Multiple Choice Questions

1.       The element of the audit planning process most likely to be agreed upon with the
client before implementation of the audit strategy is the determination of
the                            

a.       Methods of statistical sampling to be used in confirming accounts receivable.

b.      Pending legal matters to be included in the inquiry of the client's attorney.

c.       Evidence to be gathered to provide a sufficient basis for the auditor's opinion.

d.    Schedules and analyses to be prepared by the client's

staff.                                                  

2.       Which of the following is not a component of audit planning?

a.    Observing the client's annual physical inventory taking and making test counts of
selected items.

b.    Making arrangements with the client concerning the timing of audit field work and
use of the client's staff in completing certain phases of the examination.

c.     Obtaining an understanding of the business.

d.    Developing audit programs.

3.       An auditor judged an item to be immaterial when planning an audit.  However, the
auditor may still include the item if it is subsequently determined
that:                                

a.       Sufficient staff is available.

b.      Adverse effects related to the item are likely to occur.

c.       Related evidence is reliable.

d.    Miscellaneous income is affected.                       

 
4.       Which of the following concepts is most useful in assessing the scope of an
auditor's program relating to various accounts?     

a.      Attribute sampling.

b.      Materiality.

c.       The reliability of information.

d.    Management fraud.                                       

5.       Which of the following is not a factor that affects the auditor's judgment, during
audit planning, as to the quantity, type, and content of working
papers?                                      

a.    The auditor's preliminary assessment of control risk.      

b.    The auditor's preliminary evaluation of inherent risk based on discussions with the
client.

c.     The nature of the client’s business.

d.    The type of report to be issued by the auditor.         

6.       How can the audit program best be described at the beginning of the audit
process?                                              

a.       Tentative.                           

b.      Conclusive.                        

c.       Comprehensive.                              

d.      Optional.                                               

7.       The auditor's analytical procedures will be facilitated if the client

a.    Uses a standard cost system that produces variance

reports.                                                     
b.    Segregates obsolete inventory before the physical inventory count.

c.     Corrects material weaknesses in internal control before the beginning of the audit.

d.    Reduces inventory balances to the lower of cost or

market.                                                 

8.       Which of the following matters would an auditor least likely consider when setting
the direction of the audit?

a.    The selection of the engagement team and the assignment of audit work to the
team members.

b.    The engagement budget which includes consideration of the appropriate amount of
time to allot for areas where there may be higher risks of material misstatement.

c.     The availability of client personnel and data.

d.    The manner in which the auditor emphasizes to engagement team member the
need to maintain a questioning mind and to exercise professional skepticism in the
gathering and evaluation of audit evidence.

9.       In planning an audit engagement, the audit is required to develop and document

an

I.     Overall audit strategy

II.    Audit plan

a.    I only

b.    II only

c.     Both I and II

d.    Neither I and II

10.   Which of the following activities should be performed by the auditor at the

beginning of the current audit engagement?
I.     Perform procedures regarding the continuance of the client relationship and the
specific audit engagement.

II.    Evaluate compliance with the requirements of the Code of Ethics for Professional
Accountants in the Philippines, including independence.

III.   Establish an understanding of the terms of the engagement.

a.    I and II only

b.    II and III only

c.     I and III only

d.    I, II, and III

11.   Which of the following factors or conditions is an auditor least likely to plan an audit
to discover?

a.       Financial pressures affecting employees

b.      Inadequate monitoring of significant controls

c.       High turnover of senior management

d.      Inability to generate positive cash flows from operations

12.   Which of the following tasks should be performed prior to the final audit?

a.       Determining the fairness of property, plant, and equipment.

b.      Confirming accounts receivable.

c.       Testing internal control.

d.  Collecting and evaluating evidence supporting the fairness of inventory values.

                               

13.   The four major steps in conducting an audit are:

                a.  Testing internal controls

                b.  Audit report

                c.  Planning

                d.  Testing transactions and balances

The proper sequence in applying the above steps is:

a.  cadb                                          b.  cdab                               

c.  bcda                                 d.  adcb

14. Which of the following procedures should be performed by the auditor prior to

starting an initial audit?

I.     Perform procedures regarding he acceptance of the client relationship and the
specific audit engagement.

II.    Communicate with the previous auditor, where there has been a change of
auditors, in compliance with relevant ethical requirements.

a.      I only.

b.      II only.

c.      Both I and II.

d.      Neither I nor II.

15. When selecting staff for the audit engagements

a.    Only staff members who are CPAs should be assigned to the audit.

b.    Only managers and above need to have appropriate competence and capabilities
to perform the audit.

c.     Continuity of staff members from year to year should not be a factor.

d.    Staff assigned to the audit must be knowledgeable about the client’s industry.

 
16.   Which of the following procedures would an auditor least likely perform in planning
a financial statement audit?

a.       Selecting a sample of vendors’ invoices for comparison to receiving reports.

b.      Coordinating the assistance of entity personnel in data preparation.

c.       Discussing matters that may affect the audit with firm personnel responsible for
non-audit services to the entity.

d.      Reading the current year interim financial statements.

17.   When approached to perform an audit for the first time, the CPA should make
inquiries of the predecessor auditor.  This is a necessary procedure because the
predecessor may be able to provide the successor with information that will assist the
successor in determining

a.       Whether the predecessor’s work should be used.

b.      Whether the company follows the policy of rotating its auditors.

c.       Whether in the predecessor’s opinion internal control of the company has been
satisfactory.

d.      Whether the engagement should be accepted.

18.   What is the responsibility of a successor auditor with respect to communicating

with the predecessor auditor in connection with a prospective new audit client?

a.       The successor auditor has no responsibility to contact the predecessor auditor.

b.      The successor auditor should obtain permission from the prospective client to
contact the predecessor auditor.

c.       The successor auditor should contact the predecessor auditor regardless of

whether the prospective client authorizes contact.

d.      The successor auditor need not contact the predecessor if the successor is aware
of all available relevant facts.

 
19.   In planning an audit, the auditor’s knowledge about the design of relevant controls
should be used to

a.       Identify the types of potential misstatements that could occur.

b.      Assess the operational efficiency of internal control.

c.       Determine whether controls have been circumvented by collusion.

d.      Document the assessed level of control risk.

20.   Marlon, CPA, discussed selected elements of the overall audit plan and certain
audit procedures with the audit committee, management, and staff of Jabla Traders, his
audit client.  This move by the auditor has the following benefits, except

a.       The overall audit plan and the audit program becomes a shared responsibility
between the auditor and the client’s management.

b.      The audit can be performed with improved effectiveness and efficiency.

c.       Coordination of audit procedures with work of the entity’s personnel can be

initiated.

d.      Improved business relationship between the client and the auditor is established.

21.   An entity’s accounting records generally include the records of initial entries and
supporting records including

a.       Confirmations from third parties.

b.      Information obtained by the auditor from such audit procedures as inquiry,

observation, and inspection.

c.       Worksheets and spreadsheets supporting cost allocations.

d.      Other information developed by, or available to, the auditor to permit him/her to
reach conclusions through valid reasoning.

22.   Which of the following factors would least likely affect the form, content, and extent
of an auditor’s working papers?
a.       The content of the representation letter.

b.      The identified risks of material misstatement.

c.       The audit methodology and tools used.

d.      The significance of the audit evidence obtained.

23.   The primary purpose of audit working papers is to

a.       Provide evidence of the planning and execution of audit procedures performed.

b.      Comply with the generally accepted auditing standards in the Philippines.

c.       Document weaknesses in internal control with recommendations to management

for improvement.

d.      Serve as a means for the preparation of the financial statements.

24.   The following statements relate to the form and content of working papers. Which
is false?

a.       The auditor should prepare working papers which are sufficient complete and
detailed to provide an overall understanding of the audit.

b.      The auditor should include in the working papers information on planning the audit
work; the nature, timing, and extent of the audit procedures performed and the results of
such procedures; and the conclusions drawn from the audit evidence obtained.

c.       Working papers should include documentation of every matter the auditor

considers during the audit.

d.      Working papers should include the auditor’s reasoning on all significant matters
which require the exercise of judgment, together with his/her conclusion thereon.

25. An audit supervisor reviewed the work performed by the staff to determine if the
audit was adequately performed. The supervisor accomplished this by primarily
reviewing which of the following?

a.    Checklist
b.    Working Papers

c.     Analytical procedures

d.    Financial statements

26. Documentary evidence is one of the principal types of corroborating information

used by an auditor to substantiate an opinion. Which one of the following examples of
documentary evidence would be most reliable?

a.    Time tickets

b.    Material requisition slips

c.     Copies of sales invoices

d.    Bank statements

27. Which of the following is usually included or shown in the auditor’s working papers?

a.    The procedures used by the auditor to verify the personal financial status of
members of client’s management team.

b.    Analyses that are designed to be a part of, or a substitute for, the client’s
accounting records.

c.     Experts from authoritative pronouncements that support the underlying accounting

policies used in preparing the financial statements.

d.    The manner in which exceptions and unusual matters disclosed by the auditor’s
procedures were resolved or treated.

28. The following statements relate to audit working papers. Which statement is

incorrect?

a.    The auditor is prohibited from utilizing schedules, analyses and other

documentation prepared by the entity.

b.    The nature and complexity of the business of the audit client may affect the form
and content of working papers.
c.     The term “documentation” in PSA 230 means the material (working papers)
prepared by and for, or obtained and retained by the auditor in connection with the
performance of the audit.

d.    The extent of working papers is a matter of professional judgment since it is neither

necessary nor practical to document every matter the auditor considers.

29. Audit documentation should possess certain characteristics. Which of the following

is one of the characteristics?

Audit documentation should be indexed              Audit documentation should be

organized

and cross-reference                                                       to benefit the client’s

staff                            

A.                      Yes                                                                                         Yes

B.                      No                                                                                          Yes

C.                      Yes                                                                                         No

D.                      No                                                                                          Yes

30. Which of the following is the least persuasive documentation in support of an

auditor’s opinion?

a.    Notation of interferences drawn from ratios and trends.

b.    Notation of appraisers’ conclusions documented in the auditor’s working papers.

c.     Lists of negative confirmation requests for which no response was received by the
auditor.

d.    Schedules of details of physical inventory counts conducted by the client