ICARE REVIEWERS Flashcards
- An assurance engagement is a means of satisfying the need for reliable
information on the part of decision makers. Factors which contribute to this need
include the following, except
A. New and changing business relationships lead to innovative reporting problems
B. Information to be reported may arise from multiple transactions processed daily
through sophisticated computerized systems
C. Information will be biased in favor of the decision-maker
D. Decision-makers normally rely on information prepared by another party
C. Information will be biased in favor of the decision-maker
- Business managers and financial statement users may conclude to incur costs to
reduce information risk through
A. Verification of information by its provider
B. Sharing of the information risk with its preparer
C. Providing financial statements to the user
D. Disclosing other supplementary information
B. Sharing of the information risk with its preparer
- Which of the following is not a precondition for an assurance engagement?
A. Roles and responsibilities of the appropriate parties are suitable in the
circumstances
B. Appropriate underlying subject matter information
C. Criteria that the practitioner expects to be applied in the preparation of the
subject matter information are suitable
D. A rational purpose
B. Appropriate underlying subject matter information
8. Suitable criteria exhibit the following characteristics, except A. Relevance B. Completeness C. Verifiability D. Neutrality
C. Verifiability
- The risk that the practitioner expresses an inappropriate conclusion when the
subject matter information is materially misstated.
A. Business risk
B. Information risk
C. Engagement risk
D. Attestation risk
C. Engagement risk
- This is a component of assurance engagement risk that is more relevant for direct
engagements than attestation engagements.
A. Inherent risk
B. Control risk
C. Detection risk
D. Measurement or evaluation risk
D. Measurement or evaluation risk
- A limited assurance engagement involves the following, except
A. Based on an understanding of the underlying subject matter and other
engagement circumstances, identifying areas where a material misstatement
of the subject matter information is likely to arise
B. Designing and performing procedures to address those areas and to obtain
limited assurance to support the practitioner’s conclusion
C. If the practitioner becomes aware of a matter(s) that causes the practitioner to
believe the subject matter information may be materially misstated, designing
and performing additional procedures to obtain further evidence
D. None of the above
D. None of the above
- The Auditing and Assurance Standards Council (AASC) en banc should discuss
drafts of statement, studies or standards. How many members of AASC are
required to approve the draft for exposure?
A. Ten
B. Eleven
C. Twelve
D. Majority
D. Majority
- Before accepting an audit engagement, a successor auditor should make specific
inquiries of the predecessor auditor regarding
a. Disagreements the predecessor had with the client concerning auditing procedures and
accounting principles
b. the predecessor’s evaluation of matters of continuing accounting significance
c. the degree of cooperation the predecessor received concerning the inquiry of client’s
lawyer
d. the predecessor auditor’s assessment of inherent risk and judgments about materiality
a. Disagreements the predecessor had with the client concerning auditing procedures and
accounting principles
- The successor auditor requested permission to communicate with the predecessor
auditor and review certain portions of the predecessor auditor’s working papers. The
prospective client’s refusal to permit this will bear directly on the successor auditor’s
decision concerning the
a. adequacy of the preplanned audit program
b. ability to establish consistency in application of accounting principles between years
c. apparent scope limitation
d. integrity of management
a. adequacy of the preplanned audit program
CONTINUE SA AUD 03-03
ASD
Which of the following is not an assurance that the auditor gives to the parties who rely on the FS?
a. Auditors know how the amounts and disclosures un the FS were produced
b. Auditors give assurance that the FS are accurate
c. Auditors gather enough evidence to provide reasonable basis for forming an opinion
d. If the evidence allows the auditor to do so, auditors give assurance in the form of an opinion whether the FS are presented fairly or not
b. Auditors give assurance that the FS are accurate
Which of the following is least likely to increase the risk of fraud or error?
a. Questions as to the competence and integrity of management
b. Unusual pressures within the entity
c. Unusual transactions
d. Lack of transaction trail
d. Lack of transaction trail
Which of the following conditions or events increases the risk of error or fraud?
a. Management is dominated by several individuals
b. There are frequent changes of auditors or legal counsel
c. There is significantly low turnover of senior accounting personnel
d. The entity does not correct internal control deficiencies that it knows about
b. There are frequent changes of auditors or legal counsel
What is the auditor’s responsibility who discovers that management is involved in a potentially immaterial fraud?
a. Report the fraud to the audit committee
b. Report the fraud to SEC
c. Report the fraud to a level of management at least on level below those involved in the fraud
d. Determine that the amounts involved are indeed immaterial, and if so, there is no reporting responsibility
a. Report the fraud to the audit committee
Most noncompliance affects the FS:
a. directly
b. indirectly
c. directly and indirectly
b. indirectly
Generally, the decision to notify parties outside the organization of the client regarding noncompliance with laws and regulations is the responsibility of the
a. independent auditor
b. client’s legal counsel
c. management
d. internal auditor
c. management
Which of the following does not properly describe a procedure that the auditor normally performs in connection with noncompliance?
a. The auditor should obtain a general understanding of legal and regulatory framework applicable to the entity
b. The auditor should perform procedures to identify instances of noncompliance with laws and regulations
c. The auditor should obtain oral representation that management has disclosed to the auditor all known actual or possible noncompliance with laws and regulation
d. Auditor should obtain sufficient appropriate evidence about noncompliance with laws and regulations
c. The auditor should obtain oral representation that management has disclosed to the auditor all known actual or possible noncompliance with laws and regulation
After obtaining sufficient understanding about the client’s legal and regulatory framework, the auditor should
a. develop a code of conduct and ensure that these employees comply with such code
b. perform procedures to help identify instances of noncompliance with laws and regulations
c. monitor entity’s legal requirements and ensure that operating procedures
d. inquire of management as to the laws or regulations that may be expected to have a fundamental effect on the operations of the entity
b. perform procedures to help identify instances of noncompliance with laws and regulations
If the client refuses to accept an audit report that is qualified due to noncompliance with laws and regulations, the auditor should
a. withdraw from the engagement and indicate the reasons to the audit committee in writing
b. issue an adverse opinion if management agrees to fully disclose the matter
c. withdraw from the engagement and indicate the reasons to the SEC or other regulatory body in writing
d. issue a disclaimer of opinion instead
a. withdraw from the engagement and indicate the reasons to the audit committee in writing
The sequence of steps in gathering evidence as the basis of auditor's opinion: 1 - Substantive test 2. Documentation of internal control structure 3 - Test of Controls a. 123 b. 231 c. 213 d. 312
b. 231
In making the client acceptance decisions the audit firm will consider
a. inherent and control risk of the client
b. audit risk the the CPA firm
c. client business risk and CPA firm engagement risk
d. CPA firm’s potential ongoing revenue with client
c. client business risk and CPA firm engagement risk
Within the context of quality control, the primary purpose of continuing professional education and training activities is to enable a CPA firm to provide its personnel with
a. technical training that assures proficiency as a valuation expert.
b. professional education that is required in or order to perform with due professional care.
c. knowledge required to fulfil assigned responsibilities
d. knowledge required to perform a peer review
c. knowledge required to fulfil assigned responsibilities
In compliance with the element of human resources, the firm should address issues relating to
a. engagement performance
b. assignment of engagement teams
c. consultations
d. differences of opinion
b. assignment of engagement teams
When comparing level of materiality used for planning purposes and the level of materiality used for evaluating evidences, one would most likely expect
a. The level of materiality to be always similar
b. The level of materiality for planning purposes to be smaller
c. The level of materiality for planning purposes to be higher.
d. The level of materiality for planning purposes to be based on total assets while the level of materiality for evaluating purposes to be based on net income
b. the level of materiality for planning purposes to be smaller
Auditing standards _________ that the basis used to determine the preliminary judgement about materiality be documented in the audit files.
a. permit
b. do not allow
c. require
d. strongly encourage
c. require
When tolerable misstatement is exceeded by _____ the auditor should request the client to adjust their account balance
a. Known misstatements
b. Projected misstatement
c. a and b
d. none of the above
c. known misstatements and projected misstatement
The audit program usually cannot be finalized until the…
a. Consideration of the entity’s internal control has been completed
b. Engagement letter has been signed by the auditor and the client
c. Significant deficiency has been communicated to the audit committee of the board of directors
d. Search for unrecorded liabilities has been performed and documented
a. Consideration of the entity’s internal control has been completed
The fundamental purpose of an internal control is to
a. Safeguard the resources of the organization
b. provide reasonable assurance that the objectives of the organization are achieved
c. Encourage compliance with organization objectives
d. Ensure the accuracy, reliability, and timeliness of the information
b. provide reasonable assurance that the objectives of the organization are achieved
Two key concepts that underlie management’s design an implementation of internal control are:
a. Costs and materiality
b. Absolute assurance and costs
c. Inherent limitations and reasonable assurance
d. Collusion and materiality
c. inherent limitations and reasonable assurance
Inherent limitations in an internal control must be considered in evaluating its effectiveness in preventing and detecting errors and fraud. Inherent limitations do not include
a. Misunderstanding of instructions, mistakes of judgements, personal carelessness, distraction, or fatigue
b. Incompatible functions performed by the same person
c. Collusion among employees
d. Management override of certain policies or procedures
b. Incompatible functions performed by the same person
Internal control, no matter how well designed and operated, can only provide an entity with reasonable assurance about achieving the entity’s objectives. The likelihood of achievement is affected by limitations inherent to internal control. These limitations do not include…
a. Collusion among employees
b. Inappropriate management override of internal control
c. Human failures
d. Incompatible functions
d. Incompatible functions
Internal controls can never be regarded as completely effective. Even if company personnel could design an ideal system, its effectiveness depends on the…
a. Adequacy of the computer system
b. Proper implementation by management
c. ability of the internal audit staff to maintain it
d. competency and dependability of the people using it
d. competency and dependability of the people using it
Which of the following components of an entity’s internal control structure includes the development of employee’s promotion and training policies?
a. Control activities
b. Control environment
c. Information and communication
d. Quality control system
d. Quality control system
Accounting information system:
Initiates transactions? Yes or no
Processes transactions? Yes or no
Monitors transactions? Yes or no
c. Initiates transactions? No
Processes transactions? Yes
Monitors transactions? No
Which of the following statements best describes the entity’s risk assessment process?
a. Entity’s process of identifying business risks relevant to financial reporting objectives and deciding about actions to address those risks.
b. Entity’s assessment of audit risks affecting the financial statements.
c. Entity’s process of evaluating the risks of misstatements due to fraud.
d. Entity’s assessment of risks that internal control may fail to detect misstatements affecting the financial statements.
a. Entity’s process of identifying business risks relevant to financial reporting objectives and deciding about actions to address those risks.
The auditors primary purpose in auditing the client’s system of internal control over financial reporting is:
a. to prevent fraudulent financial statements from being issued to the public.
b. to evaluate the effectiveness of the company’s internal controls over all relevant assertions in the financial statements
c. to report to management that the internal controls are effective in preventing misstatements from appearing on the financial statements
d. to efficiently conduct the audit of financial statements
d. to efficiently conduct the audit of financial statements
When obtaining understanding of the entity’s internal control, the auditor should obtain knowledge about the system’s…
Design? Yes or no
Implementation? Yes or no
Operating effectiveness? Yes or no
b. Design? Yes
Implementation? Yes
Operating effectiveness? No
After studying and evaluating a client’s existing internal control, an auditor has concluded that the policies and procedures are well designed and functioning as intended. Under these circumstances, the auditor would most likely…
a. Perform further control tests to the extent outlined in the audit program
b. Determine the control policies and procedures that should prevent or detect errors and fraud
c. Set detection risk at a higher level than would be set under conditions of weak internal control
d. Set detection risk at a lower level than would be set under conditions of weak internal control
c. Set detection risk at a higher level than would be set under conditions of weak internal control
After considering internal control, an auditor might decide to…
a. Increase the extent of tests of controls and substantive tests in areas where internal control is strong
b. Increase the extent of substantive tests in areas where internal control is weak.
c. Reduce the extent of tests of controls in areas where internal control is strong
d. Reduce the extent of both substantive tests and tests of controls in areas where internal control is strong.
b. Increase the extent of substantive tests in areas where internal control is weak.
The primary emphasis by auditors is on controls over…
a. classes of transactions
b. account balances
c. A and B because both are equally important
d. A and B because they vary from client to client
a. classes of transactions
When obtaining audit evidence about the effective operation of internal controls, the auditor considers all of the following except
a. How they were applied
b. The consistency with which they were applied during the period
c. By whom they were applied
d. Why they were applied
d. Why they were applied
When control risk is assessed at a high level, the auditor should document his….
Understanding of internal control components? Yes/No
Conclusion that control risk is at a high level? Yes/No
Basis for concluding that control risk is at a high level? Yes/No
b. Understanding of internal control components? Yes
Conclusion that control risk is at a high level? Yes
Basis for concluding that control risk is at a high level? No
When control risk is assessed at less than high level, the auditor should document his
Understanding of internal control components? Yes/No
Basis for assessing control risk at less than high level? Yes/No
a. Understanding of internal control components? Yes
Basis for assessing control risk at less than high level? Yes
Which of the following is correct when the auditor assesses control risk at a high level?
a. The auditor should document the basis for his assessment
b. The auditor should perform tests of controls
c. The auditor should document his conclusion that controls risks is at a high level
d. The auditor need not document his understanding of internal control
a. The auditor should document the basis for his assessment
In general, a material weakness in internal control may be defined as a condition in which material errors or irregularities may occur and not be detected as within a timely period by…
a. An independent auditor during tests of controls
b. Management when reviewing interim financial statements and reconciling account balances.
c. Employees in the normal course of performing their assigned functions
d. Outside consultants who issue a special purpose report on internal control structure
c. Employees in the normal course of performing their assigned functions
The management letter is used…
a. To allow management to corroborate oral representations to the auditor
b. To confirm the terms of the audit engagement
c. To document the auditor’s consideration of internal controls
d. To make recommendations to the client based on observation made during the audit
d. To make recommendations to the client based on observation made during the audit
An entity’s ongoing monitoring activities often include
a. Periodic audits by the audit committee
b. Reviewing the purchasing function
c. The audit of the annual financial statements
d. Control risk assessments in conjunction with quarterly reviews
b. Reviewing the purchasing function
In the context of an audit of financial statements, substantive tests are audit procedures that
a. May be eliminated under certain conditions
b. Are designed to discover significant subsequent events
c. May be either tests of transactions, direct tests of financial balances, or analytical tests
d. Will increase proportionately with the auditor’s assessment of control risk
c. May be either tests of transactions, direct tests of financial balances, or analytical tests
The primary emphasis in most tests of details of balances is on the
a. balance sheet accounts
b. revenue accounts
c. cash flow statement accounts
d. expense accounts
a. balance sheet accounts
Often, auditor procedures result in significant differences being discovered by the auditor. The auditor should investigate further if…
Significant differences are not expected but do exist? Yes/No
Significant differences are expected but do not exist?
Yes/No
yes, yes
Which of the following statements concerning analytical procedures is correct?
a. Analytical review may be omitted entirely for some financial statement audits
b. Analytical procedures used in planning an audit should not use non-financial information
c. Analytical procedures are usually effective and efficient for tests of controls
d. Analytical procedures alone may provide the appropriate level of assurance for some assertions
a. Analytical review may be omitted entirely for some financial statement audits
Which of the following tends to be most predictable for purposes of analytical procedures applies as substantive tests?
a. Relationships involving balance sheet accounts
b. Transactions subject to management discretion.
c. Relationships involving income statement accounts.
d. Data subject to audit testing in the prior year.
c. Relationships involving income statement accounts.
Auditors try to identify predictable relationships when using analytical procedures. Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence?
a. Accounts Payable
b. Advertising expense
c. Accounts receivable
d. Interest expense
d. Interest expense
Auditors sometimes use comparison of ratios as audit evidence. For example, an unexplained decrease in the ratio of gross profit to sales may suggest which of the following possibilities?
A. Unrecorded purchases
b. unrecorded sales
c. merchandise purchases being charged to operating expense
d. fictitious sales
b. unrecorded sales
Which of the ff. statements is not correct with respect to analytical procedures?
a. Auditing standards require the use of analytical procedures
b. Analytical procedures may be performed as substantive test
c. Analytical procedures may be performed as test of control
d. Analytical procedures use comparisons and relationships to assess whether account balance appear reasonable
c. Analytical procedures may be performed as test of control
Which of the ff. procedures would provide the most reliable audit evidence?
a. Inquiries of the clients internal audit staff held in private
b. Inspection of prenumbered client purchase orders field in the vouchers payable department
c. Analytical procedures performed by the auditor on the entity’s trail balance
d. Inspection of bank statements obtained directly from the client’s financial institution
d. Inspection of bank statements obtained directly from the client’s financial institution
In determining validity of accounts receivable, which of the following would the auditor consider to be the most reliable?
a. Documentary evidence that supports the accounts receivable
b. Credits to accounts receivable from the cash receipts book after the close of business at year-end
c. Direct telephone communication between auditor and debtor.
d. Confirmation replies received directly from customers
d. Confirmation replies received directly from customers
Audit evidence obtained directly by the auditor will not be reliable if:
a. the auditor lacks the competence to evaluate the evidence
b. it is provided by the client’s attorney
c. the client denied its veracity
d. it is impossible for the auditor to obtain additional corroboratory evidence
a. the auditor lacks the competence to evaluate the evidence
Which of the following statements is correct about the working paper?
a. Working papers should not include documentation prepared by the client
b. Every matter the auditor considers in an audit must be documented in the working papers
c. In determining the extent of working paper 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.
d. The auditor should prepare working papers which are sufficiently complete and detailed to provide an overall understanding of the audit
d. The auditor should prepare working papers which are sufficiently complete and detailed to provide an overall understanding of the audit
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 of a particular engagement
c. An auditor’s paper may not serve as a 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
a. An auditor may support an opinion by other means in addition to working papers
Which statement is correct concerning the deletion of audit documentation?
a. Superseded audit documentation should always be deleted from the audit file
b. After the audit file has been completed, the auditor should no deleted or discard audit documentation.
c. Auditors should use professional skepticism in determining which audit documentation should be deleted
d. Audit documentation should never be deleted from the audit file
c. Auditors should use professional skepticism in determining which audit documentation should be deleted
What client information is needed by auditors in creating lead schedules?
a. Interim statements prepared by the client
b. General ledger information, including unadjusted ending balances and beginning balances for accounts
c. A schedule of adjusting entries made by the client for all balance sheet accounts
d. Detailed transaction information that mat explain the changes in balance sheet accounts for the current year under audit
b. General ledger information, including unadjusted ending balances and beginning balances for accounts
Which of the ff. statements is incorrect about accounting estimates?
a. Management is responsible for making accounting estimates included in the financial statements
b. The risk of material misstatements is greater when accounting estimates are involved
c. The evidence available to support an accounting estimate will often be more difficult to obtain and less conclusive that evidence available to support other items in the financial statements
d. When evaluating accounting estimates, the auditor should pay particular attention to assumptions that are objective and are consistent.
d. When evaluating accounting estimates, the auditor should pay particular attention to assumptions that are objective and are consistent.
Which of the ff. procedures would an auditor least likely perform when evaluating the reasonableness of management estimates?
a. Make an independent estimates for comparison with management estimates
b. Read the minutes of board of director’s meetings
c. Review and test the process used by management
d. Review subsequent events which confirm the estimates made
b. Read the minutes of board of director’s meetings
Which of the ff. procedures would an auditor ordinarily perform first in evaluating managements accounting estimates for reasonableness?
a. Develop independent expectations of management’s estimates.
b. Consider the appropriateness of the key factors or assumption used in preparing the estimates
c. Test the calculations used by the management in developing the estimates.
d. Obtain an understanding of how management developed its estimates
d. Obtain an understanding of how management developed its estimates
Which of the ff. is not one of the primary reasons why auditors should be aware of the related parties and transactions between such parties?
a. PFRS requires disclosure of the related party transaction if they are material
b. The existence of related parties or related party transactions may affect the financial statements and the reliability of audit evidence
c. A related party transaction may be motivated by other than ordinary business considerations
d. PFRS requires that related party transactions be recorded in their equivalent arm’s-length transaction
d. PFRS requires that related party transactions be recorded in their equivalent arm’s-length transaction
When auditing related party transaction, an auditor places primary emphasis on…
a. Ascertaining the rights and obligations of the related parties
b. Confirming the existence of the related parties
c. Verifying the valuation of the related party transactions
d. Evaluating the disclosure of the related party transactions
d. Evaluating the disclosure of the related party transactions
When the auditor has to determine the need to use the work of an expert, he would least likely consider…
a. The cost of using the services of an expert
b. The quantity and quality of other audit evidence available.
c. The materiality of the financial statement item being considered.
d. The risk of misstatement based on the nature and complexity of the matter being considered.
a. The cost of using the services of an expert
Which of the following statements in relation to the preliminary assessment of internal auditing is false?
a. The eternal auditor should obtain a sufficient understanding of internal audit activities to assist in planning the audit and developing an effective audit approach
b. During the course of planning the audit, the external auditor should perform a preliminary assessment of the internal audit function when it appears that internal auditing is relevant to the external audit of the financial statements in specific audit areas
c. Effective internal auditing will often allow a modification in the nature, timing, reduction in the extent and even eliminate in its entirety some procedures performed by the external auditor.
d. In some cases, after having considered the activities of internal auditing, the external auditor may decide that internal auditing will have no effect on external audit procedures.
c. Effective internal auditing will often allow a modification in the nature, timing, reduction in the extent and even eliminate in its entirety some procedures performed by the external auditor.
An independent auditor might consider the procedures performed by the internal auditors because…
a. They are employees whose work must be reviewed during substantive testing
b. Their work affects the cost benefit trade-off
c. They are employees whose work may affect the nature, timing, and extent of audit procedures.
d. Their work of independence may be inferred from the nature of their work.
c. They are employees whose work may affect the nature, timing, and extent of audit procedures.
To assess the objectivity of the internal auditors would most likely….
a. Consider the professional qualifications an experience of the internal auditors
b. Consider the organizational level to which the internal auditors report the results of their work
c. Consider proper planning, supervision and documentation of internal auditor’s work
d. Consider the nature and extent of the internal auditors’ assignment.
b. Consider the organizational level to which the internal auditors report the results of their work
Non sampling errors occur when audit tests do not uncover existing exception in the
a. Population
b. Planning stage
c. Sample
d. Financial statement
c. Sample
Which of the following is the risk that audit tests will not uncover existing exceptions in a sample
a. Sampling risk
b. Nonsampling risk
c. Audit risk
d. Detection risk
b. Nonsampling risk
Which of the following statements is most correct?
a. A sample of all items of a population will eliminate sampling risk, but increase nonsampling risk.
b. The use of an appropriate sample selection technique ensures a representative sample
c. The auditor’s failure to recognize an exception is a significant cause of a sampling risk.
d. The use of inappropriate audit procedures is a significant cause of nonsampling risk
d. The use of inappropriate audit procedures is a significant cause of nonsampling risk
Which of the following statements best expresses the impact that the performance of audit procedures has on statistical and nonstatistical sampling?
a. Audit procedures on the sample item will vary as a result of using either statistical or nonstatistical sampling
b. The audit procedures will be the same for either statistical or nonstatistical sampling but they must be performed differently for each.
c. Statistical sampling requires quantitative audit procedures, whereas nonstatistical sampling requires judgmental audit procedures
d. Audit procedures on the sample item will not vary as a result of using either statistical or nonstatistical sampling.
d. Audit procedures on the sample item will not vary as a result of using either statistical or nonstatistical sampling.
Sampling used for tests of details of balances provides results in terms of:
a. deviation rates
b. percentages
c. pesos
d. expectation rates
c. pesos
The tolerable rate of deviations for tests of controls is generally
a. lower than the expected rate of deviation
b. higher than the expected rate of deviation
c. identical to the expected rate of deviation
d. unrelated to the expected rate of deviation
b. higher than the expected rate of deviation
Which of the following factors is generally not considered determining sample size for a test of controls? a. Population size b. Tolerable rate c Risk of assessing control risk too low d. Expected population deviation rate
a. Population size
To determine an optimum sample size when sampling methods are used in a substantive test, all of the following factors must be considered except the
a. Variance in the population
b. Risk levels the auditor is willing to accept
c. Deviation occurrence rate the auditor expects to find in the population
d. Tolerable misstatement
c. Deviation occurrence rate the auditor expects to find in the population
In examining cash disbursements, an auditor plans to choose a sample using systematic selection with a random start. The primary advantage of such a systematic selection is population items
a. that include irregularities will not be overlooked when the auditor exercises compatible reciprocal options
b. may occur in a systematic pattern, thus making the sample more representative
c. may occur more than once in a sample
d. do not have to be more prenumbered in order for the auditor to use the technique
d. do not have to be more prenumbered in order for the auditor to use the technique
What is the primary objective of using stratification as a sampling method in auditing
a. To increase the confidence level at which a decision will be reached from the results of the sample selected
b. to determine the occurrence rate for a given characteristic in the population being studied
c. To decrease the effect of variance in the total population
d. To determine the precision range of the sample selected
c. To decrease the effect of variance in the total population
Which of the following statistical selection techniques is least desirable for use by an auditor
a. systematic selection
b. block selection
c. stratified selection
d. sequential selection
b. block selection
Which of the following statistical sampling plans does not use a fixed sample size for tests of control
a. PPS sampling
b. Value-weighted sampling
c. Sequential sampling
d. Variables sampling
c. Sequential sampling
An auditor uses monetary unit sampling with a sampling interval of PHP20,000 and detects an item with a recorded amount of PHP10,000 with an audited value of PHP4,000. The projected misstatement of the sample is:
a. 12,000
b. 6,000
c. 10,000
d. 3,000
a. 12,000
Value weighted sampling is most appropriate when the auditor
a. anticipates understatement errors
b. expects no errors
c. anticipates overstatement errors
d. has assessed control risk at a high level
c. anticipates overstatement errors
The use of the ratio estimation sampling technique is more effective when
a. The calculated audit amounts are approximately proportional to the client’s book amounts
b. A relatively small number of differences exist in the population
c. Estimating populations whose records consist of quantities, but not book values
d. Large overstatement differences and large understatement differences exist in the population
a. The calculated audit amounts are approximately proportional to the client’s book amounts
In comparison with classical variables sampling, which of the following is an advantage of value weighted sampling?
a. Value weighted sampling automatically results in a stratified sample
b. Value weighted sampling results in a smaller sample size if many differences are expected between audited and recorded amounts
c. Value weighted sampling is particularly
appropriate when understatement errors are expected
d. Value weighted sampling is less likely to overstate the allowance for sampling risk when errors are found in the sample
a. Value weighted sampling automatically results in a stratified sample
Value weighted sampling is not particularly effective at detecting
a. overstatements
b. understatements
c. errors in current assets
d. errors in noncurrent assets.
b. understatements
When using monetary-unit sampling, the recorded peso value of the population is a definition of all the items in the:
a. population
b. population which the auditor has included in the sample
c. population which contain errors
d. sample which contain errors
a. population
When errors are found in a sample, auditors in practice generally make the assumption
a. of a 100% assumption for all errors
b. that the sample errors are the same as the population errors
c. that the population errors are smaller than the sample errors
d. that the actual sample errors are representative of the population errors
d. that the actual sample errors are representative of the population errors
Oscar CPA believes that the rate of client billing errors is 4% and has established a tolerable deviation rate of 6%. In auditing client invoices Oscar should use
a. stratified sampling
b. classical sampling
c. proportional sampling
d. attributes sampling
d. attributes sampling
A major customer of an audit client suffers a fire just prior to completion of year-end field work. The audit client believes that this event could have a significant direct effect on the financial statements. The auditor should
a. Advise management to disclose the event in notes to the financial statements
b. Disclose the event in the auditor’s report
c. Withhold submission of the auditor’s report until the extent of the direct effect of the financial statements is known
d. Advise management to adjust the financial statements
a. Advise management to disclose the event in notes to the financial statements
Whenever subsequent events are used to evaluate the amounts included in the statements, care must be taken to distinguish between conditions that existed at the balance sheet date and those that come into being after the end of the year. The subsequent information should not be incorporated directly into the statements if the conditions causing the change in valuation
a. took place before year-end
b. did not take place until after year-end
c. occurred both before and after year-end
d. are reimbursable through insurance policies
b. did not take place until after year-end
The practice of dual dating applies to
a. all types of subsequent events
b. subsequent events that require disclosure
c. subsequent events that occur before the date of the auditor’s report
d. subsequent events that occur after the financial statements are issued
b. subsequent events that require disclosure
When obtaining evidence regarding litigation against a client, the CPA would be least interested in determining
a. An estimate of when the matter will be resolved
b. The period in which the underlying cause of the litigation occurred
c. The probability of an unfavorable outcome
d. An estimate of the potential loss
a. An estimate of when the matter will be resolved
An auditor will ordinarily examine invoices from lawyers primarily in order to
a. Substantiate accruals
b. Assess the legal ramifications of litigations in progress
c. Estimate the peso amount of contingent liabilities
d. Identify possible unasserted litigation, claims, and assessments
d. Identify possible unasserted litigation, claims, and assessments
Which of the following is not a reason why the auditor requests that the client provide a written representation?
a. Professional auditing standards require the auditor to obtain a written representation
b. It stresses upon management its responsibility for the preparation and fair presentation of the financial statements.
c. It provides written documentation of the oral responses already received to inquiries of management
d. It provides written documentation, which is a higher quality of evidence than management’s oral responses to inquiries
d. It provides written documentation, which is a higher quality of evidence than management’s oral responses to inquiries
Which of the ff. would the auditor expect to find in the client’s management representation letter?
a. management’s recommendations for internal control effectiveness improvements
b. management’s plans for improving product quality
c. management’s compliance with contractual arrangements that impact the financial statements
d. management’s goals for improving earnings per share
c. management’s compliance with contractual arrangements that impact the financial statements
An auditor must obtain written client representations that might be signed by all but which of the ff.
a. Treasurer
b. Chief financial officer
c. Vice president of operations
d. Chief executive officer
c. Vice president of operations
The date of the management representation letter should coincide with the date of the
a. Balance sheet
b. Latest interim financial statements
c. Auditor’s report
d. Latest related party transaction
c. Auditor’s report
A client representation letter is:
a. Prepared on the CPA’s letterhead
b. Addressed to the client
c. Signed by high level officials (e.g. president and chief financial officer)
d. Dated as of the client’s year-end
c. Signed by high level officials (e.g. president and chief financial officer)
The purpose of analytical procedures at the completion of the audit includes all of the following except
a. Revising the audit plan
b. Considering overall reasonableness of the financial statements
c .Reviewing adequacy of evidence gathered to investigate unusual fluctuations
d. Recalculating some of the ratios examined during audit planning
b. Considering overall reasonableness of the financial statements
Analytical procedures in the overall review should be
a. applied to every item on the financial statements
b. performed by the partner or manager on the engagement
c. based on financial statement data before all audit adjustments and reclassifications have ben recognized
d. performed only when material misstatement is expected
b. performed by the partner or manager on the engagement
