INSTRUCTION: Write the letter of your answer before each number.
1. An auditor believes that an understanding with the client has not. Been established.
In this case, the auditor should ordinarily:
A. Modify the assessment of risk due to fraud.
B. Decline to accept to perform the engagement.
C. Perform the engagement with renewed professional skepticism.
D. Assess control risk at a HIGH level and rely primarily on substantive audit
procedures.
2. An auditor reconciles the total of the accounts receivable subsidiary ledger to the
general ledger control accounts as of June 30, 2021. By this procedure the auditor
would be most likely to learn which of the following?
A. An October invoice was improperly computed.
B. An account balance is past due and should be written off.
C. An October check from a customer was posted in error to the account of another
customer.
D. An opening balance in a subsidiary ledger account was improperly carried forward
from the previous accounting period.
3. Which of the following events occurring after issuance of an auditor's report most
likely would cause the auditor to make further inquiries about the previously issued
financial statements?
A. The final resolution of a lawsuit explained in a. Separate paragraph of the auditor's
report.
B. The entity's sale of a subsidiary that accounts for 30 percent of the entity's
consolidated sales.
C. A technological development that could affect the entity's future ability to continue
as a going concern.
D. The discovery of information regarding a contingency that existed before the
financial statements were issued.
4. The auditor finds a situation in which one person has the ability to collect
receivables, make the deposits, issue credit memos, and record receipt of payments.
The auditor suspects the individual may be stealing from cash receipts. Which of the
following audit procedures will be most effective in discovery fraud in this scenario?
A. Send positive confirmations to a random selection of customers.
B. Send negative confirmation to all outstanding accounts receivable customers.
C. Take a sample of bank deposits and trace the detail in each bank deposit back to
the entry in the cash receipts journal.
D. Perform a detailed revenue of debits to customer discounts, sales returns, or other
debit accounts, excluding cash posted to the cash receipts journal
5. The auditor is not required to document in the audit working papers
A. The assessment of control risks
B. The basis for the conclusions if control risk is assessed at a high level
C. The basis for the conclusions if control risk is assessed at less than high level
D. The understanding obtained of the entity's accounting and internal control systems
6. During the initial planning for an audit, a CPA obtains a level of knowledge about
the client's business to help him evaluate
A. The profitability of the business
B. The nature of the audit report he will issue
C. Whether to accept the engagement or not
D. The reasonableness of estimates, such as valuation of inventories and allowances
for doubtful accounts.
7. Which of the following statements ordinarily is included among the written client
representations obtained by the auditor?
A. Management acknowledges responsibility for illegal actions committed by
employees.
B. Management acknowledges that there are no material weaknesses in internal
control.
C. Sufficient evidential matter has been made available to permit the issuance of an
unqualified opinion.
D. Compensating balances and other arrangements involving restrictions on cash
balances have been disclosed.
8. Which of the following is not one of the basic elements of the auditor's report?
A. Auditor's signature
C. Date of the report
B. Client's address
D. Title
9. The auditor's report contains a paragraph explaining that the entity changed from
the straight line to the declining balance method of depreciation. The auditor
expressed an:
A. Adverse opinion
C. Qualified opinion
B. Disclaimer of opinion
D. Unqualified opinion
10. An entity’s financial statements were misstated over a period of years due to
large amounts of revenue being recorded in journal entries that involved debits and
credits to an illogical combination of accounts. The auditor could most likely have
been alerted to this irregularity by
A. Performing a revenue cut-off test at year end.
B. Scanning the general journal for unusual items.
C. Tracing a sample of journal entries to the general ledger.
D. Examining documentary evidence of sales returns and allowances recorded after
year end.
11. Which of the following statements best describes assurance services?
A. Services designed for the improvement of operations, resulting in better outcomes.
B. Services designed to express an opinion on the fairness of historical financial
statements based on the results of an audit.
C. The preparation of financial statements or the collection, classification, and
summarization of other financial information.
D. Independent professional services that are intended to enhance the credibility of
information to meet the needs of an intended user
12. When a CPA does not confirm material accounts receivable, but is satisfied by
the application of alternative auditing procedures, he/she normally should
A. Issue an adverse opinion.
B. Issue an unmodified opinion with no reference to this omission but be prepared to
defend the action.
C. Issue a qualified opinion or a disclaimer of opinion, depending on the materiality of
the receivables.
D. Issue an unmodified opinion but disclose elsewhere in the report this departure
from a customary procedure.