Part I. Write Letter "A" If The Statement Is Correct and "B" If The Statement Is Incorrect On The Space Provided. (0.5point Each)

Section: Acc- L4– A B C
Course: Introduction to Audit Accounting Program: Regular

Marks: 25% Date of Exam: Saturday- 09/Jne/ 2012 G.C.
Aspect of Competency: Theoretical & practical Time Allowed: 1: 30 Hours
Name: _______________________
ID No. ______________________ Instructor’s: Endalkachew M.
: Girma
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General Instruction:
1. Switch-off your mobile phone.
2. Attempt all the questions.
3. Make sure that the questions paper has four parts and three printed pages.
4. Cheating is strictly forbidden, any attempt too the result will become zero
5. Don’t begin until you are told to do so.
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Part I. Write letter "A" if the statement is correct and "B" if the statement is incorrect on the
space provided. (0.5Point each)
______ 1. Skills and knowledge of employees affect the effectiveness of internal control.
______ 2. Audit evidence is any information, which is used by the auditor.
______3. The general standards of GASS relates primarily to the personal integrity and professional qualification of auditors.
______ 4. When scope of auditor’s examination is restricted by the client, the auditors should issue an adverse opinion.
______ 5. The introductory paragraph of the auditor’s report clarifies management’s and auditor’s responsibility for financial
statements.
Part II. Choose the correct answer and write the letter on the space provided. (0.5Point each)
_____1. What are the major reasons that an independent auditor gathers evidence?
A) to form an opinion on the financial statement C) to evaluate managements
B) to detect fraud E) to assess control risk
_____2. The primary purpose for obtaining an understanding of an audit client's IC structure is to
A) Provide a basis for making constructive suggestions in a management letter.
B) Determine the nature, time and extent of tests to be performed in the audit.
C) Obtain sufficient competent evidential matter to construct a reasonable basis for an opinion on the financial
statement under examination
D) Provide information for a communication of IC structure.
_____3.Which of the following is (are) the services that an auditor offers.
A) Auditing C) Consultancy service (Management advisory service)
B) Tax advisory and tax return preparation D) All of the above
_____4. The group of auditing standards that relate to the process of gathering and evaluating evidences as a bases for
an opinion.
A) General Standard C) Field work
B) Reporting D) none of the above
_____5. In operational audit the auditor studies businesses operations and makes recommendations about all of the
following except.
A) Economic and efficient use of resources C) The fairness of the financial statements
B) Effective achievement of business objectives D) Compliance with company polices
_____6. In which of the following circumstances would an adverse opinion be appropriates?

A. The auditor is not independent with respects to the enterprise being audited
B. A material uncertainty regarding litigation exists
C. The statements are not in conformity with APB opinion
D. A Client-impose scope limitation prevents the auditor from complying with generally accepted auditing
standards
_____7. When, in the auditor’s judgment, the financial statements are not presented fairly in conformity with
generally accepted accounting principles, the auditor will issue a (n):
A) Qualified opinion C) Disclaimer of opinion
B) Special report D) Adverse opinion
_____8. If an auditor simply states that he/she does not express an opinion on the financial statements. The report is.
A)
A)Unqualified
Expression ofOpinion
opinion B) Adverse Opinion C) Both A and B
C) Detection
B) Qualified Opinion
and Prevention of fraud and error D) Disclaimer Opinion
D) Depends on the type of audit.
_____10.Both auditing
_____9.The main and of
objective accounting are concerned with financial statements. Which of the following
an audit is
A) Auditing uses the theory of evidence to verify the financial information made available by Accountancy.
B) Auditing lends credibility dimension and quality dimension to the financial statements prepared by the
accountant.
C) Auditor should have through knowledge of accounting concepts and convention to enable him to express an
opinion on financial statements.
D) All of the above.
_____11.An auditor obtains knowledge about a new client’s business and its industry to
A) Make constructive suggestions concerning improvements to the client’s internal control system.
B) Evaluate the appropriateness of audit evidence obtained
C) Understand the events and transactions that may have an effect on client’s financial statements.
D) All of the above
_____12.When issuing unqualified opinion, the auditor who evaluates the audit findings should be satisfied that the
A) Amount of known misstatement is documented in working papers
B) Estimates of the total likely misstatement is less than materiality level
C) Estimate of the total likely misstatement is more than materially level
D) None of the above
_____13.Which of the following best describes the primary purpose of audit program preparation?
A) To detect errors or fraud. C) To gather sufficient appropriate evidence
B) To comply with GAAP D) To assess audit risk
_____14.The demand for auditing results from the following underlying factors; except
A. complexity C. bias and motives of the provider
B. remoteness D. None of the above
_____15.The auditors independence would impaired and Auditor will be deemed to be quality of professional
misconduct if
A. Financial involvement with the clients D) A and B are answer
B. Personal & Family relations E) All of the above
_____16.The first general standard of generally accepted auditing standards which states, in part, that the
examination is to be performed by a person or persons having adequate technical training, requires that an
auditor have
A) Education and experience in the field of auditing. C) Proficiency in business and financial matters.
B) Ability in the planning and supervision of the audit work. D) Knowledge in the areas of financial accounting.
_____17. Operational auditing is primarily oriented toward
A) Future improvements to accomplish the goals of management.
B) The accuracy of data reflected in management's financial records.
C) The verification that a company's financial statements are fairly presented.
D) Past protection provided by existing internal control.
_____18. Exercise of due professional care requires that an auditor
A) Use error-free judgment
B) Consider the internal control structure, including tests of controls.
C) Critically review the work done at every level of supervision.
D) Examine all corroborating evidence available.
Part III: Write the letter of your answer from Group “B” in the space provided in Group “A” (0.5Point
each)
“A”
______ 1) the examination is expected to be completed with a reasonable degree of diligence by persons possessing the
average skill.
______ 2) the auditor must be impartial, unbiased and objectives
______ 3) Assure clients that auditors are able the service for which they represent
______4) Guide the auditor in preparing the audit report.
______5) is a conflict between what some users expects from an audit report and what the audit report is designed to deliver.
______6) Is failure to exercise reasonable care in the performance of one’s obligation to another.
______7) Is a professional obligation under the law to provide all services promised and to perform those services
______8) Is false assertion that has been made knowingly, without belief in truth, or recklessly without earning whether it’s
true or not
“B”
A) Adequate technical training B) Expectation gap
C) Independence
D) Field work standard
E) General standard
F) Legal liability
G) Negligence
H) Fraud
I) Standard of report
J) Due professional cares
Part IV. Case
I. The following audit report was issued by the firm of CPAs on a complete set of
Financial Statements: (1 Point each)
AUDIT REPORT
We have audited the accompanying balance sheet of X company December 31, 2004 and 2003, and the
related statements of income and retained earnings for the year ended. These financial statements are the
responsibility of the company’s management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audits in accordance with GAAS. Those standards require that we plan and perform
the audit to obtain limited assurance about whether the financial statements are free of any misstatements
An Audit includes examining on a test bases evidence supporting the amounts and disclosure in the
financial statements .An Audit also includes, assessing accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statement referred to above truly and accurately presenting all material
respects, the financial position of X company as of December 31, 2004 and 2003, and the results of its
operation and its cash flows for the year ended in conformity with accounting principles promulgate by
the FASB and GASB.
REQUIRED:AtoBeza, CPA,a staff auditor for the firm of CPAs, wrote the following list of deficiencies
regarding the audit report. You are to indicate whether each listed deficiency is correct(C)
or incorrect (I) by putting the letter C or I in the space provided.
_____ 1. The report is improperly titled.
_____ 2. All the financial statement are not properly identified in the introductory paragraph
_____ 3. There is no reference made to the AICPA in the scope paragraph
_____ 4. ‘AtoBeza, CPA’is not identified in the introductory and opinion paragraphs
_____ 5. The reference to GAAS should not be made in the scope paragraph.
_____ 6. In the second sentences of the scope paragraph, the report should state ‘negative assurance’, not
‘limited assurance ‘.
_____ 7. In the first line opinion paragraph, the statement truly and accurately present should be
changed to ‘ present fairly’.
_____ 8. In the scope paragraph, the reference to ‘assessing the accounting principles used and
significant estimates made by management ‘should not be in the report.
_____ 9. The reference to accounting principles in the opinion paragraph should only state FASB and not
GASB.
_____ 10. The opinion given is a qualified opinion, but the required explanatory paragraph for a qualified
opinion is missing.

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Section: Acc- L4– A B C

Course: Introduction to Audit Accounting Program: Regular

_____6. In which of the following circumstances would an adverse opinion be appropriates?

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