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DE LA SALLE UNIVERSITY MANILA

RVR COB DEPARTMENT OF ACCOUNTANCY


REVDEVT 3rd Term AY 14-15

Auditing Theory

Prof. Francis H. Villamin

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REVIEWER Part II
PSA 520, Analytical Procedures
1. Two analytical procedures available to the auditor are:
1) Compare current years balances with the preceding year.
2) Compare detail of a total balance with the preceding year.
Shortcomings of these two procedures are that
a. The first fails to consider growth or decline in business activity and the second ignores
relationships of data to other data.
b. The first ignores relationships of data to other data and the second fails to consider the growth or
decline in business activity.
c. Both fail to consider growth or decline in business activity and ignore relationships of data.
d. It is difficult, time consuming and therefore costly to perform these procedures.
2. The design of the specific analytical procedures depends upon
a. The objectives the auditor sets.
b. The data available.
c. The decision rules which apply.
d. The conclusion to be reached.
3. A basic premise underlying analytical procedures is that
a. Plausible relationships among data may reasonably be expected to exist and continue in the
absence of known conditions to the contrary.
b. These procedures cannot replace tests of details of transactions and balances.
c. Statistical tests of financial information may lead to the detection of material misstatements in the
financial statements.
d. The study of financial ratios is an acceptable alternative to the investigation of unusual
fluctuations.
4. Which one of the following statements regarding the use of appropriate data is not true?
a. For comparisons to be useful, the data must be relevant to the objectives involved.
b. It is of questionable value to compare current year unaudited data with data that is unreliable.
c. To determine trends that enable meaningful analysis, comparisons should be made of at least
four periods for each ratio and percentage used.
d. Analytical procedures performed on disaggregated data are not as effective as those applied to
the financial statement data.
5. Which of the following best describes the problem with the use of published industry averages for
analytical procedures?
a. Lack of comparability.
b. Lack of reliability.
c. Lack of competence.
d. Lack of availability.

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6. To help plan the nature, timing and extent of substantive auditing procedures, preliminary auditing
procedures, preliminary analytical procedures should focus on
a. Enhancing the auditors understanding of the clients business and event that have occurred since
the last audit date.
b. Developing plausible relationships that corroborate anticipated results with a measurable amount
of precision.
c. Applying ratio analysis to externally generated data such as published industry statistics or price
indices.
d. Comparing recorded financial information to the results of other tests of transactions and
balances.
7. Analytical procedures performed in the final review stage of an audit generally would include
a. Reassessing the factors that assisted the auditor in deciding on preliminary materiality levels and
audit risk.
b. Considering the adequacy of the evidence gathered in response to unexpected balances
identified in planning.
c. Summarizing uncorrected misstatements specifically identified in planning.
d. Calculating projected uncorrected misstatements estimated through audit sampling techniques.
8. Which of the following ratios would an engagement partner most likely calculate when reviewing the
balance sheet in the overall review stage of an audit?
a. Quick assets/current assets.
b. Accounts receivable/inventory.
c. Interest payable/interest receivable.
d. Total debt/total assets.
9. What should a prudent auditor do when the aggregate of uncorrected misstatements approaches the
materiality level?

Perform analytical procedures


Request management to adjust
f/s for identified misstatements
Request management to adjust
f/s for projected misstatements

a
Yes
Yes

b
No
Yes

c
No
No

d
Yes
Yes

Yes

Yes

Yes

No

PSA 530, Audit Sampling and Other Selective Testing Procedures


10. Which of the following factors is generally not considered in determining the sample size for tests of
controls?
a. Risk of incorrect acceptance.
b. Tolerable rate.
c. Risk of assessing control risk too low.
d. Expected population deviation rate.
11. The most common method used of performing statistical tests of transactions is
a. Variable sampling.
b. Attribute sampling.
c. Judgment sampling.
d. Random selection of samples.
12. The initial sample size is so called because
a. The auditor must take several samples to ensure randomness.
b. The auditor must take several samples to ensure that the final sample is representative of the
population.
c. The deviations must be evaluated before deciding whether the sample is sufficiently large to
achieve the objectives.
d. There is always another sample to be done.

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13. Of the four factors which determine the initial sample size (population size, tolerable deviation rate,
acceptable risk of overreliance and expected population deviation rate), a combination of two factors
has the greatest effect on the sample size.
a. Population size times expected population deviation rate.
b. Expected population deviation rate plus acceptable risk of overreliance.
c. Tolerable deviation rate minus expected population deviation rate.
d. Acceptable risk of overreliance minus tolerable deviation rate.
14. The sample deviation rate equals
a. The number of deviation in the population divided by the sample size.
b. The number of items in the population multiplied by the number of deviations in the sample.
c. The number of deviations in the sample divided by the sample size.
d. The number of deviations in the population divided by the population size.
15. One of the ways to eliminate non sampling risk is through
a. Proper supervision and instruction of the clients employees.
b. Proper supervision and instruction of the audit team.
c. The use of attribute sampling rather than variable sampling.
d. Controls which ensure that the sample drawn is random and representative.
16. PSA 530 states, The auditor may decide to select specific items from a population based on such
factors as the auditors understanding of the entity, the assessed risk of material misstatement, and
the characteristics of the population being tested. Specific items that may be selected for testing
usually include the following, except:
a. Items that are of high value.
b. Items that are suspicious, unusual, risk-prone, or have a history of error.
c. All items whose values do not exceed a certain amount so as to verify only a small portion of the
total amount of class of transactions or account balance.
d. Items that provide information about matters such as the nature of the entity, the nature of
transactions, and internal control.
17. An advantage of using statistical over non-statistical sampling methods in tests of controls is that
statistical methods
a. Afford greater assurance than a non-statistical sample size of equal size.
b. Provide an objective basis for quantitatively evaluating sampling risks.
c. Can more easily convert the sample into dual-purpose test useful for substantive testing.
d. Eliminate the need to use judgment in determining appropriate sample sizes.
18. The risk of assessing control risk too high is the probability that the compliance evidence in the
sample indicates
a. Low control risk when the actual degree of compliance does not justify a low control risk
assessment.
b. Low control risk when the actual degree of compliance justifies a low control risk assessment.
c. High control risk when the actual degree of compliance justifies a low control risk assessment.
d. High control risk when the actual degree of compliance justifies a high control risk assessment.
19. Auditors who prefer statistical sampling to nonstatistical sampling may do so because statistical
sampling helps the auditor
a. Measure the sufficiency of the evidential matter obtained.
b. Eliminate subjectivity in the evaluation of sampling results.
c. Reduce the level of tolerable misstatement (error) to a relatively low amount.
d. Minimize the failure to detect a material misstatement due to nonsampling risk.
20. Which of the following selection methods is least desirable for use by an auditor?
a. Block selection.
b. Random selection.
c. Systematic selection.
d. Haphazard selection.
21. In planning statistical sample test of controls, an auditor increased the expected population deviation
rate (EDR) from the prior years rate because of the results of the prior years tests of controls and
the overall control environment. The auditor most likely would then increase the planned
a. Risk of assessing control risk too low.
b. Sample size.

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c. Allowance for sampling risk.
d. Tolerable deviation rate.

22. An error that arises from an isolated event that has not recurred other than on specifically identifiable
occasions and is therefore not representative of similar errors in the population is a/an
a. Anomalous error.
b. Isolated error.
c. Scandalous error.
d. Non-recurring error.
23. 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.
24. When planning a sample for a substantive test of details, the auditor should consider tolerable
misstatement for the sample. This consideration should
a. Be related to the auditors business risk.
b. Not be adjusted for qualitative factors.
c. Be related to preliminary judgments about materiality levels.
d. Not be changed during the audit process.
25. Which of the following statements regarding documentation of the sample selection process is not
true?
a. Regardless of the method used in selecting a random sample, it is necessary to have proper
documentation.
b. When comparing statistical sampling to judgmental sampling, it is more important that statistical
sampling be properly documented because of is mathematical nature.
c. Minimum documentation would include sufficient information to permit the reproduction of the
sample at a later date.
d. 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.
PSA 540, Audit of Accounting Estimates
26. Which of the following procedures would an auditor ordinarily perform first in evaluating the
reasonableness of managements accounting estimates?
a. Review transactions occurring prior to the completion of fieldwork that indicate variations from
expectations.
b. Compare independent expectations with recorded estimates to assess managements process.
c. Obtain an understanding of how management developed its estimates.
d. Analyze historical data used in developing assumptions to determine whether the process is
consistent.
27. The auditor should adopt one or a combination of the following approaches in the audit of 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.
28. In evaluating the assumptions on which the estimate is based, the auditor would need to pay
particular attention to assumptions which are
a. Reasonable in light of actual results in prior periods.
b. Consistent with those used for other accounting estimates.
c. Consistent with managements plans which appear appropriate.
d. Subjective or susceptible to material misstatement.

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29. The auditor should normally concentrate on the key factors and assumptions used by management
including all of the following except those that are:
a. Insignificant to the accounting estimates.
b. Sensitive to variations.
c. Deviations from historical patterns.
d. Susceptible to misstatement and bias.
PSA 545, Auditing Fair Value Measurements and Disclosures
30. When auditing the fair value of an asset or liability, valuation issues ordinarily arise at the point of
Initial Recording
Subsequent to initial recording
a.
b.
c.
d.

Yes
Yes
No
No

Yes
No
Yes
No

31. Which of the following is least likely to be an approach when auditing the fair values of assets and
liabilities?
a. Review and test managements process of valuation.
b. Confirm valuations with audit committee members.
c. Independently develop an estimate of the value of the account.
d. Review subsequent events relating to the account.
PSA 550, Related Parties
32. Which of the following statements is correct concerning related-party transactions?
a. In the absence of evidence to the contrary, related party transactions should be assumed to be
outside the ordinary course of business.
b. An auditor should determine whether a particular transaction would have occurred if the parties
had not been related.
c. An auditor should substantiate that related-party transactions were consummated on terms
equivalent to those that prevail in an arms-length transactions.
d. The audit procedures directed toward identifying related party transactions should include
considering whether transactions are occurring, but are not being given proper accounting
recognition.
33. Which of the following would not necessarily be a related party transaction?
a. A purchase from another corporation that is controlled by the corporations chief shareholder.
b. A loan from the corporation to a major shareholder.
c. Sale of land to the corporation by the spouse of a director.
d. A sale of another corporation with a similar name.
34. When auditor searching for related party transactions should obtain an understanding of each
subsidiarys relationship to the total entity because
a. This may permit the audit of intercompany account balances to be performed as of concurrent
dates.
b. This may reveal whether particular transactions would have taken place if the parties had not
been related.
c. The business structure may be deliberately designed to obscure related party transactions.
d. Intercompany transactions may have been consummated on terms equivalent to arms-length
transactions.
35. An auditor most likely would modify an unqualified opinion if the entitys financial statements include
a footnote on related-party transactions
a. Disclosing loans to related parties at interest rates significantly below prevailing market rates.
b. Describing an exchange of real estate for similar party in a nonmonetary related-party
transaction.
c. Stating that a particular related-party transaction occurred on terms equivalent to those that
would have prevailed in an arms-length transaction.
d. Present the peso volume of related-party transactions and the effects of any change in the
method of establishing terms from prior periods.

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36. When auditing related-party transactions, an auditor places primary emphasis on


a. Ascertaining the rights and obligations of the related parties.
b. Confirming the existence of the related parties.
c. Verifying the existence of the related parties.
d. Evaluating the disclosure of the related-party transactions.
37. After determining that a related-party transaction has, in fact, occurred, an auditor should
a. Add a separate paragraph to the auditors standard report to explain the transaction.
b. Perform analytical procedures to verify whether similar transactions occurred, but were not
recorded.
c. Obtain an understanding of the business purpose of the transaction.
d. Substantiate that the transaction was consummated on terms equivalent to an arms-length
transaction.
38. Which of the following procedures most likely could assist an auditor in identifying related-party
transactions?
a. Performing tests of controls concerning the segregation of duties.
b. Evaluating the reasonableness of managements accounting estimates.
c. Reviewing confirmations of compensating balance arrangements.
d. Scanning the accounting records for recurring transactions.
PSA 560, Subsequent Events
39.

Which of the following audit procedures is most likely to assist an auditor in identifying conditions
and events that may indicate substantial doubt about an entitys ability to continue as a going
concern?
a. Review compliance with terms of debt agreements.
b. Confirm accounts receivable from principal customers.
c. Reconcile interest expense with outstanding debt.
d. Confirm bank balances.

40.

If the balance sheet of a publicly-held company is dated December 31, 2014, the audit report is
dated March 6, 2015, and both are released to the public on March 15, 2015, this indicates that the
auditor has searched for material subsequent transactions and events that occurred up to
a. December 31, 2014
b. March 6, 2015
c. March 15, 2015
d. None of these

41.

The auditors formal review of subsequent events normally should be extended through the date of
the
a. Auditors report.
b. Next formal interim financial statements.
c. Delivery of the audit report to the client.
d. Mailing of the financial statements to the stockholders.

42.

Auditors should perform audit procedures relating to subsequent events?


a. Through the year end.
b. Through the issuance of the audit report.
c. Through the last day of field work.
d. For a reasonable period after the year ends.

43.

Which of the following events occurring after the issuance of an auditors report most likely would
cause the auditor to make further inquiries about the previously issued financial statements?
a. An unissued natural disaster occurs that may affect the entitys ability to continue as a going
concern.
b. A contingency is resolved that have been disclosed in the audited financial statements.
c. New information is discovered concerning undisclosed lease transactions of the audited period.
d. A subsidiary is sold that accounts for 25% of the entitys consolidated net income.

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44.

Which of the following statements best describes the date of the financial statements?
a. The date on which those with the recognized authority assert that they have prepared the
entitys complete set of financial statements, including the related notes, and that they have
taken responsibility for them.
b. The date that the auditors report and the audited financial statements are made available to
third parties.
c. The date of the end of the latest period covered by the financial statements, which is normally
the date of the most recent balance sheet in the financial statements subject to audit.
d. The date on which the auditor has obtained sufficient appropriate evidence on which to base
the opinion on the financial statements.

45.

Which of the following events occurring after the issuance of an auditors report most likely would
cause the auditor to make further inquiries about the previously issued financial statements?
a. A technological development that could affect the entitys future ability to continue as a going
concern.
b. The entitys sale of a subsidiary that accounts for 30% of the entitys consolidated sales.
c. The discovery of information regarding a contingency that existed before the financial
statements were issued.
d. The final resolution of a lawsuit disclosed in the notes to the financial statements.

46.

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.

PSA 570, Going Concern


47. Which of the following auditing procedures most likely would assist an auditor in identifying
conditions and events that may indicate substantial doubt about an entitys ability to continue as a
going concern?
a. Inspecting title documents to verify whether any assets are pledged as collateral.
b. Confirming with third parties the details of arrangements to maintain financial support.
c. Reconciling the cash balance per books with the cutoff bank statement and the bank
confirmation.
d. Comparing the entitys depreciation and asset capitalization policies to other entities in the
industry.
48. Which of the following conditions or events most likely would cause an auditor have a substantial
doubt about an entitys ability to continue as a going concern?
a. Cash flows from operating activities are negative.
b. Stock dividends replace annual cash dividends.
c. Significant related party transactions are pervasive.
d. Research and development projects are postponed.
49. The adverse effects of events causing an auditor to believe that there is substantial doubt about an
entitys ability to continue as a going concern would most likely be mitigated by evidence relating to
the
a. Ability to expand operations into new product lines in the future.
b. Feasibility of plans to purchase leased equipment at less than market value.
c. Marketability of assets that management plans to sell.
d. Committed arrangements to covert preferred stock to long-term debt.
50. After considering an entitys negative trends and financial difficulties, an auditor has substantial
doubt about the entitys ability to continue as a going concern. The auditors considerations relating
to managements plans for dealing with the adverse effects of these conditions most likely would
include managements plans to
a. Increase current dividend distributions.
b. Reduce the existing lines of credit.
c. Increase ownership equity.
d. Purchase assets formerly leased.

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51. Which of the following audit procedure most likely would assist an auditor in identifying conditions
and events that may include substantial doubt about an entitys ability to continue as a going
concern?
a. Reading the minutes of meetings of the stockholders and the board of directors.
b. Comparing the market value of property to amounts owed on the property.
c. Reviewing lease agreements to determine whether leased assets should be capitalized.
d. Inspecting the documents to verify whether any assets are pledged as collateral.
52.

Which of the following is incorrect about the managements responsibility to make an assessment of
an entitys ability to continue as a going concern?
a. In assessing whether the going concern assumption is appropriate, the management takes into
account all available information for the foreseeable future, which should be at least twelve
months from the balance sheet date.
b. Though there is a history of profitable operations and a ready access to financial statements,
management must make the assessments with detailed analysis.
c. Managements assessment of the going concern assumption involves making a judgment, at a
particular point of time, about the future outcomes of events or conditions which are inherently
uncertain.
d. Management should make explicit assessment of its ability to continue as a going concern.

PSA 580, Management Representations


53. For which of the following matters should an auditor obtain written management representations?
a. Managements cost-benefit justifications for not correcting internal control weaknesses.
b. Managements knowledge of future plans that may affect the price of the entitys stock.
c. Managements compliance with contractual agreements that may affect the financial statements.
d. Management acknowledgement of its responsibility for employees violation of laws.
54. The purpose of a management representation letter is to reduce
a. The possibility of misunderstanding concerning managements responsibility for the financial
statements.
b. The scope of an auditors procedures concerning related party transactions and subsequent
events.
c. Audit risk to an aggregate level of misstatement that could be considered material.
d. An auditors responsibility to detect material misstatements only to the extent that the letter is
relied on.
55. A written management representation letter is most likely to be an auditors best source of
corroborative information of a clients intention to
a. Settle an outstanding lawsuit for an amount less than the accrued loss contingency.
b. Discontinue a line of business.
c. Terminate an employee pension plan.
d. Make a public offering of its common stock.
56. Which of the following should be included in written management representations obtained by the
auditor in connection with a financial statement audit?
a. Managements belief that the effects of uncorrected misstatements are not material.
b. Managements belief that the effects of uncorrected misstatements are material.
c. Managements belief that the effects of uncorrected misstatements are in the aggregate, but not
individually, immaterial.
d. A summary of all corrected misstatements.
57. Auditors are required to obtain a letter of representation from their clients. Which of the following
statements regarding the letter of representation is correct?
a. A letter of representation should impress upon management its responsibility for the assertions
in the financial statements.
b. A letter of representation should be signed by the companys officials and attorneys.
c. A letter of representation documents the responses from management to inquiries about various
aspects of the audit.
d. A letter of representation is a written statement from a non-independent party and as such
should be regarded as valid evidence.

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58. Which of the following statements is true with respect to management representations?
a. Management representations are dated as of the balance sheet date.
b. Management representations may serve as a substitute for various types of substantive
procedures.
c. Management representations are signed by the auditor and delivered to the clients officers.
d. Management representations are used to corroborate information obtained during the audit.
59. A written representation from a clients management that, among other matters, acknowledges
responsibility for the fair presentation of financial statements, should normally signed by the
a. Chief financial officer and the chair of the board of directors.
b. Chief executive officer and the chief financial officer.
c. Chief executive officer, the chair of the board of directors, and the clients lawyer.
d. Chair of the audit committee of the board of directors.
60. Which of the following expressions most likely would be included in a management representation
letter?
a. No events have occurred subsequent to the balance sheet date that require adjustment to, or
disclosure in the financial statements.
b. There are no reportable conditions identified during the prior years audit of which the audit
committee of the board of directors is unaware.
c. We do not intend to provide any information that may be construed to constitute a waiver of the
attorney-client privilege.
d. Certain computer files and other required evidential matter may exist only for a short period of
time and only in computer-readable form.
PSA 600, Using the Work of Another Auditor
61. When the principal auditor decides to refer to another auditor in his/her report, the report should
always include:
a. A qualified or adverse opinion.
b. A disclaimer of opinion regarding the financial statements audited by the other auditor.
c. The percentage and monetary amounts of the portion of the financials statements examined by
the other auditor.
d. Reference to a footnote where the division of responsibility between the principal auditor and
the other auditor is described in detail.
62. When the financial statements of the prior period were audited by another auditor
I. The predecessor auditor may reissue the audit report on the prior period with the incoming
auditor only reporting on the current period.
II. The incoming auditors report should state that the prior period was audited by another auditor
and the incoming auditors report should indicate that the financial statements of the prior period
were audited by another auditor.
a. I only
b. II only
c. Both I and II
d. Either I or II
63. The auditor with responsibility for reporting on the financial statements of an entity when those
financial statements include financial information of one or more components audited by another
auditor is the
a. Parent auditor.
b. Principal auditor.
c. External auditor.
d. Independent auditor.
64. As used in PSA 600 (Using the Work of Another Auditor), a _________ means a division, branch,
subsidiary or other entity whose financial information is included in financial statements audited by
the principal auditor.
a. Division.
b. Related party.
c. Component.
d. Separate entity.

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PSA 610, Considering the Work of Internal Auditing


65. In a financial statement audit, the independent auditor would not rely on the work of an internal
auditor in
a. Obtaining an understanding of the internal control structure.
b. Assessing risk.
c. Determining a preliminary estimate of materiality.
d. Performing substantive tests.
66. Which of the following is an incorrect statement concerning the relationship of the internal auditor
and the scope of the external audit of an entitys financial statements?
a. The external auditor is not required to give consideration to the internal audit function beyond
obtaining a sufficient understanding to identify and assess the risks of material misstatement of
the financial statements and to design and perform further audit procedures.
b. The internal auditors may determine the extent to which audit procedures should be employed by
the external auditor.
c. Under certain circumstances, the internal auditors may assist the external auditor in performing
substantive tests and tests of controls.
d. The nature, timing and extent of external auditors substantive tests may be affected by the work
of internal auditors.
67. The overall objective of internal auditing is to
a. Design and implement an effective internal control structure.
b. Assist the independent auditors in gathering evidence needed to form an opinion on the fairness
of the financial statements.
c. Ensure that assets are properly accounted for and protected from loss or misuse.
d. Provide information about any phase of business activity to assist members of management in
discharging their responsibilities.
68. Internal auditors role in preventing and detecting fraud would not include the
a. Audit of abnormal expenditures.
b. Audit of sensitive expenses such as foreign sale expenses.
c. Review of the companys policies regarding questionable payments.
d. Direct responsibility of reporting fraud to the SEC
69. When considering the objectivity of internal auditors, an independent auditor should
a. Evaluate the quality control program in effect for the internal auditors.
b. Examine documentary evidence of the work performed by the internal auditors.
c. Test a sample of the transactions and balances that the internal auditors examined.
d. Determine the organization level to which internal auditors report.
PSA 620, Using the Work of An Expert
70. In using the work of a specialist, an auditor referred to the specialists findings in the auditors
report. This would be an appropriate reporting practice if the
a. Client is not familiar with the professional certification, personal reputation, or particular
competence of the specialist.
b. Auditor, as a result of the specialists findings , adds an explanatory paragraph emphasizing a
matter regarding the financial statements.
c. Client understands the auditors corroborative use of the specialists findings in relation to the
representations in the financial statements.
d. Auditor, as a result of the specialists findings, decides to indicate a division of responsibility
with the specialist.
71. In using the work of a specialist, an understanding should exist among the auditor, the client, and
the specialist as to the nature of the specialists work. The documentation of this understanding
should cover
a. A statement that the specialist assumes no responsibility to update the specialists report for
future events or circumstances.
b. The conditions under which a division of responsibility may be necessary.
c. The specialists understanding of the auditors corroborative use of the specialists findings.
d. The auditors disclaimer as to whether the specialists findings corroborate the representations
in the financial statements.

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72. Which of the following statements is correct concerning an auditors use of the work of an expert?
a. The work of an expert who is related to the client may be acceptable under certain
circumstances.
b. If an auditor believes that the determination made by an expert are unreasonable, only a
qualified opinion may be issued.
c. If there is a material difference between the experts findings and the assertions in the financial
statements, only an adverse opinion may be issued.
d. An auditor may not use an expert in the determination of physical characteristics relating to
inventories.
73. In using the work of an expert, an auditor may refer to the expert in the auditors report, if as a result
of the experts findings, the auditor
a. Becomes aware of conditions causing substantial doubt about the entitys ability to continue as
a going concern.
b. Desires to disclose the experts findings, which imply that a more thorough audit was performed.
c. Is able to corroborate another specialists earlier findings that were consistent with
managements representations.
d. Discovers significant deficiencies in the design of the entitys internal control that management
does not correct.
PSA
700
(Revised)
The
Independent
Complete Set of a General Purpose Financial Statements

Auditors

Report

on

74. PSA 700 (Revised), The Independent Auditors Report on a Complete Set of General Purpose
Financial Statements, provides the following basic elements of the auditors report except
a. introductory paragraph
b. managements responsibility for the financial statements
c. auditors opinion paragraph.
d. starting and completion dates of the audit.
75. Which of the following elements is a basic element of the auditors standard report?
a. An audit includes assessing significant estimates made by management.
b. The auditor evaluated the internal control.
c. The disclosures provide reasonable assurance that the financial statements are free from
material misstatements whether due to fraud or error.
d. The financial statements are consistent with those of prior period.
76. Which of the following sentences or phrases from the auditors report is not correctly stated?
a. We have audited the accompanying..
b. We conducted our audit in accordance with generally accepted auditing standards.
c. In our opinion, the financial statements referred to above present fairly the financial position.
d. .. in conformity with generally accepted accounting principles.
77. Which of the following statements expresses the objective of the traditional audit of financial
statements?
a. To express an opinion on the fairness with which the statements present financial position,
financial performance, and cash flows in accordance with Philippine Financial Reporting
Standards.
b. To express an opinion on the accuracy with which the statements present financial position,
financial performance, and cash flows in accordance with Philippine Financial Reporting
Standards.
c. To make suggestions as to the form or content of the financial statements or to draft them in
whole or in part.
d. To assure adoption of sound accounting policies and the establishment and maintenance of
internal control.
78. Which of the following best describes why an independent auditor is asked to express an opinion
on the fair presentation of financial statements?
a. It is a customary courtesy that all shareholders receive an independent report on managements
stewardship in managing the affairs of the business.
b. The opinion of an independent party is needed because a company may not be objective with
respect to its own financial statements.
c. It is difficult to prepare financial statements that fairly present a companys financial position,
financial performance, and cash flows without the expertise of an independent auditor.

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Reviewer- Part II
d. It is managements responsibility to seek available independent aid in the appraisal of the
financial information shown in its financial statements.

79. Which of the following statements is a basic element of the auditors standard report?
a. The disclosures provide reasonable assurance that the financial statements are free of material
misstatement.
b. The auditor evaluated the overall internal control.
c. An audit includes assessing significant estimates made by management.
d. The financial statements are consistent with those of the prior period.
80. Which of the following circumstances would not be considered a departure from the auditors
standard report?
a. The auditor wishes to emphasize a particular matter regarding the financial statements.
b. The auditors opinion is based in part on the report of another auditor.
c. The financial statements are affected by a departure from a generally accepted accounting
principle.
d. The auditor is asked to report only on the balance sheet but has unlimited access to information
underlying all the basic financial statements.
81. The auditor would most likely issue a disclaimer of opinion because of
a. The clients failure to present supplementary information required by FRSC.
b. Inadequate disclosure of material information.
c. A client-imposed scope limitation.
d. The qualification of an opinion by the other auditor of a subsidiary where there is a division of
responsibility.
82. A limitation on the scope of the auditors examination sufficient to preclude an unqualified opinion
will always result when management
a. Engages an auditor after the year-end physical inventory count.
b. Refuses to furnish a representation letter.
c. Knows that direct confirmation of accounts receivable with debtors is not feasible.
d. Engages an auditor to examine only the balance sheet.
83. Which of the following will not result in modification of the auditors report to a scope limitation?
a. Restrictions imposed by the client.
b. Reliance placed on the report of another auditor.
c. Inability to obtain sufficient competent evidential matter.
d. Inadequacy in the accounting records.
84. When an accountant performs more than one level of service (for example, a compilation and a
review, or a compilation and an audit) concerning the financial statement of a non public entity, the
accountant should generally issue the report that is appropriate for
a. The lowest level of service rendered.
b. The highest level of service rendered.
c. A compilation engagement.
d. A review engagement.
85. An auditor may issue the standard audit report when the
a. Auditor refers to the findings of a specialist.
b. Financial statements are derived and condensed from complete audited from financial
statements that are filed with a regulatory agency.
c. Financial statements are prepared on the cash receipts and disbursements basis of accounting.
d. Principal auditor assumes responsibility for the work of another auditor.
PSA 705 Modifications to the Independent Auditors Report
86. An independent auditor discovers that a payroll supervisor of the company being audited has
misappropriated P50,000. The companys total assets and income before tax are P70 million and
P15 million, respectively. Assuming no other issues affect the report, the auditors report will most
likely contain a/an
a. Unqualified opinion.
b. Disclaimer of opinion.
c. Adverse opinion.
d. Scope qualification.

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87.

When financial statements contain a departure from an acceptable Financial Reporting Framework
(FRF) because, due to unusual circumstances, the statements would otherwise be misleading, the
auditor should explain the unusual circumstances in a separate paragraph and express an opinion
that is
a. Adverse
b. Qualified
c. Unqualified
d. Qualified or Adverse, depending on materiality

88.

When would the auditor refer to the work of an appraiser in the auditors report?
a. An adverse opinion is expressed based on a difference of opinion between the client and the
outside appraiser as to the value of certain assets.
b. A disclaimer of opinion is expressed because of a scope limitation imposed on the auditor by
the appraiser.
c. A qualified opinion is expressed because of a matter unrelated to the work of the appraiser.
d. An unqualified opinion is expressed and an emphasis of matter paragraph is added to disclose
the use of the appraisers work.

89.

An auditor decides to express a qualified opinion on an entitys financial statements because a


major inadequacy in its computerized accounting records prevents the auditor from applying
necessary procedures. The opinion paragraph of the auditors report should state that the
qualification pertains to
a. A client-imposed scope limitation.
b. A departure from generally accepted auditing standards.
c. Inadequate disclosure of necessary information.
d. The possible effects on the financial statements.

90.

In which of the following situations would an auditor ordinarily choose between a qualified opinion
or an adverse opinion?
a. The auditor wishes to emphasize an unusually important subsequent event.
b. The financial statements fail to disclose information that is required by Philippine Financial
Reporting Standards.
c. Events disclosed in the financial statements cause the auditor to have substantial doubt about
the entitys ability to continue as a going concern.
d. The auditor did not observe the entitys physical inventory and is unable to become satisfied as
to its balance by other auditing procedures.

91. The distinction between an adverse opinion and a disclaimer of opinion is


a. Lack of PFRS versus lack of GAAS.
b. Knowledge versus lack of knowledge.
c. The CPAs report versus the CIAs report.
d. FRSC statement versus the PICPA standards.
92. In order to make materiality decisions when a condition requiring departure from unqualified report
exists, the auditor must evaluate
a. The magnitude of the error on the account involved.
b. The effect on the financial statement which contains the erroneous account.
c. The effects of the error on both the income statement and the balance sheet.
d. All the effects on the financial statements.
93. The primary concern in measuring materiality when a client has failed to follow PFRS is usually
a. The total peso error in the accounts involved, compared with some base.
b. Measurability of the peso error.
c. The nature of the item in error.
d. Whether it can materially affect some future period.
94. Whenever there is a scope restriction, the appropriate response is to issue
a. A disclaimer of opinion.
b. An adverse opinion.
c. A qualified opinion.
d. An unqualified report, a qualification of scope and opinion, or a disclaimer of opinion,
depending on materiality.

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95. The most common case in which conditions beyond the clients and auditors control can cause a
scope restriction is an engagement
a. Agreed upon after the clients balance sheet date.
b. Where the client would not allow auditor to confirm receivables for fear of offending his
customers.
c. Where the auditor does not have enough staff to audit all of the clients foreign subsidiaries
satisfactorily.
d. Where client is going through bankruptcy.
96. A scope and opinion qualification can be issued only when the auditor
a. Is not independent.
b. Has not been able to accumulate all the evidence required by generally accepted auditing
standards.
c. Has accumulated all the evidence required by generally accepted auditing standards.
d. Has been restricted by client from gathering the needed information to form an opinion.
97. A qualified opinion is appropriate when the auditor is satisfied that the financial statements are
a. Fairly stated.
b. Materially misstated.
c. Fairly stated, but there is a material exception.
d. Fairly stated, even though there is an immaterial exception.
98. When a client will not permit inquiry of outside legal counsel, the audit report will ordinarily contain
a/an
a. Disclaimer of opinion.
b. Adverse opinion.
c. Subject to qualified opinion.
d. Unqualified opinion with an emphasis of matter paragraph.
PSA 710 Comparatives
99. There are two broad financial reporting frameworks for comparatives: the corresponding figures
and the comparative financial statements. Which of the following statements is correct concerning
these reporting frameworks?
a. Under the corresponding figures framework, the corresponding figures for the prior period(s)
are integral part of the current period financial statements.
b. Under the corresponding figures framework, the corresponding figures for the prior period(s)
are considered separate financial statements.
c. Under the comparative financial statements framework, the comparative financial statements for
the prior period(s) are intended to be read in conjunction with the amounts and other
disclosures relating to the current period.
d. Under the comparative financial statements framework, the amounts and other disclosures for
the prior period(s) form part of the current period financial statements.
100. Unaudited financial statements for the prior year presented in comparative form with audited
financial statements for the current year should be clearly marked to indicate their status and
I. The report on the prior period should be reissued to accompany the current period report.
II. The report on the current period should include as a separate paragraph a description of the
responsibility assumed for the prior periods financial statements.
a. I only.
b. II only.
c. Both I and II.
d. Either I or II.
PSA 720, Other Information in Documents Containing Audited Financial Statements
101. Which of the following is considered unaudited information when included with historical financial
statement?
a. Interim information.
b. Segment information.
c. Notes to financial statements.
d. Investment security classifications.

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102. Which of the following statements regarding the auditors responsibilities for supplementary
information required by the FRSC?
a. Because the supplementary information is required part of the basic financial statements, the
auditor should apply normal auditing procedures.
b. The omission of, but not deficiencies in, supplementary information should be disclosed in the
opinion paragraph of the auditors report.
c. Because the supplementary information is not a required part of the basic financial statements ,
the auditor should apply only certain limited procedures.
d. The omission of supplementary information ordinarily requires the auditor to issue an adverse
opinion, but mere deficiencies require an except for qualified opinion.
103. Which of the following best describes the auditors responsibility for other information included in
the annual report to stockholders that contains financial statements and the auditors report?
a. The auditor has no obligation to read other information.
b. The auditor has no obligation to corroborate the other information but should read the other
information to determine whether it is materially inconsistent with the financial statements.
c. The auditor should extend the examination to the extent necessary to verify the other
information.
d. The auditor must modify the auditors report to state that the other information is audited or is
not covered by the auditors report.
104. According to PSA 720, when audited financial statements are presented in document (e.g. annual
report) containing other information, the auditor
a. Should read the other information to consider whether it is inconsistent with the audited
financial statements.
b. Has no responsibility for the other information because it is not part of the basic financial
statements.
c. Has an obligation to perform auditing procedures to corroborate the other information.
d. Is required to express a qualified opinion if the other information has a material misstatement of
fact.
105. Which of the following best describes the auditors reporting responsibility concerning information
accompanying the basic financial statements in an auditor-submitted document?
a. The auditor should report on all the information included in the document.
b. The auditor should report on the basic financial statements but may not issue a report covering
the accompanying information.
c. The auditor should report on the information accompanying the basic financial statements only
if the auditor participated in the preparation of the accompanying information.
d. The auditor should report on the information accompanying the basic financial statements only
if the document is being distributed to public shareholders.
PSA 800, The Auditors Report on Special Purpose Audit Engagements
106. Whenever special reports, filed on a printed form designed by authorities, call upon the
independent auditor to make an assertion that the auditor believes is not justified, the auditor
should
a. Submit a short-form report with explanations.
b. Reword the form or attach a separate report.
c. Submit the form with questionable items clearly omitted.
d. Withdraw from the engagement.
107. Reports are considered special reports when issued in connection with
a. Compliance with aspects of regulatory requirements related to audited financial statements.
b. Pro forma financial presentations designed to demonstrate the effect of hypothetical
transactions.
c. Feasibility studies presented to illustrate an entitys results of operations.
d. Interim financial information reviewed to determine whether modifications should be made to
conform with generally accepted accounting principles.
108. If the auditor believes that financial statements which are prepared on a comprehensive basis of
accounting other than generally accepted accounting principles are not suitably titled, the auditor
should
a. Modify the auditors report to disclose any reservations.
b. Consider the effects of the titles on the financial statements taken as a whole.

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Reviewer- Part II
c. Issue a disclaimer of opinion.
d. Add a footnote to the financial statements which explains alternative terminology.

109. When asked to perform an examination in order to express an opinion on one or more specified
elements, accounts, or items of a financial statement, the auditor
a. May not describe auditing procedures applied.
b. Should advise the client that the opinion will result in a piecemeal opinion.
c. May assume that the first standard of reporting with respect to generally accepted principles
does not apply.
d. Should comply with the request if they constitute a major portion of the financial statements on
which an auditor has disclaimed an opinion based on an audit.
110. The term special reports: may include all of the following, except reports on financial statements
a. Of an organization that has limited the scope of the auditors examination.
b. Prepared for limited purposes such as a report that relates to only certain aspects of financial
statements.
c. Of a not-for-profit organization which follows accounting by business enterprises organized for
profit.
d. Prepared in accordance with historical cost/constant peso accounting.
PSA 810, The Examination of Prospective Financial Information
111. An examination of a financial forecast is a professional service that involves
a. Compiling or assembling a financial forecast that is based on managements assumptions.
b. Limiting the distribution of the accountants report to management and the board of directors.
c. Assuming a responsibility to update management on key events for one year after the reports
date.
d. Evaluating the preparation of a financial forecast and the support underlying managements
assumptions.
112. An accountant may accept an engagement to apply agreed-upon procedures to prospective
financial statements provided that
a. Use of the report is restricted to the specified parties.
b. The prospective financial statements are also examined.
c. Responsibility for the adequacy of the procedures performed is taken by the accountant.
d. Negative assurance is expressed on the prospective financial statements taken as a whole.
113. Which of the following statements is correct concerning an auditors responsibilities regarding
financial statements?
a.
Making suggestions that are adopted about the form and content of an entitys financial
statements impairs an auditors independence.
b.
An auditor may draft an entitys financial statements based on information from
managements accounting system.
c.
The fair presentation of audited financial statements in conformity with GAAP is an implicit
part of the auditors responsibilities.
d.
An auditors responsibilities for audited financial statements are not confined to the
expression of the auditors opinion.
114.

When a CPA is associated with the preparation of forecasts, all of the following should be
disclosed except the
a.
Sources of information.
b.
Character of the work performed by the CPA.
c.
Major assumptions in the preparation of the forecasts.
d.
Probability of achieving estimates.

115.

On an audit engagement performed by a CPA firm with one office, at a minimum, knowledge of
the relevant professional accounting and auditing standards should be held by
a. The auditor with final responsibility for the audit.
b. All professionals working upon the audit.
c. All professionals working upon the audit and the partner in charge of the CPA firm.
d. All professionals working in the office.

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Reviewer- Part II

PSA establishes standards and procedures for which of the following engagements?
a. Assisting in adjusting the books of account for a partnership.
b. Reviewing interim financial data required to be filed with the SEC.
c. Processing financial data for clients of other accounting firms.
d. Compiling an individuals personal financial statements to be used to obtain a mortgage.

117. PSA require an accountant to report when the accountant has


a. Typed client-prepared financial statements, without modification, as an accommodation to the
client.
b. Provided a client with a financial statement format that does not include peso amounts, to be
used by the client in preparing financial statements.
c. Proposed correcting journal entries to be recorded by the client that change client-prepared
financial statements.
d. Generated, through the use of computer software, financial statements prepared in accordance
with a comprehensive basis of accounting other than GAAP.
PSRE 2400 Engagements to Review Financial Statements
118. In a review engagement, the practitioner and the client should agree on the terms of engagement.
The agreed terms would be recorded in an engagement letter or other suitable form such as a
contract. The engagement letter should include all of the following, except
a. A provision that the engagement cannot be relied upon to disclose errors, fraud or illegal acts.
b. A provision that any errors, fraud, or illegal acts that come to the practitioners attention need not
be reported.
c. A sample of the report expected to be rendered.
d. The objective of the service to be performed.
119. The objective of a review of interim financial information of a public entity is to provide the
accountant with a basis for
a. Determining whether the prospective financial information is based on reasonable assumptions .
b. Expressing limited opinion that the financial information is presented in conformity with generally
accepted accounting principles.
c. Deciding on whether to perform substantive audit procedures prior to balance sheet date.
d. Reporting whether the material modifications should be made for such information to conform
with generally accepted accounting principles.
120. An accountant has been engaged to review a nonpublic entitys financial statements that contain
several departures from GAAP. If the financial statements are not revised and modifications of the
standard review report is not adequate to indicate the deficiencies, the accountant should
a. Withdraw from the engagement and provide no further services concerning these financial
statements.
b. Inform management that the engagement can proceed only if distribution of the accountants
report is restricted to internal use.
c. Determine the effects of the departures from GAAP and issue a special report on the financial
statements.
d. Issue a modified review report provided the entity agrees that the financial statements will not be
used to obtain credit.
121. Which of the following should be included in an accountants standard report based upon the
review of a nonpublic entitys financial statements?
a. A statement that the review was performed in accordance with generally accepted review
standards.
b. A statement that a review consists primarily of inquiries and analytical procedures.
c. A statement that the accountant is independent with respect to the entity.
d. A statement that a review is substantially greater in scope than a compilation.
122. An auditor who was engaged to perform an audit of the financial statements of a nonpublic entity
has been asked by the client to refrain from performing various audit procedures and change the
nature of the engagement to a review of the financial statements in accordance with standards
established by ASPC. The clients request was made because the cost to complete the audit was
significant. Under the circumstances the auditor would most likely
a. Qualify the auditors report and refer to the scope limitation.
b. View the request as an indication of a possible irregularity.

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c.
d.

Complete the examination which was in progress.


Honor the clients request.

PSRS 4400 Engagements to Perform Agreed-Upon Procedures Regarding Financial Information


123. Which of the following is correct concerning an engagement to apply agreed-upon procedures?
a. A clear understanding of the terms of the engagement must be established through the use of
an engagement letter.
b. Independence of the CPA is not required.
c. The procedures may be as limited or extensive as the CPAs desire ranging from a mere
reading of the information to performing search and verification procedures.
d. Use of the report is restricted to the specified users.
124. Which of the following is least likely to be included in a agreed-upon procedures engagement
report?
a. Identification of the purpose for which the agreed-upon procedures were performed.
b. A summary of procedures performed.
c. Limited assurance on the information presented.
d. Use of the report is restricted.
125. Which of the following procedures is most likely to be appropriate procedure when performed as an
agreed-upon procedures engagement under the attestation standards?
a. Evaluation of the competence or objectivity of another party.
b. Interpreting documents outside the scope of the practitioners professional expertise.
c. Obtaining an understanding about a particular subject.
d. Performance of mathematical computations.
PSRS 4410 Engagements to Compile Financial Information
126. When engaged to compile the financial statements of a nonpublic entity, an accountant is required
to possess a level of knowledge of the entitys accounting principles and practices. This
requirement most likely will include obtaining a general understanding of the
a. Stated qualifications of the entitys accounting personnel.
b. Design of the entitys internal controls placed in operation.
c. Risk factors relating to misstatements arising from illegal acts.
d. Internal control awareness of the entitys senior management.
127. Each page of the financial statements compiled by an accountant should include a reference such
as
a. Subject to Compilation Restrictions.
b. Refer to Compilation Report.
c. Unaudited, See Accountants Disclaimer.
d. See Accompanying Accountants Footnotes.
128. An accountants compilation report on the financial forecast should include a statement that the
a. Compilation does not include evaluation of the support of the assumptions underlying the
forecast.
b. Hypothetical assumption used in the forecast are reasonable.
c. Range of assumptions selected in one in which one end of the range is likely to occur than the
other.
d. Prospective statements are limited to presenting, in the form of a forecast, information that is
the accountants representation.
129. When compiled financial statements are accompanied by a report, that report should state all of the
following except
a. The accountant does not express an opinion or any other form of assurance on them.
b. A compilation has been performed.
c. A compilation is limited to presenting in the form of financial statements information that is
representation of management.
d. A compilation consists principally of inquiries of company personnel and analytical procedures
applied to financial data.

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130. An accountants compilation report should be dated as of the date of the


a. Completion of field work.
b. Completion of compilation.
c. Transmittal of the compilation report.
d. The latest subsequent event referred to in the notes to financial statements.
131. When an accountant is not independent of a client and is requested to perform a compilation of its
financial statements, the accountant
a. Is precluded from accepting the engagement.
b. May accept the engagement and should disclose the lack of independence, but not the reason
for the lack of independence.
c. May accept the engagement and need not disclose the lack of independence.
d. May accept the engagement and should disclose both the lack of independence and the
reason for the lack of independence.
132. How does an accountant make the following representations when issuing the standard report for
the compilation of a nonpublic entitys financial statements?
The financial statements
have not been audited
a.
b.
c.
d.

Implicitly
Explicitly
Implicitly
Explicitly

The accountant has compiled


the financial statements
Implicitly
Explicitly
Explicitly
Implicitly

PAPS 1008, Risk Assessments and Internal Control CIS Characteristics and Considerations
133. Which of the following statements is not correct?
a. There is no distinction between the audit concepts applicable to complex electronic data
processing and those applicable to non-complex systems.
b. When computers or other aspects of EDP systems are introduced, generally accepted auditing
standards and their interpretations, the Code of Professional Conduct, legal liability, and the
basic concepts of evidence accumulation remain the same.
c. Most EDP-based accounting systems rely extensively on the same types of procedures for
control that are used in non-complex systems.
d. The specific methods appropriate for implementing the basic auditing concepts do not change
as systems become more complex.
134. Regardless of the nature of an entitys information system, the auditor must consider internal
control. In a CIS environment, the auditor, must, at a minimum, have
a. A background in programming procedures.
b. An expertise in computer systems analysis.
c. A sufficient knowledge of the computers operating system.
d. A sufficient knowledge of the computer information system.
135. Which of the following is not a general control?
a.
The plan of organization and operation of EDP activity.
b.
Procedures for documenting, reviewing and approving systems and programs.
c.
Processing controls.
d.
Hardware controls.
136. A hardware element that takes the computers digital information and transforms it into signals that
can be sent over ordinary telephone lines is a/an
a. Intelligent terminal.
b. Point-of-sale terminal.
c. Terminal emulator.
d. Modem.

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137. A CIS where two or more personal computers are linked together through the use of special
software and communication lines and allows the sharing of application software, data files, and
computer peripherals, such as printers and optical scanners is a/an
a. Local area network (LAN).
b. On-line system.
c. Batch processing system.
d. Wide area network (WAN).
138. A computer information system that allows individual users to develop and execute application
programs, enter and process data, and generate reports in a decentralized manner is called a/an:
a. Online system.
b. Batch processing system.
c. End-user computing.
d. Networking.
139. To protect the integrity of the database, data sharing by different users requires organization,
coordination, rules and guidelines. The individual responsible for managing the database resource
is the
a. Programmer.
b. Database administrator.
c. User.
d. CIS manager.
140. The following statements relate to internal control in an electronic data interchange (EDI)
environment. Which is false?
a. In EDI systems, preventive controls are generally more important than detective controls.
b. Control objectives for EDI systems generally are different from the objectives for other
computer information systems.
c. Internal controls that relate to the segregation of duties generally are the most important
controls in EDI systems.
d. Internal controls in EDI systems rarely permit control risk at below the maximum.
141. A systems analyst should have access to each of the following except
a. Edit criteria
b. Source code.
c. Password identification tables.
d. User procedures.
142. One of the major problems in a CIS environment is that incompatible duties may be performed by
the same individual. One compensating control is the use of
a. Computer-generated hash totals.
b. A computer log.
c. A self-checking digit system.
d. Echo checks.
143. Which of the following groups should have the operational responsibility for the accuracy and
completeness of computer-based information?
a. External auditors.
b. Internal auditors.
c. Users.
d. Top management.
144. Which of the following is not an example of an applications control?
a. An equipment failure causes an error message on the monitor.
b. There is preprocessing authorization of the sales transactions.
c. There are reasonableness tests for the unit selling price of a sale.
d. After processing, all sales transactions are reviewed by the sales department.

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145. An auditor may decide not to perform tests of controls related to computer portion of the clients
controls. Which of the following would not be valid reason for choosing to omit tests of controls?
a. The controls appear adequate.
b. The controls duplicate operative controls existing elsewhere in the system.
c. There appear to be major conditions that would preclude reliance on the stated procedure.
d. The time and peso costs of testing exceed the time and peso savings in substantive testing if
the tests of controls show the controls to be operative.
146. Controls within the computer system may leave no visible evidence indicating that the
procedures were performed. In such instances, the auditor should tests these controls by
a. Making corroborative inquiries.
b. Observing the separation of duties of personnel.
c. Reviewing transactions submitted for processing and comparing them to related output.
d. Reviewing the run manual.
147. One of the major problems in computer information system is that incompatible functions may be
performed by the same individual. One compensating control for this is use of
a. A tape library.
b. A self-checking digit system.
c. Computer generated hash totals.
d. A computer log.
148. The auditors computer program approach and the test data approach
a. Are complementary.
b. Are mutually exclusive.
c. Are incompatible.
d. Must be used simultaneously.
149. The reprocessing of live data to test program controls is called
a. Test data.
b. Test check.
c. Generalized audit software.
d. Parallel simulation.
150. Techniques needed to select the specific live data transactions of audit interest for testing would
not include
a. Audit hooks.
b. Test data.
c. Trap data.
d. Transaction tags.
151. Comparing data on separate files can be accomplished by generalized audit software to determine
whether compatible information is in agreement. Examples of such comparisons would not
include:
a. Payroll details with personnel records.
b. Current and prior inventory to details of purchases and sales.
c. Paid vouchers to disbursements.
d. Observation of inventory counts.
152. Which of the following is likely to be of least importance to an auditor in reviewing the internal
control in a company with a computerized system?
a. The segregation of duties within the data processing center.
b. The control over source documents.
c. The documentation maintained for accounting applications.
d. The cost/benefit ratio of data processing operations.
153. Which of the following is classified as general CIS controls that relates to segregation of duties?
a. Reconciliation of record counts.
b. Authorization of modifying the operating system.
c. A system of transaction logs.
d. Follow up all errors detected during processing.

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154. When the auditor encounters sophisticated computer-based systems, he or she may need to
modify the audit approach. Of the following conditions, which one is not a valid reason for
modifying the audit approach?
a. More advanced computer systems produce less documentation, thus reducing the visibility of
audit trail.
b. In a complex computer-based systems, computer verification of data at the point of input
replaces the manual verification found in less sophisticated data processing systems.
c. Integrated data processing has replaced the more traditional separation of duties that existed
in manual and batch processing systems.
d. Real-time processing of transactions has enabled the auditor to concentrate less on the
completeness assertion.
155. A computer-assisted audit technique that is most likely to be effective in a continuous auditing
environment is
a. Parallel simulation.
b. Controlled reprocessing.
c. Embedded audit modules.
d. Transaction tripping.
156. Which of the following is correct concerning electronic commerce security?
a. Since they cannot use both, companies must decide whether to use an electronic data
interchange approach or an approach using the Internet.
b. Companies that wish to use the Internet for electronic commerce must adhere to the Uniform
Internet Service Provider Code of Conduct.
c. Use of a website home page instead of encryption leads to a greater security in electronic
transactions.
d. The successful use of a firewall will help assure the security of a firms computer systems.
157. Which of the following is not a problem associated with the use of test data for computer-audit
purposes?
a. Auditing through the computer is more difficult than auditing around the computer.
b. It is difficult to design test data that incorporate all potential variations in transactions.
c. Test data may be commingled with live data causing operating problems for the client.
d. The program with which the test data are processed may differ from the one used in actual
operations.
158. In parallel simulation, actual client data are reprocessed using an auditor software program. An
advantage of using parallel simulation, instead of performing tests of controls without a computer,
is that
a. The test includes all types of transaction errors and exceptions that may be encountered.
b. The clients computer personnel do not know when the data are being tested.
c. There is no risk of creating potentially material errors in the clients data.
d. The size of the sample can be greatly expanded at relatively little additional cost.
159. A client that recently installed a new accounts payable system assigned employees a user
identification code (UIC) and a separate password. Each UIC is a persons name, and the
individuals password is the same as the UIC. Users are not required to change their passwords at
initial log-in nor do passwords over expire. Which of the following statements do not reflect a
limitation of the clients computer access control?
a. Employees can easily guess fellow employees passwords.
b. Employees are not required to change passwords.
c. Employees can circumvent procedures to segregate duties.
d. Employees are not required to take regular vacations.
160. Which of the following strategies would a CPA most likely consider in auditing an entity that
processes most of its financial data only in electronic form, such as a paperless system?
a. Continuous monitoring and analysis of transaction processing with an embedded audit module.
b. Increased reliance on internal control activities that emphasize the segregation of duties.
c. Verification of encrypted digital certificates used to monitor the authorization of transaction.
d. Extensive

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