Pamantasan ng Cabuyao

Katapatan Subd., Banay Banay, Cabuyao, Laguna

Name: _________________________________ Score:___________

Auditing Theory Mr. W.E. Peralta
Encircle the letter of the best answer.

1. The series of tasks and records of an entity by which transactions are processed as a means of maintaining
financial records.
A. Computer information system C. Accounting system
B. Internal control system D. Control environment

2. The measure of the quality of audit evidence and its relevance to a particular assertion and its reliability.
A. Sufficiency C. Significance
B. Appropriateness D. Assurance

3. It serves as a set of instructions to assistants involved in the audit and as a means to control the proper execution
of the work.
A. Audit program C. Engagement letter
B. Overall audit plan D. Internal control questionnaire

4. Detection risk is
A. The risk that the auditor gives an inappropriate audit opinion when the financial statements are materially
misstated.
B. The risk that a misstatements, that could occur in an account balance or class of transactions and that could be
material individually or when aggregated with misstatements in other balances or classes, will not be
prevented or detected and corrected on a timely basis by the accounting and internal control systems.
C. The risk that an auditor's substantive procedures will not detect a misstatement that exists in an account
balance or class of transactions that could be material, individually or when aggregated with misstatements in
other balances or classes.
D. The susceptibility of an account balance or class of transactions to misstatement that could be material,
individually or when aggregated with misstatements in other balances of classes, assuming that there were no
related internal controls.

5. Tolerable error means

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

6. The current period’s auditor who did not audit the prior period’s financial statements is called
A. Predecessor auditor. C. Incoming auditor.
B. Other auditor. D. Principal auditor

7. Principal auditor is
A. The auditor who audited and reported on the prior period's financial statements and continues as the auditor
for the current period.
B. A current period's auditor who did not audit the prior period's financial statements.
C. The auditor who was previously the auditor of an entity and who has been replaced by an incoming
auditor.
D. The auditor with responsibility for reporting on the financial statements of an entity when those financial
statements include financial information of one or more components audited by another auditor.

8. They are not presented as complete financial statements capable of standing alone, but are an integral part of the
current period.
A. Corresponding figures C. Supplementary report
B. Comparative financial statements D. Notes of financial statements
9. The applications of auditing procedures using the computer as an audit tool refer to
A. Integrated test facility C. Auditing through the computer
B. Data-based management system D. Computer assisted audit techniques

10. A collection of files that is shared and used by a number of different users.
A. Database C. Master file
B. Information file D. Transaction file

11. A report, separate from the financial statements, in which an entity provides third parties with qualitative
information on the entity's commitments towards the environmental aspects of the business, its policies and
targets in that field, its achievement in managing the relationship between its business processes and
environmental risk, and quantitative information on its environmental performance.
A. Environmental performance report C. Environmental risk
B. Annual report D. Special purpose audit report

12. Comprises officers and others who also perform senior managerial functions.
A. Management C. Audit committee
B. Governance D. Board of directors

13. It exists when other information contradicts information contained in the audited financial statements.
A. Material inconsistency C. Material weaknesses
B. Material misstatement of fact D. Misstatement

14. The policies and procedures adopted by a firm to provide reasonable assurance that all audits done by the firm are
being carried out in accordance with the Objective and General Principles Governing an Audit of Financial
Statements.
A. Internal controls C. Peer review
B. Quality controls D. General controls

15. When an entity has the ability to control the other entity or exercise significant influence over the other entity in
making financial and operating decisions manifest:
A. Related parties C. Decentralization
B. Related services D. Centralized operations

16. Refers to the audit procedures deemed necessary in the circumstances to achieve the objective of the audit.
A. Scope of an audit C. Audit program
B. Scope of a review D. Scope limitation

17. It relates to materiality of the financial statement assertions affected by the computer processing.
A. Threshold C. Complexity
B. Relevance D. Significance

18. A report issued in connection with the independent audit of financial information other than an auditor's report on
financial statements.
A. Special purpose auditor's report C. Annual report
B. Compilation report D. Modified auditor’s report

19. Substantive procedures are tests performed to obtain audit evidence to detect material misstatements in the
financial statements. These include
A. Test of details of transactions C. Substantive analytical procedures
B. Test of details of balances D. All of the above.

20. Involves tracing a few transactions through the accounting system.

A. Test of controls C. Analytical procedures
B. Walk-through test D. Substantive procedures

21. Assurance services are best described as

A. Services designed for the improvement of operations, resulting in better outcomes.
B. Independent professional services that improve the quality of information, or its context, for decision makers.
C. The assembly of financial statements based on assumptions of a reasonable party.
D. Services designed to express an opinion on historical financial statements based on the results of an audit.
22. Assurance services least likely involve
A. Improving the quality of information for decision purposes.
B. Improving the quality of the decision model used.
C. Improving the relevance of information.
D. Implementing a system that improves the processing of information.

23. Which of the following statements is (are) true regarding the provision of assurance services?
A. The third party who receives the assurance generally pays for the assurance received.
B. Assurance services always involve a report by one person to a third party on which an independent
organization provides assurance.
C. Assurance services can be provided either on information or processes.
D. All of the above.

24. In performing an attestation engagement, a CPA typically

A. Supplies litigation support services. C. Assesses control risk at a low level.
B. Expresses a conclusion about an assertion. D. Provides management consulting advice.

25. Which of the following services would be most likely to be structured as an attest engagement?
A. Advocating a client’s position in tax matter.
B. A consulting engagement to develop a new data base system for the revenue cycle.
C. An engagement to issue a report addressing an entity’s compliance with requirements of specified laws.
D. The compilation of a client’s forecast information.

26. Which of the following is broadest in scope?

A. Audits of financial statements. C. Internal control audit.
B. Assurance services. D. Attestation services.

27. Independent auditing can be described as

A. A branch of accounting.
B. A professional activity that measures and communicates financial and business data.
C. A discipline which attests to the results of accounting and other functional operations and data.
D. A regulating function that prevents the issuance of erroneous or improper financial information.

28. A financial statement audit is designed to

A. Provide assurance on internal control and to identify reportable conditions.
B. Detect error or fraud in the financial statements, regardless of whether or not the error or fraud is material.
C. Obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether caused by error or fraud.
D. Obtain absolute assurance on the financial statements and express an opinion on the financial statements.

29. Which of the following best describes why an independent auditor is asked to express an opinion on the fair
presentation of financial statements?
A. It is difficult to prepare financial statements that fairly present a company’s financial position and changes in
financial position and operations without the expertise of an independent auditor.
B. It is management’s responsibility to make available independent aid in the preparation of the financial
information shown in the financial statements.
C. The opinion of an independent party is needed because a company may not be objective with respect to its
own financial statements.
D. It is a customary courtesy that shareholders of a company receive an independent report on management’s
 status in managing the affairs of the business.

30. An audit of the financial statements of Camden Corporation is being conducted by an external auditor. The
external auditor is expected to
A. Express an opinion as to the fairness of Camden's financial statements.
B. Express an opinion as to the attractiveness of Camden for investment purposes.
C. Certify to the correctness of Camden's financial statements.
D. Critique the wisdom and legality of Camden's business decisions.

31. A type of audit the purpose of which is to determine whether the auditee is following specific procedures or rules
set down by some higher authority
A. Operational audit C. Financial audit.
B. Compliance audit. D. Management audit.

32. A technique for regularly and systematically appraising a unit of function and its effectiveness against corporate
and industry standards with the objective of assuring management that its aims are being carried out and/or
identifying conditions capable of being improved
A. Financial auditing. C. Operations auditing.
B. Compliance tests. D. Management auditing.

33. A detailed examination of the utilization of the resources of the company, including the organization structure to
carry out objectives, to indicate areas of increased efficiency and possible cost reduction is
A. Internal audit. C. Management audit.
B. Audit of assets. D. Financial audit.

34. Which of the following types of audits are most similar?

A. Operational audits and compliance audits.
B. Independent financial statement audits and operational audits.
C. Compliance audits and independent financial statement audits.
D. Internal audits and independent financial statement audits.

35. To make the internal audit department independent, he should report directly to the
A. Board of Directors. C. Stockholders.
B. Audit committee. D. Controller.

36. An independent audit

A. Supports an internal audit. C. Duplicates an internal audit.
B. Negates an internal audit. D. Complements an internal audit.

37. Besides expressing an opinion on the fairness of financial statement presentation, a government auditor normally
includes audit of effectiveness, compliance as well as
A. Internal control. C. Mathematical accuracy.
B. Economy. D. Risk evaluation.

38. Governmental effectiveness (program) auditing seeks to determine whether the desired results are being achieved
and objectives are being met. The first step in the performance of such an audit would be:
A. Evaluate the system used to measure results.
B. Determine the sampling frame to use in studying the system.
C. Collect and analyze quantifiable data.
D. Identify the legislative intent of the program being audited.

39. A pervasive characteristic of a CPA’s role in a Management Consulting Services engagement is that of being a(n)
A. Objective advisor. C. Computer specialist.
B. Independent practitioner. D. Confidential reviewer.

40. Which one of the following is not a logical function of a CPA in public accounting practice?
A. Attest function. C. Tax practice.
B. Supervision of internal audit staff. D. Management consulting services.
41. The quality of performance of an auditor is measured by the statements emanating from the
A. Accounting Standards Council
B. Quality Control Standards
C. Auditing Standards and Practices Council
D. Interpretations of Accountants in Practice

42. The Philippine Standards on Auditing issued by ASPC

A. Are applicable only when an independent audit involving an expression of an opinion on financial statements
is carried out.
B. Are the only authoritative source of auditing standards for members of the accountancy profession in the
Philippines.
C. Are general guidelines to help auditors.
D. Require that in no circumstances would an auditor may judge it necessary to depart from a PSA, even though
such a departure may result to more effective achievement of the objective of an audit.

43. Williams & Co., a large international CPA firm, is to have an “external peer review.” The peer review will most
likely be performed by
A. Employees and partners of Williams & Co. who are not associated with the particular audits being reviewed.
B. Audit review staff of the Securities and Exchange Commission.
C. Audit review staff of the American Institute of Certified Public Accountants.
D. Employees and partners of another CPA firm.

44. One of the advantages of the fixed fee (or flat sum) basis of billing a client is that the
A. CPA’s compensation is more directly related to the quality of his service rather than to time spent.
B. CPA is assured of avoiding a loss on the engagement even if he underestimates his costs.
C. Fixed fee method is particularly effective for measuring charges for routine engagements.
D. Client pays for exactly what he gets in terms of work performed.

45. During the course of an 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.

46. An auditor should recognize that the application of auditing procedures may produce evidential matter indicating
the possibility of errors and irregularities and therefore should
A. Design audit tests to detect unrecorded transactions.
B. Extend the work to audit most recorded transactions and records of an entity.
C. Plan and perform the engagement with an attitude of professional skepticism.
D. Not depend on internal accounting control features that are designed to prevent or detect errors or
irregularities.

47. Audits of financial statements are designed to obtain assurance of detecting material misstatements due to
A B C D
Errors Yes Yes Yes No
Fraudulent financial reporting Yes Yes No Yes
Misappropriation of assets Yes No Yes No

48. Which of the following factors is most important concerning an auditor's responsibility to detect errors and
irregularities?
A. The susceptibility of the accounting records to intentional manipulations, alterations, and the misapplication
of accounting principles.
B. The probability that unreasonable accounting estimates result from unintentional bias or intentional attempts
to misstate the financial statements.
C. The possibility that management fraud, defalcations, and the misappropriation of assets may indicate the
existence of illegal acts.
 D. The risk that mistakes, falsifications, and omissions may cause the financial statements to contain material
misstatements.

49. In connection with the examination of financial statements, an independent auditor could be responsible for
failure to detect a material fraud
A. Statistical sampling techniques were not used in the audit engagement.
B. The auditor planned the work in a hasty and inefficient manner.
C. Auditors performing important parts of the work failed to discover a close relationship between the treasurer
and the cashier.
D. The fraud was perpetuated by one client employee who circumvented the existing internal controls.

50. An error in which an item is posted to the wrong personal account, or the incorrect calculation of an amount
constituting an original entry is a(n)
A. Error of omission. C. Error of principle.
B. Error of commission. D. Compensating error.

51. The term “error” refers to unintentional misrepresentations of financial information. Examples of errors are when:
(1) Assets have been misappropriated.
(2) Transactions without substance have been recorded.
(3) Records and documents have been manipulated and falsified.
(4) The effects of transactions have been omitted from records or documents.
A. All of the above statements are true. C. Only statements (1) and (3) are true.
B. Only statements (2) and (4) are true. D. All of the above statements are false.

52. Auditing standards require that auditors be aware of relevant factors relating to fraudulent reporting. Which of the
following statements is false concerning fraudulent reporting?
A. Fraud frequently involves a pressure or an incentive to commit fraud and a perceived opportunity to do so.
B. Two types of fraud relevant to the auditor include 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.

53. Which of the following is an example of fraudulent financial reporting?

A. Company management changes inventory count tags and overstates ending inventory, while understating cost
of goods sold.
B. The treasurer diverts customer payments to his personal due, concealing his actions by debiting an expense
account, thus overstating expenses.
C. An employee steals inventory, and the “shrinkage” is recorded in cost of goods sold.
D. An employee steals small tools from the company and neglects to return them; the cost is reported as a
miscellaneous operating expense.

54. Lapping is
A. Making the financial statements indicate a more favorable position by giving effect to transactions is a period
other than that in which these actually occurred.
B. Done to inflate the cash position or cover the theft of cash by depositing at the end of the accounting period
a check drawing on one bank account in another bank account without making the necessary deduction in the
balance of the first bank.
C. An irregularity that conceals cash shortages by a delay in recording cash collections, retaining a customer's
payment on credit sales and covering up the shortage with subsequent cash receipts.
D. A kind of fraud committed by making entry of fictitious payments or failure to enter receipts.

55. In general, material fraud perpetrated by which of the following are most difficult to detect?
A. Cashier. C. Internal auditor.
B. Keypunch operator. D. Controller.
56. Certain management characteristics may heighten the auditor's concern about the risk of material misstatements.
The characteristic that is least likely to cause concern is that management
A. Operating and financing decisions are made by numerous individuals.
B. Commits to unduly aggressive forecasts.
C. Has an excessive interest in increasing the entity's stock price through use of unduly aggressive accounting
practices.
D. Is interested in inappropriate methods of minimizing earnings for tax purposes.
57. Which of the following information discovered during an audit most likely would raise a question concerning
possible illegal acts?
A. Related party transactions, although properly disclosed, were pervasive during the year.
B. The entity prepared several large checks payable to cash during the year.
C. Material internal control weaknesses previously reported to management were not corrected.
D. The entity was a campaign contributor to several local political candidates during the year.

58. In a financial statement audit, the auditor should consider categories of fraud risk factors relating to misstatements
arising from (1) fraudulent financial reporting and (2) misappropriation of assets. Which of the following is a
category of risk factors that should be considered in relation to misstatements arising from misappropriation of
assets?
A. Industry conditions . C. Management’s characteristics.
B. Operating characteristics. D. Controls.

59. The auditor is most likely to presume that a high risk of a defalcation exists if
A. The client is a multinational company that does business in numerous foreign countries.
B. The client does business with several related parties.
C. Inadequate segregation of duties places an employee in a position to perpetrate and conceal thefts.
D. Inadequate employee training results in lengthy EDP exception reports each month.

60. Which of the following characteristics most likely would heighten an auditor’s concern about the risk of
intentional manipulation of financial statements?
A. Turnover of senior accounting personnel is low.
B. Insiders recently purchased additional shares of the entity’s stock.
C. Management places substantial emphasis on meeting earnings projection.
D. The rate of change in the entity’s industry is slow.

61. Which of the following circumstances most likely would cause an auditor to consider whether material
misstatements exist in an entity’s financial statements?
A. Management places little emphasis on meeting earnings projections.
B. The board of directors makes all major financing decisions.
C. Reportable conditions previously communicated to management are not corrected.
D. Transactions selected for testing are not supported by proper documentation.

62. Which of the following circumstances most likely would cause an auditor to believe that material misstatements
may exist in an entity’s financial statements?
A. Accounts receivable confirmation requests yield significantly fewer responses than expected.
B. Audit trails of computer-generated transactions exist only for a short-time.
C. The chief financial officer does not sign the management representation letter until the last day of the
auditor’s fieldwork.
D. Management consults with other accountants about significant accounting matters.

63. Which of the following inquiries are auditors required to make of management regarding fraud?
A. Whether management has ever intentionally violated the securities law.
B. Whether management has any knowledge of fraud that has been perpetrated on or within the entity.
C. Management’s attitudes toward its employees.
D. Auditors are not required to make inquiries of management relating to fraud.

64. When fraud has been identified, CPA responsibility consists of

A. Report the matter to the police. C. He should have prevented it.
B. He is not at all responsible. D. Determination of its extent.

65. Which of the following is correct concerning the required documentation in the working papers of the
performance of the assessment of the risk of material misstatement due to fraud?
A. All risk factors considered should be documented and the response to each documented.
 B. Those risk factors identified and the auditor’s response to them should be documented.
C. The major categories of risk factors must be identified, but the particular responses to risk factors identified
need not be documented.
D. No specific documentation is required.

66. When an auditor becomes aware of a possible illegal act by a client, the auditor should obtain an understanding of
the nature of the act to
A. Evaluate the effect on the financial statements.
B. Determine the reliability of management’s representation.
C. Consider whether other similar acts may have occurred.
D. Recommend remedial actions to the audit committee.

67. Which of the following statements concerning illegal acts by clients is correct?
A. An auditor's responsibility to detect illegal acts that have a direct and material effect on the financial
statements is the same as that for errors and irregularities.
B. An audit in accordance with GAAS normally includes audit procedures specifically designed to detect illegal
acts that have an indirect but material effect on the financial statements.
C. An auditor considers illegal acts from the perspective of the reliability of management's representations
rather than their relation to audit objectives derived from financial statement assertions.
D. An auditor has no responsibility to detect illegal acts by clients that have an indirect effect on the financial
statements.

68. The regular examination of financial statements is not primarily designed to disclose fraud and other irregularities
although their discovery may result. Normal audit procedures are more likely to detect a fraud arising from
A. Forgeries on company checks.
B. Failure to record cash receipts for services rendered.
C. Theft of inventories.
D. Collusion on the part of several employees.

69. Which of the following best describes what is meant by GAAS?

A. Acts to be performed by the auditor.
B. Measures of the quality of the auditor's performance.
C. Procedures to be used to gather evidence to support financial statements.
D. Audit objectives generally determined on audit engagements.

70. The least important evidence of a CPA firm's evaluation of its system of quality controls would concern the CPA
firm's policies and procedures with respect to
A. Employment (hiring).
B. Confidentiality of audit engagements.
C. Assigning personnel to audit engagements.
D. Determination of audit fees.

71. The primary purpose of establishing quality control policies and procedures for deciding whether to accept a new
client is to
A. Enable the CPA firm to attest to the reliability of the client.
B. Satisfy the CPA firm’s duty to the public concerning the acceptance of clients.
C. Minimize the likelihood of association with clients whose management lacks integrity.
D. Anticipate before performing any fieldwork whether an unqualified opinion can be expressed.

72. A CPA firm's quality control procedures pertaining to the acceptance of a prospective audit client would most
likely include
A. Inquiry of management as to whether disagreements between the predecessor auditor and the prospective
client were resolved satisfactorily.
B. Consideration of whether sufficient competent evidential matter may be obtained to afford a reasonable basis
for an opinion.
C. Inquiry of third parties, such as the prospective client's bankers and attorneys, about information regarding
the prospective client and its management.
D. Consideration of whether the internal control structure is sufficiently effective to permit a reduction in the
extent of required substantive tests.
73. In pursuing a CPA firm’s quality control objectives, a CPA firm may maintain records indicating which partners
or employees of the CPA firm were previously employed by the CPA firm’s clients. Which quality control
objective would this be most likely to satisfy?
A. Professional relationship. C. Independence.
B. Supervision. D. Advancement.

74. The audit work performed by each assistant should be reviewed to determine whether it was adequately
performed and to evaluate whether the
A. Auditor’s system of quality control has been maintained at a high level.
B. Results are consistent with the conclusions to be presented in the auditor’s report.
C. Audit procedures performed are approved in the professional standards.
D. Audit has been performed by persons having adequate technical training and proficiency as auditors.

75. Which of the following is the best criterion for evaluating a staff auditor’s work performance?
A. Quantity of deficiency findings.
B. Ability to get along with clients.
C. Working papers appearance.
D. Fulfillment of requirements set forth in the audit programs.

76. The auditor with final responsibility for an engagement and one of the assistants have a difference of opinion
about the results of an auditing procedure. If the assistant believes it is necessary to be disassociated from the
matter’s resolution, the CPA firm’s procedures should enable the assistant to
A. Refer the disagreement to the PICPA’s Quality Review Committee.
B. Document the details of the disagreement with the conclusion reached.
C. Discuss the disagreement with the entity’s management or its audit committee.
D. Report on the disagreement to an impartial peer monitoring team.

77. Which of the following factors most likely would cause an auditor not to accept a new audit engagement?
A. An inadequate understanding of the entity’s internal control.
B. The close proximity to the end of the entity’s fiscal year.
C. Concluding that the entity’s management probably lacks integrity.
D. An inability to perform preliminary analytical procedures before assessing control risk.

78. Before accepting an audit engagement, you as the successor auditor would least likely make specific inquiries of
the previous auditor regarding
A. Facts that might bear on the integrity of management.
B. The degree of cooperation the previous auditor received from the client’s lawyer.
C. An inquiry regarding disagreements with management as to auditing procedures.
D. The predecessor auditor’s understanding as to the reasons for the change of auditors.

79. Which of the following factors most likely would influence an auditor’s determination of the auditability of an
entity’s financial statements?
A. The complexity of the accounting system.
B. The existence of related-party transactions.
C. The adequacy of the accounting records.
D. The operating effectiveness of control procedures.

80. In making a decision to accept or continue with a client, the auditor should consider:
A B C D
Its own independence Yes No Yes No
Its ability to service a client properly Yes Yes Yes No
The integrity of the client’s management Yes Yes No Yes

81. Which of the following is least likely a source of information about a potential new audit client?
A. The predecessor auditor. C. Industry journal.
B. Management. D. The new auditor’s permanent file.

82. Preliminary arrangements agreed to by the auditor and the client should be reduced to writing by the auditor. The
best place to set forth these arrangements is in
A. A memorandum to be placed in the permanent section of the auditing working papers.
B. An engagement letter.
 C. A client representation letter.
D. A confirmation letter attached to the constructive services letter.

83. When an auditor believes that an understanding with the client has not been established, he or she should
ordinarily
A. Perform the audit with increased professional skepticism.
B. Decline to accept or perform the audit.
C. Assess control risk at the maximum level and perform a primarily substantive audit.
D. Modify the scope of the audit to reflect an increased risk of material misstatements due to fraud.

84. Assuming a recurring audit, in which of the following situations would the auditor be unlikely to send a new
engagement letter to the client?
A. A recent change in partner and/or staff involved in the audit engagement.
B. A change in the terms of engagement.
C. A recent change of client management.
D. A significant change in the nature or size of the client's business.

85. Adequate audit planning helps ensure that appropriate attention is devoted:
A B C D
To important areas of the audit Yes Yes Yes Yes
So that potential problems are promptly identified Yes Yes No No
So that the work is completed expeditiously No Yes No Yes

86. In planning an examination, the auditor would consider all of the following matters, except
A. Anticipated reliance on internal controls.
B. Preliminary judgment about materiality levels for audit purposes.
C. Financial statement items likely to require adjustment.
D. The kind of opinion (unqualified, qualified, disclaimer, or adverse), likely to be given.

87. Which of the following situations would most likely require special audit planning by the auditor?
A. Some items of factory and office equipment do not bear identification numbers.
B. Depreciation methods used on the client’s tax return differ from those used on the books.
C. Assets costing less than P5,000 are expensed even though the expected life exceeds one year.
D. Inventory is comprised of precious stones.

88. This includes distributing assignments among staff assistants and reviewing the progress of such assignments on a
periodic basis.
A. Supervision B. Staff training C. CPE D. Planning.

89. The senior auditor responsible for coordinating the fieldwork usually schedules a pre-audit conference with the
audit team primarily to
A. Give guidance to the staff regarding both technical and personnel aspects of the audit.
B. Discuss staff suggestions concerning the establishment and maintenance of time budgets.
C. Establish the need for using the work of specialists and internal auditors.
D. Provide an opportunity to document staff disagreements regarding technical issues.

90. An auditor obtains knowledge about a new client’s business and its industry to
A. Make constructive suggestions concerning improvements to the client’s internal control.
B. Develop an attitude of professional skepticism concerning management’s financial statement assertions.
C. Evaluate whether the aggregation of known misstatements causes the financial statements takes as a whole to
be materially misstated.
D. Understand the events and transactions that may have an effect on the client’s financial statements.

91. A CPA may reduce the audit work on a first-time audit by reviewing the working papers of the predecessor
auditor. The predecessor should permit the successor to review working papers relating to matters of continuing
accounting significance such as those that relate to
A. Extent of reliance on the work of specialists.
 B. Fee arrangements and summaries of payments.
C. Analysis of contingencies.
D. Staff hours to complete the engagement.

92. Which of the following procedures would an auditor most likely perform in planning a financial statement audit?
A. Reviewing investment transactions of he audit period to determine whether related parties were credited.
B. Performing analytical procedures to identify areas that may represent specific risks.
C. Reading the minutes of stockholder and director meetings to discover whether any unusual transactions have
occurred.
D. Obtaining a written representation letter from the client to emphasize management’s responsibilities.

93. Which of the following procedures would an auditor least likely perform in planning a financial statement audit?
A. Coordinating the assistance of entity personnel in data preparation.
B. Discussing matters that may affect the audit with firm personnel responsible for non-audit services to the
entity.
C. Selecting a sample of vendor’s invoices for comparison to receiving reports.
D. Reading the current year’s interim financial statements.

94. In developing the overall audit plan for a new client, factor not to be considered is
A. The terms of the engagement and any statutory responsibilities.
B. The client's business, including the structure of the organization and accounting system used.
C. The amount of estimated audit fee.
D. The audit risk and procedures to be performed to achieve audit objectives.

95. The element of the audit planning process most likely to be agreed upon with the client before implementation of
the audit strategy is the determination of the
A. Evidence to be gathered to provide a sufficient basis for the auditor’s opinion.
B. Procedures to be undertaken to discover litigation, claims and assessments.
C. Pending legal matters to be included in the inquiry of the client’s attorney.
D. Timing of inventory observation procedures to be performed.

96. A basic tool used by the auditor to control the audit work and review the progress of the audit.
A. Audit program C. Engagement letter.
B. Progress flowchart. D. Time and Expense Summary

97. Those procedures specifically outlined in an audit program are primarily designed to
A. Gather evidence. C. Test internal systems.
B. Detect errors or irregularities. D. Protect the auditor in the event of litigation.

98. An audit program provides proof that

A. Sufficient competent evidential matter was obtained.
B. The work was adequately planned.
C. There was compliance with GAAS of reporting.
D. There was a proper study and evaluation of internal control.

99. Audit programs should be designed so that

A. Most of the required procedures can be performed as interim work.
B. Inherent risk is assessed at a sufficiently low level.
C. The auditor can make constructive suggestions to management.
D. The audit evidence gathered supports the auditor’s conclusions.

[Link] 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. Reportable conditions have been communicated to the audit committee of the board of directors.
D. Search for unrecorded liabilities has been performed and documented.