1.

Wall Inc. has significant information that is transmitted, processed, maintained, and accessed electronically. The auditor has
concluded that it is not possible to reduce detection risk to an acceptable level by performing only substantive tests for a
number of financial statement assertions. The auditors alternative strategy is to
a. Increase the acceptable audit risk.
b. Focus audit tests on other assertions for which substantive tests prove to be effective
c. Require management to change its information system to provide appropriate evidence.
d. Perform tests of controls to gather evidential matter to use in assessing control risk related to those assertions.

2.

Which of the following is usually included or shown in the auditors working papers?
a. The procedures used by the auditor to verify the personal financial status of members of the clients management team
b. Analyses that are designed to be a part of, or a substitute for, the clients accounting records
c. Excerpts from authoritative pronouncements that support the underlying generally accepted accounting principles used
in preparing the financial statements
d. The manner in which exceptions and unusual matters disclosed by the auditors procedures were resolved or treated

3.

In pursuing its quality control objectives with respect to assigning personnel to engagements, a public accounting firm may
use policies and procedures such as
a. Rotating employees from assignment to assignment on a random basis to aid in the staff training effort.
b. Requiring timely identification of the staffing requirements of specific engagements so that enough qualified personnel
can be made available.
c. Allowing staff to select the assignments of their choice to promote better client relationships.
d. Assigning a number of employees to each engagement in excess of the number required so as not to overburden the
staff and interfere with the quality of the audit work performed

4.

Monitoring, as an element of quality control policies of a firm, requires:

a. Providing reasonable assurance that the firms other quality control policies and procedures are effectively operating.
b. Designates individuals as specialists to serve as authoritative sources and define their authority in consultative
situations.
c. Ensuring that personnel are sufficiently directed, supervised and their work being reviewed adequately.
d. Identify the right personnel to be assigned in an audit engagement.

5.

A CPA should comply with applicable generally accepted auditing standards on every engagement
a. Without exception
b. Except in examinations that result in a qualified report
c. Except in engagements where the CPA is associated with unaudited financial statements
d. Except in examinations of interim financial statements.

6.

The sequence of steps in gathering evidence as the basis of the auditors opinion is
a. Substantive tests, documentation of control structure, and tests of controls
b. Documentation of control structure, tests of controls, and substantive tests
c. Documentation of control structure, substantive tests, and tests of controls
d. Tests of controls, documentation of control structure, and substantive tests

7.

The following statements are true about observation when used as tests of control procedures, except.
a. The auditor may supplement his observations with other tests of control capable of providing audit evidence.
b. Audit evidence obtained by doing observation pertains only to the point in time at which the procedure was applied.
c. Observation of who applies a control procedure is useful as a test of control procedures when evaluating control
effectiveness of both computerized and manual system
d. Ordinarily, making inquiries provides more reliable audit evidence than doing observation when testing segregation of
functional responsibilities.

8.

Of the following, the best statement of the CPAs primary objective in considering internal control is that the review is
intended to provide
a. A basis for reliance on the system and determining the scope of other auditing procedures.
b. Reasonable protection against client fraud and defalcations by client employees.
c. A basis for constructive suggestions to the client for improving his internal control system.
d. A method for ensuring that there is reasonable assurance that the financial statements are reliable.

9.

Which statement is incorrect regarding valuation and disclosure of long-term investments?

a. When long-term investments are material to the financial statements, the auditor should obtain sufficient appropriate
audit evidence regarding their valuation and disclosure.

b.
c.
d.

Audit procedures regarding long-term investments ordinarily include considering evidence as to whether the entity has
the ability to continue to hold the investments on a long term basis.
If market quotations exceed the carrying amounts, the auditor would consider whether a write-down is required.
If there is an uncertainty as to whether the carrying amount will be recovered, the auditor would consider whether
appropriate adjustments and/or disclosures have been made.

10. Which statement is incorrect regarding external confirmation?

a. External confirmation is the process of obtaining and evaluating audit evidence through a direct communication from a
third party in response to a request for information about a particular item affecting assertions made by management in
the financial statements.
b. External confirmation of an account receivable provides strong evidence regarding the valuation of the account as at a
certain date.
c. The auditor should tailor external confirmation requests to the specific audit objective.
d. The auditor may use positive or negative external confirmation requests or a combination of both.