Question 1Which statement is incorrect regarding audit evidence?Audit evidence is all the information used by the auditor in arriving at the conclusions on which the audit opinion is based.Audit evidence includes the information contained in the accounting records underlying the financial statements and other information.Audit evidence is cumulative in nature.Auditors are expected to address all information that may exist.Auditing Theory - Evidence (Average)Question 2Which of the following procedures would provide the most reliable audit evidence?Inquiries of the clients internal audit staff held in private.Inspection of prenumbered client purchase orders filed in the vouchers payable department.Analytical procedures performed by the auditor on the entitys trial balance.Inspection of bank statements obtained directly form the clients financial institution.Auditing Theory - Evidence (Average)Question 3Negative confirmation requests is unlikely to be used to reduce audit risk to an acceptable level when:The assessed level of inherent and control risk is low.A large number of small balances is involved.A substantial number of errors is expected.The auditor has no reason to believe that respondents will disregard these requests.Auditing Theory - Evidence (Average)Question 4When a CPA observes that the recorded interest expense seems to be excessive in relation to the balance in the bonds payable account, the CPA might suspect thatDiscount on bonds payable is understatedBonds payable are understatedBonds payable are overstatedPremium on bonds payable is overstatedAuditing Theory - Evidence (Average)Question 5For audit purposes, a corporation's articles of incorporation are normally:Copied and placed on the owners' equity lead scheduleCopied and placed in the permanent fileConfirmed with the transfer agentIgnored since they are not normally considered to be related to the internal control structureAuditing Theory - Evidence (Average)Question 6Which of the following procedures would an auditor least likely perform in planning a financial statement audit?Coordinating the assistance of entity personnel in data preparationDiscussing matters that may affect the audit with firm personnel responsible for non-audit services to the entitySelecting a sample of vendors invoices for comparison to receiving reportsReading the current years interim financial statementsAuditing Theory - Audit Planning (Average)Question 7When an auditor expresses an opinion other than unqualified opinion, a clear description of all substantive reasons for the modification of the opinion should be included in the report. This explanation should be presented:As a separate paragraph that precedes the opinion paragraph of the Audit Reporting.As a separate paragraph, preferably after the opinion paragraph, of the Audit Reporting.In the opinion paragraphAs a separate paragraph in the notes to financial statements.Auditing Theory - Audit Reporting (Uncategorized)Question 8An auditor would issue an adverse opinion ifThe audit was begun by other independent auditors who withdrew from the engagement.The statements taken as a whole do not fairly present the financial condition and results of operations of the company.A qualified opinion cannot be given because the auditor lacks independence.The restriction on the scope of the audit was significant.Auditing Theory - Audit Reporting (Uncategorized)Question 9Which of the following statements is best described in the scope paragraph of the independent auditors report?The audit was planned and performed to obtain reliable assurance about whether the financial statements are free of material misstatements.The audit was conducted in accordance with financial reporting framework.The auditor makes the significant estimates in the preparation of the financial statements.A statement by the auditor that the audit provides a reasonable basis for the opinion.Auditing Theory - Audit Reporting (Uncategorized)Question 10When the financial statements of the prior period were not audited, the incoming auditor should:Insist that an audit of prior years financial statements must be made.Not allow the inclusion of the corresponding figures in the financial statements of the current period.Disclaim his opinion and treat the unaudited corresponding figures as basis of scope limitation.Obtain sufficient appropriate audit evidence that the corresponding figures meet the requirements of the relevant financial reporting framework.Auditing Theory - Audit Reporting (Uncategorized)Question 11When management prepares financial statements on the basis of a going concern and the auditor believes the company may not continue as a going concern, the auditor should issue a(n)qualified opinionunqualified opinion with an explanatory paragraphdisclaimer of opinionadverse opinionAuditing Theory - Audit Reporting (Difficult)Question 12When the financial statements of the prior period were not audited, the incoming auditor should:Insist that an audit of prior years financial statements must be made.Not allow the inclusion of the corresponding figures in the financial statements of the current period.Disclaim his opinion and treat the unaudited corresponding figures as basis of scope limitation.Obtain sufficient appropriate audit evidence that the corresponding figures meet the requirements of the relevant financial reporting framework.Auditing Theory - Audit Reporting (Difficult)Question 13The entire set of data about which the auditor wishes to draw conclusions is calledPopulationSampling frameSampleSampling unitAuditing Theory - Audit Sampling (Average)Question 14Which of the following comments best illustrates the concept of sampling risk?A randomly chosen sample may not be representative of the population as a whole on the characteristic of interestAn auditor may select audit procedures that are not appropriate to achieve the specific objectiveAn auditor may fail to recognize errors in the documents examined for the chosen sampleThe documents related to the chosen sample may not be available for inspectionAuditing Theory - Audit Sampling (Average)Question 15Receipt of ordered materials by the receiving department will generate the completion of a form called the:bill of ladingreceiving reportmaterials requisitioninventory acquisition summaryAuditing Theory - Audit of Inventory (Average)Question 16The audit tests to verify that the client is using an inventory method which is generally accepted and to verify that physical counts were correctly summarized are performed during the audit of the:acquisition and payments cyclepayroll and personnel cycleinventory and warehousing cyclesales and collection cycleAuditing Theory - Audit of Inventory (Average)Question 17After accounting for a sequence of inventory tags, an auditor traces a sample of tags to the physical inventory listing to obtain evidence that all items:included in the listing have been countedrepresented by inventory tags actually existrepresented by inventory tags are included in the listingincluded in the listing are represented by inventory tagsAuditing Theory - Audit of Inventory (Average)Question 18Controls which provide a means of ensuring that the physical counts are properly summarized, priced at the same amount as the unit records, correctly extended and totaled, and included in the general ledger at the proper amount are known as:standard cost controlspricing internal controlscompilation internal controlscount quantity internal controlsAuditing Theory - Audit of Inventory (Average)Question 19Compared to a public company, the most important difference in a nonpublic company in assessing control risk is the ability to assess control risk at _______ for any or all control-related objectivesLowModerately lowMediumHighAuditing Theory - Internal Control (Difficult)Question 20To obtain an understanding of an entitys control environment, an auditor should concentrate on the substance of managements policies and procedures rather than their form because:Management may establish appropriate policies and procedures but not act on themThe board of directors may not be aware of managements attitude toward the control environmentThe auditor may believe that the policies and procedures are inappropriate for that particular entityThe policies and procedures may be so weak that no reliance is contemplated by the auditorAuditing Theory - Internal Control (Difficult)Question 21This type of inquiry often elicits yes or no responses to the auditors questions.AssessmentDeclarativeInterrogativeInformationalAuditing Theory - Evidence (Average)Question 22A CPA may wish to emphasize specific matters regarding the financial statements even though an unqualified opinion will be issued. Normally, such explanatory information is:Included in the scope paragraphIncluded in the opinion paragraphIncluded in a separate paragraph in the reportIncluded in the introductory paragraphAuditing Theory - Audit Reporting (Easy)Question 23When the auditor cannot perform procedures and the amounts are so material that a disclaimer of opinion rather than a qualified opinion is required, the:Opinion paragraph will state does not present fairlyOpinion paragraph will state presents fairlyScope paragraph will be unchanged from the standard unqualified opinionScope paragraph will be deletedAuditing Theory - Audit Reporting (Difficult)Question 24Which of the following sampling plans would be designed to estimate a numerical measurement of a population, such as a peso value?Numerical samplingDiscovery samplingSampling for attributesSampling for variablesAuditing Theory - Audit Sampling (Average)Question 25Which of the following circumstances would ordinarily not impair the auditors independence?Litigation by a client against an audit firm related to tax services.Litigation by a client against an audit firm claiming a deficiency in the previous audit.Litigation by an audit firm against a client claiming management fraud or deceit.Clients intent to start a lawsuit at some future date, after the current audit is completed, claiming a deficiency in the previous audit.Auditing Theory - CPA Profession (Average)Question 26Many companies use outside payroll services to process payroll. Auditors _____ rely on the internal controls of these outside payroll services.MustCannotRarelyCan oftenAuditing Theory - Audit of Payroll (Average)Question 27In rare cases, the auditor may believe it is necessary that a complete physical inventory of fixed assets be taken to make sure they actually exist. If an inventory is taken, the auditor normally:Takes the inventoryRequires client to take the inventory and provide documentation to the auditorObserves the countRequires that it be done by an outside, independent third partyAuditing Theory - Audit of Property, Plant and Equipment (Average)Question 28Expense accounts analysis is closely related to tests of controls and substantive tests of transactions. The major difference is:The difference in the types of underlying documentation which is examinedThe degree of concentration on an individual accountThe use or nonuse of cutoff testsThat one emphasizes transactions and the other emphasizes amountsAuditing Theory - Audit of Property, Plant and Equipment (Average)Question 29Which of the following audit tests is usually the least costly to perform?Analytical proceduresTests of controlsTests of balancesSubstantive tests of transactionsAuditing Theory - Evidence (Average)Question 30The reliance placed on substantive tests in relation to the reliance placed on internal control varies in a relationship that is ordinarily:ParallelInverseDirectEqualAuditing Theory - Evidence (Average)Question 31A positive confirmation is more reliable evidence than a negative confirmation because:Fewer confirmations can be sent outThe auditor has a document which can be used in courtThe debtors lack of response indicates agreement with the stated balanceFollow-up procedures are performed if a response is not received from the debtorAuditing Theory - Audit of Accounts Receivable (Average)Question 32An auditor should perform alternative procedures to substantiate the existence of accounts receivable when:No reply to a positive confirmation request is receivedNo reply to a negative confirmation request is receivedCollectibility of the receivables is in doubtPledging of the receivables is probableAuditing Theory - Audit of Accounts Receivable (Average)Question 33For most audits, a proper cash receipts cutoff is less important than the sales cutoff because the improper cutoff of cash:Is detected and correct when cash is separately auditedIs unlikely to have a material impact on the balance sheet or the income statementAffects on the cash and accounts receivable balances on the balance sheet and does not affect net incomeRarely occurs given the control consciousness of most entitiesAuditing Theory - Audit of Accounts Receivable (Average)Question 34Comparing expenses to prior years is an effective analytical procedure for accounts payable because expenses from year to year are:ErraticVariableDynamicRelatively stableAuditing Theory - Audit of Current Liabilities (Average)Question 35At what point do most companies recognize liabilities in the acquisition and payment cycle?The issuance of a purchase orderReceipt of acknowledgement of order by vendorReceipt of goods or servicesThe receipt of a vendor statementAuditing Theory - Audit of Current Liabilities (Average)Question 36Proper authorization for acquisition is essential because it:Ensures that goods/services are used efficiently by company employeesEnsures that goods/services were purchased from approved vendorsEnsures that goods/services are for authorized company purposesEnsures that goods/services were purchased at the lowest possible priceAuditing Theory - Audit of Current Liabilities (Average)Question 37To gather evidence regarding the balance per bank in a bank reconciliation, an auditor would examine all of the following except the:General ledgerBank confirmationCutoff bank statementYear-end bank statementAuditing Theory - Audit of Cash (Average)Question 38Which of the following items would not normally appear on bank reconciliation?Balance per bankList of deposits in transitOutstanding depositsOutstanding checksAuditing Theory - Audit of Cash (Average)Question 39Upon receipt of customers checks in the mailroom, a responsible employee should prepare a remittance listing that is forwarded to the cashier. A copy of the listing should be sent to the:Internal auditor to investigate the listing for unusual transactionsTreasurer to compare the listing with the monthly bank statementAccount receivable bookkeeper to update the subsidiary accounts receivable recordsEntitys banks to compare the listing with the cashiers deposit slip.Auditing Theory - Evidence (Average)Question 40An auditor concluded that no excessive costs for idle plant were charged to inventory. This conclusion most likely related to the auditors objective to obtain evidence about the financial statement assertions regarding inventory:Rights and obligationValuationExistenceCompletenessAuditing Theory - Evidence (Average)Question 41A client erroneously recorded a large purchase twice. Which of the following internal accounting control measures would be most likely to detect this error in a timely and efficient manner?Footing the purchases journalReconciling vendors monthly statements with subsidiary payable ledger accountsTracing totals from the purchases journal to the ledger accountsSending written quarterly confirmations to all vendorsAuditing Theory - Evidence (Average)Question 42The following are the benefits claimed for the practice of determining materiality in the initial planning stage of starting an audit, exceptAvoiding the problem of doing too little work (underauditing)Avoiding the problem of doing more work than necessary (overauditing)Being able to decide early what kind of audit opinion to expressBeing able to fine tune the audit work for effectiveness and efficiencyAuditing Theory - Audit Planning (Average)Question 43Which of the following situations represents a risk factor that relates to misstatements arising from misappropriation of assets?A high turnover of senior management.A lack of independent checks.A strained relationship between management and the predecessor auditor.An inability to generate cash flow from operations.Auditing Theory - Risk Assessment (Average)Question 44When considering internal control an auditor must be aware of the concept of reasonable assurance, which recognizes thatEmployment of competent personnel provides assurance that the objectives of internal control will be achieved.Establishment and maintenance of internal control is an important responsibility of the management and not of the auditor.Cost of internal control procedures should not exceed the benefits expected to be derived from the control.Segregation of incompatible functions is necessary to ascertain that the control procedures are effective.Auditing Theory - Internal Control (Average)Question 45General purpose financial statements may be prepared in accordance with the following framework except:International Financial Reporting StandardsInternational Financial Reporting Standards for SMEsInternational Auditing StandardsInternational Accounting StandardsAuditing Theory - Audit Planning (Average)Question 46Fraudulent financial reporting is often calledManagement fraudTheft of assetsDefalcationEmployee fraudAuditing Theory - Internal Control (Average)Question 47Which of the following should an auditor obtain from the predecessor auditor prior to accepting an audit engagement?Analysis of balance sheet accountsAnalysis of income statementAll matter of continuing accounting significanceFacts that might bear on the integrity of managementAuditing Theory - Audit Planning (Average)Question 48Which of the following would an auditor most likely use in determining the auditors preliminary judgment about materiality?The results of the initial assessment of control riskThe anticipated sample size for planned substantive testsThe entitys financial statements of the prior yearThe assertions that are embodied in the financial statementsAuditing Theory - Risk Assessment (Average)Question 49An effective procedure to test for unbilled shipments is to trace from theSales journal to the shipping documentsShipping documents to the sales invoiceSales journal to the accounts receivable ledgerSales journal to the general ledger sales accountAuditing Theory - Evidence (Average)Question 50The element of the auditors report that distinguishes it from reports that might be issued by others isTitleAddresseeAuditors signatureOpinion paragraphAuditing Theory - Audit Reporting (Average)Question 51What level of assurance is provided by the auditor in a review engagement?No assuranceHigh, but not absoluteReasonableLimitedAuditing Theory - Audit Reporting (Average)Question 52In a compilation engagement, the accountant is engaged to use accounting expertise as opposed to auditing expertise to collect, classify, and summarize financial information. What type of assurance is provided by the accountant when he/she performs this engagement?Positive assuranceNegative assuranceNo assuranceLimited assuranceAuditing Theory - Audit Reporting (Average)Question 53Which of the following is not one of the elements of an assurance engagement?Sufficient appropriate evidenceA subject matterSuitable criteriaAn opinion about whether the subject matter conform, in all material respects, with identified criteriaAuditing Theory - Audit Planning (Average)Question 54During the initial planning for an audit, a CPA obtains a level of knowledge of the clients business to help him evaluate:The reasonableness of estimates, such as valuation of inventories and allowances for bad debts.Whether to accept the engagement or notThe nature of the audit report he will issueThe profitability of the businessAuditing Theory - Audit Planning (Average)Question 55Most companies recognize sales when a/the:Merchandise is received by the customerCustomer order is receivedMerchandise is shippedCash is received on accountAuditing Theory - Evidence (Average)Question 56To strengthen control procedures over the custody of heavy mobile equipment, the client would most likely institute a policy requiring a periodicIncrease in insurance coverageVerification of liens, pledges, and collateralizationsAccounting for work ordersInspection of equipment and reconciliation with accounting recordsAuditing Theory - Evidence (Average)Question 57Reports that are designed to create an audit trail for each online transaction. Such reports often document the source of a transaction (terminal, time and user) as well as the transactions details.Batch processing logsTransmittal sheetsTransaction logsEmbedded audit modulesAuditing Theory - Computerized Auditing (Average)Question 58The single feature that most clearly distinguishes auditing, attestation, and assurance isType of serviceTraining required to perform the serviceScope of servicesCPAs approach to the serviceAuditing Theory - Audit Planning (Easy)Question 59A CPA firm studies its personnel advancement experience to ascertain whether individuals meeting stated criteria are assigned increased degrees of responsibility. This is evidence of the firm's adherence to prescribed standards ofSupervision and reviewContinuing professional educationProfessional developmentQuality controlAuditing Theory - CPA Profession (Average)Question 60Accounting firms should establish quality control procedures for professional development in order to provide reasonable assurance thatPersons promoted possess the appropriate characteristics to perform competentlyPersonnel will have the knowledge required to fulfill responsibilities assignedThe extent of supervision and review in a given instance will be appropriateAssociation with a client whose management lacks integrity will be minimizedAuditing Theory - CPA Profession (Average)Question 61As part of audit planning, CPAs should design audit programs for each individual audit and should include audit steps and procedures toDetect and eliminate fraudIncrease the amount of management information availableProvide assurances that the objectives of the audit are metEnsure that only material items are auditedAuditing Theory - Evidence (Average)Question 62In evaluating the reasonableness of advertising expense, which of the following would be the best evidence?Oral evidence obtained through discussions with company marketing executives and representatives of the advertising agency retainedDocumentary evidence obtained by vouching charges to the account and by retracing charges from source documents to the accountAnalytical evidence developed by comparing the ratio of advertising expenses to sales with historical data for the company and industryArithmetical evidence developed by re-computing charges submitted by the advertising agency and paid by the companyAuditing Theory - Evidence (Average)Question 63Which of the following is not a typical analytical procedure?Study of relationships of financial information with relevant nonfinancial informationComparison of financial information with similar information regarding the industry in which the entity operatesComparison of recorded amounts of major disbursements with appropriate invoicesComparison of recorded amounts of major disbursements with budgeted amountsAuditing Theory - Evidence (Average)Question 64Having evaluated inherent risk and control risk, the auditor determines detection riskAs the complement of overall audit riskBy performing substantive audit testsAs a product of further study of the business and industry and application of analytical proceduresAt a level that equates the joint probability of inherent risk, control risk, and detection risk with overall audit riskAuditing Theory - Risk Assessment (Average)Question 65The understanding between the client and the auditor as to the degree of responsibilities to be assumed by each are normally set forth in a(an)Representation letterEngagement letterManagement letterComfort letterAuditing Theory - Risk Assessment (Average)Question 66It would be appropriate for the payroll accounting department to be responsible for which of the following functions?Approval of employee time recordsMaintenance of records of employment, discharges, and pay increasesPreparation of periodic governmental reports as to employees' earnings and withholding taxesTemporary retention of unclaimed employee paychecksAuditing Theory - Internal Control (Average)Question 67Which of the following would lessen internal control in a CBIS?The computer librarian maintains custody of computer program instructions and detailed listingsComputer operators have access to operator instructions and detailed program listingsThe control group is solely responsible for the distribution of all computer outputComputer programmers write and debug programs which perform routines designed by the systems analystAuditing Theory - Computerized Auditing (Average)Question 68Based on a random sample, it is estimated that four percent, plus or minus two percent, of a firm's invoices contain errors. The plus or minus two percent is known as the estimate'sPrecisionAccuracyConfidence levelStandard errorAuditing Theory - Audit Sampling (Average)Question 69The accuracy of perpetual inventory records may be established in part by comparing perpetual inventory records withPurchase requisitionsReceiving reportsPurchase ordersVendor paymentsAuditing Theory - Audit of Inventory (Average)Question 70Which of the following is a "Type I" subsequent event?The client's Long Island warehouse was destroyed by fire two weeks following the balance sheet date. The warehouse and its contents were uninsured and represented 15% of the client's total assetsAs the result of an uninsured flood loss, one of the client's major customers declared bankruptcy. The client doesn't expect to recover more than 5% of the outstanding receivable which accounts for 30% of total accounts receivable. The flood and bankruptcy declaration both occurred after the balance date but before the release of the audit report. No additional provision for loss had been made as of year endThree weeks after the balance sheet date, a major strike was called by the labor union representing 80% of the client's work forceAfter the balance sheet date, but prior to release of the audit report, a product liability judgment against the client was rendered by a judge. The judgment assessed damages and fines totaling 30% of audited net income. The events giving rise to the judgment occurred prior to the balance sheet date. The client does not plan to appeal the decisionAuditing Theory - Evidence (Difficult)Question 71An auditor who wishes to substantiate the gross balance of the account "Trade Notes Receivable" is considering the advisability of performing the four procedures listed below. Which pair of procedures is best suited to this objective?IAge the receivables

IIConfirm the notes with the makers

IIIInspect the notes

IVTrace a sample of postings from the sales journal to the notes receivable ledger

I and IIII and IVII and IIIII and IVAuditing Theory - Audit of Accounts Receivable (Average)Question 72In a highly automated information processing system tests of controlMust be performed in all circumstancesMay be required in some circumstancesAre never requiredAre required in first year auditsAuditing Theory - Computerized Auditing (Average)Question 73An auditor most least likely use computer software toAccess client data filesPrepare spreadsheetsAssess computer control riskConstruct parallel simulationsAuditing Theory - Computerized Auditing (Average)Question 74System characteristics that may result from the nature of CIS processing include, exceptAbsence of input documents.Lack of visible transaction trail.Lack of visible output.Difficulty of access to data and computer programs.Auditing Theory - Computerized Auditing (Average)Question 75A computer falls into the supercomputer category if it is, at the time of construction, one of the ____ computers in the world.biggestfastestboth a. and b.neither a. nor b.Auditing Theory - Computerized Auditing (Average)Question 76Managers need information from the management accounting system because? (Tick the one untrue answer)They cannot get this from the financial accountsThe financial accounts are not detailed enoughThe financial accounts are prepared too lateThe financial accounts are prepared for each part of the organization and the management accounts are prepared for the whole organizationAuditing Theory - Cost Concepts (Easy)Question 77Which of the following procedures concerning accounts receivable is an auditor most likely to perform to obtain evidential matter in support of an assessed level of control risk below the maximum level?Sending confirmation requests to an entitys principal customers to verify the existence of accounts receivable.Inspecting an entitys analysis of accounts receivable for unusual balances.Comparing an entitys uncollectible accounts expense to actual uncollectible accounts receivable.Observing an entitys employee prepare the schedule of past due accounts receivable.Auditing Theory - Evidence (Average)Question 78Proper segregation of functional responsibilities calls for separation of the functions ofAuthorization, execution, and recording.Authorization, execution, and payment.Custody, execution, and reporting.Authorization, payment, and recording.Auditing Theory - Internal Control (Average)Question 79The evaluation of deviations that were observed upon completing tests of controlsMay require the need for doing more extensive understanding of control.May require more extensive tests of controls.Always requires documentation of the basis of assessment of control risk.May require modification of the nature, timing, and extent of planned substantive procedures.Auditing Theory - Internal Control (Average)Question 80An auditor decides to increase the assessed level of control risk from that originally planned on the basis of audit evidence gathered and evaluated. To achieve an overall audit risk level that is substantially the same as the planned audit risk level, the auditor wouldDecrease substantive testing.Increase inherent risk.Increase materiality levels.Decrease detection risk.Auditing Theory - Risk Assessment (Average)Question 81The professions ethical standards most likely would be considered to have been violated when a CPA represents that specific consulting services will be performed for a stated fee and it is apparent at the time of the representation that theActual fee would be substantially higherActual fee would be substantially lower than the fees charged by other CPAs for comparable services.CPA would notbe independentFee was a competitive bidAuditing Theory - Audit Planning (Average)Question 82The responsibility for the preparation of the financial statements and the accompanying footnotes belongs to:The auditorManagementBoth management and the auditor equallyManagement for the statements and the auditor for the notesAuditing Theory - Audit Reporting (Average)Question 83Which of the following statements about the existence and completeness assertions is not true?The existence and completeness assertions emphasize different audit concernsExistence deals with overstatements and completeness deals with understatementsExistence deals with understatements and completeness deals with overstatementsThe completeness assertion deals with unrecorded transactionsAuditing Theory - Evidence (Average)Question 84Which of the following management assertions is not associated with transaction-related audit objectives?OccurrenceClassification and understandabilityAccuracyCompletenessAuditing Theory - Evidence (Average)Question 85The detail tie-in is part of the_______ assertion for account balancesClassificationValuation and allocationRights and obligationsCompletenessAuditing Theory - Evidence (Average)Question 86After general audit objectives are understood, specific audit objectives for each account balance on the financial statements can be developed. Which of the following statements is true?There should be at least one specific objective for each relevant general objectiveThere will be only one specific objective for each relevant general objectiveThere will be many specific objectives developed for each relevant general objectiveThere must be one specific objective for each general objectiveAuditing Theory - Audit Planning (Difficult)Question 87A 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:Inherent riskAcceptable audit riskStatistical riskFinancial riskAuditing Theory - Risk Assessment (Average)Question 88An auditor searching for related party transactions should obtain an understanding of each subsidiarys relationship to the total entity because:The business structure may be deliberately designed to obscure related party transactionsThis may reveal whether transactions would have taken place if the parties had been unrelatedTransactions may have been consummated on terms equivalent to arms-length transactionsThis may permit the audit of intercompany account balances to be performed as of concurrent datesAuditing Theory - Evidence (Average)Question 89A CPA who is not independent and is associated with financial statements should disclaim an opinion with respect to those financial statements. The disclaimer should:Clearly state the specific reasons for lack of independenceNot mention any reason for the disclaimer other than that the CPA was unable to conduct the examination in accordance with generally accepted auditing standardsNot describe the reason for lack of independence but should state specifically that the CPA is not independentInclude a middle paragraph clearly describing the CPAs association with the client and explaining why the CPA was unable to gather sufficient competent evidential matter to warrant the expression of an opinionAuditing Theory - Audit Reporting (Difficult)Question 90The auditor is responsible for communicating significant internal control deficiencies to the audit committee, or those charged with governance. This communication:May be oral or writtenMust be oralMust be writtenMust be oral via direct communicationAuditing Theory - Audit Reporting (Average)Question 91The auditors responsibility for reviewing the subsequent events of a public company that is about to issue new securities is normally limited to the period of time:Beginning with the balance sheet date and ending with the date of the auditors reportBeginning with the start of the fiscal year under audit and ending with the balance sheet dateBeginning with the start of the fiscal year under audit and ending with the date of the auditors reportBeginning with the balance sheet date and ending with the date the registration statement becomes effectiveAuditing Theory - Audit Reporting (Difficult)Question 92Tests of controls are directed toward the controls:EfficiencyEfficiency and effectivenessEffectivenessCost benefit ratioAuditing Theory - Evidence (Easy)Question 93Many auditors perform extensive analytical procedures on audits because:They are required by Philippine Auditing StandardsThey pinpoint errors in accountsThey indicate areas of potential risk and misstatementThey are required for tests of controlsAuditing Theory - Evidence (Easy)Question 94Documentation is used in every type of test except ________.Tests of controlsAnalytical proceduresTests of transactionsTests of detailsAuditing Theory - Evidence (Easy)Question 95Cutoff misstatements occur:Either by error or fraudBy error onlyBy fraud onlyRandomly without causes related to errors or fraudAuditing Theory - Evidence (Easy)Question 96If the clients internal control for recording sales returns and allowances is evaluated as ineffective:A larger sample is needed to verify cutoffSampling is not appropriateAll sales returns must be traced to supporting documentationAll sales returns must be confirmed with the customerAuditing Theory - Evidence (Easy)Question 97An auditor should perform alternative procedures to substantiate the existence of accounts receivable when:No reply to a positive confirmation request is receivedNo reply to a negative confirmation request is receivedCollectibility of the receivables is in doubtPledging of the receivables is probableAuditing Theory - Evidence (Easy)Question 98During the audit of prepaid insurance, the auditor should keep in mind that the amount in insurance expense is based on:The beginning balance in prepaid insuranceThe payment of premiums during the yearThe ending balance in prepaid insuranceAll three of the aboveAuditing Theory - Evidence (Easy)Question 99In connection with a review of the prepaid insurance account, auditors would typically not perform which of the following procedures?Recompute the portion of the premium that expired during the yearPrepare excerpts of insurance policies for audit working papersConfirm premium rates with an independent insurance brokerExamine support for premium payments.Auditing Theory - Evidence (Average)Question 100In an IT system, automated equipment controls or hardware controls are designed to:Correct errors in the computer programsMonitor and detect errors in source documentsDetect and control errors arising from the use of equipmentArrange data in a logical sequential manner for processing purposesAuditing Theory - Computerized Auditing (Average)