QUIZ 1 - OVERVIEW OF d.

Assertions are found only in the

AUDITING footnotes to the financial statements.
1.Complete Name (Surname, First Name, 5.The auditor communicates the results of
Middle Name) his or her work through the medium of the
a. Engagement letter
2.Certain fundamental beliefs called
"postulates" underlie auditing theory. Which b. Audit report
of the following is not a postulate of c. Management letter.
auditing?
d. financial statements.
a. No long-term conflict exists between 6.The framework for auditing and related
the auditor and the management of the services as addressed by PSA excludes
enterprise
a. Review
b. Economic assertions can be verified.
b. Tax services
c. The auditor acts exclusively as an
auditor. c. Compilation

d. An audit has a benefit only to the d. Agreed upon proceed

owners. 7.It refers to the level of auditor’s
3.In all cases, audit reports must satisfaction as to the reliability of an
assertion being made byone party for use by
a. Be signed by the individual who another party.
performed the audit procedures.
a. Confidence level
b. Certify the accuracy of the
quantitative information which was audited. b. Reasonableness level

c. Communicate the auditor’s finding to c. Assurance level

the general public. d. Tolerable level
d. Inform readers of the degree of 8.Indicate the level of assurance provided by
correspondence between the quantifiable audit and related services. - Audit, Agreed-
information and the established criteria. upon Procedures, Compilation
4.As used in auditing, which of the a. High, None, None
following statements best describes
"assertions"? b. Limited, None, None

a. Assertions are the representations of c. Absolute, None, None

management as to the reliability of the d. Negative, None, None
information system 9.Which of the following is true of the report
b. Assertions are the auditor's findings based on agreed-upon-procedures?
to be communicated in the audit report. a. The report is restricted to those
c. Assertions are the representations parties who have agreed to the
of management as to the fairness of the procedures to be performed
financial statements b. The CPA provides the recipients of
the report limited assurance as to
reasonableness of the assertion(s) presented a conclusion
in the financial information. with respect to the reliability of a written
assertion that is the responsibility of another
c. The report states that the auditor has
party is
not recognized any basis that requires
a (n)
revision of financial statements
a. Accounting and bookkeeping service
d. The report should state that the
procedures performed are limited to b. Management advisory service
analytical procedures and inquiry
c. Attestation service
10.Which of the following is an objective of
a review engagement? d. Tax service
13.The three types of attestation services
a. Expressing a positive opinion that the
are:
financial information is presented in
conformity with generally accepted a. Audits, review, and compilations
accounting principles.
b. Audits, compilations, and other
b. Expressing a limited assurance to attestation services
users who have agreed as to procedures that
will be performed by the CPA. c. Reviews, compilations, and other
attestation services
c. Reporting whether material
modifications should be made to such d. Audits, reviews, and other
financial statements to make them attestation services
conform with generally accepted 14.Which of the following is not primary
accounting principles. category of attestation report?

d. Reporting that the financial a. Compilation report

statements, in all materials respects, fairly b. Review report
present the financial position and operating
results of the client. c. Audit report
11.According to Philippine Standard on d. Special audit report based on a basis
Auditing, the procedures employed in doing of accounting other than generally
compilation are: accepted accounting principles. 
a. Designed to enable the accountant to 15.The primary goal of the CPA in
express a limited assurance. performing the attest function is to

b. Designed to enable the accountant to a. Detect fraud

express a negative assurance. b. Examine individual transactions so
c. Not designed to enable the that the auditor may certify as to their
accountant to express any form of validity
assurance. c. Determine whether the client's
d. Less extensive than review assertions are fairly stated
procedures but more extensive than agreed- d. Assure the consistent application of
upon procedures. correct accounting procedures
12.Any services in which the CPA firm 16.Which of the following criteria is unique
issues a written communication that express to the independent auditor’s attest function?
 19.The criteria for evaluating quantitative
a. General competence
information vary. For example, in the audit
b. Familiarity with the particular of historical financial statements by CPA
industry of each client firms, the criteria are usually
c. Due professional care a. Generally accepted auditing
standards.
d. Independence
17.Assurance engagement b. Generally accepted accounting
principles.
a. Is an engagement in which a
practitioner is engaged to issue, or does c. Regulations of the Internal Revenue
issue, a written communication that Service.
expresses a conclusion about the reliability
d. Regulations of the Securities and
of a written assertion that is the
Exchange Commission.
responsibility of another party.
20.Which of the following types of audit
b. Is a systematic process of objectively uses as its criteria laws and regulations?
obtaining and evaluating evidence
a. Operational audit
regarding assertions about economic actions
and events to ascertain the degree of b. Compliance audit
correspondence between those assertions
c. financial statement audit
and established criteria and communicating
the results to interested users. d. financial audit
21.An operational audit is designed to
c. Is an engagement in which the auditor
provides a moderate level of assurance that a. Assess the efficiency and
the information subject to the engagement is effectiveness of management’s operating
free of material misstatement. procedures
d. Is an engagement intended to b. Assess the presentation of
enhance the credibility of information management’s financial statements in
about a subject matter by evaluating accordance with generally accepted
whether the subject matter conforms in accounting principles
all material respects with suitable criteria,
thereby improving the likelihood that the c. Determine whether management has
information will meet the needs of an complied with applicable laws and
intended user. regulations
18.The single feature that most clearly d. Determine whether the audit
distinguishes auditing, attestation, and committee of the board of directors is
assurance is effectively discharging its responsibility to
a. Type of service. oversee management’s operations
22.Independent auditing can best be
b. Training required to perform the described as a
service
a. Branch of accounting
c. Scope of services
b. Discipline that attests to the results
d. CPA’s approach to the service of accounting and other operations and
data
 ineffective in detecting intentional
c. Professional activity that measures
misstatements.
and communicates financial and business
27.Because an examination in accordance
data
with generally accepted auditing standards is
d. Regulatory function that prevents the influenced by the possibility of material
issuance of improper financial information errors, the auditor should conduct the
23.A review of any part of an organization’s examination with an attitude of
procedures and methods for the purpose of
a. Professional responsiveness
evaluating efficiency and effectiveness is
classified as a (n) b. Conservative advocacy
a. Audit of financial statements c. Objective judgment
b. Compliance audit d. Professional skepticism
28.Which of the following best describes
c. Operational audit
why an independent auditor reports on
d. Production audit financial statements?
24.A financial statement audit:
a. independent auditors are likely to
a. Confirms that financial statement detect fraud
assertion are accurate.
b. Competing interests may exist
b. Lends credibility to the financial between management and the users of the
statements. statements
c. Guarantees that financial statements c. Misstated account balances are
are presented fairly. generally corrected by an independent audit.
d. Assures that fraud had been detected. d. Ineffective internal controls may
25.Which of the following is responsible for exist.
an entity’s financial statements? 29.Which of the following is an appraisal
activity established within an entity as a
a. The entity’s management service to the entity?
b. The entity’s internal auditors a. External auditing
c. The entity’s audit committee b. Internal auditing
d. The entity’s board of directors c. financial auditing
26.Which of the following least likely limits
the auditor’s ability to detect material d. Compliance auditing
misstatement? 30.To operate effectively, an internal auditor
must be independent of
a. Most audit evidences are conclusive
rather than being persuasive. a. The line functions of the
organizations
b. The inherent limitations of any
accounting and internal control system. b. The entity
c. Audit is based on testing c. The employer-employee relationship
which exists for other employees in the
d. Audit procedures that are effective in organization
detecting ordinary misstatements are
 d. All of the above d. The internal auditor's span of
31.To provide for the greatest degree of coverage goes beyond financial auditing to
independence in performing internal encompass operational and performance
auditing functions, an internal auditor most auditing.
likely should report to 34.Which of the following is an incorrect
phrase?
a. Board of Directors.
a. Auditing is a systematic process.
b. Vice-President for Finance.
b. Auditing subjectively obtains and
c. Corporate Controller.
evaluates evidence.
d. Corporate Stockholders.
c. Auditing evaluates evidence
32.Which statement is correct regarding the
regarding assertions.
relationship between internal auditing and
the external auditor? d. Auditing communicates results to
interested users.
a. Some judgments relating to the audit
35.Which of the following is a correct
of the financial statements are those of the
statement relating to the theoretical
internal auditor
framework of auditing?
b. The external audit function's
a. The financial data to be audited can
objectives vary according to management's
be verified.
requirements.
b. Short-term conflicts do not exist
c. Certain aspects of internal auditing
between managers who prepare data and
may be useful in determining the nature,
auditors who examine data
timing and extent of external audit
procedures. c. Auditors do not necessarily need
independence.
d. The external auditor is responsible for
the audit opinion expressed, however d. An audit has a benefit only to the
that responsibility may be reduced by any owners.
use made of internal auditing. 36.Users of financial statements demand
33.Which of the following statements is not independent audit because
a distinction between independent auditing
a. Users demand assurance that fraud
and internal auditing?
does not exist
a. independent auditors represent third
b. Management may not be objective
party users external to the auditee entity,
in reporting.
whereas internal auditors report directly to
management. c. Users expect auditors to correct
management errors.
b. Although independent auditors
strive for both validity and relevance of d. Management relies on the auditor to
evidence, internal auditors are concerned improve internal control.
almost exclusively with validity.
c. Internal auditors are employees of the
auditee, whereas independent auditors
are independent contractors.
 a. To monitor full compliance by
auditors to PSAs.
b. To promulgate auditing standards,
practices and procedures that shall be
QUIZ 2 - PROFESSIONAL generally accepted by the accounting
profession in the Philippines.
ACCOUNTING PRACTICE
1.Complete Name (Surname, First Name, c. To assist the Board of Accountancy in
Middle Name) conducting administrative proceedings on
2.Which of the following is not normally a erring CPAs in audit practice.
service rendered by public accountants?
d. To undertake continuing research on
a. Management consultation service both auditing and financial accounting in
order to make them responsive to the needs
b. Attest function of the public.
c. Internal auditing 6.In the absence of pronouncements issued
by the ASPC and the PICPA, published
d. Taxation statements and guidelines issued by other
3.CPA firm offers management advisory authoritative bodies like AICPA, IAASB
services to clients. Its primary purpose is to and AFA are the bases of determining
a. Furnish professional advice and generally accepted auditing standards
assistance which will enable the client to (GAAS). What effect do these
improve operations pronouncements provide in determining the
GAAS?
b. Keep the CPA firm competitive with
other firms. a. Authoritative
c. Establish the firm as a consultant, b. Persuasive
thus ensuring its future expansion and c. Parallel
growth.
d. Alternative
d. Permit the firm’s staff members to 7.The Philippine Standards on Auditing
acquire expertise in other areas of practice. issued by ASPC
4.The government agency tasked by law of
implementing and enforcing the regulatory a. Apply to independent examination
policies of financial statements of any entity when
of the national government with respect to such an examination is conducted for the
the regulation and licensing of the various purpose of expressing an opinion thereon.
professions and occupations under its b. Must not apply to other related
jurisdiction is activities of auditors
a. PRC c. Need to be applied on all audit related
b. BOA matters.
c. COA d. Require that in no circumstances
would an auditor may judge it necessary to
d. SEC depart from a PSA, even though such a
5.Which of the following mostly describes
the function of ASPC?
departure may result to more effective
achievement of the objective of an audit
8.These statements are issued to provide
practical assistance to auditors in
implementing the PSAs
a. Interpretations
b. SASP
c. PAPS
d. SPA
9.A body that is created through the
Philippine Accountancy Act of 2004 and is
intended to replace the ASPC.
a. Auditing and Assurance Standards
Council (AASC)
b. Financial Reporting Standards
Council (FRSC)
c. Education Technical Council (ETC)
d. Philippine Institute of Certified Public
Accountants (PICPA)
10.The amount of audit fees depend largely
on the
a. Size and capitalization of the
company under audit.
b. Amount of profit for the year.
c. Availability of cash.
d. Volume of audit work and degree
of competence and responsibilities
involved.
11.In determining audit fees, an auditor may
take into account each of the following
except
a. Volume and intricacy of work
involved.
b. Degree of responsibility assumed.
c. Number and cost of manhours
needed.
d. Size and amount of capital of client.
 b. An incorrect accounting estimate
arising from oversight or misinterpretation
of facts.
c. A mistake in the application of
accounting principles relating to
measurement, recognition, classification,
QUIZ 3 - AUDITORS presentation, or disclosure.
RESPONSIBILITY d. Misrepresentation in the financial
1.Complete Name (Surname, First Name, statements of events, transactions or other
Middle Name) significant information
2.The primary responsibility for the 5.The term “fraud” refers to an intentional
prevention and detection of fraud and error act by one or more individuals among
rests with management, those charged with
a. The auditor. governance, employees, or third parties,
involving the use of deception to
b. Those charged with governance. obtain an unjust or illegal advantage. Which
c. The management of an entity. statement is correct regarding fraud?

d. Both b and c. Auditors make legal determinations of

3.When planning and performing audit whether fraud has actually occurred.
procedures and evaluating and reporting the b. Misstatement of the financial
results thereof, the auditor should statements may not be the objective of
a. Search for errors that would have a some frauds.
material effect and for fraud that would have c. Fraud involving one or more
either material or immaterial effect on the members of management or those charged
financial statements. with governance is referred to as “employee
b. Consider the risk of misstatements in fraud”.
the financial statements resulting from fraud d. Fraud involving only employees of
or error. the entity is referred to as “management
c. Search for fraud that would have a fraud”.
material effect and for errors that would 6.The types of intentional misstatements that
have either material or immaterial effect on are relevant to the auditor’s consideration of
the financial statements. fraud include
I. Misstatements resulting from fraudulent
d. Consider the risk of material financial reporting
misstatements in the financial statements II. Misstatements resulting from
resulting from fraud or error. misappropriation of assets
4.The following are examples of error,
except a. I and II

a. A mistake in gathering or processing b. I only

data from which financial statements are c. II only
prepared.
d. Neither I nor II
7.Fraudulent financial reporting involves manipulated.
intentional misstatements or omissions of V. The seniority of those involved.
amounts or disclosures in financial
a. All of the above
statements to deceive financial statement
users. Fraudulent financial reporting least b. I, III and V only
likely involve
c. I, II, III and V only
a. Deception such as manipulation,
falsification, or alteration of accounting d. III and V only
records or supporting documents from which 10.In comparing management fraud with
the financial statements are prepared. employee fraud, the auditor’s risk of failing
to discover the fraud is
b. Misrepresentation in, or intentional
omission from, the financial statements of a. Greater for employee fraud because
events, transactions or other significant of the higher crime rate among blue collar
information. workers.

c. Intentional misapplication of b. Greater for management fraud

accounting principles relating to because of management’s ability to
measurement, recognition, classification, override existing internal controls
presentation, or disclosure. c. Greater for employee fraud because
d. Embezzling receipts, stealing of the larger number of employees in the
physical or intangible assets, or causing organization.
an entity to pay for goods and services not d. Greater for management fraud
received. because managers are inherently smarter
8.The risk of not detecting a material than employees.
misstatement resulting from fraud is higher 11.Whether the auditor has performed an
than the risk of not detecting a material audit in accordance with PSAs is determined
misstatement resulting from error because by
a. The effect of fraudulent act is likely a. The adequacy of the audit
omitted in the accounting records. procedures performed in the
b. Fraud is ordinarily accompanied circumstances and the suitability of the
by acts specifically designed to conceal its auditor’s report based on the result of
existence. these procedures.

c. Fraud is always a result of connivance b. The absence of material

between or among employees. misstatements.

d. The auditor is responsible to detect c. The absence of material errors.

errors but not fraud. d. The Securities and Exchange
9.The auditor’s ability to detect a fraud Commission
depends on factors such as 12.When planning the audit, which of the
I. The skillfulness of the perpetrator. following is least likely a purpose of the
II. The frequency and extent of auditor’s inquiries of management?
manipulation.
III. The degree of collusion involved. a. To obtain an understanding of
IV. The relative size of individual amounts management’s assessment of the risk that
the financial statements may be materially
b. Involve the economic and regulatory
misstated as a result of fraud.
environment in which the entity operates.
b. To obtain knowledge of
c. Pertain to the nature and complexity
management’s understanding regarding the
of the entity and its transactions, the entity’s
accounting and internal control systems in
financial condition, and its profitability
place to prevent and detect error.
d. Involve the lack of controls designed
c. To determine whether management
to prevent or detect misappropriation of
has discovered any material errors.
assets.
d. To determine extent of 16.The following are examples of fraud risk
authentication of documentation. factors relating to industry conditions,
13.Which of the following best describes except
what is meant by the term “fraud risk
a. There is a high turnover of
factor”?
management, counsel or board members.
a. Factors whose presence indicates that
b. A high degree of competition or
the risk of fraud is high.
market saturation, accompanied by declining
b. Factors whose presence often has margins.
been observed in circumstances where
c. A declining industry with increasing
frauds have occurred
business failures and significant declines in
c. Factors whose presence requires customer demand
modifications of planned audit procedures.
d. Rapid changes in the industry, such as
d. Reportable conditions identified high vulnerability to rapidly changing
during an audit. technology or rapid product obsolescence.
14.Which of the following is least likely a 17.Examples of fraud risk factors relating to
category of fraud risk factors that relate to susceptibility of assets to misappropriation
misstatements resulting from fraudulent include the following, except
financial reporting?
a. large amounts of cash on hand or
a. Management’s characteristics and processed.
influence over the control environment.
b. Inventory characteristics, such as
b. Industry conditions. small size combined with high value and
high demand.
c. Operating characteristics and
financial stability. c. Easily convertible assets, such as
bearer bonds, diamonds or computer chips.
d. Susceptibility of assets to
misappropriation d. Lack of appropriate management
15.Fraud risk factors relating to oversight.
management’s characteristics and influence 18.Which of the following is most likely an
over the control environment example of fraud risk factor relating to
management’s characteristics and influence
a. Pertain to management’s abilities,
over the control environment?
pressures, style, and attitude relating to
internal control and the financial
reporting process.
 of material misstatement resulting from
a. There is a strained relationship
fraud.
between management and the current or
predecessor auditor d. All of the above.
21.The auditor may encounter circumstances
b. Inability to generate cash flows from
that, individually or in combination, indicate
operations while reporting earnings and
the possibility that the financial statements
earnings growth
may contain a material misstatement
c. Significant related party transactions resulting from fraud or error. These
which are not in the ordinary course of circumstances include the following, except
business.
a. Unrealistic time deadlines for audit
d. Significant, unusual or highly completion imposed by management.
complex transactions (especially those close
b. Conflicting or unsatisfactory evidence
to year-end) that pose difficult questions
provided by management or employees.
concerning substance over form.
19.Examples of fraud risk factors relating to c. Information provided unwillingly or
susceptibility of assets to misappropriation after unreasonable delay.
include the following, except
d. Transactions recorded in
a. Large amounts of cash on hand or accordance with management’s general
processed. or specific authorization.
22.Which of the following circumstances
b. Inventory characteristics, such as
most likely indicate the possibility of fraud
small size combined with high value and
or error?
high demand.
a. Management engages in frank
c. Easily convertible assets, such as
communication with appropriate third
bearer bonds, diamonds or computer chips.
parties, such as regulators and bankers
d. Lack of appropriate management
b. Evidence of an unduly lavish
oversight.
lifestyle by officers or employees.
20.The nature, timing and extent of
procedures may need to be modified in the c. Conservative application of
following ways as possible responses to the accounting principles.
auditor’s assessment of the risk of material
d. Minimal differences from
misstatement resulting from both fraudulent
expectations disclosed by analytical
financial reporting and misappropriation of
procedures.
assets.
23.Which of the following should the
a. The nature of audit procedures auditor likely to do when the application of
performed may need to be changed to obtain planned audit procedures indicates the
evidence that is more reliable or to obtain possible existence of fraud or error?
additional corroborative information.
a. The auditor should resign in order to
b. The timing of substantive procedures avoid legal responsibility
may need to be altered to be closer to, or at,
b. He should discuss the matter with the
year-end.
person whom he believes is involved with
c. The extent of the procedures applied the irregularities
will need to reflect the assessment of the risk
 significant risk of material and pervasive
c. He should consider the potential
fraud.
effect on the financial statements.
c. The auditor has significant concern
d. He should refer the suspected fraud or
about the competence or integrity of
error to the internal auditor.
management or those charged with
24.The auditor should document
governance
a. Fraud risk factors identified as being
d. All of the above.
present during the auditor’s assessment
27.An auditor’s overall objective in a
process.
financial statement audit is to
b. The auditor’s response to fraud risk
a. Determine that all individual accounts
factors identified.
and footnotes are fairly presented.
c. Both a and b.
b. Employ the audit risk model.
d. Neither a nor b.
c. Express an opinion on the
25.Communication of a misstatement
fair presentation of the financial
resulting from fraud, or a suspected fraud, or
statements in accordance with generally
error to the appropriate level of management
accepted accounting principles
on a timely basis is important because it
enables management to take action as d. Detect all errors and fraud.
necessary. Ordinarily, the appropriate level 28.If the auditor suspects that members of
of management is senior management, including members of
the board of directors, are involved in
a. At least equal to the level of the
noncompliance to laws as regulations, and
persons who appear to be involved with the
he believes his report may not be acted
misstatement or suspected fraud
upon, he would:
b. At least one level above the persons
a. Do nothing.
who appear to be involved with the
misstatement or suspected fraud b. Issue a disclaimer of opinion.
c. The audit committee of the board of c. Consider seeking legal advice.
directors.
d. Make special investigation in order to
d. The head of internal audit department. fully determine the extent of client’s
26.The auditor may encounter exceptional noncompliance
circumstances that bring into question the 29.Examples of the type of information that
auditor’s ability to continue performing the may come to the auditor's attention that may
audit, including were indicate that noncompliance with laws or
regulations has occurred least likely include
a. The entity does not take the remedial
action regarding fraud that the auditor a. Investigation by government
considers necessary in the circumstances, departments or payment of fines or penalties
even when the fraud is not material to the
b. Sales commissions or agent's fees
financial statements
that appear reasonable in relation to
b. The auditor’s consideration of the risk those ordinarily paid by the entity or in
of material misstatement resulting from its industry or to the services actually
fraud and the results of audit tests indicate a received.
 c. Unusual transactions with companies d. Consult with the entity’s legal
registered in tax havens. counsel as to what appropriate action the
auditor should do.
d. Media comment.
32.When the auditor becomes aware of
30.What is expected of auditor in
information concerning a possible
determining noncompliance by an entity to
noncompliance to laws or regulations, the
existing laws and regulations?
auditor should appropriately:
a. Whether an act constitutes
a. Obtain an understanding of the
noncompliance is a legal determination that
nature of the act and the circumstances in
is ordinarily within the auditor’s
which it has occurred, and evaluate the
professional competence
possible effect on the financial statements.
b. The auditor’s training, experience and
b. Discuss his suspicion with the
understanding of the entity and its industry
management.
cannot provide a basis for recognition that
some acts coming to the auditor’s attention c. Ask management to determine
may constitute noncompliance with laws and whether a violation is really committed.
regulations.
d. Consult with the entity’s legal
c. The determination as to whether a counsel as to what appropriate action the
particular act constitutes or is likely to auditor should do.
constitute noncompliance is generally based 33.When the auditor becomes aware of
on the understanding of the auditor but information concerning a possible
ultimately can only be determined by an noncompliance to laws or regulations, the
expert who is qualified to practice law. auditor should appropriately:
d. In order to plan the audit, the a. Obtain an understanding of the
auditor should obtain a general nature of the act and the circumstances in
understanding of the legal and regulatory which it has occurred, and evaluate the
framework applicable to the entity and possible effect on the financial statements.
the industry and how the entity
b. Discuss his suspicion with the
is complying with the framework.
management.
31.When the auditor becomes aware of
information concerning a possible c. Ask management to determine
noncompliance to laws or regulations, the whether a violation is really committed.
auditor should appropriately:
d. Consult with the entity’s legal
a. Obtain an understanding of the counsel as to what appropriate action the
nature of the act and the circumstances in auditor should do.
which it has occurred, and evaluate the 34.When the auditor becomes aware of
possible effect on the financial statements. information concerning a possible
noncompliance to laws or regulations, the
b. Discuss his suspicion with the
auditor should appropriately:
management.
a. Obtain an understanding of the
c. Ask management to determine
nature of the act and the circumstances in
whether a violation is really committed.
which it has occurred, and evaluate the
possible effect on the financial statements.
 37.The primary responsibility for the
b. Discuss his suspicion with the
adequacy of disclosure in the financial
management.
statements of a publicly held company rests
c. Ask management to determine with the
whether a violation is really committed.
a. Partner assigned to the audit
d. Consult with the entity’s legal engagement.
counsel as to what appropriate action the
b. Management of the company.
auditor should do.
35.When the auditor becomes aware of c. Auditor in-charge of field work
information concerning a possible
d. Securities and Exchange
noncompliance to laws or regulations, the
Commission.
auditor should appropriately:
38.Which of the following ultimately
a. Obtain an understanding of the determines the specific audit procedures
nature of the act and the circumstances in necessary to provide an independent auditor
which it has occurred, and evaluate the with a reasonable basis for the expression of
possible effect on the financial statements. an opinion?
b. Discuss his suspicion with the a. the audit program.
management.
b. the auditor’s judgment.
c. Ask management to determine
c. generally accepted auditing standards.
whether a violation is really committed.
d. the auditor’s working papers.
d. Consult with the entity’s legal
39.The form of communication with a client
counsel as to what appropriate action the
in a management advisory service
auditor should do.
consultation should be
36.Reasonable assurance means:
a. Either oral or written.
a. Gathering of all available
corroborating evidence for the auditor to b. Oral with appropriate documentation
conclude that there are no material in the work papers.
misstatements in the financial statements,
taken as a whole. c. Written and copies should be sent to
both management and the board of directors.
b. Gathering of the audit evidence
necessary for the auditor to conclude that d. Written and a copy should be sent to
there are no material misstatements in the management alone.
financial statements, taken as a whole. 40.Mead Corp. orally engaged Dex & Co.,
CPAs, to audit its financial statements. The
c. Gathering of the audit evidence management of Mead informed Dex that it
necessary for the auditor to conclude that the suspected that the accounts receivable were
financial statements, taken as a whole, are materially overstated. Although the financial
free from any misstatements. statements audited by Dex did, in fact,
include a materially overstated accounts
d. Gathering of the audit evidence
receivable balance, Dex issued an
necessary for the auditor to conclude that the
unqualified opinion. Mead relied on the
financial statements are free of material
financial statements in deciding to obtain a
unintentional misstatements
loan from City Bank to expand its
operations. City relied on the financial 41.Which one of the following, if present,
statements in making the loan to Mead. As a would support a finding of constructive
result of the overstated accounts receivable fraud on the part of a CPA?
balance, Mead has defaulted on the loan and
a. Privity of contract.
has incurred a substantial loss. If Mead sues
Dex for negligence in failing to discover the b. Reckless disregard.
overstatement, Dex's best defense would be
that c. Intent to deceive

a. No engagement letter had been signed d. Ordinary negligence.

by Dex.
b. The audit was performed by Dex in
accordance with generally accepted
auditing standards.
c. Dex was not in privity of contract
with Mead.
d. Dex did not perform the audit
recklessly or with an intent to deceive.