DONE Poor CMR Balding ReSA 813 Gor. R Papa and S Loyola Sis The Review School of TE Accountancy ‘AUDITING THEORY, Mie FOV MBN > FCT ATPW-38: PRE’ K QUESTION oe oo ie 1, The Core Competencies of CPAS include: A fesrance and ormaten ep ._ satel an rea thnk BL Objectivity 1. Pursutt of lfe-fong tearring and excellence. \Whie of the folowing describes most completely how the profession defines independence? 'A. performing an aut from the public's pont of view . avoiding the appearance f a significant interest in an aucit client's interest resisting a client's reluctance to reveal evidence 5 aerepting sponatty to at professional and in accordance withthe professional Code of Conduct 3, What kind of threats are created by virtue of 2 close business relationship with assurance clients? ‘A. Self terest threat Self interest and self-review threat B,_Selrinterest anc intimidation threat (x) 1D. No threats are created. a ber of ym and a director, an officer or certain 4, Family aad personal relationships between a member of the assurance team and a director, a ‘employees, depencing on ther role, of the assurance cient, [least likelyjcreate A Selfinterest threat ‘C. Intimidation threat. 8. Seow treat D. Familanity teat. If fre, 0: retyrk frm, personnel providing such asslstance make manegémert deasions, the self-review threat Genta coud tbe raged tg an acceptable eve by any safeguards, Examples Of such managerial decsions ‘luge the ‘lowing fexcept A Beeman or eaenz mural ents, o the cessation for accounts or transactons or ater accounting records without cotaining the approval ofthe audit cents 8. huthonsng or approwng varsacton®. C._Prepanng source documents or onginstng data (Inducing decisions on evaluation assumptions), or Taking changes t such documents oF data b, Resisting an aud cert in recog account reconbation problems ‘The provision of accounting and bookkeeping services to audit cents in emergency or other unusual situations, When it Is impractical for the audit dient to make other arrangements, would not be considered to pose an : Unacceptable threat to independence provided: ‘A. The firm or network firm, does not assume any managerial role or make any managerial decisions, B. The audit dient accepts responsibilty for the results of the work ©. Personnel providing the services are not members of the assurance team. B. Alof the above, 7. Ifthe valuation services involves the valuation of matters material to the financial statements and the valuation Involves a significant degree of subjectivity, the se/-review threat created (choose the incorrect one) ‘A. Could not be reduced to an acceptable level by the applicabon of any safeguard. B. Could be reduced to an acceptable level by the application of safeguards, C. Such valuation services should not be provided. D. The assurance team should withdraw from the audit engagement, if the team opted to perform the valuation services. 8. Waste Managerment and Enron are classic cases wherein the media was eritical that auditors: ‘A. Were ignorant of the existing audit and assurance standards. B. Have fale to plan the auait engagements property €. Overooked suspicions of earnings management reported in the Wall Street Journal. D. Received significant consulting fees relative to auatt fees, 9. The Code of Professional\Ethics}would FnOst likely be violated if an auditor A Owms @ bulding and leases floor space to an assurance cent. B. Has an insured account wath a brokerage firm audit cent €._Isengaged by an auct cient to identy potential acquisitions, D. Screens candidates for an audit client's vacant contrallership pasion, 10. Peepay, CPA, is an audit manager of the Dom, Day and! Jordan, CPAs, accounting firm. He has just been assigned to the aucit of the Lugao Money Market Fund. Pupung has maintained a money market account with LMMF since (opened in 2005. All his savings, amounting to[75%Jof his total assets, are in this account, which pays the highest interest available in money market funds. However, his account constitutes only 0.00001 percent of the functs assets. 1s the aucit firm's independence impaired in this situation? Tigers jole A. Yes, Peopay Is considered a member of the assurance team, since he fs a manager and will provide ANGK services to LMMF, “The firm's independence is mpaited since Peepay holds a material Indirect ESA ~ The Review School of Accountaney = ‘BDBED ‘bEDAB Pageterie cpengr neon fore agaas AT-PW ree financial ite 6. Ne Doepy,slespe nga newbie a Mae ean atte toa “olds only OOOO percent of the funds fet. Hike finn ta interest hi CAM fs irelevani ti the «piostlon on mMlepenstenice BD. NO, Reepay, despite being a “inernber of th 1.4 eau” Nok ly 1.0000) percent of the fund's re Webs thes aa paitier Ws charge of the TAME enqagetnent Gabel ni Peepay) wha shoald be ‘Hector for any eieeet ot piatevia Wes | tne altered He ae ent (Nombers 11 10H tollew) CPX Ty's wile owns BO percent! the ordinary Troy to perforin Me aueht forthe calenntar yor eves! Dessetner JL, 2000. aves of xg Company, wed wants 1, May THoy pertonn the avait of Pagid Company for the calendar year ended December 31, 2000? 1K Yer, ices ys wae wt Hot troy, 1B. Yon, Bevan the Interest Pes than 0 pet ent an thereto G.No, ance Troy's sites ten DN, Toy Is conidered independent, 1 cattnibaner to hit, and he would not be independent interest conaiutes ayant aftuenie: and gives rh to an intinvdation threat. ince Taya 12, Assuine that Troy's wile gave her ststes fo thelr Uependknd] LO year old dauahte "Toy now perfena the asi of Pagal Conny for Uy -A. No, fer aston as Tiny to dna i 18. Yer because Troy keene convened Wiper Co, for as tong as Tiny fs 4 depen ci ©. Tiny, on July 1, 2009, May er $1, 2000 ve canvadered direct ance #4 he daughter wo naw ovine the shares, ‘he financial interest considered indirect. Yes, becatrie under the Code of Flies, the interest in Pugad Company is no longer relevant to Troy's decision wheter to accept or dectine the audit engagement 13, Assume farther that ty acting Neagle \yyroptiate custodian, sold the shares to her grandfather Lolo Dom fon August 1, 2009, His purchave, a an accommodation, took two-thirds of his retirement savings. May Dagul now pevfonn the alt of Pepi Company for ve calendar year ended! December 31, 2009? A Yes Hult only Lolo Donn not Troy's father (Ke, Lola Dorn Is Troy's father i law) 8 No._ The appearance of iniependencs Fs pated. Motcover, the grandfather's Investment is matertal (66,67 perce) in relation to his et Hinata resources, G_ Yes. Troy tiny now accept the engagement since there Is ao Hmpairment of independence. Lolo Bom, Is considered a non dependent cla Feathve. D. No. Themdependence i mental altitud® impairs, Moreover, the grandfather's investment is material (66,67 percent) in relation ti, Het financal resources, 14. On August 20, 200 financial |, Mar Uonate, CPA anu partner, warseffered and accepted the engagement to audit the aninual atements of ABC Corporation for te fal and calendar years ended December 31, 2009. The audit ‘began on September 15, 2009, and ended on March 17, 2010. ABC Corporation is regulated by the SEC. Bonafe served as cuntroies of ABC Corporation from November 5, 2002 until January 12, 2009, at which time he inated his employment wth ABC. ‘Bonates owned a mater amount of ABC Corporation's ordinary shares from November 5, 2002 unt! August 1, 2009, at which time Ive sokd the shares. Mar Bomafe in violation of the Code of Ethics due to impairment. of independence? A. Yes, because Mar Bonafe owned ABC shares a Hve start of the audit for December 31, 2008. B. Yes, because Mar Bonate served as a contol for ABC Corporation in previous years, Yes, because Mar Hoqate lid ait employment relationship with the éliert during part of the period covered by the funanclal state ‘Yes, because it sil fess than a year since Mar Bona has owned shares in ABC Corporation. ‘The provision of services by a fit oF sckwork fi fo an aut ent that involve the design and implementation ‘of financial information tedmology syste financial statements may most likely create A. SelFinterest threat. c B. Self review threat D. Fe ich the person providing) He serves Must ether be admmtted to practice Before the {hat are used to generate information forming part of a clients Intimidation threat Fomillanty threat das ssrcice leach 8 en psto ate he set 17. The recruitment of senior management (OL 40.9" ds Treen age ay Fest wey 73 ee ct he & Scie ahead € Antimedation threat. DB. Familanity threat, Pooe Se 95-9907 / 74498 / (0940) 498-1320 wat 2 WARPED “DReo TN Ae 19. Thisis the date te = Dal ete me Bitnarpractione® 0 3 B. Date of signing 20, Anetwork is: + Thats aimed at cooperation ‘+ That is clearly aimed at profit or cost-sharing or shares commonownership, control or management, common quality control policies and procedures, common business strategy, the use of @ common brand name, BF 2 significant part of professional resources Yes 21. The firm, shall establish policies and procedures designed to provide! engagements are performed it accordance with professional standards and regulatory {and that the Firm ortie engagement partner issue reports that are appropriate in the circu and procedures shall include: * ‘A. Matters relevant to pro pervsion responsibi view responsible the chavces. 1 auct work performed, the engagement partner: Must review all audit dacumentation review all audit documentation, but may do so. Need not review all audit documentation. Must ask the staff performing the auelt work to sign the audit report, parts of aust planning is pre-planning. Which ofthe following is OT involved) janning phase? Deciding wether to accept of continue tis client. Obtaining Information aboxt client's legal obligations ‘aff forthe engager ning an engagement letter of the following matters Is leas likely to be discussed in an engagement letter? |A. the fact that the financial statements are the responsibilty of management, 8. the fact that an auditor does not plan to detect material irregularities, C. assistance to be provided by client personnel ._ timing of the performance of the examination, To obtain an und ‘A. Perform tests of details of transactions and balances. B. Review prior-year working papers and the permanent file forthe client, CC. Read specialized industry Journals. D. Reevaluate cient’ internal control environment, ACPA may reduce the audit work on a first ime auditby reviewing the work The predecessor shoud part the Succes to ve WOFRAG Baper significance such as those that relate t0 ‘A. extent of reliance on the work of specialists, iG, B. fee arrangements and summaries of payments, ‘The following statements relate to auct programs, Which sat ‘A, The FRSC publishes a standard audit program and 8. The preparation of an audit program ls nok influe ‘Ap audit program would not contain documentation . The auait pian and relate program should no dsmfeSA: The Review Sch of Reourto%y AT-PW ating Theory: Preweek Questions ster evaluating they misatements the esimate Pov 2 er ln he eperoprate evidence fo accumulate Seca motealty ery dps he aio 2v0d leg habty so. whan ett teow decovenes by he adr woud NOT rage tered og cf inreased herent ih? : ment bonus ‘are based on a percentage of net income. eae eee 1t ratio of ut least three to one. ond ingentre requires 9 cue B.A ond neue egures roes acawatn and notes payable rater than buying and sling on ‘open-account bass 1D. Ghent is a parent company with a subsisiary 21 While pertorming an aud, Conrad, CPA, decides to resrict the risk of material misstatement to 3%, What must the acreptable level of detecton risk be if inherent risk is 25% and control risk is 40%? BL the estimate provides a vas A 0.3% C 30.0% B 12.0% D. 33.3% 32. Te reliance approach (aka: systems approach) to an audit fs least likely to be appropriate for: ‘A. Gients with weak intemal control. Clients in specialized industries. B.Glents that are large in size. 1D. Chents that are publicly listed. 33. One of the auditor's major concems is to ascertain whether the internal contro! structure is designed to provide reasonable assurance that ‘A. Profit margins are maximized, and aperational efficiency Is optimized. B. The chief accounting officer reviews all accountirg transactions. C. Corporate morale problems are addressed immediately and effectively, D._ Transactions are executed in accordance with management's general or specific authorization. 34, Which of the following would be least likely to be considered an objective of the internal control structure? ‘A. Checking the accuracy and reliability of accounting data. B. Detecting management fraud. C._ Encouraging adherence to managerial policies. D. Safeguarding assets. 35. Which of the following comes CLOSEST to outining the auditor's responsibilty for internal control on all financial statement audits? ‘A. An understanding of the control environment and the accounting system is necessary; an understanding of the control procedures is necessary for areas in which the auditor is performing tests of controls 8. The autor mist obtain an understanding ofeach ofthe ve internal contol elements Suen to plan a When tests of controls have been performed, control risk must be assessed at a level less than the maximum, D. An understanding of the control environment is necessary, but nat of the accounting system or control procedures upless control risk is to be assessed at a level less than the maximum. Fee ge ee KK Verify that the structure has been placed in operation. B. Replace tests of controls. ea cee eer aserater eemeeaetn te ceere seat cay einem boc aerate! sss neTe Ca Sea 37. Which of the folowing 1% an advantage of describing internal control th questionnaire? fough the use of @ standardized 'A. Questionnaires highlight weaknesses in the system. B. Questionnaires are mere flexble thas other methods of describing internal control Questionnaires usualy ident situarions in which internal control weak eae RU aoe eS are compensated for by D. Questionnaires provide a ceater aid more specific portrayal of a client's system than other describing internal control System than other methods of 38. The overall atitude and awareness of an entity's board of directors concerning the importance ‘contro! structure usualy 's reflected in is il ated ate li ‘A. Computer-based controks. © Control environment. 8. System of segregation of duties. D. Safeguards over access to assets. 39, Control procedures do not encompass: ‘A. Comparison of assets with recorded B. Design and use of documents. C. Proper safequards over access to asses D. An internal audit function. 40, This term means “to analyze identified risks to conclude on their significance”; A. Estimate. B. Assess, Measure D. Analyze. mntabty, Ri 4394 eSAB735-9007 | 734-3909] (9910) BEARD, ce, ae MC CADES™41, A deficlency in Internal control exists vinen A, Acontrol is designed, implemented or operated in such a way thatit is unable to prevent, or detect and correct, misstatements in thefinancial statements on a timely basis. A-control necessary to prevent, or detect and correct, misstatementsin the financial statements on timely basis is not missing, C. There is a deficiency or combination ofdeficiencies In internal control that, in the auditor’s professional Jucgment)s of sufficient importance to mest the attention of those charged withgavernance, D._AlOf these choices describe a deficiency in Internal control. 42, The auditor shall communicate significant deficiencies in intesmal control identified during the audit to those charged vith governance on a timelybasis, Such communication: ‘A. May be done orally or in wating B. Must be done orally. C. Must be in writing, D. IS not required by Philippine Standards in Auditing. 43. In order to ensure unbiased information, record-keeping Is typically included in a separate department under th ‘A. VPoperations —B, ‘Treasurer C. Controller D. Internal auditor 44, Transaction cycles begin and end ‘A. At the beginning and end of the fiscal period. B. At the balance sheet date _AtJanuary 1 and December 31 D. At the origin and final disposition of the company. 145, The authority to accept incoming goods in receiving should be based on a(n): ‘A. Vendor's invoice. ¢. Bill of lading, B. Materials requisition. D. Approved purchase order. 46. Input documents are typically the responsibility of the: A. User department that transmits the documents to accounting before processing, B, Accounting department which prepares and records them. Production and quality control department to see that they are prepared propery, . Computer department since they will have to be responsible for inputting them. 47. “Contr activites” include procedures that pertain to physical controls over access to and use of assets and records. A departure from the purpose of such procedures is that: e A Access to the safe-deposit box requires two officers B, Only storeroom personnel and line supervisors have access to the raw materials storeroom. The mail clerk compiles a list ofthe chacks received in the incoming mail D. Only salespersons and sales supervisors use sales department vehicles. 48. Effective internal control requires organizational independence of departments. Organizational independence would be impaired in which of the following situations? ‘A. The internal aucitors report to the audit committee of the board of directors. B. The controller reports to the vice president for production. C._ The payroll accounting department reports to the chief accountant. D. The cashier reports to the treasurer. 49, Which of the following statements is true? A. Accounting for the sequence of presnumbered documents is a control procedure intended to achieve Specific contro} objectives related to validity. 8, Incompatible functions are those that place any person in a position to perpetuate errors or irregularities. CC. _If comparison reveals that the assets do not agree with the recorded accountability, it provided evidence Of unrecorded or improperly recorded transactions. D. A chart of accounts is generally prepared in detail to enable the controller to pinpoint budget variance and trace it to a specific department or area of responsibilty. 50. The fequercy ofthe compara fected acuta wth ses or the pn : should be determined by: ie iM ‘ ee) ZA The ono fasts tout reference tthe cot ofthe compan B The nue ond amo othe Seton he eto mag te cepa, ©The nt ef the compare and wher he cen ons es rom unter ors or imental router solr ceestre D. The aston anstaton wih chon orogement 5. Which one ofthese is no at is nota type of evidence that would be used for both obtaining an understand Control structure and testing the controls? a A. Inquiries. B. Inspection, Observation. ©. Reperformance. iN error in which an item is posted i a Const en vial ent Sea 19 the wrong personal account, or the incorect calculation of an amount ‘A. Error of omission c 8. Error of commission fe Ten ero ©. Counterbalancing error ReSAR735-9807 / 734-3989 / (0910) 439-1320 ACTS “hee ce TSB, Page 5"'53. In the consideration of Internal control, the effectiveness of the design of controls is tested by A onehars sabstanave tests 8 Teasof cont B.Beasion tables s icy, re request done tthe same tne as ence Cuban tet of transactions 8 Complonce as Substantive tests of balances 55, The test for recorded sales for which there were no actual shipments, the auditor traces from the. ‘A. Bill of lading to the sales journal . Remittance advice 63. Sales order forms and invoice blanks should be controlled iit the: ‘A. Sales order section of the 5 los department. Credit manager in the credit department. 8. Bling clerk in the accounting department Sales manager in the sales deportment 64. Before goods are shipped on account. a Properly authorized person must: ‘A. Prepare the sales invoice. ©. Approve credit B. Approve the journal entry. D. Verity that the unit price is accurate, 5. wren One ofthe flowing is at an auditor's concern about a Key authorization point in the revenue/receipts cycle? > A, The receiving room must have authorization before releasin. 8. Credit must be authorized before the sale. C. Goods must be shipped after the authorization, ©. Prices must be authorized, 66. For most firms, the function of indi 1g Items to inventory control icating credit approval is recorded on the ‘A. Customer order B. Sales order © Sales invoice D. Remittance advice 67. A document prepared to initiate shipment of the goods sold is the: |A. Sales order 8. Bill of lading Sales invoice D. Customer order \2eSA%735-9807 / 734-3989 / (9910) 439-1320 C MASE TeAAAR DRA “AR Page 6Hae STN ST Us SY trillent stomer the BMOUN, Ch 8 SON FA Cue a oe ne anes invoice ‘A. Sales order et te oe ©. Shipping document». Sales sted to Y. What 69. When posting to the sales journal, details of a journal are pasted to X and journal totals are posted to ¥ (SX? What is y? y x Y : i sidiary ledger A Sales a ledger Sales account A subs ie AR master fle General esoer D. ARGLaccount Sales GLaccourt 70. The report which typically includes information analyzed by Key components as sales person, product, and territory is the: re master fll. A. Remittar Kc ©. Accounts receivable master 5 eee os 71, A file for recording indvival sles, cash rept, and sales returns and allowances fr each custome ' the: " ©. General ledger. Ea ae + DL Accounts receivable subsidiary ledger ing accounts receivable balance and the amount and 7 .- showing their beginning accounts receival nn 2 ate ol ae a ee to Sed reat memo issued, and the endng accounts recavale balance is the A. Accounts receivable subsidiary ledger. c Re 8. Monty statement 73. Which one of the following would the auditor's concern with when examining the billing function of the client? A. ll shipments made have been billed. 8. No shipment has been billed more than once. Each shipment has been billed for the proper amount, D. All of the above are of concern to the auditor. 74, To achieve good internal control, which department should perform the activites of matching shipping documents with sales orders and preparing daily sales summaries? “A. Billing B. Shioping ©. Credit D. Sales order 75. The document which supports reductions in accounts receivable is the: A. Remittance advice 8. Credit memo C. Sales invoice D. Monthly statement 76, The document which accompanies the customer's payment is the: +A. Remittance advice 8. Credit memo C. Sales invoice D. Monthly statement 77, Wihen a customer fails to include @ remittance advice with ¢ payment, itis common practice for the person opening the mail to prepare one. Consequently, mail should be opened by which of the following four company employees? A. Credit manager. - B,_Receptonist. . Sales manager. D. AR clerk, 78. The most difficult type of cash defalcation for the auditor to detect is that which occurs: “A. Before the cash is recorded B, After cash is recorded but before it goes to the bank. . Out of the balance kept in the cash register. D. In amounts under F100. 79. When accounts receivable is considered uncollectible, the person who generally authorizes the write-off is the: A. Credit manager - B, ‘Treasurer . Accountant D. Sales manager 80. The two most important considerations the auditor should keep in mind in the verification of the write-off of Individual uncollectible accounts are: ‘A. Cut-off and completeness. +C. Validity and authorization, B. Cut-off and authorization. D. Validity and completeness. > 51. In the purchasing/aisbursements cycle, of the order of activites listed, which is in the best order of a typical sequence of activities? A. Ordering goods, receiving vendor's invoice, selecting authorized vendor, payment activity. “B. Ordering goods, receiving goods, receiving vendor's invoice, cash payments, Ordering goods, receiving vendor's invoice, receiving goods, payment activity D. Selecting authorized vendor, receiving vendor's invoice, receiving goods, payment activity. 82, A request by an authorized employee for goods or services is made on the: A. Purchase order. 3 © Debit memo. “8. Purchase requistion, D. Acquistion transaction fle. 83. Proper authorization for acquisitions ensures that the client will not: A. Be overbilled by the vendor. 8. Run out of stock before the next shipment arrives. * Purchase excessive or unnecessary items. Al three of the above, “Dae "DADAB WABABC Sipec, ReSA@735-9807 / 734-3989 / (0910) 439-1320 185. 86. 97. 91 92. 94, 95. 97. ‘The purchase order, usually In writing, sa lagal document that Is A Abinding agreement between client and vendor +B. Anoffer to buy. CC. Not enforceable if it is not in waiting B. An acceptance of a venaor’s catalog offer to sel “The receipt of goods and services.in the normal cours® of business represents the date clients normally recognize: ‘A. Income. B. The liability, C. Warranty assets, D. Expenses. “The personnel in the Recelving Department should) ‘A. Be supervised by the head of the storeroom, since it is the storeroom personnel who are responsible for the physical control of goods. Be supervised by the Accounting Departirent, sinice itis the accounting personnel who are responsible for the accuracy of the records atiout the goods. -€. Be independent of both the storerao:” and accounting functions. D. Be supervised by the Shipping Department since the receiving docks and the shipping docks are in close proximity. ‘An auctor usually examined éceiving|ceports to support entries in the wk. Voucher register and sales returns journal. C." Voucher register and sales journal 8. Sales journal and sales returns journal D. Check register and sales journal. The document which specifies the amount of money [owed ko the vendor for an acquisition is the: ‘A. Receiving report. -B. Purchase order. C. Vendor's invoice. DAP trial balance. ‘A file for recording individual acquisitons, cash uisbursements and acquisition returns and allowances for each vendor is the: z 8. eT Recounts payable master fe CAcqisiions transactions fe B. Cosh dsbursemente rarstions fe 5. Summary scqustvons report ‘The cent’ accounts payable mase: le shoud be the same as the vendor's statement excep or the following: A’Dsputed amounts x8, Timing diferences + C. Botha and’b D. None ofthe answers ‘An important control in the accounts payable and IT departments is to require that those personnel who record acquisitions do not have access to the: ‘A. Lists of vendor's names and addresses. C. Vendor's price lists. B. Cash, trading securities, and other assets. D. The accounts payable master fie ‘The accounts payable department usualiy Nes responsibility for verifying the propriety of acquisitions by ‘comparing the details on the: A” Vendor's invoice and the purchase requisition. B. Vendor's invoice and ihe receiwing report. C._ Purchase requisition, purchase order and recetving report. * D. Purchase order, receiving report, and vendor's invoice. In assessing control risk for purchases, an auditor vouches a sample of entries in the voucher register to the supporting documents. Which assertion would this test of controls most likely pertain to? ‘A. Completeness C. Valuation or allocation, * B, Existence or occurrence. D. Rights and obligations. ‘A document indicating a reduction in the amount owed to a vendor because of returned goods is known as: + A. Vendor-issued credit memo. ©. Receiving room report. B. Purchase adjustinent slip. D. Shipping room report. For good internal control, the person who should sigh: checks is the: ‘A. Person preparing the checks. C. Accounts payable clerk. B, Purchasing agent. + D. Treasurer. Bell's accounts payable clerk has a brother who is one of Bell's vendors. The brother will often invoice Bell twice for the same delivery, ‘The accounts payable clerk removes the receiving report for the first invoice from the paid-vouchers file and uses it for support of payment ‘or the auplicate invoice. ‘The most effective procedure for Preventing this activity is to: ‘A. Use pre-numbered receiving reports. B. Mall signed checks without allovéng them to be returned to the accounts payable clerk. C. Cancel vouchers and supporting documents witen payment is made. D. Use dual signatures, In the personnel and payroll cycle, of the order of activities listed, which i r Ju In oe pare yd , is the best order of a typical sequence Attendance and work, payroll accounting, cash disbursement, payroll distribution. Personne! hiring, labor relations, attendance and work, payroll accounting, Personnel hinng, attendance and work, dayrol BBB SCACAr AAR RAnR angg, The most common control deficiency in thd personnelland payroll cycle Is the ‘A Attitude of management towards contro B, Inadequate segregation of duties. €._Unlimtes access tothe payrol system ._ Little comparison of personnel and payrall records Which ofthe folowing best describes proper Interna contro over payroll” eee cine preparation of the payroll most be under the contro of the personnel department 'B. The confdentiaity of employee payroll data should be carefuly protected to prevent frau The duties of hiring, payroll computation, and payment to employees should be segregated B. The payment of cote employees sou be replaced with payment by checks. 100, To minimize the opportunites for fraud, unclaimed cash payroll should be ‘A Deposited in a safe deposit box: C. Deposited in a special bank account. B. Held by the payroll custodian. 1. Held by the controler. 101, Which ofthe folowing controis would be the mest appropriate means to ensure that terminated employees have been removed from the payrol? ‘A. Maling checks to employees’ residences. ; 6. _Estabishing direct deposit procedures with the employees’ banks. Reconciling payrall and time-keeping records, ._ Establishing computerized limit checks on payrol rates. 102, The auditor's test ofthe adequacy of physical controls over raiv materials, work-in-process, and finished goods must be restricted to: ’A. Observation and inquiry Documentation and confirmation. 8. Documentation and observation. . Documentation and inquiry 103, The objectives of the internal structure for a production cycle are to provide assurance that transactions are properly executed and recorded, and thet ‘A. Custody of work in process and of finished goods is properly maintained, Production orders are pre-numbered and signed by a supervisor. Independent internal verification of activity reports is established. D. Transfers to finished goods are documented by a completed production report and a quality control report. 104, Which of the following control procedures could best prevent direct labor from being charged to ‘manufacturing overhead? 'A. Comparison of daily journal entries with factory labor summary. B, Examination of routing tickets from finished goods on delivery. C__ Reconciliation of work in process inventory with cost records. D._Re-computation of direct labor based on inspection of time cards, 105. An auditor's tests of @ dent's cost accounting system are designed primarily to determine that: ‘A. Quantities on hand have been computed based on acceptable methods that reasonably approximate actual uantities on hand. 8. Physical inventories substantially agree with book inventories. C._ The system complies with generally accepted accounting principles and functions as planned. D. Costs have been assigned properly to fished goods, work in process, and cost of goods sold. 106, Perpetual inventory master files provide a record: A. Of items on hand. B. Of the use of raw materials and the sale of finished goods. . That can be used to pinpoint responsiblity for custody, D. Forall three of the above. 107. When perpetual inventory records are maintained in quantities and in pesos, and slap epee eed ernie idea rg . a ‘A. Want the client to schedule the physical inventory count at the end of the year. Insist that the client perform physical counts of inventory items several times curing the year. Increase the extent of tests for unrecorded liabilities at the end of the year. Have to disclaim an opinion on the income statement that year. 108, A useful staring point fer becoming fair withthe cents ventory is forthe a ‘A. Read the PICPA’s Industry Audit Guide. a a Review accounting theory covering special problems such as oil and Poa prot 985 accounting, or accounting for lease ‘C._Read the client's accounting manual, D. Tour the clients faclties, Bh 109. The emphasis in auditing property and equipment is on the verification of: ‘he bala comed forward in the acount fom the B. The current period’s acquisitions and retirements. amen © Tre balonce nthe account after the &_Teeatrc ne ac ‘current year’s activities are recorded (ending balance), ReSA%®735-9807 / 734-3989 / (0910) 439-1320 BLO “CANAD “DAD, a a112. To. strengthen control procedures over the custody of Institute a policy requiring a periodic 'A. Increase in insurance coverage. 8. Verification of lens, pledges, and collateralizations 5 Accounting for work orders. - D._ Inspection of equipment and recantation with accountng reeps, 113. A company holds bearer bonds as 2 short-term investment (.€. trading sect these bors and submission of Coupons fox erode east collections probably ‘A. Chief accountant 8. Internal auditor. C. Cashier. 114, A company has addtional funds to invest. The Board of Directors decided to purchase | ‘assigned the future purchase and sale decisions to a responsible finandal executive, The Periodic reviews of the investment activity should be ‘A. BOD investment committee. B. The chief operating officer. 115. Which of the following questions would an auditor most likely include onan internal ex tes payable? A. Ate direct borrowings on notes payable authorized by the board of directors? 8. Are two or more authorized signatures required on checks that repay notes payable? Cre the proceeds from notes payable used ‘or te purchase Of NOREUKFenE asset D. Are assets that callateraiize note payable critically needed for the entity's Continued the following types of owners’ equity transactions would require authonzation By te pany? Issuance of share capital id purchase of share capite D. _Allof the above, 117. When no independent stock transfer agents are employed and the corporation Issues its © stock records, canceled stock certificates shouts A. Not be defaced but segregated from other B. Be destroyed to prevent fraudulent elssua C. Be defaced and sent to the Secretary of State. Be defaced to prevent reissuance and attached to their corresponding stubs. 118. These generally include the records of intial entries and supporting records, such es electronic fund transfers; invoices; contracts; the general and substlary ledgerss ‘adjustments to the financial statements that are not reflected in formal journal sheets and spreadsheets supporting cost allocations, computations, reconciliations, ‘A. Accounting system, C. Accounting records, B. Source documents, D. Audit evidence. 139, Amounts and other disclosures relating to the current period, A Notes tothe financial statements 8. Current period figures 120. Which one of the folowing statements i true? In deciding an ‘A. Some procedures are commonly emplayed on every a V4 dependent on the adequacy of ti C._ results obtained in the prior year’s audit will not D. the materiality ofthe item will not 121. The general al Nelsuch evidence is too cost ly in relation to its reliability ©. the observatiox his often dificu Must occur at a specific time, ¥ 123. According f0 the PSA Glossary of Terms, this means to inquire in resolve them. ‘A. Confirm, B. Validate. c Venty ©. Investigat validty of a note 124, The most reliable form of evidence, other than test of subsequent cash receipts, concerning receivable balance is a(n). AD Bil ofiating ©. Customer purchase order 8. External confirmation reoly D. Sales invotcs 125, Which of the folowing is one ofthe better auditing techniques that might be used by an auditor to detect kiting between intercompany ars? ‘A. Review composition of authenticated depost sips. B. Review subsecuenc bank statements Prepare a schedule of the bank transfers D. Prepare a year-end bank reconciliation 526, An austor shoul be able to collect and evaluate documentary evidence. When ealutng and interpreting exidence, the auditor must be on guard against the possiblity of drawing unwarranted conclusions. f of a valid conciusion i 1 Sec sretory valuation as determined rom obsevation ofthe physical cout B Glen onnersip determined om thréparty ingues about consigned goods, €. Existence of a company travel vehicle determined from the examination ofthe paid invoice forthe sai vehicle D. Proper accounts payable cut-off at reporting date as determined by review of raw materials, requisitions. 127. To determine the sales transactions have been recorded in the proper accounting period, the auditor performs a Cut-off review. Which of the following best describes the overall approach used when performing a cut-off review? ‘A, Ascertain that management has included in the representation letter a statement that transactions have been accounted for in the proper accounting period Confirm year-end transactions with regular customers Examine cash receipts in the subsequent period ‘Analyze transactions occurring within a few days before and after year end 126. An entity's financial statements were misstated over 2 period of years due to large amounts of revenue being recorded in journal entries that involved debits and credits to an illogical combination of accounts. The aucitor ‘could most likely have been alerted to this irregulanty by A. Scanning the general journal for unusual entries, B.—Performing a revenue cut-off test at year end. © Tracing a sample of journal entries to the general ledger. . Examining documentary evidence of sales returns and allowances recorded after year end, gos 128, For which ofthe following account balances are substantive tests of details least ikely to be performed unless ‘analytical procedures indicate the need to extend detail testing? A. Payroll expense C._ Research and development costs 3. Marketable securities ©. Legal expense 130. Which of the fellowing income statement accounts is least likely to be verified in conjunction with the audit of a balance sheet account? ‘A. Depreciation expense, B. Interest revenue, 131. The fol A ©. Travel and entertainment ©. Uncollectible accounts expense owing are purposes of analytical procedures, except: ‘Assist the aucitor in planning the nature, timing and extent of other aucit procedures B. Asa test to obtain audit evidence about the sui itabllity of design and effective operation of internal controls © Asa substantive procedure when their use can be more effective or efficient than teste of dette reducing detection risk for specific financial statement assertions >. AS an overall review of the financial statements in the final review stage of the audit 132. Ina CIS environment, which ofthe following is not a control objective, associated with processing controls? ‘A. transactions are authorized B. processing is complete Call changes to computer records are accurate . access to computer files is limited to authorized personnel 103, Which ofthe foloning statements is correct regarding the Internet as a commerilly vable network? 3 Organizations must use firewall if they wish fo maintain security over lesa ay Trance TUSt APBIY to the Internet to gain permission to create a homepage to engage in electronl pik creat 'epage to engage in electronic Companies that wish to engage in electroni standards established by the coalition of Int ve commerce on the Internet must meet required security eet providers ‘D. All of the above [abdesate ReSA735-9807 / 734-3989 / (0910) 439-1320 Page 11 1, io sl oe Poo ™BOBRC “BDAA Pro ar ee Te 2 service organization to user entities that are part of those user « ints now have their data processed at an indepe wn computer. ‘The oifcuty the Independent auditor faces * 8 Finding compatible programs that wil analyze the Se C._ Intrying to abide by the Code of Eunics to maintain the D. In determining the adequacy of the service center's internal ct se of computer in data processing systems frequently efi Using vouchers for authorization of disbursements G: Info propriate segregation of duties D. Cost 1 the IT system is significant, the auditor should also obtain an ther it may influence the assess Inherent and control risks 8. Control and detection This is an arrangement where two or more personat ‘oftware and t . This may also be referred to asa di Lo c. World wide: D. Unit to unit: ternal contrc A. Th rue 42. Which of the following statements is incorrect? A. The purpose of C1S application controls is to establish specific ystems in order to provide reasonable assurance that all ransa p accurately and on a timely basis It may be more efficent to review the design of the general CIS controls, If general CIS controls are not effective, there may be 2: fen the application systems, ‘of general CIS controls is to establish a fra 143. The following, except one, are internal contiol techniques A. Employing passwords. yh Using anti-virus software programs, . _Segregating data into fies organized under D. _Disconnecting from the office149, Internal controls in an onstine computer A. Access Controls 8. Controls over User bs and passwords 4150. These are programmed routines that check the Input d reasonableness A. Pre-processing authorization, 8. procedures. This is the process of establishing control totals over data being sub and comparing the control totals during and after processing to ens tra 9 A, Footing . Balancing. of Input control gram fles D. Completeness, . the account code 614 for maintenance expense. However, One oF the) ies maintenance expense as 641. The highest account code in the system Is 620. feral Control check to build into the company’s computer system to detect this error? A. Amanual re-check of the code C. Sequence check. Valid-character test D. Validscode test. ts that are designed to cre for each oni transaction. Such fa transaction (termi he transaction’s details. Transmittal sheets D. Embedded audit This Is the individual respon: procedures and user instruction A ©. TT control group : D. None of these, nt and management of data documenta ompliance with standards and provides: standards are met. A, Network administrator, B. Systems analyst. ‘A computer programmer has written a program for updating pet ‘testing (debugging) of the program should be assigned to the: A. TT department control group. B._ Internal aucit control group, More then one file may be stored on a single magnetic memory Strage unt smutaneousy_ In both cases it important orev A. to use Fie intearity control Goalie B. to use Boundary protection. 160. In comparing the contro} environment in complex ve Complex IT systems is:Should re-encode the inputs previously made by computer operators and reprocess the transavt B transactions are in fact resubmitted and re-entered for processing ese €,_Breseonsle or ensuring that these transactions ae i a B._ stetrespenabie forthe resoluton frejeted transac n cntonton of dota that is cared and sed by 2 number of ferent users for diferent purposes se Een Ae norman le. C. Master fle . Transaction fle atl is nh ee em C._ lows quck reteval of data but ata cust of inefficient use of le space D. Allows guck reteval of data but needs 10 update fs continual important characterises stinguish databose systems? ae Data Megiy and data independence Data sharing and data interconnection Data independence and dats sharing BL bata imtegety and user ntegty. 165, User access to the various elements of a database may be controlled through the use of passwords. restrictions apply to ‘A. Individuals but not to terminal devices and! rot to programs. 8. Terminal devices but not to individuals and not to programs. C.__Programs but not to individuals and not to terminal devices. D. Individuals, terminal devices and programs, 166, These controls require a database administrator to assign security attributes to data that cannot be changed by These database users: ‘A. Discretionary access controls. C.Password controis B. Mandatory access controls. D. Distributed access controls. in and what action privileges they have with 167. These controls allow users to specify who can access data they ov respect to that data. ‘A. Discretionary access controls. C. Password controls. B. Mandatory access controls. D. Distributed access controls. 168. If there is fraud involving the collusion of several employees that includes the falsification of documents, the chance that such fraud would be uncovered in a normal audit is: A. Zero. 8 Unlikely, 50-50. D. Very high. 169. This is kind of fraud committed by making entries of nctitous payments or failure to enter receipts ‘A. Misappropriation of goods. B. Misappropriation of cash ._Falsification of accounts. D. Lapping. 170. The following statements properly describe the pilars of the|Fraud Trianglel Select the exception: ‘A. Incentive or pressure to commit fraudulent financial reporting may exist whenmanagement is under Pressure, from sources outside or inside the entity, toachieve an expected (and perhaps unrealistic) earings target or fnancialoutcome ~ particularly since the consequences to management for fag to, ‘meet financial goals can be significant. B.A perceived opportunity to commit fraud may exist when an individualbelieves intemal control can be overridden, for example, because ticndivcal isin 3 postion of trust or has knowledge of specihe Weaknesses ininternal control Individuals may be able to retonalize committing a fraudulent act. Someindividuals possess an attitude, character or set of ethical values tat allowthem knowingly and intentionally to commit a dishonest act . Events oF conditions indicate an incentive er Fressureto commit fraud or provide an opportunity to ‘Commit fraud, but do not necessarily confirm the presence of fraud, 4171. Which of the following is an example of fraudulent financial reporting? ‘A Company management changes. inventory count tags and overstates ending inventory, while Understating cost of goods sold B. The treasurer diverts customer payments to his personal due, concealing his actions by debiting an expense account, thus overstating expences, C_ At employee steals inventory and the “shrinkage” i recorded in cost of goods sold. B.A employee steals small tools from the cormpany and neglets to return them, the costs reported as @ ‘miscellaneous operating expense 172, What is the independent auditor's responsiblity prior to completion of fe Wate he independ esponsibility p pletion of field work when he believes that a material ‘A. Notify the appropriate law enforcement aiithority. 8. Investigate the Person involved, the nature ofthe fraud, and the amounts involved. nding with the appropriate client repre Fe red nature and ext Cours prop bresentatives as to the desired nature and extent °. Continue to perform normal audit procedures an vii adeautely the sisplcons a meee meres and vite the aut report in sucha way as to disclose ReSA% 735-9807 / 7343989 / (0910) 435.1375 Pag eS See AC.173. TWis refers to the mathematical complements of sampling risk. Av Assurance 8. "Toure lves ¢. Exped enor, Canidenc eels 174, which of the folowing statements is|NOT correct? ‘A. IC's acceptable for auditors to use statistical sampling methods. B. It's acceptable for auaitors to use non: statistical sampling mettiods. ©The primary benefit of statistical sampling methods fs the quantification of sampling risk. D. An advantage of using statistical sampling Is that the cost/benefit ratio is always positive 4175. Which of the following statements is a vald criticism of the use of non-statistical sampling methods? A Many aud tes, sucha footing of furas must be perfred ede a sacl cot B. The cost of performing random selection of testing often exceeds the benefits. €. _Non-statistical sampling does not differ substantially from statistical sampling method. . Conclusions may be drawn in more precise ways when using stalistical sampling methods. 176. Which of th ” Jing documentation of the sample selection process is NOT true? A Rogartess of tiermeed toed m saa @ random sample, i nazary to ave. BODE documentation, B. When comparing statistical sampling to judgmental sampling, it Is more important that statistical sampling be propery documented cause of ts mathematical nature. Minimum coeumenttion would inude sffcnt information to permit the reproduction ofthe sample ata later date, For documentation, it is permissible for the auditor to include in the working papers a copy of the table ‘used, with the random numbers identified. 177. Unless a precise statement of what constitutes an attribute is made in advance, the staff person who performs the audit procedure will have no guidelines: ‘A. For identifying deviations. B. To determine what docurnents to obtain and review for the observation tests. . Tose when evaluating the results of analytical review procedures, D. For performing all three of the above. 178. When using statistical sampling, which of the folowing need not be known to evaluate the results of an attribute sample? ‘A. Sample size Number of deviations in the population B. Risk of assessing control risk too low. D. Number of deviations in the sample. 179, The auditors failure to recognize an error in an amount or an error in an internal control data processing procedure Is described as: A. Statistical error . Standard error of the mean B. Sampling error D. Non-sampling error 4180. Non-sampling errors occur when the audit tests do not uncover existing exceptions in ‘A. Population. C. Planning stage. B. Sample, D. Financial statements. 181. If an auditor tested 50 transactions and found two deviations from an important control procedure, the auditor ‘could conclude from this test that the: A. Tolerable rate is 0.04. Sample had two deviations. B. Critical rate of occurrence is 0.04, D. Expected population deviation rate is 0.04. 182. Which of tie following is NOT a responsibilty that should be assigned to @ company's internal audit department? ‘A. Evaluating internal contro\, 8. Balancing subsidiary ledgers. © Reporting on the effectiveness of operating segments, D. Investigating potential merger candidates. 183. The independent auditors might consider the procedures performed by the internal auditors because: They are employees whase work must be reviewed during substantive testing, 8. They are employees whose work might be considered. Their work impacts upon the cost/benefit trade-off in evaluating inherent limitations. D. Their degree of independence may be inferred by the nature of their work, 184. Which of the following terms best describes component management? ‘A. An auditor who, at the request of the groupengagement team, performs work on financial information ‘elated to acomponent for the group aut fn entity or business activity for which group or componentmanagement prepares financial information that should be included in thegroup financial statements. Management responsible for preparing thefinancial information of a component. D. The materiaity evel for a component determined by the group engagemert team, 165 A the components whose ftncal information fs Included inthe group financial statements, are collectively known as: A Group B. Consolidation —C.—_—Pooling D. Business Combination ReSAR735-9807 / 734-3989 / (0910) 439-1320 5 MES D MBACDB BCRp Page 15