DIVINE WORD COLLEGE OF LEGAZPI

College of Accountancy
MIDTERM DEPARTMENTAL EXAMINATIONS
Accounting 11 (Auditing Theory)
MULTIPLE CHOICE. Choose the letter correso!"#!$ to the %est &!s'er &!" &ccor"#!$l( sh&"e the &ror#&te
s&ce #! the ANSWER SHEET )or (o*r )#!&l &!s'er.
+. The s*%,ect -&tter o) &*"#t#!$ co!s#sts o).
a. assertions. d. Written reports
b. established criteria. e. compliance
c. evidence.
/. Co-#l&t#o! #s &! e0&-le o) 'h#ch o!e o) the )ollo'#!$ t(es o) ser1#ces2
a. auditing d. examination
b. review e. Accounting
c. consulting
3. There &re )o*r co!"#t#o!s th&t $#1e r#se to the !ee" )or #!"ee!"e!t &*"#ts o) )#!&!c#&l st&te-e!ts. O!e o) these
co!"#t#o!s #s co!se4*e!ce. I! th#s co!te0t5 co!se4*e!ce -e&!s th&t the.
a. users of the statements may not fully understand the conseuences of their actions.
b. auditor must anticipate all possible conseuences of the report issued.
c. impact of using different accounting methods may not be fully understood by the users of the statements.
d. financial statements are used for important decisions.
e. financial statements were prepared in accordance with !AA".
6. Wh#ch o!e o) the )ollo'#!$ '&s !ot l#ste" &s &! #!here!t l#-#t&t#o! o) & )#!&!c#&l st&te-e!t &*"#t2
a. accounting estimates d. reasonable cost
b. reasonable length of time e. level of complexity
c. alternative accounting principles
7. The r#-&r( *rose o) the A*"#t Co--#ttee #s to.
a. monitor the professional competence of the auditor.
b. relieve management of the need to interact# on a day$to$day basis# with the external auditor.
c. strengthen the independence of the external auditors.
d. act as liaison between the external auditors and the internal auditors.
e. discuss the scope of the audit with the auditor.
8. Wh#ch o!e o) the )ollo'#!$ &ssert#o!s #s !ot -&"e %( -&!&$e-e!t #! l&c#!$ &! #te- #! the )#!&!c#&l
st&te-e!ts2
a. existence or occurrence d. presentation and disclosure
b. direct controls e. completeness
c. rights and obligations
9. Cho#ces &%o*t &*"#t e1#"e!ce &re #!)l*e!ce" %( &ll o) the )ollo'#!$ e0cet.
a. the auditor%s understanding of the business and industry.
b. decisions about inherent ris& and control ris&.
c. comparisons of the auditor%s expectations of the financial statements with the client%s boo&s and records.
d. decisions about immaterial ris& factors.
e. decisions about assertions that are material to the financial statements.
:. Wh#ch o) the )ollo'#!$ 'o*l" !ot %e co!s#"ere" *!"erl(#!$ &cco*!t#!$ "&t&2
a. sales invoices d. accounting manuals
b. the general ledger e. accounts receivable ledger
c. boo&s of original entry
;. Wh#ch o!e o) the )ollo'#!$ Pr#!c#les &l#es o!l( to &! #!"#1#"*&l 'ho re!"ers ser1#ce to the *%l#c2
a. 'esponsibilities d. "cope and (ature of "ervices
b. )b*ectivity and +ndependence e. ,ue Care
c. The -ublic +nterest
+<. I) & CPA rec=lessl( &%&!"o!s st&!"&r"s o) "*e c&re &!" "#l#$e!ce 'h#le er)or-#!$ &! &*"#t5 he or she -&( %e
hel" l#&%le to *!=!o'! th#r" &rt#es )or.
a. fraudulent misconduct. d. contributory negligence
b. gross misconduct. e. gross negligence
c. ordinary negligence.
1
.
++. The co!cet o) -&ter#&l#t( #s "e)#!e" %( the Acco*!t#!$ St&!"&r"s Co*!c#l #! ter-s o) the ,*"$-e!t o) the.
a. auditor. d. users.
b. preparer. e. -+C-A members
c. A"C members.
.
+/. The st&te-e!t th&t the re1#e'er >#s !ot &'&re o) &!( -&ter#&l -o"#)#c&t#o!s th&t sho*l" %e -&"e to the
st&te-e!ts #! or"er )or the- to %e #! co!)or-#t( '#th GAAP> #s =!o'! &s.
a. reasonable assurance. d. necessary ignorance.
b. negligent performance. e. positive assurance.
c. negative assurance.

+3. Wh#ch o!e o) the )ollo'#!$ reorts ser1es &s the r#-&r( co--*!#c&t#o! o) &*"#t )#!"#!$s2
a. the auditor%s report on internal controls.
b. the auditor%s report on financial statements
c. the auditor%s report on disagreements with management.
d. the auditor%s report on significant audit ad*ustments.
e. the auditor%s report on consultation with other accountants.
+6. Wh#ch o!e o) the )ollo'#!$ t(es o) ser1#ces o))ere" %( & CPA #s !ot &! &ttest ser1#ce2
a. .xamination d. Audit
b. 'eview e. Accounting
c. performing agreed$upon procedures

+7. There &re se1er&l cr#t#c&l &sects o) the %*s#!ess c(cle th&t &re #-ort&!t )or the &*"#tor to *!"erst&!". These
#!cl*"e &ll o) the )ollo'#!$ e0cet.
a. an entity%s operating and financing decisions.
b. management# management%s goals and organi/ational resources.
c. how core processes result in growth# profits# cash flows and value.
d. the entity%s products and services# mar&ets# customers# and competition.
e. the entity%s core processes and operating cycle.
+8. Wh#ch o) the )ollo'#!$ #s &! #!correct st&te-e!t co!cer!#!$ o!e o) the )#el" 'or= st&!"&r"s2
a. Audit planning includes the development of audit strategies.
b. Audit planning is aimed primarily at effectiveness# with little effect on efficiency.
c. 0nderstanding of the internal control structure is necessary in order to plan the audit.
d. -roper supervision is essential because ma*or portions of the audit are often executed by staff assistants with limited
experience.
e. The auditor must have a reasonable basis# in the form of gathered evidence# for expressing an opinion.
+9. The th#r" h&se o) the &*"#t #!1ol1es er)or-#!$ &*"#t tests. The Ge!er&ll( Accete" A*"#t#!$ St&!"&r"s th&t
&l( to th#s h&se o) the &*"#t #!cl*"e.
a. the field wor& standards only. d. the general standards only.
b. the general and the field wor& standards. e. all of the ten standards
c. the general and the reporting standards.
.
+:. Wh#ch o!e o) the )ollo'#!$ ser1#ces #s o)te! er)or-e" o! *%l#c co-&!#es? #!ter#- )#!&!c#&l st&te-e!ts &!"
!o!*%l#c co-&!#es? &!!*&l )#!&!c#&l st&te-e!ts2
a. examination d. review
b. accounting e. consulting
c. auditing
+;. A "#rect or -&ter#&l #!"#rect )#!&!c#&l #!terest #! the cl#e!t 'o*l" #-&#r #!"ee!"e!ce #) the #!terest 'ere hel"
"*r#!$ 'h#ch o) the )ollo'#!$ t#-e er#o"s2
a. at the time of issuing the opinion
b. from the statement date to the time of issuing the opinion
c. from the beginning of the period covered by the statements to the time of issuing the opinion
d. during the engagement up to the date that auditing field wor& is completed
e. during the engagement or at the time of issuing the opinion
/<. Co-l#&!ce &*"#ts %&se" o! cr#ter#& est&%l#she" %( -&!&$e-e!t &re *s*&ll( -&"e %(.
a. internal auditors.
b. external auditors.
c. upper management.
d. the company employees being evaluated.
e. governmental auditors.
2
/+. The )o*rth h&se o) the &*"#t #!1ol1es reort#!$. The Ge!er&ll( Accete" A*"#t#!$ St&!"&r"s th&t &l( to
th#s h&se o) the &*"#t #!cl*"e.
a. the reporting standards only. d. the general standards only.
b. the reporting and the field wor& standards. e. all of the ten standards
c. the general and the reporting standards.
//. Use o) the &*"#t#!$ roce"*re co!)#r-#!$ sho*l" !or-&ll( #!1ol1e &ll o) the )ollo'#!$ e0cet.
a. direct evidence being obtained from outsiders. d. auditor control of the mailing.
b. client initiation of the reuest. e. responses received by the auditor
c. written reuest and an oral response.
d. auditor control of the mailing.
.
/3. Wh#ch o!e o) the )ollo'#!$ ter-s #s !ot &rt o) the "e)#!#t#o! o) &*"#t#!$2
a. communicating the results d. evaluating evidence
b. interested users e. auditing standards
c. systematic process
/6. Wh#ch o!e o) the )ollo'#!$ ser1#ces #!cl*"es t&0 l&!!#!$ &!" )#!&!c#&l st&te-e!t &!&l(s#s2
a. technology services d. review
b. management consulting e. examination
c. financial planning


12. Tests o) "et&#ls o) %&l&!ces focus on obtaining evidence3
a. directly about an account balance.
b. by inspecting the individual debit and credit entries to the account.
c. directly from an outside source.
d. in the least costly manner.
e. to refute instead of support an assertion.
/8. A CPA )#r- 'o*l" #ss*e & >s*--&r( o) )#!"#!$s> #! co!!ect#o! '#th 'h#ch o!e o) the )ollo'#!$ t(es o)
ser1#ces2
a. auditing d. review
b. the application of agreed$upon procedures e. accounting
c. examination

/9. Gross !e$l#$e!ce c&! %est %e "e)#!e" &s.
a. failure to exercise due care. d. criminal fraud
b. misrepresentation. e. collusion
c. failure to exercise even slight care.
.
/:. A*"#t#!$ #s %&se" o! the &ss*-t#o! th&t )#!&!c#&l "&t& &re 1er#)#&%le. D&t& &re 1er#)#&%le 'he! t'o or -ore
4*&l#)#e" #!"#1#"*&ls5
a. wor&ing together# can prove# beyond doubt# the accuracy of the data.
b. wor&ing independently# each reach essentially similar conclusions.
c. wor&ing independently# can prove# beyond reasonable doubt# the truthfulness of the data.
d. wor&ing together# can agree upon the accuracy of the data.
e. wor&ing together# each reach essentially similar conclusions.
/;. Wh#ch o) the )ollo'#!$ %est "escr#%es the rel&t#o!sh# th&t sho*l" e0#st %et'ee! the e0ter!&l &*"#tor &!" the
-&!&$e-e!t o) the cl#e!t company4
a. adversarial relationship d. mutual caution and suspicion
b. mutual trust and respect e. s&eptical vigilance
c. advocacy of management%s position
3<. W#th resect to &*"#t o%,ect#1es5 the ter- validity rel&tes to 'h#ch o) the )ollo'#!$ &ssert#o!s2
a. existence and occurrence d. presentation and disclosure
b. completeness e. rights and obligations
c. valuation or allocation

3+. CPA )#r-s? $ro*#!$ &rt!ers %( #!"*str( e!co*r&$es the- to sh&re =!o'le"$e o) the *!"erl(#!$ eco!o-#c
"r#1ers o) ro)#t&%#l#t( )or &! #!"*str( &!" to "e1elo & "eth o) e0ert#se re$&r"#!$.
a. a high uality of client service. d. the reasonableness of computer controls
b. a higher level of professional s&epticism. e. best$in$class practices in an industry.
c. important information system issues for a client.
.
3
3/. Wh#ch o!e o) the )ollo'#!$ co!s#sts r#-&r#l( o) #!4*#r#es o) &! e!t#t(?s -&!&$e-e!t &!" co-&r&t#1e &!&l(ses
o) )#!&!c#&l #!)or-&t#o!2
a. audit d. review
b. compilation e. examination
c. agreed$upon procedures
33. I!here!t r#s= #s "e)#!e" #! ter-s o).
a. a total absence of controls. d. the standard controls for the client%s industry
b. an ideal set of controls. e. a full set of controls
c. the existing controls.
36. A! &*"#tor #s e0&-#!#!$ the "et&#le" "e%#t &!" cre"#t &ct#1#t( #! &! &cco*!t. The &*"#tor #s -ost l#=el(
er)or-#!$.
a. analytical procedures. d. tests of details of transactions
b. tests of controls. e. tests of compliance
c. tests of details of balances.
.
37. Whe! l&!!#!$ the &*"#t5 the &*"#tor -*st -&=e the )ollo'#!$ #-ort&!t "ec#s#o!s e0cet the.
a. assignment of staff to perform audit tests. d. extent of tests to be performed.
b. nature of tests to be performed. e. timing of tests to be performed.
c. characteristics of tests to be performed.

38. The r#$hts &!" o%l#$&t#o!s &ssert#o! &l#es to.
a. current liability items only. d. assets that are not owned by the company.
b. revenue and expense items only. e. balance sheet items only
c. both income statement and balance sheet items.
.
39. Re4*#re" &*"#tor co--*!#c&t#o! to the A*"#t Co--#ttee co!cer!#!$ #lle$&l &cts "etecte" #!cl*"es.
a. all material items.
b. all that are not adeuately addressed by management.
c. only those that have an effect on the audit report.
d. only those that constitute management fraud.
e. any such acts.
3:. For & &rt#c*l&r &ssert#o!5 co!trol r#s= #s the r#s= th&t.
a. a material misstatement will occur in the accounting process.
b. controls will not detect a material misstatement that occurs.
c. audit procedures will fail to detect a wea& control system.
d. the prescribed control procedures will not be applied uniformly.
e. an immaterial misstatement will occur in the accounting process.
3;. There &re )o*r co!"#t#o!s th&t $#1e r#se to the !ee" )or #!"ee!"e!t &*"#ts o) )#!&!c#&l st&te-e!ts. O!e o) these
co!"#t#o!s #s co-le0#t(. I! th#s co!te0t5 co-le0#t( rel&tes to &ll o) the )ollo'#!$ e0cet co-le0#t(.
a. of the accounting process. d. of the sub*ect matter# or !AA-
b. in evaluating the uality of financial statements. e. of the decision process
c. of financial statement preparation.

6<. The &*"#tor?s le$&l l#&%#l#t( to th#r" &rt#es *!"er co--o! l&' e0te!"s to.
a. all third parties for all acts of negligence.
b. all third parties for acts of fraud5 select third parties for gross and ordinary negligence.
c. select third parties for fraud# gross negligence# and ordinary negligence.
d. all third parties for all acts of willful misconduct.
e. all third parties for acts of fraud and gross negligence5 select third parties for ordinary negligence.
6+. Ge!er&ll( &ccete" &*"#t#!$ st&!"&r"s reco$!#@e t'o c&te$or#es o) e1#"e!t#&l -&tter. *!"erl(#!$ &cco*!t#!$
"&t& &!" corro%or&t#!$ #!)or-&t#o!. I! -&=#!$ &! &*"#t #! &ccor"&!ce '#th GAAS.
a. corroborating information is always reuired# while underlying accounting data may be gathered under certain
circumstances.
b. underlying accounting data must always be gathered# while corroborating information need only be obtained when
the accounting records are not reliable.
c. both categories are reuired.
d. the auditor may choose the category to use# and omit the other.
e. neither category is reuired.
4
61. Tests o) "et&#ls o) tr&!s&ct#o!s primarily involve3
a. tracing and vouching. d. income statement accounts
b. confirmation with outsiders. e. scanning and recalculation
c. observation and inuiry.
. .
63. Sec#)#c &*"#t o%,ect#1es &re !or-&ll(.
a. the same as the categories of management%s financial statement assertions.
b. developed for each item in the financial statements and derived from the categories of management%s financial
statement assertions.
c. derived from the categories of management%s financial statement assertions.
d. developed for each item in the financial statements.
e. developed for material items in the financial statements.
66. A! &*"#t th&t #!1ol1es o%t&#!#!$ &!" e1&l*&t#!$ e1#"e!ce &%o*t the e))#c#e!c( &!" e))ect#1e!ess o) &! e!t#t(?s
oer&t#!$ &ct#1#t#es #!
rel&t#o! to sec#)#e" o%,ect#1es #s &A!B.
a. internal audit. d. compliance audit
b. external audit. e. financial statement audit
c. operational audit.
67. W#th#! the $e!er&ll( &ccete" &*"#t#!$ st&!"&r"s5 the $e!er&l st&!"&r"s rel&te r#-&r#l( to.
a. ualifications of the auditor and the uality of the auditor%s wor&.
b. ualifications of the auditor.
c. the relationship between !AA" and generally accepted accounting principles.
d. the fairness of the financial statements.
e. the general distribution of audit reports.
68. E1er( #!"ee!"e!t &*"#t e!$&$e-e!t #!1ol1es %oth &*"#t#!$ st&!"&r"s &!" &*"#t#!$ roce"*res. The
rel&t#o!sh# %et'ee! the t'o -&( %e #ll*str&te" %( ho' the( &l( )ro- e!$&$e-e!t to e!$&$e-e!t. The %est
rerese!t&t#o! o) th#s &l#c&t#o! #s th&t5 )ro- o!e &*"#t e!$&$e-e!t to the !e0t #s.

Auditing Auditing
"tandards -rocedures
a. apply uniformly apply uniformly
b. may vary apply uniformly
c. apply uniformly may vary
d. may vary may vary
e. apply uniformly are optional
69. Wor=#!$ &ers ro1#"e &ll o) the )ollo'#!$ e0cet.
a. a means for coordinating the audit. d. the principal support for the auditor%s report
b. the principal support for the financial statements. e. a means for supervising the audit.
c. evidence that the audit was made in accordance with !AA".

6:. I! "eter-#!#!$ the s*))#c#e!c( o) e1#"e!t#&l -&tter5 'h#ch o) the )ollo'#!$ 'o*l" !ot !or-&ll( %e & )&ctor2
a. cost7benefit considerations d. audit ris&
b. the sampling techniue used e. the si/e of the population
c. materiality of the account

6;. I! &""#t#o! to #ss*#!$ & reort o! the )#!&!c#&l st&te-e!ts5 the &*"#tor "#sc*sses cert&#! -&tters '#th the &*"#t
co--#ttee. S*ch -&tters #!cl*"e the "#sc*ss#o! o).
a. management *udgments. d. consultation with other accountants
b. accounting estimates. e. difficulties encountered in performing the audit
c. insignificant accounting policies.
.
7<. Wh#ch o) the )ollo'#!$ 'o*l" !ot %e co!s#"ere" corro%or&t#!$ #!)or-&t#o!2
a. canceled chec&s held by the client d. the accountant%s wor& sheet
b. confirmation from vendors e. other information obtained by the auditor
c. oral evidence obtained from client personnel
7+. I! re$&r" to co--*!#c&t#o! o) other )#!"#!$s5 the res*lt#!$ reorts -&( 1&r( s#$!#)#c&!tl( "ee!"#!$ o! the
!&t*re o) the e!$&$e-e!t5 %*t the( *s*&ll( co!t&#! & "escr#t#o! o) the.
a. findings. d. internal controls
b. scope of wor& planned. e. disagreements with management.
c. ob*ectives.
.
5
7/. F#!&!c#&l st&te-e!t &*"#ts -&( h&1e & "#rect e))ect o! & !*-%er o) #te-s. S*ch &*"#ts &re le&st l#=el( to h&1e &
"#rect e))ect o!.
a. the mar&et price of a company%s stoc&. d. management%s role in the preparation of the financial statements
b. employee honesty and efficiency. e. employee attitude toward fraud.
c. cost of borrowed capital.
73. Wh#ch o) the )ollo'#!$ 'o*l" !ot %e co!s#"ere" &! &!&l(t#c&l roce"*re2
a. calculate the gross profit ratio and compare it to the industry figure
b. compare current year%s operating expenses to prior year%s
c. compare current year%s wor&ing capital to prior year%s
d. divide sales commissions by sales and compare the results to the established commission rate
e. compare the per unit price on a sales invoice to the master price list
76. The seco!" h&se o) the &*"#t #!1ol1es l&!!#!$. The Ge!er&ll( Accete" A*"#t#!$ St&!"&r"s th&t &l( to
th#s h&se o) the &*"#t #!cl*"e.
a. the field wor& standards only. d. the general standards only
b. the general and the field wor& standards. e. all of the ten standards
c. the general and the reporting standards.
77. Wh#ch o!e o) the )ollo'#!$ #s the ser1#ce #! 'h#ch the CPA )#r- #ss*es & 'r#tte! co--*!#c&t#o! th&t e0resses
& co!cl*s#o! &%o*t the rel#&%#l#t( o) & 'r#tte! &ssert#o! th&t #s the reso!s#%#l#t( o) &!other &rt(2
a. consulting service d. compilation service
b. attest service e. examination service
c. accounting service
78. Wh#ch o!e o) the )ollo'#!$ Pr#!c#les rel&tes to %e#!$ #-&rt#&l &!" *!%#&se" #! &ll -&tters ert&#!#!$ to &!
e!$&$e-e!t2
a. 'esponsibilities d. "cope and (ature of "ervices
b. )b*ectivity and +ndependence e. ,ue Care
c. The -ublic +nterest

79. I! 'h#ch o!e o) the )ollo'#!$ s#t*&t#o!s 'o*l" #!"ee!"e!ce !ot %e #-&#re"2
a. direct financial interest in a partnership that invests in a client
b. stoc& owned in client is put in a trust created as an education fund for the member%s minor child
c. attorney7C-A provides legal service as general counsel for an auditing client
d. membership held in a trade association that is a client5 member does not serve in a management capacity
e. full participation in the managerial decision$ma&ing process of an audit client
7:. Wh#ch o!e o) the )ollo'#!$ #s !ot &! e0&-le o) & sec#&l#st &s "e)#!e" %( &*"#t st&!"&r"s2
a. engineers
b. appraisers
c. actuaries
d. internal auditors
e. attorneys
7;. Wh#ch o) the )ollo'#!$ #s !ot & tort &ct#o!2
a. breach of contract
b. negligence
c. gross negligence
d. fraud
e. ordinary negligence
8<. The )#1e -&!&$e-e!t &ssert#o!s o*tl#!e" #! $e!er&ll( &ccete" &*"#t#!$ st&!"&r"s #!cl*"e &ll o) the )ollo'#!$
e0cet.
a. rights and obligations.
b. materiality.
c. existence and occurrence.
d. presentation and disclosure.
e. valuation or allocation.
8+. Wh#ch o) the )ollo'#!$ 'o*l" !ot %e & )&ctor #! "eter-#!#!$ the co-ete!c( o) e1#"e!t#&l -&tter2
a. the source of the evidence
b. timeliness of the evidence
c. the degree of ob*ectivity of the evidence
d. the cost of gathering the evidence
6
e. the relevance of the evidence
8/. Deter-#!#!$ 'hether &-o*!ts &re #! co!)or-#t( '#th GAAP &""resses the roer -e&s*re-e!t o) &ssets5
l#&%#l#t#es5 re1e!*es5 &!" e0e!ses 'h#ch #!cl*"es &ll o) the )ollo'#!$ e0cet.
a. the reasonableness of management%s accounting estimates.
b. proper application of valuation principles such as cost# net reliable value# mar&et value# and present value.
c. consistency in the application of accounting principles.
d. the reasonableness of management%s accounting policies.
e. proper application of the matching principle.
83. Doc*-e!t&r( e1#"e!ce -&( %e ro"*ce" %( &ll o) the )ollo'#!$ &*"#t#!$ roce"*res e0cet.
a. tracing.
b. reperforming.
c. vouching.
d. counting.
e. confirming.
86. U!&#" )ees )or ro)ess#o!&l ser1#ces '#ll #-&#r #!"ee!"e!ce #) the.
a. previous year%s fee has not been paid by the start of the current year%s engagement.
b. previous year%s fee has not been paid by the time the current year%s report is issued.
c. previous year%s fee has not been paid by the financial statement date.
d. current year%s fee has not been paid by the time the report is issued.
e. previous year%s fee has not been paid by the time the current year%s field wor& has been completed.
82. +n the final analysis# the amount and &inds of evidential matter
reuired to support the auditor%s opinion should be determined by3
a. professional standards.
b. the audit committee.
c. auditor *udgment.
d. rigorous statistical analysis.
e. generally accepted auditing standards.
88. +n accepting an engagement# an auditor ta&es on professional
responsibilities to3
a. the public.
b. the client.
c. other members of the public accounting profession.
d. the public# the client# and other members of the public
accounting profession.
e. the client and the public.
7
$$-age 19
8:. A code of professional ethics should be designed to elicit
professional behavior that is3
a. eual to that reuired by the law.
b. ideal.
c. below the ideal but above the law.
d. not directly addressed by the law.
e. eual to the ideal.
8;. Which of the following is not normally found in the engagement
letter4
a. a disclaimer on detecting all material irregularities
b. the use of binding arbitration in the case of a dispute
c. the ob*ective or purpose of the audit
d. an indication of the fee# or method of determining the fee
e. a space for the client%s approving signature
8<. +n order to effectively audit a company%s financial statements# a
C-A must be able to do all of the following except3
a. apply ethical rules of the profession.
b. assess ris&# verify management%s assertions and document audit
conclusions.
c. understand an entity%s goals and ob*ectives and determine the
degree to which those goals and ob*ectives have been met.
d. understand the company%s internal controls and evaluate the
degree to which it serves the client%s needs.
e. evaluate an entity%s cash flow# profitability# liuidity#
solvency# operating cycle# and its performance in an industry
relative to its customers.
:=. The first phase of an audit involves the accept7re*ect decision for
the client in uestion. The !enerally Accepted Auditing "tandards
that apply to this phase of the audit include3
a. the field wor& standards only.
b. the general and the field wor& standards.
c. the general and the reporting standards.
d. the general standards only.
e. all of the ten standards.
:1. The need for independent audits of financial statements can be
attributed to all of the following conditions except3
a. remoteness.
b. complexity.
c. conseuence.
d. validity.
e. conflict of interest.
8
$$-age 16
:1. Which of the following auditing procedures is least li&ely to
disclose an understatement4
a. vouching
b. tracing
c. inuiring
d. counting
e. confirming
:9. The main need for a professional code of ethics is to3
a. foster professional harmony.
b. avoid regulation from external sources.
c. &eep the level of competition within the profession to a minimum.
d. increase public confidence in the profession.
e. avoid regulation from internal sources.
:6. When considering whether to accept an engagement# the auditor should
consider the implications for accepting the engagement if3
a. management welcomes visits to all locations that the auditor
considers material.
b. management does not restrict contacts with customers.
c. the auditor is not engaged after year$end.
d. the predecessor auditor%s wor&papers are not available for
review.
e. management does not restrict contacts with suppliers.
:2. The primary example of an audit service is the3
a. operational audit.
b. financial statement audit.
c. compliance audit.
d. internal audit.
e. external audit.
:8. Top down audit evidence focuses the auditor%s attention on which one
of the following4
a. core business products
b. the auditor%s goals and ob*ectives
c. the organi/ation%s competitive disadvantage in the mar&etplace
d. how management uses its business processes to attain certain
resources
e. obtaining an understanding of the business and industry
::. +ndividuals or entities whom the auditor either &new or should have
&nown would rely on the audit report in ma&ing business and
investment decisions are3
a. third parties.
b. foreseen beneficiaries.
c. primary beneficiaries.
d. secondary beneficiaries.
e. foreseeable parties.
9
$$-age 12
:;. The third phase of the audit involves performing audit tests.
The primary purpose of this step is to obtain evidence about3
a. the integrity of management.
b. the effectiveness of management.
c. the effectiveness of the internal control structure.
d. the effectiveness and the integrity of management.
e. the effectiveness of the internal control structure and
the fairness of the financial statements.
:<. +n the investigation of a potential new client# if the client
refuses to give permission to inuire of the predecessor auditor# or
if the predecessor does not respond fully# the successor auditor
should3
a. consider the implications in ma&ing the accept7re*ect decision.
b. not accept the engagement.
c. reuest an A+C-A$sanctioned peer review of the predecessor.
d. reuest assistance from the ".C.
e. immediately inform the appropriate state board of accountancy.
;=. Anyone identified to the auditor by name prior to the audit who is
to be the principal recipient of the auditor%s report is a3
a. third party.
b. foreseen beneficiary.
c. primary beneficiary.
d. foreseeable party.
e. secondary beneficiary.
;1. +nternal auditors are primarily involved with3
a. compliance audits.
b. operational audits.
c. compliance audits and operational audits.
d. financial statement audits.
e. governmental audits.
;1. The completeness assertion would be violated if3
a. fictitious sales transactions were included in accounts
receivable.
b. the allowance for doubtful accounts was understated.
c. unbilled shipments had occurred during the period.
d. disclosure in the statements of pledged receivables was
inadeuate.
e. the balance of accounts payable was overstated.
;9. The ,ue Care -rinciple in the A+C-A%s Co"e o) Pro)ess#o!&l Co!"*ct
does not reuire of the auditor3
a. freedom from errors in *udgment.
b. thoroughness in their wor&.
c. completion of the service promptly.
d. observation of technical and ethical standards.
e. continual improvement in competence.
10
$$-age 18
;6. The sub*ect of the auditing procedure observing is least li&ely to
be3
a. personnel.
b. procedures.
c. processes.
d. inventory ta&ing.
e. physical assets.
;2. The uality control element (s) most directly related to the
auditor%s assessment of her competence to perform the audit is
(are)3
a. assigning personnel to the engagement and consultation.
b. assigning personnel to the engagement.
c. consultation.
d. independence.
e. supervision.
;8. A tour of the operating facilities is least li&ely to provide the
auditor familiarity with the3
a. location of computing facilities.
b. plant layout.
c. potential trouble spots such as obsolete materials.
d. storage facilities.
e. manufacturing process.
;:. The main purpose of the e!$&$e-e!t letter is to3
a. avoid litigation.
b. indicate the li&ely opinion to be issued.
c. confirm the terms of the engagement.
d. clearly delineate management%s responsibility for the conduct of
the audit.
e. clearly delineate the auditor%s responsibility for the conduct of
the audit.
;;. The sub*ect of the auditing procedure inspecting is least li&ely
to be3
a. documents.
b. physical assets.
c. accounting records.
d. lease agreements.
e. personnel.
;<. The essence of the due care standard is that the auditor should
not be guilty of3
a. bias.
b. ob*ectivity.
c. errors in *udgment.
d. fraud.
e. negligence.
11
$$-age 1:
<=. D*&lC*rose tests are audit tests designed to3
a. test more than one control with a single procedure.
b. test controls that are relevant to multiple assertions.
c. provide evidence for more than a single accounting period.
d. test dual controls with multiple procedures.
e. test for monetary errors while testing for compliance with
controls.
<1. Which one of the following is not among the conditions that give
rise to a demand by external users for independent audits of
financial statements4
a. remoteness of users
b. complexity of sub*ect matter
c. the securities acts# administered by the ".C
d. potential conflict of interest between users and preparers of the
statements
e. conseuence for ma&ing decisions
<1. An audit that involves obtaining and evaluating evidence in order to
determine whether certain financial or operating activities of an
entity conform to specified conditions# rules# or regulations is
a(n)3
a. internal audit.
b. external audit.
c. operational audit.
d. compliance audit.
e. financial statement audit.
<9. Which one of the following is among the three components of audit
ris&4
a. incurrence ris&
b. occurrence ris&
c. re*ection ris&
d. acceptance ris&
e. control ris&
<6. Which of the following is not considered a substantive test4
a. analytical procedures
b. tests of detail of transactions
c. tests of controls
d. tests of detail of balances
e. tests of reasonableness of account balances
<2. Which one of the following is not a &ey step in planning the
audit4
a. -erform analytical procedures.
b. Consider audit ris&.
c. >a&e preliminary *udgments about materiality levels.
d. ,evelop preliminary audit strategies for significant assertions.
e. )btain an understanding of the client%s external controls.
12
$$-age 1;
<8. +n the communication with the predecessor auditor# the potential
successor should ma&e specific and reasonable inuiries regarding
matters that may affect the decision to accept the engagement.
Which of the following items is least li&ely to be included in the
inuiries4
a. the integrity of management
b. disagreements with management about accounting matters
c. specific areas of audit difficulty and cost
d. the predecessor%s understanding of the reasons for a change in
auditors
e. disagreements with management about auditing matters
<:. When providing audit services# the C-A is expected to be3
a. independent of the client.
b. an advocate for the client.
c. an advocate for the general public.
d. indifferent to the effect of the financial statements and
the audit report.
e. able to ma&e managerial decisions for the client.
<;. Which of the following would not be considered an indirect
financial interest for a given C-A4
a. The C-A owns stoc& in a mutual fund# which owns stoc& in the
client.
b. The C-A owns stoc& in a ban& that provides the line of credit
to the client company.
c. The C-A%s nondependent close relative has a financial interest
in the client company.
d. The C-A%s dependent child owns an immaterial amount of stoc& in
the client company.
e. The C-A received cash advances totaling eight thousand dollars
from a ban& that is a client.
<<. +f reported sales for 1=?= erroneously include sales that occurred
in 1=?1# the assertion violated on the 1=?= statements would be3
a. existence or occurrence
b. completeness
c. valuation or allocation.
d. presentation and disclosure
e. rights and obligations
13
$$-age 1<
1==. The typical &*"#t te&- consists of3
a. one or more *uniors# who perform the most distasteful tas&s and
procedures.
b. a partner# who has both overall and final responsibility for the
engagement.
c. staff assistants# who perform many of the reuired audit
procedures.
d. one or more managers# who usually have significant expertise in
the industry and who coordinate and supervise the execution of
the audit program.
e. one or more seniors# who may have responsibility for planning the
audit# executing parts of the audit program and for supervising
and reviewing the wor& of staff assistants.
14
--Page 20
ANSWER KEY
+-------+------+--------+------+--------+--------+--------+--------+------+
| Text | Ban | Exa! | | | "#e$ | %&'' | ()ng | |
|*+a,te)| Re' |"#e$t&-n|An$.e)| T/,e | *at | (01 | 234 | 5&n6 |
+-------+------+--------+------+--------+--------+--------+--------+------+
| 1 10 1 a 5*+-&7e |
| 1 25 2 e 5*+-&7e |
| 2 4 3 8 5*+-&7e |
| 2 13 4 e 5*+-&7e |
| 2 8 5 7 5*+-&7e |
| 5 1 6 3 5*+-&7e |
| 6 1 7 8 5*+-&7e |
| 6 7 8 a 5*+-&7e |
| 3 7 9 8 5*+-&7e |
| 4 30 10 e 5*+-&7e |
| 5 6 11 8 5*+-&7e |
| 1 24 12 7 5*+-&7e |
| 5 19 13 3 5*+-&7e |
| 1 8 14 e 5*+-&7e |
| 7 24 15 a 5*+-&7e |
| 2 11 16 3 5*+-&7e |
| 7 3 17 a 5*+-&7e |
| 1 23 18 8 5*+-&7e |
| 3 15 19 e 5*+-&7e |
| 1 13 20 a 5*+-&7e |
| 7 5 21 3 5*+-&7e |
| 6 11 22 7 5*+-&7e |
| 1 12 23 e 5*+-&7e |
| 1 15 24 7 5*+-&7e |
| 5 17 25 a 5*+-&7e |
| 1 22 26 3 5*+-&7e |
| 4 2 27 7 5*+-&7e |
| 2 5 28 3 5*+-&7e |
| 2 7 29 3 5*+-&7e |
| 6 5 30 a 5*+-&7e |
| 5 21 31 e 5*+-&7e |
| 1 14 32 8 5*+-&7e |
| 5 8 33 a 5*+-&7e |
| 5 16 34 8 5*+-&7e |
| 6 3 35 7 5*+-&7e |
| 5 4 36 e 5*+-&7e |
| 2 16 37 e 5*+-&7e |
| 5 9 38 3 5*+-&7e |
| 2 2 39 e 5*+-&7e |
| 4 6 40 e 5*+-&7e |
| 6 9 41 7 5*+-&7e |
| 5 15 42 a 5*+-&7e |
| 6 6 43 3 5*+-&7e |
| 1 1 44 7 5*+-&7e |
| 2 9 45 a 5*+-&7e |
| 2 12 46 7 5*+-&7e |
| 6 22 47 3 5*+-&7e |
| 5 11 48 3 5*+-&7e |
+-------------------------------------------------------------------------+
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--Page 21
+-------+------+--------+------+--------+--------+--------+--------+------+
| Text | Ban | Exa! | | | "#e$ | %&'' | ()ng | |
|*+a,te)| Re' |"#e$t&-n|An$.e)| T/,e | *at | (01 | 234 | 5&n6 |
+-------+------+--------+------+--------+--------+--------+--------+------+
| 5 20 49 7 5*+-&7e |
| 6 8 50 8 5*+-&7e |
| 5 22 51 a 5*+-&7e |
| 2 3 52 a 5*+-&7e |
| 6 10 53 e 5*+-&7e |
| 7 2 54 3 5*+-&7e |
| 1 20 55 3 5*+-&7e |
| 3 8 56 3 5*+-&7e |
| 3 26 57 8 5*+-&7e |
| 7 17 58 8 5*+-&7e |
| 4 1 59 a 5*+-&7e |
| 6 4 60 3 5*+-&7e |
| 5 12 61 8 5*+-&7e |
| 5 5 62 8 5*+-&7e |
| 6 15 63 3 5*+-&7e |
| 3 22 64 3 5*+-&7e |
| 5 10 65 7 5*+-&7e |
| 7 7 66 8 5*+-&7e |
| 3 1 67 7 5*+-&7e |
| 7 20 68 3 5*+-&7e |
| 5 18 69 e 5*+-&7e |
| 7 1 70 3 5*+-&7e |
| 2 6 71 8 5*+-&7e |
| 6 14 72 a 5*+-&7e |
| 3 2 73 8 5*+-&7e |
| 7 13 74 8 5*+-&7e |
| 1 11 75 3 5*+-&7e |
| 6 2 76 e 5*+-&7e |
| 4 10 77 e 5*+-&7e |
| 7 4 78 e 5*+-&7e |
| 7 10 79 a 5*+-&7e |
| 4 5 80 7 5*+-&7e |
| 1 18 81 7 5*+-&7e |
| 5 3 82 7 5*+-&7e |
| 3 6 83 a 5*+-&7e |
| 6 13 84 e 5*+-&7e |
| 7 15 85 a 5*+-&7e |
| 7 27 86 a 5*+-&7e |
| 7 19 87 7 5*+-&7e |
| 6 12 88 8 5*+-&7e |
| 2 10 89 e 5*+-&7e |
| 5 13 90 e 5*+-&7e |
| 2 1 91 7 5*+-&7e |
| 1 2 92 8 5*+-&7e |
| 5 7 93 e 5*+-&7e |
| 5 14 94 7 5*+-&7e |
| 7 23 95 e 5*+-&7e |
| 7 9 96 7 5*+-&7e |
+-------------------------------------------------------------------------+
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--Page 22
+-------+------+--------+------+--------+--------+--------+--------+------+
| Text | Ban | Exa! | | | "#e$ | %&'' | ()ng | |
|*+a,te)| Re' |"#e$t&-n|An$.e)| T/,e | *at | (01 | 234 | 5&n6 |
+-------+------+--------+------+--------+--------+--------+--------+------+
| 1 17 97 a 5*+-&7e |
| 3 18 98 8 5*+-&7e |
| 5 2 99 a 5*+-&7e |
| 7 16 100 a 5*+-&7e |
+-------------------------------------------------------------------------+
17