1.

Which of the following types of audits is performed to determine whether an entitys financial
statements are fairly stated in conformity with generally accepted accounting principles?
a. Operational audit
c. Financial statement audit
b. Compliance audit
d. Performance audit
2. Which of the following types of audit uses as its criteria laws and regulations?
a. Operational audit
c. Financial statement audit
b. Compliance audit
d. Financial audit
3. Which of the following types of auditing is performed most commonly by CPAs on a contractual
basis?
a. Internal auditing
c. Government auditing
b. BIR auditing
d. External auditing
4. Which of the following statements does not properly describe an element of the theoritical
framework of auditing?
a. The data to be audited can be verified.
b. Short-term conflicts may exist between managers who prepare data and auditors who examine the
data.
c. Auditors act on behalf of management.
d. An audit benefits the public.
5. Which of the following statements does not describe a condition that creates a demand for
auditing?
a. Conflict between an information preparer and a user can result in biased information.
b. Information can have substantial economic consequences for a decision maker.
c. Expertise is often required for information preparation and verification.
d. Users can directly assess the quality of information.
6. Which of the following statements does not properly describe a limitation of an audit?
a. Many audit conclusions are made on the basis of examining a sample of evidence.
b. Some evidence supporting peso representations in the financial statements must be obtained by
oral or written representations of management.
c. Fatigue and carelessness can cause auditors to overlook pertinent evidence.
d. Many financial statement assertions cannot be audited.
7. When the financial statements contain a material departure from generally accepted accounting
principles, the auditor should issue either
a. an unqualified or qualified opinion
b. a qualified opinion or a disclaimer of opinion
c. a qualified opinion or adverse opinion
d. an adverse opinion or a disclaimer of opinion
8. The primary purpose of establishing quality control policies and procedures for deciding whether to
accept a new client is to
a. Enable the CPA firm to attest to the reliability of the client.
b. Satisfy the CPA firms duty to the public concerning the acceptance of new clients.
c. Minimize the likelihood of association with clients whose management lacks integrity.
d. Anticipate before performing any fieldwork whether an unqualified opinion can be expressed.
9. The acceptable level of detection risk is inversely related to the
a. Assurance provided by substantive tests.
b. Risk of misapplying auditing procedures.
c. Preliminary judgment about materiality levels.
d. Risk of failing to discover material misstatements.
10. Before accepting an audit engagement, a successor auditor should make specific inquiries of the
predecessor auditor regarding the predecessors
a. Opinion of any subsequent events occurring since the predecessors audit report was issued.
b. Understanding as to the reasons for the change of auditors.
c. Awareness of the consistency in the application of GAAP between periods.
d. Evaluation of all matters of continuing accounting significance.
11. Because an audit in accordance with generally accepted auditing standards is influenced by the
possibility of material misstatements, the auditor should plan the audit with an attitude of
a. Professional responsiveness
c. Conservative advocacy
b. Professional skepticism
d. Objective judgment
12. When planning an audit, the auditor needs to evaluate audit risk where the auditor may unknowingly
fail to appropriately modify his or her opinion on financial statements that are materially misstated.
Audit risk is composed of

a. Tolerable error risk, sampling error risk, and inherent risk.

b. Allowance for sampling risk, allowance for non sampling risk, allowance for inherent risk
c. Risk of incorrect rejection, risk of incorrect acceptance, risk of overreliance, and risk of
underreliance
d. Inherent risk, control risk, and detection risk
13. Which of the following is not part of the control environment?
a. Management philosophy and operating style.
b. Organizational structure.
c. Information and communication systems.
d. Assignment of authority and responsibility.
14. To obtain an understanding of the relevant policies and procedures of internal control, the auditor
performs all of the following except:
a. Make inquiries
c. Make observation
b. Inspect documents and records
d. Design substantive tests
15. Which of the following statements is true?
a. If control risk is assessed at maximum, the nature of related substantive tests should be changed
from more to less effective.
b. If control risk is assessed at maximum, the nature of related substantive tests should be
changed from less to more effective.
c. If control risk is assessed at maximum, the timing of related substantive tests should be changed
from year-end to an interim date.
d. If control risk is assessed at maximum, the extent of related substantive tests should be changed
from a larger to a smaller sample.
16. Which of the following would not be a method used to conduct tests of controls?
a. Inquiry
c. Confirmation
b. Walkthrough
d. Observation
17. Which of the following audit techniques most likely would provide an auditor with the most assurance
about effectiveness of the operation of an internal control procedure?
a. Inquiry of client personnel.
b. Recomputation of account balance amounts.
c. Observation of client personnel.
d. Confirmation with outside parties.
18. The likelihood of assessing control risk too low relates to the
a. Effectiveness of the audit
b. Efficiency of the audit
c. Preliminary estimates of materiality levels
d. Allowable risk of tolerable misstatement
19. Which of the following is not an auditing procedure that is commonly used in performing tests of
controls?
a. Inquiry
c. Comparison
b. Observation
d. Inspection
20. 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 auditors sample.
b. Less than the deviation rate in the auditors sample.
c. More than the risk of assessing control risk too low, based on the auditors sample.
d. More than the deviation rate in the auditors sample.
21. After obtaining an understanding of internal control and assessing control risk, an auditor decided to
perform tests of controls. The auditor most likely decided that
a. It would be efficient to perform tests of controls that would result in a reduction in
planned substantive tests.
b. Additional evidence to support a further reduction in control risk is not available.
c. An increase in the assessed level of control risk is justified for certain financial statement
assertions.
d. There were many internal control weaknesses that could allow errors to enter the accounting
system.
22. In testing the existence assertion for an asset, an auditor ordinarily works from the
a. Financial statements to the potentially unrecorded items.
b. Potentially unrecorded items to the financial statements.
c. Accounting records to the supporting evidence.
d. Supporting evidence to the accounting records.

23. When analytical procedures are used as substantive tests, some account relationships are more
predictable than others. For which of the following accounts is the prior-year balance likely to be the
best predictor of the current year-end balance
a. Accounts payable
c. Cash
b. Revenues
d. Inventory
24. If related party transactions are detected, the auditor cannot complete the audit until he or she
a. Sends confirmation to all parties
b. Determines what the comparable arms-length transactions would have been.
c. Understands the business purpose of the transaction.
d. Notifies the SEC.
25. Which evidence is the most persuasive to support inventory quantities?
a. Purchase invoices held by the client.
b. Canceled checks issued to vendors.
c. Observations of the clients physical count.
d. A written certification from the client that the amount shown as inventory is correct.
26. Sampling results could lead the auditor to believe erroneously that the account does not contain more
peso error than can be tolerated. Which of the following corresponds to the preceding statement?
a. The risk of incorrect acceptance
c. Estimated sampling
b. The risk of incorrect rejection
d. Projected misstatement
27. To determine an optimum sample size when sampling methods are used in a substantive test, all of the
following factors must be considered except the
a. Variation in the population
b. Risk levels the auditor is willing to accept
c. Deviation occurrence rate the auditor expects to exist in the sample
d. Tolerable misstatement
28. Which of the following sampling methods would be used to estimate a numerical measurement of a
population, such as a peso value?
a. Discovery sampling
c. Sampling for attributes
b. Sampling for variables
d. Numerical sampling
29. Sampling results could lead the auditor to believe erroneously that the account contains more peso
error than can be tolerated. Which of the following corresponds to the preceding statement?
a. The risk of incorrect acceptance
c. Estimation sampling
b. The risk of incorrect rejection
d. Projected misstatement
30. In assessing sampling risk, the risk of incorrect rejection of an account balance relates to the
a. Efficiency of the audit
c. Selection of the audit
b. Effectiveness of the audit
d. Audit quality controls
31. An auditors purpose in reviewing credit ratings of customers with delinquent accounts receivable most
likely is to obtain evidence concerning managements assertions about
a. Valuation or allocation
c. Existence or occurrence
b. Presentation and disclosure
d. Rights and obligations
32. In an audit of inventories, an auditor would least likely verify that
a. All inventory owned by the client is on hand at the time of the count.
b. The client has used proper inventory pricing.
c. The financial statement presentation of inventories is appropriate.
d. Damaged goods and obsolete items have been properly accounted for.
33. The auditor may conclude that depreciation charges are insufficient by noting
a. Large amounts of fully depreciated assets.
b. Continuous trade-ins of relatively new assets.
c. Excessive recurring losses on assets retired.
d. Insured values greatly in excess of book values.
34. An auditor analyzes repairs and maintenance accounts primarily to obtain evidence in support of the
audit assertion that all
a. Noncapitalizable expenditures for repairs and maintenance have been properly charged to expense.
b. Noncapitalizable expenditures for repairs and maintenance have been recorded in the proper
period.
c. Expenditures for property and equipment have not been charged to expense.
d. Expenditures for property and equipment have been recorded in the proper period.
35. During its fiscal year, a company issued a substantial amount of first-mortgage bonds at a discount.
When performing audit work in connection with the bond issue, the independent auditor should
a. Confirm the existence of the bondholders.
b. Trace the net cash received from the issuance to the bond payable account.

c. Review the minutes for authorization.

d. Inspect the records maintained by the bond trustee.
36. To ascertain the number of authorized shares of stock of a corporate client, the auditor relies primarily
on the
a. corporate minutes
c. transfer agent
b. by-laws
d. articles of incorporation
37. To determine whether recorded property and equipment represent assets that actually exist at the
balance sheet date, the auditor most likely should
a. Examine deeds and title insurance certificates.
b. Determine that property and equipment are adequately insured.
c. Physically examine all major property and equipment additions.
d. Review the provision for depreciation expense and determine that depreciation lives and methods
used in the current year are consistent with those used in the prior year.
38. To determine that net property and equipment are properly valued at the balance sheet date,
a. Trace opening balances in the summary schedules to the prior years audit working papers.
b. Review the provision for depreciation expense and determine that depreciation lives
and methods used in the current year are consistent with those used in the prior year.
c. Examine deeds and title insurance certificates.
d. Determine that property and equipment are adequately insured.
39. An auditor hires an actuary to assist in corroborating a clients complex pension calculations concerning
accrued pension calculations concerning accrued pension liabilities that account for 35 percent of the
clients total liabilities. The actuarys findings are reasonably close to the clients calculations and
support the financial statements. This circumstance requires the auditors to express
a. Either an except for qualified opinion or an adverse opinion.
b. An unqualified opinion
c. An except forqualified opinion
d. A disclaimer of opinion.
40. The opinion to be expressed when an auditor is engaged to audit a clients financial statements after
the annual physical inventory count and the accounting records are not sufficiently reliable to enable
the auditor to become satisfied as to the year-end inventory balances is
a. Either an except for qualified opinion or an adverse opinion
b. Either a disclaimer or opinion or an except for qualified opinion
c. Either an adverse opinion or disclaimer of opinion
d. An unqualified opinion
41. In a compliance audit, an auditor is concerned with whether an entitys transactions are in
conformance with
a. Management objectives
c. Laws and regulations
b. Board of director directives
d. Accepted business practices
42. Alexion Corp. has engaged a public accounting firm to issue a report on the accuracy of product quality
specifications included in trade sales agreement. This is an example of a/an:
a. financial statement audit
c. compliance audit
b. attestation service
d. operational audit
43. Unlike consulting services, assurance services:
a. Make recommendation to management
b. Report on how to use information
c. Report on the quality of information
d. Are two- party contracts.
44.A financial statement audit:
a. Confirms that financial statement assertion are accurate.
b. Lends credibility to the financial statements.
c. Confirms that financial statements are presented fairly.
d. assures that fraud had been detected.
45.Which of the following best describes why an independent auditors reports on financial statements?
a. Independent auditors are likely to detect fraud
b. Competing interests may exist between management and the users of the statements
c. Misstated account balances are generally corrected by an independent audit.
d. Ineffective internal controls may exist.
46.The validity of evidence depends ultimately on the:
a. attestation standards and GAAS.
b. availability of subordinate evidence
c. relevance of the evidence

d. practitioners professional judgment

47.Which of the following is likely a scope limitation?
a. the auditor is reporting on the balance sheet only
b. a subsidiarys financial statements are audited by another auditor .
c. sufficient evidence is not available
d. the auditor is engaged after the balance sheet date
48.A departure from GAAP is disclosed in a note to the financial statements. The auditor should:
a. issue an unqualified opinion, but emphasize the matter in an explanatory paragraph.
b. issue an unqualified opinion, with no explanatory paragraph, since the departures from GAAP is
disclosed.
c. Issue a qualified opinion
d. Disclaim an opinion
49.Which of the following fee arrangements would violate the AICPA Code of Professional Conduct.
a. A fee based on the approval of a bank loan.
b. A fee based on the outcome of a bankruptcy proceeding.
c. A per hour fee that includes out-of-pocket expenses.
d. A fee based on the complexity of the engagement.
50.Substantive tests of details:
a. Are intended to detect material misstatements in financial statement accounts.
b. Are concerned with how internal control policies or procedures are applied.
c. Are evaluations of financial information made by a study of plausible relationships among both
financial and non-financial data.
d. Are procedures that lend hindsight to amounts and information disclosed in financial statements as
of the balance sheet date.
51.Analytical procedures:
a. Are intended to detect material misstatements in financial statement accounts.
b. Are concerned with how internal control policies or procedures are applied.
c. Are evaluations of financial information made by a study of plausible relationships
among both financial and non-financial data.
d. Are procedures that lend hindsight to amounts and information disclosed in financial statements as
of the balance sheet date.
52.Which of the following statements is an example of an inherent limitation of internal control.
a. The effectiveness of control procedures depends on segregation of duties.
b. Procedures are designed to assure that transactions are executed as management authorities.
c. Errors may arise from mistakes in judgments.
d. Computers process large numbers of transactions.
53.An auditor considers internal control to:
a. Determine whether assets are safeguarded.
b. Suggest improvements in internal control.
c. Plan audit procedures.
d. Express an opinion.
54.After obtaining an understanding of an entitys internal controls, an auditor may assess control risk
at the maximum for some assertions because the auditor:
a. Believes internal control activities are unlikely to be effective.
b. Determines that internal control is not well-documented.
c. Performs tests of controls to restrict detection risk to an acceptable level.
d. Identifies control activities that are likely to prevent material misstatements.
55.After obtaining an understanding of an entitys internal controls and assessing control risk, an
auditor may next:
a. Perform tests of controls to verify managements assertions that are embodied in the financial
statements.
b. Consider whether to reduce the assessed level of control risk further.
c. Discontinue searching for reportable condition.
d. Evaluate whether control activities can detect material misstatements.
56.The primary purpose of performing tests of controls is to provide reasonable assurance that:
a. Internal control is effective.
c. Transactions are recorded at the amounts
executed.
b. The accounting system is documented accurately. d. All control activities leave visible evidence.