1.
The development of a general strategy and a detailed approach for the expected
nature, timing, and extent of audit refers to:
a. Supervision
b. Audit procedures
c. Directing
d. Planning
2. The auditor should consider the nature, extent, and timing of the work to be
performed and should prepare a written audit program for every audit. Which audit
standard is most closely related to this requirement?
a. The audit is to be performed by a person or persons having adequate technical
training and proficiency as an auditor.
b. In all matters relating to the assignment, an independent mental attitude is to be
maintained by the auditor(s).
c. Due professional care is to be exercised in the planning and performance of the
audit and preparation of the report.
d. The work is to be adequately planned and assistants, if any, are to be properly
supervised.
3. Which of the following would a successor auditor normally perform after
acceptance of an audit client?
a. Inquiry of predecessor auditor regarding the client.
b. Review the SEC filings of the client.
c. Inquiry of bankers regarding the client.
d. Review of predecessor auditor working papers.
4. To obtain an understanding of a continuing client's business in planning an audit,
an auditor most likely would
a. Perform tests of details of transactions and balances.
b. Review prior-year working papers and the permanent file for the client.
c. Read specialized industry journals.
d. Reevaluate client's internal control environment.
5. Which of the following is required documentation in an audit in accordance with
generally accepted auditing standards?
a. A flowchart or narrative of the information system describing the recording and
classification of transactions for financial reporting.
b. An audit program setting forth in detail the procedures necessary to accomplish
the engagement's objectives.
c. A planning memorandum establishing the timing of the audit procedures and
coordinating the assistance of entity personnel.
d. An internal control questionnaire identifying policies and procedures that assure
specific objectives will be achieved.
6. Which of the following procedures would an auditor most likely perform in planning
a financial statement audit?
a. Inquiring of the client's legal counsel concerning pending litigation.
b. Comparing the financial statements to anticipated results.
c. Examining computer generated exception reports to verify the effectiveness of
internal controls.
d. Searching for unauthorized transactions that may aid in detecting unrecorded
liabilities.
7. Analytical procedures used in planning an audit should focus on
a. Reducing the scope of tests of controls and substantive tests.
b. Providing assurance that potential material misstatements will be identified.
c. Enhancing the auditor's understanding of the client's business.
d. Assessing the adequacy of the available evidential matter.
8. Analytical procedures, which means the analysis of significant ratios and trends
including the resulting investigation of fluctuations and relationships that are
inconsistent with other relevant information or which deviate from predicted amounts,
are not required to be applied
a. At the planning stage of the audit
b. Overall review stage of the audit
c. As substantive procedures
d. None of the above
9. Which of the following statements is correct concerning analytical procedures?
a. Analytical procedures usually involve comparisons of ratios developed from
recorded amounts to assertions developed by management.
b. Analytical procedures used in planning an audit generally use data aggregated at
a high level.
c. Analytical procedures can replace tests of controls in gathering evidence to
support the assessed level of control risk.
d. Analytical procedures are more efficient, but not more effective, than tests of
details and transactions.
10. Which of the following is an effective audit planning and control procedures that
helps prevent misunderstandings and inefficient use of audit personnel?
a. Make copies, for inclusion in the working papers, of those client supporting
documents examined by the auditor.
b. Provide the client with copies of the audit programs to be used during the audit.
c. Arrange a preliminary conference with the client to discuss audit objectives, fees,
timing, and other information.
d. Arrange to have the auditor prepare and post any necessary adjusting or
reclassification entries prior to final closing.
11. Which of the following is correct statement?
a. The auditor should use professional judgment to assess audit risk and to design
audit procedures to ensure it is eliminated.
b. The auditor is an insurer, and his or her report constitutes a guarantee.
c. The subsequent discovery that a material misstatement exists in the financial
statements is evidence of inadequate planning, performance, or judgment on the
part of the auditor.
d. The auditor should obtain an understanding of the accounting and internal control
systems sufficient to plan the audit and develop an effective audit approach.
12. According to PSA 400 - Risk Assessments and Internal Control, audit risk means
a. 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 or classes, assuming that there were no related internal controls.
b. The risk that a misstatement, 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 risk that the auditor gives an inappropriate audit opinion when the financial
statements are materially misstated.
13. Inherent risk and control risk differ from detection risk in that they
a. Arise from the misapplication of auditing procedures.
b. May be assessed in either quantitative or nonquantitative terms.
c. Exist independently of the financial statement audit.
d. Can be changed at the auditor's discretion.
14. Inherent risk and control risk differ from detection risk in that inherent risk and
control risk are
a. Elements of audit risk while detection risk is not.
b. Changed at the auditor's discretion while detection risk is not.
c. Considered at the individual account-balance level while detection risk is not.
d. Functions of the client and its environment while detection risk is not.
15. Which of the following is an incorrect statement?
a. Detection risk is a function of the effectiveness of an auditing procedure and its
application.
b. Detection risk arises partly from uncertainties that exists when the auditor does
not examine
100 % of the population.
c. Detection risk arises partly because of other uncertainties that exist even if the
auditor were to examine 100 % of the population.
d. Detection risk exists independently of the audit of the financial statements.
16. Which of the following is an incorrect statement?
a. Detection risk cannot be changed at the auditor's discretion.
b. If individual audit risk remains the same, detection risk bears an inverse
relationship to inherent and control risks.
c. The greater the inherent and control risks the auditor believes exists, the less
detection risk that can be accepted.
d. The auditor might make separate or combined assessments of inherent risk and
control risk.
17. Why would the auditor assess control risk?
a. Because it indicates where inherent risk may be the greatest.
b. Because it determines whether sampling risk is sufficiently low.
c. Because it affects the level of detection risk the auditor may accept.
d. Because it includes the aspects of nonsampling risk that are controllable.
18. The relationship between acceptable level of detection risk and the combined
level of inherent and control risk is
a. Direct
b. Inverse
c. Parallel
d. Independent
19. The audit risk model consists of: AR = IR x CR x DR
The detection risk is the dependent variable. What is the acceptable level of
detection risk if the assessed level of Inherent risk is High and the Control risk is
Low?
a. Highest
b. Medium
c. Lower
d. Higher
20. An auditor decides to increase the assessed level of control risk from that
originally planned on the basis of audit evidence gathered and evaluated. To achieve
an overall audit risk level that is substantially the same as the planned audit risk
level, the auditor would
a. Decrease substantive testing.
b. Increase materiality levels.
c. Increase inherent risk.
d. Decrease detection risk.
