Fraud and Error

1. Material misstatements may emanate from all of the following except:

a. Fraud
b. Error
c. Noncompliance with laws and regulations
d. Inadequacy of accounting records.
2. Which of the following factors is most important concerning an auditors responsibility to detect
errors and fraud.
 The risk that mistakes, falsifications, and imissions may cause the financial statements to contain
material misstatements.
3. The auditor gives an audit opinion on the fair presentation of the financial statements and
associates his or her name with it when, on the basis of adequate evidence, the auditor
concludes that the financial statements are unlikely to mislead.
 A prudent user
4. The level of assurance provided by an audit of detecting a material misstatement is referred to
as:
 Reasonable assurance
5. The responsibility for the detection and prevention of errors, fraud and non compliance with
laws and regulations rests with.
 Client management
6. The responsibility for adopting sound accounting policies, maintaining adequate internal
control, and making fair representation in the financial rests.
 With the management
7. The management responsibility to detect and prevent fraud and error is accomplished by:
 Implementing adequate accounting and inernal control system
8. Which of the following statements best describes the audfitor’s responsibility regarding the
detection material errors and frauds?
 The audit should be designed to provide reasonable assurance that material errors and frauds
will be detected.
9. The auditor’s best defense when material misstatements in the financial statements are not
uncovered in the audit is that
 The audit was conducted in accordance with PSA
10. The following statements relate to the auditor’s responsibility for the detection of erros and
fraud. Identify the correct statements.
 Both statements are correct
11. The auditor’s responsibility for failure to detect fraud arises
 When the failure clearly results from non compliance to PSA
12. An intentional act by one or more individuals among management, employees, or third parties
which results in misrepresentation of financial statements refers to
 Fraud
13. The factor which distinguishes an error from fraud is
 Intent
14. Which of the following statements is correct regaerding errors and fraud?
 An errors is unintentional, whereas fraud is intentional
15. The primary factor that distinguishes errors from fraud is
 Whether the underlying cause of misstatement is intentional or unintentional.
16. In the cintext of financial statement presentation, fraud occurs when:
 A misstatement is made and there is both knowledge of its falsity and intent to deceive
17. Which of the following statements best identifies the two tyoes of fraud?
 Management fraud and employee fraud
18. Fraudulent financial reporting is often called
 Management fraud
19. Fraudulent financial reporting is most likely to be commited by whom?
 Company’s management
20. The auditor has considerable responsibility for notifying users as to whether or not the
statements are properly stated.
 Provide reasonable assurance that material missttaments will be detected
21. Which of the following statement is true
 Is is usually easier for the auditor to uncover errors than fraud.
22. In comparing management fraud with employee fraud, the auditor’s risk of failing to discover
the fraud is.
 Greater for management fraud because of managemetns ability to override existing internal
controls.
23. If there is fraud involving top management, the probability that the fraud would be uncovered in
a financial statements.
 Unlikely
24. The term “error” refers to unintentional misrepresentation of financial information. Examples of
erros are when.
 All of the above statements are truw
25. Which of the following is an example of an errors?
 Misapplication of accounting policies.
26. Which of the following is an “error” as distinguished from “fraud”?
 Clerical mistakes in the processing of transactrions
27. Which of the following could be an example of fraud?
 Misappropriation of assets or group of assets
28. Whch of the following is an example of fraudulent financial reporting?
 Company management changes inventory count tags and overstates ending inv., while
understating cogs
29. Which one of the following terms relates to the embezzling of receipts?
 Misappropriation
30. Which of the following statements best describes and auditor’s responsibility to detect errors
and fraud?
 An auditor should assess the risk that errors and fraud may cause the fs to contain material
misstatements and should design the audit to provide
31. In connection with the audit of financial statements, an independent auditor coukd be
responsible for failure to detect a material fraud if:
 The auditor planned the audit in a negligent manner
32. An auditor should recognize that the application of auditing procedures may produce evidential
matter indicating the possibility of erros and fraud and therefore should
 Plan and perform the engagement with an attitude of professional skepticism
33. The auditor should not assume that the management is dishonest, but the possibility of
dishonesty must be considered. This is an example of
 An attitude of professional skepticism
34. Professioanl skepticism requires auditor to posses a mind
 Questioning
35. Professional skepticism dictates that when management makes a statement to the auditors, the
auditor should.
 Corroborate the evidence with other supporting documentation whenever possible.
36. Which of the following statements is not true.
 Is is usually easier fo the auditor to uncover fraud than errors
37. In compaing management fraud with employee fraud, the auditor’s risk of failing to discover the
fraud is
 Greater for management fraud because of management’s ability to override existing internal
controls.
38. The most difficult type of misstatements to detect is fraud based on
 Non recording of transactions
39. If several employees collude to falsify documents, the chance a normal audit would uncover
such acts is
 Very low
40. If an auditor conducted an audit in accordance with auditing standards, which of the following
would the auditor likely detect?
 Errors in postings of recorded transactions
41. If an auditor was engaged to discover errors and fraud and the auditor performed extensive
detail work, the auditor is expected to detect.
 Misclassification of account
42. Which of the following statements is incorrect?
 The auditor is not and cannot be held responsible for the detection of fraud or error.
43. Which of the following statements about fraud or error is incorrect?
 The likelihood of detecting fraud is ordinarily higher that that detecting error.
44. In performing a financial statement audit, which of the following would an auditor least likely
consider?
 Quality of managements business decisions
45. Which of the following is not an assurance that the auditors give to the parties who rely on the
financial statements?
 Auditors gives assurance that the financial statements are accurate,
46. The risk of not detecting material misstatement resulting from fraud is greater than the risk of
not detecting a material misstatement arising from error, because:
 Fraud ordinarily involves act designed to conceal it, such a collusion, forgery, or deliberate
failure to record transactions.
47. When performing a financial statements audit, auditors are required to explicitly assess the risk
of material misstatements due to.
 Fraud
48. Audits of financial statements are designed to obtain assurance of detecting misstatements due
to
 Yes yes yes
49. Which of the following best describes what is meant by the term “fraud risk factor”
 Factor whose presence often has been observed in circumstances where fraud has occurred.
50. At which stage(s) of the audit may fraud risk factors be identified?
 Yes yes yes
51. Which of the following is a category of risk factors that should be considered when assessing risk
of misstatements arising from misappropriation of assets?
 Condition of internal control
52. When considering fraud risk factors relating to management’s characteristics, which of the
following is least likely to indicate a risk possible misstatement due to fraud.
 Use of unusually conservative accounting practices.
53. Which of the following is most likely to be a response to the auditr’s assessment that the risk of
material misstatement due to fraud for the existence of inventory is high?
 Observe test counts of inventory at certain locations on an unannounced basis.
54. Which of the following characteristics most likely would heaighten an auditor’s concern about
the risk of intentional manipulation of financial statements.
 Management places susbstantial emphasis on meeting earnings projections.
55. Individuals wh commit fraud are ordinarly able to rationalize the act and also have an
 Yes yes
56. Which of the following most likely to be considered a risk factor relating to fraudulent financial
reporting?
 Negative cash flows from operations
57. Which of the following is most likely to be presumed to represent fraud risk on an audit?
 Improper revenue recognition
58. Which of the following conditions or events would least likely increase the risk fraud or error
 Lack of transaction trail
59. Which of the following conditions identified during fieldwork of an audit is most likely to affect
the auditor’s assessement of the risk of misstatement due to fraud
 Missing documents
60. Which of the following would be least likely to suggest to an auditor that the client’s financial
statements are materially misstated?
 Management does not correct material internal control weaknesses that it knows about.
61. Which of the following circumstances would least likelycause an auditor to consider whether
material misstatements exist in an entity’s financial statements?
 Managements is dominated by several individuals.
62. Which of the following circumstances would least likely cause an auditor to consider whether a
material misstatement exists?
 The turnover of senior acctg personnel is exceptionally low/
63. Which of the following circumstances most likely would cause an auditor to belive that material
misstatements exist in an entity’s financial statement
 There where substantial payments for services that appear excessive in relation to services
provided.
64. Which og the following conditions would not normally cause the auditor to question whther
material errors or possible fraud exists?
 The accounting department is overstaffed
65. Which of the following characteristics most likely would heighten an auditor’s concern about the
risk of material misstatements in an entity’s financial statements?
 The entity’s industry is experiencing declining customer demand
66. Which of the following conditions or events increases the risk of error or fraud?
 There are frequent changes of auditors or legal counsel
67. All of the following conditions are indicators of possible pressures on an entity except
 There is a significant and prolonged understaffing of the accounting department.
68. Which of the following is most likely to be an overall response to fraud risks identified in an
audit
 Use less predictable audit procedures
69. During the course of an audit engagement, the CPA discovers specific circumstanced that led
him to the belief that employee fraud that has a material effect on the financial statements.
 Perform appropriate modified or additional procedures to confirm or dispel the auditor’s
suspicion
70. If an auditor believes that material errors or fraud exist, the auditor should
 Consider implications and discuss the matter with appropriate levels of management
71. When the auditor believes a misstatement is or may be the result of fraud but that the effect of
the misstatements is not material to the financial statements, which of the following steps is
required?
 Consider the implications for other aspects of the audit
72. Which of the following is an incorrect statement
 If the auditor suspects that error may exist, he should immediately communicate it to the
management
73. If the auditor belives that the fraud or error has a material effect on the financial statements but
the client Is not willing to correct the misstatements, the auditor would most likely issue an
 Qualified or adverse opinion
74. If the auditor is precluded by the entity from obtaining evidence to evaluater whether fraud or
error that may be material ti the financial statementshas occurred, the auditor should issue a
report that contains.
 Either qualified opinion or a disclaimer of opinion
75. When a user sees that an unmodified ipinion has been expressed by an externa auditor, he or
she may correctly infer that
 Any differences between managaement and the auditor on accounting matter have been
resolved to the auditor’s satisfaction
76. When comparing the auditor’s responsibility for detecting employee fraud and for detecting
errors, the profession has placed the responsibility
 Equally ondiscovering either one
77. Judgements about the increased risk of misstatement of the financial statements due to fraud
may influence the auditor’s professional judgements in the following except
 The auditor should plan and audit to provide a guarantee that the financial statementsare free
of material misstatements, whether due to fraud or error.
78. What is an auditor’s responsibility whi discovers that management is involved in a potentially
immaterial fraud?
 Report the fraud to the audit committee
79. Which of the following statements best describes the auditor’s responsibility regarding the
detection of fraud.
 The auditor is required to provide reasonable assurance that the both material errors and fraud
are detected
80. The auditor’s evaluation of the likelihood of material employee fraud is normally done initially as
a part of
 Understanding the entity’s internal control
81. When is the auditor responsible for detecting fraud
 When the application of PSA would have uncovered the fraud
82. These are acts of omission or commission by the entity being audited, either intentional or
unintentional, which are contrary to the prevailing laws and regulations
 Misappropriation
83. Most noncompliance affect the financial statements
 Both directly and indirectly
84. When the auditor knows that a noncompliance with laws and regulation has occurred, the
auditor must
 Consider the effects on the financial statements, including the adequacy of disclosure.
85. Generally the decision to notify parties outside the client’s organization regarding
noncompliance with laws and regulations is the responsibility of the
 Management
86. Which of the following is the auditor least likely to do when aware of noncompliance
 Contact the local law enforcement officials regarding potential criminal wrongdoing
87. Which of the following statements about compliance is incorrect
 The determination of whether a particular act constitutes non compliance is ultimately based on
the judgement of the auditor.
88. Which of the following circumstances is not an indication of possible noncompliance
 Payment for goods or services to the country from which the goods or services originated
89. Which of the following conditions would least likely indicate the occurrence of non compliance
 Purchasing a real property for a price that is significantly higher than the seller’s book value
90. Which of the following conditions would most likely indicate a possible noncompliance with
laws and regulations
 Media comment
91. According to psa 250
 Auditors usually rely on lawyers representation to detect noncompliance
92. When the auditor becomes aware of information concerning a possible instance of
noncompliance, the auditor should
 Obtain understanding of the nature of the act, and the circumstances in which it has occurred
and the sufficient other information to evaluate the possible effect on the financial statements.
93. An auditor who discovers that clients has not complied with laws and regulations that has a
material effect on the financial statements most likely would withdraw from the engagemt if the
 Client does not take remedial action that the auditor considers necessary
94. If specific information comes to an auditor’s attention that implies and existence of
noncompliance with laws that could result in a material, but indirect effect on the financial
statements, the auditor should next
 Apply audit procedures specifically directed to ascertaining whether noncompliance has
occurred
95. Which of he following does not properly describes a procedure that the auditor normally
performs in connection with non compliance
 The auditor should obtain oral representation that management has disclosed to the auditor all
known actual or possible non compliance with laws and regulations.
96. Which of the following procedures would an auditor be unlikely to perform when obtaining a
general understanding about the law’s and regulations affecting the client’s business?
 Obtain a representation letter from the client’s legal counsel
97. After obtaining sufficient level of understanding about the client’s legal and regulatory
framework, the auditor should
 Perform procedures to help identify instances of noncompliance with laws and regulations
98. Which of the following procedures would assist the auditor in identifying noncompliance with
laws and regulations?
 Inspecting correspondence with relevant regulatory agencies
99. If the client refuses to accept an audit report that is qualities due to non compliance with laws
and regulations, the auditor should
 Withdraw from the engagement and indicate the reasons to the audit committee in writing.
100. During the audit of Joax Corp.,
 Management representation letter.
101. An auditor discovers that a client’s employee have paid small bribes to public officials
most likely would withdraw from engagement if the
 Employees actions affect the auditor’s ability to rely on managements representations
102. When planning the audit, if the auditor has no reason to believe that noncompliance
exists, the auditor should
 Make inquiries of management regarding their policies for detecting and preventing non-
compliance and regarding their knowledge of violations, and then rely on normal audit
procedures to detect errors, fraud, and illegalitites.
1. This involves developing an overall strategy for the expected conduct and scope of the
examination; the nature, extent, and timing of which vary with the size and complexity, and
experience with and knowledge of the entity.
 Audit planning
2. Audit plans should.
 Yes yes yes
3. Adequate planning of the audit work helps ensure that
 Yes no yes yes
4. Which of the following is not normally performed in the planning stage of the audit?
 Request that bank balances be confirmed
5. Which of the following procedures would a CPA ordinarily perform during audit planning
 Obtain understanding of the client’s business and industry
6. Early appointment of the independent auditor will enable
 A more efficient examination to be planned
7. In developing the overall audit plan for a new client,factor not to be considered is
 The amount of estimated audit fee
8. In planning the audit engagement, the auditr should consider each of the following except
 The kind of opinion that is likely to be expressed
9. A CPA is conducting the first examination of a client’s financial statements.
 Acceptable if the client and the predecessor auditor agree to it.
10. Which of the following is not one of the three main reasons why the auditor should properly
plan engagements.
 to enable proper on-the-job training of employees
11. which of the following is the most likely first step an auditor would perform at the beginning of
an initial audit engagement
 tour the client’s facilitites and review the general records
12. a tour of the client’s facilities is helpful in obtaining an understanding of the client’s operations
because
 all of the above
13. prior to the beginning the field work on a new audit engagement in which a CPA does not
possess expertise in the industry in which the client operates, the CPA should,
 obtain a knowledge of matters that relate to the nature of the entity’s business
14. as extensive understanding of the client’s business and industry and knowledge about the
company’s operations are essential for doing an adequate audit. For a new client, most of this
information is obtained.
 At the client’s premises
15. The audit team gathers information about a new client’s business and industry in order to
obtain
 An understanding of how economic events and transactions affect the company’s financial
statements.
16. In performing an audit of financial statements, the auditor should obtain knowledge of the
client’s business sufficient to
 Identify transactions and events that may affect the financial statements.
17. Each of the following may be relevant to an auditor when obtaining knowledge about the
client’s business and industry except
 Performing tests control
18. To obtain understanding of a continuing client’s business in planning an audit, an auditor most
likely would.
 Review prior year working papers and the permanent file for the client
19. Which of the following statement is correct, when obtaining understanding about the client’s
business?
 Following the acceptance of the engagement, the auditor should obtain detailed knowledge
about the client’s business preferably at the start of the engagement
20. Information about the client’s business appropriately assists
 Yes yes yes
21. For initial engagements, PSA 510 does not require the auditor to obtain evidence
 That the prior period financial statements were audited by an independent CPA
22. The preliminary judgment about materiality and the amount of audit evidence accumulated
are----- related
 Inversely
23. The auditor has no responsibility to plan and perform the audit to obtain reasonable assurance
that misstatements, whther caused by errors or fraud, that are not---- detected
 Material to financial statements
24. According to PSA 320, Materiality should be considered by the auditor when:
 YES YES
25. If an auditor establishes as relatively high level for materiality then the auditor will:
 Accumulate less evidence than if a lower level had been set
26. Which of the following statements is not correct about materiality?
 An auditor considers materiality for planning purposes in terms of the largest aggregate level of
misstatement that could be material to any one of the financial statements.
27. In developing the preliminary level of materiality in an audit, the auditor will
 Rely primarily on professional judgement to determine the materiality level
28. In making a preliminary judgement about materiality, the auditor initially determines the
aggregate (overall) level of materiality for each statement. For planning purposes, the auditor
should use the
 Smallest aggregate level
29. In planning the audit, the auditor should asses materiality at two levels
 The company level and the divisional level
30. Performance materiality is the term used to indicate materiality at the
 Account balance level
31. All else being equal, as the level of materiality decreases, the amount evidence required will
 Increase
32. In considering materiality for planning purposes, and auditor believes that misstateme
33. Which of the following would an auditor most likely use in determingin the auditors preliminary
judgement about tests.
 The entity’s annualized interim financial statements
34. Which of the following is the primary basis used to decide materiality for a profit oriented entity
 Net income before tas
35. The concept of materiality
 Requires the auditor to make judgements as to whether misstatements affect the fairness of the
financial statements.
36. The relationship between materiality and risk is ordinarily
 Inverse
37. When comparing level of materiality used for planning purposes and the level of materiality
uses for evaluating evidence, one would most likely expect.
 The level of materiality for planning purposes to be smaller
38. When assessing materiality levels for audit purposes, the auditor should consider the
 Yes yes
39. Auditors are responsible for determining whther financial statements are materially misstated,
so upon discovering a material misstatement they must bring it to the attention of
 The client shareholders
40. Auditing standards---- that the basis used to determine the preliminary judgement about
materiality be documented in the audit files.
 Stongly encourage
41. Qualitative factors can affect an auditor’s assessment of materiality. Which of the following
qualitative factors could influence the assessment of materiality
 I and ii
42. Which of the following statements is not correct
 The most important base used as the criterion for deciding materiality is total assests
43. Jem corporation
 Materiality
44. When tolerable misstatement is exceeded by the auditor should request the client to adjust
their account balance.
 I and ii
45. Auditors frequently refer to the terms audit assurance, overall, assurance, and the level of
assurance to refer to
 Acceptable audit risk
46. A measure of how willing the auditor is to accept that the financial statements may be
materially misstated after the audit is completed and an unqualified opinion has been issued is
the
 Acceptable audit risk
47. A measure of the auditor’s assessement of the likelihood that there are material misstatements
in an account before considering the effectiveness of the client’s internal control is
 Inherent risk
48. In a financial statement audit, inherent risk is evaluated to help an auditor asses which of the
following
 The susceptibility of a financial statement assertion to a material misstatement assuming there
are no related controls.
49. The risk that a material misstatement in an assertion will not be prevented or detected on a
timely basis by internal control in
 Control risk
50. The probability that an auditor’s procedure leading to the conclusion that a material error does
not exist in an account balance when, in fact, such error does exist is referred to as
 Detection risk
51. The risk that the auditor may express an incorrect opinion on financial statements is called
 Audit risk
52. The risk that financial statements are likely to be misstated materially without regard to the
effectiveness if internal control is the
 Inherent risk
53. A measure of the auditor’s assessment of the likelihood that there are material misstatements
in an account before considering the effectiveness of the client’s internal control is
 Inherent risk
54. Audit risk consists of all but the following components
 Substantive risk
55. For a particular assertion, control risk is the risk that
 Controls will not detect a material misstatement that occurs
56. Which of the following is the best definition of detection risk?
 the auditor will fail to detect material misstatements that exist
57. the audit risk against which the auditor and those who rely on his/her opinion require
reasonable protection is a combination of three separate risks at the account-balance or class-
of-transaction level. The first risk is inherent risk
 material misstatements that occur will not be detected by the audit
58. the risk that the audit will fail to uncover a material misstatement is eliminated
 under no circumstances
59. when planning a financial statements, the auditor should assess inherent risk at the
 yes yes
60. risk in auditing means that the auditor accepts some level of uncertainty in performing the audit
function. An effective auditor will.
 Recognize that risk exists and deal with it in an appropriate manner
61. The audit risk model is used primarily
 For planning purposes in determining how much evidence
62. The risk of material misstatement refers to
 The combination of inherent risk and control risk
63. As the risk of material misstatement increases, detection risk should
 Decrease
64. The risk of material misstatement differs from detection risk in that it:
 Is controllable by the client
65. Inherent risk and control risk
 Are inversely related to detection risk
66. Inherent risk and control risk differ from detection risk in that inherent and control risks
 Exist independently of the financial statement audit.
67. Which of the following is an incorrect statement.
 Detection risk cannot be changed at the auditor’s discretion
68. The acceptable level of detection risk is inversely related to the
 Assurance provided by substantive tests
69. Relationship between control risk and detection risk is ordinarily
 Inverse
70. Which of the following conditions supports an increase in detection risk
 Interna control over cash receipts is excellent
71. Which of the following is not a primary consideration when assessing inherent risk
 Degree of separation of duties
72. An auditor uses the assessed level of control risk to
 Determine the acceptable level of detection risk for financial statements.
73. Bjkb
74. Bkjjbk
75. Bkbk
76. Inherent risk is defined as the susceptibility of an account balance or class of transactions to
error that could be material assuiming that there were no related internal controls.
 Internal control over shipping, billing, and recording of sales revenue is weak
77. According to auditing standards, the auditor uses the assessed level of control risk to determine
the acceptable level of detection risk for financial statement assertions. As the acceptable level
of detection risk decreases, the auditor may do one or more of the following exceot change the
 Assurance provided by substantive tests to a lower level
78. As the acceptable level of detection risk decreases, an auditor may change the
 Nature of substantive tests from a less effective to a more effective procedure.
79. As the acceptable level of detection risk decreases, an auditor may
 Postpone the planned timing of substantive tests from interim dated to the year end
80. Inherent risk is ___ related to detection risk and ___ related to the amount of audit evidence
 Inversely, directly
81. On the basis of the audit evidence gathered and evaluated, an auditor decides to increase the
assessed level of control riskfrom that originally planned. To achive an overall audit risk level
that is substantially the sames as the planned audit risk level, the auditor would.
 Decrease detection risk
82. Which of the following is not correct regarding an auditor’s decision that a lower acceptable
audit risk is appropriate
 Less evidence is accumulated
83. Which of the following statements is not true
 Inherent risk is inversely related to the amount of audit evidence whereas detection risk is
directly related to the amount of audit evidence required.
84. Which of the following statements is not true about the auditor’s assessment of inherent risk
when planning a financial statement audit
 The auditor’s assessmenet of inherent risk is influenced by the condition of the client’s
accounting and internal control systems
85. The auditor should obtain sufficient understanding of the entitiy and its environment, including
its internal control in order to
 Yes yes
86. Collectively procedures performed to obtain an understanding of the entity and its environment,
including internal controls, represent the auditor’s
 Risk assessment procedures
87. Which of the following would not be considered further audit procedures?
 Risk assessment procedures
88. Risk assessmenet procedures would include all of the following except
 Reperformance of client’s procedures
89. Risk assessment procedures are performed by auditors during an audit in order to
 Determine the risk of material misstatement in the financial statements
90. Which of the following is least likely to be considered a risk assessment procedure
 Confirmation of ending accounts receivable
91. The main purpose of risk assessmenet procedure is to
 Obtain an understanding of the entity and its environment, including its internal control; and to
assess the risks of material misstatement ate the financial statement and assertion level
92. Why do auditors establish a preliminary judgment about materiality?
 To plan the appropriate audit evidence to accumulate and develop an overall audit strategy
93. The main reason why auditors make preliminary assessment of materiality and risk is to
 Determine he scope of the audit procedures to be performed
94. The auditor is likely to accumulate more evidence when the audit is for a company
 All three of the abouve
95. At what point in the audit are tests of details most appropriately designed?
 Planning
96. Which of the following is not a potential effect of an auditor’s decision that a lower acceptable
audit risk is appropriate
 Less evidence is required
97. It is easier more common to implement increased evidence accumulation for inherent risk that
for acceptable audit risk because
 Inherent risk can usually be isolated to one or two accounts
98. These consists of the analysis of significant ratios and trends incuding the resulting investigation
of fluctuations and relationship that are inconsistenet with other relevant information or
deviate from predictable amount
 Analytical prod=cedures

99. Evaluations of financial information made by a study of plausible

 Analytical procedures
100. The purpose of analytical procedures during the audit planning stage is to
 Identify unsuasual circumstances that the auditor may need to investigate further
101. Unusual fluctuations occurs when
 Etiher a or b
102. Analytival procedures used a sa risk assessment procedures are performd primarily to
assist the auditor in
 Identifying areas that may represent specific risks
103. A basic premise underlying analytical procedure is that
 Plausible relationships among data
104. One reason why an auditor make an analyticak review of the client’s operations is to
identify
 Unusual transactions
105. Significant unexpected differences identified by analytical procedures will usually
necessiatate
 Auditor investigation
1. The objective of the ordinary audit of financial statements is expression of an opinion on
 The fairness of the financial statemetns in all material respects
2. The responsibility for the preparation of the financial statements and the accompanying
footnotes belong to
 Management
3. Auditors accumulate evidence to
 Enable them to reach conclusions about the fairness of the financial statement
4. Management assertions are
 Directly related to the financial reporting framework used by the company
5. Which of the following is not one of the five board categories of management assertions?
 General or specific transactions
6. This assertion addresses whether all transactions that should be included in the financial
statements are in fact included
 Completeness
7. Which of the following statement is not correct
 It would be a violation of the completeness assertion if management would record a sale that
did not take place.
8. Which of the following assertions does not relate to ablances at period end?
 Occurrence
9. Which of the following statement is correct?
 Existence related to whether the balnces are valif
10. Which of the following management assertions is not associated with transaction-related audit
objectives
 Classification and understability
11. An assertion that transactions are recorded in the proper accounting period.
 Cut-off
12. The auditor is determining that the recorded sales are for the amount of goods shipped are
correctly billed and recorded.
 Accuracy
13. In testing for cut off, the objective is to determine
 Whether transactions are recorded in the correct accounting period.
14. Which of the following statement is not correct??
 Gathering evidence and minimizing costs are equally
15. When the auditor examines the client’s documents and records to substantive information on
the financial statements, it is commonly referred to
 Vouching
16. When the auditor uses tracing as an audit procedure for tests of transactions, the auditor is
primarily concerned with which audit objective?
 Completeness
17. When the auditor used the audit procedures vouching, the auditor Is primarily concerned with
which of the following audit objectives when testing classes of transactions
 Occurrence
18. Which of the following is an example of vouching
 Trace inventory purchases from the acquisitions journal to supporting documents
19. A document which the auditor receives from the client, but which was prepared by someone
outside the client’s organization is an
 External document
20. Traditionally, confirmations are used to verify
 Bank balances and accounts receivable
21. In performing audit for privately-held firm your inquiries have yielded
 Completeness
22. After the auditor has completed all audit procedures, it is necessary to combine the information
obtained to reach an overall conclusion as to whether the financial statements are fairly
presented
 The auditor’s professional judgement
23. Which of the following audit procedures is used extensively throughout the audit and often is
complementary to performing other audit procedures?
 Inquiry
24. Which statement is incorrect regarding inquiry
 Inquirly alone is suffiecient to test the opersting effectiveness of controls
25. Observation
 Consists of looking at a process or procedure
26. This consists of checking the mathematical accuracy of documents or records
 Recalculation
27. Even with the most effectively designed internal control, the auditor must obtain audit
evidence, beyond testing the controls, for every
 Material financial statement account
28. The sequence of steps in gathering evidence as the basis of the auditor’s opinion is
 Documentation of control structure, tests of conrols, and substantive tests.
29. Which of the following is the correct order of steps in the audit process
 Develop an overall strategy for the expected conduct and scope of the audit
 DBAEC
30. Which of the following would an auditor least likely perform as part of the auditor’s preliminary
engagement activities
 Obtain understanding of the legal and regulatory framework applicable to the entity
31. Which of the following is not one of the reasons whu auditor should perform preliminary
engagement activities
 To ensure that sufficient appropriate evidence will be obtained to support the auditor’s opinion
on the financial statements
32. Which of the following is not normally performed in the preplanning or pre-engagement phase?
 Making preliminary estimate of materiality
33. In making a decision to accept or continue with a client the auditor should consider
 Yes yes yes yes
34. Before accepting an engagement to audit a new client a CPA is required to obtain
 A preliminary understanding of the prospective client’s industry and business
35. Preliminary knowledge about the client’s business and industry must be obtained prior to the
accpetancr of the engagemet primarily to
 Determine the degree of knowledge and expertise required by the engagement
36. A CPA firm’s quality control procedures pertaining to the acceptance of a prospective audit
client would most likely include.
 Inquiry of thirdparties
37. Prior to the acceptance of an audit engagement with a client who has terminated the services of
the predecessor auditor the CPA should
 Advise the client of the intention to contact the predecessor
38. The purpose of the requirement in having communications between the predecessor and
successor auditors is to
 Help the successor auditor evaluate whther to accept the engagement
39. Bjvjhvjh
40. In an audit, communication between the predecessor and incoming auditor should
 Either written or orals
41. The predecessor auditor is required to respond to the request of the successor auditor fir
information bute ht eresponse can be limited
 Therea re actual or potential legal problems
42. Upon discovering material misstatements in a client’s financial statements that the client would
not revise, the auditor withdrew from the engagement
 Suggest that the incoming auditor obtain the client’s permission to discuss the reasons.
43. Upon discovering material misstatements in a client’s financial statements that the clients would
not revise the auditor withdrew from engagement
44. Before accepting an engagement to audit new client a CPA is required to obtain
 The prospective client’s consent to make inquiries of the predecessor auditor, if any
45. Before accepting an audit engagement, a sccessor auditor should make specific inquiries of the
predecessor auditor regarding
 Disagreements the predecessor and accounting principles
46. Before accepting and audit engagement, as successor auditor should make specific inquiries of
the predecessor auditor regarding the predecessor’s
 Understanding as to the reasons for the change of auditor
47. An incoming auditor most likely would make specific inquiries of the predecessor auditor
regarding
 Disagreements with management as to auditing procedures
48. Which of the following should an incomeing auditor obtain for the predecessor auditor prior to
accepting an audit engagement
 Facts that might bear on the integrity of management
49. What information should an incoming auditor obtain during the inquiry of the predecessor
auditor prior to acceptance of the audit
 I and iii
50. An incoming auditor should request the new client to authorize the predecessor auditor to allow
a review of the predecessor’s
 No yes
51. Which of the following factors most likely would cause an auditor not to accept a new audit
engagement?
 Concluding that the entity’s management probably lacks integrity
52. Which of the following factors most likely would influence and auditor’s determinantion of the
auditability of the entity’s financial statements
 The adequacy of the accounting records
53. Star corp.
 Request star
54. Hawkins
 Integrity of management
55. Ordinarily, the predecessor auditor permits the successor auditor to review the predecessors
working paper analyses relationg to
 Yes yes
56. In making client acceptance decisions the audit firm will consider
 Client’s business risk and the CPA firm’s engagement risk
57. The purpose of engagement letter is to
 Document the terms of the engagement
58. Before performing any audit procedures. The auditor and the client should agree on the
 No yes
59. Engagement letter must be written
60. According to PSA 210, the auditor and the client should agree on the terms of engagement. The
agreed terms would need to be recorded in an
 Engagement letter
61. The auditor should document the understanding established with a client through
 Written communication with the clients
62. Which of the following is valid reasons why an auditor send to his clients an engagement letter
 Yes yes yes no
63. Written communication that the auditor will provide reasonable assurance for the detection of
fraud is found in engagement letter
64. Which of the following normally signs the engagement letter for an audit of a private group
 Boad=rd of directors reoresentative
65. If an auditpr believes that an understanding with the clients has not been established, he or she
should ordinarily
 Decline to accept or perform the audit
66. Engagement letter that documents and confirms the auditors acceptance of the engagement
would normally be sent to the client
 Before the commencement of the engagement
67. An engagement letter should ordinarily include information on the onjectives of the
engagement and
 Yes yes yes
68. Which of the following matters is generally included in an auditor’s engagement letter
 Management’s responsibility for the entity’s compliance with laws and regulations
69. Which of the following would be least likely to be included in the auditor’s engagement letter?
 Type of opinion be issued
70. Which of the following is not one of the principal contents of an engagement letter?
 Objective of the financial statements
71. An engagement letter would not normally include
 Details of the procedure that will be performed
72. The audit engagement letter should generally include a reference to each of the following
except
 A description of the auditor’s methos of sample selection
73. After preliminary audit, arrangements have been made, an engagement confirmation letter
should be sent to the client
 As statement that management advisory services would be ,ade available upon request
74. Arrangements concerning which of the following are least likely to be included is engagement
letter?
 CPA investment in client securirties
75. The use of an engagement letter is the best method of documenting
 Iii and iv
76. In which of the following situations would the auditor be unlikely to send a new engagement
letter to a continuing client?
 A recent change in the partner and or staff in the audit engagement
77. In a continuing engagement he continuing auditor would most likely send a new engagement
letter when
 There is a recent change in the client’s management
78. When the auditor of the parent entity is also the auditor of its subsidiary branch or division
which of the following factors would least likely influence the auditor’s decision to send
separate letter to a component of a parent entity?
 Geographical location of th component