Which of the following matters would an auditor most likely include in a management

representation letter?
1 point

Plans to acquire or merge with other entities in the subsequent year

The completeness and availability of minutes of stockholders’ and directors’ meetings
Communications with the audit committee concerning weaknesses in internal control
Management’s acknowledgement of its responsibility for the detection of employee fraud

When a subsequent event provides evidence about conditions that existed at the
balance sheet date, the auditor should do which of the following?
1 point

Assign a specialist
Shop for an opinion that fits the desired type of event
Ensure that the financial statements are adjusted to reflect the information, including any
necessary footnote disclosures.
Provide management with a new engagement letter to document the terms of the revised
arrangement.

Analytical procedures used in the overall review stage of an audit generally include
1 point

Retesting control procedures that appeared to be ineffective during the assessment of control
risk.
Performing tests of transactions to corroborate management’s financial statement assertions.
Considering unusual or unexpected account balances that were not previously identified.
Gathering evidence concerning account balances that have not changed from the prior year.

After an audit report containing an unqualified opinion on a non-issuer client’s financial

statements was issued, the client decided to sell the shares of a subsidiary that
accounts for 30% of its revenue and 25% of its net income. The auditor should
1 point

Take no action because the auditor has no obligation to make any further inquiries.
Notify the entity that the auditor’s report may no longer be associated with the financial
statements.
Determine whether the information is reliable and, if determined to be reliable, request that
revised financial statements be issued.
Describe the effects of this subsequently discovered information in a communication with persons
known to be relying on the financial statements.

The final steps in the evaluation of the audit results in tests of controls is the decision
to
1 point

Determine the error in each sample

Determine the sampling error and the total population error
Conclude whether the control tested is effective or is not effective.
Project the point estimate

For which of the following audit tests would an auditor most likely use attribute
sampling?
1 point

Examining invoices in support of the valuation of property, plant, and equipment additions.
Selecting accounts receivable for confirmation of accounts balances
Making an independent estimate of the amount of FIFO inventory.
Inspecting employee time cards for proper approval by supervisors.

CPA wishes to use a representation letter as a substitute for performing other audit
procedures. Doing so
1 point

Is acceptable, but only for non-public clients.

Is acceptable and desirable under all conditions.
Violates professional standards.
Is acceptable, but should only be done when cost justified.

An auditor established a P180,000 tolerable misstatement for an asset with an

account balance of P3,000,000. The auditor selected a sample of every 20th item from
the population that represented the asset account balance and discovered a net
overstatement of P10,500 (P11,100 overstatements minus P600 understatements).
Under these circumstances, the auditor most likely would conclude that
1 point

The asset account is fairly stated because the total projected misstatement is less than the
tolerable misstatement
There is an unacceptably high risk that the tolerable misstatement is more than the sum of actual
overstatements and understatements.
There is an unacceptably high risk that the actual misstatements in the population exceed the
tolerable misstatement because the total projected misstatement exceeds the tolerable
misstatement.
The asset account is fairly stated because the tolerable misstatement exceeds the net of
projected actual overstatements and understatements.

What is the purpose of double dating the audit report?

1 point
To provide information about an event that happened after year end but before the audit report
date.
To indicate that the auditor takes responsibility for discovering subsequent events only up to the
audit report date, except for a specified subsequent event.
To provide information that existed before year-end but the auditor had not learned about until
after the audit report date
To provide information about an event that is interesting but happened after the audit work was
completed

The objective of the auditor, as required by PSA 580 is to corroborate, by means of

written representations I. the validity of the premises, relating to management’s
responsibilities, on which an audit is conducted II. Other audit evidence obtained with
regard to specific assertions in the financial statements
1 point

I only
II only
I and II
Neither I nor II

After an auditor has issued an auditor report on a nonpublic entity, there is no

obligation to make any further audit tests or inquiries with respect to the audited
financial statements covered by that report unless
1 point

Final determination or resolution was made on matters that had resulted in a qualification in the
auditor’s report
Material adverse events occur after the date of the report
New information comes to the auditor’s attention concerning an event that occurred prior to the
date of the auditor’s report that may have affected the auditor’s report
Final determination or resolution was made of a contingency that had been disclosed.

Which of the following statements regarding the letter of representation is not correct?
1 point

It is signed by high-level corporate officials.

It is prepared on the client’s letterhead.
It is optional, not required, that the auditor obtain such a letter from management.
It is addressed to the CPA Firm.

The following are indicators that may rise doubts about the entity’s ability to continue
as a going concern, except
1 point

Loss of key management personnel

Discontinuance of dividends
Declining bad debts expense
Adverse key financial ratios

A client acquired 25% of its outstanding capital stock after year-end and prior to
completion of the auditor’s field-work. The auditor should
1 point

Advise management to disclose the acquisition in the notes to the financial statements.
Issue pro-forma financial statements giving effect to the acquisition as if it had occurred at year-
end.
Disclose the acquisition in the opinion paragraph of the auditor’s report.
Advise management to adjust the balance sheet to reflect the acquisition/

Which of the following is the best example of a Type 1 Subsequent Event?

1 point

Litigation that was accrued as a liability in the year under audit is settled subsequent to year-end
for an amount materially in excess of estimates.
A related-party transactions occurs during fieldwork
The company initiates an initial public offering subsequent to year-end.
The company defaults on its line of credit with the bank subsequent to year end but previous to
the release of the audit opinion

An external auditor sent out positive confirmation requests to 8,600 customers. The population
size is 24,000 accounts, with a total recorded value of P1,900,000. The summary results of
the examination of confirmation replies received from customers include : (A) Total book value
of sample items examined - P799,800; (B) Total audited value of sample items examined –
P756,800. Using difference estimation, compute for the projected misstatement. (Answer
example: 100000 overstatement OR 77000.66 understatement)

120000 overstatement

Ratio Estimation Technique

4166666.67
YELLOW- TRUE
GREEN- FALSE

The use of common-size percentages is a useful analytical tool in the final review stages of the
audit.

The auditor’s main concern for related-party transactions is that they might not be presented or
reflected as arm’s length transactions.

All subsequent events require adjustments.

The client’s representation letter is also an audit evidence.

The auditor will require a larger sample size if he expects an error in the population. No sample
size will be required if the population is expected to be error-free.

Sampling for attributes is generally used in substantive testing. It is designed to detect

misstatements in account balances.

There is an inverse relationship between the sample size and the tolerable rate.

One purpose of the management representation letter is to inform the management of the control
deviations found out during the tests of control.

Auditors are not required to design audit procedures solely to detect going concern problems.
Rather they evaluate the effect of transactions and events identified during the audit and the
results of audit procedures performed.