Question 79
The element of the audit planning process most likely to be agreed upon with the client before
implementation of the audit strategy is the determination of the
o Materiality and specific items to be tested
o Evidence to be gathered to provide a sufficient and appropriate basis for the auditor’s
opinion
o Timing of inventory observation procedures
o Procedures to be undertaken in performing the audit
Question 80
When auditors allocate the preliminary judgment about materiality to account balances, the
materiality allocated to any given account is referred to as:
o The error range
o Tolerable materiality
o The materiality range
o Tolerable misstatement
Question 81
Which one of the following is not a provider of assurance services?
o Internal auditors
o PICPA
o CPAS
o Governmental auditors
Question 82
The primary goal of the CPA in performing the attest function is to
o Determine whether the client's assertions are fairly stated.
o Examine individual transactions so that the auditor may certify as to their validity.
o Detect fraud.
o Assure the consistent application of correct accounting procedures
Question 83
It is important for the auditor to consider the competence of the audit client's employees
because their competence bears directly and importantly upon the
o cost-benefit relationship of internal control
o Achievement of the objectives of internal control
o timing of the tests to be performed
o comparison of recorded accountability with assets
Question 84
Which of the following tasks should he be performed prior to the final audit?
o Understanding internal control.
o Confirming accounts receivable.
o Determining the fairness of property. plant and equipment
o Collection and evaluating evidence supporting the fairness of inventory
Question 85
While assessing the risk of material misstatement, the auditors identity risks, relate risk to what
could go wrong, consider the magnitude of risks and:
o Assess the risk of misstatements due to noncompliance to laws and regulations.
o Consider the likelihood that the risks could result in material misstatements.
o Determine materiality level
o Consider the complexity of the transactions involved.
Question 86
Which of the following statements is false?
o In order to obtain reasonable assurance, the auditor shall obtain sufficient appropriate
audit evidence to be able to draw reasonable conclusions on which to base the audit
opinion. Reasonable assurance is obtained when the auditor has thereby reduced audit
risk to an acceptably moderate level.
o The overall objective of the independent auditor is to obtain reasonable assurance about
whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to report on the financial statements in accordance
with the auditor's findings,
o In an audit of financial statements, being an assurance engagement, the auditor is
engaged for purposes of expressing an opinion designed to enhance the degree of
confidence of intended users in the financial statements.
o The objective of an audit cannot be fulfilled unless the auditor achieves the overall
objective of the auditor. In all cases when the overall objective of the auditor cannot be
achieved, the PSAs require that the auditor modifies the auditor's opinion accordingly or
withdraws from the engagement tama na to tehh
Question 87
Engagement letters are widely used in practice for professional engagements for all types.
Which of the following best describes the purpose of the engagement letter?
o The engagement letter conveys to management the detailed steps to be applied in the
audit process.
o The engagement letter should be signed by both the client and the CPA and should be
used only for independent audits.
o By clearly defining the nature of the engagement, the engagement letter helps to avoid
and resolve misunderstandings between CPA and client regarding the precise nature of
the work to be performed and the type of report to be issued.
o The engagement letter relieves the auditor of some responsibility for the exercise of due
care.
Question 88
When an organization has strong internal control, management can expect various benefits.
The benefit least likely to occur is
o an assurance of compliance to applicable laws and regulations.
o the availability of reliable data for decision-making purposes and protection of important
documents and records.
o an elimination of employee fraud.
o a reduced cost of an external audit.
Question 89
Which of the following is not considered an assertion as formulated by the Auditing Standards
Board?
o Presentation and disclosure.
o Valuation or allocation.
o Mathematical accuracy
o Rights and obligations
Question 90
Which of the following factors do not influence the decision of the auditor to send a separate
engagement letter to the parent entity and its component (subsidiary, branch or division)
assuming the same auditor handles both entities?
o legal requirements
o whether a separate audit report is to be issued on the component
o ethical requirements
o degree of ownership by parent
Question 91
An initial audit requires more audit time to complete than a recurring audit. One of the reasons
for this is that
o the predecessor auditors need to be consulted.
o a larger proportion of customer accounts receivable need to be confirmed on an initial
audit.
o the client's business, industry, and internal control are unfamiliar to the auditor and he
needs to carefully study them.
o the new auditors are usually assigned to an initial audit
Question 92
Which statement is correct regarding business risks?
o A business risk may have an immediate consequence for the risk of misstatement for
classes of transactions, account balances, and disclosures at the assertion level or the
financial statements as a whole.
o The auditor should identify or assess all business risks.
o The risk of material misstatements in the financial statements is broader than business
risk, though it includes the latter.
o All business risks give rise to risks of material misstatement.
Question 93
Obtaining knowledge about whether the control is implemented can best be obtained by
o Reading procedures manual.
o Tracing transactions through the information system relevant to financial reporting.
o Inquiry of client's personnel.
o Performing tests of control
Question 94
Which of the following statements is correct with respect to separation of duties?
o Employees who authorize transactions should not have custody of related assets
o Employees who authorize transactions should have recording responsibility for these
transactions
o Employees should not have temporary and permanent custody of assets.
o It is permissible to allow an employee to open cash receipts and record those receipts.
Question 95
The following matters relate to the requirements of PSA 315 regarding the discussion among
the engagement team as part of understanding the entity and assessing risks of material
misstatement. Which is incorrect?
o The discussion assists the engagement team members to gain a better understanding of
the potential for material misstatement of the financial statements.
o The discussion allows the engagement team members to exchange information about
the business risks to which the entity is subject.
o The discussion shall focus on the susceptibility of the entity's financial statements to
material misstatement, and the application of the applicable financial reporting
framework to the entity's facts and circumstances,
o The discussion shall in all cases, include all of the members of the engagement team to
attend and be informed of all of the decisions reached.
Question 96
The single feature that most clearly distinguishes auditing, attestation, and assurance is
o Training required to perform the service.
o Scope of services.
o CPA's approach to the service.
o Type of service.
Question 97
The objective of assurance services is to
o Provide more timely information.
o Compare internal information and policies to those of other entities.
o Enhance decision making.
o Improve the entity's outcomes.
Question 98
The overall objectives of the auditor in conducting an audit of financial statements are
I. To obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatements, whether caused by fraud or error
II. To report on the financial statements
III. To obtain conclusive rather than persuasive evidence
IV. To detect all misstatements, whether due to fraud or error
o II and IV only
o I and II only
o I, II, III and IV
o I, II and III only
Question 99
Which of the following will an auditor least likely discuss with the former auditors of a potential
client prior to acceptance of an audit engagement?
o Integrity of the management
o Disagreements between the predecessor auditor and the management regarding
accounting principles
o Reasons for changing audit firms
o Fees charged for the services
