CHAPTER 1- ASSURANCE, AUDITING AND RELATED SERVICES

1. Assurance services differs from consulting services in that they

I. Focus in providing services.
II. Involve monitoring of one party by another.

a. I only
b. II only
c. Both I and II
d. Neither I and II

2. The criteria against which the subject matter of the assurance engagement is to be evaluated or
measured should possess which of the following characteristics?
RELEVANT CONCISE NEUTRAL
a. Yes No Yes
b. No Yes No
c. Yes No No
d. No Yes Yes
3. Criteria that are embodied in laws or regulations, or issued by authorized or recognized bodies
of experts that follow a transparent due process are called
a. Suitable criteria
b. Established criteria
c. Specifically developed criteria
d. General criteria
4. In an assurance engagement, the person or persons, either as individuals or representatives of
entity, responsible for the subject matter is the
a. Intended user
b. Responsible party
c. Professional accountant
d. Client
5. A practitioner’s assurance report contains the following conclusion:

“Based on our work described on this report, nothing has come to our attention that causes us to
believe that internal control is not effective, in all material aspects, based on ABC criteria”

What type of assurance engagement was performed?

a. Limited assurance engagement
b. Reasonable assurance engagement
c. Negative assurance engagement
d. Positive assurance engagement
6. In assertion-based assurance engagements, the evaluation or measurement of the subject
matter against criteria is performed by the
a. Intended users
b. Responsible party
c. Practitioner
d. AASC
7. A proposed assurance can be accepted when the practitioner’s preliminary knowledge about
the engagement circumstances indicates the relevant ethical requirements will be satisfied and
I. The subject matter of engagement is appropriate
II. The criteria to be used are suitable and are available to the intended users
III. The practitioner has access to sufficient appropriate evidence to support the conclusion
IV. The conclusion is to be contained in a written report
V. There is a rational purpose for the engagement

a. I, II and III only

b. I, II, IV and V only
c. I, II,III and IV only
d. I, II, III, IV and V

8. PSRE 2400 (Engagements to Review Financial Statements) as amended by the AASC in February
2008, applies to
a. Reviews of any historical financial information of an audit
b. Reviews of any historical financial information by a practitioner other than the entity’s auditor
c. Reviews of any historical financial information or other information by a practitioner other than
the entity’s auditor
d. Reviews of any historical financial information or other information of an audit client

9. In a review engagement, the practitioner performs which of the following?

Obtain an understanding Tests of Tests of
Of internal control Control transactions
a. Yes Yes No
b. Yes No Yes
c. No Yes Yes
d. No No No

10. An accountant who performs compilation engagement

a. Should read the compiled information and consider whether it appears to be appropriate in
from and free from obvious material misstatements
b. Should use his auditing expertise in testing the assertions underlying the compiled financial
information
c. Include in his report a listing of the procedures performed
d. Need not obtain an acknowledgement from management of its responsibility for the
appropriate presentation of the financial information

11. An auditor may accept an engagement to perform specific procedures on the specific subject
matter of specified elements, accounts or items of financial statements if
a. The report does not list the procedures performed
b. The financial statements are prepared in accordance with a special purpose framework
c. Use of the report is restricted
d. The auditor is also the entity’s continuing auditor
 12. An engagement to perform agreed upon procedures may involve the auditor in performing
certain procedures concerning
I. individual items of financial data
II. a single financial statement
III. A complete set of financial statements
a. I and II only
b. II and III only
c. I and III only
d. I, II and III only

13. The report on an agreed upon procedures engagement should contain

a. Identification on the purpose for which the agreed upon procedures were performed
b. An expression of positive assurance based on the specific procedures performed
c. A statement that the auditor is independent of the entity
d. Assure the future viability of the entity by expressing an opinion on the entity’s financial
statements
14. The auditor is required to comply with all PSAs relevant to the audit of an entity’s financial
statement. A PSA is relevant to audit when
i. The PSA in effect
ii. The circumstances addressed by the PSA exist
a. i only
b. ii only
c. either i or ii
d. both i and ii
15. The overall objectives of the auditor in conducting an audit of financial statements are
I. To obtain reasonable assurance about whether the financial statement as a whole are free from
material misstatement whether caused by fraud or error
II. To report on the financial statement
III. To obtain conclusive rather than persuasive evidence
IV. To detect all misstatements, whether due to fraud or error
a. I and II only
b. II and IV only
c. I, II and III only
d. I, II, III and IV only

16. The auditor is required to obtain reasonable assurance about whether the financial statement as
a whole are free from material misstatement whether caused by fraud or error. In all cases
when reasonable assurance cannot be obtained, the auditors report should contain a/an
a. Unmodified opinion
b. Qualified or adverse opinion
c. Qualified or disclaimer of opinion
d. Disclaimer of opinion
17. An audit in accordance with the PSAs is performed in the premise that management and, where
appropriate, those charged with governance have responsibilities that are fundamental to the
conduct of the audit. Which of the following is not one those responsibilities?
a. To comply with all relevant PSAs in the preparation and presentation of the entity’s
financial statements.
b. To provide the auditor with all information, such as records and documentation, and other
matters that are relevant to the preparation and presentation of the financial statements.
c. To provide unrestricted access to those within the entity from whom the auditor determines
it necessary to obtain audit evidence.
d. To design, implement, and maintain internal control relevant to the preparation and
presentation of the financial statements that are free from material misstatements whether
cause by fraud or error.
18. Professional judgment
a. Should be exercise in planning and performing an audit of financial statements but need not
be documented
b. Can be used as the justifications for the decisions made by the auditor that are not
supported by the facts and circumstances of the engagement
c. Is necessary in the evaluation of managements’ judgements in applying the entity’s
applicable financial reporting framework
d. Is not used in making decisions about materiality and audit risk
19. Independent auditing can be best 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 regulatory function that prevents the issuance of improper financial information
20. Which of the following best describes the reason why an independent auditor reports on
financial statements?
a. A poorly designed internal control system may be in existence
b. Different interests may exist between the company preparing the statements and the
persons using the statements
c. A misstatement of account balances may exist and generally corrected as the result of
independence auditor’s work
d. A management fraud may exist and it is more likely to be detected by independent auditors
21. Which of the following can be significantly affected by a financial statement audit?
a. Business risk
b. Information risk
c. Inherent risk
d. The risk-free interest rate
22. The following statements relate to internal auditing. Which is not correct?
a. Internal auditing is carried out within an entity by employees of the entity or by personnel
contracted for the purpose.
b. Internal auditing has become a function that evaluates and improves an organization’s risk
management, control and governance process to add value to the organization.
 c. The internal auditor’s judgements are subordinated to those of management
d. Internal auditing has evolved into a highly professional activity that extends beyond the
appraisal of the efficiency and effectiveness of an entity’s operation
23. Which of the following statements is not true in respect of the internal auditor?
a. The scope of audits performed by the internal auditor is primarily in respect of financial
report audits.
b. An internal auditor does not require a license to practice.
c. Internal auditors are usually employed by companies and government units.
d. Primary responsibility of the internal auditor is to the board of directors.
24. In performing an operational audit, the auditor primarily relies on which of the following
procedures?
a. Physical inspection
b. Analytical procedures
c. Inquiry and observation
d. Tracing and vouching
25. The term “efficiency” in performance auditing refers to
a. Using resources to maximize output for a given input, or to minimize input for any given
quantity and quality of output.
b. The achievement of intended results of operations, programs or activities.
c. The achievement of objectives within a specified time frame.
d. The acquisition of resources at appropriate times and within a specified time frame.
26. What is the proper organizational role of internal auditing?
a. To serve as an independent, objective assurance and consulting activity that adds value to
operations.
b. To assist the external auditor in order to reduce external audit fees.
c. To perform studies to assist in the attainment of more efficient operations.
d. To serve as the investigative arm of the audit committee of the board of directors.
27. Which of the following is considered a primary reason for creating an internal audit
department?
a. To evaluate and improve the effectiveness of control processes.
b. To ensure the accuracy, reliability, and timeliness of financial and operating data used in
management’s decision making.
c. To relieve management of the responsibility for establishing effective controls.
d. To safeguard resources entrusted to the organization.
28. Which of the following actions would be an appropriate response by companies to improve the
public’s perception of their financial reporting?
a. Increased adoption of audit committees
b. Keeping external and internal auditing work separated to maintain independence.
c. Requiring internal auditors to report all significant findings of fraud and illegal activity to the
company president.
d. None of the above.
29. In conducting an appraisal of the economy and efficiency with which company resources are
used, an internal auditor’s responsibility is to
a. Verify the accuracy of asset evaluation
 b. Review the reliability of operating information
c. Verify the existence of assets
d. Determine whether operating standards have been established
30. Internal auditors should review the means of physically safeguarding the assets from losses
arising from
a. Exposure to the elements
b. Underusage of physical facilities
c. Misapplication of accounting principles
d. Procedures that are not cost justified
31. An objective of performance audit is to determine whether an entity’s
a. Operational information is in accordance with government auditing standards
b. Specific operating units are functioning economically and financially
c. Financial statements present fairly the results of operation
d. Internal control is adequately operating as designed
32. What is the responsibility of an auditor who is engaged to audit the financial statements of a
government entity?
a. Assess control risk with respect to each component of internal control
b. Assume responsibility for assuring that the entity complies with applicable laws and
regulations
c. Obtain an understanding of the possible financial statement effects of laws and
regulations having direct and material effects on amount reported
d. Design the audit to provide reasonable assurance that the statements are free from material
misstatements resulting from illegal acts having direct or indirect effects.

CHAPTER 3- THE CPA’s PROFESSIONAL RESPONSIBILITIES

1. Which of the following fundamental principles prohibits association of professional accountants

with reports, returns, communications or other information that is believes to contain materially
false or misleading statement?
a. Integrity
b. Professional competence and due care
c. Objectivity
d. Confidentiality
2. A CPA provides audit services to a large company. Almost, eighty five percent of the CPA’s
revenues come from this client. Which statement is most likely to be true?
a. Appearance of independent may be lacking.
b. The CPA firm does not have the competence to perform the audit
c. The situation is satisfactory if the auditor exercises due skeptical negative assurance care in
the audit
d. This auditor should provide an “other matter paragraph to his/her audit report adequately
disclosing this information and then it may issue an unmodified opinion.
3. The following circumstances may create intimidation threat, except
a. A firm being threatened with dismissal from a client engagement
 b. A firm being pressure to reduce inappropriately the extent of work performed in order to
reduce fees
c. A firm being threatened with litigation by client
d. A member of the assurance team being, or having recently been, a director or officer of a
client.
4. If the fee quoted for professional service is so low, it may be difficult for the CPA to perform the
engagement in accordance with applicable technical and professional standards for that price.
This situation may create self interest threat to
a. Professional competence and due care
b. Objectivity
c. Integrity
d. Professional behavior
5. A close business relationship between a firm or a member of the assurance team and the
assurance client or its management, or between, the firm, a network firm, and financial
statement audit client may create
a. Self interest and intimidation threat
b. Self review and familiarity threats
c. Advocacy and self review threats
d. Self interest and self review threats

6. What threat to independence is created when the litigation support services provided to an
audit client include the estimation of the possible outcome and thereby affects the amounts or
disclosures to be reflected in the financial statements?
a. Self review threat
b. Advocacy threat
c. Intimidation threat
d. Familiarity threat

7. The recruitment of senior management for an audit client may create the following future or
current threats to independence, except
a. Self interest threat
b. Advocacy threat
c. Intimidation threat
d. Familiarity threat

8. Janus De Belen, CPA, was offered the engagement to audit the financial statements of Cobra Co.
for the year ended December 31, 2015. Janus had served as a director of Cobra Co. until
December 31, 2013 and his spouse currently own 1,000 of 200,000 outstanding shares of Cobra.
Janus disassociated from Cobra prior to being offered the engagement. Moreover, the
engagement does not cover any period that includes Janus association or employment with
Cobra. Under the Code of Ethics, Janus should
a. Decline the engagement because of his spouse’s stock ownership
b. Accept the engagement
c. Decline the engagement because he had served as a director
d. Accept the engagement because his spouse’s stock ownership is an indirect financial interest

9. A client company has not paid its 20X5 audit fees. According to the Code of Professional Ethics,
in order for the auditor to be considered independent with respect to 20X6 audit, the 20X5
audit fees must be paid before
a. 20X5 report is issued
b. 20X6 fieldworks is started
c. 20X6 report is issued
d. 20X7 fieldwork is started

10. As define in the Code of Ethics,________________ is the communication to the public of

information as to the services or skills provided by professional accountants in public practice
with a view to procuring professional business.
a. Advertising
b. Publicity
c. solicitation
d. Marketing professional services

11. As define in the Code of Ethics, _________________ is the communication to the public of facts
about professional accountants which are not designed for the deliberate promotion of that
professional accountants.
a. Advertising
b. Publicity
c. solicitation
d. Marketing professional services

12.A professional accountant in public practice is allowed to

a. Refer to, use or cite actual or purported testimonials by third parties
b. Publish services in billboard (e.g. tarpaulin, streamers, etc.) advertisements
c. Publish and compare fees with other CPA’s or CPA firms or compare those services with those
provided by another firm or CPA practitioner.
d. Inform interested parties through any medium that a partnership or salaried employment of
an accountancy nature is being sought.

13. The statement “Quality control policies and procedures should be relevant, adequate, effective
and complied with” is most closely associated with what quality control element?
a. Engagement performance
b. Leadership responsibilities for quality within the firm
c. Monitoring
d. Relevant ethical requirements

14. The implementation of quality control procedures that are applicable to the individual
engagement is the responsibility of the
a. CPA firm
b. Engagement quality control reviewer
c. Engagement team
d. Expert contracted by the firm in connection with the audit engagement

15. Fraud involving one or more members of management or those charged with governance is
referred to as
a. Management fraud
b. Employee fraud
c. Fraudulent financial reporting
d. Misappropriation of assets

16.What is one common way to conceal a theft?

a. By charging the stolen item to an expense account
b. By creating cash through inter-bank cash transfers
c. By stealing cash from customer a and then using customer B’s balance to pay customer A’s
account receivable
d. By the conversion of stolen assets into cash

17. When planning the audit, the auditor should make inquiries of management. Such inquiries
should address the following, except
a. Management’s assessment of the risk that the financial statements may be misstated due to
fraud
b. Management’s process for identifying and responding to the risk of fraud in the entity
c. Management’s consideration of how an element of unpredictability will be incorporated into
the nature, timing, and extent of the audit procedures to be performed
d. Management’s communication, if any, to those charged with governance regarding its processes
for identifying and responding to the risk of fraud in the entity
18. The following statements relate to communication f misstatements resulting from fraud to
management and to those charged with governance. Which is false?
a. The auditor not need bring to the attention of those charged with governance any material
weaknesses in internal control related to the prevention and detection of fraud
b. If the auditor has identified fraud, whether or not it results in a material misstatements in the
financial statements, the auditor should communicate these matters to the appropriate level of
management on a timely basis, and consider the need to report such matters to those charged
with governance.
c. If the auditor has obtained evidence that indicates that fraud may exist(even if the potential
effect on the financial statements would not be material), the auditor should not communicate
these matters to the appropriate level of management on a timely basis, and consider the need
report such matters to those charged with governance
d. The auditor’s communication with those charged with governance may be made orally or in
writing.
19. Which of the following matters will an auditor most likely communicate those charged with
governance?
 a. The level of responsibility assumed by management for the preparation of the financial
statements
b. The effects of significant accounting policies adopted by management in emerging areas for
which there is no authoritative guidance
c. A list of negative trends that may lead to working capital deficiencies and adverse financial ratios
d. Difficulties encountered in achieving a satisfactory response rate from the entity’s customers in
confirming accounts receivables.

CHAPTER 4- THE FINANCIAL STATEMENT AUDIT: CLIENT ACCEPTANCE AND PLANNING

1. Which of the following factors most likely would cause an auditor to decline a new audit
engagement?
a. Concluding the entity’s management probably lacks integrity.
b. An inability to perform preliminary analytical procedures before assessing control risk.
c. An inadequate understanding of the entity’s internal control
d. The close proximity to the end of the entity’s reporting period.

2. Before accepting an engagement to audit a new client, an auditor is required to

a. Obtain a copy of the financial statements.
b. Prepare a memorandum setting forth the staffing requirements and documenting the
preliminary audit plan.
c. Make inquiries of the predecessor auditor after obtaining the consent of the prospective client
d. Discuss the management representation letter with the client’s audit committee

3. In an audit based on Philippines Standards on Auditing (PSA’s), a successor auditor would

normally become satisfied with opening balances by
a. Performing analytical review procedures
b. Reviewing the predecessor’s working papers
c. Auditing the previous year’s working papers
d. Interviewing client personnel

4. The auditor shall agree the terms of the audit engagement with management or those charged
with governance, as appropriate. The agreed terms shall be recorded in a/an
a. Engagement letter
b. Letter of audit inquiry
c. Management representation letter
d. Confirmation letter

5. The following matters are generally included in an auditor’s engagement letter, except
a. The factors to be considered in determining the overall materiality
b. The fact that because of the test nature and other inherent limitations of internal control, there
is an unavoidable risk that even some material misstatements may remain undiscovered
 c. The scope of the audit
d. Management’s responsibility for the financial statements

6. The following are usually included in an auditor’s engagement letter, except

a. List of audit procedures to be used in inventory observation
b. The financial statements are the responsibility of the company’s management
c. A reference to PFRS
d. A reference to PSA’s

7. The auditor of a parent entity is also the auditor of its component. Which of the following
factors may influence the auditor’s decision whether to send a separate engagement letter to
the entity’s component?
a. Whether a separate auditor’s report is to be issued on the component
b. The components management does not accept its responsibilities that are fundamental to the
conduct of an audit
c. The financial reporting framework used by the component is unacceptable
d. The preconditions for an audit of the component’s financial statements are not present

8. Adequate planning helps to ensure that

a. Identify the clients reason for the engagement
b. Schedule engagement staff and auditor’s experts
c. Develop an overall audit strategy
d. Request that bank balances be confirmed

9. Which of the following statements concerning audit planning is incorrect?

a. Planning is a discrete phase of an audit
b. Planning is a continual and iterative process
c. In a recurring audit, planning often begins shortly after the completion of the previous audit and
continues until the completion of the current engagement
d. In planning an audit, the auditor considers timing of certain planning activities and audit
procedures that are to be completed prior to the performance of further audit procedure
10. In performing an audit of financial statements, the auditor should obtain a sufficient knowledge
of a client’s business and industry to
a. Develop an attitude of professional skepticism concerning management’s financial
statement assertions
b. Make constructive suggestions concerning improvements to the client’s internal control.
c. Evaluate whether the aggregation of known misstatements causes the financial statements
taken as a whole to be materially misstated
d. Understand the events and transactions that may have an effect on the clients financial
statements
11. Which of the following should be included in the audit plan?
I. The nature, timing, extent of planned risk assessment procedures.
II. The nature, timing and extent of planned further audi procedures at the assertion level.
a. I only
 b. II only
c. Both I and II
d. Neither I nor II
12. Which of the following matters would an auditor most likely consider when establishing scope
of the audit?
a. The expected audit coverage including the number and locations of the entity’s components
to be included
b. The entity’s timeable for reporting, such as interim and final stages
c. The discussion within an entity’s management concerning the expected communications on the
status of audit work throughout the engagement and the expected liverables resulting from
audit procedures
d. Audit areas where there is a higher risk of material misstatement
13. In the planning stage of an audit engagement, the auditor is required to perform audit
procedures to obtain an understanding of the entity and its environment, including its internal
control. These procedures are called
a. Risk assessment procedures
b. Substantive test
c. Test of controls
d. Dual purpose tests
14. Audit programs are modified to suit the circumstances of particular engagement. A complete
audit program should be developed
a. When the engagement letter is prepared
b. After obtaining an understanding of the control environment and control activities component
of the entity’s internal control.
c. After the auditor has obtained an understanding of the entity and its environment , including
its internal control and assessed the risk of material misstatement
d. Prior to beginning the actual audit work
15. In designing written audit programs, an auditor should establish specific audit objectives that
relate primarily to the
a. Selected audit techniques
b. Cost benefit of gathering audit evidence
c. Timing of audit procedures
d. Financial statements assertion

CHAPTER 7- AUDIT OBJECTIVES, PROCEDURES, EVIDENCE AND DOCUMENTATION

1. Audit evidence is a information used to draw reasonable conclusions on which to base the
auditors opinion. Audit evidence is obtained by performing
I. RIsk assessment procedures
II. Further audit procedures
a. Both I or II
b. either I nor II
c. I only
d. II only
2. Which of the following statements that relates to audit evidence is correct?
a. An audit usually involves the authentication of documentation
b. A given set of procedures may provide audit evidence that is relevant to certain assertions,
but not others.
c. Audit evidence obtained from independent external source is always reliable
d. An entity’s accounting records can be sufficient audit evidence to support the financial
statements

3. Which of the following statements concerning the use of assertions is correct?

a. The auditor may combine the assertions about transaction and events with the assertions
about account balances.
b. In every audit engagement, the auditor should use the assertions as described in the PSA 500,
i.e. the assertions should always fall into three categories: assertions about classes of
transactions and events , account balances, and preparation and disclosure.
c. There should always be assertion related to cutoff of transactions and events.
d. The completeness assertions deals only with whether all transactions and events should have
been recorded.

4. Which of the following statements concerning audit objectives is incorrect?

a. The auditor should resolve any substantial doubt about any of management’s material financial
statements assertion.
b. Selection of tests to meet audit objectives should depend upon understanding of internal
control.
c. There should be a one-to-one relationship between audit objectives and procedures.
d. Audit objectives should be developed in light of management assertions about the financial
statements elements.

5. The primary difference of an audit of balance sheet and an audit of income statement is that the
audit of income statements addresses the verification of
a. Cutoffs
b. Transactions
c. Authorizations
d. Costs

6. Which of the following forms of documentary evidence would be considered the most reliable
by an auditor?
a. Internally generated prenumbered
b. Easily duplicate
c. Prenumbered
d. Authorized by a responsible official

7. Which of the following elements ultimately determines the specific auditing procedures that are
necessary in the circumstances to affoed a reasonable basis for an opinion?
 a. Materiality
b. Audit risk
c. Audit judgement
d. Reasonable assurance

8. The auditor should apply analytical procedures

I. As risk assessment procedures
II. As substantive procedures
III. In the overall review at the end of the audit
a. I and II only
b. II and III only
c. I and III only
d. I, II and III

9. Which of the following might be detected by an auditor’s review of the entity’s sales cutoff?
a. Inflated sales for the year
b. Lapping of yearend accounts receivable
c. Unrecorded sales discounts
d. Excessive goods returned for credit

10. Cutoff tests designed to detect credit sales made before end of the year that have been
recorded in the subsequent year provided assurance about managements assertion of
a. Accuracy
b. Classification
c. Rights and obligations
d. Cutoff

11. An auditor most likely limit substantive audit test of sales transaction when control risk is
assessed as low for the occurrence assertion concerning sales transaction and the auditor has
already gathered evidences supporting
a. Beginning and ending inventory balances
b. Cash receipts and accounts receivable
c. Cutoffs of sales and purchases
d. Shipping and receiving activities

12. When using confirmations to provide evidence about the completeness assertion for accounts
payable, appropriate population most likely is
a. Amounts recorded in the accounts payable subsidiary ledger
b. Vendors with whom the entity has previously done business
c. Invoices filed on the entity’s pen invoice file
d. Payees of checks drawn in the month subsequent to the balance sheet date.

CHAPTER 12- PRACTICE EXAMINATIONS

1. When management has an adequate level of integrity for the auditor to accept the engagement
but cannot be regarded as completely honest in all dealings, auditor normally
a. Reduce acceptable audit risk and increase inherent risk
b. Reduce inherent and control risk
c. Increase inherent and control risk
d. Increase acceptable audit risk and reduce inherent risk

2. When planning an audit, the auditor’s assessed level of control risk is

a. Determined by using actuarial tables
b. Calculated by using audit risk models
c. An economic issue, trading off the costs of testing controls against the cost of testing balances
d. Calculated by using the formulas provided in the AICPA’s auditing standards

3. Which of the following is least likely to uncover fraud?

a. External auditors
b. Internal controls
c. Internal auditors
d. Management

4. When performing test of controls and test of transactions for sales, the auditor generally defines
the population as
a. All accounts receivable transactions for the year
b. All sales invoices for the year
c. All cash receipts transaction for the year
d. All sales invoice less sales return credit memos

5. Because of the importance of tests of controls and substantive test of transactions for
acquisition and cash disbursements, it is common in this area to use
a. Block sampling
b. Variables sampling
c. Attributes sampling
d. Probability proportional to the size sampling

6. A portion of client’s inventory is in public warehouses. Evidence of existence of this merchandise

can most efficiently be acquired through
a. Observation
b. Confirmation
c. Calculation
d. Inspection

7. A proof of cash is not useful in discovering differences in the actual and reported cash balances
due to
a. Deposit in transit
b. Collections on the company’s behalf by the bank which are deposited directly to the company’s
account
c. Cash receipt that were not recorded in the relevant journals
d. Service charges

8. Which of the following is not a purpose of a program audit as performed by government

auditors?
a. Determination of the extent to which the desired results established by the legislature are being
achieved.
b. Determination of the causes of inefficiencies is sponsored programs
c. Determination of the effectiveness of organizations, programs and activities.
d. Determination as to whether the entity has compiled with laws and regulations applicable to the
program.

9. Two overriding considerations affect the many ways an auditor can accumulate evidence:
I. Sufficient appropriate evidence must be accumulated to meet auditor’s professional
responsibility.
II. Cost of accumulating evidence should be minimized

In evaluating these considerations,

a. The first is more important than second

b. The second is more important than the first
c. They are equally important.
d. It is impossible to prioritize them.

10. Tolerable misstatement as set by the auditor

a. Decrease acceptable audit risk
b. Increases inherent risk and control risk
c. Affected planned detection risk
d. Does not affect any of the four risks

11. Application controls vary across the IT system. To gain an understanding of internal control for a
private company, the auditor must evaluate the application controls every
a. Audit area
b. Material audit area
c. Audit area in which the client uses the computer
d. Audit area where the auditor plans to reduce assessed control risk.

12. Which of the following types of procedures will be performed in an audit of internal control over
financing reporting?

Procedures to obtain an
Understanding of internal control Ratio Analysis
a. Yes Yes
b. No No
c. Yes No
d. No Yes

13. Place the following steps in their proper order:

1. Analyze exceptions
2. Select the sample
3. Define attributes and exception conditions
4. State the objectives of the audit test
5. Specify the tolerable exception rate

a. 1,3,2,4,5
b. 4,3,1,2,5
c. 4,3,5,2,1
d. 1,2,3,4,5

14. Which of the following statements is true?

a. Audit procedures on the sample item will vary as a result of using either statistical or
nonstatistical sampling.
b. The audit procedures will be the same for either statistical or non-statistical sampling but they
must performed differently for each
c. Statistical sampling requires quantitative audit procedures whereas nonstatistical sampling
requires judgemental audit procedures.
d. Audit procedures on the sample item will not vary as a result of using either statistical or
nonstatistical sampling.

15. If the client fails to record disposals of property, plant, and equipment both the original cost of
the asset account and the net book value will be incorrect.
a. Both will be overstated indefinitely
b. The original cost will be overstated indefinitely, and the net book value will be overstated
until the asset is fully depreciated
c. The original cost will be overstated indefinitely and the net book value will be understated
indefinitely
d. The original cost will be overstated indefinitely, and the net book value will be understated until
the asset is fully depreciated