Professional Documents
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Aud Prac Prelims
Aud Prac Prelims
Item 1
On the basis of the audit evidence gathered and evaluated, an auditor decides to increase the
assessed level of control risk from that originally planned. To achieve an overall audit risk level
that is substantially the same as the planned audit risk level, the auditor would
Item 2
In designing written audit programs, an auditor should establish specific audit objectives that
relate primarily to the
Score: 0 out of 1 No
Item 3
Which of the following procedures concerning accounts receivable would an auditor most likely
perform to obtain evidence in support of an assessed level of control risk below the maximum?
Response: [none]
Correct answer: Observing an entity’s employee prepare the schedule of past due accounts
receivable.
Score: 0 out of 1 No
Item 4
Tracing shipping documents to prenumbered sales invoices provides evidence that
Score: 0 out of 1 No
Item 5
Which of the following controls most likely would assure that all billed sales are correctly posted
to the accounts receivable ledger?
Correct answer: Daily sales summaries are compared to daily postings to the accounts receivable
ledger.
Score: 0 out of 1 No
Item 6
Which of the following most likely would not be considered an inherent limitation of the potential
effectiveness of an entity’s internal control?
Score: 0 out of 1 No
Item 7
A basic premise underlying the application of analytical procedures is that
Response: Plausible relationships among data may reasonably be expected to exist and continue in
the absence of known conditions to the contrary.
Correct answer: Plausible relationships among data may reasonably be expected to exist and
continue in the absence of known conditions to the contrary.
Item 8
Which of the following statements reflects an auditor’s responsibility for detecting
misstatements due to errors and fraud?
Response: An auditor should design the audit to provide reasonable assurance of detecting
misstatements due to errors and fraud that are material to the financial statements
Correct answer: An auditor should design the audit to provide reasonable assurance of detecting
misstatements due to errors and fraud that are material to the financial statements
Item 9
An auditor assesses control risk because it
Correct answer: Affects the level of detection risk that the auditor may accept.
Score: 0 out of 1 No
Item 10
To obtain audit evidence about control risk, an auditor selects tests from a variety of techniques
including
Response: Inquiry.
Item 11
An auditor should design the written audit program so that
Correct answer: The audit procedures selected will achieve specific audit objectives.
Score: 0 out of 1 No
Item 12
The audit program usually cannot be finalized until the
Correct answer: Consideration of the entity’s internal control has been completed.
Item 13
A primary objective of procedures performed to obtain an understanding of internal control is to
provide an auditor with
Item 14
In assessing control risk, an auditor ordinarily selects from a variety of techniques, including
Score: 0 out of 1 No
Item 15
Which of the following controls most likely would be effective in offsetting the tendency of sales
personnel to maximize sales volume at the expense of high bad debt writeoffs?
Response: Employees involved in the credit granting function are separated from the sales
function.
Correct answer: Employees involved in the credit granting function are separated from the sales
function.
Item 16
What type of analytical procedure would an auditor most likely use in developing relationships
among balance sheet accounts when reviewing the financial statements of a nonpublic entity?
Score: 0 out of 1 No
Item 17
Professional skepticism requires that an auditor assume that management is
Item 18
Which of the following is a cut-off test?
Response: Selecting a sample of bad debts written off after the year-end and agreeing to sales
invoices dated before the year-end.
Correct answer: Selecting a sample of delivery notes around the year-end and agreeing to sales
invoices to ensure they are included in the appropriate period.
Score: 0 out of 1 No
Item 19
Which of the following pairs of accounts would an auditor most likely analyze on the same
working paper?
Item 20
Accounting for the numerical sequence of dispatch notes used in tracing will primarily meet the:
Item 21
Use of an authorised price list in preparing the sales invoices meets primarily the:
Item 22
In considering materiality for planning purposes, an auditor believes that misstatements
aggregating P10,000 would have a material effect on an entity’s income statement, but that
misstatements would have to aggregate P20,000 to materially affect the balance sheet. Ordinarily,
it would be appropriate to design auditing procedures that would be expected to detect
misstatements that aggregate
Response: P20,000
Score: 0 out of 1 No
Item 23
Which of the following procedures would an auditor most likely include in the planning phase of
a financial statement audit?
Item 24
Evaluate design effectiveness of controls Confirm whether controls have been placed in
Operation
Item 25
In the processing of accounts receivable confirmations the auditor would not normally be
expected to:
Response: [none]
Score: 0 out of 1 No
Item 26
Which of the following statements is correct concerning the use of negative confirmation
requests?
Response: Negative confirmation requests are effective when understatements of account balances
are suspected.
Correct answer: Unreturned negative confirmation requests rarely provide significant explicit
evidence.
Score: 0 out of 1 No
Item 27
Which of the following is not a step in an auditor’s assessment of control risk?
Response: Consider whether controls can have a pervasive effect on financial statement assertions.
Correct answer: Perform tests of details of transactions to detect material misstatements in the
financial statements.
Score: 0 out of 1 No
Item 28
Which of the following procedures most likely would not be a control designed to reduce the risk
of misstatements in the billing process?
Response: Comparing control totals for shipping documents with corresponding totals for sales
invoices.
Correct answer: Reconciling the control totals for sales invoices with the accounts receivable
subsidiary ledger.
Score: 0 out of 1 No
Item 29
Which of the following audit risk components may be assessed in nonquantitative terms?
Item 30
During the initial planning phase of an audit, a CPA most likely would
Correct answer: Discuss the timing of the audit procedures with the client’s management.
Score: 0 out of 1 No
Item 31
The most difficult type of misstatement to detect is fraud based on
Score: 0 out of 1 No
Item 32
Which of the following is least likely to be evidence the auditor examines to determine whether
controls are operating effectively?
Item 33
An auditor obtains knowledge about a new client’s business and its industry to
Response: Understand the events and transactions that may have an effect on the client’s
financial statements.
Correct answer: Understand the events and transactions that may have an effect on the client’s
financial statements.
Item 34
When an auditor does not receive replies to positive requests for yearend accounts receivable
confirmations, the auditor most likely would
Response: Increase the assessed level of detection risk for the valuation and completeness
assertions.
Correct answer: Ask the client to contact the customers to request that the confirmations be
returned.
Score: 0 out of 1 No
Item 35
The risk that an auditor will conclude, based on substantive tests, that a material misstatement
does not exist in an account balance when, in fact, such misstatement does exist is referred to as
Score: 0 out of 1 No
Item 36
When issuing an unqualified opinion, the auditor who evaluates the audit findings should be
satisfied that the
Response: Estimate of the total likely misstatement includes the adjusting entries already recorded
by the client.
Correct answer: Estimate of the total likely misstatement is less than a material amount.
Score: 0 out of 1 No
Item 37
In testing the existence assertion for an asset, an auditor ordinarily works from the
Item 38
A key control environment factor in reducing the risk of fraudulent financial reporting through the
overstatement of sales and accounts receivable is:
i. Management's adoption and adherence to high standards of integrity and ethical values.
ii. Reducing the emphasis on sales targets.
iii. Establishing an effective audit committee.
Score: 0 out of 1 No
Item 39
Which of the following would an auditor most likely use in determining the auditor’s
preliminary judgment about materiality?
Score: 0 out of 1 No
Item 40
An auditor uses the knowledge provided by the understanding of internal control and the assessed
level of the risk of material misstatement primarily to
Response: Determine the nature, timing, and extent of substantive tests for financial statement
assertions.
Correct answer: Determine the nature, timing, and extent of substantive tests for financial
statement assertions.
Item 41
Which of the following controls most likely would reduce the risk of diversion of customer
receipts by an entity’s employees?
Item 42
To enhance controls in the credit sales area, the warehouse should be instructed not to release
goods until:
Item 43
Before assessing control risk at a level lower than the maximum, the auditor obtains reasonable
assurance that controls are in use and operating effectively. This assurance is most likely obtained
in part by
Item 44
An attitude that includes a questioning mind and a critical assessment of audit evidence is referred
to as
Item 45
As the acceptable level of detection risk decreases, the assurance directly provided from
Item 46
In relation to materiality, which of the following statements is most accurate?
Response: Bad debts expense is sometimes material to the profit and loss of entities that sell on
credit.
Correct answer: Accounts receivable produced by credit sales transactions are material to the
balance sheet for all businesses except those with cash sales.
Score: 0 out of 1 No
Item 47
During the consideration of a small business client’s internal control, the auditor discovered that
the accounts receivable clerk approves credit memos and has access to cash. Which of the
following controls would be most effective in offsetting this weakness?
Response: The owner reviews errors in billings to customers and postings to the subsidiary ledger.
Correct answer: The owner reviews credit memos after they are recorded.
Score: 0 out of 1 No
Item 48
Which of the following controls most likely would help ensure that all credit sales transactions of
an entity are recorded?
Response: The accounting department supervisor controls the mailing of monthly statements to
customers and investigates any differences reported by customers.
Correct answer: The billing department supervisor matches prenumbered shipping documents with
entries in the sales journal.
Score: 0 out of 1 No
Item 49
Which of the following audit procedures would an auditor most likely perform to test controls
relating to management’s assertion concerning the completeness of sales transactions?
Response: Verify that extensions and footings on the entity’s sales invoices and monthly
customer statements have been recomputed.
Correct answer: Inspect the entity’s reports of prenumbered shipping documents that have not
been recorded in the sales journal.
Score: 0 out of 1 No
Item 50
After obtaining an understanding of internal control and assessing the risk of material
misstatement, an auditor decided to perform tests of controls. The auditor most likely decided that
Response: It would be efficient to perform tests of controls that would result in a reduction in
planned substantive tests.
Correct answer: It would be efficient to perform tests of controls that would result in a reduction in
planned substantive tests.
Item 51
In the context of an audit of financial statements, substantive tests are audit procedures that
Correct answer: May be either tests of transactions, direct tests of financial balances, or analytical
tests.
Score: 0 out of 1 No
Item 52
Which of the following procedures would an auditor most likely perform in planning a financial
statement audit?
Response: Examining computer generated exception reports to verify the effectiveness of internal
control.
Score: 0 out of 1 No
Item 53
In obtaining an understanding of an entity’s internal control relevant to audit planning, an
auditor is required to obtain knowledge about the
Response: Controls related to each principal transaction class and account balance.
Score: 0 out of 1 No
Item 54
Which of the following statements is not correct about materiality?
Correct answer: An auditor considers materiality for planning purposes in terms of the largest
aggregate level of misstatements that could be material to any one of the financial statements.
Score: 0 out of 1 No
Item 55
Response: Yes No
Score: 0 out of 1 No
Item 56
Upon receipt of customers’ checks in the mailroom, a responsible employee should prepare a
remittance listing that is forwarded to the cashier. A copy of the listing should be sent to the
Response: Accounts receivable bookkeeper to update the subsidiary accounts receivable records.
Correct answer: Accounts receivable bookkeeper to update the subsidiary accounts receivable
records.
Item 57
As the acceptable level of detection risk decreases, an auditor may
Response: Lower the assessed level of control risk from the maximum level to below the
maximum.
Correct answer: Postpone the planned timing of substantive tests from interim dates to the year-
end.
Score: 0 out of 1 No
Item 58
Control risk should be assessed in terms of
Score: 0 out of 1 No
Item 59
Sound internal control dictates that immediately upon receiving checks from customers by mail, a
responsible employee should
Item 60
Which of the following is not a basic procedure used in an audit?
Item 61
When an auditor increases the assessed level of control risk because certain control activities
were determined to be ineffective, the auditor would most likely increase the
Item 62
In determining whether transactions have been recorded, the direction of the audit testing should
be from the
Response: Original source documents.
Item 63
An auditor tests an entity’s policy of obtaining credit approval before shipping goods to
customers in support of management’s financial statement assertion of
Response: Completeness.
Score: 0 out of 1 No
Item 64
Regardless of the assessed level of control risk, an auditor would perform some
Response: Substantive tests to restrict detection risk for significant transaction classes.
Score: 0 out of 1 No
Item 65
An auditor most likely would limit substantive audit tests of sales transactions when control risk
is assessed as low for the occurrence assertion concerning sales transactions and the auditor has
already gathered evidence supporting
Item 66
Which of the following is least likely to be considered a risk assessment procedure?
Item 67
The objective of tests of details of transactions performed as substantive tests is to
Item 68
In which of the following circumstances would the use of the negative form of accounts
receivable confirmation most likely be justified?
Response: A small number of accounts may be in dispute and the accounts receivable balance
arises from sales to many customers with small balances.
Correct answer: A small number of accounts may be in dispute and the accounts receivable
balance arises from sales to many customers with small balances.
Item 69
Response: No No
Score: 0 out of 1 No
Item 70
A procedure that involves tracing a transaction from its origination through the company’s
information systems until it is reflected in the company’s financial report is referred to as a(n)
Score: 0 out of 1 No
Item 71
Which of the following procedures would an auditor most likely perform for yearend accounts
receivable confirmations when the auditor did not receive replies to second requests?
Response: Inspect the shipping records documenting the merchandise sold to the debtors.
Correct answer: Inspect the shipping records documenting the merchandise sold to the debtors.
Item 72
Which of the following factors most likely would influence an auditor’s determination of the
auditability of an entity’s financial statements?
Item 73
Confirmation is most likely to be a relevant form of evidence with regard to assertions about
accounts receivable when the auditor has concerns about the receivables’
Response: Existence.
Item 74
Which of the following procedures most likely would provide an auditor with evidence about
whether an entity’s internal control activities are suitably designed to prevent or detect material
misstatements?
Response: Observing the entity’s personnel applying the activities.
Item 75
Which of the following is most likely to be unique to the audit work of CPAs as compared to
work performed by practitioners of other professions?
Response: Competence.
Score: 0 out of 1 No
Item 76
Which of the following factors would most likely cause a CPA to decide not to accept a new audit
engagement?
Response: The CPA’s lack of understanding of the prospective client’s internal auditor’s
computer-assisted audit techniques.
Score: 0 out of 1 No
Item 77
Proper authorization of writeoffs of uncollectible accounts should be approved in which of the
following departments?
Response: Treasurer.
Item 78
After assessing control risk, an auditor desires to seek a further reduction in the assessed level of
control risk. At this time, the auditor would consider whether
Correct answer: Additional audit evidence sufficient to support a further reduction is likely to be
available.
Item 79
Which of the following is the best example of a substantive test?
Response: Examining a sample of cash disbursements to test whether expenses have been properly
approved.
Score: 0 out of 1 No
Item 80
Holding other planning considerations equal, a decrease in the amount of misstatement in a class
of transactions that an auditor could tolerate most likely would cause the auditor to
Response: Perform the planned auditing procedures closer to the balance sheet date.
Correct answer: Perform the planned auditing procedures closer to the balance sheet date.
Item 81
Which of the following is not a financial statement assertion relating to account balances?
Item 82
Which of the following procedures would an auditor most likely perform to test controls relating
to management’s assertion about the completeness of cash receipts for cash sales at a retail
outlet?
Response: Compare the cash balance in the general ledger with the bank confirmation request.
Correct answer: Observe the consistency of the employees’ use of cash registers and tapes.
Score: 0 out of 1 No
Item 83
When a customer fails to include a remittance advice with a payment, it is common practice for
the person opening the mail to prepare one. Consequently, mail should be opened by which of the
following four company employees?
Response: Receptionist.
Item 84
An auditor should perform alternative procedures to substantiate the existence of accounts
receivable when
Item 85
Audit programs should be designed so that
Correct answer: The audit evidence gathered supports the auditor’s conclusions.
Score: 0 out of 1 No
Item 86
Inherent risk and control risk differ from detection risk in that they
Item 87
Verifying the accuracy of the accounts receivable trial balance relates to the:
Response: Completeness assertion.
Score: 0 out of 1 No
Item 88
An auditor suspects that certain client employees are ordering merchandise for themselves over
the Internet without recording the purchase or receipt of the merchandise. When vendors’
invoices arrive, one of the employees approves the invoices for payment. After the invoices are
paid, the employee destroys the invoices and the related vouchers.
In gathering evidence regarding the fraud, the auditor most likely would select items for testing
from the file of all
Item 89
In most credit sales audits, on what is the auditor's concern over sales adjustment transactions
based?
Correct answer: The potential use of these transactions to conceal a theft of cash.
Item 90
Which of the following are considered further audit procedures that may be designed after
assessing the risks of material misstatement?
Score: 0 out of 1