ReSA The Review School of Accountancy B® Tel No. 735.9807 & 734-3959 / (0810) 439-1320 resarevew@hotmar.com AUDITING THEORY .. JMI+ FDY + MBN + FCT Auditing Theory — Review Questions 2 INSTRUCTIONS: Select the letter ofthe best ansvier 1. The most likely explanation why the auditor's examination cannot reasonably be expected to bring all legal acts by the client to the auditors attention is that 2, Illegal acts are perpetrated by management override of intern control. b. egal acts by clients often relate to cperating aspects rather than accounting aspects. The client's internal control may be so strong thal the aucitor performs only minimal substantive testing. Illegal acts may be perpetrated by the only perso in the clent’s organization with access to both assets and the accounting records. 2. The auditor shouldtest the client's physical inventory report by tracing test counts taken by the auditor to the Client's physical inventory count. Which assertion is affected by this test? 2. Completeness b. Existence Rights and obligations d. Valuation 3. The following services are subject to the Engagement Standards applicable to assurance engagements, except: a. Assertion-based assurance engagements «. Reviews of historical financial information . Audits of historical financial information d_ Management consulting services 4. Aside from engagement standards, the AASC issues documents which aim to provide interpretive guidance and practical assistance to professional accountants in implementing Philippine Standards on Auditing and to promote good practice. These are known as: ‘a. PAPSS: c. PAEPSS b. PREPSs PREPS ‘The generally accepted auditing standards established by she Auditing and Assurance Standards Council (AASC) appiy: ‘a. Only to the PICPA membership. €. Only to thase who choose to follow them, b. To all CPAs. 4. Only when conducting audits. 6. When gathering evidence regarding inventory, the auditor would begin with the client's physical inventory listing _and compare to the auditor's test count. Which assertion would he tested by this procedure? ‘a. Rights and obligations b. Existence c. Completeness d. Classification and understandability 7. The Lexy Corporation buys and sells handbags. In Year 1, the average number of days that it took to sella handbag was 14. In Year 2, because of the downturn in the 2 onomy, the average number of days that it took to sell a handbag rose to 25. Which of management's assertions about the balance beiny reported as inventory on the company’s balance sheet would be of most concern to the independent auditor? a. Presentation b. Valuation cc. Existence d. Completeness 8. Which of the following is mandatory if the auditor 1s to comply 2th PSAs a, Possession of adequate technical training b. Confirmation of material accounts receivable balances. C_ Use of statistical sampling, to the extent practicable, on audit c . Use of analytical review on audit work. 9. Professional experience is an important aspect of the training and proficiency of the junior assistant just entering upon an auditing career. Professional experience should be obtained: . ’a. With proper supervision and review of work by 3 more experienced supervisor, b. Through a thorough study of the generally accepted auditing standards. By completing @ number of continuing education courses each yrar d._ By taking appropriate professional certification exans (2018) ReSA. The Review School of Accountancy ATQ-2ReSA: The Review School of Accountancy = ‘Auditing Theory Quiz 2 ATQ-2 10. Que avatt care requires the auditor to: 2. Apply judgment In a conscientious manner, carefully decision. Ensure that the financial statements are free from error. ‘Make perfect judgment decistons in all cases. Possess skills clearly above the average for the profession. weighing the relevant factors before reaching a aces 11. Which statement is incorrect when auditing in a CIS environment? ’2.. The auditor should consider how a CIS environment affects the audit. b.ACIS environment exists when a computer of any type or size fs involved in the processing by the entity of nancial information of significance to the audit, whether that computer is operated by the entity or by @ third party. c. The use of a computer changes the processing, storage and communication of financial information and ‘may affect the accounting and internal control systems empioyed by the entity. 4. ACIS environment changes the overall objective and scope “fan audit. 12. The attitude of professional skepticism involves: "2. Recognizing that circumstances may exist which cause the financial statements to be materially misstated. . Expecting to find evidence to support management's representations and assume that they are necessarily correct. c. Searching primarily for fraud in the audit of financial statements. 4. Harboring an outlook of utter disbelief in everything that management is saying. 13, The ethical requirement on professional competence and due care recognizes that regardless of how capable an individual may be in other fields, the individual cannot meet the requirements of the auditing standards without the proper: ‘2. Business and finance courses. Education and experience in auditing. b. Quality control and peer review. d. Supervision and review ski. 14. Alice, CPA, has been retained to audit the financial statements of Argelyn Co. Argelyn's predecessor auditor was Rhea, CPA, who has been notified by Argelyn that Rhea's services have been terminated. Under these Circumstances, which party should inate the communications between Alice and Rhea? a. Alice, the successor auditor. ‘c._Argelyn’s controller or CFO b. Rhea, the predecessor auditor. d._The chairman of Argelyn's BOD. 15. The engagement letter: ‘a. Does affect the CPA firm's responsibilty to external users of audited financial statements. b. Can affect legal responsibities to the client. . Can be used to alter the auditor's responsibitties under PSAs. ._ Ie useful only if it is an engagement, but has no effect for review or compilation services. 16. $1. PSA 300 applies only to intial audits. $2 An intial audit normally requires more time in obtaining an understanding of the entity and its environment. 53 An initial audit requires consideration of internal onntrol, while @ recurring audit does not require such consideration. a. Tne, true, true, «Fae, tue, fale. b. True, true, false. 4. False, fase, false, 17. Which of the following is not one of the three main reasons why the auditor should property plan engagements? ‘a. To help keep audit costs reasonable. b. To avoid misunderstandings with the client, Cc. To enabje the auditor to obtain sufficient competent evidence. d. To enable proper on-the-job training of employees. 18. In planning the work in an initial audit engagement, which of the following « the mast likely first step the auditor would perform? ‘2. understand the accounting system in use b. understand the client's business establish the engagement team 4. consider materiality and audit risk 19. $1. The auditor can predict Future events or conditions that may cause an entity to cease to continue as a going concer. $2. The significance of events or conditions which may cast doubt upon an entity's ability to continue as a going ‘concer cannot be mitigated by other factors. a. True, false Tue, true b. Fale, true 4. Fake, false ReSA, The Review School of Accountancy — Page 2 $B Tel. No. 735-9807 & 734-3989 / (0910) 439-1320 (0 ew ecenetmnar Coan ATQ2ReSA: The Review School of Accountancy Auditing Theory Quiz 2 ATQ-2 20. Which of the following procedures would a CPA ominaniy perform dunng the audit planning? ‘a. Discuss the type, scope and timing of the exaininatiun with clent’s management b. Review the client’s bank reconciliations, . Obtain client's representation letter d. Review and evaluate client’s internal control. 21. Which of the folowing is nat a document or record that should be examined ear? i" the engagement? a. Corporate charter and bylaws. b, Management letter. . Minutes of board of directors’ and stockivok 4. Contracts. sf meetings. 22. As a guidance for measuring the qualty ofthe performence of aM auctor, the auditor should refer to which of the following documents? a. PERS, Interpretations of PSAS b. PSAs, d. PAFSs. 23. In the context of an audit of financial statemers. analytical procedures are requrred to be performed: a. Atthe planning stage onty. b. At the planning stage and as a sutstanitive test At the planning stage andi at th= aut completion stage d. tthe planning stage, as a «0stantive test, aid at the audit completion stage. 24, $2. Analytical procedures ca- feplace tests of controls in gathering evidence to support the LESS THAN HIGH assessment of contre risk. S2_ Analytical processes are more effective than tests of details and transactions. a. True, fake c. True, true b. Fale, rue False, false 25, which of the following may cast significant doubt abou: the entity’s going concer assumption? ‘a. The entity heavily used long-term debt finaneing for invasterents 1n ionarlived assets. b. Non-compliance with capital or other statutory requirements ‘c. Favorable resolution of legal or regulatory proceedings against the entity. d. Repeal of existing legislation or government policy which adversely affects the entity 26. A requirement of the application of generally accepted austin, standards 1s for the auditor: ‘a. Not to obtain clients by solicitation. b. To undertake a proper study and evaluation of the existing internal control. C._ To charge fees fairly and in relation to time and cost of the engagement. 4. To mspect al fixed assets acquired dunng tie year 27. The ultimate concem of obtaining an understanding of the enlity and is environment, including its internal control, 's: The enforcement of the auditing firm’s quality contro: procedures. ‘Assurance regarding the sufficiency anc! appropriateness of auait evidence obtained. Consideration of how it affects the financial statements, taken as 2 whote. The pre-determination of the type of audit report to be rssued. 28, Audit risk has three components: inherent risk, contro! isk, end detection risk. The following statements pertain to these components. Which ane is incorrect” 2b. The acceptable level of detection risk is inversely celated to the combined assessed levels of inherent risk and control risk. b. The higher the assessment of inherent and contrat rks, the ioncr the detection risk that can be accepted by the auditor. c. Detection risk cannot be changed at the atritor's discret. GL. The auditor considers the combined assessments of inherent risk and contro risk in order to determine the level of detection risk which may be accepted. 20, The risk that the assertion contains material misstaterents that, when aggregated with misstatements in other assertions, could make the entire financial statements materially misstated, 6 known as: ‘a. Individual detection risk Inherent isk. b. Individual audit risk. Control risk 30. When auditing inventories, an auditor would feast likely venty that ‘a. The financial statement presentation of inventerim. appropriate 'b. Damaged goods and obsolete items have been properly accounted for All nventory owned by the client is on hand at the time of the count 4. The client has used proper inventory pricing ReSA, The Review School of Accountancy Page 3 ® Tel. No, 735-9807 & 724-3989 / (0910) 439-1326 -ATQ-2Bek: The Review School of Acar Acting Theory Qua 2 " ATQ-2 31. Select which of the following statements regarding the auditor's primary objective in performing procedures to ‘obtain an understanding of the internal contro! structure is correct: ‘a. The primary objective is to provide the auditor with evidential matter to use in assessing inherent risk. b. The primary objective is to provide the auditor with a basis for modifying tests of controls. c. The primary objective is to provide the auditor with knoviedge necessary for audit planning. d. The primary objective s to provide the auditor with an evaluation of the consistency of application of ‘management's polices. 32, S1. The auattor need not entity or assess all business risks; only those risks relevant to the engagement need to be considered. 'S2_Business risks usually do have financial consequences. a. True, false c. True, true b. False, true d. False, fase 33. Constraints on the availabilty of capital and credit: Do create business risks, but have no financial consequences. Do not create business risks, but do have financia' consequences. Do create business risks, and have financial consequences. Do not create business risks, and have no financial consequences. 34. Internal control is @ function of management, and effective control fs based upon the concept of charge and ‘discharge of responsibilty of duty. Which of the following is one of the overriding principles of intemal controf? ‘a. Responsibility for accounting and financial duties should be assigned to one responsible officer. . Responsibility for the performance of each duty must be fied. ‘c. _ Responsibilty for the accounting duties must be borne by the audit committee of the company. d. Responsibility for accounting activities and duties must be assigned only to employees who are bonded. 35. Which of the following would be least likely to be considered ian objective of the internal control structure? ‘a. Checking the accuracy and reliability of accounting data. b. Detecting management fraud. . Encouraging adherence to managerial policies. d. Safeguarding assets. 36. One of the auditor's major concerns is to ascertain whether the intemal control structure is designed to provide reasonable assurance that a. Profit margins are maximized, and operational efficiency is optimized. b. The chief accounting officer reviews all accounting transactions. . Corporate morale problems are addressed immediately ard effectively. d. Transactions are executed in accordance with management's general or specific authorization. 37:-The overall attitude and awareness of an entity's board of directors concerning the importance of the intemal control structure usually is reflected in its: ‘a, Computer-based controls. c Control environment. b. System of segregation of duties. 4. Safeguards over access to assets. 38, Momo Corp. is a manufacturer. Under the category of presentation and disclosure, completeness is an assertion that relates to inventory disclosure, Which of the following inventory balances would Momo Corp. NOT be required to disclose? 1. Work in process Ti. Raw materials, a. Tonly Both Fand I b. Tonly Neither T nor 11 39. To maximize independence, the director of internal auditing should report to the ‘a. Audit committee. Chief financial officer. b. Controtier. 4. Director of information systems. 40. Internal auditing often extends beyond examinations leading to the expression of an opinion on the fairness of financial presentation and includes audits of efficency, effectiveness, and ‘a, Internal control. Accuracy. b. Evaluation. 4. Compliance. 41, The best description of the scope of internal auditing is that it encompasses: ‘a. Primarily operational auditing. b. Both financial and operational auditing. Cc. Primarily the safeguarding of assets and verifying the existence of such assets. 4. Primarity financial auditing. ReSA. The Review School of Accountancy : Page 4 B® Tel, No. 735-9807 & 734-3989 / (0910) 439-1320 fs. 5 #38 Tnateom ATQ22eSA: The Review School of Accountancy ATQ-2 Auditing Theory Quiz 2 include procedures that pertain to physical controls over access to and use of assets and records ‘A departure from the purpose of such procecures 1s that: Access to the safe deposit box requites two oftic=s b. Only storeroom personnel and line supervisors fis arcess te the raw mateniais storeroom The miail clerk compiles a list of the checks reccvd m the incoming mat d. Only salespersons and sales supervisors ust sa'es department venicles, 12. “Contol actintes 43, Effective internal contro! requires organizational indepenston« ‘be impaired in which of the following situations? a. The internal auditors report to the audit commuttce of the board of directors, b. The controller reports to the vice president for productiwn The payroll accounting department reports to te chief arcountant. G.The cashier reports to the treasurer £ departments. Organizational independence would 44. Control procedures do not encompass: a. Comparison of assets with recorded accountabit b. Design and use of documents. ‘ . Proper safeguards over access to assets d. An internal audit function 445. Which of the following would contribute most to the sateguarding of assets? a. Access to computer facilities and récards is tmited to authorized personnel on an "as needed” bast. b. Training programs are conducted to develop competence of newly hired personne! Control and subsidiary accounts are reconciled on a regularly scheduled basis d. Blank stock of all purchase orders and sales wnucices aie nre-minabered, 446. Which of the following 1s not a valid concept of internal conto?” a. When one person is responsihle for all phases oF a transortunn, there should be a clear designation of that person's responsibilty . The recorded accountabity for assets should be compared vith the existing assets at reasonable intervals ‘and appropriate action should be taken it there ate differences. © Accounting control procedures may appropnately be appirxi on a test basis in some circumstances, 4. Procedures designed to detect errors anc iveaularites shouid be performed by persons other than those in a position to perpetuate regularities. 47. Which of the following statements is true? ‘a. Accounting for the sequence of pre-numbered cunvents is @ control procedure intended to achieve ‘specific control objectives related to validity. b. Incompatible functions are those that place avy perso. na pasttion to perpetuate errors or irregularities. If comparison reveals that the assets qa not agiee with the recorded accountability, it provided evidence of unrecorded or improperly recorded transactinns, {A chatt of accounts generally prepared in datail to enable the controller to pinpoint budget variance and trace it to a specific department or area of respansibiity 48. The frequency of the companson of recorded accounta! should be determined by: ‘a. The amount of assets without reference to te cost of the cow b. The nature and amount of the asset and the cas: 2 maki c. The cost of the comparison and whether ihe suscent intentional irrequlantties and/or defatcaticns, ‘The auditor in consultation with clent managervent f with assets (lor the purpose of safeguarding assets) comparison, loss results from unintentional errors o: 49. IT people controls are mostly a. Application, Corrective. ©. Generat, Detective. b. General, Corrective 4. General, Preventive 50. Of the following control environment characteristics, identity the one that contributes most to effective internal ‘a, The audit committee consists of the president, hws vice-presidents, and the corporate controller b. The company does not have a centralizes hurr esourzes function, c 4 ‘The company routinely transacts business with «elated artes ‘The company has an effective internai audit staff that ronitors controls on a continuous basis. 51. Adam Levine Challenge Manufacturing Corporation mass produces eight different products, The controller, who is interested in strengthening internal controls over the accounting for materials used in production, would be most likely to implement a(n): a. EOQ system. Perpetual inventory system. b. Job order cost accounting system, 6 System for segregation of duties. ResA, The Review School of Accountancy ~ Pages @ Tel, No. 725-9807 & 734-3989 / (0910) 439-1320 ATQ2ReSA The Review Schoo! of Accountancy Autieg Theory Quie 2 ATQ-2 52. During the review of a smatl business client's internal contol system, the auditor discovered that the accounts receivable clerk approves credit memos and has access to cash. Wihich of the following controls would be most effective in offsetting this weakness? ‘a. The owner reviews errors in billings to customers and postings te the subsidiary ledger, b. The controller recetves the monthly bank statement directly and reconciles the checking accounts. . The owner reviews credit memos after they are recorde! d. The controller reconciles the total of the deiali accounts recervable accounts to the amount shown in the ledger = 53. Competence of personnel ts necessary to proper reccraing o transactions and supports financial statements that are fairly presented. In reviewing the organization for necessary competence, which of the following job types ‘would be of least interest to the auditor? ‘3. Corporate controller. 1. Manager of electronic data processing b. Vice-president for marketing 4. Chief accountant 54, The most important aspect of any system of cont s Proper authorization procedures. Separation of duties, b. Competent, trustworthy personnel 1. Regular review by top management 55. A significant deficiency in the design or functioning ct the ternal control structure that could adversely affect an organizations abiity to record, process, surnmarize, ard report nancial data referred to as a(n): @. Material weakness in internal control. s. Reportable condition. ' Inherent lation of meal contre 3. anagement override 56. When an auditor tests the internal controls of a computerized accounting system, which of the following is true of the test data approach? Test data are coded to a dummy subsidiary so they can be extracted trom the system under actual operating conditions, b. Test data programs need not be tailor-made by the audltor for each cients computer applications. © Test data programs usually corsist cf alheoseible Vx! and snvaid conditions regarding compliance with internat controls. 4. Test data are processed with the clients computer and she results are compared with the auditor's predetermined results, 57. A secondary result of the auditor's consideration of the internai ntrol structure is that the consideration may: 8. Provide a basis for determining the nature, timing, and extent of audit tests. b. Assure that management's procedures to detect regularities are properly functioning Bring to the auditor's attention possible reportable corahtions d. Develop evidence to support the assessed fevel of contro! tk. 58. Which of the following best describes an inherent ionitation tha! shoud be recognized by an auditor when considering the potential effectiveness of ar inte vucture? ‘a. Procedures whose effectiveness depends on segregation of duties can be circumvented by collusion, b. The competence and integrity of chent personnel provide an environment conducive to control and provides assurance that effective contro! will be achieved. c. Procedures designed to assure the execution and recording of transactions in accordance with proper authorizations are effective against irregularties perpetrated by inanagement. 4. The benefits expected to be derived from effect. niternai control usually do not exceed the costs of such. 59. PSA 330 requires the auditor to determine overall responses to ailrase the risks of material misstatement at the financial statement level. These include: a. Emphasizing to the audit team the need to maintain professionat skepticism in gathering and evaluating audit evidence. . b. Assigning more experienced staff or those with specie! «kil Or using experts . Incorporating additional elements of unpredictabil:y in the selection cf further audit procedures. d.Allof the answers. " 60. Based on the results of tests of controls, an auctor decides to perfonn tests at an interim date, giving rise to an increased risk that errors may not be detected at the talance sheet date, This sk is known as: a. Individual audit risk, Tecemental risk. b. Incidental risk Irian testing sk 61. When considering internal controls, the indepencten’ ausditcr is primarily concerned with: ‘a. Detecting all errors, b. Determining compliance with poles, plaiss, ant procedures. c. Assessing the level of control risk. d. Determining its efficiency. ReSh, The Review School of Accountancy sage 6 Tel No. 735-9807 & 734 3989 / (0910) 434-1320 ATQ-2feSA: The Review Schoo! of Accountancy ATQ-2 Auciting Theory Quiz 2 _. 62. $1; To pent effective planning of the audit, the auditor musi have an understanding of the internal contiot structure. AS part of understanding the internal contro} structure, the auditor is required to ascertain ‘whether internal control structure polies and procedures have: been placed in operation, 82: To permit effective planning of the audit, the autor must have an understanding of the internat control nal contict structure, the auditor required to consider factors structure, As part of understanding the int that affect the risk of material nusstatemtent, a. True, true fc. Hake, true b. True, false a. False, false 3. An auditor should consider the cost of a control in relzivonsiip to the benefits of reducing risk. Which of the following controls best reflects this philosophy for a large peso investment in heavy machine tools? ‘a. Internal control policy must require that "two security personnel should patrol the entrance to the machining room in 12-hour shifts, a morning/afterronn sivft ang 2 graveyard shift.” b. Identification numbers must be imprinted eng, 2ve:/emboseed on each too! for internat control purposes. Retirements and disposals of machine tools must be approved by all members of management and those charged with governance, d, Physical count of heavy machine tools must P= done every third working day. (64. $1: In the process of obtaining an understanding of an entity's int2enai control in a financial statement audit, the auditor not obligated to determine whether the control procedures have been placed in operation. the process of obtaining an understanding of an entity’ witenal control n a financial statement audit, the auditor not obligated to perform procedures to understarid the design of the internal control Policies. n the process of obtaining an understanding of an entity’ ternal controt in a financial statemient audit, the auditor 1s not obligated to search for significant veficencies in the operation of the internal control, a. Thue, false, false. (. Fa'se, fae, true b. True, true, false. 1 False, false, faise 65. SizAn auditor uses the knowledge provided by 2h understanding of internal control and the final assessed level of control risk primarily to determine tne nature. timing and extent of the substantive tests. in auditor uses the knowledge provided by the understanding of internal control and the final assessed level of control risk primarily to determine the nature, timing and extent of the tests of control. | auditor uses the knowledge provided by the understanding of internat control and the final assessed level of control risk primaniy to determine the nature, tning aud extent of the compliance tests, a. False, true, false «False, false, false 82: b. True, true, true aa, false, false 66. The term testing alludes to the concept of a. A guarantee. Accuracy. b. Acertficate. . Senpiing 67. In general, material irregularities perpetrated by which of the following are most difficult to detect? a. Internal auditor situated at the 3rd floor Cashier situated at the Sth floor. b. Keypunch operator situated at the 10th floor 4d. Controller situated at the 2nd floor. 68. Which of the following statements 1s not true regarding the sppropniateness of audit evidence? ‘a. Relevance is enhanced by an effective informatior: systen’ b. To be appropriate, evidence must be both val and retest Validity is related to the quality of the clent’s information a. Relevance must always relate to audit objectives, 69. Auditors often make use of computer programs that perforni routine processing functions such as sorting and merging. These programs are made available by electrome data processing companies and others and are specifically referred to as ‘a. Compiler programs. Supervisory programs. b. Utility programs. Jo Utlity programs. 70. Which of the following factors is most important concer sing an auctior's responsiblity to detect errors and fiauc! 3. The susceptibility of the accounting records i intentional _maninolations, alterations, and. the misapplication of accounting principles. b. The probability that unreasonable accounting extima*.s result from unintentional bias or intentional attempts to misstate the financiat statements c._The possibilty that management fraud, defelcatens and ‘usappropriation of assets may indicate the existence of illegal acts. 4. The risk that mistakes, falsifications, and omissions may cause misstatements. Ne financial statements to contain material Page 7 ReSA, The Review School of Accountancy ATQ-2 W Tel, No. 735-9807 & 734-3989 / (0910) 439 1320Aestag thes Gus’ ATQ-2 71, Which of the following conditions identified during feisvicrk of ai duit FS Most likely {0 affect the auditors assessment of the risk of misstatement due to fray! ‘a, Checks for significant amounts outstanding i b. Computer generated documents ©. Missing documents. d, Year-end adjusting journal entries, 72. The following statements have been ited from PSs 402, Auaie Consieratons Kelatng to Entiwes Using Service Ongameations. Select the incorrect statement @. The auditor should determine the sigaificar relevance to the audit engagemen b. If the client auditor uses the report of a service organization auditor, the auditor should consider making inquiries concerning that auditor's profussic taal competence in the context of the specific assignment undertaken by the service organization auditer The auditor of a service organization may nol be engaged to perform substantive procedures that are of use to a client auditor. d. When a client auditor uses a report from the autor nf a service organization, no reference should be made in the client auditor's report on the serv.ce organization, of service orsanizanon activities to the chent and the 73. In a cash disbursements cycle that empioys a voucher system, which of the following departments cancels or perforates the voucher package so that the voucher cannot he paid more than once and then mails the check to the vendor? a. Cash disbursements Purchasing b. Vouchers payable 4 Recelwing 74. May an auditor be engaged to report on management's written assertion as to the effectiveness of a company’s internal control structure? a. Yes, because such an engagement satishes all the five clements required in an assurance engagement under the Framework for Assurance Engagements, b. Yes, because a report on the effectiveness of the company's internal control structure is one of the two reports issued in a regular audit engagement. c.No, because the focus of the audiior in obtaining an utvderstanding of the internal control structure 1s to assess control risk, and not to express an opinion o> internal controls d, No, because reporting on internal controls deviate: fram the maior abjective of an audit engagement: the ‘expression of an opinion as to the fairness of tne finarisal statements. 75. ACPA'S consideration of the internal control structure (ICS) in a financial statement audit ‘a. IS usually more limited than that made in connection with an engagement to report on management's written assertion as to the effectiveness of the ICS. b. Is usually more extensive than that made in connection with an engagement to report on management's written assertion as to the effectiveness of the I c. Will usually be identical to that made in connection with an engagement to report on management's written assertion as to the effectiveness of the ICS. Will usually result in a report on management's w assertinn 2: to the effectiveness of the ICS. 76. An auditor should design the written audit program y7 that ‘A. All- material transactions will be selectad fo; substantive testi B. Substantive tests prior to the balance sheet date vril be minimized CC. The audit procedures selected will achieve specific aucit objectives, : D. Each account balance will be tested under either tests of controfs or tests of transactions. 77. Which of the following is the greatest advantage of @ iatahase system? ‘A. Data redundancy can be reduced. B. Backup and recovery procedures are sninimized, CC Multiple occurrences of data items are useful for cc’ 1. Conversion to a database system is inexpensive. and sstency checlang ‘an be accomplished quickly 78. Which of the following assertions is LEAST likely to be tastad exclusively at an‘interim date (before balance sheet date)? ‘A. Existence for inventory. ©. Valuation of trading securities B. Completeness of accounts receivable. D, Existence of fixed assets, 79. Evidential matter is generally considered to be sufficient when: ‘A. Itis appropriate. B. It has been obtained by random selection. CC It has the qualities of being relevant, objective anit free from known bias. 1D. There is enough of it to afford a reasonable hasis for an opunar ReSA, The Review School of Accountancy Page 8 @ Tel. No. 735:9807 & 734-3989 / (0910) 439-1520 ATQ-2eSA: The Review Schoo! of Acountancy Aueiting Theory Quiz 2 : ATQ-2 180. Which of the following statements Is incorrect regarding the apprceiateness of audit evidence? ‘A. Relevance is enhanced by an effective information system, B. To be appropriate, evidence must both be valid and relevant. Validity 1s related to the quality of the client's information system D. Relevance must ahvays relate to audit objectives. 81. The more the planned reliance of the auditor on the operating effectiveness of intemal controls, ‘A. The more the extent of the auditor’ tests of controls, B._ The less the extent of the auditor's tests of controis, . The more the reliance of the auditor on substentive prevedures, D. The less the reliance of the auditor on information senerated by the entity 82. The most difficult type of misstatement to detect « fraud based on ‘a. The over-recording of transactions, G. Recurded transactions in subsidiaries. b. The non-tecording of transactions, Gd, Related party receivables. '83. Computer programs and data that the auditor may use as part of the audit procedures to process data of audit significance contained in an entity's information system are called ‘a. DOOGs < BIS b. CARTS a STIRS 84. Which of the following is least concern by the auditor in austin an ent ancial statement? ‘A. Understatement of revenue, 8. Unintentional fraud, Misappropriation of liabilities by an entity emplayee D. Intentional error '85, Which of the following is correct regarding audit documentation? ‘A. The minimum assembly period (archiving) of the aud file is 60 days from the audit report date. B. The maximum retention period of audit documentation s 7 years from the audit report date. C. Both Aand B B. Neither A nor 8 _-. Rating: 79, 80. 81 82 83, 84, 85, ReSA, The Review School of Accountancy Page 9 @ Tel, No. 735-9807 & 734-3989 / (0910) 439-1320 ATQ-2