1.

Which of the following characteristics MOST likely would heighten an auditor's concern about the risk of
intentional manipulation of financial statements?
A. Turnover of senior accounting personnel is low.
B. The rate of change in the entity's industry is slow
C. Insiders recently purchased additional shares of the entity's stock.
D. Management places substantial emphasis on meeting earnings projections.

2. When an identified misstatement may be indicative of fraud, the auditor considers the implications of the
misstatement in relation to other aspects of the audit, particularly the
A. reliability of management representations.
B. adequacy of financial statement disclosures.
C. opinion presented in the financial statements.
D. amount of audit fees documented in the engagement letter.

3. The most difficult type of cash defalcation for the auditor to detect is that which occurs
A. in amounts under P 100.
B. before the cash is recorded.
C. out of the balance kept in the cash register.
D. after cash is recorded but before it goes to the bank.

4. The MOST LIKELY explanation why the auditor's examination cannot reasonably be expected to bring all illegal
acts by the client to the auditor's attention is that
A. illegal acts are perpetrated by management override of internal accounting controls.
B. illegal acts by clients often relate to operating aspects rather than accounting aspects.
C. the client's system of internal accounting control may be so strong that the auditor performs only minimal
substantive testing.
D. illegal acts may be perpetrated by the only person in the client's organization with access to both assets
and the accounting records.

5. If the auditor suspects that members of senior management, including members of the board of directors, are
involved in noncompliance to laws as regulations, and he believes his report may not be acted upon, he would
A. do nothing.
B. issue a disclaimer of opinion.
C. consider seeking legal advice.
D. make special investigation in order to fully determine the extent of client's noncompliance.

6. An auditor concludes that a client has committed an illegal act that has not been properly accounted for or
disclosed. The auditor should withdraw from the engagement if the
A. client refuses to accept the auditor's report as modified for the illegal act.
B. illegal act has an effect on the financial statements that is both material and direct.
C. auditor is precluded from obtaining sufficient competent evidence about the illegal act.
D. auditor cannot reasonably estimate the effect of the illegal act on the financial statements.

7. An auditor who finds that the client has committed an illegal act would be most likely to withdraw from the
engagement when the
A. illegal act has received widespread publicity.
B. illegal act has material financial statement implications.
C. illegal act affects auditor's ability to rely on management representations.
D. auditor cannot reasonably estimate the effect of the illegal act on the financial statements.

Planning & risk assessment

8. The senior auditor responsible for coordinating the field work usually schedules a pre-audit conference with the
audit team primarily to
A. provide an opportunity to document staff disagreements regarding technical issues.
B. give guidance to the staff regarding both technical and personnel aspects of the audit.
C. discuss staff suggestions concerning the establishment and maintenance of time budgets.
D. discuss staff suggestions concerning the establishment and maintenance of time budgets.

9. The audit risk model is used primarily

A. while doing tests of controls.
B. to determine the type of opinion to express.
C. to evaluate the evidence which has been gathered.
 D. for planning purposes in determining how much evidence to accumulate.

10. Auditors appear NOT to exhibit due audit care if there was a
A. high audit risk C. low control risk
B. high inherent risk D. low detection risk