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


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


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


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





Consistent

Application of

accounting principles

Examination

of evidence

on a test basis



