Download - Ex 370
Lebanese Association of Certified Public Accountants
Examination Year – June 2006
Auditing
1- The primary responsibility for the adequacy of disclosure in the financial
statements of a publicly held company rests with the
Answers
A: Partner assigned to the audit engagement.
B: Management of the company.
C: Auditor in charge of the fieldwork.
D: Ministry of Finance.
2
2- In developing a preliminary audit strategy,
an auditor should consider
Answers
A: Whether the allowance for sampling risk
exceeds the achieved upper precision
limit.
B: Findings from substantive tests performed
at interim dates.
C: Whether the inquiry of the client’s attorney
identifies any litigation, claims, or
assessments not disclosed in the financial
statements.
D: The planned assessed level of control risk.
3- Inherent risk and control risk differ from
detection risk in that inherent risk and control
risk are
Answers
A: Elements of audit risk while detection risk
is not.
B: Changed at the auditor’s discretion while
detection risk is not.
C: Considered at the individual account-
balance level while detection risk is not.
D: Functions of the client and its environment
while detection risk is not.
4- A basic premise underlying analytical
procedures is that
Answers
A: Statistical tests of financial information
may lead to the discovery of material
misstatements in the financial statements.
B: The study of financial ratios is an
acceptable alternative to the investigation
of unusual fluctuations.
C: Relationships among data may reasonably
be expected to exist and continue in the
absence of known conditions to the
contrary.
D: These procedures can not replace tests of
balances and transactions.
5- Audit programs should be designed so that
Answers
A: Most of the required procedures can be
performed as interim work.
B: Inherent risk is assessed at a sufficiently
low level.
C:The auditor can make constructive
suggestions to management.
D: The audit evidence gathered supports the
auditor’s conclusions.
3
6- In designing written audit programs, an
auditor should establish specific audit
objectives that relate primarily to the
Answers
A: Timing of audit procedures.
B: Cost-benefit of gathering evidence.
C: Selected audit techniques.
D: Financial statement assertions.
7- The audit work performed by each assistant
should be reviewed to determine whether it
was adequately performed and to evaluate
whether the
Answers
A: Audit has been performed by persons
having adequate technical training and
proficiency as auditors.
B: Auditor’s system of quality control has
been maintained at a high level.
C: Results are consistent with the conclusions
to be presented in the auditor’s report.
D: Audit procedures performed are approved
in the professional standards.
8- Inherent risk and control risk differ from
detection risk in that inherent risk and control
risk are
Answers
A: Elements of audit risk while detection risk
is not.
B: Changed at the auditor’s discretion while
detection risk is not.
C: Considered at the individual account-
balance level while detection risk is not.
D: Functions of the client and its environment
while detection risk is not.
9- As the acceptable level of detection risk
decreases, the assurance directly provided
from
Answers
A: Substantive tests should increase.
B: Substantive tests should decrease.
C: Tests of controls should increase.
D: Tests of controls should decrease.
10- In considering materiality for planning
purposes, an auditor believes that
misstatements aggregating $10,000 would
have a material effect on an entity's income
statement, but that misstatements would have
to aggregate $20,000 to materially affect the
balance sheet. Ordinarily, it would be
appropriate to design auditing procedures that
would be expected to detect misstatements
that aggregate
Answers
A: $10,000
B: $15,000
C: $20,000
D: $30,000
11- Following the Professional Standards
which of the following is not one of the
assertions made by management in financial
statements?
Answers
A: Completeness.
B: Existence or occurrence
C: Presentation and disclosure.
D: Relevance and reliability.
4
12- On the basis of audit evidence gathered
and evaluated, an auditor decides to increase
the assessed level of control risk from that
originally planned. To achieve an overall
audit risk level that is substantially the same
as the planned audit risk level, the auditor
would
Answers
A: Increase inherent risk.
B: Increase materiality levels.
C: Decrease substantive testing.
D: Decrease detection risk.
13- After obtaining an understanding of an
entity's internal control and assessing control
risk, an auditor may
Answers
A: Perform tests of controls to verify
management’s assertions that are
embodied in the financial statements.
B: Consider whether evidential matter is
available to support a further reduction in
the assessed level of control risk.
C: Apply analytical procedures as substantive
tests to validate the assessed level of
control risk.
D: Evaluate whether the company’s controls
detected material misstatements in the
financial statements.
14- A LACPA firm's personnel partner
periodically studies the LACPA firm's
personnel advancement experience to
ascertain whether individuals increased
degrees of responsibility. This is evidence of
the LACPA firm's adherence to prescribed
standards of
Answers A: Quality control.
B: Due professional care.
C: Supervision and review.
D: Fieldwork.
15- The objective of quality control mandates
that a public accounting firm should establish
policies and procedures for professional
development which provide reasonable
assurance that all entry-level personnel
Answers A:Prepare working papers which are
standardized in form and content.
B: Have the knowledge required to enable
them to fulfill responsibilities assigned.
C: Will advance within the organization.
D: Develop specialties in specific areas of
public accounting
16- An LACPA establishes quality control
policies and procedures for deciding whether
to accept a new client or continue to perform
services for a current client. The primary
purpose for establishing such policies and
procedures is
Answers A: To enable the auditor to attest to the
integrity or reliability of a client.
B: To comply with the quality control
standards established by regulatory
bodies.
C: To minimize the likelihood of association
with clients whose management lacks
integrity.
D: To lessen the exposure to litigation
resulting from failure to detect
irregularities in client financial statements.
5
17- An LACPA in public practice must be
independent in fact and appearance when
providing which of the following services?
Answers
A: A.
B: B.
C: C.
D: D.
18- Auditing standards require that the
examination of financial statements is to be
performed by a person or persons having
adequate technical training and
Answers
A: Independence with respect to the financial
statements and supplementary disclosures.
B: Exercising professional care as judged by
peer reviewers.
C: Proficiency as an auditor which likely has
been acquired from previous experience.
D: Objectivity as an auditor as verified by
proper supervision .
19- In which circumstance is the confirmation
of receivables on October 31 most likely for a
client with a December 31 year-end?
Answers
A: Tests of controls have revealed that the
disbursements cycle is operating
effectively.
B: The receivables balance is material.
C: Accounts were confirmed as of December
31 for the preceding year’s audit.
D: Appropriate audit tests indicate that control
risk for receivables is low.
20- Use the audit risk model to calculate audit
risk (to the closest percent) in the following
circumstance:
40% Control risk
40% Inherent risk
40% Detection risk
Answers
A: 1%.
B: 6%.
C: 13%.
D: 40%.
Preparation
of a
tax return
Compilation of
a financial
forecast
Compilation
of personal
financial
statements
A. Yes No No
B. No Yes Yes
C. No No Yes
D. No No No
6
21- An accountant who is not independent of
a client is precluded from issuing a
Answers
A: Compilation report on historical financial
statements.
B: Compilation report on prospective
financial statements.
C: Special report on compliance with
contractual agreements.
D: Report on consulting services.
22- Which of the following factors is most
important concerning an auditor’s
responsibility to detect errors and fraud?
Answers
A: The susceptibility of the accounting
records to intentional manipulations,
alterations, and the misapplication of
accounting principles.
B: The probability that unreasonable
accounting estimates result from
unintentional bias or intentional attempts
to misstate the financial statements.
C: The possibility that management fraud,
defalcations, and the misappropriation of
assets may indicate the existence of illegal
acts.
D: The risk that mistakes, falsifications, and
omissions may cause the financial
statements to contain material
misstatements.
23- What assurance does the auditor provide
that errors, fraud, and direct effect illegal acts
that are material to the financial statements
will be detected?
Errors Fraud Direct effect
illegal acts
A. Limited Negative Limited
B. Limited Limited Reasonable
C. Reasonable Limited Limited
D. Reasonable Reasonable Reasonable
Answers
A: A.
B: B.
C: C.
D: D.
24- The independent auditor’s plan for an
examination in accordance with generally
accepted auditing standards is influenced by
the possibility of material misstatements. The
auditor will therefore conduct the examination
with an attitude of
Answers
A: Professional skepticism.
B: Subjective mistrust.
C: Objective indifference.
D: Professional responsiveness.
25- Which of the following is an example of
fraudulent financial reporting?
Answers
A: Company management improperly records
as revenue the proceeds of a loan.
B: The treasurer diverts customer payments to
his personal use, concealing his actions by
debiting an expense account, thus
overstating expenses.
C: An employee steals inventory and the
"shrinkage" is recorded in cost of goods sold.
D: An employee bills his company for
products not received, using the name of a
fictitious supplier.
7
26- Which of the following is correct
concerning a “fraud risk factor?”
Answers
A: Its presence indicates that the risk of fraud
is high.
B: It has been observed in circumstances
where frauds have occurred.
C: It requires modification of planned audit
procedures.
D: It is also a material weakness in internal
control.
27- While obtaining an understanding of a
client’s risk assessment policies, an auditor
ordinarily considers how management
Answers
A: Identifies risks.
B: Eliminates significant risks.
C: Assesses the likelihood of occurrence of
subsequent events.
D: Relates risk assessment to compliance with
marketing objectives.
28- If internal control is properly designed,
the same employee should not be permitted to
Answers
A: Sign checks and cancel supporting
documents.
B: Receive merchandise and prepare a
receiving report.
C: Prepare disbursement vouchers and sign
checks.
D: Initiate a request to order merchandise and
approve merchandise received.
29- Which of the following sets of duties
would ordinarily be considered basically
incompatible in terms of good internal
control?
Answers
A: Preparation of monthly statements to
customers and maintenance of the
accounts receivable subsidiary ledger.
B: Posting to the general ledger and approval
of additions and terminations relating to
the payroll.
C: Custody of unmailed signed checks and
maintenance of expense subsidiary
ledgers.
D: Collection of receipts on account and
maintaining accounts receivable records.
30- For good internal control, which of the
following functions should not be the
responsibility of the treasurer’s department?
Answers
A: Data processing.
B: Handling of cash.
C: Custody of securities.
D: Establishing credit policies.
31- Proper segregation of functional
responsibilities calls for separation of the
Answers
A: Authorization, approval, and execution
functions.
B: Authorization, execution, and payment
functions.
C: Receiving, shipping, and custodial
functions.
D: Authorization, recording, and custodial
functions.
8
32- Effective internal control requires
organizational independence of departments.
Organizational independence would be
impaired in which of the following situations?
Answers
A: The internal auditors report to the audit
committee of the board of directors.
B: The controller reports to the vice president
of production.
C: The payroll accounting department reports
to the chief accountant.
D: The cashier reports to the treasurer.
33- An auditor would most likely be
concerned with controls that provide
reasonable assurance about the
Answers
A: Efficiency of management’s decision-
making process.
B: Appropriate prices the entity should charge
for its products.
C: Methods of assigning production tasks to
employees.
D: Entity’s ability to process and summarize
financial data.
34- In connection with the element of
inspection, a CPA firm’s system of quality
control should ordinarily provide for the
maintenance of
Answers
A: A file of minutes of staff meetings.
B: Updated personnel files.
C: Documentation to demonstrate compliance
with its policies and procedures.
D: Documentation to demonstrate compliance
with peer review directives.
35- Which of the following procedures is not
usually performed by the accountant in a
review engagement of a nonpublic entity? Answers A: Communicating any material weaknesses
discovered during the consideration of
internal control.
B: Reading the financial statements to
consider whether they conform with IFRS.
C: Writing an engagement letter to establish
an understanding regarding the services to
be performed.
D: Issuing a report stating that the review was
performed in accordance with standards
established by the AICPA.
36- The auditor’s report should be dated as of
the date on which the
Answers
A: Report is delivered to the client.
B: Fieldwork is completed.
C: Fiscal period under audit ends.
D: Review of the working papers is
completed
37- When a contingency is resolved
immediately subsequent to the issuance of a
report which was qualified with respect to the
contingency, the auditor should
Answers
A: Insist that the client issue revised financial
statements.
B: Inform the audit committee that the report
cannot be relied upon.
C: Take no action regarding the event.
D: Inform the appropriate authorities that the
report cannot be relied upon.
9
38- The Sarbanes-Oxley Act of 2003
authorized creation of the
Answers
A: Auditing Standards Board.
B: Public Company Accounting Oversight
Board.
C: Financial Accounting Standards Center.
D: Corporate Governance Institute.
39-Which of the following audit risk
components may be assessed in no
quantitative terms?
Answers
A: A.
B: B.
C: C.
D: D.
40-To be competent, evidence must be both
Answers
A: Timely and substantial.
B: Reliable and documented.
C: Valid and relevant.
D: Useful and objective.
41- Which of the following procedures would
provide the most reliable audit evidence?
Answers
A: Inquiries of the client’s internal audit staff
held in private.
B: Inspection of prenumbered client purchase
orders filed in the vouchers payable
department.
C: Analytical procedures performed by the
auditor on the entity’s trial balance.
D: Inspection of bank statements obtained
directly from the client’s financial
institution.
42- Which of the following is included as part
of the definition of audit sampling?
Answers
A: Inquiry and observation procedures.
B: Documentary evidence.
C: Evaluation of some characteristic.
D: Statistical techniques.
43- An auditor may decide to increase the risk
of incorrect rejection when
Answers
A: Increased reliability from the sample is
desired.
B: Many differences (audit value minus
recorded value) are expected.
C: Initial sample results do not support the
planned level of control risk.
D: The cost and effort of selecting additional
sample items is low.
Inherent
risk
Control
risk
Detection
risk
A. Yes Yes No
B. Yes No Yes
C. No Yes Yes
D. Yes Yes Yes
10
44- The auditor faces a risk that the
examination will not detect material
misstatements which occur in the accounting
process. In regard to minimizing this risk, the
auditor primarily relies on
Answers
A: Substantive tests.
B: Tests of controls.
C: Internal control.
D: Statistical analysis.
45- Use the ratio method of sampling to
calculate the year-end accounts payable
audited balance from the following data:
Answers
A: $6,150,000
B: $6,000,000
C: $5,125,000
D: $5,050,000
46- Which of the following best illustrates the
concept of sampling risk?
Answers
A: A randomly chosen sample may not be
representative of the population as a
whole on the characteristic of interest.
B: An auditor may select audit procedures
that are not appropriate to achieve the
specific objective.
C: An auditor may fail to recognize errors in
the documents examined for the chosen
sample.
D: The documents related to the chosen
sample may not be available for
inspection .
47- An auditor should obtain evidential matter
relevant to all the following factors
concerning third-party litigation against a
client except the
Answers A: Period in which the underlying cause for
legal action occurred.
B: Probability of an unfavorable outcome.
C: Jurisdiction in which the matter will be
resolved.
D: Existence of a situation indicating an
uncertainty as to the possible loss.
48- Which of the following most likely would
indicate the existence of related parties?
Answers A: Writing down obsolete inventory just
before year-end.
B: Failing to correct previously identified
internal control deficiencies.
C: Depending on a single product for the
success of the entity.
D: Borrowing money at an interest rate
significantly below the market rate.
Number
of
accounts
Book
balance
Audited
balance
Population 4,100 $5,000,000 ?
Sample 200 $ 250,000 $300,000
11
49- After discovering that a related-party
transaction exists, the auditor should be aware
that the
Answers
A: Substance of the transaction could be
significantly different from its form.
B: Adequacy of disclosure of the transaction
is secondary to its legal form.
C: Transaction is assumed to be outside the
ordinary course of business.
D: Financial statements should recognize the
legal form of the transaction rather than its
substance.
50- When auditing related-party transactions,
an auditor places primary emphasis on
Answers
A: Confirming the existence of the related
parties.
B: Verifying the valuation of the related-party
transactions.
C: Evaluating the disclosure of the related-
party transactions.
D: Ascertaining the rights and obligations of
the related parties.
51- An auditor concludes that a substantive
auditing procedure considered necessary
during the prior period's audit was omitted.
Which of the following factors would most
likely cause the auditor promptly to apply the
omitted procedure?
Answers
A: There are no alternative procedures
available to provide the same evidence as
the omitted procedure.
B: The omission of the procedure impairs the
auditor’s present ability to support the
previously expressed opinion.
C: The source documents needed to perform
the omitted procedure are still available.
D: The auditor’s opinion on the prior period’s
financial statements was unqualified.
52- The primary objective of analytical
procedures used in the final review stage of an
audit is to
Answers A: Obtain evidence from details tested to
corroborate particular assertions.
B: Identify areas that represent specific risks
relevant to the audit.
C: Assist the auditor in assessing the validity
of the conclusions reached.
D: Satisfy doubts when questions arise about
a client’s ability to continue in existence.
53- Auditors should request that an audit
client send a letter of inquiry to those
attorneys who have been consulted
concerning litigation, claims, or assessments.
The primary reason for this request is to
provide
Answers
A: Information concerning the progress of
cases to date.
B: Corroborative evidential matter.
C: An estimate of the dollar amount of the
probable loss.
D: An expert opinion as to whether a loss is
possible, probable, or remote.
12
54- Which of the following statements
concerning evidential matter is correct?
Answers A: Competent evidence supporting
management’s assertions should be
convincing rather than merely persuasive.
B: Effective internal control contributes little
to the reliability of the evidence created
within the entity.
C: The cost of obtaining evidence is not an
important consideration to an auditor in
deciding what evidence should be
obtained.
D: A client’s accounting data cannot be
considered sufficient audit evidence to
support the financial statements.
55 - The third standard of fieldwork states that
sufficient competent evidential matter may, in
part, be obtained through inspection,
observation, inquiries, and confirmations, to
afford a reasonable basis for an opinion
regarding the financial statements under
examination. The evidential matter required
by this standard may, in part, be obtained
through
Answers
A: Analytical procedures.
B: Auditor working papers.
C: Review of the internal control.
D: Proper planning of the audit engagement.
56- In connection with the third generally
accepted auditing standard of fieldwork, an
auditor examines corroborating evidential
matter which includes all of the following
except
Answers
A: Client accounting manuals.
B: Written client representations.
C: Vendor invoices.
D: Minutes of board meetings.
57- Most of the independent auditor's work in
formulating an opinion on financial
statements consists of
Answers
A: Considering internal control.
B: Obtaining and examining evidential matter.
C: Examining cash transactions.
D:Comparing recorded accountability with
assets.
58- Management prepares accounting
estimates and the auditor is responsible for
evaluating the reasonableness of the
estimates. Which of the following would not
be an auditor's objective when evaluating
estimates?
Answers A: All accounting estimates which could be
material to the financial statements have
been developed.
B: The accounting estimates developed by
management are accurate with 100%
certainty.
C: The accounting estimates developed by
management are reasonable.
D: The accounting estimates are presented in
accordance with International Financial
Reporting Standards.
13
59- Failure to detect material dollar errors in
the financial statements is a risk which the
auditor primarily mitigates by
Answers
A: Performing substantive tests.
B: Performing tests of controls.
C: Assessing internal control.
D: Obtaining a client representation letter.
60- As a result of analytical procedures, the
independent auditor determines that the gross
profit percentage has declined from 30% in
the preceding year to 20% in the current year.
The auditor should
Answers A: Include an explanatory paragraph in the
audit report due to the inability of the
client company to continue as a going
concern.
B: Evaluate management’s performance in
causing this decline.
C: Require footnote disclosure.
D: Consider the possibility of a misstatement
in the financial statements.
61- Tests of controls are performed in order to
determine whether
Answers
A: Controls are functioning as designed.
B: Necessary controls are absent.
C: Incompatible functions exist.
D: Material dollar errors exist.
62- The auditor is examining copies of sales
invoices only for the initials of the person
responsible for checking the extensions. This
is an example of a
Answers
A: Test of a control.
B: Substantive test.
C: Dual-purpose test.
D: Test of balances.
63- Of the following, which is the least
persuasive type of audit evidence?
Answers A: Documents mailed by outsiders to the
auditor.
B: Correspondence between auditor and
vendors.
C: Copies of sales invoices inspected by the
auditor.
D: Computations made by the auditor.
64- Of the following statements about internal
control, which one is not valid?
Answers
A: No one person should be responsible for
the custodial responsibility and the
recording responsibility for an asset.
B: Transactions must be properly authorized
before such transactions are processed.
C: Because of the cost/benefit relationship, a
client may apply controls on a test basis.
D: Controls reasonably ensure that collusion
among employees cannot occur.
14
65- Which of the following controls will most
likely prevent the concealment of a cash
shortage resulting from the improper write-off
of a trade account receivable?
Answers
A: Write-offs must be approved by a
responsible officer after review of credit
department recommendations and
supporting evidence.
B: Write-offs must be supported by an aging
schedule showing that only receivables
overdue several months have been
written off.
C: Write-offs must be approved by the cashier
who is in a position to know if the
receivables have, in fact, been collected.
D: Write-offs must be authorized by company
field sales employees who are in a
position to determine the financial
standing of the customers.
66- Which of the following statements
concerning audit evidence is correct?
Answers
A: To be competent, audit evidence should be
either persuasive or relevant, but need not
be both.
B: The measure of the validity of audit
evidence lies in the auditor’s judgment.
C: The difficulty and expense of obtaining
audit evidence concerning an account
balance is a valid basis for omitting the
test.
D: A client’s accounting data can be sufficient
audit evidence to support the financial
statements.
67- Which of the following analytical
procedures should be applied to the income
statement?
Answers
A: Select sales and expense items and trace
amounts to related supporting documents.
B: Ascertain that the net income amount in
the statement of cash flows agrees with
the net income amount in the income
statement.
C:Obtain from the proper client
representatives, the beginning and ending
inventory amounts that were used to
determine costs of sales.
D: Compare the actual revenues and expenses
with the corresponding figures of the
previous year and investigate significant
differences.
68- Analytical procedures used in planning an
audit should focus on identifying
Answers
A: Material weaknesses in internal control.
B: The predictability of financial data from
individual transactions.
C: The various assertions that are embodied
in the financial statements.
D: Areas that may represent specific risks
relevant to the audit.
15
69- Assurance services performed for
decision makers may address the
Answers
A: A.
B: B.
C: C.
D: D.
70- Which of the following is least likely to
include a reference to the use of a specialist?
Answers
A: Unqualified opinion.
B: Adverse opinion.
C: "Except for" qualified opinion.
D: "Subject to" qualified opinion.
71- In order to safeguard the assets through
proper internal control, accounts receivable
that are written off are transferred to a(n)
Answers
A: Separate ledger.
B:Attorney for evidence in collection
proceedings.
C: Tax deductions files.
D: Credit manager since customers may seek
to reestablish credit by paying.
72- As one of the year-end audit procedures,
the auditor instructed the client’s personnel to
prepare a standard bank confirmation request
for a bank account that had been closed
during the year. After the client’s treasurer
had signed the request, it was mailed by the
assistant treasurer. What is the major flaw in
this audit procedure?
Answers
A: The confirmation request was signed by
the treasurer.
B: Sending the request was meaningless
because the account was closed before the
year-end.
C: The request was mailed by the assistant
treasurer.
D: The LACPA did not sign the confirmation
request before it was mailed.
73- When counting cash on hand the auditor
must exercise control over all cash and other
negotiable assets to prevent
Answers
A: Theft.
B: Irregular endorsements.
C: Substitution.
D: Deposits-in-transit.
Quality of
information
Context of
information
A. Yes Yes
B. Yes No
C. No Yes
D. No No
16
74- During the process of confirming
receivables as of December 31, 2000, a
positive confirmation was returned indicating
the “balance owed as of December 31 was
paid on January 9, 2001.” The auditor would
most likely
Answers
A: Determine whether there were any changes
in the account between January 1 and
January 9, 2001.
B: Determine whether a customary trade
discount was taken by the customer.
C: Reconfirm the zero balance as of
January 10, 2001.
D: Verify that the amount was received.
75- Confirmation of individual accounts
receivable balances directly with debtors will,
of itself, normally provide evidence
concerning the
Answers
A: Collectibility of the balances confirmed.
B: Ownership of the balances confirmed.
C: Existence of the balances confirmed.
D: Internal control over balances confirmed.
76- When an auditor concludes there is
substantial doubt about an entity’s ability to
continue as a going concern for a reasonable
period of time, the auditor’s responsibility is to
Answers
A: Prepare prospective financial information
to verify whether management’s plans
can be effectively implemented.
B: Project future conditions and events for a
period of time not to exceed 1 year
following the date of the financial
statements.
C: Issue a qualified or adverse opinion,
depending upon materiality, due to the
possible effects on the financial
statements.
D: Consider the adequacy of disclosure about
the entity’s possible inability to continue
as a going concern.
77- A material change in an accounting
estimate
Answers
A: Requires a consistency modification in the
auditor’s report and disclosure in the
financial statements.
B: Requires a consistency modification in the
auditor’s report but does not require
disclosure in the financial statements.
C: Affects comparability and may require
disclosure in a note to the financial
statements but does not require a
consistency modification in the auditor’s
report.
D: Involves the acceptability of the generally
acceptable accounting principles used.
17
78- With respect to consistency, which of the
following should be done by an independent
auditor, who has not examined a company’s
financial statements for the preceding year but
is doing so in the current year?
Answers
A: Report on the financial statements of the
current year without considering
consistency with the preceding year.
B: Consider the consistent application of
principles within the year under
examination but not between the current
and preceding year.
C: Adopt procedures that are practicable and
reasonable in the circumstances to obtain
assurance that the principles employed
are consistent between the current and
preceding year.
D: Rely on the report of the prior year’s
auditors if such a report does not provide
explanatory language as to consistency.
79- The prior year’s financial statements of
YZ, Inc., which were audited by Pate, CPA,
are presented for comparative purposes
without Pate’s audit report. Jennings, CPA,
the successor auditor, should indicate in the
current year audit report that the prior year’s
financial statements were examined by
another auditor
Answers
A: Only if Pate’s opinion was other than
unqualified.
B: But should not indicate the type of opinion
expressed by Pate.
C: Only if the prior year’s financial
statements have been restated.
D: But should not name Pate as the
predecessor auditor.
80- Which of the following is a basic tool
used by the auditor to control the audit work
and review the progress of the audit?
Answers
A: Time and expense summary.
B: Engagement letter.
C: Progress flowchart.
D: Audit program.
81- Management's attitude toward aggressive
financial reporting and its emphasis on
meeting projected profit goals most likely
would significantly influence an entity's
control environment when
Answers
A: The audit committee is active in
overseeing the entity’s financial reporting
policies.
B: External policies established by parties
outside the entity affect its accounting
practices.
C: Management is dominated by one
individual who is also a shareholder.
D: Internal auditors have direct access to the
board of directors and entity management.
82- Which of the following computer
documentation would an auditor most likely
utilize in obtaining an understanding of
internal control?
Answers
A: Systems flowcharts.
B: Record counts.
C: Program listings.
D: Record layouts.
18
83- How are management’s responsibility and
the auditor’s responsibility represented in the
standard auditor’s report?
Answers A: A.
B: B.
C: C.
D: D.
84- A lawyer limits a response concerning a
litigated claim because the lawyer is unable to
determine the likelihood of an unfavorable
outcome. Which type of opinion should the
auditor express if the litigation is adequately
disclosed and the range of potential loss is
material in relation to the client’s financial
statements considered as a whole?
Answers
A: Adverse.
B: Unaudited.
C: Qualified.
D: Unqualified.
85- Which of the following auditing
procedures is ordinarily performed last?
Answers
A: Reading of the minutes of the directors’
meetings.
B: Confirming accounts payable.
C: Obtaining a management representation
letter.
D: Testing of the purchasing function.
86- Before performing a review of a
nonpublic entity's financial statements, an
accountant should
Answers
A: Complete a series of inquiries concerning
the entity’s procedures for recording,
classifying, and summarizing transactions.
B: Apply analytical procedures to provide
limited assurance that no material
modifications should be made to the
financial statements.
C: Obtain a sufficient level of knowledge of
the accounting principles and practices of
the industry in which the entity operates.
D: Inquire whether management has omitted
substantially all of the IAS.
87- When compiling a nonpublic entity's
financial statements, an accountant would be
least likely to
Answers
A: Perform analytical procedures designed to
identify relationships that appear to be
unusual.
B: Read the compiled financial statements and
consider whether they appear to include
adequate disclosure.
C: Omit substantially all of the disclosures
required by IAS.
D: Issue a compilation report on one or more,
but not all, of the basic financial
statements.
Management’s
responsibility
Auditor’s
responsibility
A. Explicitly Explicitly
B. Implicitly Implicitly
C. Implicitly Explicitly
D. Explicitly Implicitly
19
88- For effective internal control, the billing
function should be performed by the
Answers
A: Accounting department.
B: Sales department.
C: Shipping department.
D: Credit and collection department.
89- Which of the following procedures is
usually performed by the accountant in a
review engagement of a nonpublic entity?
Answers
A: Sending a letter of inquiry to the entity’s
lawyer.
B: Comparing the financial statements with
statements for comparable prior periods.
C: Confirming a significant percentage of
receivables by direct communication with
debtors.
D: Communicating reportable conditions
discovered during the study of the internal
control.
90- It would not be appropriate for the auditor
to initiate discussion with the audit committee
concerning
Answers
A: The extent to which the work of internal
auditors will influence the scope of the
examination.
B: Details of the procedures which the auditor
intends to apply.
C: The extent to which change in the
company’s organization will influence the
scope of the examination.
D: Details of potential problems which the
auditor believes might cause a qualified
opinion.
91- Reportable conditions are matters that
come to an auditor's attention, which should
be communicated to an entity's audit
committee because they represent
Answers
A: Material irregularities or illegal acts
perpetrated by high-level management.
B: Significant deficiencies in the design or
operation of the internal control.
C: Flagrant violations of the entity’s
documented conflict-of-interest policies.
D: Intentional attempts by client personnel to
limit the scope of the auditor’s fieldwork.
92- As generally conceived, the "audit
committee" of a publicly held company
should be made up of
Answers
A: Representatives of the major equity
interests (bonds, preferred stock, common
stock).
B: The audit partner, the chief financial
officer, the legal counsel, and at least one
outsider.
C: Representatives from the client’s
management, investors, suppliers, and
customers.
D: Members of the board of directors who are
not officers or employees.
20
93- In connection with the examination of
financial statements by an independent
auditor, the client suggests that members of
the internal audit staff be utilized to minimize
audit costs. Which of the following tasks
could most appropriately be delegated to the
internal audit staff?
Answers
A: Selection of accounts receivable for
confirmation, based upon the internal
auditor’s judgment as to how many
accounts and which accounts will provide
sufficient coverage.
B: Preparation of schedules for negative
accounts receivable responses.
C: Evaluation of the internal control for
accounts receivable and sales.
D: Determination of the adequacy of the
allowance for doubtful accounts.
94 - In comparison to the external auditor, an
internal auditor is more likely to be concerned
with
Answers
A: Internal control.
B: Cost accounting procedures.
C: Operational auditing.
D: Reviewing interim financial statements.
95- Which of the following is correct
concerning an engagement to apply agreed-
upon procedures?
Answers
A: A clear understanding of the terms of the
engagement must be established through
use of an engagement letter.
B: Independence of the LACPA is not
required.
C: The procedures maybe as limited or as
extensive as the LACPAs desire ranging
from a mere reading of the information to
performing search and verification
procedures.
D: Use of the report is restricted to the
specified users.
96 - Which of the following professional
services would be considered an attest
engagement?
Answers
A: A management consulting engagement to
provide accounting information systems
advice to a client.
B: An engagement to report on compliance
with statutory requirements.
C: An income tax engagement to prepare
income tax returns.
D: The compilation of financial statements
from a client’s accounting records.
21
97- Given one or more hypothetical
assumptions, a responsible party may prepare,
to the best of its knowledge and belief, an
entity’s expected financial position, results of
operations, and changes in financial position.
Such prospective financial statements are
known as
Answers
A: Pro forma financial statements.
B: Financial projections.
C: Partial presentations.
D: Financial forecasts .
98- Which of the following representations
does an auditor make explicitly and which
implicitly when issuing an unqualified
opinion?
Answers
A: A.
B: B.
C: C.
D: D.
99- Does an auditor make the following
representation explicitly or implicitly when
issuing the standard auditor’s report on
comparative financial statements?
Answers
A: A.
B: B.
C: C.
D: D.
100- Skates, an independent auditor, was
engaged to perform an examination of the
financial statements of Apex Incorporated 1
month after its fiscal year had ended.
Although the inventory count was not
observed by Skates, and accounts receivable
were not confirmed by direct communication
with creditors, Skates was able to gain
satisfaction by applying alternative auditing
procedures. Skates’ auditor’s report will
probably contain
Answers
A: An "except for" qualification.
B: An unqualified opinion and an explanatory
paragraph.
C: Either a qualified opinion or a disclaimer
of opinion.
D: A standard unqualified opinion.
Conformity
with IFRS
Adequacy of
disclosure
A. Explicitly Explicitly
B. Implicitly Implicitly
C. Implicitly Explicitly
D. Explicitly Implicitly
Consistent
Application of
accounting principles
Examination
of evidence
on a test basis
A. Explicitly Explicitly
B. Implicitly Implicitly
C. Implicitly Explicitly
D. Explicitly Implicitly