Name:

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Reg. No. ____________________________

Exam Time: Month ________year _______
Department: __________________________
Region: _____________________________
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P.O.Box: ____________________________

Date of Submissions:

Work Sheet For Principles of Auditing II

This worksheet is to be completed and mailed to the Institute for the evaluation. Do not complete the
worksheet until you are certain you have understood the lessons it covers and have reviewed the study guide
and your self-test exercise.

If you have any question in the course that you have not been able to answer for yourself, state it clearly on a
separate sheet of paper, and attach it to the worksheet.

Part I: True or False Questions (0.5 Points Each)

 Write "True" if the statement is correct and "False" if the statement is incorrect.

_____1. Audit Sampling is applying a procedure to 100% of a population to estimate the characteristic of
the population.
_____2. Auditing standards permit auditors to use only statistical sampling methods.
_____3. As acceptable audit risk is decreased, the likely cost of conducting an audit increases.
_____4. Debit Memo is document that requires adjustments to the customers subsidiary ledger account.
_____5. The company's choices for fixed asset on the assets useful life and residual value impact the
amount of depreciation recorded.

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 _____6. Confirmations are commonly used to verify additions of property, plant, and equipment.
_____7. Audit of intangible assets with definite useful lives are audited similar to property, plant and
equipment, except when intangible assets have indefinite useful lives.
_____8. The primary audit objective in the audit of liability such as accounts payable is completeness.
_____9. The balance-related audit objective realizable value is not applicable when auditing notes
payable.
_____10.In IT systems, if general controls are effective, it increases the auditor's ability to rely on
application controls to reduce control risk.

Part II. Multiple Choice Questions (0.5 Points each)

 Choose the best answer and write the letter of your choice in the separate answers sheet
provided
_____1. Which of the following refers the act of securing suitable evidence to support an audit?
A. Sampling D. Accounting
B. Auditing E. All
C. Testing
_____2. Which of the following test is performed to assess the risk of material misstatement in the
financial statements?
A. Tests of controls D. Analytical procedures
B. Tests of details of balances E. Substantive tests of transactions
C. Risk assessment procedure
_____3. Which of the following test focus on the ending general ledger balances for both balance sheet
and income statement accounts
A. Tests of controls D. Analytical procedures
B. Tests of details of balances E. Substantive tests of transactions
C. Risk assessment procedure
_____4. Which of the following is not the advantage of the probability sampling?
A. The results of probability sampling may safely be extrapolate and apply to the wider population
B. The results of probability sampling leads to consistent result
C. The level of confidence may be predefined
D. It requires less skill and time
E. Computers make statistical sampling more convenient to use
_____5. Which of the following is the reason that audit of cash requires large proportion of total audit
hours eventhough the account has a small balance?
A. Liabilities, revenues, expenses and most other assets flow through cash

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 B. Most liquid asset so greater temptation for misappropriation
C. High risk account
D. All
E. Only B and C
_____6. Which of the following refers the concealment of a cash shortage by delaying the recording of
cash receipts
A. Teeming D. Lapping
B. Kiting E. None
C. lading

_____7. A measure of how willing the auditor is to accept that the financial statements may be materially
misstated after the audit is completed and an unqualified opinion has been issued is the:
A. Inherent risk D. Financial risk
B. Acceptable audit risk E. None
C. Statistical risk
_____8. In what order should the following steps occur?
A. assess client business risk
B. understand the client's business and industry
C. perform preliminary analytical procedures
D. assess acceptable audit risk
A. D, B, C, A C. B, D, A, C
B. B, A, D, C D. D, C, B, A
_____9. Which three are substantive tests?
A. Risk assessment procedures ; tests of controls and tests of transactions
B. Tests of transactions ; analytical procedures and tests of details of balances
C. Tests of controls ;tests of transactions and tests of details of balances
D. Tests of controls; tests of transactions and analytical procedures
E. Tests of details of balances; tests of transactions and risk assessment procedures.

_____10.The purpose of tests of controls is to provide reasonable assurance that the:

A. Accounting treatment of transactions and balances is valid and proper.
B. Internal control procedures are functioning as intended.
C. Entity has complied with GAAP disclosure requirements.
D. Entity has complied with requirements of quality control.
E. All
_____11. In the context of an audit of financial statements, substantive tests are audit procedures that:
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 A. They may be eliminated under certain conditions.
B. They are designed to discover significant subsequent events.
C. They are designed to test for dollar misstatements.
D. They will increase proportionately with the auditor's reliance on internal control.
E. None

_____12.A system walkthrough is primarily used to:

A. Test balances. D. Determine acceptance of the client.
B. Test details of transactions. E. All
C. Gain an understanding of internal
controls.
_____13. Which of the following is not a direct result of performing analytical procedures?
A. identify areas of potential misstatements
B. reduce detailed audit tests
C. understand the client's business
D. identify specific errors in the accounts
E. None
_____14. Which of the following statements is not true?
A. Analytical procedures emphasize the overall reasonableness of transactions and balances.
B. Tests of controls are concerned with evaluating whether controls are sufficiently effective to
justify reducing control risk and thereby reducing analytical review procedures.
C. Substantive tests of transactions emphasize the verification of transactions recorded in the journals
and then posted in the general ledger.
D. Tests of details of balances emphasize the ending balances in the general ledger.
E. None
_____15. A ________ is a document that indicates a request for merchandise by a customer.
A. Sales invoice D. Sales order
B. Vendor invoice E. None
C. Customer order
_____16. Before goods are shipped on account, a properly authorized person must:
A. Prepare the sales invoice. C. Approve the customer's credit.
B. Approve the journal entry. D. Verify that the unit price is accurate.
Authorization is unnecessar
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_____17. yThe total of the individual account balances in the accounts receivable subsidiary ledger
should equal the:
A. Total sales for the period.
B. Balance of the sales account in the general ledger.
C. Total sales less the total cash received for the period.
D. Balance of the accounts receivable account in the general ledger.
E. Balance of cash
_____18. Which of the following auditors; objective is nor primaly related to the verification of interest
earned on notes receivables?
A. Completeness D. Right
B. Existence E. Cutt-off
C. Occurrence
_____19. Which form of confirmation asks the debtor Company to advise the auditors only if the balance
shown is incorrect?
A. Negative confirmation D. All
B. Reperformance. E. A and C
C. Positive confirmation
_____20.Which of the following is the risk that audit tests will not uncover existing exceptions in a
sample?
A. Sampling risk D. Detection risk
B. Nonsampling risk E. None
C. Audit risk
_____21.When the auditor goes through a population and selects items using nonprobalistic selection
methods, without regard to their size, source, or other distinguishing characteristics, it is called:
A. Block sample selection. D. Statistical selection.
B. Haphazard selection. E. None
C. Systematic sample selection.
_____22.During your audit of Williams Company you are trying to determine whether all accounts
payable were recorded in the proper period. Which assertion are you gathering evidence for?
A. Occurrence C. Cutoff
B. Completeness D. Rights and Obligations
E. Valuation
_____23.After a purchase requisition is approved, a ________ must be initiated to purchase the goods or
services.
A. Purchase order D. Vendor invoice
B. Vendor order E. None
C. Call order
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_____24.You have been assigned to the accounts payable transaction cycle as part of your auditing
responsibilities. You have decided to vouch a sample of entries in the accounts payable master
file to supporting documents. Which assertion is this test of controls most likely to support?
A. Accuracy D. Occurrence
B. Classification E. Obligation
C. Completeness
_____25.The accounts payable department usually has responsibility for approving acquisitions for
payment by comparing the details on the:
A. Vendor’s invoice and the receiving report.
B. Vendor’s invoice and the purchase requisition.
C. Purchase order, receiving report, and vendor's invoice.
D. Purchase requisition, purchase order, and receiving report.
E. None
_____26. Which of the following is not a key control in the purchase and payment of assets cycle?
A. Authorization of purchases
B. Authorization of credit
C. Timely recording and independent review of transactions
D. Authorization of payments
E. None
_____27.Normally it may be unnecessary to examine supporting documentation for each addition to
property, plant, and equipment, but it would be customary to verify:
A. All large transactions. D. All
B. All unusual transactions. E. A and B
C. A representative sample of typical
additions.
_____28. The primary accounting record for manufacturing equipment and other fixed assets is the:
A. Depreciation ledger. D. Equipment roster.
B. Fixed asset master file. E. None
C. Asset inventory.
_____29.Inadequate controls and misstatements discovered through tests of controls and substantive tests
of transactions are an indication of the likelihood of misstatements in:
A. The balance sheet. D. Both the income statement and the
B. The income statement. balance sheet.
C. The cash flow statement. E. None

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_____30.Which of the following statements regarding the capital acquisition and repayment cycle is most
correct?
A. Relatively few transactions affect the cycle, and most are smaller amounts.
B. Large numbers of transactions affect the cycle, and most are smaller amounts.
C. Relatively few transactions affect the cycle, and most are highly material.
D. Large number of transaction affect the cycle, and most are highly material.
E. None
_____31. Which of the following could not be a working paper for accounts payables?
A. Lead schedule for accounts payable
B. Trial balances of various types of accounts payable
C. Confirmation requests for accounts payable
D. Listing of unrecorded accounts payable
E. None
_____32.Which of the following departments is most likely responsible for pay rate changes and changes
in deductible amounts for employees?
A. General Accounting D. Controller
B. Human Resources E. Purchasing
C. Treasury
_____33. The record of the outstanding shares at any given time is maintained in the:
A. Corporate directory. D. Shareholders' capital stock master
B. Stock certificate books. file.
C. Schedule of stock owners. E. All
_____34. Which of the following is wrong about the audit of revenues and expense?
A. The recognition of revenues and expenses has complicated the audit
B. Conservatism approach affects the recognition of revenues and expense
C. There exist a relationship between revenues and expense account with balance sheet account
D. All E. None
_____35. Which of the following is not a benefit of using IT-based controls?
A. Ability to process large volumes of transactions
B. Ability to replace manual controls with computer-based controls
C. Reduction in misstatements due to consistent processing of transactions
D. Reduction in internal control evaluation in setting control risk
E. None
_____36. Which of the following is not an enhancement to internal control that will occur as a
consequence of increased reliance on IT?

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 A. Computer controls replace manual controls
B. Higher quality information is available
C. Computer-based controls provide opportunities to improve separation of duties
D. Manual controls replace automated controls
E. None

_____37. Which of the following is a component of general controls?

A. Processing controls D. Input controls
B. Output controls E. None
C. Back-up and contingency planning
_____38. Which of the following is not an input batch control?
A. Financial Total D. Record count
B. Hash Total E. None
C. Sequence Test
_____39. Which of the following type of EDP auditing entails the use of computer-assisted audit
techniques to help in various auditing tasks?
A. Auditing Through The Computer
B. Auditing Around The Computer
C. Auditing with the Computer
D. Auditing by manual procedures E. All
_____40.The audit procedure which is least useful in gathering evidence on significant computer processes
is:
A. Documentation. D. Generalized audit software.
B. Observation. E. A and B
C. Test decks.
Part -III: - Short Answer Question (1 point each)…………
 Give short and precise answers
1 What are the importances of sampling in audit testing?
2 List each of the five types of audit tests and list at least two types of evidence that may be obtained from
each type of test.
3 What are the general steps in the audit program of a particular account?

4 List dawn five possible general controls

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5 List dawn the internal control over marketable securities