CPA Examinations

Winter-2014
December 15, 2014
Monday 3:00pm to 4:00pm

Student Name: Specialization

Registration Number:
Exam Center: Course Code
SP-602

Advanced Auditing and Assurance

Notes:
Time allowed 1. Attempt all questions. All questions carry
1 hour equal marks. .

2. Highlight the correct answer. Do not

reproduce the questions.

3. Return the exam paper on time, late

submission would not be accepted.
1. The main object of an audit is
a) Expression of opinion
b) Detection and Prevention of fraud and error
c) Both (a) and (b)
d) Depends on the type of audit

2. Which of the following is not true about opinion on financial statements?

a) The auditor should express an opinion on financial statements?
b) His opinion is no guarantee to future viability of business
c) He is responsible for detection and prevention of frauds and errors in
financial statements
d) He should examine whether recognized accounting principle have been
consistently.

3. A sale of 50.000 to A was entered as a sale to B. This is an example of

a) Error of omission
b) Error of commission
c) Compensating error
d) Error of principle

4. Goods sent an approval basis have been recorded as ‘Credit sales’. This is an
example of
a) Error of principle
b) Error of commission
c) Error of omission
d) Error of duplication

5. Which of the following statements is not true?

a) Management fraud is more difficult to detect than employee fraud
b) Internal control system reduces the possibility of occurrence of employee
fraud and management fraud
c) The auditor’s responsibility for detection and prevention of errors and frauds is
similar.
d) All statements are correct.

6. Both auditing and accounting are concerned with financial statements. Which of the
following
a) Auditing uses the theory of evidence to verify the financial information made
available by Accountancy.
b) Auditing lends credibility dimension and quality dimension to the financial
statements prepared by the accountant.
c) Auditor should have through knowledge of accounting concepts and convention
to enable him to express an opinion on financial statements
d) All of the above.
7. The risk of management fraud increase in the presence of:
a) Frequent changes in supplies
b) Improved internal control system
c) Substantial increases in sales
d) Management incentive system based on sales done in a quarter.

8. Auditing standards differ from audit procedures in that procedures relate to

a) Audit assumptions
b) Acts to be performed
c) Quality criterion
d) Methods of work

9. Which of the following factors likely to be identified as a fraud factor by the

auditor?
a) The company is planning an initial public offer of quality shares to raise
additional capital for expansion.
b) Bank reconciliation statement includes deposits-in-transit.
c) Plant and machinery is sold at a loss.
d) The company has made political contributions.

10. The most difficult type of misstatement to detect fraud is based on:
a) Related party purchases
b) Related party sales
c) The restatement of sales
d) Omission of a sales transaction from being recorded.

11. Which of the following is the most appropriate potential reaction of the auditor to
his assessment that the risk of material misstatement due to fraud is high in relation
to existence of inventory?
a) Visit location on surprise basis to observe test counts
b) Request inventory count at a date close to year-end
c) Vouch goods sent on approval very carefully
d) Perform analytical procedures.

12. Which of the following is not likely to be a fraud risk factor relating to
management’s characteristics.
a) Tax evasion
b) Failure to correct known weakness in internal control system
c) Adoption of conservative accounting principles
d) High management turnover

13. Professional skepticism requires that the auditor assume that management is
a) Reasonably honest
b) Neither honest nor dishonest
c) Not necessarily honest
d) Dishonest unless proved otherwise
14. Which of the following information should a successor auditor obtain during the
inquiry of the predecessor auditor before accepting engagement?
i. Information about integrity of management?
ii. Disagreement with management concerning auditing procedures
iii. Review of internal control system.
iv. Organization structure
a) (i) and (ii)
b) (ii) and (iii)
c) (i), (ii) and (iii)
d) (i) and (iii)

15. The audit engagement letter, generally, should include a reference to each of the
following except.
a) Limitations of auditing
b) Responsibilities of management with respect to audit work
c) Expectation of receiving a written management representation letter
d) A description of the auditor’s method of sample selection.

16. The use of an audit engagement letter is the best method of assuring the auditor will
have which of the following?
a) Auditor will obtain sufficient appropriate audit evidence
b) Management representation letter
c) Access to all books, accounts and vouchers required for audit purpose
d) Cooperation from other auditors

17. An auditor who accepts an audit but does not possess the industry expertise of the
business entity should
a) Engage experts
b) Obtain knowledge of matters that relate to the nature of entity’s business
c) Inform management about it
d) Take help of other auditors

18. The least important element in the evaluation of an audit firm’s system of quality
control would relate to
a) Assignment of audit assistants
b) System of determining audit fees
c) Consultation with experts
d) Confidentiality of client’s information

19. The primary purpose of establishing quality control policies and procedures for
deciding on client evaluation is to
a) Ensure adherence to generally accepted auditing standards
b) Acceptance of retention of clients whose management does not lack integrity
c) Ensure audit fees is charged according to the type of audit work assigned
d) All of the above
20. Which of the following is not a quality control consideration on accepting a new
client?
a) Availability of audit assistants with necessary skill and competence.
b) Provision of other services to the client which may impair independence
c) Predecessor auditor’s advice as to whether audit fees were paid promptly
d) Review of audit work done by one partner by the other.

21. An auditor obtains knowledge about a new client’s business and its industry to
a) Make constructive suggestions concerning improvements to client’s internal
control system.
b) Evaluate the appropriateness of audit evidence obtained
c) Understand the events and transactions that may have an effect on client’s
financial statements.
d) All of the above.

22. Audit of banks is an example of

a) Statutory audit
b) Balance sheet audit
c) Concurrent audit
d) Both (a) and (b)
e) All of the above

23. Concurrent audit is a part of

a) Internal check system
b) Continuous audit
c) Internal audit system
d) None

24. Audit is depth is synonymous for

a) Complete audit
b) Completed audit
c) Final audit
d) Detailed audit

25. Balance sheet audit includes verification of

a) Assets
b) Liabilities
c) Income and expense accounts where appropriate
d) All of the above

26. Which of the following statements is not true about continuous audit?
a) It is conducted at regular interval
b) It may be carried out on daily basis
c) It is needed when the organization has a good internal control system
d) It is expensive
27. Balance sheet does not include
a) Verification of assets and liabilities
b) Vouching of income and expense accounts related to assets and liabilities
c) Examination of adjusting and closing entries
d) Routine checks

28. Which of the following statements is not correct about materiality?

a) Materiality is a relative concept
b) Materiality judgments involve both quantitative and qualitative judgments
c) Auditor’s consideration of materiality is influenced by the auditor’s perception of
the needs of an informed decision maker who will rely on the financial statements
d) At the planning state, the auditor considers materiality at the financial
statement level only.

29. When issuing unqualified opinion, the auditor who evaluates the audit findings
should be satisfied that the
a) Amount of known misstatement is documented in working papers
b) Estimates of the total likely misstatement is less than materiality level
c) Estimate of the total likely misstatement is more than materially level
d) Estimates of the total likely misstatement cannot be made

30. Analytical procedures issued in the planning stage of an audit, generally

a) Helps to determine the nature, timing and extent of other audit procedures
b) Directs attention to potential risk areas
c) Indicates important aspects of business
d) All of the above

31. Which of the following statements is most closely associated with analytical
procedure applied at substantive stage?
a) It helps to study relationship among balance sheet accounts
b) It helps to discover material misstatements in the financial statements
c) It helps to identify possible oversights
d) It helps to accumulate evidence supporting the validity of a specific amount
balance.

32. Which are analytical procedures?

a) Substantive tests designed to assess control risk
b) Substantive tests designed to evaluate the validity of management’s representation
letter
c) Substantive tests designed to study relationships between financial and non-
financial
d) All of the above

33. Of the following, which is the least persuasive type of audit evidence?
a) Bank statements obtained from the client
b) Documents obtained by auditor from third parties directly.
 c) Carbon copies of sales invoices inspected by the auditor
d) Computations made by the auditor.

34. Which of the following statements is, generally, correct about the reliability of audit
evidence?
a) To be reliable, evidence should conclusive rather than persuasive
b) Effective internal control system provides reliable audit evidence
c) Evidence obtained from outside sources routed through the client
d) All are correct

35. In an audit of financial statements, substantive tests are audit procedures that
a) May be eliminated for an account balance under certain conditions
b) Are designed to discover significant subsequent events
c) Will increase proportionately when the auditor decreases the assessed level of
control risk
d) May be test of transactions, test of balance and analytical procedures

36. The nature, timing and extent of substantive procedures is related to assessed level
of control risk
a) Randomly
b) Disproportionately
c) Directly
d) Inversely

37. Which of the following factors is most important in determining the appropriations
of audit evidence?
a) The reliability of audit evidence and its relevance in meeting the audit
objective
b) The objectivity and integrity of the auditor
c) The quantity of audit evidence
d) The independence of the source of evidence

38. When is evidential matter, generally, considered sufficient?

a) When it constitutes entire population
b) When it is enough to provide a basis for giving reasonable assurance
regarding truthfulness
c) When it is objective and relevant
d) When auditor collects and evaluates it independently

39. Which of the following is not a corroborative evidence?

a) Minutes of meetings
b) Confirmations from debtors
c) Information gathered by auditor though observation
d) Worksheet supporting consolidated financial statements
40. What would most appropriately describe the risk of incorrect rejection in terms of
substantive testing?
a) The auditor concludes balance is materially correct when in actual fact it is not
b) The auditor concludes that the balance is materially misstated when in actual
fact it not
c) The auditor has rejected an item for sample which was material
d) None of the above

41. Which of the following affects audit effectiveness?

a) Risk of over reliance
b) Risk of incorrect rejection
c) Risk of incorrect acceptance
d) Both (a) and (c)

42. What would most effectively describe the risk of incorrect acceptance in terms of
substantive audit testing?
a) The auditor has ascertained that the balance is materially correct when in
actual fact it is not
b) The auditor concludes the balance is materially misstated when in actual fact is
not
c) The auditor has rejected an item from sample which was not supported by
documentary evidence
d) He applies random sampling on data which is inaccurate and inconsistent

43. Audit programme is prepared by

a) The auditor
b) The client
c) The audit assistants
d) The auditor and his audit assistants\

44. The working papers which auditor prepares for financial statements audit are
a) Evidence for audit conclusions
b) Owned by the client
c) Owned by the auditor
d) Retained in auditor’s office until a change in auditor

45. The quantity of audit working papers complied on engagement would most by
affected by
a) Management’s integrity
b) Auditor’s experience and professional judgment
c) To gather sufficient appropriate evidence
d) To assess audit risk

46. Which of the following is not an advantage of the preparation of working paper?
a) To provide a basis for review of audit work
b) To provide a basis for subsequent audits
 c) To ensure audit work is being carried out as per programme
d) To provide a guide for advising another client on similar issues

47. Which of the following best describes the primary purpose of audit programme
preparation?
a) To detect errors or fraud
b) To comply with GAAP
c) To gather sufficient appropriate evidence
d) To assess audit risk

48. The auditor’s permanent working paper file should not normally, include
a) Extracts from client’s bank statements
b) Past year’s financial statements
c) Attorney’s letters
d) Debt agreements

49. For what minimum period should audit working papers be retained by audit firm?
a) For the time period the entity remains a client of the audit firm.
b) For a period of ten years
c) For a period auditor opines them to be useful in servicing the client
d) For the period the audit firm is in existence.

50. Which of the following factors would least likely affect the quantity and content of
an auditor’s working papers
a) The assessed level of control risk
b) The possibility of peer review
c) The nature of auditor’s report
d) The content of management representation letter