Which of the following would not be included in the auditor’s working papers?

a. A time budget for the various audit areas.

b. The results of the preceding years audit.
c. Descriptive information about the internal control structure.
d. The accounting manual.

2. The working papers are

a. The property of client.
b. Property of the auditor although prepared by client.
c. The primary means for documenting that an adequate audit was conducted in
accordance with GAAS.
d. Use primarily as a basis for the partners to review and reward the work of the
managers, seniors, and staff.

3. Which of the following items would not normally be included in whole or in part, in the
auditor’s permanent file on a client?
a. The Articles of Incorporation and By-laws.
b. Analyses of accounts such as long-term debt and stockholders equity.
c. Organization charts and internal control questionnaires.
d. The audit program.

4. An example of an reclassification entry would be an entry

a. To reduce inventory when client failed to write-down its obsolete raw materials
b. To change material credit balances in accounts receivable accounts to accounts
payable accounts.
c. To increase the Allowance for Doubtful Accounts when it was discovered that a
customer had filed for bankruptcy.
d. To increase the Federal Income Tax Liability accounts when it was discovered
that client would be in higher tax bracket than originally estimated.
5. Each of the following might, by itself, from a valid basis for an auditor to decide to omit
a test except for the
a. Difficulty and expense involved in testing a particular item.
b. Degree of reliance on the relevant internal controls.
c. Relative risk involved.
d. Relationship between the cost of obtaining evidence and its usefulness.

6. When using the work of a specialist, an auditor may refer to and identify the specialist in
the auditor’s report if the
a. Auditor wishes to indicate a division of responsibility.
b. Specialist’s work provides the auditor greater assurance of reliability.
c. Auditor expresses an adverse opinion as a result of the specialist’s findings.
d. Specialist is not independent of the client.

7. Negative confirmation of accounts receivable is less effective than positive confirmation

of accounts receivable because
a. A majority of recipients usually lack the willingness to respond objectively.
b. Some recipients may repost incorrect balances that require extensive follow-up.
c. The audit can not infer that all non-respondents have verified their accounts
information.
d. Negative confirmations do not produce evidential matter that is statistically
quantifiable.

8. Working papers ordinarily would not include

a. Initials of the in-charge auditor indicating review of the staff assistants work.
b. Cut-off bank statements received directly from the banks.
c. A memo describing the internal control structure.
d. Copies of client inventory counts sheets.

9. The current file of the auditor’s working papers generally should include
a. Flowchart of the internal controls.
b. Organization charts.
c. A copy of the financial statements.
d. Copies of bond and note indentures.

10. An audit working paper that reflects the major components of an amount reported in the
financial statements is referred to as a(an)
a. Lead schedule.
b. Supporting schedule.
c. Audit control account.
d. Working trial balance.
11. Which of the following eliminates voluminous details from the auditor’s working trial
balance by classifying and summarizing similar or related items?
a. Account analyses.
b. Supporting schedules.
c. Control accounts.
d. Lead schedules.

12. The following statements were made in a discussion of audit evidence between two
CPAs. Which statement is not valid concerning evidential matter?
a. “I am seldom convinced beyond all doubt with respect to all aspects of the
statements being examined.
b. “I would not undertake that procedure because at best the results would not be
persuasive and I’m looking for convincing evidence.”
c. “I evaluate the degree of risk involved in deciding the king of evidence I will
gather.”
d. “I evaluate the usefulness of the evidence I can obtain against the cost to obtain
it.”

13. The third standard of field work states that sufficient competent evidential matter may, in
part, be obtained through inspection, observation, inquiries, and confirmations to afford a
reasonable basis of an opinion regarding the financial statements under examination. The
evidential matter required by this standard may, in part, be obtained through
a. Auditor working papers.
b. Proper planning of the engagement.
c. Analytical review procedures.
d. Review of the system of internal control.

14. With respect to records in a CPA’s possession, rules of conduct provide that
a. Copies of client records incorporated into audit working papers must be returned
to the client upon request.
b. Worksheets in lieu of a general ledger belong to the auditor and need not be
furnished to the client upon request.
c. An extensive analysis of inventory prepared by the client at the auditor’s request
are working papers that belong to the auditor’s request are working papers that
belong to the audit and need not be furnished to the client upon request.
d. The auditor who returns copies of client records must return the original records
upon request.
15. During the course of an audit engagement an auditor prepares and accumulates audit
working papers. The primary purpose of the audit working papers is to
a. Aid the auditor in adequately planning the work.
b. Provide a point of reference for future audit engagements.
c. Support the underlying concepts included in the preparation of the basic financial
statements.
d. Support the auditor’s opinion.

16. The permanent section of the auditor’s working papers generally should include
a. Time and expense reports.
b. Names and addresses of all audit staff personnel on the engagement.
c. A copy of key customer confirmations.
d. A copy of the engagement letter.

17. Which of the following statements relating to the competence of evidential matter is
always true?
a. Evidential matter gathered by an auditor from outside an enterprise is reliable.
b. Accounting data developed under satisfactory conditions of internal control are
more relevant than data developed under unsatisfactory internal control
conditions.
c. Oral representations made by management are or valid evidence.
d. Evidence gathered by auditors must be both valid and relevant to be considered
competent.

e. to be Securities and Exchange Commission.

18. In planning an audit engagement, which of the following is a factor that effects the
independent auditor’s judgement as to the quantity, type, and content of working papers?
a. The estimated occurrence rate of attributes.
b. The preliminary evaluation based upon initial substantive testing.
c. The content of the client’s representation letter.
d. The anticipated nature of the auditor’s report.

19. Which of the following is generally included or shown in the auditor’s working papers?
a. The procedures used by the auditor to verify the personal financial status of
members of the client’s management team.
b. Analyses that are designed to be part of, or a substitute for, the client’s accounting
records.
c. Excerpts from authoritative pronouncements that support the underlying generally
accepted accounting principles used in preparing the financial statements.
d. The manner in which exceptions and unusual matters disclosed by the auditor’s
procedures were resolved or treated.

20. Which of the following is not a factor affecting the independent auditor’s judgement as to
quantity, type, and content of auditor working papers?
a. The needs in the particular circumstances for supervision and review of the
performed by any assistants.
b. The nature and condition of the client’s records and internal controls.
c. The expertise of client personnel and their expected audit participation.
d. The type of the financial statements, schedules, or other information upon which
the auditor is reporting.

21. Which of the following is not a factor that affects the independent auditor’s judgment as
to the quantity, type, and content of working papers?
a. The time and the number of personnel to be assigned to the engagement.
b. The nature of the financial statements, schedules, or other information upon with
the auditor is reporting.
c. The need for supervision of the engagement.
d. The nature of the auditor’s report.

22. Which of the following factors will least affect the independent auditor’s judgment as to
the quantity, type, and content of working papers desirable for a particular engagement?
a. Nature of the auditor’s report.
b. Nature of the financial statements, schedules, or other information upon which the
auditor is reporting.
c. Need for supervision and review.
d. Number of personnel assigned to the audit.

23. An auditor’s working papers will generally be least likely to include documentation
showing how the
a. Client’s schedules were prepared.
b. Engagement had been planned.
c. Client’s system of internal control had been reviewed and evaluated.
 d. Unusual matters were resolved.

24. When compared to the auditor of fifty years ago, today’s auditor places less relative
emphasis upon
a. Confirmation.
b. Examination of documentary support.
 c. Overall tests of ratios and trends.
d. Physical observation.

25. Which of the following is not considered to be an analytical procedure?

a. Comparisons of financial statement amounts with source document.
b. Comparisons of financial statement amounts with non-financial data.
c. Comparisons of financial statement amounts with budgeted amounts.
d. Comparisons of financial statement amounts with comparable prior year amounts.

26. Which of the following is true about analytical procedures?

a. Performing analytical procedures results in the most reliable form of evidence.
b. Analytical procedures are tests of controls used to evaluate the quality of a
client’s internal control structure.
c. Analytical procedures are used for planning, but they should not be used to obtain
evidence as to the reasonableness of specific account balances.
d. Analytical procedures are used in planning, as a substantive test of specific
account, and in the final review of the audited financial statements.

27. Which of the following is a basic approach often used by auditors to evaluate the
reasonableness of accounting estimates?
a. Confirmation.
b. Observation.
c. Reviewing subsequent events.
d. Analyze corporate organizational structure.

28. Which of the following is not a basic approach often used by auditors to evaluate the
reasonableness of accounting estimates?
a. Confirmation of amounts.
 b. Review of management’s process of development.
c. Independent development of an estimate.
d. Review of subsequent events.

29. An independent auditor finds that Simmer Corporation occupies office space, at no
charge, in an office building owned by a shareholder. This finding indicates the existence
of
a. Management fraud,
b. Related party transactions.
c. Window dressing.
d. Weak internal control.

30. Which of the following would not necessarily be a related party transaction?
a. Payment of a bonus to the president.
b. Purchases from another corporation that is controlled by the corporation’s chief
stockholder.
c. Loan from the corporation to a major stockholder.
d. Sale of land to the corporation by the spouse of a director.

31. The date of the management representation letter should coincide with the
a. Date of the auditor’s report.
b. Balance sheet date.
c. Date of the latest subsequent event referred to in the notes to the financial
statements.
d. Date of the engagement agreement.

32. An example of an analytical procedure is the comparison of

a. Financial information with similar information regarding the industry in which
the entity operates.
b. Recorded amounts of major disbursements with appropriate invoices.
c. Results of statistical sample with the expected characteristics of the actual
population.
d. EDP generated data with similar data generated by a manual accounting system.

33. When considering the use of management’s written representations as audit evidence
about the completeness assertion, an auditor should understand that such representations
a. Complement, but not replace, substantive tests designed to support the assertion.
b. Constitute sufficient evidence to support the assertion when considered in
combination with a moderate assessed level of control risk.
c. Are generally sufficient evidential matter to support the assertion regardless of the
assessed level of control risk.
d. Replace the assessed level of control risk as evidence to support the assertions.
34. The third standard of field work states that sufficient competent evidential matter may in
part be obtained through inspection, observation, inquiries, and confirmation to afford a
reasonable basis for an opinion regarding the financial statements under examination.
The evidential matter required by this standard may in part obtained through
a. Analytical review procedures.
b. Proper planning of the audit engagement.
c. Auditor working papers.
d. Review of the system of internal control.

35. Which of the following types of documentary audit evidence is the most reliable?
a. Physical examination by the auditor.
b. Documentary evidence calculated by the auditor from company records.
c. Confirmations received directly from third parties.
d. Internal documents.

36. Which of the following is the least persuasive documentation in support of an auditor’s
opinion?
a. Schedules of details of physical inventory count conducted by the client.
b. Notation of inferences drawn from ratios and trends.
c. Notation of appraisers’ conclusions documented in the auditor’s working papers.
 d. Lists of negative confirmation requests for which no response was received by the
auditor.

37. Which of the following is required documentation in an audit in accordance with

generally accepted auditing standards?
a. A written engagement letter formalizing the level of service to be rendered.
b. A flowchart depicting the segregation of duties and authorization of transactions.
c. A written audit program describing the necessary procedures to be performed.
d. A memorandum setting forth the scope of the audit.

38. Which of the following factors most likely would affect an auditor’s judgment about the
quantity, type, and content of the auditor’s working papers?
a. The assessed level of control risk.
 b. The likelihood of a review by a concurring (second) partner.
c. The number of personnel assigned to the audit.
d. The content of the management representation letter.

39. Which of the following documentation is not required for an audit in accordance with
generally accepted auditing standards?
a. A client engagement letter that summarizes the timing and details of the auditor’s
planned field work.
b. The basis for the auditor’s conclusions when the assessed level of control risk is
below the maximum level.
c. A written audit program setting forth the procedures necessary to accomplish the
audit’s objectives.
d. An indication that the accounting records agree or reconcile with the financial
statements.

40. The permanent file section of the working papers that is kept for each audit client most
likely contains
a. Review notes pertaining to questions and comments regarding the audit work
performed.
b. A schedule of time spent on the engagement by each individual auditor.
c. Correspondence with the client’s legal counsel concerning pending litigation.
d. Narrative descriptions of the client’s accounting procedures and internal controls.

41. The audit working paper that reflects the major components of an amount reported in the
financial statements is the
a. Interbank transfer schedule.
b. Cary forward schedule.
c. Supporting schedule.
d. Lead schedule.

42. The tick mark * most likely indicates that the amount was traced to the
a. December cash disbursements journal.
b. Outstanding check list of the applicable bank reconciliation.
c. January cash disbursements journal.
d. Year-end bank confirmations.

43. The tick mark ^ most likely indicates that the amount was traced to the
a. Deposits in transit of the applicable bank reconciliation.
b. December cash receipts journal.
c. January cash receipts journal.
d. Year-end bank confirmations.

44. A cash shortage may be concealed by transporting funds from one location to another or
by converting negotiable assets to cash. Because of this, which of the following is vital?
a. Simultaneous confirmations.
b. Simultaneous bank reconciliations.
 c. Simultaneous verification.
d. Simultaneous surprise cash count.

e. .

45. Treetop Corporation acquired a building and arranged mortgage financing during the
year. Verification of the related mortgage acquisition costs would be least likely to
include an examination of the related
a. Deed.
b. Canceled checks.
c. Closing statement.
d. Interest expense.

46. When auditing prepaid insurance, an auditor discovers that the original insurance policy
on plant equipment is not available for inspection. The policy’s absence most likely
indicates the possibility of a(an)
a. Insurance premium due but not recorded.
b. Deficiency in the coinsurance provision.
c. Lien on the plant equipment.
d. Understatement of insurance expense.

47. An auditor should trace corporate stock issuances and treasury stock transactions to the
a. Numbered stock certificates.
b. Articles of incorporation.
c. Transfer agent’s records.
d. Minutes of the board o directors.

48. An audit program for the examination of the retained earnings account should include a
step that requires verification of the
a. Market value used to change retained earnings to account for a two-for-one stock
split.
b. Approval of the adjustment to the beginning balance as a result of a write down of
an account receivable.
c. Authorization for both cash and stock dividends.
d. Gain or loss resulting from disposition of treasury shares.
49. To which of the following matters would materiality limits not apply when obtaining
written clients representations?
a. Losses from sales commitments.
b. Unasserted claims and assessments.
c. Irregularities involving management.
d. Noncompliance with contractual agreements.

50. When considering the use of management’s written representations as audit evidence
about the completeness assertion, an auditor should understand that such representations
a. Complement but do not replace, substantive tests designed to support the
assertion.
b. Constitute sufficient evidence to support with reliance on internal controls.
c. Are not part of the evidential matter considered to support the assertion.
d. Replace reliance on internal controls as evidence to support the assertion.

51. A written representation from a client’s management which among other matters,
acknowledges responsibility for the fair presentation of financial statements, should
normally be signed by the
a. Chief executive officer and chief financial officer.
b. Chief financial officer and the chairman of the board of directors.
c. Chairman of the audit committee of the board of directors.
d. Chief executive officer, the chairman of the board of directors, and the client’s
lawyer.

52. A limitation on the scope of the auditor’s examination sufficient to preclude an

unqualified opinion will always result when management
a. Prevents the auditor from reviewing the working papers of the predecessor auditor
b. Engages the auditor after the year-end physical inventory count is completed.
c. Fails to correct a reportable condition of internal control that had been identified
during the prior year’s audit.
d. Refuses to furnish a management representation letter to the auditor.

53. Hall accepted an engagement to audit the 2006 financial statements of XYZ Company.
XYZ completed the preparation of the 2006 financial statements on February 13, 2007,
and Hall began the field work on February 17, 2007. Hall completed the field work on
March 24, 2007, and completed the report on March 28, 2007. The client’s representative
letter normally would be dated.
a. February 13, 2007.
b. February 17, 2007
c. March 24, 2007.
d. March 28, 2007.
54. In using the work of a specialist, an understanding should exist among the auditor, the
client, and the specialist as to the nature of the specialist’s work. The documentation of
this understanding should cover
a. A statement that the specialist assumes no responsibility to update the specialist’s
record for future events or circumstances.
b. The conditions under which a division of responsibility may be necessary.
c. The specialist’s understanding of the auditor’s corroborative use of the
specialist’s findings.
d. The auditor’s disclaimer as to whether the specialist’s findings corroborative the
representations in the financial statements.

55. Which of the following is not a specialist upon whose work an auditor may rely?
a. Actuary.
b. Appraiser.
c. Internal auditor.
d. Engineer.

56. When using work of a specialist, an auditor may refer to and identify the specialist in the
auditor’s report if the
a. Auditor expresses a qualified opinion as a result of the specialist’s findings.
b. Specialist is not independent of the client.
c. Auditor wished to indicate a division of responsibility.
d. Specialist’s work provides the auditor greater assurance of reliability.

57. An auditor 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
a. The opinion of a specialist as to whether loss contingencies are possible,
probable, or remote.
b. A description of litigation, claims, and assessments that have a reasonable
possibility of unfavourable outcomes.
c. An objective appraisal of management’s policies and procedures adopted for
identifying and evaluating legal matters.
d. The corroboration of the information furnished by management concerning
litigation, claims, and assessments.

58. Which of the following is not an audit procedure that the independent auditor would
perform concerning litigation, claims, and assessments?
a. Obtain assurance from management that it has disclosed all unasserted claims that
the lawyer has advised are probable of assertion and must be disclosed.
b. Confirm directly with the client’s lawyer that all claims have been recorded in the
financial statements.
 c. Inquire of an discuss with management the policies and procedures adopted for
identifying, evaluating, and accounting for litigation, claims, and assessments.
d. Obtain from management a description and evaluation of litigation, claims, and
assessments existing at the balance sheet date.

59. The scope of an audit is not restricted when an attorney’s response to a an auditor as a
result f a client’s letter of audit inquiry limits the response of
a. Matters to which the attorney has given substantive attention in the form of legal
representation.
b. An evaluation of the likelihood of an unfavourable outcome of the matters
disclosed by the entity.
c. The attorney’s opinion of the entity’s historical experience in recent similar
litigation.
d. The probable outcome of asserted claims and pending or threatened litigation.

60. A CPA has received an attorney’s letter in which no significant disagreement with the
client’s assessments of contingent liabilities were noted. The resignation of the client’s
lawyer shortly after receipt of the letter should alert the auditor that
a. Undisclosed unasserted claims may have arisen.
b. The attorney was unable to form a conclusion with respect to the significant of
litigation, claims, and assessments.
c. The auditor must begin a completely new examination of contingent liabilities.
d. An adverse opinion will be necessary.

61. When auditing related party transactions, an auditor places primary emphasis on
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.

62. An auditor would be most likely to consider modifying an otherwise unqualified opinion
if the client’s financial statements include a footnote on related party transactions
a. Representing that certain related party transactions were consummated on terms
equivalent to those obtainable in transactions with unrelated parties.
b. Presenting the peso volume of related party transactions and the effects of any
change in the prior period.
c. Explaining the business purpose of the sale of real property to a related party.
d. Disclosing compensating balance arrangements maintained for the benefit of
related parties.

63. Which of the following statements is correct concerning related party transactions?
a. In the absence of evidence to the contrary, related party transactions should be
assumed to be outside the ordinary course of business.
 b. An auditor should determine whether a particular transactions would have
occurred if the parties has not been related.
c. An auditor should substantiate that related party transactions were consummated
on terms equivalent to those that prevail in arm’s-length transactions.
d. The audit procedures directed toward identifying related part transactions should
include considering whether transactions are occurring, but are not being given
proper accounting recognition.

64. Which of the following audit procedures would most likely assist an auditor in
identifying conditions and events that may indicate there could be substantial doubt about
an entity’s indicate there could be substantial doubt about an entity’s ability to continue
as a going concern?
a. Review compliance with the terms of debt agreements.
b. Confirmation of accounts receivable from principal customers.
c. Reconciliation of interest expense with debt outstanding.
d. Confirmation of bank balances.

65. After issuing a report, an auditor has no obligation to make continuing inquiries or
perform other procedures concerning the audited financial statements, unless
a. Information, which existed at the report date and may affect the report, comes to
the auditor’s attention.
b. Management of the entity requests the auditor to reissue the auditor’s report.
c. Information about an event that occurred after the end of the field work comes to
the auditor’s attention.
d. Final determinations or resolutions are made of contingencies hat had been
disclosed in the financial statements.

66. After an audit report containing an unqualified opinion on a non-public client’s financial
statements was issued, the client decided to sell the shares of a subsidiary that accounts
for 30% of its revenue and 25% of its net income. The auditor should
a. Determine whether the information is reliable and if determined to be reliable,
request that revised financial statements be issued.
b. Notify the entity that the auditor’s reported may no longer be associated with the
financial statements.
c. Describe the effects of his subsequently discovered information in a
communication with persons known to be relying on the financial statements.
d. Take no action because the auditor has no obligation to make any further
inquiries.

67. A client acquired 25% of its outstanding capital stock after year end and prior to
completion of the auditor’s field work. The auditor should
a. Advise management to adjust the balance sheet to reflect the acquisition.
 b. Issue pro forma financial statements giving effect to the acquisition as if it had
occurred at year end.
c. Advise management to disclose the acquisition in the notes to the financial
statements.
d. Disclose the acquisition in the opinion paragraph of the auditor’s report.

68. Which of the following procedures would an auditor most likely perform to obtain
evidence about the occurrence of subsequent events?
a. Recomputing a sample of large-peso transactions occurring after year end for
arithmetic accuracy.
b. Investigating changes in stockholders’ equity occurring after year end.
c. Inquiring of the entity’s legal counsel concerning litigation, claims, and
assessments arising after year end.
d. Confirming bank accounts established after year end.

69. An auditor concludes that a substantive auditing procedure concerned 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?
a. There are no alternative procedures available to provide the same evidences as the
omitted procedures.
b. The omission of the procedures 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.

70. Six months after issuing an unqualified opinion on audited financial statements, an
auditor discovered that the engagement personnel failed to confirm several of the client’s
material accounts receivable balances. The auditor should first
a. Request the permission of the client to undertake the confirmation of accounts
receivable.
b. Perform alternative procedures to provide a satisfactory basis for the omitted
opinion.
c. Assess the importance of the omitted procedures to the auditor’s ability to support
the previously expressed opinion.
d. Inquire whether there are persons currently relying, or likely, on the unqualified
opinion.

71. Which of the following procedures is least likely to be performed before the balance
sheet date?
a. Testing of internal control over cash.
b. Confirmation of receivables.
c. Search for unrecorded liabilities.
 d. Observation of inventory.

72. Which of the following most likely would be detected by an auditor’s review of a client’s
sales cut off?
a. Shipments lacking sales invoices and shipping documents.
b. Excessive writes-offs of accounts receivable.
c. Unrecorded sales at year end.
d. Lapping of year-end accounts receivable.

73. Cutoff tests designed to detect credit sales made before the end of the year that have been
recorded in the subsequent year provided assurance about management’s assertion of
a. Presentation.
b. Completeness.
c. Rights.
d. Existence.

74. Which of the following statements is correct concerning both an engagement to compile
and engagement to review a non-public entity’s financial statements?
a. The accountant does not contemplate obtaining an understanding of the internal
control structure.
b. He accountant must be independent in fact and appearance.
c. The accountant expresses no assurance on the financial statements.
d. The accounting should obtain a written management representation letter.

75. When compiling the financial statements of a non-public entity. An accountant should
a. Review agreements with financial institutions for restrictions on cash balances.
b. Understand the accounting principles and practice of the entity’s industry.
c. Inquire of key personnel concerning related parties and subsequent events.
d. Perform ratio analyses of the financial data of comparable prior periods.

76. Before issuing a report on the compilation of financial statements of a non-public entity,
the accountant should
a. Apply analytical procedures to selected financial data to discover any material
misstatements.
b. Corroborate at least sample of the assertions management has embodied in the
financial statements.
c. Inquire of the client’s personnel whether the financial statements omit
substantially all disclosures.
d. Read the financial statements to consider whether the financial statements are free
from obvious material errors.
77. One of the conditions required for an accountant to submit a written personal financial
plan containing unaudited financial statements to a client without complying with the
requirements of SSARS 1 (Compilation and Review of Financial Statements) is that the
a. Client agrees that the financial statements will not be used to obtain credit.
b. Account compiled or reviewed the client’s financial statements for the immediate
prior year.
c. Engagement letter acknowledges that the financial statements will contain
departures from generally accepted accounting principles.
d. Accountant expresses limited assurance that the financial statements are free of
any material misstatements.

78. Which of the following inquiry or analytical procedures ordinarily is performed in an

engagement to review a non-public entity’s financial statements?
a. Analytical procedures designed to test the accounting records by obtaining
corroborating evidential matter.
b. Inquiries concerning the entity’s procedures for recording and summarizing
transactions.
c. Analytical procedures designed to test management’s assertions regarding
continued existence.
d. Inquiries of the entity’s attorney concerning contingent liabilities.

79. Which of the following procedures is more likely to be performed in a review

engagement of a non-public entity than in a compilation engagement?
a. Gaining an understanding of the entity’s business transactions.
b. Making a preliminary assessment of control risk.
c. Obtaining a representation letter from the chief executive officer.
d. Assisting the entity in adjusting the accounting records.

80. Which of the following procedures would most likely be included in a review
engagement of a non-public entity?
a. Preparing a bank transfer schedule.
b. Inquiring about related party transactions.
c. Assessing the internal control structure.
d. Performing cutoff tests on sales and purchases transactions.

81. Which of the following procedures is usually included in a

a. The confirmation of accounts receivable.
b. A consideration of internal control.
c. An inquiry concerning subsequent events.
d. The observation of physical inventory accounts.
82. Which of the following would the account most likely investigate during the review of
financial statements of a non-public entity if accounts receivable did not conform to a
predictable pattern during the year?
a. Sales return and allowances.
b. Credit sales.
c. Sales of consigned goods.
d. Cash sales.

83. Kent is auditing an entity’s compliance with requirements governing a major federal
financial assistance program in accordance with the Single Audit Act. Kent detected
noncompliance with requirements that have a material effect on the program. Kent’s
report on compliance should express a(an)
a. Unqualified opinion with a separate explanatory paragraph.
b. Qualified opinion or an adverse opinion.
c. Adverse opinion or a disclaimer of opinion.
d. Limited assurance on the items tested.

84. A purpose of a management representation letter is to reduce

a. Audit risk to an aggregate level of misstatement that could be considered material.
b. An auditor’s responsibility to detect material misstatements only to the extent of
the letter is relied on.
c. The possibility of a misunderstanding concerning management’s responsibility
for the financial statements.
d. The scope of an auditor’s procedures concerning related party transactions and
subsequent events.

85. An auditor who uses the work of a specialist may refer to the specialist in the auditor’s
report if the
a. Specialist’s findings provide the auditor greater assurance of reliability about
management’s representations.
b. Auditor adds an explanatory paragraph to an unqualified opinion describing an
uncertainty resulting from the specialist’s findings.
c. Auditor’s use of the specialist’s findings is different from that of prior years.
d. Specialist is a related party whose findings fully corroborate management’s
financial statement assertions.

86. The primary purpose of sending a standard confirmation request to financial institutions
with which the client has done business during the year is to
a. Detect kiting activities that may otherwise not be discovered.
b. Corroborate information regarding deposit and loan balances.
c. Provide the data necessary to prepare a proof of cash.
d. Request secured transactions.

87. An auditor most likely would perform substantive tests details on payroll transactions and
balances when
 a. Cutoff tests indicate a substantial amount of accrued payroll expense.
b. The assessed level of control risk relative to payroll transactions is low.
c. Analytical procedures indicate unusual fluctuations in recurring payroll entries.
d. Accrued payroll expense consists primarily of unpaid commissions.

88. Which of the following documentation is required for an audit in accordance with
generally accepted auditing standards?
a. A flowchart or an internal control questionnaire that evaluates the effectiveness of
the entity’s internal control policies and procedures.
b. A client engagement letter that summarizes the timing and details of the auditor’s
planned field work.
c. An indication in the working papers that the accounting records agree of reconcile
with the financial statements.
d. The basis for the auditor’s conclusions when the assessed level of control risk is
at the maximum level for all financial statement assertions.

89. Although the quantity and content of audit working papers vary with each particular
engagement, an auditor’s permanent files most likely include
a. Schedules that support the current year’s adjusting entries.
b. Prior years’ accounts receivable confirmation that were classified as exceptions.
c. Documentation indicating that the audit work was adequately planned and
supervised.
d. Analyses of capital stock and other owners’ equity accounts.

90. An auditor most likely would modify an unqualified opinion if the entity’s financial
statements include a footnote on related party transactions.
a. Disclosing loans to related parties at interest rate significantly below prevailing
market rates.
b. Describing an exchange of real estate for similar property in a non-monetary
related party transaction.
c. Stating that a particular related party transaction occurred on terms equivalent to
those that would have prevailed in an arm’s-length transaction.
d. Presenting the peso volume of related party transactions and the effects of any
change in the method of establishing terms from prior periods.
91. Which of the following procedures should an auditor generally perform regarding
subsequent events?
a. Compare the latest available interim financial statements with the financial
statements being audited.
b. Send second requests to the client’s customers who failed to respond to initial
accounts receivable confirmation requests.
c. Communicate material weakness in the internal control structure to the client’s
internal control structure to the client’s audit committee.
d. Review the cut-off bank statements for several months after the year end.

92. Davis, CPA, believes there is substantial doubt about the ability of Hill Co. To continue
as a going concern for a reasonable period of time. In evaluating Hill’s plans for dealing
with the adverse effects of future conditions and events. Davis most likely would
consider, as a mitigating factor, Hill’s plans to
a. Accelerate research and development projects related to future products.
b. Accumulated treasury stock at prices favourable to Hill’s historic price range.
c. Purchase equipment and production facilities currently being leased.
d. Negotiate reductions in required dividends being paid on preferred stock.

93. The primary source of information to be reported about litigation, claims,

and assessments is the
a. Client’s lawyer.
b. Court records.
c. Client’s management.
d. Independent auditor.

94. Which of the following procedures would an auditor most likely perform in searching
for unrecorded payables?
a. Reconcile receiving reports with related cash payments made just prior to
year- end.
 b. Contrast the ratio of accounts payable to purchases with the prior year’s ratio.
c. Vouch a sample of creditor balances to supporting invoices, receiving reports,
and purchase orders.
d. Compare cash payments occurring after the balance sheet date with the
accounts payable trial balance.

95. The permanent (continuing) file of an auditor’s working papers most likely would
include copies of the
a. Bank statements.
b. Debt agreements.
c. Lead schedules.
d. Attorney’s letters

END