276) Tracing shipping documents to prenumbered sales invoices provides evidence that
a. Shipments to customers were properly invoiced.
b. No duplicate shipments or billings occurred.
c. All goods ordered by customers were shipped.
d. All prenumbered sales invoices were accounted for.
a. Shipments to customers were properly invoiced.
277) An auditor tests an entity's policy of obtaining credit approval before shipping goods to customers in support of management's financial statement assertion of
a. Completeness.
b. Valuation or allocation.
c. Existence or occurrence.
d. Rights and obligations.
b. Valuation or allocation.
278) Proper authorization of write-offs of uncollectible accounts should be approved in which of the following departments?
a. Accounts receivable
b. Credit
c. Accounts payable
d. Treasurer
d. Treasurer
279) Which of the following controls most likely would be used to maintain accurate inventory records?
a. Perpetual inventory records are periodically compared with the current cost of individual inventory items.
b. A just-in-time inventory ordering system keeps inventory levels to a desired minimum.
c. Requisitions, receiving reports, and purchase orders are independently matched before payment is approved.
d. Periodic inventory counts are used to adjust the perpetual inventory records.
d. Periodic inventory counts are used to adjust the perpetual inventory records.
280) Which of the following is not a component of an entity's internal control?
a. Control risk
b. Control activities
c. Monitoring
d. Control environment
281) May an accountant accept an engagement to compile or review the financial statements of a not-for-profit entity if the accountant is unfamiliar with the specialized industry accounting principles but plans to obtain the required level of knowledge before compiling or reviewing the financial statements?
a. Compilation – No; Review – No
b. Compilation – Yes; Review – No
c. Compilation – No; Review – Yes
d. Compilation – Yes; Review – Yes
d. Compilation – Yes; Review – Yes
282) If requested to perform a review engagement for a nonissuer in which an accountant has an immaterial direct financial interest, the accountant is
a. Not independent and, therefore, may not issue a review report.
b. Not independent and, therefore, may not be associated with the financial statements.
c. Not independent and, therefore, may issue a review report but may not issue an auditor's opinion.
d. Independent because the financial interest is immaterial and, therefore, may issue a review report.
a. Not independent and, therefore, may not issue a review report.
283) Which of the following is not generally considered a procedure followed by an accountant in obtaining a reasonable basis for the expression of limited assurance for a review of financial statements?
a. Assess fraud risk
b. Apply analytical procedures
c. Make inquiries of management
d. Obtain written representations from management
a. Assess fraud risk
284) Which of the following procedures would an accountant least likely perform during an engagement to review the financial statements of a nonissuer?
a. Observing the safeguards over access to and use of assets and records.
b. Inquiring of management about actions taken at the board of directors' meetings.
c. Comparing the financial statements with anticipated results in budgets and forecasts.
d. Studying the relationships of financial statement elements expected to conform to predictable patterns.
a. Observing the safeguards over access to and use of assets and records.
285) A compilation report is not required when compiled financial statements are expected to be used by
a. Management only.
b. Management and third parties.
c. Third parties only.
d. A compilation report is required whenever financial statements are compiled.
286) Which of the following procedures should an accountant perform during an engagement to review the financial statements of a nonissuer?
a. Communicating significant deficiencies discovered during the assessment of control risk.
b. Sending bank confirmation letters to the entity's financial institutions.
c. Examining cash disbursements in the subsequent period for unrecorded liabilities.
d. Obtaining a client representation letter from members of management.
d. Obtaining a client representation letter from members of management.
287) Which of the following procedures would most likely be included in a review engagement of a nonissuer?
a. Inquiring about related-party transactions.
b. Preparing a bank transfer schedule.
c. Assessing internal control.
d. Performing cutoff tests on sales and purchases transactions.
a. Inquiring about related-party transactions.
288) Which of the following would the accountant most likely investigate during the review of financial statements of a non issuer if accounts receivable did not conform to a predictable pattern during the year?
a. Sales returns and allowances
b. Sales of consigned goods
c. Credit sales
d. Cash sales
c. Credit sales
289) An accountant who reviews the financial statements of a nonissuer should issue a report stating that a review
a. Is substantially less in scope than an audit.
b. Provides negative assurance that internal control is functioning as designed.
c. Provides only limited assurance that the financial statements are fairly presented.
d. Is substantially more in scope than a compilation.
a. Is substantially less in scope than an audit.
290) When performing an engagement to review a nonissuer's financial statements, an accountant most likely would
a. Confirm a sample of significant accounts receivable balances.
b. Ask about actions taken at board of directors' meetings.
c. Limit the distribution of the accountant's report.
d. Obtain an understanding of internal control.
b. Ask about actions taken at board of directors' meetings.
291) When providing limited assurance that the financial statements of a nonissuer (nonpublic entity) require no material modifications to be in accordance with generally accepted accounting principles, the accountant should
a. Assess the risk that a material misstatement could occur in a financial statement assertion.
b. Confirm with the entity's lawyer that material loss contingencies are disclosed.
c. Understand the accounting principles of the industry in which the entity operates.
d. Develop audit programs-to determine whether the entity's financial statements are fairly presented.
c. Understand the accounting principles of the industry in which the entity operates.
292) Financial statements of a nonissuer that have been reviewed by an accountant should be accompanied by a report stating that
a. The scope of the inquiry and analytical procedures performed by the accountant has not been restricted.
b. All information included in the financial statements is the representation of the management of the entity.
c. A review includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
d. A review is greater in scope than a compilation, the objective of which is to present financial statements that are free of material misstatements.
b. All information included in the financial statements is the representation of the management of the entity.
293) Financial statements of a nonissuer that have been reviewed by an accountant should be accompanied by a report stating that a review
a. Provides only limited assurance that the financial statements are fairly presented.
b. Includes examining, on a test basis, information that is the representation of management.
c. Consists principally of inquiries of company personnel and analytical procedures applied to financial data.
d. Does not contemplate obtaining corroborating evidential matter or applying certain other procedures ordinarily performed during an audit.
c. Consists principally of inquiries of company personnel and analytical procedures applied to financial data.
294) Which of the following inquiry or analytical procedures ordinarily is performed in an engagement to review a nonissuer's financial statements?
a. Analytical procedures designed to test the accounting records by obtaining corroborating audit evidence.
b. Inquiries concerning the entity's procedures for recording and summarizing transactions.
c. Analytical procedures designed to test management's assertions regarding continued existence.
d. Inquiries of the entity's attorney concerning contingent liabilities.
b. Inquiries concerning the entity's procedures for recording and summarizing transactions.
295) During a review of the financial statements of a nonissuer, an accountant becomes aware of a lack of adequate disclosure that is material to the financial statements. If management refuses to correct the financial statement presentations, the accountant should
a. Issue an adverse opinion.
b. Issue an "except for" qualified opinion.
c. Express only limited assurance on the financial statement presentations.
d. Disclose this departure from generally accepted accounting principles in a separate paragraph of the report.
d. Disclose this departure from generally accepted accounting principles in a separate paragraph of the report.
296) The audited financial statements to be filed with the SEC shall be accompanied by a
a. Management Report
b. Registration Statement
c. Statement of Management’s Responsibility for Financial Statements
d. Statement of the Board of Director’s Responsibility for Financial Statements
c. Statement of Management’s Responsibility for Financial Statements
297) The following statements relate to the use of seal by registered CPAs. Which is incorrect?
a. The seal of a CPA shall be circular in form.
b. A registered CPA shall obtain and use a seal of a design that will suit his/her taste.
c. The seal should be of a design prescribed by the Board bearing the CPA’s name, registration number, and title.
d. The auditor’s report shall be stamped with the CPA’s seal, indicating therein his/her current Professional Tax Receipt (PTR) number, date/place of payment when filed with government authorities or when used professionally.
b. A registered CPA shall obtain and use a seal of a design that will suit his/her taste.
298) Republic Act 9298 is known as the
a. Revised Accountancy Law
b. Philippine Accountancy Act of 2004
c. Philippine Accountancy Law of 2004
d. Code of Ethics for Professional Accountants
b. Philippine Accountancy Act of 2004
299) Which of the following reports may be issued only by an accountant who is independent of a client?
a. Report on consulting services.
b. Compilation report on a financial projection.
c. Compilation report on historical financial statements.
d. Standard report on an examination of a financial forecast.
d. Standard report on an examination of a financial forecast.
300) An auditor who, at the request of the group engagement team, performs work on financial information related to a component for the group audit is a
a. Group Auditor
b. Component Auditor
c. Group Engagement Team
d. Component Engagement Team
301) An auditor who discovers that a client's employees paid small bribes to municipal officials most likely would withdraw from the engagement if
a. The payments violated the client's policies regarding the prevention of illegal acts.
b. The client receives financial assistance from a federal government agency.
c. Documentation that is necessary to prove that the bribes were paid does not exist.
d. Management fails to take the appropriate remedial action.
d. Management fails to take the appropriate remedial action.
302) Which of the following factors most likely would cause a CPA to not accept a new audit engagement?
a. The prospective client has already completed its physical inventory count.
b. The CPA lacks an understanding of the prospective client's operation and industry.
c. The CPA is unable to review the predecessor auditor's working papers.
d. The prospective client is unwilling to make all financial records available to the CPA.
d. The prospective client is unwilling to make all financial records available to the CPA.
303) Which of the following factors would most likely heighten an auditor's concern about the risk of fraudulent financial reporting?
a. Large amounts of liquid assets that are easily convertible into cash.
b. Low growth and profitability as compared to other entities in the same industry.
c. Financial management's participation in the initial selection of accounting principles.
d. An overly complex organizational structure involving unusual lines of authority.
d. An overly complex organizational structure involving unusual lines of authority.
304) An auditor who discovers that a client's employees have paid small bribes to public officials most likely would withdraw from the engagement if the
a. Client receives financial assistance from a federal government agency.
b. Evidence that is necessary to prove that the illegal acts were committed does not exist.
c. Employees' actions affect the auditor's ability to rely on management's representations.
d. Notes to the financial statements fail to disclose the employees' actions.
c. Employees' actions affect the auditor's ability to rely on management's representations.
305) Which of the following relatively small misstatements most likely could have a material effect on an entity's financial statements?
a. An illegal payment to a foreign official that was not recorded.
b. A piece of obsolete office equipment that was not retired.
c. A petty cash fund disbursement that was not properly authorized.
d. An uncollectible account receivable that was not written off.
a. An illegal payment to a foreign official that was not recorded.
306) A successor auditor should request the new client to authorize the predecessor auditor to allow a review of the predecessor's
a. Engagement letter – Yes; Working papers – Yes
b. Engagement letter – Yes; Working papers – No
c. Engagement letter – No; Working papers – Yes
d. Engagement letter – No; Working papers – No
c. Engagement letter – No; Working papers – Yes
307) Which of the following procedures would an auditor most likely perform in planning a financial statement audit?
a. Inquiring of the client's legal counsel concerning pending litigation.
b. Comparing the financial statements to anticipated results.
c. Examining computer generated exception reports to verify the effectiveness of internal control.
d. Searching for unauthorized transactions that may aid in detecting unrecorded liabilities.
b. Comparing the financial statements to anticipated results.
308) Analytical procedures used in planning an audit should focus on
a. Reducing the scope of tests of controls and substantive tests.
b. Providing assurance that potential material misstatements will be identified.
c. Enhancing the auditor's understanding of the client's business.
d. Assessing the adequacy of the available evidence.
c. Enhancing the auditor's understanding of the client's business.
309) The objective of performing analytical procedures in planning an audit is to identify the existence of
a. Unusual transactions and events.
b. Illegal acts that went undetected because of internal control weaknesses.
c. Related-party transactions.
d. Recorded transactions that were not properly authorized.
a. Unusual transactions and events.
310) While assessing the risks of material misstatement auditors identify risks, relate risk to what could go wrong, consider the magnitude of risks and
a. Assess the risk of misstatements due to illegal acts.
b. Consider the complexity of the transactions involved.
c. Consider the likelihood that the risks could result in material misstatements.
d. Determine materiality levels.
c. Consider the likelihood that the risks could result in material misstatements.
311) How does an auditor make the following representations when issuing the standard auditor's report on comparative financial statements'?
a. Examination of evidence on a test basis – Explicitly; Consistent application of accounting principles – Explicitly
b. Examination of evidence on a test basis – Implicitly; Consistent application of accounting principles – Implicitly
c. Examination of evidence on a test basis – Implicitly; Consistent application of accounting principles – Explicitly
d. Examination of evidence on a test basis – Explicitly; Consistent application of accounting principles – Implicitly
d. Examination of evidence on a test basis – Explicitly; Consistent application of accounting principles – Implicitly
312) The fourth standard of reporting requires the auditor's report to contain either an expression of opinion regarding the financial statements taken as a whole or an assertion to the effect that an opinion cannot he expressed. The objective of the fourth standard is to prevent
a. An auditor from expressing different opinions on each of the basic financial statements.
b. Restrictions on the scope of the audit, whether imposed by the client or by the inability to obtain evidence.
c. Misinterpretations regarding the degree of responsibility the auditor is assuming.
d. An auditor from reporting on one basic financial statement and not the others.
c. Misinterpretations regarding the degree of responsibility the auditor is assuming.
313) An auditor issued an audit report that was dual dated for a subsequent event occurring after the completion of fieldwork but before issuance of the auditor's report. The auditor's responsibility for events occurring subsequent to the completion of fieldwork was
a. Extended to subsequent events occurring through the date of issuance of the report.
b. Extended to include all events occurring since the completion of fieldwork.
c. Limited to the specific event referenced.
d. Limited to include only events occurring up to the date of the last subsequent event referenced.
c. Limited to the specific event referenced.
314) A principal auditor decides not to refer to the audit of another CPA who audited a subsidiary of the principal auditor's client. After making inquiries about the other CPA's professional reputation and independence, the principal auditor most likely would
a. Add an explanatory paragraph to the auditor's report indicating that the subsidiary's financial statements are not material to the consolidated financial statements.
b. Document in the engagement letter that the principal auditor assumes no responsibility for the other CPA's work and opinion.
c. Obtain written permission from the other CPA to omit the reference in the principal auditor's report.
d. Contact the other CPA and review the audit programs and working papers pertaining to the subsidiary.
d. Contact the other CPA and review the audit programs and working papers pertaining to the subsidiary.
315) In which of the following situations would an auditor ordinarily issue an unqualified audit opinion without an explanatory paragraph?
a. The auditor wishes to emphasize that the entity had significant related-parry transactions.
b. The auditor decides to make reference to the report of another auditor as a basis, in part for the auditor's opinion.
c. The entity issues financial statements that present financial position and results of operations, but omits the statement of cash flows.
d. The auditor has substantial doubt about the entity's ability to continue as a going concern, but the circumstances are fully disclosed in the financial statements.
b. The auditor decides to make reference to the report of another auditor as a basis, in part for the auditor's opinion.
316) When single-year financial statements are presented, an auditor ordinarily would express an unqualified opinion in an unmodified report if the
a. Auditor is unable to obtain audited financial statements supporting the entity's investment in a foreign affiliate.
b. Entity declines to present a statement of cash flows with its balance sheet and related statements of income and retained earnings.
c. Auditor wishes to emphasize an accounting matter affecting the comparability of the financial statements with those of the prior year.
d. Prior year's financial statements were audited by another CPA whose report, which expressed an unqualified opinion, is not presented.
d. Prior year's financial statements were audited by another CPA whose report, which expressed an unqualified opinion, is not presented.
317) A client is presenting comparative (two-year) financial statements. Which of the following is correct concerning reporting responsibilities of a continuing auditor?
a. The auditor should issue one audit report that is on both presented years.
b. The auditor should issue two audit reports, one on each year.
c. The auditor should issue one audit report, but only on the most recent year.
d. The auditor may issue either one audit report on both presented years, or two audit reports, one on each year.
a. The auditor should issue one audit report that is on both presented years.
318) The predecessor auditor, who is satisfied after properly communicating with the successor auditor, has reissued a report because the audit client desires comparative financial statements. The predecessor auditor's report should make
a. Reference to the report of the successor auditor only in the scope paragraph.
b. Reference to the work of the successor auditor in the scope and opinion paragraphs.
c. Reference to both the work and the report of the successor auditor only in the opinion paragraph.
d. No reference to the report or the work of the successor auditor.
d. No reference to the report or the work of the successor auditor.
319) 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 period's financial statements.
a. I only
b. II only
c. Both I and II
d. Either I or II
d. Either I or II
320) An auditor concludes that there is a material inconsistency in the other information in an annual report to shareholders containing audited financial statements. If the auditor concludes that the financial statements do not require revision, but the client refuses to revise or eliminate the material inconsistency, the auditor may
a. Revise the auditor's report to include a separate explanatory paragraph describing the material inconsistency.
b. Issue an "except for" qualified opinion after discussing the matter with the client's board of directors.
c. Consider the matter closed since the other information is not in the audited financial statements.
d. Disclaim an opinion on the financial statements after explaining the material inconsistency in a separate explanatory paragraph.
a. Revise the auditor's report to include a separate explanatory paragraph describing the material inconsistency.
321) The expected population deviation rate of client billing errors is 3%. The auditor has established a tolerable rate of 5%. In the review of client invoices the auditor should use
a. Stratified sampling
b. Variable sampling
c. Discovery sampling
d. Attribute sampling
d. Attribute sampling
322) Which of the following sampling methods would be used to estimate a numerical measurement of a population, such as a dollar value?
a. Variables sampling
b. Attribute sampling
c. Stop-or-go sampling
d. Random-number sampling
a. Variables sampling
323) For which of the following audit tests would an auditor most likely use attribute sampling?
a. Making an independent estimate of the amount of a LIFO inventory.
b. Examining invoices in support of the valuation of fixed asset additions.
c. Selecting accounts receivable for confirmation of account balances.
d. Inspecting employee time cards for proper approval by supervisors.
d. Inspecting employee time cards for proper approval by supervisors.
324) An underlying feature of random-based selection of items is that each
a. Stratum of the accounting population be given equal representation in the sample.
b. Item in the accounting population be randomly ordered.
c. Item in the accounting population should have an opportunity to be selected.
d. Item must be systematically selected using replacement.
c. Item in the accounting population should have an opportunity to be selected.
325) Which of the following statistical selection techniques is least desirable for use by an auditor?
a. Block selection
b. Stratified selection
c. Systematic selection
d. Sequential selection
326) If the auditor is concerned that a population may contain exceptions, the determination of a sample size sufficient to include at least one such exception is a characteristic of
a. Discovery sampling
b. Variables sampling
c. Random sampling
d. Dollar-unit sampling
a. Discovery sampling
327) When an auditor has chosen a random sample and is using nonstatistical attributes sampling, that auditor
a. Need not consider the risk of assessing control risk too low.
b. Has committed a nonsampling error.
c. Will have to use discovery sampling to evaluate the results.
d. Should compare the deviation rate of the sample to the tolerable deviation rate.
d. Should compare the deviation rate of the sample to the tolerable deviation rate.
328) A number of factors influences the sample size for a substantive test of details of an account balance. All other factors being equal, which of the following would lead to a larger sample size?
a. Greater reliance on internal control
b. Greater reliance on analytical procedures
c. Smaller expected frequency of errors
d. Smaller measure of tolerable misstatement
d. Smaller measure of tolerable misstatement
329) In the application of statistical techniques to the estimation of dollar amounts, a preliminary sample is usually taken primarily for the purpose of estimating the population
a. Variability
b. Mode
c. Range
d. Median
a. Variability
330) The following statements relate to CPE credit units. Which is incorrect?
a. The total CPE credit units for registered accounting professionals shall be sixty (60) credit units for three (3) years, provided that a minimum of fifteen (15) credit units shall be earned in each year.
b. Any excess credits in one year may be carried over to the succeeding years within the three-year period.
c. Excess credit units earned may be carried over to the next three-year period including credit units earned for doctoral and master’s degree.
d. One credit hour of CPE program, activity or source shall be equivalent to one (1) credit unit.
c. Excess credit units earned may be carried over to the next three-year period including credit units earned for doctoral and master’s degree.
331) Which of the following is not true about international auditing standards?
a. International auditing standards do not require an audit of internal control.
b. International auditing standards do not allow reference to division of responsibilities in the audit report.
c. International auditing standards require obtaining an attorney's letter.
d. International auditing standards are based on a risk assessment approach.
c. International auditing standards require obtaining an attorney's letter.
332) Which of the following is not true about international auditing standards?
a. Audit report modification for consistency in the application of accounting principles is required.
b. Confirmation of accounts receivable is not required.
c. The location in which the auditor practices must be disclosed in the audit report.
d. International auditing standards do not require an audit of internal control.
a. Audit report modification for consistency in the application of accounting principles is required.
333) Individuals who commit fraud are ordinarily able to rationalize the act and also have an
a. Incentive – Yes; Opportunity – Yes
b. Incentive – Yes; Opportunity – No
c. Incentive – No; Opportunity – Yes
d. Incentive – No; Opportunity – No
a. Incentive – Yes; Opportunity – Yes
334) Which of the following is most likely to be considered a risk factor relating to fraudulent financial reporting?
a. Domination of management by top executives.
b. Large amounts of cash processed.
c. Negative cash flows from operations.
d. Small high-dollar inventory items.
c. Negative cash flows from operations.
335) Which of the following is most likely to be presumed to represent fraud risk on an audit?
a. Capitalization of repairs and maintenance into the property, plant, and equipment asset account.
b. Improper revenue recognition.
c. Improper interest expense accrual.
d. Introduction of significant new products.
336) To obtain an understanding of a continuing client's business, an auditor most likely would
a. Perform tests of details of transactions and balances.
b. Review prior year working papers and the permanent file for the client.
c. Read current issues of specialized industry journals.
d. Reevaluate the client's internal control environment.
b. Review prior year working papers and the permanent file for the client.
337) On an audit engagement performed by a CPA firm with one office, at the 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.
a. The auditor with final responsibility for the audit.
338) An auditor obtains knowledge about a new client's business and its industry to
a. Make constructive suggestions concerning improvements to the client's internal control.
b. Develop an attitude of professional skepticism concerning management's financial statement assertions.
c. Evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole to be materially misstated.
d. Understand the events and transactions that may have an effect on the client's financial statements.
d. Understand the events and transactions that may have an effect on the client's financial statements.
339) Which of the following procedures would an auditor least likely perform while obtaining an understanding of a client in a financial statement audit?
a. Coordinating the assistance of entity personnel in data preparation.
b. Discussing matters that may affect the audit with firm personnel responsible for nonaudit services to the entity.
c. Selecting a sample of vendors' invoices for comparison to receiving reports.
d. Reading the current year's interim financial statements.
c. Selecting a sample of vendors' invoices for comparison to receiving reports.
340) Ordinarily, the predecessor auditor permits the successor auditor to review the predecessor's working paper analyses relating to
a. Contingencies – Yes; Balance sheet accounts – Yes
b. Contingencies – Yes; Balance sheet accounts – No
c. Contingencies – No; Balance sheet accounts – Yes
d. Contingencies – No; Balance sheet accounts – No
a. Contingencies – Yes; Balance sheet accounts – Yes
341) In evaluating the reasonableness of an accounting estimate, an auditor most likely would concentrate on key factors and assumptions that are
a. Consistent with prior periods
b. Similar to industry guidelines
c. Objective and not susceptible to bias
d. Deviations from historical patterns
d. Deviations from historical patterns
342) In evaluating an entity's accounting estimates, one of an auditor's objectives is to determine whether the estimates are
a. Not subject to bias
b. Consistent with industry guidelines
c. Based on objective assumptions
d. Reasonable in the circumstances
d. Reasonable in the circumstances
343) In testing the existence assertion for an asset, an auditor ordinarily works from the
a. Financial statements to the potentially unrecorded items
b. Potentially unrecorded items to the financial statements
c. Accounting records to the supporting evidence
d. Supporting evidence to the accounting records
c. Accounting records to the supporting evidence
344) A client uses a suspense account for unresolved questions whose final accounting has not been determined. If a balance remains in the suspense account at year-end, the auditor would be most concerned about
a. Suspense debits that management believes will benefit future operations.
b. Suspense debits that the auditor verifies will have realizable value to the client.
c. Suspense credits that management believes should be classified as "current liability".
d. Suspense credits that the auditor determines to be customer deposits.
a. Suspense debits that management believes will benefit future operations.
345) Which of the following would not be considered an analytical procedure?
a. Estimating payroll expense by multiplying the number of employees by the average hourly wage rate and the total hours worked.
b. Projecting an error rate by comparing the results of a statistical sample with the actual population characteristics.
c. Computing accounts receivable turnover by dividing credit sales by the average net receivables.
d. Developing the expected current year sales based on the sales trend of the prior five years.
b. Projecting an error rate by comparing the results of a statistical sample with the actual population characteristics.
346) In the auditor’s report, the principal auditor decides not to make reference to another CPA who audited a client's subsidiary. The principal auditor could justify this decision if, among other requirements, the principal auditor
a. Issues an unqualified opinion on the consolidated financial statements.
b. Learns that the other CPA issued an unqualified opinion on the subsidiary's financial statements.
c. Is unable to review the audit programs and working papers of the other CPA.
d. Is satisfied as to the independence and professional reputation of the other CPA.
d. Is satisfied as to the independence and professional reputation of the other CPA.
347) When an auditor concludes there is substantial doubt about a continuing audit client's ability to continue as a going concern for a reasonable period of time, the auditor's responsibility is to
a. Issue a qualified or adverse opinion, depending upon materiality, due to the possible effects on the financial statements.
b. Consider the adequacy of disclosure about the client's possible inability to continue as a going concern.
c. Report to the client's audit committee that management's accounting estimates may need to be adjusted.
d. Reissue the prior year's auditors report and add an explanatory paragraph that specifically refers to "substantial doubt" and "going concern".
b. Consider the adequacy of disclosure about the client's possible inability to continue as a going concern.
348) In which of the following circumstances would an auditor most likely add an explanatory paragraph to the standard report while not affecting the auditor's unqualified opinion?
a. The auditor is asked to report on the balance sheet, but not on the other basic financial statements.
b. There is substantial doubt about the entity's ability to continue as a going concern.
c. Management's estimates of the effects of future events are unreasonable.
d. Certain transactions cannot be tested because of management's records retention policy.
b. There is substantial doubt about the entity's ability to continue as a going concern.
349) After considering an entity's negative trends and financial difficulties, an auditor has substantial doubt about the entity's ability to continue as a going concern. The auditor's considerations relating to management's plans for dealing with the adverse effects of these conditions most likely would include management's plans to
a. Increase current dividend distributions
b. Reduce existing lines of credit
c. Increase ownership equity
d. Purchase assets formerly leased
c. Increase ownership equity
350) Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern?
a. Significant related-party transactions are pervasive
b. Usual trade credit from suppliers is denied
c. Arrearages in preferred stock dividends are paid
d. Restrictions on the disposal of principal assets are present
351) When management does not provide reasonable justification that a change in accounting principle is preferable and it presents comparative financial statements, the auditor should express a qualified opinion
a. Only in the year of the accounting principle change.
b. Each year that the financial statements initially reflecting the change are presented.
c. Each year until management changes back to the accounting principle formerly used.
d. Only if the change is to an accounting principle that is not generally accepted.
b. Each year that the financial statements initially reflecting the change are presented.
352) When an entity changes its method of accounting for income taxes, which has a material effect on comparability, the auditor should refer to the change in an explanatory paragraph added to the auditor's report. This paragraph should identify the nature of the change and
a. Explain why the change is justified under generally accepted accounting principles.
b. Describe the cumulative effect of the change on the audited financial statements.
c. State the auditor's explicit concurrence with or opposition to the change.
d. Refer to the financial statement note that discusses the change in detail.
d. Refer to the financial statement note that discusses the change in detail.
353) An entity changed from the straight-line method to the declining balance method of depreciation for all newly acquired assets. This change has no material effect on the current year's financial statements, but is reasonably certain to have a substantial effect in later years. If the change is disclosed in the notes to the financial statements, the auditor should issue a report with a(n)
a. "Except for" qualified opinion
b. Explanatory paragraph
c. Unqualified opinion
d. Consistency modification
c. Unqualified opinion
354) When reporting on comparative financial statements, an auditor ordinarily should change the previously issued opinion on the prior year's financial statements if the
a. Prior year's financial statements are restated to conform with generally accepted accounting principles.
b. Auditor is a predecessor auditor who has been requested by a former client to reissue the previously issued report.
c. Prior year's opinion was unqualified and the opinion on the current year's financial statements is modified due to a lack of consistency.
d. Prior year's financial statements are restated following a pooling of interests in the current year.
a. Prior year's financial statements are restated to conform with generally accepted accounting principles.
355) Before reissuing the prior year's auditor's report on the financial statements of a former client the predecessor auditor should obtain a letter of representations from the
a. Former client’s management – Yes; Successor auditor – Yes
b. Former client’s management – Yes; Successor auditor – No
c. Former client’s management – No; Successor auditor – Yes
d. Former client’s management – No; Successor auditor – No
a. Former client’s management – Yes; Successor auditor – Yes
356) Which of the following statistical sampling plans does not use a fixed sample size for tests of controls?
a. Dollar-unit sampling
b. Sequential sampling
c. PPS sampling
d. Variables sampling
b. Sequential sampling
357) If certain forms are not consecutively numbered
a. Selection of a random sample probably is not possible
b. Systematic sampling maybe appropriate
c. Stratified sampling should be used
d. Random number tables cannot be used
b. Systematic sampling maybe appropriate
358) When performing a test of a control with respect to control over cash receipts, an auditor may use a systematic sampling technique with a start at any randomly selected item. The biggest disadvantage of this type of sampling 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.
d. May occur in a systematic pattern, thus destroying the sample randomness.
359) 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.
c. To decrease the effect of variance in the total population.
360) Which of the following factors is(are) considered in determining the sample size for a test of controls?
a. Expected deviation rate – Yes; Tolerable deviation rate – Yes
b. Expected deviation rate – No; Tolerable deviation rate – No
c. Expected deviation rate – No; Tolerable deviation rate – Yes
d. Expected deviation rate – Yes; Tolerable deviation rate – No
361) The most likely explanation why the auditor's examination cannot reasonably be expected to bring all illegal acts by the client to the auditor's attention is that
a. Illegal acts are perpetrated by management override of internal control.
b. Illegal acts by clients often relate to operating aspects rather than accounting aspects.
c. The client's internal control may be so strong that the auditor performs only minimal substantive testing.
d. Illegal acts may be perpetrated by the only person in the client's organization with access to both assets and the accounting records.
b. Illegal acts by clients often relate to operating aspects rather than accounting aspects.
362) If specific information comes to an auditor's attention that implies the existence of possible illegal acts that could have a material, but indirect effect on the financial statements, the auditor should next
a. Apply audit procedures specifically directed to ascertaining whether an illegal act has occurred.
b. Seek the advice of an informed expert qualified to practice law as to possible contingent liabilities.
c. Report the matter to an appropriate level of management at least one level above those involved.
d. Discuss the evidence with the client's audit committee, or others with equivalent authority and responsibility.
a. Apply audit procedures specifically directed to ascertaining whether an illegal act has occurred.
363) An auditor who discovers that client employees have committed an illegal act that has a material effect on the client's financial statements most likely would withdraw from the engagement if
a. The illegal act is a violation of generally accepted accounting principles.
b. The client does not take the remedial action that the auditor considers necessary.
c. The illegal act was committed during a prior year that was not audited.
d. The auditor has already assessed control risk at the maximum level.
b. The client does not take the remedial action that the auditor considers necessary.
364) Which of the following would be least likely to be considered an audit planning procedure?
a. Use an engagement letter
b. Develop the overall audit strategy
c. Perform risk assessment
d. Develop the audit plan
c. Perform risk assessment
365) Which of the following factors would most likely cause a CPA to decide not to accept a new audit engagement?
a. The CPA's lack of understanding of the prospective client's internal auditor's computer-assisted audit techniques.
b. Management's disregard of its responsibility to maintain an adequate internal control environment.
c. The CPA's inability to determine whether related party transactions were consummated on terms equivalent to arm's-length transactions.
d. Management's refusal to permit the CPA to perform substantive tests before the year-end.
b. Management's disregard of its responsibility to maintain an adequate internal control environment.
366) Which of the following statements is correct concerning statistical sampling in tests of controls?
a. Deviations from control procedures at a given rate usually result in misstatements at a higher rate.
b. As the population size doubles, the-sample size should also double.
c. The qualitative aspects of deviations are not considered by the auditor.
d. There is an inverse relationship between the sample size and the tolerable rate.
d. There is an inverse relationship between the sample size and the tolerable rate.
367) In determining the sample size for a test of controls, an auditor should consider the likely rate of deviations, the allowable risk of assessing control risk too low, and the
a. Tolerable deviation rate
b. Risk of incorrect acceptance
c. Nature and cause of deviations
d. Population size
a. Tolerable deviation rate
368) An auditor is testing internal control procedures that are evidenced on an entity's vouchers by matching random numbers with voucher numbers. If a random number matches the number of a voided voucher, that voucher ordinarily should he replaced by another voucher in the random sample if the voucher
a. Constitutes a deviation
b. Has been properly voided
c. Cannot be located
d. Represents an immaterial dollar amount
b. Has been properly voided
369) An auditor plans to examine a sample of twenty purchase orders for proper approvals as prescribed by the client's control procedures. One of the purchase orders in the chosen sample of twenty cannot be found, and the auditor is unable to use alternative procedures to test whether that purchase order was properly approved. The auditor should
a. Choose another purchase order to replace the missing purchase order in the sample.
b. Consider this test of control invalid and proceed with substantive tests since internal control cannot be relied upon.
c. Treat the missing purchase order as a deviation for the purpose of evaluating the sample.
d. Select a completely new set of twenty purchase orders.
c. Treat the missing purchase order as a deviation for the purpose of evaluating the sample.
370) When assessing the tolerable rate, the auditor should consider that, while deviations from control procedures increase the risk of material misstatements, such deviations do not necessarily result in errors. This explains why
a. A recorded disbursement that does not show evidence of required approval may nevertheless be a transaction that is properly authorized and recorded.
b. Deviations would result in errors in the accounting records only if the deviations and the errors occurred on different transactions.
c. Deviations from pertinent control procedures at a given rate ordinarily would be expected to result in errors at a higher rate.
d. A recorded disbursement that is properly authorized may nevertheless be a transaction that contains a material error.
a. A recorded disbursement that does not show evidence of required approval may nevertheless be a transaction that is properly authorized and recorded.
371) The existence of audit risk is recognized by the statement in the auditor's standard report that the auditor
a. Obtains reasonable assurance about whether the financial statements are free of material misstatement.
b. Assesses the accounting principles used and also evaluates the overall financial statement presentation.
c. Realizes some matters, either individually or in the aggregate, are important while other matters are not important.
d. Is responsible for expressing an opinion on the financial statements, which are the responsibility of management.
a. Obtains reasonable assurance about whether the financial statements are free of material misstatement.
372) 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 statements of a nonissuer (nonpublic) entity, the accountant generally should 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
b. The highest level of service rendered
373) Which of the following is least likely to be a restricted use report?
a. A report on internal control significant deficiencies noted in an audit.
b. A required communication with the audit committee.
c. A report on financial statements prepared following a comprehensive basis of accounting other than generally accepted accounting principles.
d. A report on compliance with aspects of contractual agreements.
c. A report on financial statements prepared following a comprehensive basis of accounting other than generally accepted accounting principles.
374) An auditor expressed a qualified opinion on the prior year's financial statements because of a lack of adequate disclosure. These financial statements are properly restated in the current year and presented in comparative form with the current year's financial statements. The auditor's updated report on the prior year's financial statements should
a. Be accompanied by the auditor's original report on the prior year's financial statements.
b. Continue to express a qualified opinion on the prior year's financial statements.
c. Make no reference to the type of opinion expressed on the prior year's financial statements.
d. Express an unqualified opinion on the restated financial statements of the prior year.
d. Express an unqualified opinion on the restated financial statements of the prior year.
375) An auditor's responsibility to express an opinion on the financial statements is
a. Implicitly represented in the auditor's standard report.
b. Explicitly represented in the opening paragraph of the auditor's standard report.
c. Explicitly represented in the scope paragraph of the auditor's standard report.
d. Explicitly represented in the opinion paragraph of the auditor's standard report.
b. Explicitly represented in the opening paragraph of the auditor's standard report.
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