Aud Theory

Transcript

1. The primary reason for an audit by an independent, external audit firm is a. To guarantee that there are no misstatements in the financial statements b. To relieve management of responsibility for the financial statements c. To provide increased assurance to users as to the fairness of the financial f inancial statements d. To insure that any fraud will be discovered 2. The communication between an external auditor and a client is confidential. Ordinarily, a. The client is not required to answer an external auditor’s questions in certain circumstances b. An external auditor is not permitted to testify in a court of law without the permission of the client c. An external auditor is not required to divulge client information even if demanded by a subpoena d. An external auditor should not disclose information obtained in the co urse of the engagement without the client’s permission 3. The risk that an external auditor may not detect a material error or fraud during an audit is increased by the possibility of  a. Executive appeal b. Late appointment of the auditor c. Management override of internal control d. Audit committee review of the management letter 4. In planning the audit, the auditor considers audit risk. Audit risk is the a. Susceptibility of an assertion to material misstatement assuming there are no related controls b. Risk that a material misstatement in an assertion will not be prevented or detected on a timely basis by the client’s internal control c. Risk that the auditor’s procedures for verifying account balances will not n ot detect a material misstatement that in fact exists d. Risk that the auditor may unknowingly fail to appropriately modify the opinion on financial statements that are materially misstated 5. Inherent risk is a. The susceptibility of an assertion to a material misstatement, assuming that there are no related controls b. The risk the auditor may unknowingly fail to appropriately modify his or her opinion on financial statements that are materially misstated c. The risk that a material misstatement that could occur in an assertion will not be prevented or detected on a timely basis by the entity’s internal control d. The risk that the auditor will jot detect a material misstatement that exists in i n an assertion 6. The steps that an audit firm should take prior to accepting an audit engagement include all of the ff except a. Obtaining a thorough understanding of the client’s business b. Evaluating independence c. Assessing the firm’s competence to perform the audit d. Determining the firm’s firm’s ability to use due professional care 7. Which of the following best describe the interrelated components of internal control? a. Organizational structure, management philosophy, and planning b. Control environment, risk assessment, control activities, information and communication systems, and monitoring c. Risk assessment, backup facilities, responsibility accounting, and natural laws d. Legal environment of the firm, management philosophy, and organizational structure 8. Which of the following statements does not correctly describe the relationship of the internal auditor and the scope of the external audit of a company’s financial statements? a. The nature, timing, and extent of the external auditor’s substantive tests may depend upon the work of  the internal auditor b. The internal auditors may assist the external auditor in performing substantive tests under certain circumstances c. The internal auditors may assist the external auditor in performing tests of controls under certain circumstances d. The internal auditor may determine the extent to which audit procedures should be employed by the external auditor 9. An external auditor will use internal auditors auditors to assist in the audit of accounts receivable. Of the ff  procedures, the one that would be most appropriate for the internal auditors to perform is the a. Assessment of control risk for accounts receivable b. Determination of the number of positive confirmation requests to be mailed to substantiate the existence of accounts receivable c. Preparation of an aged trial balance of accounts receivable d. Establishment of the amount of accounts receivable that is considered material 10. Documentary evidence is one of the principal types of corroborating information used by an auditor to substantiate an opinion. Which one of the following examples of documentary evidence would be the most reliable? a. Time tickets b. Material requisition slips c. Copies of sales invoice d. Bank statements 11. An internal control objective in the revenue cycle is to insure that recorded sales are valid and documented. Which evidence is least likely to satisfy the objective a. Bills of lading existing for all invoice b. Customer purchase orders support invoice c. Shipping documents existing for all invoices d. Credit sales have been approved by the credit department 12. An auditor should be able to collect and evaluate documentary evidence. When evaluating and interpreting evidence, the auditor must be concerned about drawing unwarranted conclusions. An example of a valid conclusion is a. Correct inventory valuation determined from observation of physical inventory counts b. Proper accounts payable cut-off at year-end determined from a review of raw materials requisitions c. Existence of a company car determined from the examination of a paid invoice d. Client ownership determined from outside inquiries about consigned g oods 13. A proof of cash used by an auditor a. Proves that the client’s year-end year -end balance of cash is fairly stated b. Confirms that the client has properly separated the custody function from the recording function with respect to cash c. Validates that client’s bank bank did not make an error during the period being examined d. Determines if there were any unauthorized disbursements or unrecorded deposits fo r the given period 14. Which of the following statements regarding the confirmation of accounts payable is true a. The confirmation of accounts payable must be done exclusively by the internal audit staff  b. The confirmation of accounts payable contributes little or nothing to determining whether unrecorded accounts payable exist c. The confirmation of accounts payable must be done exclusively by the independent auditor d. The confirmation of accounts payable is an important method of establishing the existence of  unrecorded accounts payable 15. Which of the following statements best describes a positive request for confirmation of an accounts receivable balance a. The customer will be asked to indicate to the auditor the current balance in the account b. The customer will be asked to respond to the confirmation request only if the balance indicated in the request in incorrect c. The customer will be asked to inform the auditor whether the balance indicated in the request is correct and to respond regardless of whether such stated balance is correct d. The customer will be asked to indicate to the auditor the balance in his/her account only if it is positive (eg greater that zero) 16. Which of the following statements concerning sampling risk and no sampling risk is correct a. Neither sampling risk nor nonsampling risk can be reduced by the auditor b. Sampling risk, but not nonsampling risk, can be reduced by the auditor c. Nonsampling, but not sampling risk, can be reduced by the auditor d. Both sampling risk and nonsampling risk can be reduced by the auditor 17. The probability that an auditor’s conclusion concl usion confusion based on a sample might be different from the conclusion based on an audit of the entire population is the concept of  a. Sampling risk b. Control risk c. Over reliance d. Tolerable rate 18. The upper precision limit in statistical sampling is a. A statistical measure, at a specified reliability, level, of the maximum rate of occurrence b. The percentage of items in a sample that possess a particular attribute c. The percentage of items in a population that possess a particular attribute d. The maximum rate of exception that the auditor would be willing to accept in the population without altering the planned reliance on the attribute 19. The auditor may express an unqualified opinion with any emphasis of matter paragraph under all of the following circumstance except a. A scope limitation resulting from the client’s refusal to permit perm it confirmation of receivables b. For uncertainty accounted for in conformity with generally generally accepted accounting principles principles c. A substantial doubt about an entity’s going concern status accounted for in conformity with generally accepted accounting principles d. An opinion based in part on the report of an another auditor 20. All of the following are examples of substantive tests to verify the valuation of net accounts receivable except the a. Recomputation of the allowance for bad debts b. Inspection of accounts for current versus noncurrent status in the statement of financial position c. Inspection of the accounts receivable aging schedule d. Comparison of the allowance for bad debts with past periods 21. In performing an audit, which one of the ff procedures would be considered a “substantive test” a. Comparing last year’s interest expense with this year’s interest expense b. Comparing signatures on checks with the signatures of authorized check signers c. Reviewing initials on receiving documents d. Reviewing procedures, followed in receiving, depositing, and disbursing of cash 22. The effect of a satisfactory internal audit function upon the work of the i ndependent auditor will most likely be a. A reduction in the scope of audit procedures necessary by the independent auditor b. A substitution of the work of the internal auditor for the work of the independent auditor c. A substitution of the internal auditor’s opinion of the financial statements in place of the independent auditor’s opinion d. An acceptance of the financial statements as a fair representation of financial position and results of  operations 23. Audit risk is composed of  a. Tolerable error risk, sampling error risk, and inherent risk b. Tolerable rate risk, sampling risk, and inherent risk c. Allowable for sampling risk, allowance for nonsampling risk, and allowance for inherent risk d. Inherent risk, control risk, and detection risk 24. The primary purpose of the representation letter is the a. Acceptance of the auditor’s engagement letter b. Evaluation by management of the auditor’s performance c. Acknowledgement of management’s responsibility for the financial statements d. Agreement by management to engage the auditor fo r the next annual audit 25. The most reliable forms of documentary doc umentary evidence are those documents that are a. Prenumbered b. Internally generated c. Issued sequentially d. Authorized by a responsible officer 26. The most reliable form of evidence, other than subsequent cash receipts, concerning the validity o f a note receivable balance is a(n) a. Bill of lading b. Confirmation c. Customer purchase order d. Sales invoice 27. Attribute sampling in statistical sampling is a. A method of sampling that t hat divides the population into strata and then selects random samples from the strata b. A procedure used to determine an estimated occurrence rate of a particular characteristic in a population c. A method of sampling in which individual items are drawn at random from a population so that each sample of a given size has equal chance of being selected d. A procedure in which each characteristic selected permits a specified probability of locating an occurrence in a population 28. When the auditor performs substantive tests of balances, the primary concern is a. Assessing control risk too high b. Assessing control risk too low c. Incorrect rejection of an account balance d. Incorrect acceptance of an account balance 29. In performing audit tests, the auditor may use either nonstatistical or statistical sampling. The credit difference between the two types of sampling is that a. The sampling plan for nonstatistical sampling eliminates procedures required for statistical sampling b. Statistical sampling enables quantification and control of a sampling risk c. Nonsampling risk is lower in statistical sampling d. Statistical sampling eliminates both sampling and nonsampling risk 30. The tolerable rate occurrence in statistical sampling is a. A statistical measure at a specified reliability level, of the maximum rate of occurrence of an attribute b. The percentage of items in a sample that possess a particular attribute c. The percentage of items in a population that possess a particular attribute d. The maximum rate of exception that the auditor would be willing to accept in the population without altering the planned reliance on the attributable 31. When the auditor performs tests of controls, the primary concern is a. Incorrect acceptance of an account balance b. Incorrect rejection of an account balance c. Assessing control risk too low d. Assessing control risk too high 32. An auditor would use, variables sampling to a. Determine the total estimated value of ending merchandise inventory b. Determine the number of inventory items improperly costed c. Determine how often credit sales of a certain magnitude were not approved d. Estimate how often sales invoices were not verified for mathematical accuracy 33. The date of the CPA’s opinion on the financial statements of his or her client should b e the date of the a. Closing of the client’s books b. Receipt of the client’s letter of o f representation c. Completion of all important audit procedures d. Submission of the report to the client 34. If a principal auditor decides that he or she will r efer in his report to the audit of another auditor, he or she is required to disclose the a. Name of the auditor b. Nature of his inquiry into the other auditor’s professional standing and extent of his review of the other auditor’s work c. Portion of the financial statements audited by the other auditor d. Reasons why he or she is unwilling to assume responsibility for the o ther auditor’s work 35. A CPA will issue an adverse auditor’s opinion if  a. The scope of his or her audit is limited by the client b. His or her exception to the fairness of presentation pres entation is so material that an “except for” opinion is not  justified c. He or she did not perform sufficient auditing procedures to form an opinion on the financial statements taken as a whole d. Major uncertainties exist concerning the company’s future 36. Ogirt, CPA, has a small public accounting practice. One of Ogirt’s clients desires services that Ogirt cannot adequately provide. Ogirt has recommended a larger CPA firm, Ogirp and Company, yo his client, and in return, Ogirp has agreed to pay Ogirt 10 percent percent of of the fee for services rendered by Ogirp for Ogirt’s client. Who, if anyone, is in violation of the Code of Ethics for Professional Accountants a. Both Ogirp and Ogirt b. Neither Ogirp nor Ogirt c. Only Ogirp d. Only Ogirt 37. In which one of the following situations would a CPA be in violation of the Code of Professional Ethics for Professional Accountants in determining his or her audit fee? a. A fee based on whether the CPA’s report on the client’s financial statements result in the app roval of a bank loan b. A fee based on the outcome of a bankruptcy proceeding c. A fee based on the nature of the service rendered and the CPA’s expertise instead of the actual time spent on the engagement d. A fee based on the face charged by the prior auditor 38. An independent auditor has the responsibility to design the audit to provide reasonable assurance of  detecting errors and fraud that might have a material effect on the financial statements. Which of the following, if material, would be a fraud as defined by PSA 240? a. Misappropriation of an asset or groups of assets b. Clerical mistakes in the accounting data underlying the financial statements c. Mistakes in the application of accounting principles d. Misrepresentation of facts that existed when the f inancial statements were prepared 39. What is the responsibility of a successor auditor with respect to communicating with the predecessor auditor in connection with a prospective new audit client a. The successor has no responsibility to contact the predecessor auditor b. The successor auditor should obtain permission f rom the prospective client to contact the predecessor auditor c. The successor auditor should contact the predecessor regardless whether the prospective client authorized contact d. The successor auditor need not contact the predecessor if the successor is aware of all available relevant facts 40. During an audit engagement, pertinent data are compiled and included in the audit working papers. The working papers primarily are considered to be a. A client-owned record of conclusions concl usions reached by the auditors who performed the engagement b. Evidence supporting financial statements c. Support for the auditor’s representations as to compliance with PSAs d. A record to be used as basis for the following year’s engagement 41. What is the independent auditor’s principal purpose for obtaining an understanding of internal control and assessing control risk a. To comply with PSAs b. To obtain a measure of assurance of management’s efficiency c. To maintain a state of independence in mental attitude during the audit d. To determine the nature, timing, and extent of subsequent audit work 42. On the basis of audit evidence gathers and evaluated, an auditor decides to increase assessed control risk from that originally planned. To achieve an audit risk level that is substantially the same as the planned audit risk level, the auditor would a. Increase inherent risk b. Increase materiality levels c. Decrease substantial testing d. Decrease planned detection risk 43. The auditor looks for an indication on duplicate sales invoice to see if the invoices have been verified. This is an example of  a. a test of details of balances b. a test of control c. a substantive test of transactions d. both a test of control and a substantive test of transactions 44. Which of the following statements about tests of control is most accurate a. Auditing procedures cannot concurrently provide both evidence of the effectiveness of internal control procedures and evidence required for substantive tests b. Test of controls include observations of the proper segregation of duties that ordinarily may be limited to the normal audit period c. Tests of controls should be based upon proper application of an appropriate statistical sampling plan d. Test of controls ordinarily should be performed as of the balance sheet date or during the period subsequent to that date 45. A manufacturing company received a substantial sales return in the last month of the year, but the credit memorandum for the return was not prepared until after the auditors had completed their field work. The returned merchandise was included in the physical inventory a. Aged trial balance of accounts receivable is prepared b. Credit memoranda are prenumbered and all numbers are acco unted for c. A reconciliation of the trial balance of customer’s accounts with the general ledger control is prepared periodically d. Receiving report are prepared for all materials received and such reports are accounted for on a regular basis 46. The sales manager credited a salesman, Emily Nobel, with sales that were actually “house account” sales. Later, Nobel divided his excess sales s ales commissions with the sales manager a. The summary sales entries are checked periodically by persons independent of sales functions b. Sales orders are reviewed and approved by persons independent of the sales department c. The internal auditor compares the sales commissions statements with the cash disbursement s record d. Sales orders are prenumbered and all numbers are accounted for 47. A sales invoice for P5,200 was computed correctly but, by mistake, was key entered as P2,500 to the sales  journal and to the accounts receivable master master file. The customer remitted only P2,500 the mount on his monthly statement a. Prelistings and predetermined total are used to control postings b. Sales invoice serial numbers, prices, discounts, extensions, and fo otings are independently checked c. The customers’ monthly statements are verified and mailed by a responsible person other than the bookkeeper who prepared them d. Unauthorized remittance deductions made by customers or other m atters in dispute are investigated promptly by a person independent of the accounts receivable function 48. Copies of sales invoices show different unit prices for apparently identical items a. All sales invoices are checked as to all details after their preparation b. Differences reported by customers are satisfactorily investigated c. Statistical sales data are complied and reconciled with recorded sales d. All sales invoices are compared with w ith the costumers’ purchase orders 49. Auditors sometimes use comparison of ratios as audit evidence. For example an unexplained decrease decrease in the ration of gross profit to sales may suggest which of the following possibilities a. Unrecorded acquisitions b. Unrecorded sales c. Merchandise acquisitions being charged to selling and general expense d. Fictitious sales 50. A CPA is auditing the financial statements of a small telephone company and wishes to test whether customers are being billed. One procedure that he or she might use is to a. Check a sample of listings in the telephone directory to the billing control b. Trace a sample of postings from the billing control to the subsidiary accounts receivable records c. Balance the accounts receivable master files to the general ledger control account d. Confirm a representative number of accounts receivable Questions 51 through 53 are based on the following information The following sales procedures were encountered during the annual audit of Masaya Wholesale Distributing Company Customer orders are received by the sales o rder department. A clerk computes the appro ximate peso amount of the order and sends it to the credit department for approval. Credit approval is stamped on the order and sent to the accounting department. A computer is then used to generate two copies of sales invoice. The order is filed in the customer order file. The customer copy of the sales invoice is held in the pending file awaiting notification that the order was shipped. The shipping copy of the sales invoice is routed through the warehouse, and the shipping department has authority for the respective departments to release and ship the merchandise. Shipping department personnel pack the order manually prepare a three-copy bill of lading: the original copy is mailed to the customer, the second cop is sent with the shipment, and the other is filed in sequence in the bill of lading file. The sales invoice shipping copy is sent to the accounting department with any changes resulting from lack of available merchandise. A clerk in accounting matches the received sales invoice shipping copy with the sales invoice customer copy from the pending file. Quantities on the two invoices are compared and prices are compared on an approved price list. The customer copy is then mailed to the customer, and the shipping copy is sent to the data processing department. The data processing clerk in accounting enters the sales invoice data onto the computer, which is used to prepare the sales journal and update the accounts receivable master file. She files the shipping copy in the sales invoice file in numerical sequence. 51. In order to determine whether the internal controls operated effectively to minimize instances of failure to post invoices to customers’ customer s’ accounts receivable master file, the auditor would select a sample of  transactions from the population represented by the a. Customer order file b. Bill of lading file c. Customers’ Customers’ accounts receivable master file d. Sales invoice file 52. In order to determine whether the internal controls operated effectively to minimize instances of failure to invoice a shipment, the auditor would select a sample of transactions from the population represented by a. Customer order file b. Bill of lading file c. Customers’ accounts receivable master file d. Sales invoice file 53. In order to gather evidence that uncollected items in customers’ accounts represented existing trade receivables, the auditor would select a sample of items from the population represented by the a. Customer order file b. Bill of lading file c. Customers’ accounts receivable master file d. Sales invoice file 54. The negative form of accounts receivable confirmation request is useful except when a. Internal control surrounding accounts receivable is considered to be effective b. A large number of small balances are involved c. The auditor has reason to believe the persons receiving the request are likely to give them consideration d. Individual account balances are relatively large 55. Tanya decides to use stratified sampling. The reason for using stratifies sampling rather than unrestricted random sampling is to a. Reduce as much as possible the degree of variability in the overall population b. Give every element in the population the degree of variability in the overall population c. Allow the person selecting the sample to use his or her own judgment in deciding which elements should be included in the sample d. Reduce the required sample size from a nonhomogeneous population 56. Which of the following is true of generalized audit software programs a. They can be used only in auditing on-line computer systems b. They can be used on any computer without modification c. They each have their own characteristics that the auditor must carefully consider before using in a given audit situation d. They enable the auditor to perform all manual tests of co ntrols procedures less expensively 57. The CPA reviews Bell’s payroll procedures. An example of an internal control weakness is to assign to a department supervisor the responsibility for a. Distributing payroll checks to subordinate employees b. Reviewing and approving time reports for subordinates c. Interviewing applicants for subordinate positions prior to hiring by the personnel department d. Initiating requests for salary adjustments for subordinate employees 58. Which of the following is an internal control that would prevent paid cash disbursement documents from being presented for payment a second time a. Unsigned checks should be prepared by individuals who are responsible for signing checks b. Cash disbursement documents should be approved by at least two responsible management officials c. The date on cash disbursement documents should be within a few days of the date that the document is presented for payment d. The official signing the check should compare the check with the documents and should deface the documents. 59. Which of the following analytical procedures should be applied to the income statement a. Select sales and expense items and trace amounts to related supporting documents b. Ascertain that the net income amount in the statement of cash flows agrees with the net income amount in the net income statement c. Obtain from the proper client representatives the beginning and ending inventory amounts that were used to determine cost of sales d. Compare the actual revenue and expenses with the corresponding fi gures of the previous year and investigate significant differences 60. Before expressing an opinion concerning the results of operations, the auditor would best proceed with the audit of the income statement by a. Applying a rigid measurement standard designed to test for understatement of net income b. Analyzing the beginning and ending balance sheet inventory amounts c. Making net income comparisons to published industry trends and ratios d. Auditing income statement accounts concurrently with the related balance sheet accounts 61. The audit step most likely to reveal the existence of contingent liabilities is a. A review of vouchers paid during the month following the year-end b. Accounts payable confirmations c. An inquiry directed to legal counsel d. Mortgage-not confirmation 62. When obtaining evidence regarding litigation against a client, the CPA would be least interested in determining a. An estimate of when the matter will wil l be resolved b. The period in which the underlying cause of the litigation occurred c. The probability of an unfavourable outcome d. An estimate of the potential loss 63. A principal purpose of a letter of representation from management is to a. Serve as an introduction to the company personnel and an authorization to examine the records b. Discharge the auditor from legal liability for the audit c. Confirm in writing management ‘s approval of limitations on the scope of the audit d. Remind management of its primary responsibility fo r financial statements 64. 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 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 on the financial statements is known d. Advise management to adjust the financial statements 65. A practitioner who is engaged to perform an assurance engagement other than an audit or review of  historical financial information should comply with which of the ff standards a. PSAEs b. PSAEs and PSAs c. PSAs and PSREs d. PSAEs, PSREs, and PSAs 66. As defined in PSA 540, “accounting estimates” means an approximation of the amount of an item in the absence of a precise means of measurement. Which of the following are examples of accounting estimates A B C D Provision for loss from a lawsuit Yes No Yes No Cost of inventory purchased Yes Yes No No Provision to meet warranty claims No Yes Yes Yes Allowance to reduce inventory to net realizable value No Yes Yes Yes 67. Which of the following statements concerning accounting estimates is incorrect a. The auditor is responsible for making accounting estimates included in financial statements b. Accounting estimates are often made in conditions of uncertainty regarding the outcome of events that have occurred or are likely to occur and involve the use of judgement c. The risk of material misstatement mi sstatement is grater when accounting estimates are involved and in some cases that auditor may determine that it is a significant risk that requires special audit consideration d. The auditor should obtain sufficient appropriate audit evidence regarding accounting estimates 68. For initial audit engagements, the auditor should obtain sufficient appropriate audit evidence that I. The opening balances do not contain misstatements that materially affect the current period’s financial statements II. The prior period’s closing balances have been correctly brought forward to the current period, or when appropriate, have been restated III. Appropriate accounting policies are consistently applied or changes in accounting polices have been properly accounted for and adequately presented and disclosed a. I and I only b. II and III only c. I and III only d. I, II and III 69. Which of the following statements concerning the audit of opening balances is incorrect a. When the prior year’s financial statements were audited by another auditor, the curren t auditor maybe able to obtain sufficient appropriate evidence regarding opening balances by reviewing the predecessor auditor’s working papers b. For current assets and liabilities some audit evidence can ordinarily be obtained as part of the current period’s period’s audit procedures c. For noncurrent assets and liabilities the auditor will ordinarily examine the accounting records and other information underlying the opening balances d. PSA 510 prohibits the auditor to obtain confirmation of opening balances with third parties 70. An entity’s management is responsible for the preparation and fair presentation of the financial statements. Its responsibility includes the following exc ept a. Designing, implementing, and maintaining internal control relevant to the preparation and presentation of financial statements b. Making accounting estimates that are reasonable in the circumstances c. Selecting and applying appropriate accounting policies d. Assessing the risks of material misstatement of the financial statements 71. A client makes test counts on the basis of a statistic plan. The auditor observes such counts as are deemed necessary and is able to become satisfied as to the reliability of the client’s procedures. In reporting on the results of the results of the audit, the auditor a. Must qualify the opinion if the inventories were material b. Can express an unqualified c. Must comment in an emphasis of matter paragraph as to the inability to observe year-end inventories d. Is required to disclaim an opinion if the inventories were material 72. An auditor decides decides to express a qualified opinion on an entity’s financial statements because a major inadequacy in its computerized accounting records prevents the auditor from applying necessary procedures. The opinion paragraph of the auditor’s report should state that the qualification pertains to a. A client-imposed scope limitation b. A departure from PFRS c. Inadequate disclosure of necessary information d. The possible effects on the financial statements 73. Under which of the following circumstances would a disclaimer of opinion not be appropriate a. The financial statements fail to contain adequate disclosure concerning related party transactions b. The auditor is engaged after fiscal year-end and is unable to observe the physical inventories or apply alternative procedures to verify their balances 74. Comparative financial statements include the prior year’s statements that were audited by a predecessor auditor whose report is not presented. presented. If the predecessor’s report report was unqualified, the incoming auditor should a. Indicate in the auditor’s report that the predecessors auditor expressed an unqualified opinion b. Express an opinion on the current year’s statements alone and make no reference to the prior year’s statements c. Obtain a letter of representations from the predecessor auditor concerning any matters that might affect the incoming auditor’s opinion d. Request the predecessor auditor to reissue the prior year’s report 75. PSA 710 states, “In performing the audit audit on the current current period financial statements, the incoming auditor, in certain unusual circumstances, may become become aware of a material misstatement misstatement that affects the prior period financial statements on which t he predecessor auditor had previously reported without modification.” In these these circumstances, circumstances, the incoming auditor should I. Discuss the matter with management. II. After obtaining management’s authorization, contact the predecessor auditor and propose that the prior period financial statement statements be restated. a. I only b. II only c. Both I and II d. Neither I nor II 76. PSA 800 applies to a. Review engagements b. Agreed-upon procedures c. Compilation engagements d. Engagements to report on specified accounts, elements of accounts, or items in a financial statement 77. An auditor may report on summarized financial statements that are derived from complete audited financial statements if the a. Auditor indicates whether the information in the summarized financial statements is consistent with the audited financial statements from which it was derived b. Summarized financial statements are distributed only to management and the board of directors c. Auditor describes the additional review procedures performed on t he summarized financial statements d. Summarized financial statements are presented in comparative form with the prior year’s summarized financial statements 78. Which of the following procedures should a practitioner perform during an engagement to review an entity’s financial statements a. Examining cash disbursements in the subsequent period for unrecorded liabilities b. Sending bank confirmation letters to the entity’s financial institutions c. Obtaining a client representation letter from members of management d. Communicating material internal control weaknesses during the assessment of control risk 79. Which of the following would not be included in a practitioner’s report based upon a review of an entity’s financial statements a. A statement that the financial statements are the responsibility of the company’s management b. A statement describing the principal procedures performed c. A statement that the review was conducted in accordance with generally accepted auditing standards in the Philippines d. A statement describing the practitioner’s conclusions based upon the results of the review 80. An agreed-upon procedures engagement may involve the accountant in performing certain procedures concerning a. I. Individual items of financial data II. A financial statement III. A complete set of financial statements I and II only b. II and III only c. I and III only d. I, II and III 81. Which of the following is least likely to be included in an agreed-upon procedures engagement report a. Identification of the purpose for which the agreed-upon procedures were performed b. A summary of procedures performed c. Limited assurance on the information presented d. Use of the report is restricted 82. The objective of a compilation engagement is a. For the accountant to use accounting expertise, as opposed to auditing expertise, to collect, classify, and summarize financial information b. For the auditor to carry out procedures of an audit nature to which the auditor and the entity and any appropriate third parties have agreed and to report on factual findings c. To enable an auditor to state, on basis of the procedures which do not provide all the evidence that would be required in an audit, anything has come to the auditor’ s attention that causes the auditor to believe that the financial statements are not prepared in all material respects, in accordance with an identified reporting framework d. For the auditor to provide a high, but not absolute, level of assurance that the financial information is free of material misstatement 83. Where compiling an entity’s financial statements, an accountant would be least likely to a. Obtain an acknowledgment from management of its responsibility for the financial statements b. Perform analytical procedures designed to identify relationships that appear to be unusual c. Plan the work d. Read the compiled financial statements and consider whether they appear to include adequate disclosure 84. Which of the following statements concerning the objective of an engagement to review interim financial information is correct a. To obtain reasonable assurance that the interim financial information is free from material misstatement b. To enable the auditor to express a conclusion whether , on the basis of the review, anything has come to the auditor’s attention that causes the auditor to believe that the interim financial information is not prepared, in all material respects, in accordance with an applicable financial reporting framework c. To provide a basis for expressing an opinion whether the interim financial information is presented fairly, in all material respects, in accordance with an applicable financial reporting framework d. The objective of a review of interim financial information is similar to that of an audit conducted in accordance with GAAS in the Philippines 85. The following procedures are ordinarily performed in an engagement to review interim financial information, except a. Tests of the accounting records through inspection, observation, or confirmation b. Obtaining an understanding of the entity and its environment, including its internal control, as it relates to the preparation of both annual and interim financial information c. Inquiring of members of management responsible for financial and accounting matters d. Communicating with other auditors who are performing a review of the interim financial information of  the reporting entity’s significant components 86. The party responsible for assumptions identified in the preparation of prospective financial statements is usually a. The The client’s management b. The client’s client’s independent auditor c. The reporting accountant. d. A third-party lending institution 87. An examination of financial forecast is a professional service that involves a. Assuming responsibility to update management on key events for one year after the reports date b. Compiling or assembling a financial forecast that is based on management’s assumptions c. Limiting the distribution of the accountant’s report to management and the board of directors d. Evaluating the preparation of a financial forecast and the support underlying management’s assumptions 88. Which of the following are elements of a CPA firm’s quality control that should be considered in establishing its quality control policies and procedures Ethical Requirements Human Resources Engagement Performance a. No Yes No b. Yes No No c. Yes Yes Yes d. No No Yes 89. The following statements relate to the engagement partner’s responsibility to conduct timely re views of the audit documentation to be satisfied that sufficient appropriate evidence has been obtained to support the conclusions reached and for the auditor’s report report issued. Which is false a. The engagement partner’s review of the audit documentation allow s the significant matters to be resolved on a timely basis to his/her satisfaction before the auditor’s report issued b. The engagement partner should review all audit documentation c. The engagement partner should document the extent and timing o f the reviews d. The reviews cover critical areas of judgment, especially those relating to difficult or contentious matters identified during the course of the engagement, significant risks, and other areas the engagement partner considers important 90. Who should take responsibility for the overall quality on each audit engagement a. Engagement quality control review b. Engagement partner c. Engagement team d. CPA firm 91. Which of the following is a false statement concerning fraud a. Fraud generally involves incentive or pressure to commit fraud, a perceived opportunity to do so, and some rationalization of the act b. Two types of misstatement relevant to the auditor include material misstatements arising from fraudulent financial reporting and material misstatements arising from fraudulent financial reporting and material misstatements arising from misappropriation of assets c. Fraud involves actions of management but excludes the actions of employees or third parties d. An Audit rarely involves the authentication of documentation; thus, fraud may go undetected by the auditor 92. Which of the following statements best describes describes why the auditor’s examination examination cannot reasonably be expected to bring all acts of non-compliance with existing laws and regulations by the client to the auditor’s attention a. Acts of non-compliance by clients often relates to accounting aspects rather than operating aspects b. Non-compliance may involve conduct designed to conceal it, such as collusion, forgery, deliberate failure to record transactions, senior management override of controls, or intentional misrepresentations being made to the auditor c. Non-compliance may be perpetrated by the only person in the client’s organization with access to both assets and accounting records d. The clients internal control may be so strong that the auditor performs only minimal substantive testing 93. Before the completion of the audit engagement, an auditor is requested to change the engagement to one that provides a lower level of assurance. If the auditor concludes that there is a reasonable justification for the change in engagement, the report to be issued would a. Be that appropriate for the revised terms of the engagement b. Include reference to the original engagement c. Include reference to any procedures that m ay have been performed in the original engagement