Soal Latihan 1

Audit Planning

1. In developing the overall audit strategy for a new client, factor not be considered is
a. The terms of the engagement and any statutory responsibilities
b. The client’s business, including the structure of the organization and accounting system
used.
c. The specific procedures to be performed to gather audit evidence. *
d. The audit risk, and procedures to be performed to achieve audit objectives
2. In planning an audit engagement, the auditor is required to develop and document a(an): I.
Overall Audit Plan. II.Flowchart. III. Overall Audit Strategy
a. Both II and III
b. Both I and II
c. Both I and III *
d. I, II and III
3. The following are the matters to be considered by the auditor in establishing the overall
audit strategy, except
a. Defining the scope of the examination
b. Assess risk and materiality
c. Computation of audit fees *
d. Ascertaining the reporting objectives of the engagement
4. The nature and extent of planning will vary according the following, except
a. Size of the auditing firm *
b. Complexity of the entity
c. Auditor’s experience with the entity.
d. Changes in circumstances that occur during the audit engagement
5. In planning an examination, the auditor would consider all of the following matters, except
a. Anticipated reliance on internal controls.
b. Preliminary judgment about materiality levels for audit purposes.
c. Financial statement items likely to require adjustment.
d. The kind of opinion (unqualified, qualified, disclaimer, or adverse), likely to be given
*
6. Which of the following parties would normally attend a planning meeting held before the
beginning of an audit engagement to discuss relevant client information and the audit
approach to be taken in performing the engagement?
a. Engagement partner and the client’s chief financial officer
b. Engagement partner and audit manager
c. Engagement partner, audit manager, and senior auditor *
d. Engagement partner, audit manager, senior auditor, and junior audit staff members **
7. Overall audit plan should: 1. Precede action, 2. Be flexible, 3. Be cost beneficial
a. yes, yes, yes *
b. no, no, yes
c. yes, yes, no
d. no, yes, yes
 8. Those procedures specifically outlined in an audit program are primarily designed to
a. Gather evidence. *
b. Detect errors or irregularities.
c. Test internal systems.
d. Protect the auditor in the event of litigation
9. The audit plan includes:
a. a description of the nature, timing and extent of planned risk assessment procedures
sufficient to assess the risk of material misstatement
b. a description of the nature, timing and extent of planned further audit procedures at the
assertion level for each material class of transactions, account balances and disclosures
c. Other planned audit procedures that are required to be carried out so that the
engagement complies with our audit approach
d. All of the above *
10. Which of the following would be least likely to be considered an audit planning procedure?
a. Use an engagement letter.
b. Develop the overall audit strategy.
c. Perform risk assessment. *
d. Develop the audit plan
11. An audit should design the written audit program so that
a. all material transactions will be selected for substantive testing.
b. substantive tests prior to the balance sheet date will be minimized.
c. the audit procedures selected will achieve specific objectives. *
d. each account balance will be tested under either tests of controls or tests of transactions.
12. Which of the following is not one of the three main reasons why the auditor should properly
plan engagements?
a. To enable proper on-the-job training of employees
b. To enable the auditor to obtain sufficient appropriate evidence.
c. To avoid misunderstandings with the client.
d. To help keep audit costs reasonable.
13. The overall audit strategy should be updated and changed as necessary during the course of
the audit. The overall audit plan should be updated and changed as necessary during the
course of the audit.
a. True, True *
b. False, True
c. False, False
d. True, False
14. Which item would not be contained in an audit program?
a. Staff assigned to the audit. *
b. List of specific procedures (tasks) to be performed and the objectives to be met that
relate primarily to financial statements assertions.
c. Documentation of system being reviewed.
d. Estimated time required to perform each task.
15. This involves establishing the overall audit strategy for the engagement and developing an
audit plan, in order to reduce audit risk to an acceptably low level.
 a. Audit procedures
b. Audit planning *
c. Audit program
d. Audit working papers
16. Which of the following is not typically included in prot planning?
a. Client acceptance/continuation decisions.
b. Determination of the purpose of the audit.
c. Obtain an understanding with the client.
d. Perform analytical procedures as substantive tests *
17. The overall audit strategy sets the scope, timing and direction of the audit, and guides the
development of the more detailed audit plan. The audit plan is more detailed than the overall
audit strategy and includes the nature, timing and extent of audit procedures to be performed
by engagement team members in order to obtain sufficient appropriate audit evidence to
reduce audit risk to an acceptably low level.
a. True, True *
b. True, False
c. False, False
d. False, True
18. A listing of all the things which the auditor will do to gather sufficient, competent evidence
is the:
a. Audit strategy
b. Audit program *
c. Audit procedure
d. Audit risk model
19. Adequate audit planning helps ensure that appropriate attention is devoted: 1. To important
areas of the audit, 2 So that potential problems are promptly identified and resolved, 3. So
that the work is performed in an effective and efficient manner
a. yes, yes, no
b. yes, yes, yes *
c. yes, no, no
d. yes, no, yes
20. The audit program usually cannot be finalized until the
a. consideration of the entity’s internal control structure has been completed.*
b. engagement letter has been signed by the auditor and the client.
c. reportable conditions have been communicated to the audit committee of the board of
directors.
d. search for unrecorded liabilities has been performed and documented.
21. Which of the following in relation to the relationship between internal auditing and the
external auditor is false?
a. All judgments relating to the audit of the financial statements are those of the external
auditor.
b. Internal auditors should exercise the same degree of independence as required of the
external auditor. *
 c. The role of internal auditing is determined by management and its objectives differ
from those of the external auditor who is appointed to report independently on the
financial statements.
d. The external auditor has the sole responsibility for the audit opinion expressed and that
responsibility is not reduced by any use mane of internal auditing.
22. Each of the following procedures requires the assistance of an expert, except
a. Determining the physical condition or quantity of underground mineral.
b. Determining the value of works of art.
c. Determining the adequacy of disclosure in the notes to the financial statements. *
d. Interpreting major contracts.
23. The risk that an expert’s objectivity will be impaired increases when the expert is related
in some other manner to the entity (e.g., by being financially dependent upon or having an
investment in the entity) and the expert is
a. Engaged by the entity
b. Employed by the entity *
c. Engaged by the auditor
d. Employed by the auditor
24. To assess the objectivity of the internal auditors, an independent auditor would most likely
a. Consider the professional qualifications and experience of the internal auditors.
b. Consider the proper planning, supervision and documentation of internal auditor’s
work.
c. Consider the nature and extent of the internal auditors’ assignment.
d. Consider the organizational level to which the internal auditors report the results of their
work. *
25. Which of the following is least likely to be included in the auditor’s engagement letter?
a. Details about the preliminary audit strategy
b. Overview of the objectives of the engagement
c. Statement that management is responsible for the financial statements
d. Description of the level of assurance obtained when conducting the audit
26. The independent auditor should acquire an understanding of a client’s internal audit
function to determine whether the work of internal auditors will be a factor in determining
the nature, timing and extent of the independent auditor’s procedures. The work performed
by internal auditors might be such a factor when the internal auditor’s work includes
a. Verification of the mathematical accuracy of invoices
b. Review of administrative practices to improve efficiency and achieve management
objectives
c. Study and evaluation of internal accounting control *
d. Preparation of internal financial reports for management purposes
27. An initial audit requires more audit time to complete than a recurring audit. One of the
reasons for this is that
a. new auditors are usually assigned to an initial audit.
b. predecessor auditors need to be consumed.
c. the client's business, industry and internal control are unfamiliar to the auditor and need
to be carefully studied. *
 d. a larger proportion of customer accounts receivable need to be confirmed on an initial
audit.
28. An auditor who, at the request of the group engagement team, performs work on financial
information related to a component for the group audit is a
a. Group Auditor
b. Component Auditor
c. Group Engagement Team
d. Component Engagement Team
29. Which statement is incorrect regarding the auditor’s use of the work of an expert?
a. When using the work performed by an expert, the auditor should obtain sufficient
appropriate audit evidence that such work is adequate for the purposes of the audit.on
1
b. “Expert” means a person or firm possessing special skill, knowledge and experience in
a particular field other than accounting and auditing.
c. The auditor's education and experience enable the auditor to be knowledgeable about
business matters in general, but the auditor is not expected to have the expertise of a
person trained for or qualified to engage in the practice of another profession or
occupation.
d. When the auditor uses the work of an expert employed by the auditor, that work is used
in the employee's capacity as an assistant on the audit. *
30. When planning to use the work of an expert, the auditor should assess the objectivity of
the expert. This will involve considering the expert's: I. Professional certification or
licensing by, or membership in, an appropriate professional body. II. Experience and
reputation in the field in which the auditor is seeking audit evidence. III. Relationship to
the entity.
a. I, II, III
b. I and II
c. I and III
d. III only
31. Which of the following is most correct regarding external auditors use of internal auditors
directly on the audit engagement?
a. Discourage
b. Prohibit
c. Encourage
d. Permit
32. A CPA is conducting the first examination of a client’s financial statements. The CPA
hopes to reduce the audit work by consulting with the predecessor auditor and reviewing
the predecessor’s working papers. This procedure is
a. Acceptable if the CPA refers in the audit report the reliance upon the predecessor
auditor’s work.
b. Required if the CPA is to render an unqualified opinion.
c. Acceptable if the client and the predecessor auditor agree to it. *
d. Unacceptable because the CPA should bring an independent viewpoint to a new
engagement.
33. To operate effectively, an internal auditor must be independent of
a. The entity
b. The audit committee of the board of directors
c. The employer-employee relationship which exists for other employees
d. The line functions of the organization
34. Which of the following is an effective audit planning procedure that helps prevent
misunderstandings and inefficient use of audit personnel?
a. Arrange to make copies, for inclusion in the audit files, of those client supporting
documents examined by the auditor.
b. Arrange to provide the client with copies of the audit programs to be used during the
audit.
c. Arrange a preliminary conference with the client to discuss audit objectives, fees,
timing, and other information. *
d. Arrange to have the auditor prepare and post any necessary adjusting or reclassification
entries prior to final closing
35. The scope and objectives of internal auditing vary widely and depend on the size and
structure of the entity and the requirements of its management (engagement objectives).
Ordinarily, internal auditing activities include one or more of the following, except
a. Review of the economy, efficiency and effectiveness of operations including non-
financial controls of an entity.
b. Review of compliance with laws, regulations and other external requirements and with
management policies and directives and other internal requirements.
c. Examination of financial and operating information including review of the means to
identify, measure, classify and report such information and specific inquiry into
individual items including detailed testing of transactions and recommending
improvements thereto.
d. Establishment of adequate accounting and internal control systems *
36. To maximize independence, the internal auditors should report to the
a. Audit committee of the board of directors
b. CEO/President
c. Controller
d. Chief Financial Officer
37. The work of internal auditors may affect the independent’s auditor’s I. Procedures
performed in obtaining an understanding of internal control II. Procedures performed in
assessing the risk of material misstatement. III. Substantive procedures performed in
gathering
a. I and III only
b. I and II only
c. II and III only
d. I, II and III
38. During an audit, the auditor may need the assistance of an expert in obtaining sufficient
appropriate evidence. A common example is
a. Determining the sufficiency and appropriateness of evidential matter obtained.
b. Evaluating the potential financial statements effect of an employee fraud.
 c. Evaluating the integrity of management.
d. Determination of amounts using actuarial computations *
39. When determining the need to use the work of an expert, the auditor would consider the
following, except
a. The professional certification or licensing by, or membership in, an appropriate
professional body.
b. The quantity and quality of other audit evidence available.
c. The materiality of the financial statement item being considered.
d. The risk of misstatement based on the nature and complexity of the matter being
considered
40. Which of the following statements in relation to the preliminary assessment of internal
auditing is false?
a. During the course of planning the audit, the external auditor should perform a
preliminary assessment of the internal audit function when it appears that internal
auditing is relevant to the external audit of the financial statements in specific audit
areas.
a. The external auditor should obtain a sufficient understanding of internal audit activities
to assist in planning the audit and developing an effective audit approach.
b. Effective internal auditing will often allow a modification in the nature, timing,
reduction in the extent and even eliminate in its entire some procedures performed by
the external auditor. *
c. In some cases, after having considered the activities of internal auditing, the external
auditor may decide that internal auditing will have no effect on external audit
procedures.
Soal Latihan 3
Risk Assessment and Response to Assessed Risks

1. Which of the following is incorrect regarding SA 315?

a. The purpose of this SA is to establish standards and to provide guidance on obtaining
an understanding of the entity and its environment, including its internal control, and on
assessing the risks of material misstatement in a financial statement audit.
b. The requirements and guidance of this SA are to be applied in conjunction with the
requirements and guidance provided in otherSAs.
c. This SA requires the auditor to make risk assessments at the financial statement and
assertion levels based on an appropriate understanding of the entity and its environment,
including its internal control.
d. This SA discusses the auditor’s responsibility to determine overall responses and to
design and perform further audit procedures whose nature, timing, and extent are responsive to
the risk assessments.
2. Which of the following is an incorrect statement?
a. Detection risk arises partly from uncertainties that exists when the auditor does not
examine 100 percent of the population.
b. Detection risk exists independently of the audit of the financial statements.
c. Detection risk arises partly because of other uncertainties that exist even if the auditor
were to examine 100 percent of the population.
d. Detection risk is a function of the effectiveness of an auditing procedure and its
application.
3. According to SA 400 – Risk Assessments and Internal Control, audit risk means
a. The risk that the auditor gives an inappropriate audit opinion when the financial
statements are materially misstated.
b. The susceptibility of an account balance or class of transactions to misstatement that
could be material, individually or when aggregated with misstatements in other balances or
classes, assuming that there were no related internal controls.
c. The risk that an auditor’s substantive procedures will not detect a misstatement that
exists in an account balance or class of transactions that could be material, individually or when
aggregated with misstatements in other balances or classes.
d. The risk that a misstatement, that could occur in an account balance or class of
transactions and that could be material, individually or when aggregated with misstatements in
other balances or classes, will not be prevented or detected and corrected on a timely basis by
the accounting and internal control systems.
4. Which of the following is correct statement?
a. The subsequent discovery that a material misstatement exists in the financial statements
is evidence of inadequate planning, performance, or judgment on the part of the auditor.
b. The auditor should obtain an understanding of the accounting and internal control
systems sufficient to plan the audit and develop an effective audit approach.
c. The auditor should use professional judgment to assess audit risk and to design audit
procedures to ensure it is eliminated.
d. The auditor is an insurer, and his or her report constitutes a guarantee.
5. Which of the following is not a distinguishing feature of risk-based auditing?
a. Concentrating audit resources in those areas presenting the highest risk of financial
statement errors.
b. Analysis of internal control.
c. Identifying areas posing the highest risk of financial statement errors.
d. Collecting and evaluating evidence
6. Which statement is incorrect regarding obtaining an understanding of the entity and its
environment?
a. That understanding establishes a frame of reference within which the auditor plans the
audit and exercises professional judgment about assessing risks of material misstatement of the
financial statements and responding to those risks throughout the audit.
b. Obtaining an understanding of the entity and its environment is an essential aspect of
performing an audit in accordance with SAs.
c. The auditor’s primary consideration is whether the understanding that has been
obtained is sufficient to assess the risks of material misstatement of the financial statements
and to design and perform further audit procedures.
d. The depth of the overall understanding that is required by the auditor in performing the
audit is equal to that possessed by management in managing the entity.
7. The audit risk model consists of: AR = IR x CR x DR The detection risk is the dependent
variable. What is the acceptable level of detection risk if the assessed level of Inherent risk is
High and the Control risk is Low?
a. Higher
b. Lower
c. Highest
d. Medium
8. SA 315 requires
a. Discussion among the engagement team about the susceptibility of the entity’s financial
statements to material misstatement.
b. The auditor to identify and assess the risks of material misstatement at the financial
statement and assertion levels.
c. All of the above.
d. The auditor to obtain an understanding of the entity and its environment, including its
internal control.
9. Which of the following statements is true?
a. If control risk is assessed at maximum, the nature of related substantive tests should be
changed from more to less effective.
b. If control risk is assessed at maximum, the extent of related substantive tests should be
changed from a larger to a smaller sample
c. If control risk is assessed at maximum, the nature of related substantive tests should be
changed from less to more effective.
d. If control risk is assessed at maximum, the timing of related substantive tests should be
changed from year-end to an interim date.
10. An auditor decides to increase the assessed level of control risk from that originally
planned on the basis of audit evidence gathered and evaluated. To achieve an overall audit risk
level that is substantially the same as the planned audit risk level, the auditor would
a. Decrease detection risk
b. Decrease substantive testing.
c. Increase inherent risk.
d. Increase materiality levels.
11. When the auditor determines that detection risk regarding a financial statement
assertion for a material account balance or class of transactions cannot be reduced to an
acceptable level, the auditor should express
a. Qualified or adverse opinion
b. Unqualified opinion.
c. Qualified or disclaimer of opinion
d. Unqualified opinion with explanatory paragraph
12. The relationship between acceptable level of detection risk and the combined level of
inherent and control risk is
a. Inverse
b. Independent
c. Parallel
d. Direct
13. Which of the following factors is not a good indicator of potential financial failure?
a. Client is constantly short of cash and working capital.
b. Client’s retained earnings were reduced by half as a result of a large dividend payout.
c. Client has had increasing net losses for several years.
d. Client relies heavily on debt financing, especially by financing permanent assets with
short-term loans.
14. Why would the auditor assess control risk?
a. Because it affects the level of detection risk the auditor may accept.
b. Because it determines whether sampling risk is sufficiently low.
c. Because it indicates where inherent risk may be the greatest.
d. Because it includes the aspects of nonsampling risk that are controllable.
15. As the acceptable level of detection risk decreases, the assurance directly provided from
a. Substantive tests should increase.
b. Substantive tests should decrease.
c. Tests of controls should increase.
d. Tests of controls should decrease.
16. Inherent risk and control risk differ from detection risk in that they
a. Arise from the misapplication of auditing procedures.
b. Exist independently of the financial statement audit.
c. May be assessed in either quantitative or nonquantitative terms.
d. Can be changed at the auditor’s discretion.
17. Which of the following is an incorrect statement?
a. The greater the inherent and control risks the auditor believes exists, the less detection
risk that can be accepted.
b. Detection risk cannot be changed at the auditor’s discretion.
c. The auditor might make separate or combined assessments of inherent risk and control
risk.
d. If individual audit risk remains the same, detection risk bears an inverse relationship to
inherent and control risks.
18. Inherent risk and control risk differ from detection risk in that inherent risk and control
risk are
a. Elements of audit risk while detection risk is not.
b. Functions of the client and its environment while detection risk is not.
c. Considered at the individual account-balance level while detection risk is not.
d. Changed at the auditor’s discretion while detection risk is not.
19. Which statement is incorrect regarding the discussion among the engagement team
about the susceptibility of the entity’s financial statements to material misstatements?
a. All the team members should have a comprehensive knowledge of all aspects of the
audit.
b. The discussion provides an opportunity for more experienced engagement team
members, including the engagement partner, to share their insights based on their knowledge
of the entity, and for the team members to exchange information about the business risks.
c. The members of the engagement team should discuss the susceptibility of the entity’s
financial statements to material misstatements.
d. The objective of this discussion is for members of the engagement team to gain a better
understanding of the potential for material misstatements of the financial statements resulting
from fraud or error in the specific areas assigned to them, and to understand how the results of
the audit procedures that they perform may affect other aspects of the audit.
20. Examples of situations where the auditor may find it impossible to design effective
substantive procedures that by themselves provide sufficient appropriate audit evidence that
certain assertions are not materially misstated include the following: I.An entity that conducts
its business using IT to initiate orders for the purchase and delivery of goods based on
predetermined rules of what to order and in what quantities and to pay the related accounts
payable based on system-generated decisions initiated upon the confirmed receipt of goods and
terms of payment. No other documentation of orders placed or goods received is produced or
maintained, other than through the IT system. II.An entity that provides services to customers
via electronic media (for example, an Internet service provider or a telecommunications
company) and uses IT to create a log of the services provided to its customers, initiate and
process its billings for the services and automatically record such amounts in electronic
accounting records that are part of the system used to produce the entity’s financial statements.
a. I and II
b. I only
c. II only
d. Neither I nor II
21. The assessment of the risks of material misstatement at the financial statement level is
affected by the auditor’s understanding of the control environment. Weaknesses in the control
environment ordinarily will lead the auditor to
a. Modify the nature of audit procedures to obtain more persuasive audit evidence.
b. Have more confidence in internal control and the reliability of audit evidence generated
internally within the entity.
c. Conduct some audit procedures at an interim date rather than at period end.
d. Decrease the number of locations to be included in the audit scope.
22. SA 330 requires the auditor to
a. Design and perform further audit procedures, including tests of the operating
effectiveness of controls, when relevant or required, and substantive procedures, whose nature,
timing, and extent are responsive to the assessed risks of material misstatement at the assertion
level.
b. All of the above
c. Evaluate whether the risk assessment remain appropriate and to conclude whether
sufficient appropriate audit evidence has been obtained.
d. Determine overall responses to address risks of material misstatement at the financial
statement level
23. Inquiries directed towards those charged with governance may most likely
a. Help the auditor understand the environment in which the financial statements are
prepared.
b. Relate to changes in the entity’s marketing strategies, sales trends, or contractual
arrangements with its customers.
c. Relate to their activities concerning the design and effectiveness of the entity’s internal
control and whether management has satisfactorily responded to any findings from these
activities.
d. Help the auditor in evaluating the appropriateness of the selection and application of
certain accounting policies.
24. Which statement is correct regarding business risks?
a. The risk of material misstatement of the financial statements is broader than business
risk, though it includes the latter.
b. The auditor should identify or assess all business risks.
c. All business risks give rise to risks of material misstatement.
d. 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
25. The auditor should design and perform further audit procedures whose nature, timing,
and extent are responsive to the assessed risks of material misstatement at the assertion level.
Which of the following is the most important consideration in responding to the assessed risks?
a. The timing of the audit procedures.
b. The nature of the audit procedures.
c. The extent of the audit procedures.
d. All of these are equally important.
26. The following are examples of conditions and events that may indicate the existence of
risks of material misstatement, except
a. Operations in regions that are economically stable.
b. Entities or business segments likely to be sold.
c. Pending litigation and contingent liabilities.
d. Application of new accounting pronouncements.
27. Nature of an entity refers to
a. The operational approaches by which management intends to achieve its objectives.
b. The entity’s operations, its ownership and governance, the types of investments that it
is making and plans to make, the way that the entity is structured and how it is financed.
c. The overall plans for the entity.
d. The result of significant conditions, events, circumstances, actions or inactions that
could adversely affect the entity’s ability to achieve its objectives and execute its strategies, or
the setting of inappropriate objectives and strategies.
28. The main purpose of risk assessment procedures is to
a. Obtain an understanding of the entity and its environment, including its internal control,
to assess the risks of material misstatement at the financial statement and assertion levels.
b. All of the above.
c. Detect material misstatements at the assertion level.
d. Test the operating effectiveness of controls in preventing, or detecting and correcting,
material misstatements at the assertion level.
29. Which statement is incorrect regarding significant risks that require special audit
consideration?
a. Significant risks are often derived from business risks that may result in a material
misstatement.
b. The auditor excludes the effect of identified controls related to the risk to determine
whether the nature of the risk, the likely magnitude of the potential misstatement including the
possibility that the risk may give rise to multiple misstatements, and the likelihood of the risk
occurring are such that they require special audit consideration.
c. The auditor should determine which of the risks identified are, in the auditor’s
judgment, risks that require special audit consideration.
d. Routine, non-complex transactions that are subject to systematic processing are more
likely to give rise to significant risks because they have higher inherent risks.
30. The auditor’s understanding of the entity and its environment consists of an
understanding of the following aspects: I. Industry, regulatory, and other external factors,
including the applicable financial reporting framework. II. Nature of the entity, including the
entity’s selection and application of accounting policies. III. Objectives and strategies and the
related business risks that may result in a material misstatement of the financial statements. IV.
Measurement and review of the entity’s financial performance. V. Internal control.
a. I, II, III and V
b. I, II, III and IV
c. I, II and III
d. All of the above
31. The auditor should perform the following risk assessment procedures to obtain an
understanding of the entity and its environment, including its internal control, except:
a. Observation and inspection.
b. Inquiries of the entity’s external legal counsel or of valuation experts that the entity has
used.
c. Inquiries of management and others within the entity.
d. Analytical procedures.
32. Which statement is incorrect regarding analytical procedures?
a. Analytical procedures may be helpful in identifying the existence of unusual
transactions or events, and amounts, ratios, and trends that might indicate matters that have
financial statement and audit implications
b. In performing analytical procedures as risk assessment procedures, the auditor develops
expectations about plausible relationships that are reasonably expected to exist.
c. When such analytical procedures use data aggregated at a high level (which is often the
situation), the results of those analytical procedures provide a clear-cut indication about
whether a material misstatement may exist.
d. When comparison of those expectations with recorded amounts or ratios developed
from recorded amounts yields unusual or unexpected relationships, the auditor considers those
results in identifying risks of material misstatement.
33. Which of the following conditions and events may most likely indicate the existence of
risks of material misstatement?
a. Having personnel with appropriate accounting and financial reporting skills.
b. Accounting measurements that involve simple processes.
c. Constraints on the availability of capital and credit.
d. Significant amount of routine or systematic transactions.
34. The auditor should determine overall responses to address the risks of material
misstatement at the financial statement level. Such responses least likely include
a. Emphasizing to the audit team the need to maintain professional skepticism in gathering
and evaluating audit evidence.
b. Performing substantive procedures at an interim date instead of at period end.
c. Assigning more experienced staff or those with special skills or using experts.
d. Incorporating additional elements of unpredictability in the selection of further audit
procedures to be performed.
35. A potential business risk created by industry developments may most likely include
a. The entity does not have the personnel or expertise to deal with the changes in the
industry.
b. Loss of financing due to the entity’s inability to meet financing requirements.
c. Increased product liability.
d. increased legal exposure
36. Which statement is incorrect regarding the nature of further audit procedures?
a. Certain audit procedures may be more appropriate for some assertions than others.
b. The auditor is required to obtain audit evidence about the accuracy and completeness
of information produced by the entity’s information system when that information is used in
performing audit procedures.
c. The nature of further audit procedures refers to their purpose and their type.
d. The higher the auditor’s assessment of risk, the less reliable and relevant is the audit
evidence sought by the auditor from substantive procedures.
37. Which statement is incorrect regarding the nature, timing and extent of substantive
procedures?
a. The greater the risk of material misstatement, the greater the extent of substantive
procedures.
b. Substantive analytical procedures are generally more applicable to large volumes of
transactions that tend to be predictable over time.
c. Tests of details are ordinarily more appropriate to obtain audit evidence regarding
certain assertions about account balances, including existence and valuation.
d. Substantive procedures cannot be performed at an interim date.
38. The auditor will most likely perform extensive tests for possible understatement of
a. Assets.
b. Capital.
c. Liabilities.
d. Revenues
39. Which statement is incorrect regarding the timing of tests of controls?
a. Audit evidence pertaining only to a point in time may be sufficient for the auditor’s
purpose, for example, when testing controls over the entity’s physical inventory counting at the
period end.
b. If the auditor plans to rely on controls that have not changed since they were last tested,
the auditor should test the operating effectiveness of such controls at least once in every second
audit.
c. When there are a number of controls for which the auditor determines that it is
appropriate to use audit evidence obtained in prior audits, the auditor should test the operating
effectiveness of some controls each audit.
d. If the auditor plans to rely on controls that have changed since they were last tested, the
auditor should test the operating effectiveness of such controls in the current audit.
40. The auditor’s substantive procedures should include the following audit procedures
related to the financial statement closing process: I.Agreeing the financial statements to the
underlying accounting records. II. Examining material journal entries and other adjustments
made during the course of preparing the financial statements
a. II only
b. I only
c. I and II
d. Neither I nor II
41. Which statement is incorrect regarding the extent of tests of controls?
a. The more the auditor relies on the operating effectiveness of controls in the assessment
of risk, the lesser is the extent of the auditor’s tests of controls.
b. If the rate of expected deviation is expected to be too high, the auditor may determine
that tests of controls for a particular assertion may not be effective.
c. The auditor designs tests of controls to obtain sufficient appropriate audit evidence that
the controls operated effectively throughout the period of reliance.
d. Because of the inherent consistency of IT processing, the auditor may not need to
increase the extent of testing of an automated control.
42. Which of the following is not a basic procedure used in an audit?
a. Substantive procedures.
b. Risk assessment procedures.
c. Tests of controls.
d. Tests of direct evidence.
43. In evaluating the reasonableness of an accounting estimate, an auditor most likely
would concentrate on key factors and assumptions that are
a. Consistent with prior periods.
b. Objective and not susceptible to bias.
c. Similar to industry guidelines.
d. Deviations from historical patterns.
44. Which statement is incorrect regarding the timing of further audit procedures?
a. The auditor may perform tests of controls or substantive procedures at an interim date
or at period end.
b. Timing refers to when audit procedures are performed or the period or date to which
the audit evidence applies.
c. If the auditor performs tests of controls or substantive procedures prior to period end,
the auditor considers the additional evidence required for the remaining period.
d. All audit procedures can be performed prior to period end.
45. Which statement is incorrect regarding the nature of tests of controls?
a. Those controls subject to testing by performing inquiry combined with inspection or
reperformance ordinarily provide more assurance than those controls for which the audit
evidence consists solely of inquiry and observation.
b. As the planned level of assurance increases, the auditor seeks more reliable audit
evidence.
c. A material misstatement detected by the auditor’s procedures that was not identified by
the entity ordinarily is indicative of the existence of a material weakness in internal control.
d. The absence of misstatements detected by a substantive procedure provides audit
evidence that controls related to the assertion being tested are effective.
46. Which statement is incorrect regarding evaluation of the sufficiency and
appropriateness of audit evidence obtained?
a. Based on the audit procedures performed and the audit evidence obtained, the auditor
should evaluate whether the assessments of the risks of material misstatement at the assertion
level remain appropriate.
b. In developing an opinion, the auditor considers only the audit evidence which
corroborate the assertions in the financial statements.
c. If the auditor is unable to obtain sufficient appropriate audit evidence, the auditor
should express a qualified opinion or a disclaimer of opinion.
d. As the auditor performs planned audit procedures, the audit evidence obtained may
cause the auditor to modify the nature, timing, or extent of other planned audit procedures.
47. The auditor’s assessment of the identified risks at the assertion level provides a basis
for considering the appropriate audit approach for designing and performing further audit
procedures. Which of the following is incorrect?
a. The auditor may determine that performing only substantive procedures is appropriate
for specific assertions and, therefore, the auditor excludes the effect of controls from the
relevant risk assessment.
b. The auditor designs and performs substantive procedures for each material class of
transactions, account balance, and disclosure only when the auditor uses the substantive
approach.
c. The auditor may determine that only by performing tests of controls may the auditor
achieve an effective response to the assessed risk of material misstatement for a particular
assertion.
d. The auditor needs to be satisfied that performing only substantive procedures for the
relevant assertion would be effective in reducing the risk of material misstatement to an
acceptably low level.
48. Which statement is incorrect regarding tests of controls?
a. Tests of the operating effectiveness of controls are performed only on those controls
that the auditor has determined are suitably designed to prevent, or detect and correct, a material
misstatement in an assertion.
b. Tests of controls are required when an entity conducts its business using IT and no
documentation of transactions is produced or maintained, other than through the IT system.
c. Testing the operating effectiveness of controls is the same as obtaining audit evidence
that controls have been implemented.
d. Tests of controls are required under certain circumstances.
49. Which statement is incorrect regarding the extent of further audit procedures?
a. The auditor ordinarily decreases the extent of audit procedures as the risk of material
misstatement increases.
b. Increasing the extent of an audit procedure is effective only if the audit procedure itself
is relevant to the specific risk
c. Extent includes the quantity of a specific audit procedure to be performed.
d. The extent of an audit procedure is determined by the judgment of the auditor after
considering the materiality, the assessed risk, and the degree of assurance the auditor plans to
obtain.
50. Which statement is incorrect regarding substantive procedures?
a. Substantive procedures are performed in order to detect material misstatements at the
assertion level, and include tests of details of classes of transactions, account balances, and
disclosures and substantive analytical procedures.
b. In order to obtain sufficient appropriate audit evidence, the substantive procedures
related to significant risks are most often designed to obtain audit evidence with high reliability
c. When the auditor has determined that an assessed risk of material misstatement at the
assertion level is a significant risk, the auditor should perform substantive procedures that are
specifically responsive to that risk.
d. The auditor always performs substantive procedures for each class of transactions,
account balance, and disclosure.