Question 1
1 / 1 pts
A method used by companies to fraudulently inflate revenues includes which of the following?
Use of hidden “side letters” giving the customer an irrevocable right to return the product.
Shipment of product not ordered by customers.
All of the above.
Recording of fictitious sales.
Question 2
1 / 1 pts
In a tour of a client's manufacturing facility, the auditor is most likely attempting to satisfy
which of the following management assertions related to long-lived assets?
Presentation and disclosure.
Existence.
Rights.
Completeness.
IncorrectQuestion 3
0 / 1 pts
An auditor has been unable to obtain audited financial statements for the entity’s major
foreign subsidiary due to civil unrest in that country. This may have a pervasive effect
on the consolidated financial statements. The appropriate audit opinion for the
consolidated financial statements is
a qualified opinion.
a disclaimer of opinion.
an adverse opinion.
an unmodified opinion with an Emphasis of Matter paragraph.
Question 4
1 / 1 pts
Which of the following is the auditor’s primary objective when auditing debt?
Valuation of gains or losses on refinancing debt.
Proper valuation of bond premium or bond discount, including amortization valuation.
Understatement of the debt obligation focusing on the completeness assertion.
Proper presentation and disclosure, including important restrictions contained in the
debt.
Question 5
1 / 1 pts
Which of the following items does the auditor ask the client to send to its legal counsel
requesting information about asserted claims?
A management representation letter.
A loss reserve confirmation.
A management letter.
A letter of audit inquiry.
Question 6
1 / 1 pts
Sources of audit planning information may come from which of the following?
Results of analytical procedures.
All of the above.
Assessment of risk of material misstatement.
Knowledge of client’s business and industry.
Question 7
1 / 1 pts
If the auditor concludes that there may be a going-concern problem, which of the
following is not typically evaluated to determine the reasonableness of management’s
plans to overcome this problem?
Management’s assumption about increasing prices or market share in relationship to
current industry developments.
Management’s past track record related to delaying unnecessary expenditures.
Management’s assumptions about cost savings related to a reduction in the work force
should be recomputed and evaluated to determine any hidden costs.
Management’s assumptions about selling off assets and their relationship to current
market prices.
Question 8
1 / 1 pts
Which of the following is a cash management technique frequently used by
management?
Lockboxes.
Cash management agreement with financial institutions.
All of the above.
Electronic funds transfers.
IncorrectQuestion 9
0 / 1 pts
Fraud related to revenue recognition will most likely be identified by the auditor through which of the
following independent situations?
Sales have increased 5% in the current period over the previous period and is consistent with the results of
competitors.
Gross margin is equivalent in the current period to previous periods and is below that of the industry.
Sales are higher in the month preceding each quarter end.
Sales of a revolutionary new product are increasing beyond that of the competition in the periods
immediately following its introduction.
Question 10
1 / 1 pts
If $15,000 is considered to be material to the income statement, but $25,000 is material to the balance
sheet, the auditor should set overall materiality at which of the following dollar amounts?
$40,000
$15,000
$20,000
$25,000
Question 11
1 / 1 pts
Why should the client’s legal expenses be examined?
To determine if there is any litigation pending or threatened.
To compare with previously released attorneys’ letters.
To determine the types of fraud occurring in the organization.
To ensure proper recording of vendor payables.
IncorrectQuestion 12
0 / 1 pts
In which one of the following instances would an auditor most likely issue a disclaimer of
opinion?
Management declines to provide a statement of cash flows.
The auditor is unable to confirm receivables but performs alternative procedures.
The auditor is independent of the client.
Management will not sign a management representation letter.
IncorrectQuestion 13
0 / 1 pts
Expo Engineering Ltd is a wholesale distributor of professional equipment and supplies.
The company’s sales have averaged about P100 million annually for the three-year
period 2015–2017. The company’s total assets at the end of 2017 amounted to P90
million. You have been appointed as auditor for the year 2018.
As part of your planning to obtain information about this new client, you have calculated
the following ratios for the three-year period 2015–2017.
2015
2016
2017
Quick asset ratio
1.09
0.99
0.88
Current ratio
1.81
1.93
1.97
Inventory turnover
4.72
4.31
3.41
Accounts receivable turnover
8.74
7.70
6.41
Per cent of total debt to total assets
48.00
45.00
42.00
Per cent of long-term debt to total assets
28.00
24.00
21.00
Sales to fixed assets (fixed asset turnover)
1.57
1.68
1.78
Sales as per cent of 2015 sales
1.00
1.03
1.05
Gross margin percentage
36.10
34.80
34.70
Net income to sales (%)
7.00
7.00
7.20
Return on shareholders’ equity (%)
13.70
13.20
12.80
Return on total assets (%)
7.80
7.80
7.90
Which one of the following conclusions can be drawn regarding the company’s net
investment in plant and equipment?
Plant and equipment has remained constant.
Plant and equipment has decreased.
Plant and equipment has increased.
The movement in plant and equipment cannot be determined.
IncorrectQuestion 14
0 / 1 pts
Which one of the following would not be considered a substantive audit procedure?
Multiplying the number of employees on each pay scale by the yearly pay rate to
determine an estimate of payroll expense.
Obtaining a letter from the bank confirming an account balance.
Taking a sample of purchase orders and checking that all orders over P100 000 are
authorised by a purchasing officer.
Using audit software to identify all accounts receivable over 90 days outstanding.
Question 15
1 / 1 pts
Which of the following audit procedures does not address existence/occurrence for accounts receivables
and sales?
Confirm balances of unpaid invoices with customers.
Trace bill of lading to sales invoice and sales journal.
Examine subsequent collections.
Scan sales journal for duplicate entries.
Question 16
1 / 1 pts
An auditor’s review of the repair expense to identify any capital expenditures is a test
related to which management assertion?
Valuation.
Completion.
Rights and obligations.
Existence.
Question 17
1 / 1 pts
For which one of the following material events occurring subsequent to the 30 June
20X9 balance date would the auditor require disclosure in the subsequent events note
to the financial statements? The auditor’s report is to be completed and signed on 26
August 20X9.
The acquisition of a subsidiary on 23 July 20X9 that was expected to increase sales for
the consolidated entity by 25 per cent in the next financial year. Negotiations had begun
on 8 June 20X9.
The undertaking of negotiations to secure the services of the chief financial officer of
your major competitor.
Adjustment for inventory that was purchased before year-end but had sold after yearend for an amount substantially below its cost price.
The refusal to adjust inventory for an obsolescence write-down identified by the auditor.
This did not result in a modified auditor’s opinion because the auditor and client agreed
that the amount was immaterial to the financial statements.
Question 18
1 / 1 pts
In which one of the following instances would an auditor most likely issue an adverse
opinion?
There is substantial doubt about the entity's ability to continue as a going concern.
Management declines to present earnings per share in the income statement.
The client does not allow the auditor to send confirmations to its three largest
customers.
There is a material dollar misstatement that is pervasive in the financial statements.
Question 19
1 / 1 pts
Which of the following is an example of the contents of an opinion paragraph found in
an unqualified audit report?
"Nothing came to our attention..."
"An audit includes examining, on a test basis..."
"We have audited...."
"The financial statements referred to above present fairly..."
Question 20
1 / 1 pts
An auditor is assessing the risk of material misstatement for two small companies. For
Company X, the auditor assesses a greater incentive to understate reported profit due
to the financial statements being used predominantly for tax purposes; for Company Y,
the auditor assesses that there is an incentive to overstate reported profit as the
financial statements are required to seek extra financing from the bank. Which one of
the following is correct in considering the response to assessed risk for debtors?
The auditor is more likely to extensively use debtors’ confirmation techniques for
Company X compared with Company Y.
The auditor is equally likely to extensively use debtors’ confirmation techniques for
Company X compared with Company Y.
The auditor will not be likely to use debtors’ confirmation techniques for either Company
X or Company Y as this substantive technique is not suitable for small company audits.
The auditor is less likely to extensively use debtors’ confirmation techniques for
Company X compared with Company Y.
Question 21
1 / 1 pts
Which one of the following statements about fraud is correct?
Fraud can be intentional or unintentional.
Fraud is always perpetrated by management, those charged with governance or
employees.
Fraud always involves the use of deception to obtain an unjust or illegal advantage.
Fraud always involves misappropriation of assets.
Question 22
1 / 1 pts
The major risk associated with receivables is related to which of the following?
They are pledged as collateral as disclosed in the footnotes to financial statements.
They will not be realized for the entire amount due.
They may be recorded as long-term when in fact they will be realized in the current period.
They may be sold to a bank with recourse.
Question 23
1 / 1 pts
Detection risk is affected by which aspects of substantive audit procedures?
Timing.
Nature.
All of the above.
Extent.
Question 24
1 / 1 pts
Which one of the following subsequent events will least likely result in an adjustment to
the financial statements?
Material change in the amount of settlement of a lawsuit which had been estimated at
year end.
Signing of a letter-of-intent by the client to acquire 55% of another entity for stock.
Sale of a large block of inventory at a price materially below carrying value.
Bankruptcy of a customer who owes your client a material amount on open account at
year end for which there is an inadequate allowance estimate.
Question 25
1 / 1 pts
Substantive tests of the revenue cycle typically do not provide evidence of which of the following?
Sales transactions exist and are properly valued.
Fraudulent transactions are not included in the financial statements.
The balance in the allowance account is correct.
Accounts receivable exist.
Question 26
1 / 1 pts
Which one of the following fundamental principles of professional conduct is under
threat when an accountant prepares an advertisement comparing the quality of their
work with that of other accountants in the local region?
professional competence and due care
objectivity
professional scepticism
professional behaviour
Question 27
1 / 1 pts
During which of the following phases of the audit are analytical review procedures
required by the auditing standards?
The planning phase of the audit.
Both the planning and final review phases of the audit.
The final review phase of the audit.
Performance of tests of controls.
Question 28
1 / 1 pts
Your client is in a highly competitive industry with the majority of the competition coming
from overseas. Its products have a relatively short life cycle and product development is
continuous in order to keep up with competitors. For the inventory account, the
assertion upon which most audit effort should be concentrated is
valuation and allocation.
completeness.
rights and obligations.
existence.
Question 29
1 / 1 pts
Which of the following is not a common debt covenant restriction?
Specification of a minimum earnings per share.
Specification of a maximum debt-equity ratio.
Maintenance of a minimum working-capital ratio.
Maintenance of a minimum level of retained earnings before dividends can be paid.
Question 30
1 / 1 pts
Which of the following is not an inherent risk typically associated with the existence of
dividends?
Dividends are recorded before declared.
Dividends are recorded in the wrong period.
Dividends are not properly amortized.
Dividends have not been approved before being declared.
Question 31
1 / 1 pts
Which of the following is not considered to be nonsampling risk?
Misinterpretation of information.
Carelessness of the auditor.
Use of improper audit procedure.
The sample does not represent the population.
IncorrectQuestion 32
0 / 1 pts
According to ISA 200 Overall Objectives of the Independent Auditor and the Conduct of
an Audit in Accordance with International Standards on Auditing, reasonable assurance
is obtained when the auditor has reduced audit risk to
an acceptably low level.
a reasonable level.
a reasonably low level.
an acceptable level.
Question 33
1 / 1 pts
Which of the following is not an inherent risk typically associated with debt covenant
compliance issues?
Whether debt covenants are calculated accurately.
Whether debt payment transactions are properly initiated.
Whether compliance with debt covenants is appropriately reviewed.
Whether compliance with debt covenants is appropriately disclosed.
IncorrectQuestion 34
0 / 1 pts
Your client has a December year-end, with December and January being very busy
months. The client has decided to make a public offering next year. In the audit of sales
revenue the auditor would be most concerned with
accuracy.
completeness.
disclosure.
cut-off.
Question 35
1 / 1 pts
Which of the following controls would be most successful in mitigating the theft of
customer checks received in the mail?
Custody of receipts by the accounts receivable manager.
Restrictive endorsements placed on checks as soon as they arrive.
Reconciliation of bank accounts each month.
Weekly deposits to a secure bank.
IncorrectQuestion 36
0 / 1 pts
A refusal by the directors to furnish a written representation stating that they have
fulfilled their responsibility for the preparation of the financial statements in accordance
with the applicable financial reporting framework constitutes
a situation sufficient to preclude an unmodified opinion.
a situation in which the auditor must seek alternative sources of evidence.
prima facie evidence that the financial statements are not presented fairly.
a situation in which the auditor can still issue an unmodified opinion if the risks of
material misstatement at the assertion level have been reduced to an acceptable level.
IncorrectQuestion 37
0 / 1 pts
Prior to accepting an appointment as auditor, the audit firm is informed by management
that management does not believe it is responsible for the internal control system. As a
result of this information, the auditor
cannot accept the audit engagement unless required to do so by law or regulation.
must inform management that unless management acknowledges its responsibility for
the internal control system it will be considered a ‘limitation of scope’ on the audit.
will not be able to rely on internal controls and will need to carry out substantive tests of
details and analytical procedures.
will need to increase the extent of tests of controls, as well as consider the nature and
timing of these tests in order to rely on internal controls.
Question 38
1 / 1 pts
During the course of an audit, misstatements that are individually immaterial may be
detected. What should the auditor do with these?
Accumulate all of the known and projected misstatements to determine if the impact is
material in the aggregate.
Request that management footnote the immaterial misstatements in the financial
statements for fair presentation.
Roll them forward for three years when they will become material enough to adjust.
Permanently pass on these immaterial misstatements as they do not individually impact
the financial statements.
Question 39
1 / 1 pts
The auditor has determined that there is a significant going concern uncertainty at Client
Co. due to the requirement to refinance the company’s debt. Discussions with
management and the auditor’s evaluation of management’s plans for future actions in
relation to its going concern assessment have revealed that plans to raise new equity
finance are realistic and likely to deal with the problem. Is it appropriate for Client Co. to
prepare its financial statements on a going concern basis?
No, Client Co. cannot prepare its financial statements on a going concern basis
because a significant uncertainty exists.
Yes, Client Co. can prepare its financial statements on a going concern basis. No
additional disclosure is necessary in the financial statements or the auditor’s report.
Yes, Client Co. can prepare its financial statements on a going concern basis. However,
the auditor is required to express a qualified opinion.
Yes, Client Co. can prepare its financial statements on a going concern basis. However,
disclosure of both the nature of the uncertainty and management’s plans is required.
Question 40
1 / 1 pts
The cash account is significant to the auditor for which of the following reasons?
Cash is the only account that provides opportunity for fraud.
The cash account is not as susceptible to fraud as most other accounts.
The cash account balance is the culmination of a large volume of transactions.
Automated systems do not possess the capability to maintain strong internal controls
over cash.
Question 41
1 / 1 pts
Which of the following parties has the responsibility for designing and maintaining
policies and procedures to identify, evaluate, and account for contingencies?
Management.
The client's attorney.
The auditor.
The audit committee.
Question 42
1 / 1 pts
Which of the following best describes kiting?
Manipulation of financial reporting by increasing both cash and debt by the same
amount.
Theft of cash for personal use and cover-up using the bank statement.
Colluding to steal cash by wiring money to a fictional vendor and concealing it with
customer payments.
A fraudulent scheme to overstate cash at year-end by manipulating year-end transfers
between bank accounts.
Question 43
1 / 1 pts
Your audit client has a debt covenant that requires a 2:1 interest cover ratio. With
respect to interest expense, the auditor would be most interested in
cut-off.
accuracy.
completeness.
occurrence.
IncorrectQuestion 44
0 / 1 pts
Which one of the following does not necessarily constitute fraud?
Overriding internal controls to record transactions outside the usual course of an entity’s
business.
Intentional omission from the financial statements of transactions or other significant
information.
Intentional misapplication of accounting principles relating to amounts, classification,
manner of presentation or disclosure.
Alteration of accounting records from which the financial statements are prepared.
Question 45
1 / 1 pts
An emphasis of a matter may result in which of the following?
A disclaimer of an audit opinion.
An adverse opinion.
A qualified audit opinion.
An unqualified audit opinion with an explanatory paragraph.
Question 46
1 / 1 pts
Which of the following processes are not included in the revenue cycle?
Shipping products to customers.
Sending payments to suppliers.
Obtaining credit approval.
Preparing and sending monthly statements to customers.
IncorrectQuestion 47
0 / 1 pts
Which of the following would be used by the auditor to address the possibility of kiting?
Bank confirmations of loan guarantees.
Cut-off bank reconciliations.
Interbank transfer schedules.
Bank confirmations of account balances.
IncorrectQuestion 48
0 / 1 pts
Concluding that the book value of inventory is correct when it is materially misstated is an example of
which of the following risks?
None of the above.
Incorrect rejection.
Incorrect acceptance.
Insufficient sample size.
IncorrectQuestion 49
0 / 1 pts
You are the auditor of Client Co and have commenced planning for the 20X9 audit
engagement. As part of your planning activities, you have asked the CEO about
important events during the year that might have an impact on the audit. In response,
he has asked you to ‘take it easy’ on the chief financial officer because his son is
seriously ill. Apparently, the child must travel regularly to the United States for
expensive medical treatments. What fraud risk factors are present in this situation?
incentive, opportunity and rationalisation
incentive and rationalisation
opportunity and rationalisation
incentive and opportunity
IncorrectQuestion 50
0 / 1 pts
Which relationship might suggest a heightened risk of fraud in the acquisition and
payment cycle?
A reduction in raw material costs.
Maturing capital assets with no plan for replacement.
Sales expenses growing in proportion to sales revenue.
Unexpected increases in the number of suppliers.
Question 51
1 / 1 pts
Which of the following risks are controllable by the auditor?
None of the above.
Audit risk and control risk.
Risk of material misstatement.
Audit risk and detection risk.
IncorrectQuestion 52
0 / 1 pts
ISA 240 The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial
Statements specifically requires the auditor, when identifying and assessing the risk of
material misstatement due to fraud, to presume there is a risk of fraud in
liability understatement.
revenue recognition.
weak internal controls.
misappropriation of assets.
Question 53
1 / 1 pts
Which of the following situations would normally be discovered by testing the bank
reconciliation?
Payment to an employee for more hours than she worked.
Failure to include a deposit in transit on the bank reconciliation.
Duplicate payment of a vendor’s invoice.
Failure to bill a customer.
Question 54
1 / 1 pts
Which one of the following evidence-collecting procedures is likely to be the most
effective in testing the completeness of accounts receivable?
Select a sample of customers and verify that the year-end balance does not exceed the
customer’s credit limit.
Select a sample of shipping documents around the year-end and ensure that all
shipments prior to the year-end were invoiced and recorded in the accounts receivable
sub-ledger.
Select a sample of subsequent cash receipts and verify that related sales were cut off
properly.
Recalculate the client’s ageing of accounts receivable and trace a sample of the
outstanding invoices to the ageing.
IncorrectQuestion 55
0 / 1 pts
A client is facing significant litigation as a result of a claim that it dumped oil in the
ocean. This is a significant issue, which the auditor agrees is adequately disclosed in
the notes to the financial statements. The appropriate audit opinion is
a disclaimer of opinion
a qualified opinion
an unmodified opinion with an Emphasis of Matter paragraph
an adverse opinion
Question 56
1 / 1 pts
Which of the following is an example of circumstances that would not limit the audit
scope?
The timing of the fieldwork.
Emphasis of an important matter.
An inadequacy in the accounting records.
The inability to gather sufficient competent evidence.
Question 57
1 / 1 pts
You are auditing fundraising revenue for the not-for-profit organisation Helpers Ltd
(Helpers). The major fundraising activity of Helpers is a door-to-door collection with
authorised collectors. Donations are collected by the authorised collectors, placed in a
sealed collection box, and a pre-numbered tax receipt is expected to be issued for each
donation. You have determined that completeness of fundraising revenue is the major
audit risk. Which one of the following audit procedures will not help address this audit
risk?
Ensure that we know the identity of the authorised collectors, and the collection areas
they have been assigned.
Observe the opening of the collection boxes to ensure that the seals have not been
broken.
Reconcile the total of tax receipts issued with the cash recorded and banked.
Undertake a sequence check of the numbering of tax receipts for any unauthorised or
duplicate receipts.
IncorrectQuestion 58
0 / 1 pts
The process of vouching helps establish which of the following regarding recorded transactions?
Transactions are complete.
Transactions have been recorded.
Transactions are valid.
Transactions are presented properly.
Question 59
1 / 1 pts
Reducing the risk of understated payables can be accomplished by focusing on which
assertion?
Completeness.
Presentation and disclosure.
Rights.
Existence.
Question 60
1 / 1 pts
Which of the following is not typically included in the audit of debt?
Notes payable.
Interest income.
Interest expense.
Bonds payable.
Question 61
1 / 1 pts
What type of threat to professional independence identified in the Code of Ethics for
Professional Accountants is created when the auditor is given a discount on wine
purchases by a client that operates a winery?
self-review threat
financial threat
intimidation threat
self-interest threat
IncorrectQuestion 62
0 / 1 pts
The cutoff bank statement is used by the auditor to address which of the following
concerns?
All of the above.
Kiting.
Lapping.
Omitting outstanding checks on reconciliations.
IncorrectQuestion 63
0 / 1 pts
XYZ Ltd (XYZ) is a listed company with an audit committee comprising three of the eight
board members. XYZ’s auditor would communicate matters of governance with
management only.
either the audit committee, the board of directors or both.
only the audit committee and never the full board of directors.
management, audit committee and the board of directors.
IncorrectQuestion 64
0 / 1 pts
Which one of the following would be considered the most reliable type of audit evidence?
Computerized general ledger.
Purchase orders from vendors.
Confirmations from banks.
Customer accounts receivable files.
Question 65
1 / 1 pts
Which one of the following does not constitute a probable relationship between
accounts?
Assets under capital leases and amortization.
Equipment and depreciation.
Patent and amortization.
Oil reserves and depreciation.
IncorrectQuestion 66
0 / 1 pts
Which one of the following will most likely be disclosed by the auditor as a key audit
matter?
the risk of fluctuations in the market price of gold for a gold mining company
a complex judgment about the most appropriate basis for revenue recognition
a concern that the entity will fail to meet its debt obligations in the next 12 months that is
not adequately disclosed
a disagreement with management about the disclosure of related party transactions
IncorrectQuestion 67
0 / 1 pts
Expo Engineering Ltd is a wholesale distributor of professional equipment and supplies.
The company’s sales have averaged about P100 million annually for the three-year
period 2015–2017. The company’s total assets at the end of 2017 amounted to P90
million. You have been appointed as auditor for the year 2018.
As part of your planning to obtain information about this new client, you have calculated
the following ratios for the three-year period 2015–2017.
2015
2016
2017
Quick asset ratio
1.09
0.99
0.88
Current ratio
1.81
1.93
1.97
Inventory turnover
4.72
4.31
3.41
Accounts receivable turnover
8.74
7.70
6.41
Per cent of total debt to total assets
48.00
45.00
42.00
Per cent of long-term debt to total assets
28.00
24.00
21.00
Sales to fixed assets (fixed asset turnover)
1.57
1.68
1.78
Sales as per cent of 2015 sales
1.00
1.03
1.05
Gross margin percentage
36.10
34.80
34.70
Net income to sales (%)
7.00
7.00
7.20
Return on shareholders’ equity (%)
13.70
13.20
12.80
Return on total assets (%)
7.80
7.80
7.90
The current ratio is increasing while the quick asset ratio is decreasing.
Which one of the following factors may explain this apparently divergent trend?
an increase in accounts receivable
a decrease in inventory
a decrease in accounts receivable
an increase in inventory
Question 68
1 / 1 pts
With respect to financial statement fraud, which one of the following statements
is not correct?
The auditor must consider the risk of material fraud at both the financial statement level
and the assertion level.
Enquiries of management are more useful for detecting management fraud than
employee fraud.
Excessive pressure on management to meet expectations of third parties creates
incentives for management fraud.
The auditor needs to consider the likelihood of collusion in determining the appropriate
level to report suspicions of fraud.
IncorrectQuestion 69
0 / 1 pts
An auditor is unable to determine the amounts associated with certain illegal acts
committed by a client that appear material in their nature and amount. In these
circumstances, the auditor would most likely issue
an adverse opinion.
either a qualified opinion or a disclaimer of opinion.
either a qualified opinion or an adverse opinion.
a disclaimer of opinion.
IncorrectQuestion 70
0 / 1 pts
Which of the following procedures is a substantive procedure that relates to the rights
and obligations assertion?
Examine documents of title.
Assess management’s impairment estimates.
Recalculate amortization expense.
Inquire of management about assets that are idle.
Question 71
1 / 1 pts
Which one of the following statements is true with respect to the terms of audit
engagements?
For an audit of financial statements, a new engagement letter must be sent each year.
If the auditor receives a request to change the engagement from an audit to a review
because of reduction in the scope of the audit caused by management, this would
normally be considered a reasonable basis for requesting a change.
If the auditor receives a request to change the engagement from an audit to a review
because of a misunderstanding about the nature of an audit by the auditee, this would
normally be considered a reasonable basis for requesting a change.
The auditor must obtain assurance from management that the financial statements are
free from material misstatement.
IncorrectQuestion 72
0 / 1 pts
When determining sample size in attributes sampling, which of the following is usually true?
Population size is not a major factor.
A failure rate is not to be expected.
Sampling risk will be too high.
Tolerable misstatement amount is determined.
Question 73
1 / 1 pts
The International Framework for Assurance Engagements indicates that, in practice, a
professional accountant should be able to provide which one of the following levels of
assurance on various engagements?
reasonable or limited
appropriate
high or low
absolute
IncorrectQuestion 74
0 / 1 pts
The internal control that requires that “checks are pre-numbered and accounted for”
satisfies which assertion?
Completeness.
Existence.
Accuracy.
Posting and summarization.
IncorrectQuestion 75
0 / 1 pts
In the audit of the accounts receivable balance, as the acceptable level of detection risk
decreases, an auditor may change the
assessed level of inherent risk for accounts receivable to high rather than medium.
nature of substantive tests from a negative external confirmation procedure to a positive
external confirmation procedure.
timing at which positive external confirmation procedures are undertaken by performing
them at the month before year-end rather than at year-end.
timing of tests of controls on related sales transactions by performing them at several
dates rather than at one time.
IncorrectQuestion 76
0 / 1 pts
If materiality judgments change during the audit opinion formulation process, what happens to previous
audit decisions that were based on the evidence obtained using the initial materiality setting?
No action is required.
The auditor repeats all audit procedures performed prior to the change in materiality judgments.
The auditor modifies the audit opinion to note the change in materiality judgements.
The auditor reassesses those previous decisions.
IncorrectQuestion 77
0 / 1 pts
The reliability of a client's internal documentation is most affected by which of the following?
Management's motivation to misstate accounts.
The type of audit report that will be issued.
Management's ability to understand generally accepted audit standards.
The auditor's independence.
IncorrectQuestion 78
0 / 1 pts
Which one of the following does not impact on inherent risk?
The entity has purchased its raw materials from the United States at discounted prices.
The auditor has reduced the sample sizes for testing of purchases for the entity.
During the year, the entity converted its computer system to a new improved online
system.
Management has introduced a new bonus scheme for sales employees who meet their
monthly target.
UnansweredQuestion 79
0 / 1 pts
Your Philippine audit client has informed you that they will be winding up their business
within the next eight to 12 months and has asked whether this will have an effect on the
financial statements. Which one of the following statements best describes the financial
reporting requirements in this situation?
There are no implications for the financial statements because the business will
continue in operation for up to 12 months.
The financial statements should include a note disclosing the fact that the business will
cease to operate. An Emphasis of Matter paragraph will be included in the auditor’s
report, drawing the reader’s attention to this disclosure.
The auditor will have to issue a disclaimer of opinion because the value of the firm’s
assets and liabilities cannot be determined.
The balance sheet must be prepared to show the liquidation values of the assets and
liabilities because the going concern basis is no longer appropriate.
UnansweredQuestion 80
0 / 1 pts
Which one of the following methods is most likely to be considered inappropriate for
selecting a sample of inventory for physical inspection?
The auditor selects the first 20 items from page 3 of the inventory listing.
Without any reference to random number tables, the auditor, without any conscious
bias, selects two items from each page of the 10-page inventory listing.
The auditor uses random number tables to select 20 items from the inventory listing.
The auditor selects every 100th item from the 2000 items on the inventory listing.
UnansweredQuestion 81
0 / 1 pts
A letter addressed by management to auditors and that confirms in writing any
statements made by management to the auditors during the course of an audit is
commonly referred to as
a management letter.
an engagement letter.
an audit representation letter.
a management representation letter.
UnansweredQuestion 82
0 / 1 pts
Expo Engineering Ltd is a wholesale distributor of professional equipment and supplies.
The company’s sales have averaged about P100 million annually for the three-year
period 2015–2017. The company’s total assets at the end of 2017 amounted to P90
million. You have been appointed as auditor for the year 2018.
As part of your planning to obtain information about this new client, you have calculated
the following ratios for the three-year period 2015–2017.
2015
2016
2017
Quick asset ratio
1.09
0.99
0.88
Current ratio
1.81
1.93
1.97
Inventory turnover
4.72
4.31
3.41
Accounts receivable turnover
8.74
7.70
6.41
Per cent of total debt to total assets
48.00
45.00
42.00
Per cent of long-term debt to total assets
28.00
24.00
21.00
Sales to fixed assets (fixed asset turnover)
1.57
1.68
1.78
Sales as per cent of 2015 sales
1.00
1.03
1.05
Gross margin percentage
36.10
34.80
34.70
Net income to sales (%)
7.00
7.00
7.20
Return on shareholders’ equity (%)
13.70
13.20
12.80
Return on total assets (%)
7.80
7.80
7.90
Which one of the following conclusions can be drawn regarding the company’s use of
financial leverage and equity during the 2015–2017 period?
equity has increased
long-term debt has increased
total debt has remained constant
long-term debt has become more expensive
UnansweredQuestion 83
0 / 1 pts
Credit approval policies are implemented by organizations primarily to accomplish which of the
following objectives?
To ensure customer satisfaction.
To prevent lapping by the accounts receivable department.
To minimize credit losses.
To determine revenue recognition policies.
UnansweredQuestion 84
0 / 1 pts
Which one of the following statements is correct?
Audit risk is the risk of a material misstatement in the financial statements and that the
auditor did not detect the material misstatement.
Audit risk is the risk that the auditor will not detect a material misstatement that exists in
the financial statements.
The risk of a material misstatement in the financial statements consists of control risk.
Audit risk is the risk of a material misstatement in the financial statements.
UnansweredQuestion 85
0 / 1 pts
Disclaimers of opinion can only be issued by auditors based on which of the following?
Either B or D.
Substantial scope limitations.
Going concern.
Lack of independence.
Violations of GAAP.
UnansweredQuestion 86
0 / 1 pts
The opinion paragraph of the audit report for Schnook Co. states that the financial
statements "do not present fairly." Which type of audit opinion is this?
Qualified.
Disclaimer.
Improper.
Adverse.
UnansweredQuestion 87
0 / 1 pts
In attributes sampling, which of the following does the risk of incorrect acceptance deal with?
Efficiency.
Reliability.
Effectiveness.
Both A and B.
UnansweredQuestion 88
0 / 1 pts
Which of the following describes sampling risk?
The population will not contain characteristics representative of the sample such that inferences made
about that sample will be incorrect.
The auditor incorrectly applies sampling methodology.
The sample size will be larger than needed.
The sample will not contain characteristics representative of the population such that inferences made
about that population will be incorrect.
UnansweredQuestion 89
0 / 1 pts
What is the nature of the relationship between risk of material misstatement and audit risk?
Correlational.
Direct.
Inverse.
None.
UnansweredQuestion 90
0 / 1 pts
Which one of the following matters would not be considered by the auditor in
establishing the overall audit strategy?
testing of key controls which the auditor intends to rely upon
the legal and regulatory framework applicable to the entity
audit areas where there is higher risk of material misstatement
industry-specific reporting requirements
UnansweredQuestion 91
0 / 1 pts
In the audit of accounts payable the auditor is normally most concerned with
rights and obligations.
valuation and allocation.
existence.
completeness.
UnansweredQuestion 92
0 / 1 pts
Which one of the following fraudulent activities constitutes misappropriation of assets?
engaging in complex transactions that misrepresent the financial position of the entity
concealing, or not disclosing, facts that could affect the recorded amounts
omitting, advancing or delaying recognition of events and transactions
causing an entity to pay for goods and services not received
UnansweredQuestion 93
0 / 1 pts
Which of the following actions is not a potential fraud scheme related to long-lived
assets?
Impairment losses on long-lived assets are not recognized.
All the above are potential fraud schemes.
Amortization of intangible assets is miscalculated.
Costs that should have been expenses are improperly capitalized.
UnansweredQuestion 94
0 / 1 pts
Under which one of the following circumstances would a disclaimer of opinion not be an
appropriate option?
Management does not provide reasonable justification for a change in accounting
principles.
The chief executive officer is unwilling to sign the management representation letter.
The auditor is unable to determine the amounts associated with an employee fraud
scheme.
The auditor is unable to verify the account balances of a major subsidiary.
UnansweredQuestion 95
0 / 1 pts
Which one of the following statements best describes the term ‘assurance services’?
The assembly of financial statements based on assumptions of a responsible party.
Services designed to express an opinion on historical financial statements based on the
results of an audit.
Independent professional services that improve the credibility of information, or its
context, for decision-makers.
Services designed for the improvement of operations, resulting in better outcomes.
UnansweredQuestion 96
0 / 1 pts
Which of the following requires that key audit matters (KAMs) be included in audit
reports, effective for audits of financial statements for periods ending on or after
December 15, 2016?
Standards issued by PCAOB and IAASB.
Standards issued by IAASB.
Standards issued by AICPA's Auditing Standards Board.
Standards issued by PCAOB.
UnansweredQuestion 97
0 / 1 pts
Which one of the following is not a fundamental internal control the auditor would
expect to find in place for a cash processing system?
Electronic payments.
Periodic internal audits.
Authorization of transactions.
Segregation of duties.
UnansweredQuestion 98
0 / 1 pts
Sufficient evidence gathered by the auditor involves which of the following?
The use of an audit program to obtain evidence.
The quantity of evidence to be obtained.
Obtaining limited evidence to achieve efficiency.
The type of evidence to be obtained.
UnansweredQuestion 99
0 / 1 pts
For an assurance engagement with respect to the cash budgets of XYZ Ltd (XYZ) for
CDE Bank Ltd (CDE), the responsible party would be
the management of CDE.
the management of XYZ.
the shareholders of CDE.
the shareholders of XYZ.
UnansweredQuestion 100
0 / 1 pts
Appropriateness of evidence is a measure of which of the following?
Quantity of evidence.
Sufficiency of evidence.
Meaning of evidence.
Quality of evidence.