The auditor communicates the results of his or her work through the medium of the

{
Engagement letter
Management letter.
=Audit report
Financial statements.
}

As used in auditing, which of the following statements best describes "assertions"?

{
Assertions are the representations of management as to the reliability of the information
system.
Assertions are the auditor's findings to be communicated in the audit report.
=Assertions are the representations of management as to the fairness of the financial
statements.
Assertions are found only in the footnotes to the financial statements.
}

The framework for auditing and related services as addressed by PSA excludes
{
Review
Compilation
=Tax services
Agreed upon procedure
}

Which of the following is true of the report based on agreed-upon-procedures?

{
=The report is restricted to those parties who have agreed to the procedures to be
performed.
The CPA provides the recipients of the report limited assurance as to reasonableness of
the assertion(s) presented in the financial information.
The report states that the auditor has not recognized any basis that requires revision of
financial statements.
The report should state that the procedures performed are limited to analytical procedures
and inquiry.
}

Any services in which the CPA firm issues a written communication that express a
conclusion with respect to the reliability of a written assertion that is the responsibility of
another party is a (an)
{
Accounting and bookkeeping service
=Attestation service
Management advisory service
Tax service
}

The measure of the quality of audit evidence and its relevance to a particular assertion
and its reliability.
{
Sufficiency
Significance
=Appropriateness
Assurance
}

The three types of attestation services are __

{
Audits, review, and compilations
Audits, compilations, and other attestation services
Reviews, compilations, and other attestation services
=Audits, reviews, and other attestation services
}

Assurance engagement
{
Is an engagement in which a practitioner is engaged to issue, or does issue, a written
communication that expresses a conclusion about the reliability of a written assertion that
is the responsibility of another party.
Is a systematic process of objectively obtaining and evaluating evidence regarding
assertions about economic actions and events to ascertain the degree of correspondence
between those assertions and established criteria and communicating the results to
interested users.
Is an engagement in which the auditor provides a moderate level of assurance that the
information subject to the engagement is free of material misstatement.
=Is an engagement intended to enhance the credibility of information about a subject
matter by evaluating whether the subject matter conforms in all material respects with
suitable criteria, thereby improving the likelihood that the information will meet the needs
of an intended user.
}

Identify the following as financial audit (FA), compliance audit (CA), and operational audit
(OA).
A supervisor is not carrying out his assigned responsibilities.
A company’s tax return does not conform to income tax laws and regulations.
A municipality’s financial statements correctly show actual cash receipts and
disbursements.
A company’s receiving department is inefficient.
{
CA, CA, FA, OA
=OA, CA, FA, OA
OA, CA, CA, OA
CA, CA, FA, CA
}

The criteria for evaluating quantitative information vary. For example, in the audit of
historical financial statements by CPA firms, the criteria are usually
{
Generally accepted auditing standards.
=Generally accepted accounting principles.
Regulations of the Internal Revenue Service.
Regulations of the Securities and Exchange Commission.
}

Which of the following types of audit uses as its criteria laws and regulations?
{
Operational audit
Financial statement audit
=Compliance audit
Financial audit
}

Which of the following is broadest in scope?

{
Audits of financial statements.
Internal control audit.
=Assurance services.
Attestation services.
}

Operational auditing is mainly concerned about___

{
Past protection provided by current internal control
=Future improvements for management goals
Verification of fair presentation of financial data
Accuracy of data of financial records.
}

A financial statement audit is designed to ___

{
Provide assurance on internal control and to identify reportable conditions.
Detect error or fraud in the financial statements, regardless of whether or not the error or
fraud is material.
=Obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether caused by error or fraud.
Obtain absolute assurance on the financial statements and express an opinion on the
financial statements.
}

Which of the following is an appraisal activity established within an entity as a service to

the entity?
{
External auditing
Financial auditing
=Internal auditing
Compliance auditing
}

An operational audit is designed to __

{
=Assess the efficiency and effectiveness of management’s operating procedures
Assess the presentation of management’s financial statements in accordance with
generally accepted accounting principles
Determine whether management has complied with applicable laws and regulations
Determine whether the audit committee of the board of directors is effectively discharging
its responsibility to oversee management’s operations
}

Which one of the following is more difficult to evaluate objectively?

{
=Efficiency and effectiveness of operations.
Compliance with government regulations.
Presentation of financial statements in accordance with generally accepted accounting
principles.
All three of the above are equally difficult.
}

Which of the following engagements provides third parties the highest level of assurance
about the client’s financial statements?
{
=Audit
Agreed-upon procedures
Review
Compilation
}

A concept relating to the accumulation of the audit evidence necessary for the auditor to
conclude that there are no material misstatements in the financial statements taken as a
whole.
{
=Reasonable assurance
Moderate assurance
Positive assurance
Negative assurance
}

Which of the following best describes the objective of an audit of financial statements?
{
To express an opinion whether the financial statements are prepared in accordance with
prescribed criteria.
To express an assurance as to the future viability of the entity whose financial statements
are being audited.
To express an assurance about the management’s efficiency or effectiveness in
conducting the operations of entity.
=To express an opinion whether the financial statements are prepared, in all material
respect, in accordance with an identified financial reporting framework.
}

Which of the following is responsible for an entity’s financial statements?

{
=The entity’s management
The entity’s audit committee
The entity’s internal auditors
The entity’s board of directors
}

Because an examination in accordance with generally accepted auditing standards is

influenced by the possibility of material errors, the auditor should conduct the examination
with an attitude of
{
Professional responsiveness
Objective judgment
Conservative advocacy
=Professional skepticism
}

Internal auditors cannot be independent __

{
Since they do not possess the CPA license.
Because they don’t audit financial statements.
Unless their immediate supervisor is a CPA.
=As long as an employer-employee relationship exists.
}

To provide for the greatest degree of independence in performing internal auditing

functions, an internal auditor most likely should report to __
{
=Board of Directors.
Corporate Controller.
Vice-President for Finance.
Corporate Stockholders.
}
Which of the following is an incorrect phrase?
{
Auditing is a systematic process.
=Auditing subjectively obtains and evaluates evidence.
Auditing evaluates evidence regarding assertions.
Auditing communicates results to interested users.
}

The essence of the attest function is to __

{
Detect fraud
Examine individual transactions so that the auditor can certify as to their validity
=Determine whether the client’s financial statements are fairly stated
Ensure the consistent application of correct accounting procedures
}

An assurance engagement should exhibit the following elements except __

{
A three-party relationship
=Appropriate professional fee
A conclusion
A subject matter
}

The following are assurance engagements except __

{
Financial statements audit
Review of financial statements
Information system reliability services
=Tax consulting
}

Engagements frequently performed by professional accountants that are not assurance

engagements include the following except __
{
Agreed-upon procedures.
Compilation
=Compliance audit
Management consulting.
}

The subject matter of an assurance engagement may take many forms, including __
{
Data
Systems and processes
Behavior
=All of these
}

Which statement is correct regarding the audit evidence?

{
The greater the risk, the less audit evidence is likely to be required.
The higher the quality, the more may be required
=Merely obtaining more audit evidence may not compensate for its poor quality.
Obtaining audit evidence relating to a particular assertion is a substitute for obtaining audit
evidence regarding another assertion.
}

Which of the following statements is incorrect regarding the reliability of audit evidence?
{
=Oral representation by the client management is not a valid evidence.
Audit evidence obtained directly by the auditor is more reliable than that one provided by
the client management.
The effectiveness of accounting and internal control adds to the reliability of internal audit
evidence.
While internal audit evidence is considered to be acceptable, the auditor usually prefers
audit evidence form external sources.
}
The decision as to whether the criteria are suitable involves considering whether the
subject matter is capable of reasonably consistent evaluation against or measurement
using such criteria. The characteristics for determining whether criteria are suitable
include the following, except __
{
Relevance
Reliability:
Understandability:
=Sufficiency
}

Agreed-upon procedures provides what level of assurance?

{
=None
High
Moderate
Absolute
}

Which of the following procedures ordinarily performed during an audit are also performed
in review?
{
Assessment of accounting and internal control systems
Test of controls
Tests of records and of responses to inquiries
=Inquiry and analytical procedures
}

It refers to the audit procedures deemed necessary in the circumstances to achieve the
objective of the audit.
{
=Scope of an audit
Objective of an audit
Audit program
Reasonable assurance
}

Which statement is incorrect regarding audit evidence?

{
Audit evidence is all the information used by the auditor in arriving at the conclusions on
which the audit opinion is based.
Audit evidence includes the information contained in the accounting records underlying the
financial statements and other information.
Audit evidence is cumulative in nature.
=Auditors are expected to address all information that may exist.
}

Which of the following generalizations in assessing the reliability of audit evidence is

incorrect?
{
Audit evidence is more reliable when it is obtained from independent sources outside the
entity.
=Audit evidence that is generated internally is not affected by the effectiveness of the
controls imposed by the entity.
Audit evidence obtained directly by the auditor is more reliable than audit evidence
obtained indirectly or by inference.
Audit evidence is more reliable when it exists in documentary form.
}

Which statement is incorrect regarding audit evidence?

{
The auditor should obtain sufficient appropriate audit evidence to be able to draw
reasonable conclusions on which to base the audit opinion.
Accounting records alone do not provide sufficient audit evidence.
The auditor uses professional judgment and exercises professional skepticism in
evaluating the quantity and quality of audit evidence, and thus its sufficiency and
appropriateness, to support the audit opinion.
=The matter of difficulty or expense involved is a valid basis for omitting an audit
procedure for which there is no alternative.
}

Assertions about classes of transactions and events for the period under audit least likely
include __
{
Transactions and events that have been recorded have occurred and pertain to the entity.
All transactions and events that should have been recorded have been recorded.
Transactions and events have been recorded in the correct accounting period.
=All assets, liabilities and equity interests that should have been recorded have been
recorded.
}

Assertion about account balances at period end which means assets, liabilities, and equity
interests are included in the financial statements at appropriate amounts is __
{
Existence
Completeness
Rights and obligations
=Valuation and allocation
}

In assessing control risk for purchases, an auditor vouches a sample of entries in the
voucher register to the supporting documents. Which assertion would this test of controls
most likely support?
{
Completeness.
=Existence or occurrence.
Valuation or allocation.
Rights and obligations.
}

Accuracy and valuation assertions about presentation and disclosure means __

{
Disclosed events, transactions, and other matters have occurred and pertain to the entity.
All disclosures that should have been included in the financial statements have been
included.
Financial information is appropriately presented and described, and disclosures are clearly
expressed.
=Financial and other information are disclosed fairly and at appropriate amounts.
}

It means the materials prepared by and for, or obtained and retained by the auditor in
connection with the performance of the audit.
{
=Documentation
Engagement letter
Audit evidence
Audit report
}

Working papers which contain information relating primarily to the audit of a single period.
{
=Current audit files
Financial reporting files
Permanent audit files
Correspondence files
}

Which of the following is the least required of the audit working papers?
{
=Substitute for the entity’s accounting records.
Confidentiality of information included in the working papers.
Safe custody of the working papers.
Retention for a period sufficient to meet the needs of the practice.
}

It means the analysis of significant ratios and trends including the resulting investigation of
fluctuations and relationships that are inconsistent with other relevant information or which
deviate from predicted amounts.
{
=Analytical procedures
Tests of controls
Substantive procedures
Audit sampling
}

The most common type of audit report contains a(an) _

{
Adverse opinion.
Disclaimer of opinion.
Qualified opinion.
=Unqualified opinion
}
A basic tool used by the auditor to control the audit work and review the progress of the
audit.
{
=Audit program
Engagement letter.
Progress flowchart
Time and Expense Summary
}

The principal reason for an independent auditor to gather and evaluate audit evidence is to
_
{
=Form an opinion on the financial statements.
Detect fraud.
Evaluate management.
Evaluate internal control.
}