided by Clean and Green's management are incomplete. Client management refuses to comply with AMOR's requests for additional information. In this case, AMOR should: A. Issue a qualified opinion on the financial statements compiled. B. Issue an adverse opinion on the financial statements compiled. C. Issue a disclaimer of opinion on the financial statements complied. D. Withdraw from the engagement.

D

An auditor reviews a client's accounting policies and procedures when considering which of the following planning matters? a. Method of sampling to be used. b. Preliminary judgments about materiality levels. c. Nature of reports to be rendered. d. Understanding the client's operations and business.

D

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 dis close differences from expectations.

D

As it relates to an audit, materiality is a. not taken into consideration. b. related only to the sufficiency of procedures performed. c. based upon audit fees. d. determined based upon the importance to a user of the financial statements

D

As it relates to an audit, materiality is a. not taken into consideration. b. related only to the sufficiency of procedures performed. c. based upon audit fees. d. determined based upon the importance to a user of the financial statements.

D

Before accepting an engagement to audit a new client, a CPA is required to obtain A. An understanding of the prospective client's industry and business. B. The prospective client's signature to the engagement letter. C. A preliminary understanding of the prospective client's control environment. D. The prospective client's consent to make inquiries of the predecessor auditor, if any

D

Choose the incorrect statement concerning substantive procedures. A. They are procedures to detect material misstatement in the financial statements. B. They may be test of details (of classes of transactions or balances) or analytical procedures. C. They are performed irrespective of the assessed risks of material misstatement. D. They constitute the final phase of the audit process.

D

Compared to a public company, the most important difference in a nonpublic company in assessing control risk is the ability to assess control risk at _______ for any or all control-related objectives. a. low b. moderately low c. medium d. high

D

Disclosure of fraud to parties other than a client's senior management and its audit committee or board of directors ordinarily is not part of an auditor's responsibility. However, to which of the following outside parties may a duty to disclose fraud exist? I. To the SEC when the client reports an auditor change II. To a successor auditor when the successor makes appropriate inquiries III. To a government funding agency from which the client receives financial assistance A. I and II B. II and III C. I and III D. I, II and III

D

If a company's external auditor expresses an unqualified opinion as a result of the audit of the company's financial statements, readers of the audit report can assume that A. The external auditor found no fraud B. The company is financially sound and the financial statements are accurate C. Internal control is effective D. All material disagreements between the company and the auditor about the application of accounting principles were resolved in the satisfaction of the external auditor.

D

Inherent risk is _______ related to detection risk and _______ related to the amount of audit evidence. A. directly, inversely B. directly, directly C. inversely, inversely D. inversely, directly

D

Materiality thresholds for accounting errors should be established for each financial statement element. However, they a. Must require correction of accounting errors in the subsequent year's records. b Lead to rejection of financial statements found with unrecorded accounting records. c Tend to hamper objectivity of auditor's judgment concerning severity of errors. d Must be established prior to execution of audit procedures.

D

The most important test of details of balances to determine the existence of recorded accounts receivable is: A. tracing details of sales invoices to shipping documents. B. tracing the credits in accounts receivable to bank deposits. C. tracing sales returns entries to credit memos issued and receiving room reports. D. the confirmation of customers' balances.

D

The phrase "in our opinion" in the auditor's report is intended to inform users that auditors: A. guarantee fair presentation of the financial statements. B. act as insurers of the accuracy of the statements. C. certify the material presented in the statements by management. D. base their conclusions about the statements on professional judgment.

D

Where internal technical and training resources are unavailable, the firm A. Violates a basic tenet of quality control regarding capabilities and competence B. Cannot adequately provide for the professional development needs of its members. C. Must obtain, within two years, the necessary internal technical and training resources D. May use a suitably qualified external person for the purpose

D

Which does not describe the level of assurance provided in a financial statement audit? A. High B. Reasonable C. Above average D. Positive

D

Which of the following controls would be MOST effective in assuring that recorded purchases are free of material errors? A. The receiving department compares the quantity ordered on purchase orders with the quantity received on receiving reports. B. An employee who is independent of the receiving department compares vendors' invoices with purchase orders. C. Receiving reports require the signature of the individual who authorized the purchase. D. Purchase orders, receiving reports, and vendors' invoices are independently matched in preparing vouchers.

D

Which of the following factors will least affect the independent auditor's judgment as to the quantity, type, and content of the working papers desirable for a particular engagement? a. Nature of the auditor's report. b. Nature of the financial statements, schedules, or other information upon which the auditor is reporting. c. Need for supervision and review. d. Number of personnel assigned to the audit.

D

Which of the following is a qualitative factor that could affect the level of planning materiality for a financial statement audit? a. The entity's net income before income taxes b. The entity's total assets c. The entity's net income after income taxes d. A misstatement that changes a loss into income

D

Which of the following is most likely to be considered a risk assessment procedure relating to internal control? a. Confirm accounts receivable. b. Perform a test of a control relating to payroll. c. Take test counts of the year-end inventory. d. Trace a transaction through the information system relevant to financial reporting.

D

Which of the following is not a financial statement assertion relating to account balances? A. Completeness. B. Existence. C. Rights and obligations. D. Valuation and competence.

D

Which of the following is not a financial statement assertion relating to account balances? a. Completeness b. Existence. c. Rights and obligations. d. Valuation and allowances

D

Which of the following is not a financial statement assertion relating to account balances? a. Completeness b. Existence. c. Rights and obligations. d. Valuation and allowances.

D

Which of the following is not a good indicator of the degree to which statements are relied on by external users? a. Client's size, as measured by total assets or total revenue. b. Distribution of ownership among the public. c. Nature and amount of liabilities. d. Amount of net income or loss after taxes.

D

Which of the following is not a related party of an entity? A. An associate of the entity. B. Chief executive officer of the entity. C. A shareholder owning 20% of the ordinary shares. D. A financial institution providing banking facilities to the entity.

D

Which of the following is not likely a quality control procedure on consultation? A. Identifies areas and specialized situations where consultation is required and encourages personnel to consult with or in use authoritative sources on other complex matters. B. Designates individuals as expert to serve as authoritative sources and define their authority in consultative situations. C. Specifies the extent of documentation to be provided for the result of consultation in those areas and specialized situations where consultation is required. D. Assigns an appropriate person or persons to be responsible for assigning personnel to audits.

D

Which of the following procedures most likely would not be an internal control designed to reduce the risk of errors in the billing process? A. Comparing control totals for shipping documents with corresponding totals for sales invoices. B. Using computer programmed controls on the pricing and mathematical accuracy of sales invoices. C. Matching shipping documents with approved sales orders before invoice preparation. D. Reconciling the control totals for sales invoices with the accounts receivable subsidiary ledger.

D

Which of the following statements is (are) correct? I. The auditor cannot test controls that leave no audit trail. II. The absence of misstatements detected by substantive procedures provides evidence that controls related to the assertion being tested are effective. A. I only B. II only C. Both I and II D. Neither I nor II

D

Which of the following statements is correct about the working papers? A. In determining the extent of documentation, it may be useful to consider what would be necessary to provide another auditor who has no previous experience with the audit an understanding of the detailed aspects of the audit. B. Every matter the auditor considers in an audit must be documented in the working papers. C. Working papers should not include documentation prepared by the client. D. The auditor should prepare the working papers which are sufficiently complete and detailed to provide an overall understanding of the audit.

D

Which of the following statements would least likely appear in an auditor's engagement letter? a. Fees for our services are based on our regular per diem rates, plus travel and other out-of-pocket expenses. b. During the course of our audit we may observe opportunities for economy in, or improved controls over, your operations. c. Our engagement is subject to the risk that material misstatements or fraud, if they exist, will not be detected. d. After performing our preliminary analytical procedures we will discuss with you the other procedures we consider necessary to complete the engagement.

D

Which of the following statements would least likely appear in an auditor's engagement letter? a. Fees for our services are based on our regular per diem rates, plus travel and other out-of-pocket expenses. b. During the course of our audit we may observe opportunities for economy in, or improved controls over, your operations. c. Our engagement is subject to the risk that material misstatements or fraud, if they exist, will not be detected. d. After performing our preliminary analytical procedures, we will discuss with you the other procedures we consider necessary to complete the engagement.

D