AUDITING & ASSURANCE: CONCEPTS AND APPLICATIONS 1
Final Exam
NAME:
Professor:
Section:
Date:
Score:
1. Which of the following is an incorrect phrase regarding auditing?
a.
Auditing is a systematic process.
b.
Auditing subjectively obtains and evaluates evidence.
c.
Auditing evaluates evidence regarding assertions.
d.
Auditing communicates results to interested users.
2. Set the following phases in proper order:
I.
PreII.
Engagement
III.
Internal Controls
IV.
Evidence-Gathering
V.
Completing the Audit
a.
b.
I,II,III,IV,V,VI,VII
I,IV,III,II,VII,V,VI
VI.
VII.
VIII.
c.
d.
Planning
Post-Audit Responsibilities
Reporting
I,V,II,III,IV,VII,VI
I,VI,II,III,V,VI,VII
3. Prior to the acceptance of an audit engagement with client who has terminated the services of the
predecessor auditor, the CPA should
a.
Contact the predecessor auditor without advising the prospective client and request a
complete report of the circumstances leading to the termination of the engagement with an
understanding that all information disclosed will be kept confidential.
b.
Accept the engagement without contacting the predecessor auditor since the CPA can include
audit procedures to verify the reason given by the client for the termination.
c.
Not communicate with the predecessor auditor because this would in effect be asking the
auditor to violate the confidential relationship between an auditor and the client.
d.
Advise the client of the intention to contact the predecessor auditor and request a permission
for the contact.
4. Ultimately, the decision about whether or not an auditor is independent must be made by
a.
Auditor
c.
Public
b.
Client’s management
d.
Audit committee
5. Which of the following statements is/are correct?
Statement 1: The auditor and the client should agree on the terms of the engagement. Such an
agreement may be in the form of audit engagement letter or other suitable form of contract.
Statement 2: Even in those countries where the scope of the audit is established by law, an
engagement letter may be informative for the client.
a.
b.
c.
d.
Only statement 1 is correct
Only statement 2 is correct
Both statements are correct
Both statements are incorrect
6. Which of the following matters is generally included in an auditor’s engagement letter?
a.
The factors to be considered in setting preliminary judgments about materiality.
b.
Management’s vicarious liability for illegal acts committed by its employees.
c.
Management’s responsibility for the entity’s compliance with laws and regulations.
d.
The auditor’s responsibility to search for significant internal control deficiencies.
7. Which of the following statements is/are correct?
Statement 1: On recurring audits, the auditor should consider whether circumstances require the
terms of the engagement to be revised and whether there is a need to remind the client of the existing
terms of engagement.
Statement 2: The auditor should send a new engagement letter each year to an established client.
a.
b.
Only statement 1 is correct
Both statements are correct
c.
d.
Only statement 2 is correct
Both statements are incorrect
8. Which of the following statements is/are correct?
Statement 1: The client should plan the audit work so that the audit will be performed in an effective
manner.
Statement 2: The auditor should develop and document an overall audit plan describing the scope
and conduct of the audit.
a.
b.
c.
d.
Only statement 1 is correct
Both statements are correct
Only statement 2 is correct
Both statements are incorrect
9. The auditor plan should
Succeed Action
Be flexible
Be cost-beneficial
A
B
C
D
Yes
Yes
Yes
Yes
Yes
No
No
Yes
Yes
No
Yes
Yes
10. Analytical procedures are required:



As a risk assessment procedure performed
during planning
As a substantive test procedure during evidence
gathering
As an overall review at audit completion
A
B
C
D
Yes
Yes
Yes
No
Yes
Yes
No
No
No
Yes
No
Yes
11. Some account balances, such as those for retirement benefits and finance lease, are the results of
complex calculations. The susceptibility to material misstatements in these types of accounts is
referred to as
a.
Audit risk
c.
Detection risk
b.
Control risk
d.
Inherent risk
12. Which of the following statements is/are correct?
Statement 1: Planning involves developing an overall strategy for the expected conduct and scope of
the audit.
Statement 2: Supervision involves directing the efforts of assistants who are involved in
accomplishing the objectives of the audit and determining whether those objectives were
accomplished.
a.
b.
c.
d.
Only statement 1 is correct
Both statements are correct
Only statement 2 is correct
Both statements are incorrect
13. It is the process designed and effected by those charged with governance, management, and other
personnel to provide reasonable assurance about the achievement of the entity’s objectives.
a.
Internal auditing
c.
Internal control
b.
Business strategy
d.
Accounting process
14. Under PSA 315, monitoring of controls is an internal control component that involves a process of
assessing the quality of internal control performance over time. It involves assessing the design and
operation of controls on a timely basis and taking necessary corrective actions. Monitoring of controls
is accomplished through ongoing monitoring activities, separate evaluations, or a combination of two.
An entity’s ongoing monitoring activities often include
a.
Periodic reporting by the entity’s internal auditors about the functioning of internal control.
b.
The audit of the annual financial statements.
c.
Periodic audits by the audit committee.
d.
Reviewing the purchasing account.
15. Obtaining an understanding of internal control involves:



Evaluating the design of a control
Determining whether the control has been
implemented
Testing the effectiveness of a control
A
B
C
D
Yes
Yes
Yes
Yes
Yes
No
No
Yes
Yes
No
Yes
Yes
16. In conducting an audit in accordance with PSAs, the auditor is required to identify and assess the risk
of material misstatement at the financial statement level, and at the assertion level for classes of
transactions, account balances, and disclosure. Some of these risks, in the auditor’s judgment, require
special audit consideration, such as those that involve fraud or complex transactions. Such risks are
called
a.
Business risks
c.
Audit risks
b.
Significant risks
d.
Material risks
17. In a financial statement audit, the auditor is required to perform test of controls when
I.
The auditor’s risk assessment includes expectations of the operating effectiveness of controls.
II.
When substantive procedures alone do not provide sufficient appropriate evidence at the
assertion level.
a.
b.
I only
Either I or II
c.
d.
II only
Neither I nor II
18. The transaction cycles approach leads to efficient processing of large number of transactions because
a.
Transaction cycles are easy to understand.
b.
Transaction cycles are easier to computerize.
c.
The transaction cycle approach represents the natural order of business.
d.
A large number of transactions within a given cycle can be categorized into a relatively small
number of distinct types.
19. The use of pre-numbered invoices, then accounting for their numeric sequence, meets primarily the:
a.
Completeness assertion
b.
Rights and obligations assertion
c.
Valuation or allocation assertion
d.
Existence or occurrence assertion
20. The internal control objective to determine that “existing acquisition transactions are recorded”
satisfies the objective of
a.
Validity
c.
Valuation
b.
Authorization
d.
Completeness
21. Which of the following departments most likely would approve changes in pay rates and deductions
from employee salaries?
a.
Payroll
c.
Controller
b.
Treasurer
d.
Personnel
22. The objectives of the internal structure for a production cycle are to provide assurance that
transactions are properly executed and recorded, and that
a.
Production orders are pre-numbered and signed by a supervisor
b.
Independent internal verification of activity reports is established
c.
Custody of work in process and of finished goods is properly maintained
d.
Transfers to finished goods are documented by a completed production report and a quality
control report.
23. A company holds bearer bonds as a short-term investment. Responsibility for custody of these bonds
and submission of coupons for periodic interest collections probably should be delegated to the
a.
Chief Accountant
c.
Internal Auditor
b.
Cashier
d.
Treasurer
24. Acts to be performed in order to obtain audit evidence.
a.
Audit standards
b.
Audit procedures
c.
d.
Audit program
Audit strategy
25. There are three categories of financial statement assertions: Assertions pertaining to account
balances at period end, assertions pertaining to classes of transactions and events during the period,
and assertions pertaining to presentation and disclosure. Which of the following is a financial
statement assertion that is common to all three categories?
a.
Existence
c.
Classification
b.
Completeness
d.
Occurrence
26. Which of the following is not normally considered an act of concealing cash shortage?
a.
Lapping
c.
Banking
b.
Window dressing
d.
Kiting
27. This occurs when cash shortage is concealed by overstating the balance of cash. This is performed
by exploiting the float period (the time it needs for a check to clear at the bank it was drawn.)
a.
Lapping
c.
Window dressing
b.
Kiting
d.
Floating
28. The primary purpose of sending a standard bank confirmation request to financial institutions with
which the client has done business during the year is to:
a.
Request information concerning contingent liabilities & collateral.
b.
Detect kiting activities that may otherwise not be discovered.
c.
Provide the data needed to prepare the bank section of a four-column proof of cash.
d.
Corroborate/verify information regarding cash & loan balances
29. The primary assertion being addressed by sending bank confirmation is
a.
Existence
c.
Completeness
b.
Rights and obligation
d.
Classification
30. Which of the following assertions is least likely to be addressed by sending bank confirmation?
a.
Existence
c.
Completeness
b.
Rights and obligation
d.
Classification
31. This document shows the dates of all transfers of cash among the various bank accounts. Its primary
purpose is to help auditors detect kiting.
a.
Cut-off bank statement
c.
Bank reconciliation
b.
Bank transfer schedule
d.
Proof of cash
The next two questions are based on the following information:
The information below was taken from the bank transfer schedule prepared during the audit of Hayaan Mo
Sila, Sige Sige Lang Co.’s financial statements for the year ended December 31, 2021. Assume all checks
are dated and issued on Decemeber 30, 2021
Check No.
101
202
303
404
Bank Accounts
From
To
Bebe
Chinito
John
Labidabs
Chinito
Pinrito
Labidabs
Lloyd
Disbursement Date
Per Books
Per Bank
Dec. 30
Jan 4
Jan 3
Jan. 2
Dec. 31
Jan 3
Jan. 2
Jan. 2
32. Which of the following checks might indicate kiting?
a.
#101
b.
and #303
c.
#202 and #404
d.
e.
Receipt Date
Per Books
Per Bank
Dec. 30
Jan 3
Dec. 30
Dec. 31
Jan. 2
Jan. 2
Jan. 2
Dec. 31
#101 and # 404
# 202 and # 303
33. Which of the following checks illustrate deposits/transfers in transit at December 31, 2018?
a.
#
b.
101 and #202
d.
#202 and #404
c.
#101 and #303
e.
#303 and #404
34. An auditor most likely would limit substantive audit tests of sales transactions when control risk is
assessed as low for the existence or occurrence assertion concerning sales transactions and auditor
has already gathered evidence supporting:
a.
Shipping and receiving activities.
b.
Opening and closing inventory balances.
c.
Cutoffs of sales and purchases.
d.
Cash receipts and accounts receivable.
35. Which of the following is a procedure to verify the existence of receivables and/ or occurrence of sales?
a.
Vouching receivable to shipping documents.
b.
c.
d.
Vouching recorded sales transactions to customer orders and shipping documents.
Tracing the shipping documents to recorded sales transaction and receivable.
Confirmation of receivables to customers.
36. What is the primary assertion being addressed by confirmation of receivables?
a.
Completeness
c.
Existence
b.
Gross valuation
d.
Accuracy
37. To test the existence assertion for recorded receivables, an auditor would select sample from the
a.
Sales order file.
b.
Customer purchase orders.
c.
Accounts receivable subsidiary ledger.
d.
Shipping documents (bill of lading) file.
38. Tracing recorded sales transactions in the sales journal to the shipping documents (bill of lading)
provides evidences about the
a.
Completeness of recording of sales transactions
b.
Occurrence of sales transactions
c.
Billing of all sales transactions
d.
Presentation of payables
39. Cut-off tests designed to detect credit sales made before the end of the year that have been recorded
in the subsequent year provide assurance about management’s assertion of
a.
Presentation
c.
Rights
b.
Completeness
d.
Existence
40. A client might overstate December 31 accounts receivable balances by dating and recording January
transactions in December. Such entries recorded in which journal are most likely to achieve this end?
a.
Cash receipts
c.
Purchases
b.
Payroll
d.
Sales
41. What is the most likely course of action that an auditor would take after determining that performing
substantive tests on inventory will take less time than performing test of controls?
a.
Assess control risk at a low level
b.
Perform both tests of controls and substantive test on inventory
c.
Perform only substantive tests on inventory
d.
Perform only tests of controls on inventory.
42. From the auditor’s point of view, inventory counts are more acceptable prior to the year-end when
a.
Internal control is weak.
b.
Accurate perpetual inventory records are maintained
c.
Inventory is slow-moving
d.
Significant amounts of inventory are held on a consignment basis.
43. Which of the following audit procedures most likely would provide assurance that a manufacturing
entity’s inventory valuation is proper?
a.
Testing the entity’s computation of standard overhead rates.
b.
Obtaining confirmation of inventories pledged under loan agreements.
c.
Reviewing a cutoff procedure for inventories.
d.
Tracing test counts to the entity’s inventory listing.
44. The client’s physical count of inventories is lower than the inventory quantities in the perpetual records.
This could be the result of a failure to record:
a.
Purchases
c.
Purchase discounts
b.
Sales
d.
Sales discounts.
45. An auditor has accounted for a sequence of inventory tags and is now going to trace information on a
representative number of tags to the inventory summary sheets. Which assertion does this procedure
relate to most directly?
a.
Completeness
c.
Existence
b.
Legality
d.
Valuation
46. An auditor performs a test to determine whether all merchandise for which the client was billed was
received. The population for this test consists of all:
a.
Merchandise received
c.
Vendor’s invoices
b.
Canceled checks
d.
Receiving reports
47. Inquiries of warehouse personnel concerning possible obsolete or slow-moving inventory items
provide assurance about management’s assertion of:
a.
Completeness
c.
Existence
b.
Rights and obligations
d.
Valuation
48. The accuracy of perpetual inventory records may be established, in part, by comparing perpetual
inventory records with
a.
Purchase requisitions
c.
Receiving reports
b.
Purchase orders
d.
Vendor payments
49. The auditor tests the quantity of materials charged to work in process by tracing these quantities to
a.
Cost ledgers
c.
Perpetual inventory records
b.
Receiving reports
d.
Material requisition
50. To measure how effectively a client employs its assets, an auditor calculates inventory turnover by
dividing the average inventory into:
a.
Net sales
c.
Cost of goods sold
b.
Operating income
d.
Gross sales
51. To establish the existence and ownership of a long-term investment in the common stock of a publicly
traded company, an auditor ordinarily performs a security count or
a.
Relies on the client's internal controls if the auditor has reasonable assurance that the control
procedures are being applied as prescribed.
b.
Confirms the number of shares owned that are held by an independent custodian.
c.
Determine the market price per share at the reporting date from published quotations.
d.
Confirms the number of shares owned with the issuing company.
52. Which of the following is considered a primary audit procedure to establish the existence and
ownership of investments?
a.
Inspection of property, plant and equipment.
b.
Inquiry with management regarding ownership of investments.
c.
Inspection and count of securities.
d.
Recomputation of ending balance of investments.
53. In confirming with an outside agent, such as a financial institution, that the agent is holding investment
securities in the client's name, an auditor would most likely gather evidence in support of
management's financial statement assertions of existence or occurrence and:
a.
Valuation or allocation.
c.
Completeness.
b.
Rights and obligations.
d.
Presentation and disclosure.
54. Ensuring that all investments owned by the entity at the reporting date are included on the statement
of financial position satisfies the assertion of?
a.
Valuation or allocation.
c.
Completeness.
b.
Rights and obligations.
d.
Presentation and disclosure.
55. To satisfy the valuation assertion when auditing an investment accounted for by the equity method,
an auditor most likely would
a.
Inspect the stock certificates evidencing the investment.
b.
Examine the audited financial statements of the investee company.
c.
Review the broker's advice or cancelled checks for the investment's acquisition.
d.
Obtain market quotation from financial newspapers or periodicals.
56. An auditor testing long-term investments would ordinarily use analytical procedures to ascertain the
reasonableness of the:
a.
Completeness of recorded investment income.
b.
Classification between current and noncurrent portfolios.
c.
Valuation of marketable equity securities.
d.
Existence of unrealized gains or losses in the portfolio.
57. Of the following, which is the most efficient audit procedure for verification of interest earned on bond
investments?
a.
Tracing interest declarations to an independent record book.
b.
Recomputing interest earned.
c.
Confirming interest rate with the issuer of the bonds.
d.
Vouching the receipts and deposit of interest checks.\
58. Which of the following is the most effective audit procedure for verification of dividends earned on the
investments in equity securities?
a.
Tracing deposit of dividend checks to the cash receipts book.
b.
Reconciling amounts received with published dividend records.
c.
Comparing the amounts received with preceding year dividends received.
d.
Recomputing selected extensions and footing of dividend schedules and comparing totals to
the general ledger.
59. Ensuring that investments and related investment income accounts are properly classified, described,
and disclosed in the financial statements, including notes, in accordance with the applicable PFRS
satisfies the assertion of?
a.
Valuation or allocation.
c.
Completeness.
b.
Rights and obligations.
d.
Presentation and disclosure.
60. An auditor compares annual revenues and expenses with similar amounts from the prior year and
investigates all changes exceeding 10%. This procedure most likely could indicate that
a.
Fourth quarter payroll taxes were properly accrued and recorded, but were not paid until early
in the subsequent year.
b.
Unrealized gains from increases in the value of FVTOCI securities were recorded in the
income account for FVTPL securities.
c.
The annual provision for uncollectible accounts expense was inadequate because of
worsening economic conditions.
d.
Notice of an increase in property tax rates was received by management, but was not recorded
until early in the subsequent year.
61. In the examination of property, plant, and equipment, the auditor tries to determine all of the following
except the:
a.
Extent of the control risk.
b.
Extent of property abandoned during the year.
c.
Adequacy of replacement funds.
d.
Reasonableness of the depreciation.
62. For which of the following accounts is it most likely that most of the audit work can be performed in
advance of the reporting date?
a.
Accounts receivable
c.
Cash
b.
Current marketable securities
d.
Property, plant, and equipment
63. Which of the following account is not normally examined in conjunction with the audit of PPE?
a.
Sales return and allowance
c.
Depreciation expense
b.
Lease expense
d.
Repairs and maintenance expense
64. When comparing an initial audit with a subsequent year audit for a particular client, the scope of audit
procedures for which of the following accounts would be expected to decrease the most?
a.
Accounts receivable
c.
Cash
b.
Marketable securities
d.
Property, plant and equipment.
65. Which of the following is the best evidence of continuous ownership of property?
a.
Examination of the deed.
b.
Examination of rent receipts from lessees of the property
c.
Examination of the title policy
d.
Examination of canceled check in payment for the property.
66. Verification of the legal ownership of a property relates to the assertion of
a.
Existence
c.
Valuation and allocation
b.
Rights and obligation
d.
Presentation and disclosure
67. Which of the following is a least likely assertion addressed by examining supporting documents to
PPE addition?
a.
Existence or occurrence
c.
Gross valuation
b.
Presentation and disclosure
d.
Rights and obligation
68. Ensuring that all retirements or disposal is recorded relates primary to the assertion of
a.
Completeness
c.
Rights and obligations
b.
Existence
d.
Presentation and disclosure
69. Which of the following is not one of the auditor’s objectives in auditing depreciation?
a.
Establishing the reasonableness of the client’s replacement policy.
b.
c.
d.
Establishing that the methods used are appropriate.
Establishing that the methods are consistently applied.
Establishing the reasonableness of depreciation computations.
70. An auditor traces the serial numbers on equipment to a company’s sub-ledger. Which of the following
management assertions is supported by this test?
a.
Valuation and allocation
c.
Completeness
b.
Rights and obligations
d.
Presentation and disclosure
-End of Examination-
“Whatever you do, work at it with all your heart, as working for the
Lord, not for human masters…” — Colossians 3:23.