Multiple Choice

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1. The objective of the ordinary audit of financial statements is the expression of an opinion on:
a. The fairness of the financial statements in all material respects.
b. The accuracy of the financial statements.
c. The accuracy of the annual report.
d. The accuracy of the statement of financial position and the statement of
comprehensive income.

2. The responsibility for the preparation of the financial statements and the accompanying
footnotes belongs to:
a. The auditor.
b. The management.
c. Both management and the auditor equally.
d. Management for the statements and the auditor for the notes.

3. Auditors accumulate evidence to:

a. Defend themselves in the event of a lawsuit.
b. Justify the conclusions they have otherwise reached.
c. Satisfy the requirements of the Securities and Exchange Commission.
d. Enable them to reach conclusions about the fairness of the financial statements.

4. Management assertions are

a. Directly related to the PFRS
b. Stated in the notes to the financial statements.
c. Explicitly expressed representations about the company's financial condition.
d. Provided to the auditor in the assertions letter, but are not disclosed on the financial
statements.

5. Management assertions are

a. Implied or expressed representations about classes of transactions and the related
accounts in the financial statements
b. Stated in the footnotes to the financial statements
c. Explicitly expressed representations about the financial statements
d. Provided to the auditor in the assertions letter, but are not disclosed on the financial
statements

6. Which of the following statements is true?

a. The auditor's objectives follow and are closely related to management assertions
b. Management assertions follow and are closely related to the auditor's objectives
c. The auditor's responsibility is to find and disclose fraudulent assertions
 d. Assertions about presentation and disclosure deal with whether the accounts have
been included in the financial statements at appropriate amounts

7. Which of the following is not one of the five broad categories of management assertions?
a. General or specific transaction objectives
b. Existence or occurrence
c. Valuation or allocation
d. Presentation and disclosure

8. This assertion addresses whether all transactions that should be included in the financial
statements are in fact included.
a. Occurrence b. Completeness
c. Rights and obligations d. Existence

9. Which of the following assertions does not relate to balances at period end?
a. Existence b. Occurrence
c. Valuation or Allocation d. Rights and Obligation

10. Which of the following statements is correct?

a. Existence relates to whether the amounts in accounts are understated.
b. Completeness relates to whether balances exist.
c. Existence relates to whether the balances are valid.
d. Occurrence relates to whether the amounts in accounts occurred in the proper year.

11. Which of the following statement is not correct?

a. There are many ways an auditor can accumulate evidence meet the overall audit
objectives.
b. Sufficient appropriate evidence must be accumulated to me the auditor's
professional responsibility.
c. The cost of accumulating the evidence should be minimized.
d. Gathering evidence and minimizing costs are equally important considerations that
affect the approach the auditor selects

12. Which of the following statements is not correct?

a. It would be a violation of the completeness assertion if management would record a
sale that did not take place
b. The completeness assertion deals with matters opposite from those of the
existence/occurrence assertion
c. The completeness assertion is concerned with possibility of omitting items from the
financial statements that should have been included.
d. The existence/occurrence assertion is concerned with inclusion of amount that
should not have been

13. In testing for cut-off, the objective is to determine

a. Whether all of the current period's transactions are recorded
b. That no transactions from the prior period are included in the current period's
balances
 c. That no transactions of the current period have been delayed and recorded in the
subsequent period.
d. Whether transactions are recorded in the proper period

14. When the auditor examines the client's documents and records to substantiate information
on the financial statements, it is commonly referred to as
a. Inquiry b. Confirmation
c. Vouching d. Physical examination

15. When the auditor uses tracing as an audit procedure tor tests of transactions, the auditor is
primarily concerned with which audit objective
a. Occurrence b. Completeness
c. Cut-off C. d. Classification

16. When the auditor used the audit procedure vouching, the auditor is primarily concerned with
which of the following audit objectives when testing classes of transactions?
a. Occurrence b. Completeness
c. Authorization d. Classification

17. Which of the following is an example of vouching?

a. Trace inventory purchases from the acquisitions journal to supporting invoices
b. Trace selected sales invoices to the sales journal
c. Trace details of employee paychecks to the payroll journal
d. All of the above are examples of vouching

18. A document which the auditor receives from the client, but which was prepared by someone
outside the client’s organization, is a(n)
a. Confirmation b. Internal document
c. External document d. Inquiry
c
19. Confirmations are most likely to be used to verify
a. Individual transactions between organizations, such as sales transactions
b. Bank balances and accounts receivables
c. Fixed asset additions
d. All three of the above

20. In performing your audit for a privately-held firm your inquiries have yielded that one of the
company's owner's primary motivations is to pay the least amount of income tax that is
possible. Based on this observation which audit objective for ending inventory would the
auditor be most concerned about ascertaining
a. Completeness b. Accuracy
c. Rights and obligations d. Existence

21. Investigation of new clients and re-evaluation of existing ones is an essential part of
deciding
a. Inherent risk b. Whether to accept engagement
c. Statistical risk d. Financial risk
22. Which of the following would an auditor least likely perform as part of the auditor's
preliminary engagement activities?
a. Perform procedures regarding the continuance of the client relationship and the
specific audit engagement.
b. Evaluate compliance with ethical requirements, including independence.
c. Establish an understanding of the terms of the engagement.
d. Obtain understanding of the legal and regulatory framework applicable to the entity.

23. Which of the following is not one of the reasons why auditor should perform preliminary
engagement activities?
a. To ensure that the auditor maintains the necessary independence and ability to
perform the engagement.
b. To help ensure that there are no issues with management integrity that may affect
the auditor’s willingness to continue the engagement.
c. To ensure that there is no misunderstanding with the client as to the terms of the
engagement.
d. To ensure that sufficient appropriate evidence will be obtained to support the
auditor’s opinion on the financial statements.

24. Which of the following is not normally performed in the preplanning or pre-engagement
phase?
a. Deciding whether to accept or reject an audit engagement
b. Inquiring from predecessor auditor
c. Preparing an engagement letter
d. Making a preliminary estimate of materiality

25. Before accepting an engagement to audit a new client, a CPA required to obtain
a. A preliminary understanding of the prospective client's industry and business.
b. The prospective client’s signature to the engagement letter
c. An understanding of the prospective client's control environment.
d. A representation letter from the prospective client.

26. Preliminary knowledge about the client's business and industry must be obtained prior to the
acceptance of the engagement primarily to
a. Determine the degree of knowledge and expertise required by the engagement.
b. Determine the integrity of management.
c. Determine whether the firm is independent with the client.
d. Gather evidence about the fairness of the financial statements.

27. A CPA firm’s quality control procedures pertaining to the acceptance of a prospective audit
client would most likely include
a. Inquiry of management as to whether disagreements between the predecessor
auditor and the prospective client were resolved satisfactorily.
b. Consideration of whether sufficient competent evidential matter may be obtained to
afford a reasonable basis for an opinion.
 c. Inquiry of third parties, such as the prospective client's bankers and attorneys, about
information regarding the prospective client and its management.
d. Consideration of whether the internal control structure is sufficiently effective to
permit a reduction in the required substantive tests.

28. Prior to the acceptance of an audit engagement with a client who has terminated the
services of the predecessor auditor, the CPA should.
a. Contact the predecessor auditor without advising the prospective client and request
a complete report of the circumstance leading to the termination with the
understanding that all information disclosed will be kept confidential
b. Accept the engagement without contacting the predecessor auditor since the CPA
can include audit procedures to verify the reason given by the client for the
termination.
c. Not communicate with the predecessor auditor because this would in effect be
asking the auditor to violate the confidential relationship between the auditor and
client.
d. Advise the client of the intention to contact the predecessor auditor and request
permission for the contact

29. The purpose of the requirement in having communication between the predecessor and
successor auditors is to
a. Allow the predecessor to disclose information which would otherwise be confidential.
b. Help the successor auditor evaluate whether to accept the engagement
c. Help the client by facilitating the change of auditors.
d. Ensure the predecessor collects all unpaid fees prior to a change in auditor.

30. In an audit, communication between the predecessor and the successor auditor should be
a. Authorized in an engagement letter
b. Acknowledged in a representation letter
c. Either written or oral
d. Done with or without the client's permission

31. The purpose of an engagement letter is to:

a. Document the CPA firm s responsibility to external users of the audited financial
statements.
b. Document the terms of the engagement.
c. Notify the audit staff of an upcoming engagement so that personnel scheduling can
be facilitated.
d. Emphasize management's responsibility for approving the audit program.

32. Before performing any audit procedures. The auditor and the client should agree on the
Types of opinion to be expressed Terms of the engagement
a. Yes Yes
b. No Yes
c. Yes No
d. No No
33. Engagement letters
a. May be either oral or written.
b. Must be written.
c. Must be written and notarized.
d. Must be written if the client is regulated by the Securities and Exchange
Commission.

34. According to PSA 210, the auditor and the client should agree on the terms of engagement.
The agreed terms would need to be recorded in a(n)
a. Memorandum to be placed in the permanent section of the auditing working papers
b. Engagement letter
c. Client representation letter
d. Comfort letter

35. The auditor should document the understanding established with a client through a(n)
a. Oral communication with the client
b. Written communication with the client
c. Written or oral communication with the client
d. Completely detailed audit plan

36. This involves developing an overall strategy for the expected conduct and scope of the
examination; the nature; and timing of which vary with the size and complexity, and
experience with and knowledge of the entity
a. Audit planning b. Audit procedure
c. Audit program d. Audit working papers

37. Which of the following is not normally performed in the planning stage of the audit?
a. Develop an overall audit strategy
b. Request that bank balances be confirmed
c. Schedule engagement staff and audit specialist
d. Identify the client’s reason for the audit.

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

39. Early appointment of the independent auditor will enable

a. A more thorough examination to be performed
b. A proper study and evaluation of internal control to be performed.
c. Sufficient competent evidential matter to be obtained.
d. A more efficient examination to be planned.

40. In developing the overall audit plan for new client, factor not to be considered is
a. Materiality levels
 b. The client’s business, including the structure of the organization and accounting
system used.
c. The amount of estimated audit fee
d. The audit risks a procedure to be performed to achieve audit objectives.

41. Which of the following is most likely first step an auditor would perform at the beginning of
an initial audit engagement?
a. Prepare a rough draft of the financial statements and of the auditor’s report
b. Study and evaluate the system of internal administrative control.
c. Tour the client’s facilities and review the general records
d. Consult with and review the work of the predecessor auditor prior to discussing the
engagement with the client management.

42. A tour of the client’s facilities is helpful in obtaining an understanding of the client’s operation
because
a. The auditor will be able to assess certain safeguards over assets
b. The auditor may be better able to assess certain inherent risk
c. The auditor obtains a broader perspective about the company as a whole
d. All of the above

43. Prior to beginning the field work on a new audit engagement in which a CPA does not
possess expertise in the industry in which the client operates, the CPA should
a. Reduce audit risk by lowering the preliminary levels of materiality
b. Design special substantive test to compensate for the lack of industry expertise
c. Engage financial expert familiar with the nature of the industry
d. Obtain a knowledge of matters that relate to the nature of the entity’s business

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

45. The audit team gathers information about a new client’s business and industry in order to
obtain
a. An understanding of the client’s internal control system relevant to financial reporting.
b. An understanding of how economic events and transactions affect the company’s
financial statements.
c. Information about engagement risk
d. Information regarding whether the company is engaging in fraudulent financial
reporting.

46. Why does auditor establish a preliminary judgement about materiality?

a. To determine the appropriate level of staff to assign to the audit
b. So that the client can know what records to make available to the auditor
 c. To plan the appropriate audit evidence to accumulate and develop an overall audit
strategy
d. To finalize the control risk assessment

47. The auditor has no responsibility to plan and perform the audit to obtain reasonable
assurance that misstatements, whether caused by errors or fraud that are not__________
are detected.
a. Important to the financial statements
b. Statistically significant to the financial statements
c. Material to the financial statements
d. Identified by the client

48. If an auditor sets a relatively high level of materiality, then the auditor will
a. Accumulate more evidence than if a lower level had been set
b. Accumulate less evidence than if a lower level had been set
c. Accumulate approximately the same evidence as would be the case were materiality
lower
d. Accumulate an undetermined amount of evidence.

49. In developing the preliminary level of materiality in an audit, the auditor will
a. Look to audit standards for specific materiality guidelines
b. Increase the level of materiality if fraud is suspected
c. Rely primarily on professional judgement to determine the materiality level
d. Use the same materiality level as that used for different clients is the same industry

50. In making a preliminary judgement about materiality, the auditor initially determines the
aggregate (overall) level of materiality for each statement. For planning purposes, the
auditor should use the
a. Levels separately b. Largest aggregate level
c. Average of these levels d. Smallest aggregate level

b.
c.
d.
e.
f.
g.