Auditing Theory - PRTC

8/18/2019 Auditing Theory - PRTC

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1 Auditing Theory

CHAPTER 1

1. Because an external auditor is paid a fee by a client company; he or she

a) Is absolutely independent and may conduct an audit.

b) May be suciently independent to conduct an audit.

c) Is never considered to be independent.d) Must receive approval of the Securities and Exchane !ommission before

conductin an audit.

Answer: B

". #rofessional S$epticism re%uires that an auditor assumes that manaement is

a) &onest' in the absence of fraud ris$ factors.

b) (ishonest until completion of audit tests.

c) either honest nor dishonest.

d) *+erin reasonable assurance of honesty.

Answer: C

,. -he exposure period alloed for each exposure draft of #S/ to be considered

by the orani0ations and persons to hom it is sent for comment is enerally

a) 1" days

b) 2 days

c) 3 days

d) 14 days

Answer: B

5. -he overnment aency tas$ed by la of implementin and enforcin the

reulatory policies of the national overnment ith respect to the reulationand licensin of various professions and occupations is $non as

a) #6!

b) B*/

c) !*/

d) SE!

Answer: A

7. /n audit hich has its purpose the evaluation of the economy and eciency

ith hich resources are employed is $non as a8n)

a) 9inancial auditb) !ompliance audit

c) :overnmental audit

d) *perational audit

Answer: D

3. hich one of the folloin ould be the most persuasive type of evidence


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a) !hec$ reister

b) Ban$ statement

c) *bservation of assets

d) In%uiry ith the in=house attorney

Answer: C

>. -he reliability of a client?s internal documentation is most a+ected by hich of

the folloin<

a) -he auditor?s independence

b) Manaement?s motivation to misstate accounts

c) -he type of audit report that ill be issued

d) Manaement?s ability to understand enerally accepted audit standards

Answer: B

4. o person shall serve the #rofessional 6eulatory Board of /ccountancy for

more than

a) , years

b) 3 years

c) 2 years

d) 1" years

Answer: D

2. &o many !#E credit units must be accumulated by a reistered accountin

professional ithin the three=year period<

a) 17 credit units

b) 3 credit units

c) 57 credit unitsd) 2 credit units

Answer: B

1. Based on the !ode of Ethics for #rofessional /ccountants' threats to

compliance ith fundamental principles arise from all of the folloin except@

a) Self interest

b) /dvocacy

c) -he audit relationship

d) Intimidation

Answer: C

11. -he enaement partner should be rotated after a deAned period' normally

no more than

a) " years

b) , years

c) 7 years

d) > years


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Answer: C

1". In evaluatin the reasonableness of an entity?s accountin estimates' an

auditor normally ould be concerned about assumptions that are

a) Susceptible to bias

b) !onsistent ith prior periodsc) Insensitive to variations

d) Similar to industry uidelines

Answer: A

1,. !onclusions are typically documented by auditors in hich type of or$in

paper<

a) /udit plannin memo

b) /udit proram

c) /udit memoranda

d) 6epresentation letter

Answer: C

15. hich of the folloin types of evidence ould an auditor consider to be the

least reliable for an external audit<

a) 6epresentations in ritin from the director of the audit client.

b) / sales invoice prepared by the client.

c) / sales invoice prepared by a vendor to the client.

d) / ban$ conArmation form sined by the client?s ban$.

Answer: A

17. hen ma$in a client continuance decision' the auditor should evaluateclient based upon hich of the folloin<

a) !lient entity characteristics

b) Independence ris$ factors

c) 9inancial reportin issues

d) /ll of the above

Answer: D

13. /nalytical procedures used in plannin an audit should focus on

a) 6educin the scope of tests of controls and substantive tests

b) #rovidin assurance that potential material misstatements ill be identiAedc) Enhancin the auditor?s understandin of the client?s business

d) /ssessin ade%uacy of the available evidence

Answer: C

1>. (urin hich of the folloin phases of an audit is the performance of


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analysis not mandatory' but rather a matter of professional udment<

a) Internal control evaluation phase

b) #lannin phase

c) Substantive testin phase

d) !ompletion phase

Answer: C

14. hich of the folloin nonAnancial information ould an auditor most li$ely

consider in performin analytical procedures durin the plannin phase of an

audit<

a) -urnover of personnel in the accountin department

b) *bectivity of audit committee members

c) S%uare footae of sellin price

d) Manaement?s plans to repurchase stoc$s

Answer: C

12. hich of the folloin is broadest in scope<

a) /udits of Anancial statements

b) /ssurance services

c) *perations audit

d) 6evie of Anancial statements

Answer: B

". Statement 1@ -he independent auditors or in the case of auditin Arm' the

sinin partner' of the reulated entities under SE! S6! 6ule 34' shall be

rotated after every 7 years of enaement.

Statement "@ / to=year coolin o+ period shall be observed in the re=enaement of the sinin partner or individual auditor ho as rotated.

a.)-rue' true

b.)-rue' false

c.)9alse' true

d.)9alse' false

Answer: A

CHAPTER 2

1. hat is the primary determinate in the di+erence beteen fraud and errora. -he materiality of the misstatementb. -he intent to deceivec. -he level of manaement involvedd. -he type of transaction e+ected

Answer: B

". -he folloin are examples of error' except


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a. / mista$e from atherin or processin data from hich Anancial

statements are preparedb. /n incorrect accountin estimate arisin from oversiht or

misinterpretation of factsc. / mista$e in the application of accountin principles relatin to

measurement' reconition' classiAcation' presentation or disclosured. Misrepresentation in the Anancial statements of events' transactions'

or other siniAcant informationAnswer: D

,. -he term CfraudD refers to an intentional act by one or more individuals

amon manaement' those chared ith overnance' employees' or third

parties' involvin the use of deception to obtain an unust or illeal

advantae. hich statement isare incorrect reardin fraud<a. /uditors ma$e leal determinations of hether fraud has actually

occurredb. 9raud involvin one or more members of manaement or those chare

ith overnance is referred to as Cemployee fraudDc. 9raud involvin only employees of the entity is referred to as

Cmanaement fraudDd. /ll of the above

Answer: D

5. -he ris$ of not detectin a material misstatement resultin from a fraud is

hiher than the ris$ of not detectin a material misstatement resultin from

error becausea. -he e+ect of fraudulent act is li$ely omitted in the accountin recordsb. 9raud is ordinarily accompanied by acts speciAcally desined to

conceal its existence and auditors do not ma$e leal determinations of

hether fraud has actually occurredc. 9raud is alays a result of connivance beteen or amon employeesd. -he auditor is responsible to detect errors but not fraud

Answer: B

7. -he to types of fraud of intentional misstatements that are relevant to the

auditor?s consideration of fraud include' misstatements resultin from

fraudulent Anancial reportin and misstatements resultin from

misappropriation of assets. 9raudulent Anancial reportin least li$ely involvea. (eception such as manipulation' falsiAcation 8includin forery)' or

alteration of accountin records or supportin documents from hich

the Anancial statements are preparedb. Misrepresentation in' or intentional omission from' the Anancial

statement events' transaction or siniAcant informationc. Intentional misapplication of accountin principles relatin to

measurement' reconition' classiAcation' presentation or disclosured. Embe00lin receipts' stealin physical assets or intellectual property'

causin an entity to pay for oods and services not received' or usin

an entity?s assets for personal use.


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Answer: D

3. hich statement is incorrect reardin the auditor?s consideration of las

and reulations in an audit of Anancial statements<a. oncompliance refers to acts of omission or commission by the entity

bein audited hich are contrary to prevailin las and reulationsb. oncompliance includes transactions entered into by' or in the name

of' the entity' or on its behalf' by -!:' manaement or employeesc. oncompliance includes personal misconduct of the entity?s

manaement or employees thouh they are unrelated to the entity?s

business activitiesd. In the absence of evidence to the contrary' the auditor is entitled to

assume the entity is in compliance ith applicable las and

reulations a+ectin the clientAnswer: C

>. hich of the folloin is usually true<a. It is easier for the auditor to uncover fraud than errors

b. It is easier for the auditor to uncover indirect=e+ect illeal acts thanfraud

c. -he auditor?s responsibility for detectin direct=e+ect illeal act is

similar tto the responsibility to detect fraudd. -he auditor?s responsibility for detectin indirect=e+ect illeal acts is

similar to the responsibility to detect fraudAnswer: C

4. hich of the folloin is the auditor least li$ely to do hen aare of an illeal

act<a. (iscuss the matter ith the client?s leal counsel.

b. *btain evidence about the potential e+ect of the illeal act on theAnancial statements.

c. !ontact the local la enforcement oce reardin potential criminal

rondoin.d. !onsider the impact of the illeal act and its relationship ith the

company?s manaement.Answer: C

2. Based on #S/ "5 redrafted' in a Anancial statement audit' the auditor should

consider cateories of fraud ris$ factors relatin to misstatements arisin

from 81) fraudulent Anancial reportin and 8") misappropriation of assets.

hich of the folloin is not a cateory of fraud ris$ factors in relation tomisstatements arisin from misappropriation of assests<

a. *pportunitiesb. #ressureincentivesc. /ttitudesrationali0ationd. !ontrols

Answer: D


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1. -he folloin are examples of circumstances that may indicate the possibility

that the Anancial statements may contain a material misstatement resultin

from fraud' excepta. Fndue time pressures imposed by manaement to resolve complex or

contentious issues.b. !omplaints by manaement about the conduct of the audit or

manaement intimidation of enaement team members' particularly

in connection ith the auditor?s critical assessment of the audit

evidence or in the resolution of potential disareements ith

manaement.c. Fsual delays by the entity in providin re%uested informationd. /n unillinness to address identiAed ea$nesses in internal control

on a timely basis.Answer: C

11.hich of the folloin best describes hat is meant by the term Cfraud ris$

factorsD<

a. 9actors hose presence indicates that the ris$ of fraud is hihb. 9actors hose presence often has been observed in circumstances

here frauds have occurredc. 9actors hose presence re%uires modiAcations of planned audit

proceduresd. 6eportable conditions identiAed durin an audit

Answer: B

1". -he folloin are examples of circumstances that may indicate the possibility


from fraud' excepta. Fnillinness by manaement to permit the auditor to meet privately

ith those chare ith overnance.b. /ccountin policies that appear to be consistent ith industry norms.c. 9re%uent chanes in accountin estimates that do not appear to result

from chaned circumstancesd. -olerance of violations of the entity?s !ode of !onduct

Answer: B

1,. -he primary responsible for the prevention and detection of fraud and error

rests itha. -he auditorb. -hose chared ith overnance

c. -he manaement of an entityd. Both b and cAnswer: D

15.In comparin manaement fraud ith employee fraud' the auditor?s ris$ of

failin to discover the fraud isa. :reater for employee fraud because of the hiher crime rate amon

blue collar or$ers


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b. :reater for manaement fraud because of manaement?s ability to

override existin internal controls' hich is alays assumed in audit.c. :reater for employee fraud because of the larer number of

employees in the orani0ationd. :reater for manaement fraud because manaement are inherently

smarter than employeesAnswer: B



from fraud' excepta. -ransactions that are recorded in a complete or timely manner or are

properly recorded as to amount' accountin period' classiAcation' or

entity policy.b. Fnsupported or unauthori0ed balances or transactions.c. Gast minute adustments that siniAcantly a+ect Anancial results.d. -ips or complaints to the auditor about alleed fraud.

Answer: A



from fraud' excepta. Missin documents.b. (ocuments that appear to have been altered.c. Fnavailability of other than photocopied or electronically transmitted

documents hen documents in oriinal form are expected to exist.d. SiniAcant explained items on reconciliations.

Answer: D

1>.!ommunication of a misstatement resultin from fraud' or suspected fraud'

or error to the appropriate level of manaement on a timely basis isimportant because it enables manaement to ta$e action as necessary.

*rdinarily' the appropriate level of manaement isa. /t least e%ual to level of persons ho appear to be involved ith

misstatements or suspected fraudb. /t least one level above persons ho appear to be involved ith the

misstatement or suspected fraudc. -he audit committee of board of directorsd. -he lead of internal audit department

Answer: B

14. -he auditor may encounter exceptional circumstances that brin into%uestion the auditors ability to continue performin the audit' includin

herea. -he entity does not ta$e the remedial action reardin fraud that the

auditor considers necessary in the circumstances' even hen the fraud

is not material to the Anancial statements


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Interity and ethical values Hes o Hes Hes*rani0ational structure o Hes Hes Hes&uman resources policies and procedures Hes o Hes Hes

Answer: D

,) hich of the folloin elements is not a part of an entity?s control<

a) !ontrol ris$b) !ontrol activitiesc) -he accountin systemd) -he control environment

Answer: A

5) In an auditor?s consideration of internal control' the completion of a

%uestionnaire is most closely associated ith hich of the folloin<a) Separation of dutiesb) Fnderstandin the systemc) 9lochart accuracyd) -ests of controls

Answer: B

7) -he primary responsibility for desinin' implementin and maintainin

internal control' and the tone of internal control typically oriinates' rests itha) Internal auditors.b) -he !9*.c) -he external auditor.d) -he manaement-!:.

Answer: D

3) Sereation of duties deals ith the sereation of hich functions<a) 6ecordin and physical custody of assetsb) /uthori0in and recordin assetsc) /uthori0in' recordin and physical custody of assetsd) /uthori0in' recordin' physical custody and access to asset

Answer: C

>) hich of the folloin ould be considered to be an application control in an

information system<a) !ontrols over system softare ac%uisitionb) !ontrols pertainin to system access security

c) !ontrols pertainin to the follo=up of exception reportsd) !ontrol pertainin to application systems maintenance

Answer: C

4) hich of the folloin ould re%uire auditin throuh the computer rather

than auditin around the computer<a) -hese are small volumes of inputoutput datab) -he internal controls are not embedded in the computer system


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c) -he system is complex and includes $ey parts of the accountin

systemd) -he system as audited ith computer=assisted audit techni%ues

8!//-s) in the previous years' revenue from the aard credits is

reconi0ed at the point of saleAnswer: C

2) !ontrol environment component of internal controla) !onsists of policies and procedures that help ensure that manaement

directives are carried out.b) Includes the overnance and manaement functions and the

attitudes' aareness' and actions of those chared ith overnance

and manaement concernin the entity?s internal control and its

importance in the entity.c) Is the entity?s process for identifyin business ris$s relevant to Anancial

reportin obectives and decidin about actions to address those ris$s

and the results thereof.d) !onsists of the procedures and record established to initiate' record'

process' and report entity transactions 8as ell as events and

conditions) and to maintain accountability for the related assets'

liabilities' and e%uity.Answer: B

1) !ontrols that enhance the reliability of the Anancial statements may be

classiAed as prevention controls and detection controls. hich of the

folloin is primarily a detection control<a) Separation of duties beteen recordin cash receipts and depositin

cashb) Ban$ accounts are reconciled monthly by persons independent of cash

recordin and cash custodyc) -he human resources department authori0es the hirin of only those

persons for accountin positions that meet the ritten ob

re%uirements speciAed by the corporate controllerd) /n accountin manual' accompanied by a detailed chart of accounts'

carefully and clearly describes each of type of transaction a+ectin the

entityAnswer: B

11) hen considerin internal control' an auditor must be aare of the

concept of reasonable assurance hich reconi0es thata) Employment of competent personnel provides assurance that the

obectives of internal control ill be achieved.b) Establishment and maintenance of internal control is an important

responsibility of the manaement and not of the auditor.c) !ost of internal control procedures should not exceed the beneAts

expected to be derived from the control.


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d) Sereation of incompatible functions is necessary to ascertain that

the control procedures are e+ective.Answer: C

1") /n auditor obtains evidence of the internal control over the accountin

system by all of the folloin except@a) al$throuhs of the accountin system.b) Ma$in in%uiries of ban$s and attorneys.c) 6eviein system ocharts.d) -a$in plant and operational tours.

Answer: B

1,) #S/s re%uire the auditor to obtain an understandin of the entity?s

internal control structurea) 9or Arst time audit clients.b) 9or every audit.c) henever the auditor ishes or sees necessary.

d) Sucient to And any frauds that may exist.Answer: B

15) hen auditin a company' the auditor should obtain an understandin

of internal control sucient to@a) #rovide reasonable protection aainst client fraud and defalcations by

client employees.b) /ssess control ris$.c) #rovide a basis for suestions to the client for improvin the

accountin system.d) #rovide a method for safeuardin assets' chec$in the accuracy and

reliability of accountin data' promotin operational eciency' and

encourain adherence to prescribed manaerial policies.Answer: B

17) hich of the folloin statements about auditor documentation of the

client?s internal controls is correct<a) (ocumentation must include ocharts.b) (ocumentation must include procedural rite=ups.c) o documentation is necessary althouh it is desirable.d) o one particular form of documentation is necessary' and the extent

of documentation may vary.Answer: D

13) hen assessin the client' hich of the folloin factors is considered

pervasive and creates both an attitude and culture that a+ects the client?s

reportin system' the process of recordin transactions' the process of

ma$in estimates and adustments.a) -he control environmentb) /udit testin of processes and controlsc) (esins and operations of controls


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d) Inherent and control ris$Answer: A

1>) / proper sereation of duties re%uiresa) /n individual maintainin custody of an asset be entitled to access the

accountin records for the asset.b) /n individual authori0in a transaction records it.c) /n individual recordin a transaction not compare the accountin

record of the asset ith the asset.d) /n individual authori0in a transaction maintain acustody of the asset

that results from a transaction.Answer: C

14) Manaement philosophy and operatin style most li$ely ould have a

siniAcant inuence on an entity?s control environment hena) -he internal auditor reports directly to manaement.b) Manaement is dominated by one individual.

c) /ccurate manaement ob descriptions delineate speciAc duties.d) -he audit committee actually overseas the Anancial reportin process.

Answer: B

12) hen obtainin understandin of the entity?s control' the auditor

should obtain $nolede about the internal control?s(esin Implementation *peratin E+ectiveness

a) Hes Hes Hesb) Hes Hes oc) Hes o od) o o Hes

Answer: B

") / secondary purpose of the auditor?s consideration of internal control is

to providea) / basis for constructive suestions about improvements in internal

control structure.b) / basis for assessin control ris$.c) /n assurance that the records and documents have been maintained in

accordance ith existin company policies and procedures.d) / basis for the determination of the resultant extent of the tests to

hich auditin procedures are to be restricted.Answer: A

CHAPTER 4


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1. -he !ode of Ethics for #rofessional /ccountants in the #hilippines is

applicable to professional services performed in the #hilippines on or aftera. (ecember ,1' "2b. (ecember ,1' "4c. June ,' "4d. June ,' "2

Answer: C

". hich of the folloin fundamental ethical principles re%uires a professional

accountant to be straihtforard and honest in all professional and business

relationships<a. *bectivityb. #rofessional behaviorc. #rofessional competence and due cared. Interity

Answer: D

,. hich of the folloin threats to compliance ith the fundamental principlesmay occur as a result of the Anancial principles may occur as a result of the

Anancial or other interests of a professional accountant of an immediate or

close family member<a. Self=interestb. Self=reviec. /dvocacyd. 9amiliarity

Answer: A

5. -hese are fees calculated on a predetermined basis relatin to the outcome

or result of a transaction or the result of the or$ performeda. !ontinent feesb. 9ixed feesc. #redetermined feesd. !ommissions

Answer: A

7. -he folloin statements relate to the provisions of the !ode of Ethics that

deal ith the professional accountant?s mar$etin of professional services.

hich is false<a. hen a professional accountant in public practice solicits ne or$

throuh advertisin or other forms of mar$etin' a self=interest threat

to compliance ith the principle of professional behavior may becreated

b. -he professional accountant should be honest and truthful hen

mar$etin professional servicesc. /dvertisin and publicity are enerally unacceptabled. hen mar$etin professional services' the professional accountant

should not ma$e exaerated claims for services o+ered' %ualiAcations

possessed or experience ained.


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1 Auditing Theory

Answer: C

3. hich of the folloin threats to independence is created hen a member of

the assurance team participates in the assurance enaement hile

$noin' or havin reason to believe' that he is to' or may' oin the assurance

client sometime in the future. -he folloin are examples of circumstances that may create familiarity

threats' exceptsa. #romotin shares in a listed entity hen that entity is a Anancial

statement audit clientb. Gon association of senior personnel ith the assurance client

c. / member of the enaement team havin a close or immediatefamily relationship ith a director or ocer of the client

d. / former partner of the Arm bein a director or ocer of the client or

an employee in a position to exert direct and siniAcant inuence over

the subect matter of the enaementAnswer: A

4. hen an auditor is sued for nelience in the performance of an audit' to

hat parties does the contributory nelience defense apply<a. *nly to the parties havin a contractual relationship ith the auditorb. -o any third party that relied on the audited Anancial statements

c. -o any third party that lost money or su+ered damaes from investinin the audited company

d. *nly to those third parties that the auditor could reasonably have

$non ould have relied on the audited Anancial statementsAnswer: A

2. Based on the !ode of Ethics for #rofessional /ccountants' threats to

compliance ith fundamental principles arise from all of the folloin except@a. Self interestb. /dvocacyc. -he audit relationshipd. Intimidation

Answer: C

1.-he enaement partner should be rotated after a pre=deAned period'

normally no more thana. " yearsb. , yearsc. 7 yearsd. > years


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Answer: C

11.hich of the folloin statements best describes an auditor?s responsibility

reardin misstatements<a. /n auditor should obtain reasonable assurance that the Anancial

statements ta$en as a hole are free from material misstatements'

hether caused by fraud or error.b. /n auditor should obtain absolute assurance that material

misstatements in the Anancial statements ill be detected.c. /n auditor is responsible to detect material errors but has no

responsibility to detect material fraud that is concealed throuh

employee collusion or manaement override of internal controld. /n auditor?s failure to detect a material misstatement resultin from

fraud is an indication of noncompliance ith the re%uirements of the

#hilippine Standards on /uditinAnswer: A

1".hat type of fraud occurs if an employee obtains Anancial beneAt throuh

intimidation<a. !onspiracyb. Embe00lement(efalcationc. Extortiond. Garceny

Answer: C

1,.-here is a hih ris$ as ell as a history' that fraud is instituted throuh hich

of the folloin<a. /dustin entries

b. !losin entriesc. Fnusual entriesd. /ll of the above

Answer: D

15.hich of the folloin constitutes the fraud of larceny<a. Misappropriation of assets that have been entrusted to one?s careb. -heft of assetsc. -heft of assets covered up by manipulation of accountin recordsd. /reement beteen to or more persons to commit a criminal act

Answer: B

17.hich of the folloin is an example of a common type of Anancial reportinfraud<

a. !apitali0in maor overhauls to operatin e%uipmentb. (eferrin service revenue until it is delivered to customersc. 6ecordin sales for inventory sold ith the riht to returnd. Excludin a continent liability that has been settled

Answer: C


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13.hat is the best method an auditor may use to detect fraud in the Anancial

statements of clients<a. Fse professional s$epticismb. Fnderstand and properly apply :enerally /ccepted /ccountin

Standardsc. Brainstorm ith the client to And the type of fraud occurrind. /ctively search for all errors in the Anancial statements

Answer: A

1>./ccordin to professional audit standards' ho miht an understandin of the

nature if fraud that may occur in the client orani0ation best be identiAed by

the audit Arm<a. 9raud trainin courses from actual corporate fraud ex=criminalsb. !onductin a brainstormin meetin ith the members of the audit

teamc. !irculatin a survey to the client company employees for completiond. (iscussions ith other !#/ Arms

Answer: B

14.hich of the folloin is the incorrect about the auditor?s responsibility of

evaluation noncompliance by the entity to las and reulations<a. /n audit cannot be expected to detect noncompliance ith all las and

reulationsb. oncompliance refers to acts of omissions or commission by the entity

bein audited hich are contrary to prevailin las or reulations.c. oncompliance includes personal misconduct of entity manaement or

employee thouh they are unrelated to the entity?s business activitiesd. (etection of noncompliance' reardless of materiality' re%uires

considerations of the implications for the interity of manaements oremployees.

Answer: C

12.hich statement8s) is8are) incorrect reardin the auditor?s responsibility to

consider fraud and error in an audit of Anancial statements<a. -he auditor is not and cannot be held responsible for the prevention of

fraud and error bein the primary responsibility of both the

manaement and those chared ith overnanceb. hen plannin and performin audit procedures and evaluatin and

reportin the results thereof' the auditor should consider the ris$ of

misstatements in the Anancial statements resultin from fraudc. In plannin the audit' the auditor should discuss ith other members pf

the audit team the susceptibility of the entity to material statements in

the Anancial statements resultin from fraud or error and exercise

professional s$epticism 8the best method to detect method)d. -he auditor should desin audit prorams that ill provide reasonable

assurance that material errors and fraud ill be detected in the

ordinary course of the examination


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Answer: B

".9irms are re%uired to establish policies and procedures relatin to

independence communications ith audit committees' or others chared ith

overnance of the client. In the case of the Anancial statement audit of listed

entities' such communication should bea. *ralb. In ritinc. *ral or in ritind. *ral and in ritin

Answer: D

CHAPTER 5

1 -he principal reason for an independent auditor to ather and evaluate audit

evidence is toa 9orm an opinion on the Anancial statements.b (etect fraud.c Evaluate manaement.d Evaluate internal control.

Answer: A

" /ccountin records least li$ely includea -he record of initial entries and supportin entries.b -he eneral and subsidiary leders.c or$sheets and spreadsheets supportin cost allocations.d !omparable data about competitors 8benchmar$in).

Answer: D

, *ther information that the auditor may use as audit evidence least li$ely

includesa Minutes of meetins.b !onArmation from third parties.c Information obtained by the auditor from such audit procedures as

in%uiry' observation' and inspection.d /dustments to the Anancial statements that are not reected in formal

ournal entries.Answer: D

5 -he independent auditor?s responsibility in a reular audit is to expressopinion on the Anancial statements. -he auditor?s opinion@

a &elps the company adopt sound accountin principlesb /ssists the company in maintainin ade%uate and e+ective system of

accountsc &elps manaement safeuard the company assetsd &elps establish the credibility of the Anancial statements

Answer: D


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1 Auditing Theory

7 hich of the folloin is not included in an enaement letter<a 6estriction on cash balances' lines of credit by similar arranementsb /ccessibility to all Anancial reportsc !lient imposed limitation in the scoped Gimitation in the scope of examination as imposed by the

circumstancesAnswer: A

3 -he form and content of audit enaement letters may vary for each client'

but they ould enerally include reference to the folloin' except@a -he obective of the audit of Anancial statementsb /uditor?s responsibility for the Anancial statements.c -he form of any reports or other communication of results of the

enaement.d Fnrestricted access to hatever records' documentation and other

information re%uested in connection ith the audit.

Answer: B

> If the auditor believes that an understandin ith the client has not been

established' he or she should ordinarilya #erform the audit ith increased professional s$epticism.b /ssess the control ris$ at the maximum level and perform a primarily

substantive audit.c (ecline to accept or perform the audit.d Modify the scope of the audit to reect an increased ris$ of material

misstatement due to fraud.Answer: C

4 hich of the folloin factors most li$ely ould inuence an auditor?s

determination of the auditability of the entity?s Anancial statements<a -he complexity of the accountin systemb -he existence of related party transactionsc -he ade%uacy of accountin recordsd -he operatin e+ectiveness of control procedures

Answer: C

2 -he extent of procedures is a+ected mostly by hich of the folloin factors<a -he sheer volume of procedures to be applied by the auditor.b -he time of the year in hich the client ta$es a physical inventory in

the arehouse.c -he auditor?s udment that misstaments are probable on certain

balances.d -he availability of the client?s sta+ or near the balance sheet date.

Answer: C

1 /n Cinterated auditD includes an audit of a -he company?s internal controls.b -he company?s Anancial statements.


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" Auditing Theory

c -he company?s compliance ith its rules and processes.d Both / and B.

Answer: D

11 -he auditor?s opiniona :uarantees the credibility of the Anancial statements

b Is an assurance as to the future viability of the entityc !ertiAes the correctness of the Anancial statementsd Is not an assurance as to the eciency ith hich the manaement

has conducted the a+airs of the entityAnswer: D

1" hen should an auditor obtain an enaement letter<a henever a prospective client o+ers to hire the audit Armb (urin the interim audit period' after the auditor has evaluated the

client?s internal control and estimated the amount of time re%uired for

the audit

c hen a ne client is accepted by the auditord /t the conclusion of the Aeldor$' ust prior to sinin the audit reportAnswer: C

1, 9or hich enaements are enaement letters re%uired<a /ll enaementsb /udit enaements onlyc /ssurance enaements onlyd /ll enaements except the preparation of income tax returns

Answer: A

15 hich of the folloin is least li$ely to be considered a ris$ assessment

procedure<a /nalytical proceduresb !onArmation of endin accounts receivablec Inspection of documentsd *bservation of performance of certain accountin procedures

Answer: B

17 hich of the folloin ill an auditor most li$ely discuss ith the former

auditors of a potential client prior to acceptance<a Interity of manaementb 6easons for chanin audit Armsc (isareements ith manaement reardin accountin principles

d /ll of the above must be discussedAnswer: D

13 If permission from client to discuss its a+airs ith the proposed auditor is

denied by the client' the predecessor auditor shoulda Keep silent of the denial.b (isclose the fact that the permission to disclose is denied by the client.


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" Auditing Theory

c (isclose ade%uately to proposed auditor all noncompliance made by

the client.d See$ leal advice before respondin to the proposed auditor.

Answer: B

1> -he auditor obtains audit evidence to da reasonable conclusions on hich

to base the audit opinion by performina 6is$ assessment procedures.b 9urther audit procedures 8test of controls and substantive procedures).c Both / and B.d either / nor B.

Answer: C

14 hich of the folloin statements is not true<a Inherent ris$ is inversely related to detection ris$.b Inherent ris$ is inversely related to evidence.c Inherent ris$ is the susceptibility of the Anancial statements to material

error' assumin no internal control.d Inherent ris$ is the auditor?s assessment of the li$elihood that errors

exceedin a tolerable amount exist in a sement before considerin

the e+ectiveness of internal controls.Answer: B

12 hen an auditor increases the assessed level of control ris$ because certain

control activities ere determined to be ine+ective ' the auditor ould most

li$ely increase thea Extent of tests of controls.b Gevel of detection ris$.c Extent of test of details.d Gevel of inherent ris$.

Answer: C

" hich statement is incorrect reardin audit evidence<a -he auditor should obtain sucient appropriate audit evidence to be

able to dra reasonable conclusions on hich to base the audit

opinionb /ccountin records alone do not provide sucient audit evidencec -he auditor uses professional udments and professional s$epticism

in evaluatin the %uantity and %uality of audit evidence' and thus its

suciency and appropriateness' to support the audit opinion

d -he matter of diculty or expense involved is a valid basis foromittin an audit procedure for hich there is no alternative.Answer: D

CHAPTER 6

1. hich of the folloin statements concernin evidence is correct<

a) /ppropriate evidence supportin manaement?s assertions should be


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" Auditing Theory

convincin rather than merely persuasive.

b) /n e+ective internal control structure contributes little to the reliability of

the evidence created ithin the entity.

c) -he cost of obtainin evidence is not an important consideration to an

auditor in decidin hat evidence should be obtained

d) / client?s accountin records cannot be considered sucient audit evidenceto support the Anancial statements.

Answer: D

". hich statement is incorrect reardin inspection as an audit procedure<

a) Inspection consists of examinin records or documents or physical

examination of assets

b) Inspection of tanible assets may provide reliable audit evidence ith

respect to their existence and about the entity?s rihts and obliations on

the assets

c) Inspection of individual inventory items ordinarily accompanies the

observation of inventory countin

d) Some documents represent direct audit evidence of the existence of of an

asset

Answer: B

,. hich of the folloin audit procedures is used extensively throuhout the audit

and often is complementary to performin the audit procedures<

a) Inspection

b) *bservation

c) In%uiry

d) !onArmationAnswer: C

5. o deletions of of audit documentation are alloed after the

a) !lient?s year end

b) (ocumentation completion date

c) Gast date of siniAcant Aeldor$

d) 6eport release date

Answer: B

7. /udit documentation may be recorded on paper or on electronic or othermedia. Example of audit documentation include the folloin' except

a) /udit prorams

b) /nalyses

c) !ontrol manuals

d) Issues memoranda

Answer: C


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" Auditing Theory

3. -he auditor notice notices siniAcant uctuations in $ey elements of the

company?s Anancial systems. If manaement is unable to provide acceptable

explanation' the auditor should

a) !onsider the matter a scope of limitation

b) #erform additional audit procedures to investiate the matter further

c) Intensify the examination ith the expectation of detectin manaementfraud

d) ithdra from the enaement

Answer: B

>. hich of the folloin methods is considered the best combination in

obtainin audit evidence assumin documentary evidence is available to the

auditor<

a) Inspection and reperformance

b) In%uiry and inspection

c) In%uiry and analytical procedure

d) *bservation and in%uiry

Answer: B

4. -he preliminary use of the analytical revie procedures by the auditor is

a) 6e%uired to identify heihtened ris$

b) *ptional in accordance ith the auditor?s udment

c) *nly used hen other plannin procedures cannot be applied

d) Fsed to assist the auditor in documentin internal control

Answer: A

2. hich of the folloin is ordinarily desined to detect possible material

misstatements on the Anancial statements<

a) -est of controls

b) /nalytical procedures

c) !omputer controls

d) #ost audit or$ paper revie

Answer: B

1. hich of the folloin is the best example of a substantive test<

a) Examinin a sample of cash disbursement to test hether expenses havebeen properly approved.

b) !onArmation of balances of accounts receivable

c) !omparison of sinatures on chec$s to a list of authori0ed siners

d) 9lochartin of the client?s receipt system

Answer: B

11. /n exception in a test of control indicates the misstatements of the


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" Auditing Theory

a) -he amount

b) -he li$elihood

c) -he amount' li$elihood ' and classiAcation

d) -he amount and the classiAcation

Answer: B

1". hich is clearly a test of control<

a) !onArmation to a customer of an accounts receivable balance

b) Examination of a sample of purchase order records for electronic

authenticated authori0ation

c) *bservin the controller?s use of the company oned e%uipment

d) Sendin a letter to the client?s attorney to determine a litiation that is

pendin beteen the plainti+ and the defendant

Answer: B

1,. / procedure that ould least li$ely to be used by an auditor in performin

test of control is

a) Inspection

b) 6eperformance

c) *bservation

d) 6ecalculation

Answer: D

15. hich assertion are auditors most concerned reardin the audit of asset

accounts<

a) !ompleteness

b) Existencec) /ccuracy

d) #roper period

Answer: B

17. hich of the folloin statements relate to the onership assertion<

a) Inventory listins are accurately included in the inventory accounts

b) Inventory excludes items billed to customers

c) Inventory is properly classiAed as current assets

d) Inventory is properly stated at cost

Answer: B

13. -he stronest criticism of the reliability of audit evidence that the auditor

physically observes is that

a) -he client may conceal items from the auditor

b) -he auditor may not be %ualiAed to evaluate the items he is observin

c) Such evidence is too costly in relation to its reliability

d) -he observation must occur at a speciAc time' hich is often too dicult to


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" Auditing Theory

arrane

Answer: B

1>. hich of the folloin statements about existence 8testin is from the

accountin records to the supportin audit evidence) and completeness

8testin is from the supportin evidence to the accountin records) assertionsis not true<

a) -he existence and completeness assertions emphasi0e di+erent audit

concerns

b) Existence deals ith overstatements and completeness deals ith

understatements

c) Existence deals ith understatements and completeness deals ith

overstatements

d) -he completeness assertion deals ith unrecorded transactions

Answer: C

14. -heoretically' hich of the folloin ould not have an e+ect on the amount

of audit evidence athered by the auditor<

a) -he type of opinion to be issued.

b) -he auditor?s evaluation of internal control.

c) -he types of audit evidence available to the auditor.

d) hether or not the client reports to the Securities and Exchane

!ommission.

Answer: D

12. Most of the independent auditor?s or$ in formulatin an opinion on Anancial

statements consists of a) Studyin and evaluatin internal control.

b) *btainin and examinin evidential matter.

c) Examinin cash transactions.

d) !omparin recorded accountability ith assets.

Answer: B

". /udit information is usually considered relevant hen it is

a) (erived throuh valid statistical samplin.

b) *bective and unbiased.

c) 9actual' ade%uate' and convincin.d) !onsistent ith the audit obectives.

Answer: D

CHAPTER 7

1. / ris$ of material misstatement is


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" Auditing Theory

a. an identiAed and assessed ris$ of material misstatement that' in the

auditor?s udment' re%uires special audit consideration.b. a ris$ that may relate to the inaccurate or incomplete recordin of

routine and siniAcant classes of transactions or account balances' the

characteristics of hich often permit hihly automated processin ith

little or no manual intervention.c. the ris$ that the Anancial statements are materially misstated prior to

audit.d. -he ris$ that relate pervasively to the Anancial statements as a hole'

and potentially a+ect many assertions that could be considered

material.Answer: C

". (etermine the most loical order of assessin the ris$s of material

misstatements as indicated in #S/ ,17<I. !onsider the li$elihood of misstatement' includin the possibility of

multiple misstatements' and hether the potential misstatement is of

a manitude that could result in a material misstatement.II. /ssess the identiAed ris$s 8if it is a siniAcant ris$)' and evaluate

hether they relate more pervasively to the Anancial statements as a

hole and potentially a+ect many assertions;III. Identify the ris$s throuhout the process of obtainin an understandin

of the entity and its environment' includin relevant controls that

relate to the ris$s' and by considerin the classes of transactions'

account balances' and disclosures in the Anancial statementsIL. 6elate the identiAed ris$s to hat can o ron at the assertion level'

ta$in account of relevant controls that the auditor intends to test;a. I' II' III' and IL

b. III' II' IL' and Ic. III' II' I' and ILd. IL' III' I' and II

Answer: B

,. hile assessin the ris$s of material misstatement auditors identify ris$s'

relate ris$ to hat could o ron' consider the manitude of ris$ anda. /ssess the ris$ of misstatement due to illeal acts.b. !onsider the complexity of the transactions involvedc. !onsider the li$elihood that the ris$s could result in material

misstatementsd. (etermine materiality levels

Answer: C

5. -he folloin are examples of conditions and events that may indicate the

existence of ris$s of material misstatement' excepta. *perations in reions that are economically stableb. #endin litiation and continent liabilitiesc. /pplication of ne accountin pronouncementsd. &ih deree of complex reulation

Answer: A


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" Auditing Theory

7. hich of the folloin conditions and events may most li$ely indicate the

existence of ris$s of material misstatements<a. &avin personnel ith appropriate accountin and Anancial reportin

s$ills.b. /ccountin measurements that involve simple processesc. SiniAcant amount of routin or systematic transactionsd. !onstraints on the availability of capital and credit

Answer: D

3. hich of the folloin conditions and events least li$ely indicate the

existence of ris$s of material misstatements<a. !hanes in the supply chain.b. Expandin into ne locationsc. In%uiries into the entity?s operations or Anancial results by reulatory

or overnment bodies.d. !onsistency of the entity?s I- stratey and its business strateies.

Answer: D

>. -he folloin events and conditions indicate the existence of ris$s of material

misstatement' excepta. !hanes in $ey personnel includin departure of $ey executives.b. ea$nesses in internal control' especially those not addressed by

manaement.c. Installation of siniAcant ne I- systems related to Anancial reportin.d. *perations that are subect to a lo deree of complex reulation.

Answer: D

4. In exercisin udment as to hich ris$s are siniAcant ris$s' the auditor shall

consider at least the folloin@I. hether the ris$ is a ris$ of fraudII. hether the ris$ is related to recent siniAcant economic' accountin

or other developments and' therefore' re%uires speciAc attention;III. -he complexity of transactions;IL. hether the ris$ involves siniAcant transactions ith related partiesL. -he deree of subectivity in the measurement of Anancial information

related to the ris$' especially those measurements involvin a ide

rane of measurement uncertaintyLI. hether the ris$ involves siniAcant transactions that are outside the

normal course of business for the entity' or that otherise appear to be

unusual.

a. I' II' III' and IL onlyb. I' II' III' IL' and L onlyc. I' II' and III onlyd. I' II' III' IL' L' and LI

Answer: D

2. -he auditor should desin and perform further audit procedures hose

nature' timin' and extent are responsive to the assessed ris$s of material


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" Auditing Theory

misstatement at the assertion level. hich of the folloin is the most

important consideration in respondin to the assessed ris$s<a. -he nature of the audit proceduresb. -he extent of the audit proceduresc. -he timin of audit proceduresd. /ll of these are e%ually important

Answer: A

1.hich statement isare correct reardin the nature' timin' and extent of

further audit procedures<a. -he nature of further audit procedures refers to their purpose and their

typeb. -he timin refers to hen audit procedures are performed or the

period or date to hich the audit evidence appliesc. Extent includes the %uantity of a speciAc audit procedure to be

performed.d. /ll of the above

Answer: D

11.6easons to evaluate internal control ould not includea. Basis for planninb. (eterminin the nature' timin' and extent of substantive proceduresc. Basis for type of opinion to be renderedd. 9ormulatin constructive suestions for improvements

Answer: C

1"./n auditor should consider to $ey issues hen obtainin an understandin

of a client?s internal controls. -hese issues are@a. -he e+ectiveness and eciency of controls

b. -he fre%uency and e+ectiveness of the controlsc. -he desin and utili0ation of the controlsd. -he implementation and eciency

Answer: C

1,.-he main purpose of substantive procedures is toa. *btain an understandin of the entity and its environment' includin

its internal control' to assess the ris$s of material misstatement at the

Anancial statement and assertion levels.b. -est the operatin e+ectiveness of controls in preventin' or detectin

and correctin' material misstatement at the assertion level.c. (etect material misstatements at the assertion level

d. /ll of the aboveAnswer: C

15.Shon belo 81 throuh 7) are the Ave types of test hich auditors use to

determine hether Anancial statements are fairly stated. hich three are

substantive tests<1. #rocedures to obtain an understandin of internal control". -est of controls


29/35


30/35

, Auditing Theory

c. Modify the initial assessments of inherent ris$ and preliminary

udments about materiality levels.d. (etermine the nature' timin' and extent of substantive test for

Anancial statement assertions.Answer: D

".-he auditor should determine overall responses to address the ris$s of

material misstatement at the Anancial statement level. Such responses least

li$ely includea. Emphasi0in to the audit team the need to maintain professional

scepticism in atherin and evaluatin audit evidenceb. /ssinin more experienced sta+ or those ith special s$ills or usin

experts.c. Incorporatin additional elements of unpredictability in the selection of

further audit procedures to be performed.d. #erformin substantive procedures at an interim date instead of at the

period end.

Answer: D

CHAPTER 8

1. It involves the application of audit procedures to less than 1 percent of

items ithin a population of audit relevance such that all samplin units have

a chance of selectiona. /nalytical proceduresb. /udit samplinc. Substantive testind. -ests of controls

Answer: B

". /n advantae of statistical samplin over nonstatistical samplin is that

statistical samplin helps an auditor toa. Minimi0e the failure to detect errors and irreularitiesb. Eliminate the ris$ of nonsamplin errorsc. 6educe the level of audit ris$ and materiality to a relatively lo amountd. Mathematically measures samplin ris$

Answer: D

,. -he ris$ of incorrect acceptance and the li$elihood of assessin control ris$too lo relate to the@

a. /lloable ris$ of tolerable misstatement.b. #reliminary estimates of materiality levels.c. Eciency of the audit.d. E+ectiveness of the audit.

Answer: D


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, Auditing Theory

5. hich of the folloin factors is 8are) considered in determinin the sample

si0e for a test of controls<

Expected Tolerable

deviation rate deviation rate

a. Hes Hes

b. o oc. o Hesd. Hes o

Answer: A

7. &o ould increases in tolerable misstatement and assessed level of control

ris$ a+ect the sample si0e in a substantive test of details<

Increase in tolerable Increase in assessed

misstatement level of control risk

a. Increase sample si0e Increase sample si0eb. Increase sample si0e (ecrease sample si0e

c. (ecrease sample si0e Increase sample si0ed. (ecrease sample si0e (ecrease sample si0e Answer: C

3. In determinin the sample si0e for a test of controls' an auditor should

consider the li$ely rate of deviations' the alloable ris$ of assessin control

ris$ too lo' and the@a. -olerable deviation rate.b. 6is$ of incorrect acceptance.c. ature and cause of deviations.d. #opulation si0e.

Answer: A

>. /n advantae of usin statistical over nonstatistical samplin methods in

tests of controls is that the statistical methods@a. !an more easily convert the sample into a dual=purpose test useful for

substantive testin.b. Eliminate the need to use udment in determinin appropriate sample

si0es.c. /+ord reater assurance than a nonstatistical sample of e%ual si0e.d. #rovide an obective basis for %uantitatively evaluatin sample ris$.

Answer: D

4. -he use of the ratio estimation samplin techni%ue is most e+ective hen@a. -he calculated audit amounts are approximately proportional to the

clientNs boo$ amounts.b. / relatively small number of di+erences exist in the population.c. Estimatin populations hose records consist of %uantities' but not

boo$ values.d. Gare overstatement di+erences and lare understatement di+erences

exist in the population.


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, Auditing Theory

Answer: A

2. hich of the folloin statements is correct concernin statistical samplin in

tests of controls<a. /s the population si0e increases' the sample si0e should increase

proportionately.b. (eviations from speciAc control activities at a iven rate ordinarily

result in misstatements at a loer rate.c. -here is an inverse relationship beteen the expected population

deviation rate and the sample si0e.d. In determinin tolerable rate' an auditor considers detection ris$ and

the sample si0e.Answer: B

1.-he li$elihood of assessin control ris$ too hih is the ris$ that the sample

selected to test controls@a. (oes not support the auditorNs planned assessed level of control ris$

hen the true operatin e+ectiveness of internal control ustiAes such

an assessment.b. !ontains misstatements that could be material to the Anancial

statements hen areated ith misstatements in other account

balances or transactions classes.c. !ontains proportionately feer monetary errors or deviations from

prescribed internal controls than exist in the balance or class as a

hole.d. (oes not support the tolerable error for some or all of manaementNs

assertions.

Answer: A

11.hich of the folloin samplin methods ould be used to estimate a

numerical measurement of a population' such as a dollar value<a. /ttribute samplin.b. Stop=or=o samplin.c. Lariables samplin.d. 6andom=number samplin.

Answer: C

1".hich of the folloin courses of action ould an auditor most li$ely follo in

plannin a sample of cash disbursements if the auditor is aare of several

unusually lare cash disbursements<a. Set the tolerable rate of deviation at a loer level than oriinally

planned.b. Stratify the cash disbursements population so that the unusually lare

disbursements are selected.c. Increase the sample si0e to reduce the e+ect of the unusually lare

disbursements.


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, Auditing Theory

d. !ontinue to dra ne samples until all the unusually lare

disbursements appear in the sample. Answer: B

1,.9or hich of the folloin audit tests ould an auditor most li$ely use

attribute samplin<a. Ma$in an independent estimate of the amount of a GI9* inventory.b. Examinin invoices in support of the valuation of Axed asset additions.c. Selectin accounts receivable for conArmation of account balances.d. Inspectin employee time cards for proper approval by supervisors.

Answer: D

15.-he sample si0e of a test of controls varies inversely ith@

Expected population Tolerable

deviation rate rate

a. Hes Hes

b. o oc. Hes od. o Hes

Answer: D

17./s a result of samplin procedures applied as tests of controls' an auditor

incorrectly assesses control ris$ loer than appropriate. -he most li$ely

explanation for this situation is that@a. -he deviation rates of both the auditorNs sample and the population

exceed the tolerable rate.b. -he deviation rates of both the auditorNs sample and the population is

less than the tolerable rate.c. -he deviation rate in the auditorNs sample is less than the tolerable

rate' but the deviation rate in the population exceeds the tolerable

rate.d. -he deviation rate in the auditorNs sample exceeds the tolerable rate'

but the deviation rate in the population is less than the tolerable rate. Answer: C

13.hich of the folloin most li$ely ould be an advantae in usin classical

variables samplin rather than probability=proportional=to=si0e 8##S)

samplin<

a. /n estimate of the standard deviation of the populationNs recordedamounts is not re%uired.

b. -he auditor rarely needs the assistance of a computer proram to

desin an ecient sample.c. Inclusion of 0ero and neative balances enerally does not re%uire

special desin considerations.d. /ny amount that is individually siniAcant is automatically identiAed

and selected.


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, Auditing Theory

Answer: C

1>./n auditor desired to test credit approval on 1' sales invoices processed

durin the year. -he auditor desined a statistical sample that ould provide

1O ris$ of assessin control ris$ too lo 822O conAdence) that not more than>O of the sales invoices lac$ed approval. -he auditor estimated from

previous experience that about " 1"O of the sales invoices lac$ed approval.

/ sample of " invoices as examined and > of them ere lac$in approval.

-he auditor then determined the upper deviation rate to be 4O.

In the evaluation of this sample' the auditor decided to increase the

level of the preliminary assessment of control ris$ because the@

a. -olerable rate 8>O) as less than the upper deviation rate 84O).b. Expected deviation rate 8>O) as more than the percentae of errors

in the sample 8,.7O).c. Fpper deviation rate 84O) as more than the percentae of errors in

the sample 8,.7O).d. Expected deviation rate 8".7O) as less than the tolerable rate 8>O).

Answer: A

14./n auditor examinin inventory most li$ely ould use variables samplin

rather than attributes samplin to@a. Identify hether inventory items are properly priced.b. Estimate hether the dollar amount of inventory is reasonable.c. (iscover hether misstatements exist in inventory records.d. (etermine hether discounts for inventory are properly recorded.

Answer: B

12./n auditor is selectin vouchers for testin an entityNs internal control

activities related to the proper approval of vouchers before chec$s are

prepared. -he auditor is matchin random numbers ith voucher numbers to

determine hich vouchers to inspect. If a random number matches a voided

voucher' that voucher ordinarily ould be replaced by another voucher in the

random sample if the voided voucher@a. !annot be located in the voucher Ale.b. 6epresents a dollar amount that is material.c. Indicates a deviation from the prescribed activity.d. &as been properly voided.

Answer: D

".hat is an auditorNs evaluation of a statistical sample for attributes hen a

test of 7 documents results in, deviations if tolerable rate is >O' the

expected population deviation rate is 7O' and the alloance for samplin ris$

is "O.


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, Auditing Theory

a. Modify the planned assessed level of control ris$ because the tolerable

rate plus the alloance for samplin ris$ exceeds the expected

population deviation rate.b. /ccept the sample results as support for the planned assessed level of

control ris$ because the sample deviation rate plus the alloance for

samplin ris$ exceeds the tolerable rate.c. /ccept the sample results as support for the planned assessed level of

control ris$ because the tolerable rate less the alloance for samplin

ris$ e%uals the expected population deviation rate.d. Modify the planned assessed level of control ris$ because the sample

deviation rate plus the alloance for samplin ris$ exceeds the

tolerable rate. Answer: D

Auditing Theory - PRTC

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