REVIEW MATERIALS

BAPAUDPRIX – AUDITING AND ASSURANCE PRINCIPLES

1. Which of the following statements is most correct regarding the primary purpose of audit procedures?
a. To detect all errors or fraudulent activities as well as illegal activities
b. To comply with the SEC
c. To gather corroborative audit evidence about management’s assertions regarding the client’s
financial statements
d. To determine the amount of errors in the balance sheet accounts in order to adjust the accounts to
actual

2. A procedure designed to test for monetary misstatements directly affecting the validity of the financial
statement balances is a:
a. Test of control
b. Substantive test
c. Test of attributes
d. Monetary-unit sampling test

3. Below are the five types of tests which auditors use to determine whether the FS are fairly presented. Which
three are substantive tests?
1. Risk assessment procedure
2. Tests of controls
3. Tests of transactions
4. Analytical procedures
5. Tests of details of balances
a. 1, 2 and 3
b. 3, 4 and 5
c. 2, 3 and 5
d. 2, 3 and 4

4. Which of the following is true?

a. Tests of details of balances focus on the ending balance of accounts in the client’s trial
balance
b. Test of details of balances focus on the transactions during the period
c. Tests of details of balances focus on the auditor’s understanding of internal controls
d. Tests of details of balances focus on comparisons of recorded amounts to expectations developed by
the auditor

5. In the context of an audit of financial statements, substantive tests are audit procedures that
a. May be eliminated under certain conditions
b. Are designed to discover significant subsequent events
c. May be either tests of transactions, direct tests of financial balances, or analytical tests
d. Will increase proportionately with the auditor’s assessment of control risk

6. The primary emphasis on most tests of details of balances is on the

a. Balance sheet accounts
b. Revenue accounts
c. Cash flow statement accounts
d. Expense accounts

7. Evidence is usually more persuasive for balance sheet accounts when it is obtained
a. As close to the balance sheet date as possible
b. Only from transactions occurring on the balance sheet date
c. From various times throughout the client’s year
d. From the time period when transactions in that accent were most numerous during the fiscal period

8. “The use of comparisons and relationships to assess whether account balances or other data appear
reasonable compared to the auditor’s expectations” is a definition of:
a. Analytical procedures
b. Tests of transactions
c. Tests of balances
d. Auditing
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BAPAUDPRIX – AUDITING AND ASSURANCE PRINCIPLES
9. Often auditor procedures result in significant differences being discovered by the auditor. He auditor should
investigate further if:

Significant Significant
differences are differences are
not expected expected but do
but do exist not exist

a. Yes Yes

b. No No

c. Yes No

d. No Yes

10. Analytical procedures are required to be performed during which phases(s) of the audit

Planning Test of Control Completion

a. Yes No Yes
b. Yes Yes No
c. No No Yes
d. Yes Yes Yes

11. According to PSA 250, the risk of not detecting material misstatement due to noncompliance is high. This can
be attributed to all of the following factors except
a. There are many laws and regulations relating principally to the operating aspects of the entity, that
typically do not have a material effect on the financial statements
b. Auditors usually rely on lawyers representation to detect noncompliance
c. The effectiveness of audit procedures may be affected by the limitations of the audit
d. Noncompliance may involve conduct designed to conceal it

12. When the auditor becomes aware of information concerning a possible instance of noncompliance, the
auditor should
a. Notify the regulatory agencies
b. Determine who was responsible for the act
c. Obtain understanding of the nature of the act, and the circumstances in which it has occurred
and sufficient other information to evaluate the possible effect on the financial statements
d. Modify the opinion on the client’s financial statements

13. An auditor who discovers that client has not complied with laws and regulations that has a material effect on
the financial statements most likely would withdraw from the engagement letter
a. Noncompliance was a violation of PFRS
b. Client does not take remedial action that the auditor considers necessary
c. Noncompliance was committed last year when financial statements where not audited
d. Auditor has already assessed control risk at maximum level

14. If the client refuses to accept an audit report that is qualified due to noncompliance with laws and regulations,
the auditor should:
a. Withdraw from the engagement and indicate the reasons to the audit committee in writing
b. Issue an adverse opinion if management agrees to fully disclose the matter
c. Withdraw from the engagement and indicate the reasons to the SEC or other regulatory body
in writing
d. Issue a disclaimer of opinion instead

15. During the annual audit of JM Corp., a publicly held company, Stark, CPA, a continuing auditor, determined
that illegal political contributions had been made during each of the past seven years, including the year
under audit. Start notified the board of directors about the illegal contributions, but they refused to take any
 REVIEW MATERIALS
BAPAUDPRIX – AUDITING AND ASSURANCE PRINCIPLES
action because the amounts involved were immaterial to the financial statements. Stark should reconsider the
intended degree of reliance to be place on the:
a. Letter of audit inquiry to the client’s attorney
b. Prior years’ audit program
c. Management representation letter
d. Preliminary judgment about materiality levels

16. In comparing management fraud with employee fraud, the auditor’s risk of failing to discover the fraud is:
a. Greater for management fraud because managers are inherently more deceptive than employees
b. Greater for management fraud because of management’s ability to override existing internal
controls
c. Greater for employee fraud because of the higher crime rate among blue collar workers
d. Greater for employee fraud because of the larger number of employees in the organization

17. The most difficult type of misstatement to detect is fraud based on

a. The over recording of transactions
b. The nonrecording of transactions
c. Recorded transactions in subsidiaries
d. Related party receivable

18. If several employees collude to falsify documents, the chance a normal audit would uncover such act is:
a. Very low
b. Very high
c. Zero
d. None of the above

19. If an auditor conducted an audit in accordance with the auditing standards which of the following would the
auditor likely detect?
a. Unrecorded transactions
b. Errors in posting of recorded transactions
c. Counterfeit signatures on paid checks
d. Fraud involving collusion

20. When performing a financial statement audit, auditors are required to explicitly assess the risk of material
misstatement due to:
a. Errors
b. Fraud
c. Noncompliance
d. Business risk

21. Which of the following terms relates to the embezzling of receipts?

a. Manipulation
b. Mispresentation
c. Misappropriation
d. Misapplication

22. Auditors frequently refer to he terms audit assurance, overall assurance and level of assurance refer to
_________.
a. Detection risk
b. Audit report risk
c. Acceptable audit risk
d. Inherent risk

23. For a particular assertion, control risk is the risk that:

a. A material misstatement will occur in the accounting process
b. Controls will not detect a material misstatement that occurs
c. Audit procedures will fail to detect a weak control system
d. The prescribed control procedures will not be applied uniformly
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BAPAUDPRIX – AUDITING AND ASSURANCE PRINCIPLES

24. Which of the following is the best definition of detection risk?

a. The auditor will compute audit materiality incorrectly
b. The auditor will fail to detect material misstatements that exist
c. The auditor will apply more audit procedures than are required in the circumstances
d. The auditor will fail to modify the audit opinion on financial statements that are materially misstated

25. The risk of material misstatement refers to:

a. Control risk and acceptable audit risk
b. Inherent risk
c. The combination of inherent risk and control risk
d. Inherent risk and audit risk

26. At the risk of material misstatement increases, detection risk should:

a. Increase
b. Decrease
c. Stay the same
d. Increase or decrease depending on materiality level

27. The risk of material misstatement differ from detection risk in that it:
a. Arises because audit procedures have been misapplied
b. Can be controlled and changed by the auditor
c. Can be assessed in the quantitative and non-quantitative terms
d. Is controllable by the client

28. Inherent risk and control risks

a. Are inversely related to each other
b. Are inversely related to detection risk
c. Are directly related to detection risk
d. Are directly related to audit risk

29. The purpose of analytical procedures during the audit planning stage is to:
a. Aid in planning the observation of physical inventory
b. Identify unusual circumstances that the auditor may need to investigate further
c. Flag individual transactions for further review
d. Determine whether sales transactions are approved

30. Analytical procedures used as of risk assessment procedure are performed primarily to assist the auditor in:
a. Identifying areas that may represent specific risk
b. Obtaining knowledge about the design on internal control
c. Obtaining knowledge about the operating effectiveness of the client’s internal control
d. Gathering corroborative evidence about the validity if an account balance

31. A basic premise underlying analytical procedure is that

a. These procedures cannot replace test of balances and transactions
b. Statistical tests of financial information may lead to discovery of material misstatements in the
financial statements
c. The study of financial ratios is an acceptable alternative to the investigation of unusual fluctuations
d. Plausible relationships among data may reasonably be expected to exist and continue in the
absence of known conditions to the contrary

32. One reason why an auditor makes an analytical review of the client’s operations is to identify
a. Improper separation of accounting and other financial duties
b. Weakness of a material nature in the system of internal accounting control
c. Unusual transactions
d. Noncompliance with prescribed control procedures

33. Which of the following is not one of the specific control activities that are relevant to financial statement audit?
a. Performance reviews
b. Physical controls
c. Segregation of duties
d. Monitoring
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BAPAUDPRIX – AUDITING AND ASSURANCE PRINCIPLES
34. Proper segregation of financial responsibilities in an effective structure of internal control calls for separation
of the functions of
a. Authorization, execution and payment
b. Authorization, recording and custody
c. Custody, execution and reporting
d. Authorization, payment and recording

35. It is an approximation of the amount of an item in the absence of a precise means of measurement
a. Accounting estimate
b. Audit sampling
c. Materiality
d. Audit risk

36. In evaluating assumptions on which the estimate is based, the auditor would need to pay particular attention
to assumption which are:
a. Reasonable in light of actual results in prior periods
b. Consistent with those used for other accounting estimates
c. Consistent with management’s plans which appear appropriate
d. Subjective or susceptible to material misstatement

37. The auditor should adopt one or a combination of the following approaches in the audit of an accounting
estimate:
I. Review and test the process used by management to develop the estimate
II. Use an independent estimate for comparison with that prepared by management
III. Review subsequent events which confirm the estimate made

a. Any of the above

b. None of the above
c. Either I or II
d. I only

38. It is not only focused purely of finance by also reviews and undertakes a critical appraisal of companies
policies and procedures
a. External audit
b. Internal audit
c. Accounting
d. Compliance audit

39. Which of the following is not an objective of internal audit

a. To facilitate the early detection of frauds and to prevent it
b. To ensure that the accounting practices which have to be followed by the organization are strictly
followed
c. To examine the protection afforded to company’s assets and use of them for business purpose
d. To ensure reliability of information produces by the accounting system

40. Which of the following is an internal check as regards to sales?

a. Copy of order to dispatch department
b. Overstating or hours
c. Clerks purchase book differ from order slip
d. Checking of calculations of OR