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1. The acceptable risk of incorrect acceptance is most related to:

A. audit efficiency.
B. audit results.
C. audit effectiveness.
D. audit estimation.

2. Several conditions must be met before an auditor applies either difference or ratio
estimation. Which of the following is not one of these conditions?
A. Each population item must have a recorded book value.
B. The auditor must not expect understatement errors.
C. Total population book value must be known and must correspond to the sum of all individual
population items.
D. Expected differences between audited and recorded book values must not be too rare.

3. A misstatement or deviation that is demonstrably not representative of misstatements or

deviations in a population is
A. Sampling risk
B. Anomaly
C. Error
D. Corruption

4. When is attribute sampling more likely to be used than variable sampling?

A. Examining sales invoices for the occurrence of sales
B. Inspection of the voucher package for proper matching and approvals
C. Making an independent estimate of the expected credit losses
D. Recomputation of interest expense on loans

5. This is a type of sampling that determines a sample size sufficient to include at least one
exception.
A. Discovery sampling
B. Monetary unit sampling
C. Attribute sampling
D. Block selection

6. The biggest disadvantage of systematic selection is that the items in the population
A. Must be systematically replaced in the population after sampling.
B. May systematically occur more than once in the sample.
C. Must be recorded in a systematic pattern before the sample can be drawn.
D. May occur in a systematic pattern, thus destroying the sample randomness.

7. Statement 1: Haphazard sampling is applied when the auditor selects the sample without
following a structured technique. Such a technique is not appropriate when using statistical
sampling.
Statement 2: Cluster sampling involves selecting a block(s) of contiguous items from within
the population. Such a method would rarely be an appropriate sample selection technique
when the auditor intends to draw valid inferences about the entire population based on the
sample.
A. Only Statement 1 is correct
B. Only Statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

8. What is the primary objective of using stratification as a sampling method in auditing?

A. To increase the confidence level at which a decision will be reached from the results of the
sample selected.
B. To determine the occurrence rate for a given characteristic in the population being studied.
C. To decrease the effect of variance in the total population.
D. To determine the precision range of the sample selected.
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9. Which of the following audit procedures is best for identifying unrecorded trade accounts
payable?
A. Reviewing cash disbursements recorded subsequent to the reporting date to determine
whether the related payables apply to the prior period.
B. Investigating payables recorded just prior to and just subsequent to the reporting date
to determine whether they are supported by receiving reports.
C. Examining unusual relationships between monthly accounts payable balances and recorded
cash payments.
D. Reconciling vendors’ statements to the file of receiving reports to identify items
received just prior to the reporting date.

10. The auditor sends letter of inquiries to client’s attorney to

A. Inquire as to the probable outcome of any litigation
B. Request a description and evaluation of litigations, claims and assessments that
existed at the date of the financial statements
C. Corroborate information furnished by management about litigations, claims and assessments
D. Obtain information regarding going concern issues

11. Which of the following would not necessarily a related-party transaction?

A. Sales to another corporation with a similar name.
B. Purchases from another corporation that is controlled by the corporation’s chief stockholder.
C. Loan from the corporation to a major stockholder.
D. Sale of land to the corporation by the spouse of a director.

12. An auditor normally identifies related-party transactions by

A. Performing analytics for signs of possible financial difficulties
B. Review of recurring entries booked after the reporting period
C. Reviewing confirmation responses for loans for indications of guarantees
D. Inspecting responses from legal counsel for evidence of undisclosed contingencies

13. Examples of events or conditions, which individually or collectively, may cast significant
doubt about the going concern assumption include the following, except:
A. Net liability or net current liability position.
B. Change from credit to cash-on-delivery transactions with suppliers.
C. Labor difficulties or shortages of important supplies.
D. Compliance with capital or other statutory requirements.

14. RIEL, CPA, was about to issue an unqualified opinion on the financial statements of ABS
Television Broadcasting Company when a letter was received from ABS's independent
counsel. The letter stated that the Federal Communications Commission has notified ABS
that its broadcasting license will not be renewed because of alleged irregularities in its
broadcasting practices. ABS cannot continue to operate without the license. RIEL has also
learned that ABS and its independent counsel plan to take all necessary legal action to
retain the license. The letter from independent counsel, however, states that a favorable
outcome of any legal action is highly uncertain. On the basis of this information, what action
should RIEL take?
A. Issue an unqualified opinion, with an explanatory paragraph that describes the matter--giving
rise to the uncertainty.
B. Issue an unqualified opinion if full disclosure is made of the matter in a note to the financial
statements.
C. Issue an adverse opinion and disclose all reasons why.
D. Issue a piecemeal opinion with full disclosure made of the license dispute in a note to the
financial statements.
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15. Which of the following events in the subsequent period will require disclosure in the notes to
financial statements?
A. Realization of recorded year-end receivables at a different amount than recorded
B. Settlement of recorded year-end estimated product warranty liabilities at a different amount
than recorded
C. Purchase of a machine
D. Purchase of a business

16. Which of the following procedures would an auditor most likely perform in obtaining evidence
about subsequent events?
A. Determine that changes in employee pay rates after year-end were properly authorized.
B. Recompute depreciation charges for plant assets sold after year-end.
C. Inquire about payroll checks that were recorded before year-end but cashed after year-end.
D. Investigate changes in long-term debt occurring after year-end.

17. Which of the following procedures should an auditor generally perform regarding subsequent
events?
A. Compare the latest available interim financial statements with the financial statements being
audited.
B. Send second requests to the client's customers who failed to respond to initial
accounts receivable confirmation requests.
C. Communicate material weaknesses in the internal control structure to those charged with
governance.
D. Review the cut-off bank statements for several months after the year-end.

18. Matters normally included in management’s written representations shall be

A. Future plans of the entity
B. Reported internal control weaknesses encountered during the audit
C. Completeness and availability of minutes of meetings of shareholders and directors
D. Audit fees and billings

19. During the annual audit of PERSEVERANCE Corp., a publicly held company, Tom, CPA,
a continuing auditor, determined that illegal political contributions had been made during
each of the past seven years, including the year under audit. Tom notified the board of
directors about the illegal contributions, but they refused to take any action because the
amounts involved were immaterial to the financial statements. Tom should reconsider the
intended degree of reliance to be placed on the:
A. Preliminary judgment about materiality levels.
B. Letter of audit inquiry to the client's attorney
C. Management representation letter.
D. Prior years' audit plan

20. Which of the following pairs of accounts would an auditor most likely analyze on the same
working paper?
A. Notes receivable and interest income.
B. Accrued interest receivable and accrued interest payable.
C. Notes payable and notes receivable.
D. Interest income and interest expense.

21. Which of the following is incorrect?

A. Working papers are the property of the auditor.
B. Although portions of or extracts from the working papers may be made available to
the entity at the discretion of the auditor, they may be substitute for the entity’s
accounting records.
C. The auditor should prepare working papers which are sufficiently complete and
detailed to provide an overall understanding of the audit.
D. The auditor should record in the working papers information on planning the audit
work, the nature, timing and extent of the audit procedures performed, the results
thereof, and the conclusions drawn from the audit evidence obtained.
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22. A difference of opinion over accounting and auditing matters relative to a particular phase
of the audit arises between an assistant auditor and the auditor responsible for the
engagement. After appropriate consultation, the assistant auditor asks to be disassociated
from the resolution of the matter. The working papers would probably be
A. Silent on the matter since it is an internal matter of the firm.
B. Expanded to note that the assistant auditor is completely disassociated from responsibility for
the auditor's opinion.
C. Expanded to document the additional work required since all disagreements of this
type will require expanded substantive testing.
D. Expanded to document the assistant auditor's position and how the difference of opinion was
resolved.

23. If, in exceptional circumstances, the auditor performs new or additional audit procedures
or draws new conclusions after the date of the auditor’s report, the auditor shall document
A. The circumstances encountered
B. The new or additional audit procedures performed, audit evidence obtained, and
conclusions reached, and their effect on the auditor’s report
C. When and by whom the resulting changes to audit documentation were made and reviewed
D. All of the above.

24. Those charged with governance and management has responsibility over
Those charged with governance Management
A Preparation of financial statements Oversight of the financial reporting process
B Execution of business objectives and plans Development of business objective and plans
C Entity’s strategic direction Entity’s conduct of operations
D Entity’s conduct of operations Entity’s strategic direction

25. Which of the following statements relating to communication of audit matters of governance
interest is incorrect?
A. Audit matters of governance interest include only those matters that have come to the
attention of the auditor as a result of the performance of the audit.
B. In an audit in accordance with PSAs, the auditor should design audit procedures for the
specific purpose of identifying matters of governance interest.
C. The auditor should identify relevant persons who are charged with governance
and with whom audit matters of governance interest are to be communicated.
D. The auditor’s communications with those charged with governance may be made orally or in
writing.

26. Which of the following matters is an auditor required to communicate to an entity’s audit
committee?
I. Disagreements with management about matters significant to the entity’s financial
statements that have been satisfactorily resolved.
II. Initial selection of significant accounting policies in emerging areas that lack authoritative
guidance.
A. I only.
B. II only.
C. Both I and II.
D. Neither I nor II.

27. Should an auditor communicate the following matters to those charged with governance of an
audit client?
I. Significant audit adjustments recorded by the entity
B. II only.
C. Both I and II.
D. Neither I nor II.
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28. According to PSA 710, the incoming auditor may refer to the predecessor auditor’s report
on the corresponding figures in the incoming auditor’s report for the current period. The
incoming auditor’s report should indicate
I. That the financial statements of the prior period were audited by another auditor.
II. The type of report issued by the predecessor auditor.
III. The date of the predecessor auditor’s report.
A. I and II only.
B. I and III only.
C. II and III only.
D. I, II, and III.

29. Statement 1: Signoffs by the engagement partner and other members of the
engagement team may provide evidence that the working papers were reviewed.
Statement 2: Direction of the engagement team may be documented through signoffs of the
audit plan and project management activities.
A. True, True
B. False, True
C. True, False
D. False, False

30. The purpose of the title of the auditor’s report is to

I. Emphasize that the auditor is independent
II. Distinguish the report from those issued by others
III. Identify the entity for whom the report is prepared
A. I and II
B. I and III
C. II and III
D. I, II and III