1. Which of the following procedures is not required to be performed by the auditor?
a. Analytical procedures
b. Substantive procedures
c. Risk assessment procedures
d. Tests of control
2. Which of the following would not be a consideration of a CPA firm in deciding whether to accept a new client?
a. The client’s probability of achieving an unqualified opinion.
b. The client’s standing in the business community.
c. The client’s relations with its previous CPA firm.
d. The client’s financial ability.
3. When an independent auditor is approached to perform an audit for the first time, he or she should make inquiries
of the predecessor auditor. Inquiries are necessary because the predecessor may be able to provide the successor
with information that will assist the successor in determining whether
a. The company rotates auditors.
b. The engagement should be accepted.
c. The predecessor’s work should be used.
d. In the predecessor’s opinion, control risk is less than high.
4. If permission from the client to discuss its affairs with the proposed auditor is denied by the client, the predecessor
auditor should
a. Seek legal advice before responding to the proposed auditor.
b. Disclose adequately to proposed auditor all noncompliance made by the client.
c. Disclose the fact that the permission to disclosure is denied by the client.
d. Keep silent of the denial.
5. Ultimately, the decision about whether or not an auditor is independent must be made by
a. Auditor
b. Client’s management
c. Public
d. Audit committee
6. A firm has obtained information that would have caused it to decline an engagement had the information been
available earlier. Actions available to the auditor would include the following, except
a. Issue a disclaimer of opinion.
b. Withdraw from the engagement.
c. Withdraw from the client relationship.
d. Reporting the information and its implications to the person/s who appointed the CPA.
7. Engagement letter that documents and confirms the auditor’s acceptance of the engagement would normally be sent
to the client.
a. Before the commencement of the engagement.
b. Before the auditor report is issued.
c. After the audit report is issued.
d. At the end of the fieldwork.
8. Engagement letters are widely used in practice for
a. Audits only
b. Related services only
c. Assurance services only
d. All types of professional engagements
9. An audit engagement letter least likely include
a. A reference to the internal limitations of an audit that there is an unavoidable risk that some material
misstatements may remain undiscovered.
b. Description of any letters or reports that the auditor expects to submit to the client.
c. Identification of specific audit procedures that the auditor needs to undertake.
d. Basis on which fees are computed and any billing arrangements.
10. On recurring audit engagement, the auditor may decide not to send a new engagement letter each period. In which
of the following situations will there be no need to send a new letter?
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a.
b.
c.
d.
Revisions or special terms of the engagement
Significant change in nature or size of the client’s business.
Indications of misunderstanding of the objective and scope of the audit.
Recent change of middle management and rank and file organizational structure.
11. Adequate planning of the audit work helps the auditor of accomplishing the following objectives, except
a. The audit work is completed efficiently.
b. Gathering of all corroborating audit evidence.
c. Identifying the areas that need a service of an expert.
d. Ensuring that appropriate attention is devoted to important areas of the audit.
12. Statement 1: Obtaining knowledge of the entity’s business is an important part of the planning the audit work.
Statement 2: The auditor’s knowledge of the entity’s business assists in the identification of events, transactions
and practices which may have a material effect on the financial statements.
a.
b.
c.
d.
Only statement 1 is correct.
Only statement 2 is correct.
Both statements are correct.
Both statements are incorrect.
13. Statement 1: The overall audit plan and the audit program should not be revised during the course of the audit.
Statement 2: The auditor should develop and document an audit program setting out the nature, timing and extent
of planned audit procedures required to implement the overall audit plan.
a.
b.
c.
d.
Only statement 1 is correct.
Only statement 2 is correct.
Both statements are correct.
Both statements are incorrect.
14. Which of the following is not appropriately classified as a factor affecting the focus of the team’s efforts in
developing the overall audit strategy?
a. Volume of transactions, which may determine whether it is more efficient for the auditor to rely on internal
control.
b. Audit areas where there is a higher risk of material misstatement.
c. Setting materiality for planning purposes.
d. The financial reporting framework on which the financial information to be audited has been prepared,
including any need for reconciliation to another reporting framework.
15. Which of the following procedures would an auditor most likely perform in planning an audit of financial
statements?
a. Searching for unauthorized transactions that may aid detecting unrecorded liabilities.
b. Examining computer generated exception reports to verify the effectiveness of internal controls.
c. Comparing the financial statements to anticipated results.
d. Inquiring of the client’s legal counsel concerning pending litigation.
16. In designing audit programs, an auditor should establish specific audit objectives that related primarily to the
a. Selected audit techniques
b. Financial statement assertions
c. Timing of audit procedures
d. Cost-benefit gathering evidence
17. The audit program should contain the following, except
a. Audit objective
b. Set of planned audit procedures
c. Time budget for the various audit areas
d. The combined assessed level of inherent and control risk
18. Analytical procedures used in planning an audit should focus on
a. Reducing the scope of tests of controls and substantive tests.
b. Providing assurance that potential misstatements will be identified.
c. Enhancing the auditor’s understanding of the client’s business.
d. Assuming the adequacy of the available evidential matter.
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19. Audit risk has three components: inherent risk, control risk and detection risk. Which of the following statements
is correct?
a. Detection risk is a function of the efficiency of an audit procedure.
b. Cash is more susceptible to theft than an inventory of coal because it has a greater inherent risk.
c. The risk that material misstatement will not prevent or detected on a timely basis by internal control can be
reduced to a zero by effective controls.
d. The existing levels of inherent risk, control risk and detection risk can be changed at the discretion of the
auditor.
20. Which of the following statements is not correct about materiality?
a. An auditor’s consideration of materiality is influenced by the auditor’s perception of the needs of a reasonable
person who will rely on the financial statements.
b. Materiality judgments are made in light of surrounding circumstanced and necessarily involve both
quantitative and qualitative judgments.
c. An auditor considers materiality for planning purposes in terms of the largest aggregate level of
misstatements that could be material to any one of the financial statements.
d. The concept of materiality recognized that some matters are important for fair presentation of financial
statements in conformity with GAAP, while other matters are not important.
****END****
***GODBLESS***
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