EASY

1.An audit plan is a a. detailed plan of analytical procedures and all substantive tests to be performed in the course of the audit.b. document that provides an overview of the company and a general plan for the audit work to be accomplished, timing of the work, and other matters of concern to audit.c. generic document that auditing firms have developed to lead the process of the audit through a systematic and logical process.d. budget of the time that should be necessary to complete each phase of the audit procedures.

2.Which of the following is most likely to be presumed to represent a fraud risk on an audit?a. Capitalization of repairs and maintenance expense into the property, plant and equipment asset accountb. Improper revenue recognitionc. Improper interest expense accruald. Introduction of significant new products

Which of the following is not an element of an entity’s internal control?a. Control riskb. Control activitiesc. The information systemd. The control environment

To obtain evidence about control risk, an auditor ordinarily selects tests from a variety of techniques, including:a. Analysisb. Confirmationc. Reperformanced. Comparison

The basic concept of internal control which recognize that the cost of internal control should not exceed the benefits expected to be derived is known as:a. Management by exceptionb. Management responsibilityc. Limited liability.d. Reasonable assurance.

A control that reduces the risk that an existing or potential control weakness will result in a failure to meet a control objective is referred to as a:

a. Compensating controlb. Conditional controlc. Non-routine controld. Walkthrough control

Which of the following is one of the most fundamental and effective controls?a. Increased use of computers for recording accounting transactions.b. Increased reliance on internal auditors to monitor accounting systems.c. Segregation of incompatible duties across several people.d. Having internal auditors report only to the Board of Directors.

An identified and assessed risk of material misstatement that in the auditor’s judgment require special audit considerationa. Business Risk b. Inherent riskc. Significant Risk d. Sampling Risk

The nature and extent of planning will vary according to the following, excepta. Size of the auditing firmb. Complexity of the entityc. Auditor’s experience with the entityd. Changes in circumstances that occur during the audit engagement

Which method provides the auditor with the best visual grasp of a system and a means for analyzing complex operations?a. A flowcharting approachb. A questionnaire approachc. A matrix approachd. A detailed narrative approach

The audit program usually cannot be finalized until the a. Consideration of the entity’s internal control has been completed.b. Engagement letter has been singed by the auditor and the client. c. Reportable conditions have been communicated to the audit committee of the board of directors.d. Search for unrecorded liabilities has been performed and documented.

AVERAGE

Which of the following combinations of engagement risk, audit risk, and materiality would lead the auditor to most audit work?

Engagement Risk Audit RiskMateriality

a. Low High Highb. Moderate Low Lowc. Low Moderate Lowd. High High High

When it is concluded by the auditor during the planning phase that the client is not auditable because the accounting records are deficient, the auditor must nota. withdraw from the engagement without issuing a reportb. issue a disclaimer of opinionc. issue an adverse opiniond. send the client a bill for service rendered

Which of the following statements is correct concerning the concept of materiality?a. materiality is determined by reference to PICPA guidelinesb. Materiality depends only on the peso amounts of an item relative to other items in the financial statementsc. Materiality depends on the nature of an item rather than peso amount.d. Materiality is a matter of professional judgment.

Which of the following statements is true?

a. Tests of controls are necessary if the auditor plans to use the primarily substantive approach.b. Tests of controls are necessary if the auditor plans to assess the level of control risk at maximum.c. The auditor can simultaneously obtain an understanding of internal control and perform tests of controls.d. After performing tests of controls, the auditor will always assess control risk at maximum.

Which of the following procedures most likely would provide an auditor with evidence about whether an entity’s internal control activities are suitably designed to prevent or detect material misstatements?a. Reperforming the activities for a sample of transactions.b. Performing analytical procedures using data aggregated at a high level.c. Vouching a sample of transactions directly related to the activities.d. Observing the entity’s personnel applying the activities.

Which of the following types of evidence would an auditor most likely examine to determine whether controls are operating as designed?

a. Confirmations of receivables verifying account balances.b. Letters of representations corroborating inventory pricing.c. Attorney’s responses to the auditor’s inquiries.d. Client records documenting the use of computer programs.

DIFFICULT

Management’s attitude toward aggressive financial reporting and its emphasis on meeting projected profit goals most likely would significantly influence an entity’s control environment when

a. the audit committee is active in overseeing the entity’s financial reporting policies.b. external policies established by parties outside the entity affect its accounting practices.c. management is dominated by one individual who is also a shareholder.d. internal auditors have direct access to the board of directors and entity management.

Analytical procedures enable the auditor to predict the balance or quantity of an item under audit. Information to develop this estimate can be obtained from all of the following, excepta. Comparison of financial data with data for comparable prior periods, anticipated results (e.g., budgets and forecasts), and similar data for the industry in which the entity operates.b. Study of the relationships of elements of financial data that would be expected to conform to a predictable pattern based upon the entity’s experience.c. Study of the relationships of financial data with relevant nonfinancial data.d. Tracing transactions through the system to determine whether procedures are being applied as prescribed.

I. The audit plan sets the scope, timing and direction of the audit, and guides the development of the more detailed audit strategy.

II. The overall audit strategy is more detailed that the audit plan and includes the nature, timing and extent of audit procedures to be performed by engagement team members in order to obtain sufficient appropriate audit evidence to reduce audit risk to a n acceptable low level.

a. True, true c. False, Falseb. True, False d. False, True

With respect to the auditor’s planning of a year-end examination, which of the following statements is always true?a. An engagement should not be accepted after the fiscal year-end.b. An inventory count must be observed at the balance sheet datec. The client’s audit committee should not be told of the specific audit procedures that will be performed.d. It is an acceptable practice to carry out substantial parts of the examination at interim dates.

In studying internal control and assessing control risk, the auditor applies the following steps:a. Determine the internal control policies and procedures necessary to prevent or detect errors or fraud that could occur in case of the absence of controls.b. Identify control weaknesses.c. Determine whether the necessary policies and procedures have been designed and whether they have been in operation.d. Design substantive audit programs.e. Consider the types of errors or fraud that could occur in the absence of necessary controls.The proper sequence in applying these steps is:a. CDEAB c. EACBDb. CBAED d. AECBD

Which of the following is most likely to indicate a significant deficiency relating to a client’s antifraud programs?

a. A broad scope of internal audit activities.b. A “whistle-blower” program that encourages anonymous submissions.c. Audit committee passivity when conducting oversight functions.d. Lack of performance of criminal background investigation for likely customers.

Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate controls over the invoicing function allow goods to be shipped that are not invoiced. The inadequate controls could cause ana. Understatement of revenues, receivables, and inventory.b. Overstatement of revenues and receivables, and an understatement of inventoryc. Understatement of revenues and receivables, and an overstatement of inventory

d. Overstatement of revenues, receivables, and inventory.

Thank You!