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1. Analytical procedures used in planning an audit should focus on enhancing the auditor's understanding of the client's business. 2. During audit planning, auditors typically obtain an understanding of the client's business and industry by touring facilities and discussing operations with client personnel. 3. As materiality decreases, the amount of evidence required by auditors increases.

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0% found this document useful (0 votes)
87 views14 pages

AAP Reviewer

1. Analytical procedures used in planning an audit should focus on enhancing the auditor's understanding of the client's business. 2. During audit planning, auditors typically obtain an understanding of the client's business and industry by touring facilities and discussing operations with client personnel. 3. As materiality decreases, the amount of evidence required by auditors increases.

Uploaded by

Jadon Mejia
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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SEATWORK 1 4.

In planning the audit engagement, the


auditor should consider each of the
1. Which of the following is not a following except
potential effect of an auditor's
decision that a lower A. Matters relating to the entity's
acceptable audit risk is appropriate? business and the industries in
which it operates
A. More evidence is accumulated B. The entity's accounting
B. Less evidence is policies and procedures
accumulated. C. Anticipated levels of control
C. Special care is required in risk and materiality.
assigning experienced staff. D. The kind of opinion that is
D. Review of audit likely to be to be expressed
documentation is performed
by personnel not assigned to 5. Analytical procedures used in
the planning an audit should focus on
engagement.
A. Reducing the scope of tests of
2. A measure of how willing the auditor controls and substantive tests.
is to accept that the financial B. Providing assurance that potential
statements may be material misstatements will be
materially misstated after the audit is identified.
completed and an unqualified opinion C. Enhancing the auditor's
has been issued is the: understanding of the client's
business.
A. inherent risk D Assessing the adequacy of the
B. acceptable risk available evidential matter.
C. statistical risk
D. financial risk 6. Each of the following may be
relevant to an auditor when obtaining
3. A tour of the client's facilities is knowledge about the client's business
helpful in obtaining an understanding and industry except
of the client's operations because
A. Discussion with people within or
A. The auditor will be able to outside the entity
assess the physical safeguards B. Reading publications related to the
over assets industry
B. The auditor may be better C. Visits of the entity's premises
able to assess certain inherent D. Performing tests of control
risks.
C. The auditor obtains a broader 7. The development of a general
perspective about the strategy and a detailed approach for
company as a whole the expected nature, timing, and
D. All of the above extent of audit refers to:

A. Supervision
B. Audit procedures
C. Directing
D. Planning
8. Which of the following procedures 12. The preliminary judgment about
most likely would be included as part materiality and the amount of audit
of an auditor's tests of control evidence accumulated are _______
procedures? related.

A. Inspection. A. Directly
B. Reconciliation. B. Indirectly
C. Confirmation. C. Not
D. Analytical procedures. D. Inversely

9. Which of the following is not 13. Which of the following statements is


typically included in initial audit not correct with respect to analytical
planning? procedures?

A. Client acceptance/continuation A. Auditing standards emphasize the


decisions. need for auditors to develop and use
B. Determination of the purpose of expectations.
the audit. B Analytical procedures must be
C. Obtain an understanding with the performed throughout the audit.
client. C. Analytical procedures may be
D. Perform analytical procedures performed at any time during the
as substantive tests. audit.
D. Analytical procedures use
10. Which of the following is not comparisons and relationships to
normally performed in the planning assess whether account
stage of the audit? balances appear reasonable.

A. Develop an overall audit strategy. 14. An understanding of a client's


B. Request that bank balances be business and industry and knowledge
confirmed. about operations are essential for
C. Schedule engagement staff and performing an adequate audit. For a
audit specialists. new client, most of this information
D. Identify the client's reason for the is obtained:
audit.
A. from the predecessor auditor.
11. Early appointment of the independent B. from the Securities and Exchange
auditor will enable: Commission.
C. from the permanent file.
A. A more thorough examination to D. at the client's premises.
be performed.
B. A proper study and evaluation of 15. All else being equal, as the level of
internal control to be performed. materiality decreases, the amount of
C. Sufficient competent evidential evidence required will:
matter to be obtained.
D. A more efficient examination to A. Remain the same
be planned. B. Decrease
C. Change in an unpredictable
fashion
D. Increase
16. A measure of the auditor's assessment 20. Most auditors assess inherent risk as
of the likelihood that there are high for related parties and related-
material misstatements in an account party transactions because:
before considering the effectiveness
of the client's internal A. of the unique classification of
control is called: related-party transactions required on
the balance sheet.
A control risk. B. of the lack of independence
B. acceptable audit risk. between the parties.
C. statistical risk. C. of the unique classification of
D. inherent risk. related-party transactions required on
the income statement.
17. An auditor uses the knowledge D. it is required by generally
provided by the understanding of accepted accounting principles.
internal control and the final assessed
level of control risk primarily to 21. Which of the following would a
determine the nature, timing, and successor auditor normally perform
extent of the after acceptance of an audit client

A. Attribute tests. A Inquiry of predecessor auditor


B. Compliance tests. regarding the client.
C. Tests of controls. B. Review the SEC filings of the
D. Substantive tests. client.
C Inquiry of bankers regarding the
18. Which of the following procedures client.
would a CPA ordinarily perform D Review of predecessor auditor
during audit planning? working papers.

A. Obtain understanding of the 22. In the assessment of control risk, the


client's business and industry. auditor is basically concerned that the
B. Review the client's bank client's internal control provides
reconciliation. reasonable assurance that
C. Obtain client's representation
letter. A. Management cannot override the
D. Review and evaluate client's system.
internal control. B. Operational efficiency has been
achieved in accordance with
19. Which of the following is least likely management plans.
to be considered a risk assessment C. Errors and fraud have been
procedure? prevented or detected.
D. Controls have not been
A. Analytical procedure circumvented by collusion.
B. Confirmation of ending accounts
receivable 23. Relationship between control risk and
C. Inspection of documents detection risk is ordinarily
D. Observation of the performance of
certain account procedures. A. Parallel
B. Direct
C. Inverse
D. Equal
24. A secondary objective of the auditor's 27. Audit risk consists of all but the
study and evaluation of internal following components
control is that the study and
evaluation provide A. Inherent risk
B. Substantive risk
A. A basis for constructive C. Detection risk
suggestions concerning D. Control risk
improvements in internal control.
B. A basis for reducing the auditor's 28. Which of the following is not one of
assessed level of control risk below the three main reasons why the
the maximum auditor should properly
level. plan engagements?
C An assurance that the records and
documents have been maintained in A. To enable proper on-the-job
accordance training of employees.
with existing company policies and B. To enable the auditor to obtain
procedures. sufficient competent evidence
D A basis for determination of the C. To avoid misunderstandings with
resultant extent of the tests to which the client
auditing D. To help keep audit costs
procedures are to be restricted. reasonable

25. This involves developing an overall 29. An auditor evaluates the existing
strategy for the expected conduct and internal control in order to
scope of the examination; the nature,
extent and timing of which vary with A. Determine the extent of
the size and complexity, and substantive tests which must be
experience with and knowledge of performed.
the entity. B. Determine the extent of control
tests which must be performed.
A. Audit planning C. Ascertain whether irregularities
B. Audit procedure are probable.
C. Audit program D. Ascertain whether any employees
D. Audit working papers have incompatible functions.

26. The extent of planning will vary 30. Inherent risk and control risk:
according to any of the following,
except: A. Are inversely related to each
other.
A. Size of the audit client. B. Are inversely related to
B. Auditor's experience with the detection risk.
entity and knowledge of the business. C. Are directly related to detection
C. The nature and complexity of the risk.
audit engagement D. Are directly related to audit risk.
D. The assessed level of control
risk.
SEATWORK 2 4. Tests of controls do not include:
A. Reperformance of internal control
1. Internal controls are not designed to
procedures
provide reasonable assurance that:
B. Inquiries about, and observation
of, internal controls which leave no
A. All frauds will be detected.
audit trail.
B. Transactions are executed in
C. Inspection of documentary support
accordance with management's
for transactions evidencing
authorization.
authorization
C. Access to assets is permitted only
D. Analytical procedures involving
in accordance with management's
comparison of operating expenses
authorization.
with budgeted amounts.
D. Company personnel comply with
applicable rules and regulations. 5. Internal controls can never be
considered as absolutely effective
2. Which of the following internal because
control objectives would be most
relevant to the audit? A. Their effectiveness is highly
dependent on the competence and
A. Operational objective integrity of Company's
B. Compliance objective employees.
C. Financial reporting objective B. Controls always have inherent
D. Administrative control objective. weaknesses that can be exploited.
C. Controls are designed to prevent
3. Competence of personnel is and detect only material
misstatements.
necessary to proper recording of
D. None of the above.
transactions and supports
financial statements that are fairly
6. The primary responsibility for
presented. In reviewing the establishing and maintaining an
organization for necessary internal control rests with
competence, which of the following
job types would be of least interest to A. The external auditors
the auditor? B. The internal auditors
C. Management and those charged
A. Corporate controller. with governance
B. Vice-president for marketing. D. The controller or the treasurer
C. Manager of electronic data
processing. 7. The overall attitude and awareness of
D. Chief accountant. an entity's board of directors,
concerning the importance
of the internal control usually is
reflected in its
A. Computer-based controls
B. System of segregation of duties
C. Control environment
D. Safeguards over access to asset.
8. To obtain evidential matter about 11. After obtaining sufficient
control risk, an auditor selects tests understanding of the entity's
from a variety of accounting and internal control
techniques including systems, the auditor should make a
preliminary assessment of
A. Inquiry
B. Analytical procedures A. Audit risk
C. Calculation B. Control risk
D. Confirmation C. Inherent risk
D. Detection risk
9. In an audit of financial statements, an
auditor's primary consideration 12. The fundamental purpose of an
internal control is to
regarding an internal control activity
is whether the control
A. Safeguard the resources of the
organization.
A. Reflects management's B. Provide reasonable assurance
philosophy and operating style that the objectives of the
B. Affects management's financial organization are achieved.
statement assertions C. Encourage compliance with
C. Provides adequate safeguards organization objectives.
over access to assets D. Ensure the accuracy, reliability,
D. Enhances management's decision- and timeliness of information
making processes
13. Which of the following is not one of
the three primary objectives of
effective internal control?
10. Internal control can provide only
reasonable assurance of achieving A. Reliability of financial reporting
entity's control objectives. One factor B. Efficiency and effectiveness of
limiting the likelihood of achieving operations
those objectives is that C. Compliance with laws and
regulations
A. The auditor's primary D. Assurance of elimination of
responsibility is the detection of business risk
fraud
B. The board of directors is active 14. Which of the following is not
and independent medium that can normally be used by
C. The cost of internal control an auditor to record information
should not exceed its benefit. concerning a client's internal control
D. Management monitors internal policies and procedures?
control
A. Narrative memorandum
B. Flowchart
C. Procedures manual
D. Questionnaire
15. An act of two or more employees to 19. The basic concept of internal control
steal assets or misstate records is which recognizes that the cost of
frequently referred to as internal control should
not exceed the benefits expected to
A. Collusion be derived is known as
B. A material weakness
C. A control deficiency A. Management by exception
D. Any of the above. B. Management responsibility
C. Limited liability
16. The management letter is used D. Reasonable assurance

A. To allow management to 20. An auditor assesses control risk


corroborate oral representations to because it
the auditor
B. To confirm the terms of the audit A. Is relevant to the auditor's
engagement understanding of the control
C. To document the auditor's environment
consideration of internal controls B. Provides assurance that the
D. To make recommendations to auditor's materiality levels are
the client based on observations appropriate
made during the audit C. Indicates to the auditor where
inherent risk may be the greatest
17. When an auditor increases the D. Affects the level of detection risk
assessed level of control risk because that the auditor may accept
certain control activities were
determined to be ineffective, the 21. The internal control cannot be
auditor would most likely increases designed to provide reasonable
the assurance that

A. Extent of tests of controls. A. Transactions are executed in


B. Level of detection risk. accordance with management's
C. Extent of tests of details. authorization.
D. Level of inherent risk. B. Fraud will be eliminated.
C. Access to assets is permitted only
18. An auditor would most likely be in accordance with management's
concerned with internal control authorization.
policies and procedures that provide D. The recorded accountability for
reasonable assurance about the assets is compared with the existing
assets at reasonable
A. Efficiency of management's intervals.
decision-making process
B. Appropriate prices the entity 22. Which of the following may not be
should charge for its products required on a particular audit of a
C. Methods of assigning production company?
tasks to employees
D. Entity ability to process and A. Tests of controls.
summarize financial data B. Analytical procedures.
C. Substantive procedures.
D. Risk assessment procedures.
23. The auditor would most likely assess 27. The Auditor would most likely assess
control risk at a high level when control risk at a high level when

A. It would be efficient to perform A. It would be efficient to perform


test of control test control
B. The entity's accounting and B. The entity’s accounting and
internal control systems are not
internal control system are not
reliable
reliable
C. The auditor wishes to rely on the
entity's accounting and internal C. The auditor wishes to rely on the
control systems. entity’s accounting and internal
D. The auditor wants to restrict control systems
substantive tests. D. The auditor wants to restrict
substantive tests.
24. The two key concepts that underlie
management’s design and 28. Test of controls are designed to
implementation of internal control obtain evidence to support the
are: auditor’s assessment of control risk
A. Cost and Materiality A. At a high level
B. Absolute assurance and costs
B. At less than high level
C. Inherent limitations and
reasonable assurance C. At zero level
D. Collusion and materiality D. At the maximum level

25. An auditor uses the knowledge 29. Internal controls can never be
provided by the understanding of regarded as completely effective.
internal control and the final Even if company personnel could
assessed level of control risk design an ideal system, its
primarily to determine the nature, effectiveness depends on the:
timing, and extent of the
A. Adequacy of the computer system.
A. Attribute tests B. Proper implementation by
B. Tests of controls management.
C. Compliance tests C. Ability of the internal audit staff to
D. Substantive tests maintain it.
D. Competency and dependability
26. Which of the following is not one of of the people using it.
the three primary objectives of
effective internal control? 30. The conclusion reached as a result of
assessing control risk is referred to as
A. Reliability of financial reporting the:
B. Efficiency and effectiveness of
operations A. Assurance provided by internal
C. Compliance with laws and control structure.
regulations B. Determined level of acceptable
D. Each of the above is a primary detection risk
objective of effective internal C. Product of the understanding of
control. internal control.
D. Assessed level of control risk
QUIZ 1 5. Auditors typically rely on internal
controls of their private company
1. If planned detection risk is reduced, clients:
the amount of evidence the auditor A. Only as needed to complete the
accumulates will: audit and satisfy Sarabnes-Oxley
requirements.
A. Increase. B. Only if the controls are
B. decrease determined to be effective.
C. remain unchanged. C. Only if the client asks an auditor
D. be indeterminate. to test controls.
D. Only if the controls are sufficient
2. Tolerable misstatement as set by the to increase Control Risk to an
auditor: acceptable level

A. decreases acceptable audit risk. 6. Tests of controls do not ordinarily


B. increases inherent risk and control address:
risk.
C. affects planned detection risk. A. By whom a control was applied
D. does not affect any of the four B. How a control was applied.
risks. C. The consistency with which a
control was applied.
3. A measure of how willing the auditor D. The cost effectiveness of the
is to accept that the financial way a control was applied.
statements may be
materially misstated after the audit is 7. Which of the following statements is
completed and an unqualified opinion not correct with respect to analytical
has been issued is the: procedures?

A. inherent risk. A. Auditing standards emphasize the


B. acceptable audit risk. need for auditors to develop and use
C. statistical risk. expectations.
D. financial risk. B. Analytical procedures must be
performed throughout the audit.
4. Which of the following is not a C. Analytical procedures may be
primary consideration when assessing performed at any time during the
inherent risk? audit.
D. Analytical procedures use
A. Nature of client's business. comparisons and relationships to
B. Existence of related parties. assess whether account
C. Frequency and intensity of balances appear reasonable.
management's review of
accounting transactions and 8. The auditor faces a risk that the audit
records. will not detect material misstatements
D. Susceptibility to defalcation. in the financial statements. In regard
to minimizing this risk, the auditor
primarily relies on:
A. Substantive procedures.
B. Tests of controls.
C. Internal control.
D. Statistical analysis.
9. Which of the following statements is 12. When planning an audit, an auditor
correct concerning the understanding should:
of internal
control needed by auditors? A. Consider whether the extent of
substantive procedures may be
A. The auditors must understand the reduced based on the results of the
information system, not the internal control questionnaire.
accounting system. B. Make preliminary judgments
B. The auditors must understand about materiality levels for audit
monitoring and all preliminary purposes.
accounting controls. C. Conclude whether changes in
C. The auditors must have a compliance with prescribed control
sufficient understanding to assess procedures
the risks of material misstatement. justifies reliance on them.
D The auditors must understand the D. Prepare a preliminary draft of the
control environment, risk assessment, management representation letter.
and all
control activities. 13. The auditors must consider
  materiality in planning an audit
10. Which of the following must the engagement. Materiality for planning
auditor communicate to the audit purposes is:
committee?
A. The auditors' preliminary estimate
A. Significant deficiencies and of the largest amount of misstatement
material weaknesses. that would be material to any one of
B. Only significant deficiencies. the client's financial statements.
C. Only material weaknesses. B. The auditors' preliminary
D. Neither significant deficiencies estimate of the smallest amount of
nor material weaknesses. misstatement that would be
material to any one of the client's
11. After considering the client's internal financial statements.
control the auditors have concluded C. The auditors' preliminary estimate
that it is well designed and is of the amount of misstatement that
functioning as anticipated. Under would be material to the client's
these circumstances the auditors balance sheet.
would most likely: D. An amount that cannot be
quantitatively stated since it depends
A. Cease to perform further on the nature of the
substantive procedures. item.
B. Reduce substantive procedures 14. An abnormal fluctuation in gross
in areas where the internal control profit hat might suggest the need for
was found to be effective. extended audit procedures for sales
C. Increase the extent of anticipated and inventories would most likely be
analytical procedures. identified in the planning phase of the
D. Perform all tests of controls to the audit by the use of:
extent outlined in the preplanned
audit program. A. Tests of transactions and balances.
B. An assessment of internal control.
C. Specialized audit programs.
D Analytical procedures.
15. Which of the following statements is 18. Which of the following factors most
correct regarding the auditor's likely would cause a CPA to not
determination of accept a new audit
materiality? engagement?

A. The planning level of materiality A. The prospective client has fired its
should normally be the larger of the prior auditor.
amount considered for the balance B. The CPA lacks a thorough
sheet versus the income statement. understanding of the prospective
B. The auditors' planning level of client's operations and industry.
materiality may be disaggregated C. The CPA is unable to review the
into smaller "tolerable predecessor auditor's working papers.
misstatements" for the various D. The prospective client is
accounts. unwilling to make financial records
C. Auditors may use various rules of available to the CPA.
thumb to arrive at an evaluation level
of materiality, but not for 19. The risk that the auditors' procedures
determining the planning level of will lead them to conclude that a
materiality. material
D. The amount used for the planning misstatement does not exist in an
should equal that used for evaluation. account balance when in fact such a
misstatement does exist is referred to
16. The auditors will not ordinarily as:
initiate discussion with the audit A. Account risk.
committee concerning the: B. Control risk.
C. Detection risk.
A. Extent to which the work of D. Inherent risk.
internal auditors will influence the
scope of the examination. 20. Auditors begin their assessments of
B. Extent to which change in the inherent risk during audit planning.
company's organization will Which of the following would not
influence the scope of the help in assessing inherent risk during
examination. the planning phase?
C. Details of potential problems
which the auditors believe might A. Obtaining client's agreement on
cause a qualified opinion. the engagement letter.
D. Details of the procedures which B. Obtaining knowledge about the
the auditors intend to apply. client's business and industry.
C. Touring the client's plant and
17. Which of the following would be offices.
least likely to be considered an audit D. Identifying related parties
planning procedure?

A. Use an engagement letter.


B. Develop the overall audit strategy
C. Perform the risk assessment.
D. Develop the audit plan.
21. Which is most likely when the 24. The effectiveness of controls is not
assessed level of control risk generally tested by:
increases?
A. Inspection of documents and
A. Change from performing reports.
substantive procedures at year-end to B. Performance of analytical
an interim date. procedures.
B. Perform substantive procedures C. Observation of the application of
directed inside the entity rather than accounting policies and procedures.
tests directed toward parties outside D. Inquiries of appropriate client
the entity. personnel.
C. Use the maximum number of dual
purpose tests. 25. Which of the following statements is
D. Use larger sample sizes for not true?
substantive procedures.
A. Inherent risk is inversely related to
22. If the auditors do not perform tests detection risk.
of controls for certain assertions: B. Inherent risk is inversely related
to evidence.
A. They have performed a C. Inherent risk is the susceptibility
substandard audit. of the financial statements to material
B. They are not required to error, assuming no internal controls.
communicate significant deficiencies D. Inherent risk is the auditor's
relating to those accounts to assessment of the likelihood that
management and the board of errors exceeding a tolerable amount
directors. exist in a segment before considering
C. They must issue a qualified the effectiveness of internal controls.
opinion.
D. They must assess control risk at 26. The auditors who become aware of
the maximum level for those an internal control significant
assertions. deficiency are required to
communicate this to the:
23. Which of the following is an example
of the concept of inherent risk? A. Client's legal counsel.
B. Compensation committee.
A. Humans make more errors than C. Audit committee.
computers; therefore, a manual D Internal auditors.
accounting system is riskier than a
computerized system. 27. Which of the following procedures is
B. Accounting systems with vouchers not performed as a part of planning
have many more controls built in, so an audit engagement?
the risk that there will be errors on
the financial statements is reduced. A. Reviewing the working papers of
C. Loans receivable for a finance the prior year.
company are less likely to be B. Performing analytical procedures.
collectible than those of a bank. C. Confirmation of all major
D. Audits with larger sample sizes accounts.
are less risky than those with smaller D. Designing an audit program.
sample sizes.
28. While assessing the risks of material 31. Which of the following is not one of
misstatement auditors identify risks, the three main reasons why the
relate risk to what could go wrong auditor should
consider the magnitude of risks and properly plan engagements?
A. Assess the risk of misstatements
due to illegal acts. A. To enable proper on-the-job
B. Consider the complexity of the training of employees.
transactions involved. B. To enable the auditor to obtain
C. Consider the likelihood that the sufficient appropriate evidence.
risks could result in material C. To avoid misunderstandings with
misstatements. the client.
D. Determine materiality levels. D. To help keep audit costs
reasonable.
29. Acceptable audit risk is ordinarily set
by the auditor during planning and: 32. Which of the following is not a factor
that is considered a part of the client's
A. held constant for each major overall control environment?
cycle and account.
B. held constant for each major cycle A. The organizational structure.
but varies by account. B. The information system.
C. varies by each major cycle and by C. Management philosophy and
each account. operating style.
D. varies by each major cycle but is D. Board of directors.
constant by account.
33. Which of the following would be
30. Which of the following is correct least likely to be considered a benefit
with respect to control deficiencies of effective internal control?
discovered during an
audit? A. Eliminating all employee fraud.
B. Restricting access to assets.
A. Auditors must communicate and C. Detecting ineffectiveness.
recommend corrections relating to all D. Ensuring authorization of
material transactions.
weaknesses in internal control to
management. 34. Well-designed internal control that is
B. All material weaknesses in functioning effectively is most likely
internal control should be reported to detect an fraud arising from:
to the audit committee.
C. All such matters must be A. The fraudulent action of several
communicated to the audit committee employees.
and regulatory agencies. B. The fraudulent action of an
D. All control deficiencies are also individual employee.
significant deficiencies. C. Informal deviations from the
official organization chart.
D. Management fraud.
35. Which of the following statements is 38. With respect to the auditor's planning
not correct? of a year-end audit, which of the
following statements is always true?
A. Analytical procedures used in the
planning phase of the audit are A. An engagement should not be
primarily directed at understanding accepted after the fiscal year-end.
the client's business and directing the B. An inventory count must be
auditor's attention to areas that may observed at the balance sheet date.
contain possible misstatements. C. The client's audit committee
B. Analytical procedures used in should not be told of any specific
the completion phase are primarily audit procedures which will be
aimed at assessing going concern performed.
and secondarily aimed at directing D. It is an acceptable practice to
the auditor's attention to areas that carry out parts of the examination
may contain possible at interim dates.
misstatements.
C. Analytical procedures must be 39. The first standard of field work,
used in the planning and completion which states that the work is to be
phases of the audit, and are optional adequately planned and that
in the testing phase. assistants, if any, are to be properly
D. Analytical procedures used in the supervised, recognizes that:
completion phase are primarily aimed A. early appointment of the auditor
at directing the auditor's attention to is advantageous to the auditor and
areas that may contain possible the client.
misstatements and secondarily aimed B. acceptance of an audit engagement
at assessing going concern. after the close of the client's fiscal
year is generally not permissible.
36. A client's internal control appears C. appointment of the auditor
strong, but the CPA has elected not to subsequent to the physical count of
perform any tests of controls. The inventories requires a disclaimer of
planned assessed level of control risk opinion.
is at what level? D. performance of substantial parts of
the examination is necessary at
A. Zero. interim dates.
B. Low.
C. Moderate. 40. Which of the following is not a
D. Maximum. primary procedure auditor’s use to
obtain sufficient knowledge about the
37. Investigating new clients with a focus design of the relevant controls and to
on assessing the auditor's potential determine whether they have
relationship with that new client is a been implemented (placed in
critical element in determining: operation)?
A. Previous experience with the
A. inherent risk. entity.
B. acceptable audit risk. B. Inquiries of appropriate
C. statistical risk. management personnel.
D. financial risk. C. Performance of substantive
procedures.
D. Inspection of document and
records.

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