AUDITING QUIZZER

1.

Alexion Corp. has engaged a public accounting firm to

issue a report on the accuracy of product quality
specifications included in trade sales agreements. This
is an example of a/an:
a. Financial statement audit.
b. Attestation service.
c. Compliance audit.
d. Operational audit.

2.

Unlike consulting services, assurance services:

a. Make recommendations to management.
b. Report on how to use information.
c. Report on the quality of information.
d. Are two-party contracts.

3.

A financial statement audit:

a. Confirms that financial statement assertions are
accurate.
b. Lends credibility to the financial statements.
c. Confirms that financial statements are presented
fairly.
d. Assures that fraud has been detected.

4.

Which of the best following best describes why an

independent auditor reports on financial statements?
a. Independent auditors are likely to detect fraud.
b. Competing
interests
may
exist
between
management and the users of the statements.
c. Misstated account balances are generally corrected
by an independent audit.
d. Ineffective internal controls may exist.

5.

Financial statement audits:

a. Reduce the cost of capital.
b. Report on compliance with laws and regulations.
c. Assess management's efficiency and effectiveness.
d. Overlook information risk.

6.

Primary responsibility for the assertions in financial

statements rests with the:
a. Audit partner assigned to the engagement.
b. Senior auditor in charge of field work.
c. Staff auditor who drafts the statements.
d. Client's management.

7.

A public accounting firm's primary role in performing

nonattest services is to:
a. Hedge against declines in the firm's audit practice.
b. Establish the firm as a consultant.
c. Provide advice valuable to a client's effectiveness.
d. Acclimate staff members to the client's business
and industry.

8.

Which of the following types of audits is designed to

determine
whether
a
governmental
entity's
procurement practices are sound?
a. A financial statement audit.
b. An operational audit.
c. A program audit.
d. A compliance audit.

9.

Which of the following authoritative bodies issues

pronouncements relevant to attestation service
engagements?
a. Accounting and Review Services Committee.
b. Auditing Standards Board.
c. Public Oversight Board.
d. PICPA.

10.

Assurance service engagements:

a. Do not require independence.
b. Required application of all attestation standards and
GAAS.
c. Are performed currently without professional
standards.
d. Do not require evidence.

11.

12.

A practitioner should comply with applicable

attestation standards:
a. On
every
attestation
engagement,
without
exception.
b. On every attestation engagement except financial
statement audits.
c. On consulting engagements.
d. On all engagements that involved financial
statements.
Which of the following best describes the purpose of
attestation standards and GAAS?
a. Measures of quality for attestation and audit
engagements.
b. Methods to discharge professional responsibilities in
attestation and audit engagements.
c. Rules that represent the public's expectations on
attestation and audit engagements.
d. Objectives used to select evidence for attestation
and audit engagements.

13.

What is the focus of the standards of field work for

attestation and audit engagements?
a. Guidelines for training, proficiency, and due care.
b. Guidelines for the content of the practitioner's
report.
c. Guidelines for planning and for gathering evidence.
d. Guidelines for maintaining an independence in
mental attitude.

14.

Which of the following best describes due care?

a. Tact in avoiding legal liability.
b. Requisite skill and diligence.
c. Reasonable infallibility.
d. Freedom from undue influence.

15.

The validity of evidence depends ultimately on the :

a. Attestation standard and GAAS.
b. Availability of subordinate evidence.

c. Relevance of the evidence.

d. Practitioner's professional judgment.
16.

Practitioner independence:
a. Minimizes risk.
b. Helps achieve public confidence.
c. Defends against liability.
d. Achieves compliance with the standards of field
work.

17.

Which
of
the
nonquantitatively?

a.
b.
c.
d.

Inherent
Risk
Yes
Yes
No
Yes

following

Control
Risk
Yes
No
Yes
Yes

may

be

assessed

Detection
Risk
No
Yes
Yes
Yes

18.

Materiality is:
a. Addressed within a practitioner's attestation and
audit reports.
b. Expressed in terms of dollars.
c. Measured using guidelines established by the PICPA.
d. Not applicable to attestation engagements.

19.

A report issued by a public accounting firm uses the

language: In our opinionthe schedule presentsin all
material respectsThe firm's report is likely:
a. A standard audit report.
b. A qualified audit report.
c. An attestation report.
d. A qualified attestation report.

20.

Does an attester make the following representations

explicitly or implicitly in an unqualified attestation
report?

a.
b.
c.
d.
21.

Assertion is Capable of
Evaluation Against
Reasonable Criteria
Explicitly
Implicitly
Implicitly
Explicitly

Assertion are
Management's
Responsibility
Explicitly
Implicitly
Explicitly
Implicitly

Does an auditor make the following representations

explicitly or implicitly in an unqualified audit report?

a.
b.
c.
d.

Consistent Application of
Accounting Principles
Implicitly
Implicitly
Explicitly
Explicitly

Examined Evidence
on a Test Basis
Explicitly
Implicitly
Explicitly
Implicitly

22.

Which of the following is likely a scope limitation?

a. The auditor is reporting on the balance sheet only.
b. A subsidiary's financial statements are audited by
another auditor.
c. Sufficient evidence is not available.
d. The auditor is engaged after the balance sheet date.

23.

A departure from GAAP is disclosed in a note to the

financial statements. The auditor should:
a. Issue an unqualified opinion, but emphasized the
matter in an explanatory paragraph.
b. Issue an unqualified opinion, with no explanatory
paragraph, since the departure from GAAP is
disclosed.
c. Issue a qualified opinion.
d. Disclaim an opinion.

24.

Management's
financial
statements
disclose
uncertainties about future events that are not
susceptible to reasonable estimation. The auditor
should issue:
a. An unqualified opinion.
b. A qualified opinion.
c. An adverse opinion.
d. A disclaimer of opinion.

25.

The opinion paragraph of a qualified opinion should

include language such as:
a. Except for.
b. When read in conjunction with the notes.
c. With the foregoing explanation.
d. Subject to the explanation above.

26.

An
a.
b.
c.
d.

27.

An explanatory paragraph read as follows: The

Company has adopted the first-in, first-out method of
determining inventory costs, whereas it previously
used the last-in, first-out method. Although use of the
first-in, first-out method is in conformity with generally
accepted accounting principles, in our opinion the
Company has not provided reasonable justification for
seeking a change as required by Opinion No. 20 of the
Accounting Principle Board.
The paragraph likely appears in:
a. An unqualified opinion.
b. An unqualified opinion that emphasized the matter.
c. A qualified opinion.
d. A disclaimer of opinion.

attestation or audit report should be dated as of:

The date of the assertion or financial statements.
The date the report is delivered.
The last date on which a subsequent event occurs.
The last day of field work.

28.

An audit report reads in part as follows: The financial

statements do not include any adjustments that might
result from the outcome of this uncertainty.
The sentence likely appears in:
a. An unqualified opinion.
b. An unqualified opinion that emphasized the matter.
c. A qualified opinion.
d. A disclaimer of opinion.

29.

General ethics is the study of:

a. Ideal method in thought.
b. Ultimate reality.
c. Ideal conduct.
d. Ideal social organization.

30.

Professional codes of ethics:

a. Are uncommon in profession other than public
accounting.
b. Mandate ideal standards of behavior.
c. Are enforceable if based in standards of ideal
behavior.
d. Mandate minimum standards of behavior.

31.

A practitioner can perform accounting and auditing

services for a privately owned client assuming that:
a. The
practitioner
takes
responsibility
for
management's assertions.
b. The practitioner has a financial interest in
management's assertions.
c. The practitioner is independent of assertions about
management's information system.
d. The practitioner is certain the conflict of interest is
immaterial to the firm and to the client.

32.

According to the profession's Rules of Conduct, an

auditor would be considered independent in which of
the following instances?
a. The auditor's checking account is held at a client
financial institution.

b. The auditor, an attorney, serves as the client's

general counsel.
c. An employee of the auditor serves as the unpaid
treasurer of a charitable organization that is an
audit client.
d. The client owes the auditor fees for two consecutive
years.
33.

The Rules of Conduct would most likely be violated if an

auditor:
a. Owns a building and leases floor space to an
attestation client.
b. Has an insured account with a brokerage firm audit
client.
c. Is engaged by an audit client to identify potential
acquisitions.
d. Screens candidates for an audit client's vacant
controllership.

34.

Objectivity refers to a practitioner's ability:

a. To remain impartial.
b. To identify assertions that are appropriate.
c. To be unyielding in all disputes.
d. To choose independently between accounting
principles and auditing standards.

35.

Absent a client's consent, a practitioner is precluded

from disclosing confidential client information to:
a. The Joint National Trial Board.
b. A state board of accountancy.
c. The board of directors of an audit client's investee.
d. A PICPA ethics committee.

36.

Which of the following fee arrangements would violate

the PICPA Code of Professional Conduct?
a. A fee based on the approval of a bank loan
b. A fee based on the outcome of a bankruptcy
proceeding.
c. A per hour fee that includes out-of-pocket expenses.

d. A fee based on the complexity of the engagement.

37.

38.

39.

Which of the following published in a promotional

brochure would likely violate the AICPA Rules of
conduct?
a. Names
and
addresses,
telephone
numbers,
numbers of partners, office hours, foreign language
competence, and date the firm was established.
b. Services offered and fees for such services,
including hourly rates and fixed fees.
c. Educational and professional attainments, including
date and place of certification, schools attended,
date of graduations, degrees received, and
memberships in professional associations.
d. Names, addresses, and telephone numbers of the
firm's clients, including the number of years served.
Which of the following acts by a CPA who is not in
public practice would most likely be considered a
violation of the profession's Code of Professional
Conduct?
a. Using the designation "CPA" on a report
accompanying financial statements intended for
external use without disclosing that the CPA is
employed by the company issuing the statements.
b. Distributing business cards indicating "CPA" and the
CPA's title and employer.
c. Corresponding on the CPA's employer's letterhead,
which contains the CPA's designation and
employment status.
d. Compiling the CPA's employer's financial statements
and making reference to the CPA's lack of
independence.
Quality control policies for the acceptance and
continuance of clients are established to:
a. Enable the auditor to report on management's
integrity.
b. Comply with standards established by regulatory
bodies.

c. Minimize the likelihood of associating with

managements that lack integrity.
d. Reduce exposure to litigation from falling to detect
fraud.
40.

The arguments offered by third parties in litigation

against a practitioner for an assurance services are
likely to involve:
a. Joint-and-several liability.
b. Privity of contract.
c. Reliance on advice.
d. Due diligence.

41.

A 1940 case, Maryland Casualty Co. v. Jonathan Cook,

illustrates that:
a. Auditors are responsible to detect material
embezzlements.
b. Auditors are culpable to clients who carry surety
bonds on employees.
c. Auditors are liable to parties who acquire a client's
rights by subrogation.
d. Auditors' liability under common law is dependent
on the terms of the audit services contract.

42.

Reaffirmed in the 1980s and 1990s, the privity

doctrine, first established in Ultramares Corp. v. Touche
(1931), now requires a three-point linkage test
established in a New York Court of Appeals case, Credit
Alliance v. Arthur Andersen & Co. Among other things,
the linkage test requires that:
a. The accountant knew a specific third party would
rely on the statements.
b. Evidence links the accountant with the client.
c. The accountant knew why the client required an
opinion.
d. The accountant provided an oral assurance of the
client's solvency.
Questions 4 and 5 each relate to the following:

Gilmore, Inc, a privately owned manufacturer of

jewelry, was audited by Balch & Ferris, CPAs. Relying on
Gilmore's
financial
statements,
the
Evergreen
Commercial Credit Corp., a lending institution, granted
Gilmore a long-term loan. Gilmore's statements were
materially misstated, and Gilmore then went bankrupt.
Evergreen Commercial Credit is suing Balch & Ferris for
negligence in the audit.
43.

Among other things, Evergreen must show:

a. Misstated financial statements.
b. Scienter.
c. Compliance with truth-in-lending laws.
d. Gross negligence.

44.

In this case, Evergreen is most likely a:

a. Foreseeable third party.
b. Foreseen beneficiary.
c. Primary beneficiary.
d. Client.

45.

Alsap Corporation's April 1999, P35 million initial public

offering included Singer & Revine's unqualified opinion
on Alsap's December 31, 1998 audited financial
statements. Owing to material misstatements related
to inventory and receivables securities purchasers sued
Singer & Revine, who likely can avoid liability if:
a. Singer & Revine can demonstrate due diligence.
b. Singer & Revine's engagement letter called for
mediation and arbitration.
c. Alsap management caused the misstatements.
d. Some of the purchasers did not rely on the audited
financial statements.

46.

An auditor may be held liable under the Securities Act

of 1933 for materially false or misleading financial
statements if the security purchasers:
a. Can establish reliance on the registration statement.
b. Can establish gross negligence.

c. Brings suit within four years after the security is

offered to the public.
d. Can establish that the financial statements were
misstated.
47.

Which of the following correctly portrays the scope of

Section 10(b) of the Securities Exchange Act of 1934?
a. Section 10(b) protects shareholders of securities
listed on a national stock exchange.
b. Section 10(b) applies exclusively to securities
registered under the Securities Exchange Act of
1934.
c. Securities registered under the Securities Act of
1933 are exempt from Section 10(b).
d. Section 10(b) applies to purchases as well as sales
of registered securities.

48.

A client sues Jane Corning, an independent accountant,

for negligence, alleging that, because she failed to
apply generally accepted auditing standards, she failed
to discover large thefts of marketable securities. Under
these circumstances:
a. Corning is not bound by generally accepted auditing
standards unless she is a member of the PICPA.
b. Corning is negligent if she failed to apply generally
accepted auditing standards.
c. Generally accepted auditing standards apply to
financial statements taken as a whole, not to audits
of individual accounts.
d. If Corning failed to apply generally accepted
auditing standards, she would likely have
committed a fraud.

49.

Accountant's liability to third parties under common

law:
a. Has not changed substantially over the years.
b. Is identical to accountant's liability under the
Securities Act of 1933.

c. Is identical to accountant's liability under the

Securities Exchange Act of 1934.
d. Is not uniform across all jurisdictions.
50.

Columbus, Inc, a publicly traded corporation, is audited

by Corrente & Corrente, CPAs. Because of inaccurate
disclosures and serious losses from trading Columbus'
securities, Columbus shareholders are suing Corrente &
Corrente. In this case, the auditor's defense is:
a. The financial statements were not misleading
despite the inaccurate disclosures.
b. Their conduct was not deficient under generally
accepted auditing standards.
c. Lack of privity.
d. Lack of reliance.

51.

Lincoln purchased Tally Corporation securities in a

public offering subject to the Securities Act of 1933.
Rosemore & Co., CPAs, issued an unqualified opinion on
Tally Corporation's most recent financial statements
(which were included in Tally's registration statement)
and a comfort letter that revealed no material
exceptions. Rosemore & Co. is being sued by Lincoln for
alleged misstatements within in the registration
statement. To prevail, Lincoln must prove:
a. Damages, reliance, and scienter.
b. Damages, material misstatements, and reliance.
c. Damages and material misstatements.
d. Material misstatements and reliance.

52.

Which of the following, if material, would be a fraud?

a. Errors in the application of accounting principles.
b. Clerical errors in accounting data underlying the
financial statements.
c. Misinterpretation of facts that existed when the
financial statements were prepared.
d. Misappropriation of an asset or groups of assets.

53.

Which of the following is an inappropriate reaction to a

material fraud detected in a publicly traded company?
a. Report the matter to the SEC.
b. Discuss the matter with at least one level of
management above the perpetrator.
c. Obtain further evidence.
d. Suggest that the client consult with legal counsel
about questions of law.

54.

Which of the following statements best describes an

auditor's responsibility to detect fraud?
a. The auditor is responsible for failing to detect fraud
when the failure clearly results from not performing
audit procedures described in the engagement
letter.
b. The auditor must extend auditing procedures to
search actively for fraud.
c. The auditor must assess the risk that material fraud
may exist.
d. The auditor is responsible for failing to detect fraud
only when an unqualified opinion is issued.

55.

If an auditor is certain a fraud has a material effect on

financial statements and the client agrees to adjust the
statements accordingly, the auditor should:
a. Withdraw from the engagement.
b. Disclaim an opinion on the financial statements
taken as a whole.
c. Issue a qualified opinion.
d. Issue an unqualified opinion.

56.

An auditor's responsibility for illegal acts by clients:

a. Depends on any contingent monetary effects and
loss contingencies resulting form the act.
b. Requires that he or she assess the risk of material
misstatement of the financial statements due to
illegal acts.
c. Does not relate to direct, material illegal acts.

d. Is unrelated to the proximity of the act of the

financial statements.
57.

Which of the following statements about the

competence of evidence is always true?
a. Evidence gathered by an auditor from third parties
is reliable.
b. Accounting data developed when control risk is low
is more relevant than data developed when control
risk is high.
c. Oral representations made by management are not
valid evidence.
d. To be competent, evidence must be both valid and
relevant.

58.

Tests of controls:
a. Are intended to detect material misstatements in
financial statement accounts.
b. Are concerned with how internal control policies or
procedures are applied.
c. Are evaluations of financial information made by a
study of plausible relationships among both financial
and nonfinancial data.
d. Are procedures that lend hindsight o amounts and
information disclosed in financial statements as of
the balance sheet date.

59.

Substantive tests of details:

a. Are intended to detect material misstatements in
financial statement accounts
b. Are concerned with how internal control policies or
procedures are applied.
c. Are evaluations of financial information made by a
study of plausible relationships among both financial
and nonfinancial data.
d. Are procedures that lend hindsight to amounts and
information disclosed in financial statements as of
the balance sheet date.

60.

Analytical procedures:
a. Are intended to detect material misstatements in
financial statement accounts.
b. Are concerned with how internal control policies or
procedures are applied.
c. Are evaluations of financial information made by a
study of plausible relationships among both financial
and nonfinancial data.
d. Are procedures that lend hindsight to amounts and
information disclosed in financial statements as of
the balance sheet date.

61.

A public company's audit committee should consist of:

a. Representatives of management, shareholders,
suppliers, and customers.
b. The audit partner, chief financial officer, legal
counsel, and at least one outsider.
c. Representatives of the major equity interests
(bonds, preferred stock, common stock).
d. Board members who are not officer or employees.

62.

An independent auditor has been approached to

perform an audit. Research suggests that the auditor
may fail to:
a. Distinguish between a regulated and nonregulated
industry.
b. Coordinate audit dates with the client.
c. Initiate discussion with the predecessor auditor.
d. Establish investigation thresholds for analytical
procedures.

63.

To avoid misunderstandings between a practitioner and

client, engagement arrangements are written in:
a. A legal letter.
b. An engagement letter.
c. A client representation letter.
d. A letter on reportable conditions.

64.

Which of the following procedures would an auditor

most likely perform when planning an audit?
a. Review prior year audit working papers.
b. Inquire about potential litigation, claims, and
assessments.
c. Obtain a representation letter from management.
d. Determine whether internal controls are being
applied as prescribed.

65.

A purpose of reviewing first quarter financial results

during audit planning is to:
a. Identify unexpected fluctuations occurring in
account balances since the prior year financial
statements.
b. Become familiar with accounts likely to appear in
the financial statements.
c. Plan evidence to be gathered in auditing accounts
that are new to the first quarter financial
statements.
d. Assess first quarter financial position, results or
operations, and cash flows.

66.

An integrated services digital network is a high-speed

phone line that can be used to:
a. Access software from a service bureau.
b. Access software from the Internet.
c. Enhance the processing capability of local area
networks
(LANs).
d. Encourage end user computing.

67.

Information system that access software from file

servers and direct print jobs from print servers are
called:
a. Local area networks (LANs).
b. Telecommunications channels.
c. Intranets.
d. Service bureaus.

68.

A public accounting firm has issued a report that refers

to criteria established in Internal Control: Integrated
Framework issued by the Committee of Sponsoring
Organizations (COSO) of the Treadway Commission. The
report likely relates to:
a. An consulting engagement.
b. An assurance engagement.
c. An attestation engagement.
d. An audit engagement.

69.

As part of a periodic planning exercise, a company

discovers that an eastern European political dispute
may interfere with supply sources. This is an example
of:
a. Control environment.
b. Risk assessment.
c. Control activities.
d. Monitoring.

70.

Internal control should provide reasonable (but not

necessarily absolute) assurance, which means that :
a. Internal control is management's, not the auditor's,
responsibility.
b. An attestation engagement about management's
internal control assertions may not necessarily
detect all reportable conditions.
c. The cost of control activities should not exceed the
benefits.
d. There is always a risk that reportable conditions
may result in material misstatements.

71.

Which of the following statements is an example of an

inherent limitation of internal control?
a. The effectiveness of control procedures depends on
segregation of duties.
b. Procedures are designed to assure that transactions
are executed as management authorizes.
c. Errors may arise from mistakes in judgment.
d. Computers process large numbers of transactions.

72.

An
a.
b.
c.
d.

auditor considers internal control to:

Determine whether assets are safeguarded.
Suggest improvements in internal control.
Plan audit procedures.
Express an opinion.

73.

After obtaining an understanding of an entity's internal

controls, an auditor may assess control risk at the
maximum for some assertions because the auditor:
a. Believes internal control activities are unlikely to be
effective.
b. Determines that internal control is not welldocumented.
c. Performs tests of controls to restrict detection risk to
an acceptable level.
d. Identifies control activities that are likely to prevent
material misstatements.

74.

After obtaining an understanding of an entity's internal

control and assessing control risk, and auditor may
next:
a. Perform tests of controls to verify management's
assertions that are embodied in the financial
statements.
b. Consider whether to reduce the assessed level of
control risk further.
c. Discontinue searching for reportable conditions.
d. Evaluate whether control activities can detect
material misstatements.

75.

The primary purpose of performing tests of controls is

to provide reasonable assurance that:
a. Internal control is effective.
b. The accounting system is documented accurately.
c. Transactions are recorded at the amounts executed.
d. All control activities leave visible evidence.

76.

After obtaining an understanding of a client's controls,

an auditor may decide to omit tests of the controls.
Which of the following is not an appropriate reason to
omit tests of controls?
a. The controls appear adequate.
b. The controls duplicate other controls.
c. Reportable conditions preclude assessing control
risk below the maximum.
d. The effort to test controls exceeds the effort saved
by not performing substantive tests.

77.

Which of the following statements is not true about test

date?
a. Test data should consist only of conditions that
interest the auditor.
b. Only one transaction of each type need be tested.
c. Test data must consist of all possible valid and
invalid conditions.
d. Test data are processed by the client's software
under the auditor's control.

78.

Processing data through the use of simulated files

provides an auditor with information about the
effectiveness of control procedures. One of the
computer assisted audit techniques that uses this
approach is:
a. Test data.
b. Parallel simulation.
c. Base case system evaluation (BCSE).
d. Audit books.

79.

General controls relate to all computer activities and

application controls relate to specific tasks. General
controls include:
a. Controls designated to assure that all data
submitted for processing has been properly
authorized.
b. Controls that relate to the correction and
resubmission of data that were initially incorrect.

c. Controls for documenting and approving software

and changes to software.
d. Controls designed to assure the accuracy of the
processing results.
80.

Which of the following computer assisted audit

techniques allows fictitious and real transactions to be
processed together without client personnel being
aware of the testing process?
a. Parallel simulation.
b. Integrated test data.
c. Audit books.
d. Audit modules.

81.

When using statistical sampling for tests of controls,

and auditor's evaluation would include a statistical
conclusion about whether:
a. Deviations in the population are within an
acceptable range.
b. Monetary precision exceeds a predetermined
amount.
c. The population's total monetary value is not in error
by more than a predetermined amount.
d. Population characteristics occur at least once in the
population.

82.

Tests of controls provide reasonable assurance that

controls are applied as prescribed. A sampling method
that is useful when testing control is:
a. Nonstatistical sampling.
b. Attribute sampling.
c. Discovery sampling.
d. Stratified random sampling.

83.

Statistical sampling:
a. Measures quantitatively the risk from testing only
part of an audit population.

b. Allows the same degree of confidence as

nonstatistical sampling but with substantially less
work.
c. Allows the auditor to replace some judgments with
quantitative measures.
d. Measures the reliability of misstatements.
84.

Assessing control risk too high is the risk that the

sample:
a. Does not support tolerable error for some or all of
management's assertions.
b. Contains proportionately more deviations from
prescribed control procedures than actually exist in
the population as a whole.
c. Contains monetary misstatements that could be
material to the financial statements when
aggregated with misstatements in other account
balances or classes of transactions.
d. Contains proportionately fewer deviations from
prescribed control procedures than actually exist in
the population as a whole.

85.

Assessing control risk too low relates to:

a. The efficiency of the audit.
b. The effectiveness of the audit.
c. The preliminary estimate of materiality.
d. Tolerable error.

86.

Statistical sampling may be applied to test controls

when a client's control procedures:
a. Depend primarily on segregation of duties.
b. Are carefully reduced to writing and are included in
client accounting manuals.
c. Leave an audit trail as evidence of compliance.
d. Enable the detection of fraud.

87.

Which of the following statements is correct?

a. The expected population deviation rate has little or
no effect on sample size.

b. As the population size doubles, the sample size also

should double.
c. For a given tolerable rate, a larger sample size
should be selected as the expected population
deviation rate decreases.
d. The population size has little or no effect on sample
size except for very small populations.

88.

When sampling for attributes, which of the following

would decrease sample size?
Risk of Assessing
Tolerable Rate Expected
Population
Control Risk Too Low
of Deviation
Deviation Rate
a. Increase
Decrease
Increase
b. Decrease
Increase
Decrease
c. Increase
Increase
Decrease
d. Increase
Increase
Increase

89.

Which of the following sampling plans varies sample

size?
a. Attribute estimation sampling.
b. Sequential sampling.
c. Discovery sampling.
d. Stratified sampling.

90.

When in using statistical sampling for attributes, and

auditor should asses control risk at the maximum
assuming:
a. The sample rate of deviation plus the allowances for
sampling risk is less than the tolerable rate.
b. The sample rate of deviation plus the allowance for
sampling risk is equal to the tolerable rate.

c. The sample rate of deviation plus the allowance for

sampling risk exceeds the tolerable rate.
d. The sample rate of deviation is roughly proportional
to the sample rate from the prior year.
91.

Which of the following statements is true about

nonstatistical sampling in tests of controls?
a. Nonstatistical sampling plans provide a quantitative
measure of sampling risk.
b. The auditor's judgment in nonstatistical sampling is
guided by classical statistical sampling concepts.
c. The calculated nonstatistical sample should never
be altered by the auditor.
d. The auditor considers the same parameters when
determining a nonstatistical sample size as when
determining a statistical sample size.

92.

Tolerable error, a measure of the maximum monetary

error that may exist in an account balance without
causing materially misstated financial statements, is
directly related to:
a. Precision.
b. Audit risk.
c. Materiality.
d. Confidence level.

93.

Which of the following is necessary to determine

sample size?
a. Population size.
b. Expected population deviation rate.
c. Estimated population monetary error.
d. Risk.

94.

Which of the following statements is an advantage of

classical variables sampling?
a. If no errors are expected, classical variables
sampling will result in a smaller sample size than
probability-proportional-to-size sampling.

b. A classical variables sampling plan can begin before

the completed population is available.
c. Classical variables sampling may result in a smaller
sample size than probability-proportional-to-size
sampling if there are many differences between
recorded and audited amounts.
d. Classical variables sampling does not require
recorded values for individual sampling units.
95.

Which of the following situations would increase sample

size? A decrease in:
a. Risk of incorrect rejection.
b. Estimated population standard deviation.
c. Expected frequency of errors.
d. Tolerable error.

96.

The risk of incorrect acceptance relates to the:

a. Effectiveness of the audit.
b. Efficiency of the audit.
c. Preliminary estimate of materiality.
d. Allowable risk of tolerable error.
Sample results support the conclusion that a recorded
account balance is materially misstated but, unknown
to the auditor, the account is not misstated, suggesting
the risk of:
a. Incorrect rejection.
b. Incorrect acceptance.
c. Assessing control risk too high.
d. Assessing control risk too low.

97.

98.

Calculate an acceptable risk of incorrect acceptance

assuming: (1) audit risk is 5 percent, (2) the risk that
the internal controls fail to detect material errors is 40
percent, and (3) the risk that analytical procedures fail
to detect material errors not detected by the internal
controls is 50 percent.
a. .04.
b. .16.
c. .25.

d. Indeterminate.
99.

Assume the acceptable risk of incorrect rejection is .10,

the acceptable risk of incorrect acceptance is .075, and
tolerable error is P100,000. What is the desired
allowance for sampling risk?
a. P50,000.
b. P47,800
c. P53,200
d. Indeterminate.

100.

In a difference estimation sampling plan for a

population of 1,500 items, an auditor found total
recorded and audited values for a sample of 100 items
to be P120,000 and P126,000, respectively. What is the
total projected monetary difference for the population?
a. P6,000.
b. P90,000
c. P126,000
d. Indeterminate.

101.

Ratio estimation is inappropriate when:

a. The total population book value is known and
corresponds to the sum of all population items.
b. These are some observed differences between
audited and recorded book values.
c. Differences between recorded and audited values
are nearly proportional to the recorded values.
d. There are no recorded values for some items in the
population.

102.

Probability-proportional-to-size sampling will likely

result in selecting a sample with characteristics roughly
equivalent to:
a. A classical variables sampling plan stratified by peso
amount.
b. Difference estimation.
c. Ratio estimation.
d. Nonstatistical sampling.

103.

In probability-proportional-to-size sampling, each

invoice:
a. Has an equal probability of being selected.
b. Can be represented by no more than one peso unit.
c. Has an unknown probability of being selected.
d. Has a probability proportional to its peso value of
being selected.

104.

Which of the following is improper when using

probability-proportional-to-size sampling?
a. Combining negative and positive peso error items.
b. Using a sample selection technique in which the
same account balance could be selected more than
once.
c. Selecting a random starting point and then sampling
every nth peso unit.
d. Defining the sampling unit as an individual peso and
not as an individual account balance.

105.

In a probability-proportional-to-size sampling plan with

a P10,000 sampling interval, an auditor discovered that
a selected account receivable with a recorded amount
of P5,000 has an audited amount of P2,000. The
projected error for the sample is:
a. P3,000.
b. P4,000.
c. P6,000
d. P8,000.

106.

A nonstatistical sampling plan can:

a. Overstate the estimate of sampling risk.
b. Misdirect an auditor to unreliable sampling units.
c. Replicate the results of a statistical sampling plan.
d. Understate the degree of audit assurance desired.

107.

Which of the following business functions is associated

with the revenue/receipt cycle?
a. Obligations are paid to vendors and employees.

b. Resources are distributed to outsiders in exchange

for promises of future payments.
c. Resources are used, held, or transformed.
d. Capital funds are received from investors and
creditors.
108.

To test whether sales have been recorded, a sample

should be drawn from a file of:
a. Purchase orders.
b. Sales orders.
c. Sales invoices.
d. Bills of lading.

109.

Tracing copies of sales invoices to shipping documents

provides evidence that:
a. Shipments were recorded as receivables.
b. Billed sales were shipped.
c. Debits to the accounts receivable were for sales
shipped.
d. Shipments were billed.

110.

Tracing shipping documents to sales invoices provides

evidence that:
a. Shipments were billed.
b. Shipments were recorded as sales.
c. Recorded sales were shipped.
d. Invoiced sales were shipped.

111.

Which of the following control procedures could prevent

or detect errors of frauds arising from shipments made
to unauthorized parties?
a. Document policies and procedures for scheduling
shipments.]
b. Establish procedures for reviewing and approving
prices and sales terms before sale.
c. Prenumber bills of lading and assure that related
billings are made on a periodic basis.
d. Prepare and periodically update lists of authorized
customers.

112.

Which of the following control procedures would most

likely assure that access to shipping, billing, inventory
controls, and accounting records is restricted to
personnel authorized by management?
a. Segregate
responsibilities
for
authorization,
execution, and recording, and prenumber and
control custody of documents.
b. Establish the cash receipts function in a centralized
location and require daily reconciliation of cash
receipts records with deposit slips.
c. Establish
policy
and
procedures
manuals,
organization charts, and supporting documentation.
d. Periodically substantive and evaluate recorded
account balances.

113.

An entity has implemented a control procedure which

requires that authorized personnel reconcile the total of
individual customer accounts receivable with control
totals. This control relates to which of the following
control objectives?
a. Sales, cash receipts, and related transactions should
be recorded at the correct amounts, in the proper
period, and should be properly classified.
b. Recorded accounts receivable balances should
reflect underlying transactions and events.
c. Billings, collections, and related adjustments
transactions should be posted accurately to
individual customer accounts.
d. Access to cash and cash-related records should be
restricted to personnel authorized by management.

114.

A purpose of tests of controls over shipping is to

determine whether:
a. Billed goods are shipped.
b. Shipments are made in accordance with approved
sales and orders.
c. Sales orders are properly recorded.
d. Shipping personnel route goods to related parties.

115.

A purpose of tests of controls over billing is to

determine whether:
a. Billed goods have been shipped.
b. Sales orders agree to shipping documents.
c. Sales orders have been approved by Credit
Department personnel.
d. Billing personnel process returned goods properly.

116.

What sequence of steps does an auditor undertake

when identifying control procedures that are potentially
reliable in assessing control risk below the maximum?
a. Consider the errors of frauds that might occur,
determine control procedures, identify control
objectives, and design tests of controls.
b. Determine control procedures, design tests of
controls, consider the errors of frauds that might
occur, and identify control objectives.
c. Identify control objectives, consider the errors of
frauds that might occur, determine control
procedures, and design tests of controls.
d. Design tests of controls, determine control
procedures, consider the errors of frauds that might
occur, and identify control objectives.

117.

Which of the following might be detected by sales

cutoff tests?
a. Overstated receivables.
b. Overstated sales.
c. Kiting.
d. Misappropriate inventory.

118.

To test whether all sales transactions have been

recorded, and auditor should test a sample drawn from
an entity's file of:
a. Receiving reports.
b. Bills of lading.
c. Sales orders.
d. Sales invoices.

119.

Positive
accounts
receivable
confirmations
are
appropriate when:
a. There is reason to believe that a substantial number
of accounts may be in dispute.
b. Control risk is low.
c. Accounts receivable consists of many small
balances.
d. Confirmations are mailed during an interim period.

120.

An auditor requests a cutoff bank statement primarily

to:
a. Verify the cash balance reported on the bank
confirmation.
b. Verify reconciling items on the client's bank
reconciliation.
c. Detect lapping.
d. Detect kiting.

121.

Which of the following procedures could reveal

unrecorded sales at the balance sheet date?
a. Comparing shipping documents with sales records.
b. Applying gross profit percentages to inventory
shipped during the period.
c. Tracing payments received after the balance sheet
date to accounts receivable records.
d. Sending accounts receivable confirmations.

122.

Assuming cash receipts from credit sales have been

misappropriated, which of the following is likely to
conceal the misappropriation and unlikely to be
detected?
a. Understating the sales journal.
b. Overstating the accounts receivable control
account.
c. Overstating the accounts receivable subsidiary
ledger.
d. Overstating the cash receipts journal.

123.

Which of the following accounting issues is most likely

to raise an auditor's professional skepticism about
earnings manipulation?
a. Progress payments.
b. Allowance for doubtful accounts.
c. Sales returns.
d. Cash receipts.

124.

Which of the following is most likely to provide

management with incentives to overstate earnings?
a. Projected quarterly dividends.
b. Issuance of preferred stock.
c. Unbudgeted increases in materials prices.
d. A projected stock split.

125.

Under which of the following circumstances does

managements have some discretion in timing the
recognition of revenue?
a. The timing of revenue is not reasonably
determinable and the earnings process is not
complete.
b. The amount and timing of revenue is reasonably
determinable.
c. The earnings process is complete or reasonably
complete.
d. The transaction is at arm's length.