auditing theory test bank.docx

Auditing Theory Test Bank Select the best answer for each of the following questions.

1. Broadly defined, the subject matter of any audit consists ofa) Financial statementsb) Economic datac) Assertionsd) Operating datac) Assertions

2. The third standard of field work states that sufficient competent evidential matter may in part be obtained through the following methods excepta) Inspectionb) Observationc) Confirmationd) Reconciliationd) Reconciliation

3. If an auditor believes that material error or fraud exist, the auditor shoulda) Consider the implications and discuss the matter with appropriate levels of managementb) Make the investigation necessary to determine whether errors or fraud have in fact occurredc) Request that management investigate whether errors or fraud have in fact occurredd) Consider whether errors or fraud where the result of employee's failure to comply with specific controlsa) Consider the implications and discuss the matter with appropriate levels of management

4. Which of the following is not normally performed in the pre-planning or pre-engagement phase?a) Deciding whether to accept or reject an audit engagementb) Inquiring from predecessor auditorc) Preparing an engagement letterd) Making a preliminary estimate of materialityd) Making a preliminary estimate of materiality

5. On the basis of the audit evidence gathered and evaluated, an auditor decides to increase the assessed level of control risk from that originally planned. To achieve an overall audit risk level that is substantially the same as the planned audit risk level, the auditor would

a) Decrease substantive testingb) Increase inherent riskc) Decrease detection riskd) Increase materiality levelsc) Decrease detection risk Reply With Quote Apr 15, 201201:37 PM #2 AccIdPEx

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6. An effective internal controla) Cannot be circumvented by managementb) Can reduce the cost of an external auditc) Can prevent collusion among employeesd) Eliminates risks and potential loss to the organizationb) Can reduce the cost of an external audit

7. In auditing through a computer, the test data method is used by auditors to test thea) Accuracy of input datab) Validity of the outputc) Procedures contained within the programd) Normalcy of distribution of test datac) Procedures contained within the program

8. An auditor's working papers will generally be least likely to include documentation showing how thea) Client's schedules were preparedb) Engagement had been plannedc) Client's system of internal control had been reviewed and evaluatedd) Unusual matters were resolveda) Client's schedules were prepared

9. Which of the following sampling methods would be most appropriate in performing tests of controls over authorization of cash disbursementsa) Attributesb) Variablesc) Ratiod) Stratifieda) Attributes

10. Analytical procedures used in the overall review stage of an audit generally includea) Considering unusual or unexpected account balances that were not previously identifiedb) Performing test of transactions to corroborate management's financial statement assertionsc) Gathering evidence concerning account balances that have not changed from the prior yeard) Re-testing control procedures that appeared to be ineffective during the assessment of control riska) Considering unusual or unexpected account balances that were not previously identified Reply With Quote Apr 15, 201201:41 PM #3 AccIdPEx


11. Results of the financial statement audit are communicated to users througha) Financial statementb) Written management assertionc) Audit reportd) None of the abovec) Audit report

12. What is the primary difference between financial reporting risk and audit risk?a) The application of accounting principlesb) Responsibilities of the respective parties involvedc) Demands of users of financial statementsd) Risks of being sued by third partiesb) Responsibilities of the respective parties involved

13. Relationship between control risk and detection risk is ordinarilya) Parallelb) Inversec) Directd) Equalb) Inverse

14. A representation letter issued by a clienta) Is essential for the preparation of the audit programb) Is a substitute for testingc) Does not reduce the auditor's responsibilityd) Reduces the auditor's responsibility only to the extent that it is relied uponc) Does not reduce the auditor's responsibility

15. The recruitment of senior management for an assurance client, such as those in a position to affect the subject of the assurance engagement may least likely createa) Self-interest threatb) Advocacy threatc) Intimidation threatd) Familiarity threatb) Advocacy threat Reply With Quote Apr 15, 201201:45 PM #4 AccIdPEx


16. In reviewing the audit work performed, the engagement partnera) Must review all audit documentationb) Need not review all audit documentation, but may do soc) Need not review all audit documentationd) Must ask the staff performing the audit work to sign the audit reportb) Need not review all audit documentation, but may do so

17. The independent auditor lends credibility to clients financial statements bya) Maintaining a clear-cut distinction between managements representations and the auditors representationb) Testifying under oath about clients financial statementsc) Stating in the auditors management letter that the examination was made in accordance with generally accepted auditing standardsd) Attaching an auditors opinion to the clients financial statementsd) Attaching an auditors opinion to the clients financial statements

18. The most difficult type of misstatement to detect is fraud based on a) The over-recording of transactionsb) The non-recording of transactionsc) Recorded transactions in subsidiariesd) Related party receivablesb) The non-recording of transactions

19. Assuming a recurring audit, in which of the following situations would the auditor be unlikely to send a new engagement letter to the client?a) A recent change in partner and/or staff involved in the audit engagementb) A change in the terms of engagementc) A recent change of client managementd) A significant change in the nature or size of the client's businessa) A recent change in partner and/or staff involved in the audit engagement

20. When an auditor expresses an adverse opinion he/sheshould disclose the substantive reasons for such anopinion in an explanatory paragrapha) Within the notes to the financial statementsb) Preceding the opinion paragraphc) Following the opinion paragraphd) Preceding the introductory paragraphb) Preceding the opinion paragraph Reply With Quote Apr 15, 201201:53 PM #5 AccIdPEx


21. Tolerable error means

a) An error that arises from an isolated event that has not recurred other than on specifically identifiable occasions and is therefore not representative of errors in the populationb) An error that the auditor expects to be present in the populationc) The maximum error in a population that the auditor is willing to acceptd) The possibility that the auditor's conclusion, based on a sample may be different from the conclusion reached if the entire population were subjected to the same audit procedurec) The maximum error in a population that the auditor is willing to accept

22. Examples of events or conditions, which individually or collectively, may cast significant doubt about the going concern assumption include the following excepta) Net liability or net current liability positionb) Change from credit to cash-on-delivery transactions with suppliersc) Labor difficulties or shortages of important suppliesd) Compliance with capital or other statutory requirementsd) Compliance with capital or other statutory requirements

23. Which of the following procedures is not included in a review engagement on a nonpublic entitya) Inquiries of managementb) Inquiries regarding events subsequent to the balance sheet datec) Any procedures designed to identify relationships among data that appear to be unusuald) A study and evaluation of internal control structured) A study and evaluation of internal control structure

24. In planning the audit engagement, the auditor should consider each of the following excepta) The kind of opinion that will likely be givenb) Matters relating to the entitys business and the industry in which it operatesc) The entitys accounting policies and proceduresd) Anticipated levels of control risk and materialitya) The kind of opinion that will likely be given

25. What assurance is provided by the practitioner in an agreed-upon procedures engagement?a) Reasonableb) Absolutec) Moderated) No assuranced) No assurance Reply With Quote Apr 15, 201202:20 PM #6 AccIdPEx


26. To test for unsupported entries in the journal, the direction of audit testing should be from thea) Journal entriesb) Ledger entriesc) Original source documentsd) Externally generated documentsa) Journal entries

27. For good internal control, the purchasing department should not be responsible fora) Authorizing the acquisition of goodsb) Finding the lowest cost vendorc) Reviewing the vendors catalog descriptions and prices for standardized itemsd) Designing the purchase order forma) Authorizing the acquisition of goods

28. Involves tracing a few transactions through the accounting systema) Test of controlsb) Walk-through testc) Analytical proceduresd) Substantive proceduresb) Walk-through test

29. This exists, when other information, not related to matters appearing in the financial statements, is incorrectly stated or presenteda) Material inconsistencyb) Material misstatementc) Material misstatement of factd) Material error affecting the other informationc) Material misstatement of fact

30. Who appoints the members of the Board of Accountancya) The chairman of BOAb) The president of the Philippinesc) The chairman of the PRCd) The president of PICPAb) The president of the Philippines Reply With Quote Apr 15, 201205:05 PM #7 AccIdPEx


31. An auditor is required to obtain an understanding of the entity's business, including business cycles and reasons for business fluctuations. What is the audit purpose most directly served by obtaining this understanding?a) To enable the auditor to accurately identify significant deficiencies in internal controlb) To assist the auditor in accurately interpreting information obtained during an auditc) To allow the auditor to more accurately perform tests of controlsd) To decide whether it will be necessary to perform analytical proceduresb) To assist the auditor in accurately interpreting information obtained during an audit

32. Which of the following is not true about the report release date?a) It is defined as the date after which existing documentation must not be deleted, and additions to the documentation file must be documented as suchb) It is often the date on which the report is delivered to the clientc) It is the date on which the auditor grants the client permission to use the reportd) It is used to define the beginning of the retention perioda) It is defined as the date after which existing documentation must not be deleted, and additions to the documentation file must be documented as such

33. An auditor should not issue a report ona) Quarterly financial informationb) Internal controlc) Management performanced) The achievability of forecastsd) The achievability of forecasts

34. Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events?a) Confirming a sample of material accounts receivable established after year-endb) Comparing the financial statements being reported on with those of the prior periodc) Investigating personnel changes in the accounting department occurring after year-endd) Inquiring as to whether any unusual adjustments were made after year-endd) Inquiring as to whether any unusual adjustments were made after year-end

35. To which of the following matters would materiality limits not apply when obtaining written client representations?a) Violations of state labor regulationsb) Disclosure of line-of-credit arrangementsc) Information about related party transactionsd) Instances of fraud involving managementd) Instances of fraud involving management Reply With Quote Apr 15, 201205:33 PM #8 AccIdPEx


36. Who ultimately determines the scope of the audit?a) The auditorb) The clientc) Both a and bd) Neither a nor ba) The auditor

37. Financial statements prepared in accordance with a financial reporting framework designed to meet the financial information needs of specific users are referred to asa) Special purpose financial statementsb) Special purpose frameworkc) General purpose financial statementsd) Specific purpose financial statementsa) Special purpose financial statements

38. An auditor plans to apply substantive tests to the details of asset and liability accounts as of an interim date rather than as of the balance sheet date. The auditor should be aware that this practicea) Eliminates the use of certain statistical sampling methods that would otherwise be availableb) Presumes that the auditor will reperform the tests of the balance sheet datec) Should be especially considered when there are rapidly changing economic conditionsd) Potentially increases the risk that errors that exist at the balance sheet date will not be detectedd) Potentially increases the risk that errors that exist at the balance sheet date will not be detected

39. Close family include the following, excepta) Parentb) Siblingc) Non-dependent childd) Spoused) Spouse

40. A computer-assisted audit technique that is most likely to be effective in a continuous auditing environment isa) Parallel simulationb) Controlled reprocessingc) Embedded audit modulesd) Transaction trippingc) Embedded audit modules Reply With Quote Apr 15, 201206:03 PM #9 AccIdPEx


41. Which of the following is not prohibited by the Code of Professional Ethics for CPAs?a) Advertising and solicitation of clientsb) Payment of commissions to obtain a clientc) Receiving a contingent fee on a tax case before the Bureau of Internal Revenued) Offering employment to a staff member of another CPA without first informing the CPAc) Receiving a contingent fee on a tax case before the Bureau of Internal Revenue

42. The management's assessment of the entity's ability to continue as a going concern covers a period ofa) Not longer than 12 months from balance sheet dateb) At least 12 months from the balance sheet datec) Not longer than 12 months from the date of audit reportd) At least 12 months from the date of audit reportb) At least 12 months from the balance sheet date

43. To obtain evidential matter about control risk, an auditor selects tests from a variety of techniques includinga) Inquiryb) Analytical proceduresc) Calculationd) Confirmationa) Inquiry

44. The need for independent audits of financial statements can be attributed to all of the following conditions excepta) Remotenessb) Consequencec) Complexity of subject matterd) Validityd) Validity

45. After issuing a report an auditor includes that an auditing procedure considered necessary at the time of the examination was omitted from the examination. The auditor should firsta) Undertake to apply the omitted procedure or alternative procedures that would provide a satisfactory basis for the auditor's opinionb) Assess the importance of the omitted procedure to the auditor's ability to support the opinion expressed on the financial statements taken as a wholec) Notify the audit committee or the board of directors that the auditor's opinion can no longer be relied upond) Review the results of other procedures that were applied to compensate for the one omitted or to make its omission less importantb) Assess the importance of the omitted procedure to the auditor's ability to support the opinion expressed on the financial statements taken as a whole Reply With Quote Apr 15, 201206:25 PM #10 AccIdPEx


46. This quality control element requires a CPA firm to establish policies and procedures to provide it with reasonable assurance that engagements are performed in accordance with professional standards and regulatory and legal requirements, and that the firm or the engagement partner issue reports that are appropriate in the circumstancesa) Ethical requirementsb) Engagement performancec) Monitoringd) Human resourcesb) Engagement performance

47. Communication with a predecessor auditor is initiated bya) Managementb) The successor auditorc) The audit committee of the board of directorsd) The chair of the board of directorsb) The successor auditor

48. In which of the following may confidential information not be disclosed?a) To comply with the quality review of a member body or professional bodyb) To submit evidence in the course of legal proceedingsc) Acquiring information in the course performing professional services and use that information for personal advantagesd) When consent to disclose information is given by the clientc) Acquiring information in the course performing professional services and use that information for personal advantages

49. The auditor should perform the following risk assessment procedures to obtain an understanding of the entity and its environment, including its internal control, excepta) Inquiries of management and others within the entityb) Reperformancec) Analytical proceduresd) Observation and inspectionb) Reperformance

50. The auditor should determine overall responses to address the risks of material misstatement at the financial statement level. Such responses most likely includea) Assigning less experienced staffb) Performing predictable further audit proceduresc) Performing substantive procedures at an interim date instead of at period endd) Emphasizing to the audit team the need to maintain professional skepticism in gathering and evaluating audit evidenced) Emphasizing to the audit team the need to maintain professional skepticism in gathering and evaluating audit evidence Reply With Quote Apr 15, 201210:12 PM #11 AccIdPEx


51. The need for assurance services arises for all of the following reason excepta) Potential bias in providing informationb) Closeness between a user and the organizationc) Complexity of the processing systemsd) Remoteness between a user and the organizationb) Closeness between a user and the organization

52. Which one of the following is not a key attribute needed to perform assurance?a) Subject matter knowledgeb) Independencec) Established criteria or standardsd) Accounting skillsd) Accounting skills

53. Which one of the following is not part of the attest process?a) Providing the accuracy of the books and recordsb) Gathering evidence about assertionsc) Evaluating evidence against objective criteriad) Communicating the conclusions reacheda) Providing the accuracy of the books and records

54. Users of the audit report can reasonably expect the audited financial statements to bea) Complete and contain many of the important financial disclosuresb) Presented fairly according to the substance of GAAPc) Free from all errorsd) All of the aboveb) Presented fairly according to the substance of GAAP

55. Which of the following services is the broadest and most inclusivea) Auditb) Attestationc) Assuranced) Compliancec) Assurance Reply With Quote Apr 16, 201211:13 AM #12 AccIdPEx


56. One reason why an auditor makes an analytical review of the clients operations is to identifya) Improper separation of accounting and other financial dutiesb) Weakness of a material nature in the system of internal accounting controlc) Unusual transactionsd) Non-compliance with prescribed control proceduresc) Unusual transactions

57. Analytical procedures used in planning an audit should focus on identifyinga) Material weaknesses in the internal control structureb) The predictability of financial data from individual transactionsc) The various assertions that are embodied in the financial statementsd) Areas that may represent specific risk relevant to auditd) Areas that may represent specific risk relevant to audit

58. An integrated test facility (ITF) would be appropriate when the auditor needs toa) Trace a complex logic path through an application systemb) Verify processing accuracy concurrently with processingc) Monitor transactions in an application system continuouslyd) Verify load module integrity for production programsb) Verify processing accuracy concurrently with processing

59. The rotation of senior accounting personnel can be regarded as a safeguarda) Created by the professionb) Within the clients systems and proceduresc) In the work environmentd) Created within the business communityc) In the work environment

60. If certain forms are not consecutively numbereda) Systematic sampling may be appropriateb) Selection of a random sample probably is not possiblec) Stratified sampling should be usedd) Random number tables cannot be useda) Systematic sampling may be appropriate Reply With Quote Apr 16, 201209:34 PM #13 AccIdPEx


61. A cash shortage may be concealed by transporting funds from one location to another or by converting negotiable assets to cash. Because of this, which of the following is vital?a) Simultaneous confirmationsb) Simultaneous bank reconciliationsc) Simultaneous verificationd) Simultaneous surprise cash countc) Simultaneous verification

62. Which of the following is most likely to indicate a significant deficiency relating to a client's anti-fraud programs?a) A broad scope of internal audit activitiesb) A "whistle-blower" program that encourages anonymous submissionsc) Audit committee passivity when conducting oversight functionsd) Lack of performance of criminal background investigations for likely customersc) Audit committee passivity when conducting oversight functions

63. Which of the following is not an attestation standard?a) Sufficient evidence shall be obtained to provide a reasonable basis for the conclusion that is expressed in the reportb) The report shall identify the subject matter on the assertion being reported on and state the character of the engagementc) The work shall be adequately planned and assistants, if any, shall be properly supervisedd) A sufficient understanding of internal control shall be obtained to plan the engagementd) A sufficient understanding of internal control shall be obtained to plan the engagement

64. Proper segregation of functional responsibilities calls for separation of the functions ofa) Authorization, execution, and paymentb) Authorization, recording, and custodyc) Custody, execution, and reportingd) Authorization, payment, and recordingb) Authorization, recording, and custody

65. Control risk should be assessed in terms ofa) Specific controlsb) Types of potential fraudc) Financial statement assertionsd) Control environment factorsc) Financial statement assertions Reply With Quote Apr 16, 201209:40 PM #14 AccIdPEx


66. Which of the following is not a step in an auditor's assessment of control risk?a) Evaluate the effectiveness of internal control with tests of controlsb) Obtain an understanding of the entity's information system and control environmentc) Perform tests of details of transactions to detect material misstatements in the financial statementsd) Consider whether controls can have a pervasive effect on financial statement assertionsc) Perform tests of details of transactions to detect material misstatements in the financial statements

67. Which of the following procedures would an auditor ordinarily perform first in evaluating management's accounting estimates for reasonableness?a) Develop independent expectations of management's estimatesb) Consider the appropriateness of the key factors or assumptions used in preparing the estimatesc) Test the calculations used by management in developing the estimatesd) Obtain an understanding of how management developed its estimatesd) Obtain an understanding of how management developed its estimates

68. An entity's income statements were misstated due to the recording of journal entries that involved debits and credits to an unusual combination of expense and revenue accounts. The auditor most likely could have detected this fraudulent financial reporting bya) Tracing a sample of journal entries to the general ledgerb) Evaluating the effectiveness of internal controlc) Investigating the reconciliations between controlling accounts and subsidiary recordsd) Performing analytical procedures designed to disclose differences from expectationsd) Performing analytical procedures designed to disclose differences from expectations

69. Which of the following is most likely to be unique to the audit work of CPAs as compared to work performed by practitioners of other professions?a) Due professional careb) Competencec) Independenced) Complex body of knowledgec) Independence

70. Which of the following would an auditor most likely use in determining the auditor's preliminary judgment about materiality?a) The anticipated sample size of the planned substantive testsb) The entity's annualized interim financial statementsc) The results of the internal control questionnaired) The contents of the management representation letterb) The entity's annualized interim financial statements Reply With Quote Apr 16, 201209:47 PM #15 AccIdPEx


71. Which of the following conditions identified during fieldwork of an audit is most likely to affect the auditor's assessment of the risk of misstatement due to fraud?a) Checks for significant amounts outstanding at year-endb) Computer generated documentsc) Missing documentsd) Year-end adjusting journal entries.c) Missing documents

72. An auditor ordinarily uses a working trial balance resembling the financial statements without footnotes, but containing columns fora) Cash flow increases and decreasesb) Audit objectives and assertionsc) Reclassifications and adjustmentsd) Reconciliations and tick marksc) Reclassifications and adjustments

73. The risk that an auditor will conclude, based on substantive tests, that a material misstatement does not exist in an account balance when in fact such misstatement does exist is referred to asa) Detection riskb) Sampling riskc) Non-sampling riskd) Inherent riska) Detection risk

74. The usefulness of the standard bank confirmation request may be limited because the bank employee who completes the form maya) Be unaware of all the financial relationships that the bank has with the clientb) Not believe that the bank is obligated to verify confidential information to a third partyc) Sign and return the form without inspecting the accuracy of the client's bank reconciliationd) Not have access to the client's cutoff bank statementa) Be unaware of all the financial relationships that the bank has with the client

75. A material weakness is a significant deficiency (or combination of significant deficiencies) that results in a reasonable possibility that a misstatement of at least 'what amount will not be prevented or detected?a) An amount greater than zerob) An amount greater than zero, but at least inconsequentialc) An amount greater than inconsequentiald) A material amountd) A material amount Reply With Quote Apr 17, 201211:20 AM #16 AccIdPEx


76. The existence of audit risk is recognized by the statement in the auditor's standard report that the auditora) 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 arc the responsibility of management.a) Obtains reasonable assurance about whether the financial statements are free of material misstatement.

77. Which of the following services would be most likely to be structured as an attest engagement?a) Advocating a client's position in tax matter.b) A consulting engagement to develop a new database system for the revenue cycle.c) An engagement to issue a report addressing an entity's compliance with requirements of specified laws.d) The compilation of a client's forecast information.c) An engagement to issue a report addressing an entity's compliance with requirements of specified laws.

78. Which of the following is ordinarily considered to be a fraud risk factor?a) The company's financial statements include a number of last minute material adjustments.b) Management regularly informs investors of forecast information.c) The company has experienced increasing earnings over the previous five years.d) The company's president is included as a member of the board of directors.a) The company's financial statements include a number of last minute material adjustments.

79. Which is least likely to be a question asked of client personnel during a walk-through in an audit of the internal control of an issuer (public) company?a) What do you do when you find an error'?b) Who is most likely to commit fraud among your coworkers?c) What kind of errors have you found?d) Have you ever been asked to override the process or controls?b) Who is most likely to commit fraud among your coworkers?

80. An auditor who uses the work of a specialist may refer to and identify the specialist ill the auditor's report if thea) Specialist is also considered to be a related party.b) Auditor indicates a division of responsibility related to the work of the specialist.c) Specialist's work provides the auditor greater assurance of reliability. d) Auditor expresses an "except for" qualified opinion or an adverse opinion related to the work of the specialist.d) Auditor expresses an "except for" qualified opinion or an adverse opinion related to the work of the specialist. Reply With Quote Apr 17, 201211:29 AM #17 AccIdPEx


81. Which of the following statements concerning evidential matter is correct?a) Appropriate evidence supporting management's assertions should be convincing rather than merely persuasive.b) Effective internal control contributes little to the reliability of the evidence created within the entity.c) The cost of obtaining evidence is not an important consideration to an auditor in deciding what evidence should be obtained.d) A client's accounting data cannot be considered sufficient audit evidence to support the financial statements.d) A client's accounting data cannot be considered sufficient audit evidence to support the financial statements.

82. Confirmations of accounts receivable address which assertion most directly?a) Completenessb) Existencec) Valuationd) Classificationb) Existence

83. When performing a review of an issuer company, which is least likely to be included in the CPA's inquires of management members with responsibility for financial and accounting matters?a) Subsequent eventsb) Significant journal entries and other adjustmentsc) Communications with related partiesd) Unusual or complex situations affecting the financial statementsc) Communications with related parties

84. The adverse effects of events causing an auditor to believe there is substantial doubt about an entity's ability to continue as a going concern would most likely be mitigated by evidence relating to thea) Ability to expand operations into new product lines in the future.b) Feasibility of plans to purchase leased equipment at Jess than market value.c) Marketability of assets that management plans to sell.d) Committed arrangements to convert preferred stock to long-term debt.c) Marketability of assets that management plans to sell.

85. One reason that an auditor only obtains reasonable, and not absolute, assurance that financial statements are free from material misstatement isa) Comprehensive basis reportingb) Employee collusionc) Material misstatementsd) Professional skepticismb) Employee collusion Reply With Quote Apr 17, 201211:35 AM #18 AccIdPEx


86. 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 toa) 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.

87. The accountant who is not independent may perform which of the following types of engagements?a) Auditb) Agreed-upon proceduresc) Compilationd) Reviewc) Compilation

88. Which of the following should an auditor obtain from the predecessor auditor prior to accepting an audit engagement?a) Analysis of balance sheet accountsb) Analysis of income statement accountsc) All matters of continuing accounting significanced) Facts that might bear on the integrity of managementd) Facts that might bear on the integrity of management

89. Which is least likely to be a response when an auditor has obtained evidence indicating a risk of material misstatement in the area of inventory?a) Request inventory counts at the end of each month.b) Discuss questions of inventory valuation with any other auditors involved with the audit.c) Make oral inquiries of major suppliers in addition to written confirmations.d) Perform inventory observations on an unannounced basis.a) Request inventory counts at the end of each month.

90. The independent auditor selects several transactions in each functional area and traces them through the entire system, paying special attention to evidence about whether or not the controls are in operation. This is an example of a(n)a) Application testb) Test of controlsc) Substantive testd) Test of a functionb) Test of controls Reply With Quote Apr 17, 201211:42 AM #19 AccIdPEx


91. Accounting control procedures within computer processing may leave no visible evidence indicating that the procedures were performed. In such instances, the auditor should test these controls bya) 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.c) Reviewing transactions submitted for processing and comparing them to related output.

92. If information is for management's use only, which of the following forms of CPA association with financial information is most likely to result in no report being issued?a) An agreed-upon procedures engagementb) An auditc) A compilationd) A reviewc) A compilation

93. In obtaining an understanding of a manufacturing entity's internal control over inventory balances, an auditor most likely woulda) Review the entity's descriptions of inventory policies and procedures.b) Perform test counts of inventory during the entity's physical count.c) Analyze inventory turnover statistics-to identify slow-moving and obsolete items.d) Analyze monthly production reports to identify variances and unusual transactions.a) Review the entity's descriptions of inventory policies and procedures.

94. When auditing merchandise inventory at year-end, the auditor performs a purchase cutoff test to obtain evidence thata) All goods owned at year-end are included in the inventory balance.b) All goods purchased before year-end are received before the physical inventory count.c) No goods held on consignment for customers are included in the inventory balance.d) No goods observed during the physical count are pledged or sold.a) All goods owned at year-end are included in the inventory balance.

95. A company has changed its method of inventory valuation from an unacceptable one toone in conformity with generally accepted accounting principles. The auditor's report on the financial statements of the year of the change should includea) No reference to consistency.b) A reference to a prior period adjustment in the opinion paragraph.c) An explanatory paragraph explaining the change.d) A justification for making the change and the impact of the change on reported net income.c) An explanatory paragraph explaining the change. Reply With Quote Apr 17, 201211:48 AM #20 AccIdPEx


96. An abnormal fluctuation in gross profit that might suggest the need for extended audit procedures for sales and inventories would most likely be identified in the planning phase of the audit by the use ofa) Tests of transactions and balancesb) A preliminary review of internal controlc) Specialized audit programsd) Analytical proceduresd) Analytical procedures

97. Which of the following statements best describes the ethical standard of the profession pertaining to advertising and solicitation?a) All forms of advertising and solicitation are prohibited.b) There are no prohibitions regarding the manner in which CPAs may solicit new business.c) A CPA may advertise in any manner that is not false, misleading, or deceptive.d) A CPA may only solicit new clients through mass mailings.c) A CPA may advertise in any manner that is not false, misleading, or deceptive.

98. A note to the financial statements of a bank indicates that all of the records relating to its business operations are stored on magnetic disks; and that there are no emergency back-up systems or duplicate disks stored since the bank and their auditors consider the occurrence of a catastrophe to be remote. Based upon this, one would expect the auditor's report to expressa) An adverse opinionb) An "except for" opinionc) An unqualified opiniond) A qualified opinionc) An unqualified opinion

99. Which of the following is not typically performed when accountants are performing a review of the financial statements of a nonissuer?a) Analytical procedures applied to financial datab) Inquiries about significant subsequent eventsc) Inquiries of the client's attorney about legal mattersd) Obtaining an understanding of the accounting principles followed by the client's industryc) Inquiries of the client's attorney about legal matters.

100. Which of the following is least likely to be a restricted use report?a) A report on financial statements prepared following a comprehensive basis of accounting other than generally accepted accounting principles.b) A report on internal control significant deficiencies noted in an audit.c) A required communication with the audit committee.d) A report on compliance with aspects of contractual agreements.a) A report on financial statements prepared following a comprehensive basis of accounting other than generally accepted accounting principles.

auditing theory test bank.docx

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