AUDITING AND ASSURANCE PRINCIPLES

FINAL EXAMINATION
3rd Trimester AY2021-2022

NAME: ROLDAN, JHERALDINE MAE G.

1. Which of the following best describes “high level of assurance”?

A. It refers to the professional accountant having obtained evidence based on procedures
agreed upon between the practitioner and the intended users to be satisfied that findings be
reported to the intended users.
B. It refers to the professional accountant having obtained sufficient external and internal
appropriate evidence to be satisfied that the subject matter is plausible in the circumstances.
C. It refers to the professional accountant having obtained sufficient appropriate evidence
to conclude that the subject matter conforms in all material respects with identified suitable
criteria.
D. It refers to the professional accountant having obtained sufficient evidence to conclude
that he has no knowledge of any required modifications to be made in the financial statements
in order for them to conform of prescribed criteria.

2. Which statement is incorrect regarding assurance engagement risk?

a. Engagement risk is the risk that the practitioner will express an inappropriate conclusion
that the subject matter conforms in all material respects with suitable criteria.
b. All components of the engagement risk model will be significant for all assurance
engagements.
c. The extent to which the practitioner considers the relevant components of engagement
risk will be affected by the engagement circumstances.
d. Business risk is not part of engagement risk and does not affect the application of
Philippine Standard on Assurance Engagements.

3. Which statement is incorrect regarding an engagement to perform agreed-upon

procedures?
a. An auditor is engaged to carry out those procedures of an audit nature to which the
auditor and the entity and any appropriate third parties have agreed and to report on factual
findings.
b. The recipients of the report must form their own conclusions from the report by the
auditor.
c. The report is restricted to those parties that have agreed to the procedures to be
performed.
d. The report on factual findings is expressed in the form of negative assurance.

4. Which of the following engagements provides third parties the highest level of assurance
about the client’s financial statements?
a.   Audit c.   Agreed-upon procedures
 b.   Review d.   Compilation

5. In which of the following situations can third parties assume responsibility of the auditor
regarding association with financial information?
a. When the auditor attaches a report to that information.
b. When the auditor consents to the use of the auditor's name in a professional
connection.
c. Either a or b.
d. Neither a nor b.

6. A concept relating to the accumulation of the audit evidence necessary for the auditor to
conclude that there are no material misstatements in the financial statements taken as a
whole.
a.   Reasonable assurance c.   Moderate assurance
b.   Positive assurance d.   Negative assurance
7. Which statement is incorrect regarding the external auditor’s consideration of the work of
internal auditing?
a. The external auditor should consider the activities of internal auditing and their effect, if
any, on external audit procedures.
b. The external auditor should obtain a sufficient understanding of internal audit activities to
assist in planning the audit and developing an effective audit approach.
c. During the course of planning the audit, the external auditor should perform a preliminary
assessment of the internal audit function when it appears that internal auditing is relevant to the
external audit of the financial statements in specific audit areas.
d. When the external auditor intends to use specific work of internal auditing, the external
auditor need not evaluate and test that work to confirm its adequacy for the external auditor's
purposes.
8. The independent auditor lends credibility to client’s financial statements by
a. Maintaining a clear-cut distinction between management’s representations and the
auditor’s representation.
b. Testifying under oath about client’s financial statements.
c. Stating in the auditor’s management letter that the examination was made in accordance
with generally accepted auditing standards.
d. Attaching an auditor’s opinion to the client’s financial statements.
9. Which of the following is responsible for the fairness of representations made in financial
statements?
a. The independent auditor. c.   The client's management.
b. The internal auditor. d.   The audit committee.
10. The exposure period allowed for each exposure draft of PSA to be considered by the
organizations and persons to whom it is sent for comment is generally
a.   Four months c.   Two months
b.   Three months d.   Six months
11. This process may include, particularly in the case of large complex audits, requesting
personnel not otherwise involved in the audit to perform certain additional procedures.
a.   Direction c.   Review
b.   Supervision d.   All of these
12. Which of the following is least likely a factor that affects the extent of quality control
procedures?
a. The size of the firm. c.   The number of practice offices.
b. The type of clients that the firm serves. d.   The nature of the
practice.
13. Which statement is incorrect regarding the auditor’s responsibility to consider fraud and
error in the audit of financial statements?
a. The auditor is entitled to accept records and documents as genuine.
b. The auditor is may be held responsible for the prevention of fraud and error.
c. The auditor should consider the risk of material misstatements in the financial
statements resulting from fraud or error.
d. The risk of not detecting a material misstatement resulting from error is lower than the
risk of not detecting a material misstatement resulting from fraud.
14. Which statement is incorrect regarding “fraud risk factors”?
a. Using the auditor’s knowledge of the business, the auditor may identify events or
conditions that provide an opportunity, a motive or a means to commit fraud, or indicate that
fraud may already have occurred.
b. A missing document, an out of balance general ledger, or an analytical procedure
that does not make sense may be the result of circumstances other than fraud.
c. Fraud risk factors indicate the existence of fraud because they often have been
present in circumstances where frauds have occurred.
d. The presence of fraud risk factors may affect the auditor’s assessment of
inherent risk or control risk.
15. Cash receipts from sales on account have been misappropriated.  Which of the following
acts would conceal this defalcation and least likely to be detected by an auditor?
a. Understating the sales journal.
b. Overstating the accounts receivable control account.
c. Overstating the accounts receivable subsidiary ledger.
d. Understating the cash receipts journal.
16. Example of the type of information that may come to the auditor's attention that may
indicate that noncompliance with laws or regulations has occurred most likely include
a. Payments for specified services or loans to consultants, related parties, employees or
government employees.
b. Payments for goods or services made to the country from which the goods or
services originated.
c. Purchasing at prices significantly above or below market price.
d. Sales commissions or agent's fees that appear reasonable in relation to those
ordinarily paid by the entity or in its industry or to the services actually received.
17. When the auditor knows that an illegal act has occurred, the auditor must
a. Issue an adverse opinion.
b. Withdraw from the engagement.
c. Report it to the proper government authorities.
d. Consider the effects on the financial statements, including the adequacy of disclosure.
18. Which statement is correct regarding the auditor’s communications of audit matters with
those charged with governance?
a. The auditor’s communications of matters include all audit matters of governance interest.
b. An audit of financial statements is designed to identify all matters that may be
relevant to those charged with governance.
c. The auditor’s communications with those charged with governance may be made
orally or in writing.
d. None of the above.
 19. It is in the interest of both client and auditor that the auditor sends an engagement letter,
preferably before
a. The performance of substantive testing.
b. The commencement of the engagement.
c. The completion of audit.
d. Before the issuance of audit report.
20. When a change in the type of engagement from higher to lower level of assurance is
reasonably justified, the report based on the revised engagement (choose the incorrect
one)
a. Should not contain a separate paragraph that refers to the original engagement.
b. Should not refer to any procedures that may have been performed in the original
engagement.
c. Should qualify the opinion due to scope limitation.
d. Omits reference to the original engagement.
21. A basic tool used by the auditor to control the audit work and review the progress of the
audit.
a. Audit program c.   Engagement letter.
b. Progress flowchart d.   Time and Expense Summary

22. Which of the following is not normally a planning procedure?

a. Assess the conclusions reached and the evaluation of the overall financial statement
presentation through the use analytical procedures.
b. Consider the risk of the existence of related-party transactions.
c. Consider the nature of the audit reports expected to be rendered.
d. Identify items likely to require adjustments.

23. An understanding of the client’s business and industry and knowledge about the
company’s operations are essential for doing an adequate audit. For a new client, most
of this information is obtained
0. From the predecessor auditor. c.   At the client’s premises.
a. From the SEC. d.   From the permanent file.

24. The management’s assessment of the entity’s ability to continue as a going concern
covers a period of:
a. Not longer than 12 months from balance date.
b. At least 12 months from the balance sheet date.
c. Not longer than 12 months from the date of audit report.
d. At least 12 months from the date of audit report.

25. Which of the following would an auditor most likely use in determining the auditor’s
preliminary judgment about materiality?
0. The results of the internal control questionnaire.
a. The contents of the management representation letter
b. The entity’s annualized interim financial statements.
c. The anticipated sample size of the planned substantive tests.
 26. How can the audit program best be described at the beginning of the audit process?
a.   Tentative. c.   Conclusive.
b.   Comprehensive. d.   Optional.

27. Which of the following is appropriate about risk assessment?

0. Detection risk is eliminated if an auditor were to examine 100 percent of the account
balance or class of transactions
a. There is an inverse relationship between detection risk and the combined level of
inherent and control risk.
b. The assessed level of inherent and control risk can be sufficiently low, thus resulting to
eliminating  the need for substantive tests.
c. Audit risk may be more appropriately determined by assessing inherent and control risk
separately.

28. Which of the following shows an appropriate relationship between the acceptable level of
detection risk and the combined level of inherent and control risk?
                     Auditor’s Assessment of
  Acceptable level of
Inherent Risk Control Risk     Detection Risk__
    Low      High           Lower 

●     Low     High           Medium 

●     High     High           Lower
●     Low     Low           Higher

29. Which of the following most directly illustrates inherent risk?

a. Inadequate segregation of duties.
b. Confirmation of receivables by an auditor fails to detect a material misstatement.
c. ABC Company, a client company, lacks sufficient working capital to continue operations.
d. A client fails to discover employee fraud on a timely basis because bank accounts are
not reconciled monthly.

30. Which of the following is a valid statement about the assessment of control risk?
a. There is a positive relationship between detection risk and the combined level of
inherent and control risk.
b. The auditor should consider the assessed levels of inherent and control risks in
determining the nature, timing, and extent of substantive procedures required to eliminate audit
risk.
c. Misstatements discovered by conducting substantive procedures may cause the auditor
to modify the previous assessment of control risk.  
d. The assessed level of inherent and control risks can be sufficiently low in order to
eliminate the auditor’s need to perform substantive tests on some assertions.

31. The report of the service organization auditor on the suitability of design (Type A) will not
ordinarily include an opinion by the service organization auditor that:
a. The description of the service organization's accounting and internal control systems,
ordinarily prepared by the management of the service organization is accurate.
b. The systems' controls have been placed in operation.
c. The accounting and internal control systems are operating effectively based on the
results from the tests of control.
d. The accounting and internal control systems are suitably designed to achieve their
stated objectives.

32. Which statement is correct regarding the audit evidence?

a. The greater the risk, the less audit evidence is likely to be required.
b. The higher the quality, the more may be required
c. Merely obtaining more audit evidence may not compensate for its poor quality.
d. Obtaining audit evidence relating to a particular assertion is a substitute for obtaining
audit evidence regarding another assertion.

33. Assertions used by the auditor fall into three categories.  Existence is included under
a. Assertions about classes of transactions and events for the period under audit.
b. Assertions about account balances at the period end.
c. Assertions about presentation and disclosure.
d. All of the above.

34. Which of the following statements is incorrect regarding the reliability of audit evidence?
a. Oral representation by the client management is not a valid evidence.
b. Audit evidence obtained directly by the auditor is more reliable than that one provided by
the client management.
c. The effectiveness of accounting and internal control adds to the reliability of internal
audit evidence.
d. While internal audit evidence is considered to be acceptable, the auditor usually prefers
audit evidence form external sources.

35. Which statement is incorrect regarding the auditor’s attendance at physical inventory
counting?
a. When inventory is material to the financial statements, the auditor should obtain
sufficient appropriate audit evidence regarding its existence and condition by attendance at
physical inventory counting unless impracticable.
b. When the quantities are to be determined by a physical inventory count and the auditor
attends such a count, the auditor would ordinarily observe count procedures and perform test
counts.
c. To obtain assurance that management’s procedures are adequately implemented, the
auditor would observe employees’ procedures and perform test counts.
d. The physical inventory count cannot be conducted at a date other than period end.

36. The auditor considers the status of legal matters up to 

a.   The date of the audit report. c.   The issuance of financial statements.
b.   The balance sheet date. d.   Up to the date of receipt of letter from lawyers.

37. Which statement is correct regarding valuation and disclosure of long-term investments?
a. Regardless of the amount of long-term investments, the auditor should obtain sufficient
appropriate audit evidence regarding their valuation and disclosure.
b. Audit procedures regarding long-term investments ordinarily include considering
evidence as to whether the entity has the ability to sell the investment in the near term.
c. If the carrying amounts do not exceed market quotations, the auditor would consider
whether a write-down is required.
d. If there is an uncertainty as to whether the carrying amount will be recovered, the auditor
would consider whether appropriate adjustments and/or disclosures have been made.

38. In relation to opening balances, which of the following may cause the auditor to disclaim
his opinion?
a. The inability of the auditor to obtain sufficient appropriate audit evidence concerning
opening balances.
b. The opening balances contain misstatements that could materially affect the current
period’s financial statements and such misstatements have not been corrected.
c. The current period’s accounting policies have not been consistently applied in relation to
opening balances and the effect of such change is not properly accounted for or disclosed.
d. The assessed substantial doubt about the entity’s ability to continue as a going concern
as indicated by consistent negative cash flows.

39. The auditor notices significant fluctuations in key elements of the company's financial
statements.  If management is unable to provide an acceptable explanation, the auditor
should
a. Withdraw from the engagement.
b. Consider the matter a scope limitation.
c. Perform additional audit procedures to investigate the matter further.
d. Intensify the examination with the expectation of detecting management fraud.

40. In evaluating the assumptions on which the estimate is based, the auditor would least
pay particular attention to assumptions which are
a. Subjective.
b. Sensitive to variation.
c. Susceptible to material misstatement.
d. Reasonable in light of actual results in prior periods.
41. Which of the following statements about working papers is correct? 
a. Working papers are not permitted to be used as a reference source by the client. 
b. The auditor should document the understanding of the client's internal control obtained
to plan the audit.
c. Working papers may be regarded as a substitute for the client's accounting records.
d. When reporting on comparative financial statements, the independent auditor may
discard working papers after two years.

42. Identify as to whether sampling or nonsampling risk, following the same order:
0. The auditor might reach a different conclusion based on samples used from the
conclusion if it were the entire population subjected to the same audit procedure
I. The auditor might use inappropriate procedures
II. The auditor might misinterpret the evidence
a. Nonsampling, sampling, nonsampling
b. Sampling, nonsampling, nonsampling
c. Sampling, nonsampling, sampling
d. Nonsampling, sampling, sampling

43. Which of the following is correct about sampling risks?

a. The risk of incorrect acceptance relates to the efficiency of the audit.
b. The risk of assessing control risk too low relates to the efficiency of the audit.
c. Sampling risk includes the auditor’s failure to recognize errors in the documents
examines for the chosen sample.
d. The likelihood of assessing control risk too high is the risk that the sample
selected to test controls does not support the auditor’s planned assessed level of control
risk when the true operating effectiveness of the control structure justifies such an
assessment.

44. Identify the sample selection method used, following the same order:
0. Selecting items using a constant interval between selections; the first interval
having a random start.
I. Selecting items from the entire population with no intention to include or exclude
specific units
II. All items in the population or within each stratum have a known chance of
selection
a. Systematic, random, haphazard.
b. Systematic, haphazard, random.
c. Haphazard, systematic, random.
d. Random, systematic, haphazard.
45. When sampling for attributes, which of the following would decrease sample size?
a b c d
Intended reliance internal controls Increase Decrease Increase Decrease
Tolerable deviation rate Decrease Increase Increase Increase
Expected deviation rate Increase Decrease Decreas Decrease
e
Risk of assessing control risk too Decrease Increase Increase Decrease
low
 46. In substantive testing, which of the following would increase sample size?
a b c d
Assessment of inherent risk Increase Increase Increase Decrease
Reliance on internal controls Increase Decrease Decrease Increase
Tolerable error Decreas Increase Decrease Increase
e
Expected error Increase Decrease Increase Decrease
Risk of incorrect acceptance Decreas Increase Decrease Increase
e

47. A CIS environment least likely affects

0. The overall objective and scope of an audit.
a. The procedures followed by the auditor in obtaining a sufficient understanding of
the accounting and internal control systems.
b. The consideration of inherent risk and control risk through which the auditor
arrives at the risk assessment.
c. The auditor’s design and performance of tests of control and substantive
procedures appropriate to meet the audit objective.

48. A CIS environment 

a. Exists when a computer of any type or size is involved in the processing by the entity of
financial information of significance to the audit, whether that computer is operated by the entity
or by a third party.
b. Is the electronic transmission of documents between organizations in a machine-
readable form.
c. Consists of the policies and procedures that the entity implements and the IT
infrastructure (hardware, operating systems, etc.) and application software that it uses to
support business operations and achieve business strategies.
d. A communications network that serves users within a confined geographical
area.
49. Which of the following statements most likely represents a disadvantage for an entity
that keeps microcomputer-prepared data files rather than manually prepared files? 
a. It is usually more difficult to detect transposition errors.
b. Transactions are usually authorized before they are executed and recorded.
c. It is usually easier for unauthorized persons to access and alter the files.
d. Random error associated with processing similar transactions in different ways is
usually greater.
50. Gateway is 
a. A hardware and software solution that enables communications between two dissimilar
networking systems or protocols.
b. A device that forwards frames based on destination addresses.
c. A device that connects and passes packets between two network segments that
use the same communication protocol.
d. A device that regenerates and retransmits the signal on a network.
51. These represent information obtained by the auditor in arriving at the conclusions on
which the audit opinion is based
 a. audit documentation c.  audit assertions
b. audit evidence d.  audit conclusions
52. Generally, the auditor prefers external evidence to internal evidence.  This is a measure
of
a. Relevance c. analysis
b. Appropriateness d. evidence gathering
53. It refers to the correspondence of an evidence to a particular audit objective:
a. Competence or reliability. c.  Persuasiveness.
b. Relevance. d.  Corroboration.

54. A transaction or event is recorded at the properly amount and revenue or expense is allocated
at the proper period is a financial assertion of:
a. occurrence c.  valuation
b. completeness d.  measurement

55. The three major categories of documentary audit evidence are:

1. Documentary audit evidence created by third parties and held by the client entity
2. Documentary audit evidence created and held by third parties
3. Documentary audit evidence created and held by the client eneity
What is the order of their degree of reliability?
a. 1, 3, 2
b. 3, 1, 2
c. 2, 1, 3
d. 2, 3, 1

56. An audit schedule which is designed to show the activity in a general ledger account during the
period under audit, tying together the beginning and ending balances:
0. Analysis c.  reconciliation
a. tests of transactions d.  vouching

57. Confirmation is required for

A B C D
Accounts Yes Yes No Yes
receivable
Cash Yes Yes No No
Inventory Yes No Yes No
Accounts payable Yes No Yes No

58. The negative request form of accounts receivable confirmation is useful particularly when the 
Assessed level of control  Number of small   Consideration by the 
Risk relating to receivable is  balances is           recipient is
a.   Low    Many   Likely
b.   Low    Few    Unlikely
c.   High    Few    Likely
d.   High    Many   Likely 

59. According to PSA 500 (Audit Evidence), which of the following is incorrect of audit evidence?
a. Audit evidence may be obtained entirely from substantive procedures.
b. The appropriateness of the audit evidence is the measure of both the quality and
quantity of audit evidence.
 c. Audit evidence is obtained form an appropriate mix of tests of control and substantive
procedures.
d. Substantive procedures mean tests performed to obtain audit evidence to detect
material misstatements in the financial statements.

60.Which of the following is an invalid statement about audit evidence?

a. Ordinarily, audit evidence regarding one assertion will compensate for failure to obtain
audit evidence regarding another assertion.
b. Ordinarily, audit evidence is obtained regarding each financial assertion.
c. The nature, timing and extent of substantive tests will vary depending on the assertions.
d. Audit tests can provide audit evidence about more than one assertion.

61. The following statements are discussions about financial assertions and audit evidence. 
Which of them is(are) correct?
0. When in substantial doubt as to a material financial statement assertion, the auditor
likely attempt to obtain sufficient appropriate audit evidence to remove such doubt.
I. Difficulty and cost involved is a valid basis for omitting a necessary procedure.
II. In obtaining audit evidence, the auditor needs to consider the relationship between the
cost of obtaining it and its usefulness.
III. When there are inconsistent evidences provided by two different sources, the auditor
may need to modify his audit opinion.
a. II, III, IV c.  II, IV
b. I, III d.  I, III, IV
62. The detailed instruction for the collection of a type of audit evidence that is to be
obtained at some time during the audit:
a. Audit program. c.  Audit technique.
b. Audit procedure. d.  Working papers.
63. The following statements relate to audit evidence, except:
a. The competence of audit is likely improved by selecting a larger sample size or different
population items.
b. The evidence obtained from a source outside the client entity is more persuasive than
that one obtained from within.
c. When a client’s accounting and internal controls are effective, the evidence obtained is
more reliable.
d. The evidence obtained directly by the auditor through physical examination,
computation, observation, or confirmation is more competent than an information obtained
indirectly.

64. What is meant by timeliness of audit evidence?

a. Evidence is more reliable for balance sheet accounts when it is obtained as close to the
balance sheet date as possible.
b. Evidence is more reliable for income statement accounts if the sample comes from part
of the period as close to balance sheet date as possible.
c. Tests of transactions should be performed close to balance sheet date.
d. Tests of account balances must be performed before the balance sheet date.
65. In which of the following would the judgment of the auditor be least critical?
a. Verification of the authenticity of the transfer certificate of title.
b. Determination of the material level.
 c. Assessment of the management plans of action in order to improve cash flows.
d. Assessing the reasonableness of the estimates made by the management.
66. The auditor’s attendance to client’s physical inventory count would not enable him to 
a. Physically inspect inventory items.
b. Review the accuracy of pricing the inventory items.
c. Observe compliance with the prescribed procedures for recording and controlling the
results of the count.
d. Provide evidence as to reliability of management’s procedures.
67. If, after performing procedures, the auditor is unable to obtain sufficient, appropriate
evidence concerning opening balances, the auditor may express modified opinion on
financial statements during and as of year end of the current period:
Income Statement     Balance Sheet
Qualifie Disclaimer Qualified Disclaimer
d
a. Yes Yes Yes Yes
b. Yes Yes No No
c. Yes No Yes No
d. No No Yes Yes

68. Which of the following is not an auditor’s concern in obtaining sufficient appropriate audit
evidence for initial engagements?
a. opening balances do not contain misstatements that materially affect the current period’s
financial statements
b. the prior period’s closing balances have been correctly brought forward to the current
period or when appropriate, have been restated
c. appropriate accounting policies are consistently applied or changes to accounting
policies have been properly accounted for and adequately disclosed
d. opening balances have been audited by a competent auditor

69. The following considerations need to be observed by the auditor when he has to observe
physical inventory count or he has to perform alternative procedures:
A B C D
Inherent, control and detection risks 
   That are related to inventory YES YES NO NO
The timing of the count YES YES NO NO
A requirement for an expert NO YES YES YES
The nature of accounting and internal
   control systems used regarding  
   inventory NO YES YES NO

70. Auditors try to identify predictable relationships when using analytical procedures. 
Relationships involving transactions from which of the following accounts most likely would yield
the highest level of evidence?
a.  Accounts payable c.  Accounts receivable
b.  Payroll expense d.  Advertising expense

71. Which of the following best describes the primary purpose of audit procedures?
a. To detect errors or irregularities.
b. To comply with generally accepted accounting principles.
 c. To gather corroborative evidence.
d. To verify the accuracy of account balances.

72. The following statements were made in a discussion of audit evidence by two independent
auditors. Which statement is untrue?
a. “I am seldom convinced beyond all doubt about all aspects of the financial statements
being audited.”
b. “I would not undertake that procedure because, at best, the results would only be
persuasive and I'm looking for convincing evidence.”
c. “I evaluate the degree of risk involved in deciding the kind of evidence I will gather.”
d. “I evaluate the usefulness of the evidence I can obtain against the cost to obtain it.”

73. Which of the following would not be a method used to conduct tests of controls?
a.  Inquiry c.  Confirmation
b.  Walkthrough d.  Observation

74. In which of the following would the judgment of the auditor be least critical?
a.  Verification of the authenticity of the transfer certificate of title.
b.  Determination of the material level.
c.  Assessment of the management plans of action in order to improve cash flows.
d.  Assessing the reasonableness of the estimates made by the management.

75. Which of the following is the least required of the audit working papers?
a.   Confidentiality of information included in the working papers.
b.   Safe custody of the working papers
c.   Substitute for the entity’s accounting records
d.   Retention for a period sufficient to meet the needs of the practice

76. Which of the following statements about working papers is incorrect?

a.  Working papers are not permitted to be used as a reference source by the client.
b.  The auditor should document the understanding of the client’s internal control in order to plan
the audit.
c.  Working papers are not be regarded as a substitute for the client’s accounting records.
d.  When reporting on comparative financial statements, the independent auditor may not
discard working papers after two years.

77. As a result of tests of controls, an auditor assessed control risk too low and decreased
substantive testing.  This assessment occurred because the true deviation rate in the population
was
a. Less than the risk of assessing control risk too low, based on the auditor’s sample.
b. Less than the deviation rate in the auditor’s sample.
c. More than the risk of assessing control risk too low, based on the auditor’s sample.
d. More than the deviation rate in the auditor’s sample.

78. When designing audit procedures, the auditor should determine appropriate means of selecting
items for testing. The means available to the auditor are the following except:
a. Selecting all items
b. Selecting specific items identified by the auditor
c. Selecting specific items identified by the client
 d. Audit sampling
79. Selecting all items for testing may least be appropriate for one of the following:
a. tests of controls
b. substantive tests
c. when population constitute of small number of large value items
d. when the repetitive nature of calculation makes 100% test more cost effective

80. Which of the following factors would least be considered by the auditor in selecting items for
examination
a. Items to test procedures c.  High value or key items
b. Items to obtain information d.  Items under a specific amount

81. A sample in which every possible combination of items in the population has an equal chance of
constituting the sample is
a. representative sample c.  random sample
b. statistical sample d.  judgment sample

82. A sample in which the characteristics in the sample are the same as those of the population is a
(an)
a. representative sample c.  random sample
b. statistical sample d.  judgment sample
83. Sampling risk occurs when the auditor
a. uses an inappropriate audit procedure
b. fails to recognize exceptions
c. tests less than the entire population
d. identifies weaknesses in client’s internal control system
84. All the following may indicate substantial doubt as to an entity’s ability to continue as a going
concern except
a. Work stoppages c.  Purchase of catastrophe insurance
b. Legal proceedings d.  Operating losses

85. When audited financial statements are presented in a client’s document containing other
information, the auditor should
a. Perform inquiry and analytical procedures to ascertain whether the other information is
reasonable.
b. Add an explanatory paragraph to the auditor’s report without changing the opinion on the
financial statements.
c. Perform the appropriate substantive auditing procedures to corroborate the other
information.
d. Read the other information to determine that it is consistent with the audited financial
statements.
86. Audit report may be addressed to the:
Audited Stockholder Chair of the Audit Committee
Entity
a. No Yes No
b. Yes Yes No
c. Yes Yes Yes
d. Yes No Yes
 87. Which of the following is not a basic element of an audit report?
a. opening paragraph c.  opinion paragraph
b. scope paragraph d.  starting and completion dates of the audit
88. Which of the following is not a basis of dating the audit report?
a. when the audit fee was collected
b. as of the completion date of the audit
c. as of any date earlier than the date on which the financial statements are signed of
approved by management
d. upon completion of fieldwork

89. Which of the following procedures is most likely relevant to obtain an information about events
or conditions that cast significant doubt on the entity’s ability to continue as a going concern
beyond the period assessed by management?
a. Inspection c.  Inquiry
b. Observing d.  Analysis

90. If the auditor believes that the entity will not be able to continue as a going concern and the
financial statements are prepared on a going concern, the auditor’s report should include
a. Unqualified opinion with explanatory paragraph c.  Adverse opinion
b. Qualified opinion d.  Disclaimer of opinion

91. The management denied the auditor’s request that management has to extend its assessment
of its going concern ability.  However, the auditor’s other procedures are sufficient to assess the
appropriateness of management use of the going concern assumption in the preparation of the
financial statements.   The auditor should issue:
a. unqualified opinion c.  adverse opinion
b. unqualified opinion with explanatory paragraph d.  disclaimer of opinion
92. If comparative financial statements are presented and the present auditor has audited
both years, the auditor should:
a. reissue the report c.  redate the report
b. dual date the report d.  update the report
93. When financial statements of a prior period are presented on a comparative basis with
financial statements of the current period, the continuing auditor is responsible for
a. expressing dual dated report
b. updating the report on the previous financial statements only if there has been no
change in the opinion
c. updating the report on the previous financial statements only if the previous audit report
was qualified and the reasons for the qualification no longer exists
d. updating the report on the previous financial statements regardless of the opinion
previously expressed
94. The objective of the consistency standard is to provide assurance that
a. there are no variations in the format and presentation of financial statements
b. substantially different transactions and events are not accounted for on an identical
basis
c. the auditor is consulted before material changes are made in the application of
accounting principles
d. the comparability of financial statements between periods is not materially affected by
changes in accounting principles without disclosure
95. A dual dated report contains the dates of a subsequent event and the date the
a. auditor completed fieldwork in the client’s office
b. financial statements were prepared
c. subsequent event was resolved
d. audit report was delivered
96. If the principal auditor decides to take responsibility for the work of other auditors, the
principal auditor should:
a. modify the opening paragraph
b. modify the opening and opinion paragraphs
c. modify all three paragraphs
d. issue a standard audit report
97. If an auditor wishes to emphasize a matter included in the financial statements by adding
an explanatory paragraph, the following paragraphs should also be modified
a. introductory paragraph c.  opinion paragraph
b. scope paragraph d.  none
98. Which of the following modifications of the standard auditor’s report does not require an
explanatory paragraph?
a. reference to other auditors c.  scope limitation
b. inconsistency d.  adverse opinion
99. When determining whether an exception is highly material, the extent to which the
exception affects different parts of the financial statements must be considered.  This is
referred to as
a. Materiality c.  financial analysis
b. Pervasiveness d.  ratio analysis
100. The following circumstances result in a modified, but unqualified report, except:
a. inconsistent application of accounting principles
b. emphasis of a related party transaction that is disclosed in a footnote
c. Lack of disclosure of a restriction on payment of dividends
d. Other auditors perform work for which the principal auditor does not assume
responsibility