XAUDIT1 COMPRE

1) What is the meaning of the generally accepted auditing standard that

requires that the auditor be independent?
a. The auditor must be without bias with respect to the client audited.
b. The auditor must adopt a critical attitude during the audit.
c. The auditor's sole obligation is to third parties.
d. The auditor may have a direct ownership interest in the client's
business if it is not material.
2) The third general standard states that due care is to be exercised in
the performance of an audit, and should be interpreted to mean that
an auditor who undertakes an engagement assumes a duty to perform
a. With reasonable diligence and without fault or error.
b. As a professional who will assume responsibility for losses consequent
upon error of judgment.
c. To the satisfaction of the client and third parties.
d. As a professional possessing the degree of skill commonly possessed
by others in the field.
3) The first standard of fieldwork, which states that the work is to be
adequately planned, and assistants, if any, are to be properly
supervised, recognizes that
a. Early appointment of the auditor is advantageous both to the auditor
and to the client.
b. Acceptance of an audit engagement after the close of the client's fiscal
year is generally not permissible.
c. Appointment of the auditor subsequent to the physical count of
inventories requires a disclaimer of opinion.
d. Performance of substantial parts of the engagement is necessary at
interim dates.
4) In connection with the third generally accepted auditing standard of
fieldwork, an auditor examines corroborating evidential matter that
includes all of the following except
a. Client accounting manuals.
b. Written client representations.
c. Vendor invoices.
d. Minutes of board meetings.
5) Which of the following underlies the application of generally accepted
auditing standards, particularly the standards of fieldwork and
reporting?
a. The elements of materiality and risk.

b. The element of internal control.

c. The element of corroborating evidence.
d. The element of reasonable assurance.
6) The fourth generally accepted auditing standard of reporting requires
an auditor to render a report whenever an auditor's name is associated
with financial statements. The overall purpose of the fourth standard of
reporting is to require that reports
a. Assure that the auditor is independent with respect to the financial
statements audited.
b. State that the audit has been conducted in accordance with generally
accepted auditing standards.
c. Indicate the character of the engagement and the degree of
responsibility assumed by the auditor.
d. Express whether the accounting principles used in preparing the
financial statements have been applied consistently in the period
audited.
7) An auditor includes an explanatory paragraph in an otherwise
unqualified report in order to emphasize that the entity being reported
on is a subsidiary of another business enterprise. The inclusion of this
paragraph
a. Is appropriate and would not negate the unqualified opinion.
b. Is a qualification.
c. Is a violation of generally accepted reporting standards if this
information is disclosed in footnotes to the financial statements.
d. Necessitates a revision of the opinion paragraph to include the phrase
"with the foregoing explanation."
8) In which of the following circumstances would an adverse opinion be
appropriate?
a. The auditor is not independent with respect to the enterprise being
audited.
b. An uncertainty prevents the issuance of an unqualified report.
c. The statements are not in conformity with authoritative statements
regarding accounting for pension plans.
d. A client-imposed scope limitation prevents the auditor from complying
with generally accepted auditing standards.
9)
a.
b.
c.
d.

An audit report should be dated as of

the date the report is delivered to the entity audited.
the date of the last day of fieldwork.
the balance sheet date of the latest period reported on.
the date a letter of audit inquiry is received from the entity's attorney
of record.

10) An auditor completed fieldwork on February 10, 2009 for a

December 31, 2009 year-end client. A significant subsequent event
occurred on February 22, 2010. In this case, which of the following
report dates would not be appropriate?
a. February 10, 2010.
b. February 10, except Note 1, February 22, 2010.
c. February 22, 2010.
d. December 31, 2009.
11) Which of the following statements indicates a qualified opinion?
a. The financial statements do not present fairly in all material respects
the financial position, results of operations, and cash flows in
conformity with GAAP.
b. The auditor does not express an opinion on the financial statements.
c. The financial statements present fairly in all material respects the
financial position, results of operations, and cash flows in conformity
with GAAP.
d. Except for the effects of a matter, the financial statements present
fairly in all material respects the financial position, results of
operations, and cash flows in conformity with GAAP.
12) During an audit engagement, data are compiled and included in the
audit working papers. The working papers are
a. A client-owned record of conclusions reached by the auditors who
performed the engagement.
b. Evidence supporting financial statements.
c. Support for the auditor's compliance with generally accepted auditing
standards.
d. A record to be used as a basis for the following year's engagement.
13) The current file of the auditor's working papers generally should
include
a. A flowchart of the internal controls.
b. Organization charts.
c. A copy of the financial statements.
d. Copies of bond and note indentures.
14) Using laptop computers in auditing may affect the methods used to
review the work of staff assistants because
a. Supervisory personnel may not have an understanding of the
capabilities and limitations of computers.
b. Working paper documentation may not contain readily observable
details of calculations.
c. The audit field work standards for supervision may differ.
d. Documenting the supervisory review may require assistance of
management services personnel.

15) Which of the following persons is not a specialist upon whose work
an auditor may rely?
a. Actuary.
b. Appraiser.
c. Internal auditor.
d. Engineer.
16)
In pursuing its quality control objectives with respect to
acceptance of a client, a CPA firm is not likely to
a.
b.
c.
d.

Make inquiries of the proposed client's legal counsel.

Review financial statements of the proposed client.
Make inquiries of previous auditors.
Review the personnel practices of the proposed client.

17)
The independent auditor's plan for an audit in accordance with
generally accepted auditing standards is influenced by the possibility
of material errors. The auditor will therefore conduct the examination
with an attitude of
a. Professional skepticism.
b. Subjective mistrust.
c. Objective indifference.
d. Professional responsiveness.
18) In using the work of a specialist, an understanding should exist
among the auditor, the client, and the specialist as to the nature of the
work to be performed by the specialist. Preferably, the understanding
should be documented and would include all of the following except
a. The objectives and scope of the specialist's work.
b. The specialist's representations as to her or his relationship, if any, to
the client.
c. The specialist's understanding of the auditor's corroborative use of the
specialist's findings in relation to the representations in the financial
statements.
d. A statement that the methods or assumptions to be used are not
inconsistent with those used by the client.
19)
In an auditor's consideration of internal control, the completion of
a questionnaire is most closely associated with which of the following?
a. Separation of duties.
b. Understanding the system.
c. Flowchart accuracy.

d. Tests of controls.
20) The reliance placed on substantive tests in relation to control risk
varies in a relationship that is ordinarily
a. Parallel.
b. Inverse.
c. Direct.
d. Equal.
21) The auditor observes client employees in order to
a. Prepare a flowchart.
b. Update information contained in the organization and procedure
manuals.
c. Corroborate the information obtained during the initial review of the
system.
d. Determine the extent of compliance with quality control standards.
22)
A consideration of internal control made during an audit is
usually not sufficient to express an opinion on an entity's controls
because
a. Weaknesses in the system may go unnoticed during the audit
engagement.
b. A consideration of internal control is not necessarily made during an
audit engagement.
c. Only those controls on which an auditor intends to rely are reviewed,
tested, and evaluated.
d. Controls can change each year.
23) Given random sampling, the same sample size, and the same
tolerable error for the testing of two unequal populations, the risk of
assessing control risk too low on the smaller population is
a. The same as the risk of assessing control risk too low on the larger
population.
b. Higher than the risk of assessing control risk too low on the larger
population.
c. Lower than the risk of assessing control risk too low on the larger
population.
d. Indeterminable relative to the risk of assessing control risk too low on
the larger population.
24) At times, a sample may indicate that the auditor's assessed level of
control risk for a given control is reasonable when, in fact, the true
compliance rate does not justify the assessed level. This situation
illustrates the risk of
a. Assessing control risk too low.

b. Assessing control risk too high.

c. Incorrect precision.
d. Incorrect rejection.
25) Which of the following is an element of sampling risk?
a. Choosing an audit procedure that is inconsistent with the audit
objective.
b. Choosing a sample size that is too small to achieve the sampling
objective.
c. Failing to detect an error on a document that has been inspected by
the auditor.
d. Failing to perform audit procedures that are required by the sampling
plan.
26) An auditor is evaluating the results of a variables sampling plan.
Which of the following is not relevant to the auditor's judgment about
the sample?
a. Management's explanations for why errors in the sample occurred.
b. Projecting the sample error to the population.
c. Considering the effects of sampling risk.
d. Qualitative information that lends insight into errors found.
27) Several conditions must be met before an auditor applies either
difference or ratio estimation. Which of the following is not one of
these conditions?
a. Each population item must have a recorded book value.
b. The auditor must not expect understatement errors.
c. Total population book value must be known and must correspond to
the sum of all individual population items.
d. Expected differences between audited and recorded book values must
not be too rare.
28) An auditor is applying a difference estimation sampling plan.
Assuming the risk of incorrect rejection is .10, and the risk of incorrect
acceptance is .05, what is the ratio of desired allowance for sampling
risk to tolerable error?
a. .500.
b. .605.
c. .561.
d. Not determinable from the facts given.
29) A sales cutoff test complements tests of
a. Sales returns.
b. Cash.
c. Accounts receivable.
d. Sales allowances.

30)
In considering internal control within the
revenue/receipt cycle, what is the purpose of a transaction walkthrough?
a. To assure that employees are performing assigned functions
accurately.
b. To confirm the auditor's understanding of the internal control structure.
c. To select documents for detailed tests of controls.
d. To verify the results of the auditor's sampling plan.
31) Following are four steps an auditor undertakes in assessing control
risk:
A. Determine what control procedures are used by the entity.
B. Identify the system's control objectives.
C. Design tests of controls.
D. Consider the potential errors or irregularities that could result.
32) Audit working papers often include a client-prepared, aged trial
balance of accounts receivable as of the balance sheet date. An aging
is best used by the auditor to
a. Evaluate controls over credit sales.
b. Test the accuracy of recorded charge sales.
c. Estimate credit losses.
d. Verify the validity of the recorded receivables.
33) An entity's financial statements were misstated over a period of
years due to large amounts of revenue having been recorded in journal
entries that involved debits and credits to an illogical combination of
accounts. The auditor could most likely have been alerted to this
irregularity by
a. Scanning the general journal for unusual entries.
b. Performing cutoff tests at year-end.
c. Tracing a sample of journal entries to the general ledger.
d. Examining documents supporting sales returns and allowances
recorded after year-end.
34) When auditing the allowance for uncollectible accounts, the least
reliance should be placed on which of the following?
a. The credit manager's opinion.
b. An aging of past due accounts.
c. Collection experience of the client's collection agency.
d. Ratios that show the past relationship of the allowance to net credit
sales.

35) Which of the following is not an appropriate activity for the

treasurer's department?
a. Prepare checks.
b. Forward checks to vendors.
c. Cancel vouchers.
d. Prepare vouchers.
36) An effective internal control procedure that protects against the
preparation of improper or inaccurate disbursements is to require that
all checks be
a. Signed by an official after necessary supporting evidence has been
examined.
b. Reviewed by the treasurer before mailing.
c. Sequentially numbered and accounted for by internal auditors.
d. Perforated or otherwise effectively canceled when they are returned
with the bank statement.
37) As an in-charge auditor, you are reviewing a write-up of internal
control in cash receipt and disbursement procedures. Which of the
following deficiencies alone should cause you the least concern?
a. Checks are signed by only one person.
b. Signed checks are distributed by the controller to approved payees.
c. The treasurer fails to establish bona fide names and addresses of
check payees.
d. Cash disbursements are made directly out of cash receipts.
38) Matching the supplier's invoice, the purchase, and the receiving
report normally should be the responsibility of the
a. Receiving department.
b. Purchasing department.
c. Accounting function.
d. Treasury function.
39) Which of the following is not used to test overstatements and
understatements of accounts payable?
a. Cash receipts records.
b. Cash disbursement records.
c. Canceled voucher packages.
d. Unmatched receiving reports.
40) In testing prepaid insurance, controls over which of the following are
not of concern to the auditor?
a. The acquisition of new insurance policies.
b. The disbursement of cash for premiums.
c. The physical custody of the assets insured.
d. The recording of expense and premium disbursements.

41) Companies may be held liable for all of the following except:
a. Noncompliance with environmental laws and regulations.
b. Remedial cleanup of hazardous waste sites.
c. Owners and operators before hazardous waste was disposed.
d. Personal injury or damage caused by hazardous waste.
42) In the audit of the following types of profit-oriented enterprises,
which one would the auditor be most likely to place special emphasis
on testing the internal controls over proper classification of payroll
transactions?
a. A manufacturing organization.
b. A retailing organization.
c. A wholesaling organization.
d. A service organization.
43) common audit procedure in the audit of payroll transactions
involves tracing selected items from the payroll journal to employee
time cards that have been approved by supervisory personnel. This
procedure is designed to provide evidence in support of the audit
proposition that
a. Only bona fide employees worked, and their pay was properly
computed.
b. Jobs on which employees worked were charged with the appropriate
labor cost.
c. Internal controls relating to payroll disbursements are operating
effectively.
d. All employees worked the number of hours for which their pay was
computed.
44) Which of the following procedures is most effective in providing
reasonable assurance that payroll checks are distributed only to bona
fide employees?
a. An employee independent of payroll preparation compares
endorsements on canceled payroll checks with employee signatures in
personnel records.
b. All changes in pay rates and deductions are reviewed and approved by
a responsible official independent of payroll preparation and
distribution.
c. All unclaimed paychecks are returned to an employee independent of
payroll preparation and distribution.
d. All personnel and payroll records and documents are prenumbered and
physically protected from unauthorized access.

45)
The physical count of inventory of a retailer was higher than
shown by the perpetual records. Which of the following could explain
the difference?
a.
Inventory items had been counted, but the tags placed on the
items had not been taken off the items and added to the inventory
accumulation sheets.
b. Credit memos for several items returned by customers had not been
recorded.
c. No journal entry had been made on the retailer's books for several
items returned to its suppliers.
d.
An item purchased "FOB shipping point" had not arrived at the
date of the inventory count and had not been reflected in the perpetual
records.
46)
A client's physical count of inventories was higher than the
inventory quantities per the perpetual records. This situation could be
the result of the failure to record
a.
b.
c.
d.

Sales.
Sales discounts.
Purchases.
Purchase returns.

47)
The controller of Excello Manufacturing, Inc., wants to use ratio
analysis to identify the possible existence of idle equipment or the
possibility that equipment has been disposed of without having been
written off. Which of the following ratios would best accomplish this
objective?
a. Depreciation expense divided by book value of manufacturing
equipment.
b. Accumulated depreciation divided by book value of manufacturing
equipment.
c. Repairs and maintenance cost divided by direct labor costs.
d. Gross manufacturing equipment cost divided by units produced.
48) The auditor's program for testing long-term debt should include
steps that require
a. Verifying the existence of the bondholders.
b. Examining any bond trust indenture.
c. Inspecting the accounts payable subsidiary ledger.
d. Investigating credits to bond interest income.
49) During the year under audit, a company has completed a private
placement of a substantial amount of bonds. Which of the following
steps is the most important in the auditor's tests of

a.
b.
b.
c.

existence?
Confirm the amount issued with the bond trustee.
Trace cash received from the issue to the accounting records.
Examine bond records maintained by the transfer agent.
Recompute annual interest cost and the effective yield.

50) During the course of an audit, an auditor observes that the recorded
interest expense seems excessive in relation to the balance in longterm debt. This observation could lead the auditor to suspect that
a. Long-term debt is understated.
b. Discount on bonds payable is overstated.
c. Long-term debt is overstated.
d. Premium on bonds payable is understated.
51) Which of the following information is most important when auditing
shareholders equity?
a. Changes in the capital stock account are verified by an independent
stock transfer agent.
b. Stock dividends and/or stock splits during the year were approved by
the shareholders.
c. Stock dividends are capitalized at par or stated value on the dividend
declaration date.
d. Entries in the capital stock account can be traced to a resolution in the
minutes of the board of directors' meetings.
52)
When auditing contingent liabilities, which of the following
procedures would be least effective?
a.
b.
c.
d.

Reading the minutes of the board of directors.

Reviewing the bank confirmation letter.
Examining invoices for professional services.
Examining customer confirmation replies.

53)
Management's refusal to furnish a written representation on a
matter, which the auditor considers essential, constitutes
a. Prima facie evidence that the financial statements are not presented
fairly.
b. A violation of the Foreign Corrupt Practices Act.
b. An uncertainty sufficient to preclude an unqualified opinion.
c. A scope limitation sufficient to preclude an unqualified opinion.
54) A representation letter issued by a client
a. Is essential for the preparation of the audit program.
b. Is a substitute for testing.
c. Does not reduce the auditor's responsibility.

d. Reduces the auditor's responsibility only to the extent it is relied upon.

55) Which of the following would not be included in an accountant's
review report on the financial statements of a nonpublic entity?
a. A statement that the review was made in accordance with generally
accepted auditing standards.
b. A statement that all information included in the financial statements is
the representation of management.
c. A statement describing the principal procedures performed.
d. A statement describing the auditor's conclusions based on the results
of the review.
56) An accountant who is not independent may issue a
a. Compilation report.
b. Review report.
c. Comfort letter.
d. Qualified opinion.
57) The objective of a review of the interim financial information of a
public company is to
a. Provide the accountant with a basis for expressing of an opinion.
b. Estimate the accuracy of financial statements from limited tests of
accounting records.
c. Provide the accountant with a basis for reporting to the board of
directors or shareholders.
d. Obtain corroborating evidence through inspection, observation, and
confirmation.
58) Which of the following activities is typically associated with
operational auditing?
a. Determining whether the financial statements are an accurate
representation of the entity's operations.
b. Evaluating the feasibility of attaining the entity's operational
objectives.
c. Making recommendations for improving performance.
d. Reporting on the entity's relative success in meeting profitability goals.
59) The overall objective of internal auditing is to
a. Design and implement an effective internal control structure.
b. Assist the independent auditors in gathering evidence needed to form
an opinion on the fairness of the financial statements.
c. Ensure that assets are properly accounted for and protected from loss
or misuse.
d. Provide information about any phase of business activity to assist
members of management in discharging their responsibilities.

60) Usually, an operational audit is performed

a. By independent external auditors.
b. By a team consisting of an equal number of external and internal
auditors.
c. Only when an operating division is experiencing declines in productivity
or profitability.
d. By internal auditors at the request of top management or the board of
directors.