Practice Test

Question 1

Which of the following quality control procedures relates to engagement performance?
*Advancement
*Direction and Supervision
*Professional development
*Hiring

Answer 1

Direction and Supervision

Question 2

Which of the following is not a reason for using analytical review procedures in the planning phase?
*To identify areas with higher risks and determine the magnitude of errors in the financial statements
*To highlight changes from the prior year to the current year so that trends can be identifies which will influence the development of the audit program
*To assess the entity’s ability to continue as a going concern
*To identify areas with no unusual fluctuations so that fewer detailed tests may be performed on those accounts

Answer 2

To assess the entity’s ability to continue as a going concern

Question 3

When auditing related party transactions, an auditor places primary emphasis on
*Confirming the existence of the related parties
*Verifying the valuation of the related party transactions
*Ascertaining the rights and obligations of the related parties
*Evaluating the disclosure of the related party transactions

Answer 3

Evaluating the disclosure of the related party transactions

Question 4

Certain management characteristics may heighten the auditor’s concern about the risk of material misstatements. The characteristic that is least likely to cause concern is that management
*Commits to unduly aggressive forecasts.
*Is interested in inappropriate methods of minimizing earnings for tax purposes
*Operating and financing decisions are made by numerous individuals.
*Has an excessive interest in increasing the entity’s stock price through use of unduly aggressive accounting practices.

Answer 4

Operating and financing decisions are made by numerous individuals.

Question 5

When the professional accountant knows or has reason to believe that the information with which the accountant is associated is misleading, the accountant shall take appropriate actions to seek to resolve the matter. Which of the ff. is not one of the appropriate action?
*If the information has already been disclosed to the intended users, informing them of the correct information
*Having the information corrected.
*Resigning from the employing organization
*Consulting the policies and procedures of the employing organization (for example, an ethics or whistle-blowing policy) regarding how to address such matters internally

Answer 5

Resigning from the employing organization

Question 6

Which of the following audit phases would generally be conducted before all of the others listed below?
*Consideration of internal control systems
*Gaining an understanding of the client’s industry
*Evaluation of audit evidence
*Auditing business processes and related accounts

Answer 6

Gaining an understanding of the client’s industry

Question 7

Which of the required materiality levels is calculated by multiplying a certain percentage by the appropriate benchmark which is either a component of the entity’s financial statements?
*Performance materiality
*Overall materiality
*Specific materiality
*Planning materiality

Answer 7

Overall materiality

Question 8

Which of the ff. would not generally create a threat to independence?
*Reporting, in a management role, to those charged with governance
*Determining which recommendations of the firm should be implemented
*The purchase of goods and services from an assurance client by the firm and the transaction is in the normal course of business
*A partner or employee of the firm or a network firm serves as Company Secretary for a financial statement audit client

Answer 8

The purchase of goods and services from an assurance client by the firm and the transaction is in the normal course of business

Question 9

An auditor is most likely to rely on knowledge about slow-moving inventory through
*Inquiry of warehouse personnel
*Physical observation of inventory
*Review of perpetual inventory records
*Inquiry of sales personnel

Answer 9

Review of perpetual inventory records

Question 10

Preliminary judgment about materiality and the amount of audit evidence accumulated are
*Inversely related
*Not related
*Directly related
*Indirectly related

Answer 10

Inversely related

Question 11

If an auditor conducting an audit in accordance with PSAs, which of the ff. would the auditor be most likely to detect?
*Fraud involving collusion
*Unrecorded cash receipts
*Counterfeit signatures on checks issued and paid.
*Errors in postings of recorded transactions

Answer 11

Errors in postings of recorded transactions

Question 12

The objective of tests of details of transactions performed as substantive tests is to:
*Evaluate whether management’s policies and procedures operated effectively
*Comply with Philippine Standards on Auditing (PSAs)
*Detect misstatements in the financial statements
*Attain assurance about the reliability of the accounting system

Answer 12

Detect misstatements in the financial statements

Question 13

Which of the ff. situations would not normally cause the auditor to question whether material errors or possible fraud exists?
*There are frequent changes of auditors and lawyers
*The accounting department is overstaffed
*Transactions are not supported by proper documentation
*Differences between control accounts and related subsidiary accounts

Answer 13

The accounting department is overstaffed

Question 14

Which of the ff. is not normally one of the preliminary engagement activities?
*Preparing an engagement letter
*Deciding whether to accept or reject an audit engagement
*Making a preliminary estimate of materiality
*Inquiring from predecessor auditor

Answer 14

Making a preliminary estimate of materiality

Question 15

Which of the following engagements do not provide third parties any level of assurance about the client’s financial statements?
*Review
*Audit
*Assurance engagements
*Agreed-upon procedures

Answer 15

Agreed-upon procedures

Question 16

Which of the ff. is not to be stated in the Auditor’s Responsibilities for the Audit of Financial Statements portion of the audit report?
*As part of an audit in accordance with PSAs, we exercise professional judgement and maintain professional skepticism
*We have conducted our audit in accordance with Phil. Standards on Auditing
*We also evaluate the appropriateness of the accounting policies used and the reasonableness of accounting estimates and related disclosures made by management
*Our objectives are to obtain reasonable assurance about whether the FS as a whole are free from material misstatements, whether due to fraud or error

Answer 16

We have conducted our audit in accordance with Phil. Standards on Auditing

Question 17

The independent auditor lends credibility to client’s financial statements by
*Stating in the auditor’s management letter that the examination was made in accordance with generally accepted auditing standards.
*Maintaining a clear-cut distinction between management’s representations and the auditor’s representation.
*Testifying under oath about client’s financial statements.
*Attaching an auditor’s opinion to the client’s financial statements.

Answer 17

Attaching an auditor’s opinion to the client’s financial statements.

Question 18

When preparing working papers, the auditor should remember that working papers should be:
*Designed to meet the circumstances and the auditor’s needs on each engagement
*The primary support for the financial statements being examined
*Considered as a substitute for the client’s accounting records
*Kept on the client’s premises so that the client can have access to them for reference purposes

Answer 18

Designed to meet the circumstances and the auditor’s needs on each engagement

Question 19

In which of the following situations would disclosure by a CPA be in violation of the Code of Ethics?
*Disclosure of confidential information to a close family member.
*Disclosure of confidential information is in response to an inquiry or investigation by a professional or regulatory body
*Disclosure of confidential information in compliance with a subpoena issued by a court.
*Disclosure of confidential information to a successor accountant with the client’s permission

Answer 19

Disclosure of confidential information to a close family member.

Question 20

The following are special purpose audit engagements, except
*Specified accounts, elements of accounts, or items in a financial statement.
*Financial statements prepared in accordance with a comprehensive basis of accounting other than generally accepted accounting principles in the Philippines.
*Summary financial statements
*Examination of prospective financial information

Answer 20

Examination of prospective financial information

Question 21

An auditor established a P180,000 tolerable misstatement for an asset with an account balance of P3,000,000. The auditor selected a sample of every 20th item from the population and discovered a net misstatement of P10,500 from the sample. Under these circumstances, the auditor most likely conclude that
*The asset is fairly stated because the tolerable misstatement exceeds the net of projected actual misstatements
*There is an unacceptably high risk that the tolerable misstatement is more than the sum of actual misstatements
*There is an unacceptably high risk that the actual misstatements in the population exceed the tolerable misstatement because total projected misstatement exceeds the tolerable misstatement
*The asset is fairly stated because the total projected misstatements is less than the tolerable misstatement

Answer 21

There is an unacceptably high risk that the actual misstatements in the population exceed the tolerable misstatement because total projected misstatement exceeds the tolerable misstatement

Question 22

Which fundamental principle is seriously threatened professional accountant offers or accepts, or encourages others to offer or accept, an inducement where the intent is to improperly influence the behavior of the recipient or of another individual?
*Confidentiality
*Objectivity
*Integrity
*Professional behavior

Answer 22

Integrity

Question 23

Which of the ff. is not a component of assurance engagement risk?
*Inherent risk
*Control risk
*Detection risk
*Business risk

Answer 23

Business risk

Question 24

“…We draw attention to note 2 in the financial statements which discusses that the company incurred a net loss of P6.4 million during the year ended December 31, 2016 and as of that date, the Company’s liabilities exceeded its total assets by P2,500,000…”
*Other Matter Paragraph
*Emphasis of matter paragraph
*Material Uncertainty Related to Going Concern paragraph
*Opinion paragraph

Answer 24

Material Uncertainty Related to Going Concern paragraph

Question 25

An audit firm should implement quality control policies and procedures designed to ensure that all assurance engagements are conducted in accordance with PSAs and to issue appropriate reports. These policies and procedures should be implemented
*Both at the audit firm level and on individual engagements
*At the audit firm level only
*On individual engagements only
*Either at the audit firm level or on individual engagements

Answer 25

Both at the audit firm level and on individual engagements

Question 26

An audit firm should implement quality control policies and procedures designed to ensure that all assurance engagements are conducted in accordance with PSAs and to issue appropriate reports. These policies and procedures should be implemented
*Both at the audit firm level and on individual engagements
*At the audit firm level only
*On individual engagements only
*Either at the audit firm level or on individual engagements

Answer 26

Both at the audit firm level and on individual engagements

Question 27

The Code of Ethics for Professional Accountants in the Philippines consists of three parts. Part 4:
*Applies to professional accounts in public practice in assurance engagements
*Provides a conceptual framework for the application of fundamental principles and illustrate how the framework is to be applied in specific situations
*Applies to professional accountants in business
*Applies to professional accountants in public practice

Answer 27

Applies to professional accounts in public practice in assurance engagements

Question 28

In assessing sampling risk, the risk of incorrect rejection and the risk of assessing control risk too high (risk of underreliance) on internal accounting control relate to the
*Efficiency of the audit.
*Selection of the sample.
*Audit quality controls.
*Effectiveness of the audit.

Answer 28

Efficiency of the audit.

Question 29

The purpose of analytical procedures during the audit planning stage is to:
*Identify unusual circumstances that the auditor may need to investigate further
*Determine whether sales transactions are approved.
*Flag individual transactions for further review
*Aid in planning the observation of physical inventory

Answer 29

Identify unusual circumstances that the auditor may need to investigate further

Question 30

In testing of controls, auditors can estimate the expected population deviation rate through the following, except
*Based on sample results from prior years, as documented in their working papers
*Based on their experience with similar tests on other audit engagements
*By examining a small pilot sample
*Based on industry averages

Answer 30

Based on industry averages

Question 31

Analytical procedures performed in the overall review stage of an audit shows that several accounts have unexpected fluctuations. The auditor in this situation most likely will conclude that
*Irregularities exist among the account balances involved in the analysis
*The communication with the audit committee should be revised
*Additional tests of details are required
*The internal control system is not operating effectively

Answer 31

Additional tests of details are required

Question 32

An extensive understanding of the client’s business and industry, and knowledge about the company’s operations are essential for doing an adequate audit. For a new client, most of this information is obtained
*From the Securities and Exchange Commission
*At the client’s premises
*From the permanent file
*From the predecessor auditor

Answer 32

At the client’s premises

Question 33

The ff. activities may create self-interest or self-review threats, except:
*Using the same senior personnel on an assurance engagement over a long period of time
*Preparing source documents or originating data evidencing the occurrence of a transaction
*Having custody of an assurance client’s assets
*Supervising assurance client employees in the performance of their normal recurring activities

Answer 33

Using the same senior personnel on an assurance engagement over a long period of time

Question 34

Which statement is correct regarding the auditor’s responsibility to consider fraud and error in the audit of financial statements?
*The auditor has no right to accept records and documents as genuine.
*The auditor is to be held responsible for the prevention of fraud and error.
*The risk of not detecting a material misstatement resulting from error is higher than the risk of not detecting a material misstatement resulting from fraud.
*The auditor should consider the risk of material misstatements in the financial statements resulting from fraud or error.

Answer 34

The auditor should consider the risk of material misstatements in the financial statements resulting from fraud or error.

Question 35

Which of the following statements is true?
1. Gross negligence may constitute constructive fraud
2. Fraud requires the intent to deceive
3. All fraud should be detected during audit

*3
*none of the above
*1 and 3
*1 and 2

Answer 35

1 and 2

Question 36

Santos, a non-CPA, has a law practice. Santos has recommended one of his clients to Gomez, a CPA. Gomez has agreed to pay Santos 10% of the fee for services rendered by Gomez to Santos’ client. Who, if anyone, is in violation of the Code of Ethics?
*Both Santos and Gomez
*Only Santos
*Neither Santos and Gomez
*Only Gomez

Answer 36

Only Gomez

Question 37

An auditor assesses control risk because it
*Provides assurance that the auditor’s materiality levels are appropriate
*Indicates to the auditor where inherent risk may be the greatest
*Affects the level of detection risk that the auditor may accept
*Is relevant to the auditor’s understanding of the control environment

Answer 37

Affects the level of detection risk that the auditor may accept

Question 38

Audit programs should be designed so that
*Most of the required procedures can be performed as interim work
*Inherent risk is assessed at a sufficiently low level
*The audit evidence gathered can adequately support the auditor’s conclusion
*The auditor can make constructive suggestions to management

Answer 38

The audit evidence gathered can adequately support the auditor’s conclusion

Question 39

Each time an auditor draws a conclusion based on evidence from a sample, an additional risk, sampling risk, is introduced. An example of sampling risk is
*Drawing an erroneous conclusion from sample data
*Improperly applying a proper audit procedure to sample data.
*Properly applying an improper audit procedure to sample data.
*Projecting the results of sampling beyond the population tested.

Answer 39

Drawing an erroneous conclusion from sample data

Question 40

Although the quantity, type and contents of working papers will vary with circumstances, the working papers generally would include:
*Copies of client records examined by the auditor during the course of the engagement
*Auditing procedures followed and the tests performed in obtaining evidential matter.
*Auditor’s comments concerning the efficiency and competence of client management and personnel
*Evaluation of the efficiency and competence of audit staff assistants by the partner responsible for the audit

Answer 40

Auditing procedures followed and the tests performed in obtaining evidential matter.

Question 41

The sample size of a test of control varies INVERSELY with
Tolerable deviation rate - Expected deviation rate
*No - No
*No - Yes
*Yes - No
*Yes - Yes

Answer 41

Yes - No

Question 42

Which is correct of the intended user?
*The intended user is the person or class of persons for whom the professional accountant prepares the report for a specific use or purpose
*The intended users are different from the responsible party
*The intended user is always limited to the addressee of the professional accountant’s report
*The intended user(s) is always the addressee of the professional accountant’s report

Answer 42

The intended user is the person or class of persons for whom the professional accountant prepares the report for a specific use or purpose

Question 43

Which of the ff. would not be an audit procedure in relation with related party transactions?
*Review the entity’s procedures for identification of related parties
*Reading the entity’s latest subsequent interim financial statements
*Inquire as to the affiliation of directors, and officers with other entities
*Review prior year working papers for names of known related parties

Answer 43

Reading the entity’s latest subsequent interim financial statements

Question 44

When reporting on comparative FS where the FS of the prior period have been examined by a predecessor auditor whose report is not presented, the successor auditor’s report should indicate:
*The reason why the predecessor’s report is not presented
*Whether the predecessor auditor’s review of the current year’s FS revealed any matters that might have a material effect on the successor auditor’s opinion
*The identity of the predecessor auditor
*The type of opinion expressed by the predecessor auditor

Answer 44

The type of opinion expressed by the predecessor auditor

Question 45

An audit program should be designed for each individual audit and should incorporate steps and procedures to:
*Ensure that only material items are audited
*Detect and eliminate fraud of any type
*Gather sufficient amount of management information
*Provide assurance that the objectives of the audit are satisfied

Answer 45

Provide assurance that the objectives of the audit are satisfied

Question 46

For an unmodified opinion, with an explanatory paragraph, which shows the correct sequence of the parts of the auditor’s report? (1-first)
1 - Auditor’s responsibility 4 - Responsibility of Management
2 - Title of report 5 - Emphasis of matter
3 - Opinion paragraph 6 – Basis for Opinion

*2, 3, 6, 5, 1, 4
*2, 3, 6, 1, 4, 5
*2, 6, 3, 4, 1, 5
*2, 3, 6, 5, 4, 1

Answer 46

2, 3, 6, 5, 4, 1

Question 47

Immediate family members do not include:
*Parents
*Spouse
*Dependent child
*Domestic partner

Answer 47

Parents

Question 48

Which of the ff. circumstances is not likely to be reported in the Emphasis of Matter paragraph?
*Early application of a new accounting standard that has a material effect on the financial statements
*The company was severely affected by recent flood
*A material uncertainty due to an event that may cast doubt as to the ability of the entity to continue as a going concern.
*An uncertainty relating to the future outcome of exceptional litigation or regulatory action

Answer 48

A material uncertainty due to an event that may cast doubt as to the ability of the entity to continue as a going concern.

Question 49

For which of the ff. audit tests would an auditor most likely use attribute sampling?
*Inspecting employee time cards for proper approval of supervisor
*Selecting accounts receivable for confirmation of account balances.
*Examining invoices in support of the valuation of property, plant and equipment additions
*Making an independent estimate of the amount of FIFO inventory

Answer 49

Inspecting employee time cards for proper approval of supervisor

Question 50

When an auditor becomes aware of a possible illegal act by a client, the auditor should obtain an understanding of the nature of the act in order to
*Evaluate the effect on the financial statements.
*Recommend remedial actions to the audit committee
*Consider whether other similar acts may have occurred.
*Determine the reliability of management’s representation.

Answer 50

Evaluate the effect on the financial statements.

Question 51

The factor which distinguishes an error from an irregularity is
*Materiality
*Intent
*Whether it is caused by an employee or management
*Whether it is a peso amount or a process

Answer 51

Intent

Question 52

If requested to perform a review engagement for a nonpublic entity in which an accountant has an immaterial indirect financial interest, the accountant is:
*Not independent and therefore, may not issue a review report
*Independent and therefore, may issue a review report
*Not independent and therefore, may not be associated with the financial statements
*Not independent and therefore, may issue a review report

Answer 52

Independent and therefore, may issue a review report

Question 53

Which of the ff. is not likely to be a matter reported under the Other Matter paragraph?
*Explanation why an auditor is unable to withdraw from an engagement even though the possible effect of the inability to obtain sufficient appropriate evidence may be pervasive
*Planned scope and timing of the audit
*A significant event that occurs between the date of the FS and the date of the auditor’s report
*Restriction on the distribution or use of the auditor’s report

Answer 53

A significant event that occurs between the date of the FS and the date of the auditor’s report

Question 54

The Code of Professional Ethics for CPA’s was promulgated by the:
*Auditing and Assurance Standards Council
*Securities and Exchange Commission
*Board of Accountancy
*Philippine Institute of CPAs

Answer 54

Board of Accountancy

Question 55

Which of the ff. is not one of the three main reasons why the auditor should properly plan the engagement?
*To enable proper on-the-job training of employees
*To help keep audit costs reasonable
*To enable the audit to gather sufficient appropriate evidence
*To avoid misunderstandings with the client

Answer 55

To enable proper on-the-job training of employees

Question 56

To obtain an understanding of a continuing client’s business in planning an audit, an auditor most likely would
*Reevaluate the client’s internal control environment
*Read specialized industry journals
*Perform tests of details of transactions and balances
*Review prior year working papers and the permanent file for the client

Answer 56

Review prior year working papers and the permanent file for the client

Question 57

Tests of controls are necessary
*When the auditor’s risk assessment includes an expectation of the operating effectiveness of controls
*When risk assessment procedures by themselves do not provide sufficient appropriate audit evidence
*Under no circumstances.
*When substantive procedures alone provide sufficient appropriate audit evidence.

Answer 57

When the auditor’s risk assessment includes an expectation of the operating effectiveness of controls

Question 58

Material misstatement may result from the ff., except
*Fraud
*Error
*Noncompliance with laws and regulations
*Inadequacy of accounting records

Answer 58

Inadequacy of accounting records

Question 59

The auditor’s risk assessment procedures
*Are designed to test the effectiveness of the entity’s controls
*By themselves, do not provide sufficient appropriate audit evidence on which to base the audit opinion
*Are designed to detect material misstatements at the assertion level for classes of transactions, account balances and disclosures
*Should not consider information obtained from the auditor’s previous experience with the entity

Answer 59

By themselves, do not provide sufficient appropriate audit evidence on which to base the audit opinion

Question 60

Which of the ff. is not a contingent fee?
*An arrangement where no fee will be charged unless a specific finding or result is attained
*A fee that is dependent upon the approval of assurance client’s loan application
*A fee that is fixed by court or law
*An audit fee that is based on 5% on the client’s adjusted net income for the year

Answer 60

A fee that is fixed by court or law

Question 61

Which of the ff. is not one of the procedures that the auditor will perform in relation with the review of contingent liabilities?
*Reviewing accounting records for large or unusual transactions or balances, paying close attention to transactions recognized at or near the end of the reporting period
*Analyze legal expense for the period and review invoices and statements from legal counsel
*Obtain confirmation from all major attorneys performing legal services for the client as to the status of pending litigation or other contingent liabilities
*Review current and previous year’s BIR reports for income tax settlement

Answer 61

Reviewing accounting records for large or unusual transactions or balances, paying close attention to transactions recognized at or near the end of the reporting period

Question 62

Reports on compilation engagements should contain the following, except:
*statement that the accountant does not express an opinion but expresses only limited assurance on the financial statements.
*Identification of the financial information noting that it is based on information provided by management.
*A statement that management is responsible for the financial information compiled by the accountant.
*A statement that the engagement was performed in accordance with the PSA applicable to compilation engagements.

Answer 62

statement that the accountant does not express an opinion but expresses only limited assurance on the financial statement

Question 63

PSA 315 requires that the auditor should obtain an understanding of relevant industry, regulatory, and other external factors including the applicable financial reporting framework. Which of the ff. is not an example of matters relating to regulatory environment that the auditor would usually consider?
*Taxation
*Legislation and regulation significantly affecting the entity’s operation
*Product technology relating to the entity’s product
*Regulatory framework for a regulated industry

Answer 63

Product technology relating to the entity’s product

Question 64

The primary concern when a successor auditor is required to communicate with the predecessor auditor is:
*To learn about a client by examining predecessor’s working papers
*To save the successor auditor time and money in gathering data
*Information will help the successor auditor determine whether there are issues about management integrity
*To enable the auditor to perform a more efficient audit

Answer 64

Information will help the successor auditor determine whether there are issues about management integrity

Question 65

An auditor may decide to increase the risk of incorrect rejection when
*The cost and effort of selecting additional sample items are low
*Increased reliability from the sample is desired
*Initial sample results do not support the planned level of control risk
*Many differences between audit value and recorded value are expected

Answer 65

The cost and effort of selecting additional sample items are low

Question 66

Which of the ff. would the firm least consider in making a decision to accept or retain a client?
*Its competence in providing the service
*The integrity of client’s management
*Its ability to comply with ethical requirements
*Its decision on whether to provide assurance services or non-assurance services

Answer 66

Its decision on whether to provide assurance services or non-assurance services

Question 67

Under common law, which of the ff. statements most accurately reflects the liability of a CPA who fraudulently gives an opinion on an audit of a client’s financial statements?
*The CPA is only liable to third parties in privity of contract with the CPA
*The CPA is probably liable to any person who suffered a loss as a result of the fraud
*The CPA is liable only to known users of the financial statements
*The CPA is probably liable to the client even if the client was aware of the fraud and did not rely on the CPA’s opinion

Answer 67

The CPA is probably liable to any person who suffered a loss as a result of the fraud

Question 68

The existence of audit risk is recognized by the statement in the auditor’s report that the
*Audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements
*Auditor is responsible for expressing an opinion on the financial statements, which are management’s responsibility
*Auditor obtains reasonable assurance about whether the financial statements are free of material misstatement
*Financial statements are presented fairly, in all material respects, in accordance with Philippine Financial reporting standards

Answer 68

Auditor obtains reasonable assurance about whether the financial statements are free of material misstatement

Question 69

An auditing firm must establish and follow quality control policies and procedures because these standards:
*Give reasonable assurance that the firm will comply with professional standards and regulatory and legal requirements
*Are required by SEC for auditors of all firms
*Are necessary to meet increasing requirements of auditor’s liability as insurers
*Include formal filing of records of such policies and procedures to a regulatory agency

Answer 69

Give reasonable assurance that the firm will comply with professional standards and regulatory and legal requirements

Question 70

Risk assessment procedures include the following except:
*Reperformance
*Analytical procedures
*Inspection and observation
*Inquiry

Answer 70

Reperformance

Question 71

Janus de Belen was offered the engagement to audit the financial statements of Cobra Co. for the year ended December 31, 2013. Janus had served as director of Cobra until December 31, 2011, and his spouse currently owns 1,000 of 200,000 shares of Cobra. Janus disassociated with Cobra prior to being offered the engagement. Moreover, the engagement does not cover any period that include Janus’ association or employment with Cobra. Under the Code of Ethics, Janus should:
*Decline the engagement because he had served as director
*Accept the engagement because his spouse’s stock ownership is an indirect financial interest
*Decline the engagement because of his spouse’s stock ownership
*Accept the engagement

Answer 71

Decline the engagement because of his spouse’s stock ownership

Question 72

Audit programs are modified to suit the circumstances of the particular engagement. A complete audit program is usually developed:
*When the engagement letter is prepared
*Prior to beginning the actual audit work
*After obtaining an understanding of the entity and its environment, including its internal control and assessed the risks of material misstatement
*After obtaining an understanding of the control environment, control activities component of the entity’s internal control

Answer 72

After obtaining an understanding of the entity and its environment, including its internal control and assessed the risks of material misstatement

Question 73

Which of the following topics is not normally included in an engagement letter?
*The auditor’s preliminary assessment of internal control
*Limitations on the scope of the audit
*A description for the responsibility for the detection of fraud
*The auditors’ estimate of the fee for the engagement

Answer 73

The auditor’s preliminary assessment of internal control

Question 74

If the fee quoted for a professional service is so low, it may be difficult for the CPA to perform the engagement in accordance with applicable technical and professional standards for that price. This situation may create a self-interest threat to:
*Objectivity
*Integrity
*Professional behavior
*Professional competence and due care

Answer 74

Professional competence and due care

Question 75

Evidence is generally considered sufficient when
*It is appropriate
*It has the qualities of being relevant, objective and free from bias
*There is enough of it to afford a reasonable basis for an opinion of the financial statements
*It has been obtained directly by the auditor

Answer 75

There is enough of it to afford a reasonable basis for an opinion of the financial statements

Question 76

A CPA firm should decline an offer to perform consulting service engagements if:
*The proposed engagement is not accounting related
*Acceptance would require the CPA firm to make management decisions for an audit client
*Recommendations made by the CPA are to be subject to review by the client
*Any of the above is true

Answer 76

Acceptance would require the CPA firm to make management decisions for an audit client

Question 77

Which of the ff. procedures would a CPA ordinarily perform during audit planning?
*Obtain understanding of the client’s business and industry
*Review and evaluate internal control
*Review the client’s bank reconciliation
*Obtain client representation letter

Answer 77

Obtain understanding of the client’s business and industry

Question 78

As a consequence of his failure to adhere to generally accepted auditing standards in the course of his examination of the Lamp Corp., Harrison, CPA, did not detect the embezzlement of a material amount of funds by the company’s controller. As a matter of common law, to what extent would Harrison be liable to the Lamp Corp. for losses attributable to the theft?
*He would be liable only if it could be proven that he was grossly negligent.
*He would be liable for losses attributable to his negligence.
*He would have no liability, since the ordinary examination cannot be relied upon to detect thefts of assets by employees.
*He would have no liability because privity of contract is lacking.

Answer 78

He would be liable for losses attributable to his negligence.

Question 79

Motivation to misappropriate assets increase when there are:
*Inventory items that are small in size, of high value or in high demand
*Inadequate segregation of duties or independent checks
*Large amounts of cash on hand or processed
*Promotions, compensation, or other rewards inconsistent with expectations

Answer 79

Promotions, compensation, or other rewards inconsistent with expectations

Question 80

Which statement is correct regarding an engagement to perform agreed-upon procedures?

*The report on factual findings is expressed in the form of negative assurance.
*The report is not restricted to those parties that have agreed to the procedures to be performed.
*The recipients of the report do not need to form their own conclusions from the report by the auditor because the auditor will provide the conclusion.
*An auditor is engaged to carry out those procedures of an audit nature to which the auditor and the entity and any appropriate third parties have agreed and to report on factual findings.

Answer 80

An auditor is engaged to carry out those procedures of an audit nature to which the auditor and the entity and any appropriate third parties have agreed and to report on factual findings.

Question 81

Which of the following is an illustration of liability to clients under common law?
*A government agency prosecutes auditor for knowingly issuing an incorrect audit report.
*Client sues auditor for not discovering a theft of assets by an employee.
*Combined group of stockholders sue auditor for not discovering materially misstated financial statements.
*Bank sues auditor for not discovering that borrower’s financial statements are misstated.

Answer 81

Client sues auditor for not discovering a theft of assets by an employee.

Question 82

Which of the following acts by a CPA would be most likely to be violation of the Code of Ethics?
*Acting as an auditor of a non-profit charitable organization with the audit client serving a president
*Assisting a client in preparing a financial forecast
*Having an immaterial loan to the president of the audit client
*Accepting a fee in a tax matter that is contingent upon the result of an administrative proceeding

Answer 82

Having an immaterial loan to the president of the audit client

Question 83

Before accepting an engagement to audit a new client, an auditor is required to:
*Make inquiries of the predecessor auditor after obtaining consent of the prospective client
*Discuss the management representation letter with the client’s audit committee
*Prepare a memorandum setting forth the staffing requirements and documenting the preliminary audit plan
*Obtain a copy of the client’s financial statements

Answer 83

Make inquiries of the predecessor auditor after obtaining consent of the prospective client

Question 84

Pervasiveness refers to the ff, except:
*In relation to disclosures, are fundamental to the user’s understanding of the FS
*If so confined, represent or could represent a substantial proportion of the FS
*Are not confined to specific elements, accounts or items of the FS
*Are misstatements that in aggregate would exceed the overall materiality

Answer 84

Are misstatements that in aggregate would exceed the overall materiality

Question 85

Which of the ff. procedures would a CPA ordinarily perform during audit planning?
*Obtain client’s representation letter
*Obtain understanding of the client’s business and industry
*Review the client’s bank reconciliation
*Perform audit sampling

Answer 85

Obtain understanding of the client’s business and industry

Question 86

It will be appropriate to audit all the items that make up a class of transactions or account balances (100% examination), except:
*When the class of transactions or account balances consists of a large number of small balances
*When the class of transactions or account balances consists of a small number of large balances
*When there is a significant risk of misstatement and other selection methods do not provide sufficient appropriate audit evidence
*When the repetitive nature of a calculation or other process performed automatically by the client’s computer information system, makes 100% audit cost-effective

Answer 86

When the class of transactions or account balances consists of a large number of small balances

Question 87

Absence of reasonable care that can be expected of a person in a set of circumstances” defines:
*Extreme negligence.
*Pecuniary negligence.
*Gross negligence.
*Ordinary negligence.

Answer 87

Ordinary negligence.

Question 88

Performs audits of companies for compliance with company policies and laws. And also audits the company to evaluate the efficiency of operations and performs periodic evaluation and tests of controls
*Internal auditor
*Management Consultant
*Component auditor
*External auditor

Answer 88

Internal auditor

Question 89

As a result of sampling procedures applied as tests of control, an auditor incorrectly assesses control risk lower than appropriate. Which of the ff. is the most likely explanation for this situation?
*The deviation rate in the auditor’s sample exceeds the tolerable rate, but the deviation rate in the population is less than the tolerable rate.
*The deviation rate in the auditor’s sample is less than the tolerable rate, but the deviation rate in the population exceeds the tolerable rate.
*The deviation rate of both the auditor’s sample and the population are less than the tolerable rate
*The deviation rate of both the auditor’s sample and the population exceed the tolerable rate

Answer 89

The deviation rate in the auditor’s sample is less than the tolerable rate, but the deviation rate in the population exceeds the tolerable rate

Question 90

Examples of actions that might be safeguards to address threats created by conflicts of interest include the ff, except:
*Obtaining appropriate oversight, for example, acting under the supervision of an executive or non-executive director.
*Withdrawal from the engagement
*Withdrawing from the decision-making process related to the matter giving rise to the conflict of interest
*Restructuring or segregating certain responsibilities and duties.

Answer 90

Withdrawal from the engagement

Question 91

Which of the ff. is not generally included in the working paper file?
*Analyses of significant ratios and trends
*Copy of the internal audit department’s audit program
*Documentation of the auditor’s understanding of the accounting and internal control systems
*An indication as to who performed the audit procedures and when they were performed

Answer 91

Copy of the internal audit department’s audit program

Question 92

What is the proper organizational role of internal auditing?
*To assist the external auditor in the audit of financial statement
*To serve as an independent, objective assurance and consulting activity that adds value to operations
*To serve as the investigative arm of the audit committee
*To perform studies to assist in the attainment of more efficient operations

Answer 92

To serve as an independent, objective assurance and consulting activity that adds value to operations

Question 93

Some months after an unqualified audit report was issued, the auditor discovers that the financial statements were in fact, misstated. The client’s CEO agrees, but refuses to issue a correction, and claims that “confidentiality” prevents the CPA from informing anyone.
*The CEO is wrong. However, it is beyond the auditor’s responsibility since the financial statements have already been issued
*The CEO is wrong. The auditor has an obligation to prevent future reliance of users on the auditor’s report.
*The CEO is correct. However, the auditor should violate the confidentiality rule and disclose the error, in order not to violate the principle of integrity.
*The CEO is correct. The auditor must maintain confidentiality

Answer 93

The CEO is wrong. The auditor has an obligation to prevent future reliance of users on the auditor’s report.

Question 94

For audits of financial statements of listed entities, the engagement partner should not issue the auditor’s report until the completion of the
*Engagement partner review
*Inspection of engagement
*Engagement team review
*Engagement quality control review

Answer 94

Engagement quality control review

Question 95

Which of the following would an auditor most likely use in determining a preliminary judgement about materiality?
*The results of the internal control questionnaire
*The content of the management representation letter
*The entity’s annualized interim financial statements
*The anticipated sample size of the planned substantive tests

Answer 95

The entity’s annualized interim financial statements

Question 96

An auditing firm is allowed to offer employment to an employee of another CPA in public practice if the CPA
*Makes the offer verbally to an employee who is not a CPA
*Informs the other CPA in public practice prior to making the offer
*Offering the position with a much higher salary than that of the normal range in that position
*Makes the offer on behalf of an audit client

Answer 96

Informs the other CPA in public practice prior to making the offer

Question 97

Which of the ff. parts of the auditor’s report is always present?
*Key Audit Matters paragraph
*Emphasis of matter paragraph
*Material Uncertainty Related to Going Concern paragraph
*Basis for Opinion

Answer 97

Basis for Opinion

Question 98

To succeed in a lawsuit against the auditor, the client must be able to show that:
*There is a close causal connection between the auditor’s behavior and the damages suffered by the client.
*The auditor was grossly negligent.
*There was a written contract
*The auditor was fraudulent.

Answer 98

There is a close causal connection between the auditor’s behavior and the damages suffered by the client.

Question 99

Which of the following best describes “high level of assurance”?
*It refers to the professional accountant having obtained evidence based on procedures agreed upon between the practitioner and the intended users to be satisfied that findings be reported to the intended users.
*It refers to the professional accountant having obtained sufficient external and internal appropriate evidence to be satisfied that the subject matter is plausible in the circumstances
*It refers to the professional accountant having obtained sufficient appropriate evidence to conclude that the subject matter conforms in all material respects with identified suitable criteria.
*It refers to the professional accountant having obtained sufficient evidence to conclude that he has no knowledge of any required modifications to be made in the financial statements in order for them to conform of prescribed criteria

Answer 99

It refers to the professional accountant having obtained sufficient appropriate evidence to conclude that the subject matter conforms in all material respects with identified suitable criteria.

Question 100

An auditor, in accepting an audit engagement where he does not possess the expertise on the client’s industry, should
*Obtain knowledge about the nature and industry of the client’s business
*Engage financial experts familiar with the nature of the client
*First inform client’s management that an unqualified opinion cannot be issued
*Refer substantial portion of the audit to another CPA who will act as the principal auditor

Answer 100

Obtain knowledge about the nature and industry of the client’s business

Question 101

A firm’s system of quality control should include policies and procedures that address each of the ff. elements, except
*Relevant Ethical requirements
*Human resources
*Monitoring
*Control environment

Answer 101

Control environment

Question 102

The concept of materiality as it applies to a financial statement audit:
*Generally involves less professional judgment for public companies
*Relates primarily to the quantity of audit procedures performed
*Is determined, in part, based on how financial statement users may be influenced in making decisions
*Relates primarily to the audit fees involved

Answer 102

Is determined, in part, based on how financial statement users may be influenced in making decisions

Question 103

Which of the ff. material events occurring subsequent to the balance sheet date would require an adjustment to the financial statements before they are issued?
*Loss of a plant as a result of flood
*Settlement of litigation, in excess of the recorded liability
*Settlement of long-term debt using ordinary shares
*Major purchase of a business, which is expected to double sales volume

Answer 103

Settlement of litigation, in excess of the recorded liability

Question 104

Non-sampling risk arises from factors such as the following, except:
*Failure to select appropriate audit procedures
*Failure to recognize errors in documents examined
*Selecting a method that reduces sample size
*Misinterpreting the results of audit tests

Answer 104

Selecting a method that reduces sample size

Question 105

An auditor’s purpose for performing tests of control is to provide reasonable assurance that
*The risk that the auditor may unknowingly fail to modify the opinion on the financial statements is minimized
*Transactions are recorded as necessary to permit the preparation of the financial statements in conformity with financial reporting standards.
*The controls on which the auditor plans to consider are operating effectively
*Transactions are executed in accordance with management’s authorization and access to assets is limited by segregation of functions

Answer 105

The controls on which the auditor plans to consider are operating effectively

Question 106

The auditor is required to determine different levels of materiality: a) materiality for the financial statements as a whole, b) specific materiality and:
*Overall materiality
*Performance materiality
*Planning materiality
*Materiality for particular classes of transactions, account balances or disclosure

Answer 106

Performance materiality

Question 107

Which of the ff. is not one of the purposes of audit documentation?
*Assisting members of the client’s management responsible for supervision to direct and supervise the audit work, and to discharge their review responsibilities
*Assisting the engagement team to plan and perform the audit.
*Evidence of the auditor’s basis for a conclusion about the achievement of the overall objective of the auditor
*Evidence that the audit was planned and performed in accordance with PSAs and applicable legal and regulatory requirements

Answer 107

Assisting members of the client’s management responsible for supervision to direct and supervise the audit work, and to discharge their review responsibilities

Question 108

Which of the following is not a reason an auditor obtains understanding of the elements of an entity’s internal control structure in planning an audit?
*In considering the design of substantive tests
*Identify the types of potential misstatements that can occur
*Consider factors that affect the risk of material misstatements
*Consider the operating effectiveness of the internal control structure

Answer 108

Consider the operating effectiveness of the internal control structure

Question 109

Which of the ff. is most correct with respect to litigation involving CPAs?
*A CPA will not be found liable for an audit unless the CPA has audited all affiliates of that company
*A CPA is primarily responsible, while a client is secondarily responsible for the footnote in the annual report filed with the SEC
*A CPA may not successful assert as a defense that the CPA has no motive to be part of a fraud
*A CPA may be exposed to criminal as well as civil liability

Answer 109

A CPA may be exposed to criminal as well as civil liability

Question 110

Audit programs should be designed so that
*The auditor can make constructive suggestions to management.
*Most of the required procedures can be performed as interim work.
*Inherent risk is assessed at a sufficiently low level.
*The audit evidence gathered supports the auditor’s conclusions

Answer 110

The audit evidence gathered supports the auditor’s conclusions

Question 111

All other factors being equal, which of the ff. would lead to a larger sample size?
*Greater reliance on internal control
*Smaller expected frequency of errors
*Greater reliance on analytical procedures
*Smaller measure of tolerable misstatement

Answer 111

Smaller measure of tolerable misstatement

Question 112

The primary concern when a successor auditor is required to communicate with the predecessor auditor is:
*To save the successor auditor time and money in gathering data
*To learn about a client by examining predecessor’s working papers
*To enable the auditor to perform a more efficient audit
*Information will help the successor auditor determine whether there are issues about management integrity

Answer 112

Information will help the successor auditor determine whether there are issues about management integrity

Question 113

In pursuing its quality control objectives, a CPA firm may maintain records indicating which of its partners or employees were previously employed by its clients. Which quality control element would this be most likely to satisfy?
*Engagement performance
*Ethical requirements
*Human resources
*Leadership responsibilities for quality within the firm

Answer 113

Ethical requirements

Question 114

Which of the ff. would least likely create familiarity threat?
*A former director or officer of the assurance client joins the assurance team
*A former partner of the firm being a director, officer or employee of the assurance client in a position to exert significant influence over the subject matter of the engagement
*A member of the assurance team having an immediate or close family member who is a director or officer of the assurance client
*A member of the assurance team or an immediate family member having close personal relationship with the client.

Answer 114

A former director or officer of the assurance client joins the assurance team

Question 115

This exists, when other information contradicts the information contained in the financial statements.
*Material misstatement of fact
*Material misstatement
*Material inconsistency
*Material error affecting other information

Answer 115

Material inconsistency

Question 116

In determining the acceptability of the special purpose financial reporting framework applied, the key factor is:
*The financial information needs of the intended users
*Global acceptance of the special purpose framework
*Ease in auditing the FS produced under the special purpose framework
*Cost-benefit considerations in applying the framework

Answer 116

The financial information needs of the intended users

Question 117

When a misstatement in the financial statements exists, and is likely to affect the decisions of a reasonable user, it would be appropriate to issue
*Disclaimer of opinion.
*Adverse or disclaimer of opinion.
*Unqualified or qualified opinion.
*Qualified or adverse opinion.

Answer 117

Qualified or adverse opinion.

Question 118

If an individual who is a member of the assurance team, or their immediate family member, has a direct financial interest, or material indirect financial interest in the assurance client, the self-interest threat created would be so significant. Which of the ff. actions would not be appropriate?
*Remove the individual from the assurance team
*Dispose of the direct financial interest prior to the individual becoming a member of the assurance team
*Restructure the responsibilities of the individual in the assurance team
*Dispose of a sufficient amount of the indirect financial interest, so that the remaining interest is no longer material prior to the individual becoming a member of the assurance team

Answer 118

Restructure the responsibilities of the individual in the assurance team

Question 119

In the planning stage of an audit engagement, the auditor is required to perform audit procedures to obtain an understanding of the entity and its environment, including its internal control. These procedures are called:
*Risk assessment activities
*Compliance tests
*Substantive tests
*Risk assessment procedures

Answer 119

Risk assessment procedures

Question 120

To obtain an understanding of a continuing client’s business in planning an audit, an auditor most likely would
*Read specialized industry journals
*Perform tests of details of transactions and balances
*Reevaluate the client’s internal control environment
*Review prior year working papers and permanent file of the client

Answer 120

Review prior year working papers and permanent file of the client

Question 121

Which of the ff. is incorrect?
*An interpretation is insignificant when adoption of another reasonable interpretation would have produced a material difference in the information presented in the financial statements
*If the FS are prepared in accordance with the provisions of a contract, the auditor shall obtain an understanding of any significant interpretations of the contract that management made in the preparation of those financial statements
*None of the above
*In planning and performing an audit of SPFS, the auditor shall determine whether application of the PSAs requires special consideration in the circumstances of the engagement.

Answer 121

An interpretation is insignificant when adoption of another reasonable interpretation would have produced a material difference in the information presented in the financial statements

Question 122

Which of the ff. would most likely heighten an auditor’s concern about the risk of material misstatements in an entity’s financial statements?
*Bank reconciliation statements usually include deposits in transit
*The entity’s industry is experiencing declining customer demand
*The rate of change in the entity’s industry is low
*Equipment is often sold at a loss before being fully depreciated

Answer 122

The entity’s industry is experiencing declining customer demand

Question 123

When the auditor is unable to obtain sufficient appropriate audit evidence, the auditor’s report may contain:
*Adverse or qualified opinion
*Unqualified or disclaimer of opinion
*Qualified or disclaimer of opinion
*Adverse or disclaimer of opinion

Answer 123

Qualified or disclaimer of opinion

Question 124

Which of the ff. statements is incorrect regarding audit documentation?
*Audit documentation prepared after the performance of the audit work, is likely to be more accurate than documentation prepared at the time such work is performed
*Audit documentation includes tax files that contain information relevant to a client’s current and past income tax obligations
*Audit documentation should not include superseded drafts of working papers and financial statements
*Audit documentation do not serve as a substitute for the entity’s accounting records

Answer 124

Audit documentation prepared after the performance of the audit work, is likely to be more accurate than documentation prepared at the time such work is performed

Question 125

Which of the following is not a reason for using analytical review procedures in the planning phase?
*To identify areas with higher risks and determine the magnitude of errors in the financial statements
*To identify areas with no unusual fluctuations so that fewer detailed tests may be performed on those accounts
*To highlight changes from the prior year to the current year so that trends can be identifies which will influence the development of the audit program
*To assess the entity’s ability to continue as a going concern

Answer 125

To assess the entity’s ability to continue as a going concern

Question 126

Each of the ff. may be relevant to an auditor when obtaining knowledge about the client’s business and industry, except:
*Visits of the client’s premises
*Reading publications related to the industry
*Performing tests of control
*Discussion with people within or outside the entity

Question 127

In the planning stage of an audit engagement, the auditor is required to perform audit procedures to obtain an understanding of the entity and its environment, including its internal control. These procedures are called:
*Compliance tests
*Risk assessment activities
*Substantive tests
*Risk assessment procedures

Answer 127

Risk assessment procedures

Question 128

Which of the ff. procedures is least likely to be performed on or before the balance sheet date?
*Search for unrecorded liabilities
*Confirmation of accounts receivable
*Testing internal control over cash
*Attendance at the physical inventory count

Answer 128

Search for unrecorded liabilities

Question 129

An audit designed to evaluate the efficiency and effectiveness of an organization or some part thereof, would most likely come under the title of:
*Internal audit
*Compliance audit
*Financial audit
*External audit

Answer 129

Internal audit

Question 130

Which of the ff. statements is always correct regarding fraud and errors?
*Auditors have more responsibility for finding fraud than errors
*Errors are always fraud and frauds are always errors
*Fraud occurs more often in the financial statements than errors
*An error is unintentional, while fraud is intentional

Answer 130

An error is unintentional, while fraud is intentional

Question 131

Which of the ff. is not one of a performance and review measure of the entity’s financial performance?
*Key performance indicators
*Scorecards
*Budget
*Internal control questionnaire

Answer 131

Internal control questionnaire

Question 132

Which among the ff. fraud is the most difficult type of misstatement to detect?
*Overrecording of transactions
*Related party receivables
*Nonrecording of transactions
*Recorded transaction in subsidiaries

Answer 132

Nonrecording of transactions

Question 133

The reliability of data is influenced by its source and nature and is dependent on the circumstances under which it is obtained. The ff. are to be considered by the auditor in determining whether data is reliable for the purposes of designing substantive analytical procedures, except
*Nature and relevance of the information available
*Comparability of the information available
*Persuasiveness of the information
*Source of the information available

Answer 133

Persuasiveness of the information

Question 134

The risk that the financial statements are likely to be misstated materially, without regard to the effectiveness of internal control
*Inherent risk
*Detection risk
*Control risk
*Audit risk

Answer 134

Inherent risk

Question 135

The risk that the auditor may express an inappropriate opinion on the financial statement is
*Detection risk
*Inherent risk
*Audit risk
*Control risk

Answer 135

Audit risk

Question 136

Which of the ff. characteristics is least considered as necessary in determining whether the criteria in used in evaluating the subject matter in an assurance engagement is suitable?
*Relevance
*Efficiency
*Neutrality
*Reliability

Answer 136

Efficiency

Question 137

Which statement is incorrect regarding the audit evidence?
*Merely obtaining more audit evidence may not compensate for its poor quality.
*The higher the quality, the less audit evidence may be required
*Obtaining audit evidence relating to a particular assertion is a substitute for obtaining audit evidence regarding another assertion.
*The lower the risk, the less audit evidence is likely to be required.

Answer 137

Obtaining audit evidence relating to a particular assertion is a substitute for obtaining audit evidence regarding another assertion.

Question 138

Under which of the following phases would obtaining a preliminary understanding of the client’s internal control belong to?
*Internal control risk assessment activities
*Pre-engagement activities
*Account balance audit activities
*Planning activities

Answer 138

Planning activities

Question 139

The risk of material misstatement refers to:
*Control risk and acceptable audit risk
*Control risk and detection risk
*Inherent risk
*Combination of inherent risk and detection risk

Answer 139

Combination of inherent risk and detection risk

Question 140

The ff. are indications of related party transactions, except:
*Unrecorded transactions such as receipt or provision of management services at no charge
*Transactions in which substance does not differ from form
*Transactions which lack apparent logical business reasons for their occurrence
*High volume or significant transactions with certain customer or suppliers as compared with others

Answer 140

Transactions in which substance does not differ from form

Question 141

Which of the ff. sets of information does an auditor usually confirm on one standard form?
A. Accounts receivable and Accrued interest receivable
*Accounts payable and Purchase commitments
*Cash in bank and Collateral for loans
*Inventory on consignment and Contingent liability

Answer 141

Accounts payable and Purchase commitments

Question 142

For accounts receivables, negative confirmation is less effective than positive confirmation because
*Some recipients may report incorrect balances that require extensive follow-up.
*Negative confirmations do not produce evidence that is statistically quantifiable
*The auditor cannot infer that all nonrespondents have verified their account information
*A majority of recipients usually lack the willingness to respond objectively

Answer 142

The auditor cannot infer that all nonrespondents have verified their account information

Question 143

In the auditing environment, failure to meet auditing standards is often:
*Conclusive evidence of negligence
*A suggestion of negligence.
*Tantamount to criminal behavior.
*An accepted practice.

Answer 143

Conclusive evidence of negligence.

Question 144

The cooling off period of an individual responsible for engagement quality control review and has acted in that capacity for seven cumulative years
*Two years
*Twelve months
*Five years
*Three years

Answer 144

Three years

Question 145

If the auditor believes that a required material disclosure is omitted from the FS, the auditor should decide between issuing a No:
*Qualified opinion or Disclaimer of Opinion
*Qualified opinion or Adverse Opinion
*Qualified opinion or Unmodified opinion
*Adverse opinion or Disclaimer of Opinion

Answer 145

Qualified opinion or Adverse Opinion

Question 146

Which of the ff. is not a principal objective in auditing accounts receivable?
*To determine whether accounts are collected as of the date of statement of financial position
*To determine whether receivables are properly classified, described, and disclosed in the financial statements
*To determine whether receivables are carried at their net realizable value?
*To determine whether the entity has real claims in all receivables on the statement of financial position

Answer 146

To determine whether accounts are collected as of the date of statement of financial position

Question 147

A CPA examines the financial statements of a local bank. According to the Code of Ethics, the appearance of independence ordinarily would not be impaired if the CPA
*Uses the bank’s timesharing computer service to solve bank-related problems
*Owns substantial amount of the bank’s ordinary shares
*Serves on the bank’s committee that approves loans
*Obtains a long-term loan from the bank

Answer 147

Uses the bank’s timesharing computer service to solve bank-related problems