Auditing Theory Review Course Pre-board

1. The essence of attest function is to

A. Examine individual transactions so that the auditor may certify as to their validity.
B. Determine whether the client’s financial statements are fairly stated.
C. Assure the consistent application of correct accounting procedures.
D. Detect fraud.
2. Which statement is incorrect regarding the auditor’s consideration of laws and regulations in an audit of
financial statements?
A. If the auditor concludes that the non-compliance has a material effect on the financial statements,
and has not been properly reflected in the financial statements, the auditor should express a
qualified or an adverse opinion
B. In order to plan the audit, the auditor should obtain a specific understanding of the legal and
regulatory framework applicable to the entity and the industry and how the entity is complying with
that framework
C. The auditor may withdraw from the engagement when the entity does not take the remedial action
that auditor considers necessary in the circumstances, even when non-compliance is not material
to the financial statements
D. When the auditor becomes aware of the information concerning a possible instance of non-
compliance, the auditor should evaluate the possible effect on the financial statements
3. Operational auditing is primarily oriented toward
A. The accuracy of data reflected in management’s financial records.
B. The verification that a company’s financial statements are fairly presented.
C. Assets protection by existing internal control.
D. Future improvements to accomplish the goals of management.
4. Effective internal control over unclaimed payroll checks that are kept by the Treasury Department would
include Accounting Department procedures that require
A. Accounting for all unclaimed wages in a current liability account
B. Effective cancellation and stop payment orders for the related checks
C. Preparation of a list of unclaimed wages on a periodic basis
D. Periodic accounting for the actual checks representing unclaimed wages
5. Which one of the following procedures would not be appropriate for an auditor in discharging his or her
responsibilities concerning the client’s physical inventories?
A. Carrying-out physical inventory procedures at an interim date
B. Confirmation of goods in the hands of public warehouses
C. Obtaining written representation from the client as to the existence, quality, and peso amount of the
inventory
D. Supervising the taking of the annual physical inventory
6. The Code of Professional Ethics for CPAs states, in part, that a CPA should maintain a high degree of
integrity and objectivity in all his actuations. Objectivity in said Code refers to a CPA ability
A. To be unyielding in all matters dealing with auditing procedures
B. To independently choose between alternate accounting principles and auditing standards
C. To independently distinguish between accounting practices that are acceptable and those that are
not
D. To maintain an impartial attitude on all maters which come under the CPA’s review
7. A CPA shall not disclose confidential information obtained during an audit engagement in which one of the
following situations?
A. In defense of himself when sued by court
B. Under the rule against disclosing confidential information
C. When the security of the state so requires
 D. With the consent of the client
8. Inclusion of which of the following in promotional brochure published by a public accounting firm would be
most likely to result in a violation of the rules of conduct?
A. Educational and professional attainment of partners
B. Reprints of newspaper articles that praise the firm’s expertise
C. Services offered and fees for such services including hourly hour rates and fixed fees
D. Testimonials and endorsements
9. Which of the following is not done by an auditor when obtaining an understanding of an entity's internal
controls?
A. Consider factors that affect the risk of material misstatements
B. Consider the operating effectiveness of the internal controls
C. Design substantive tests
D. Identify the types of potential misstatements that can occur
10. An auditor has concluded that a client's internal controls are well designed and functioning as
expected. Under these circumstances the auditor would most likely
A. Cease to perform further substantive tests
B. Increase the extent of planned analytical procedures
C. Not increase the extent of planned substantive tests
D. Perform all tests of controls to the extent outlined in the audit program
11. Which of the following most likely would heighten the auditor’s concern about the risk of intentional
manipulation of financial statements?
A. Insiders recently purchased additional shares of the entity’s stock
B. Management places substantial emphasis on meeting earnings projections
C. The rate of change in the entity is low
D. Turnover of senior accounting personnel is low
12. A CPA has the duty to
A. Advise a client of errors contained in a previously filed tax return
B. Disclose client fraud to third parties
C. Perform an audit according to GAAP so that fraud will be uncovered
D. Provide a successor CPA in the event death or disability prevents audit completion
13. Statement 1 – Independence is unique to the auditor’s attest function.
Statement 2 – The two aspects of auditor’s independence are independence of mind and independence in
mental attitude.
A. Both statements are true.
B. Both statements are false.
C. Statement 1 is true, statement 2 is false.
D. Statement 1 is false, statement 2 is true.
14. A CPA firm evaluates its personnel advance experience to ascertain whether individuals meeting stated
criteria are assigned degrees of responsibility. This is evidence of the firm’s adherence to which of the
following prescribed standards
A. Accounting and review services
B. Professional ethics
C. Supervision and review
D. Quality control
15. While performing tax services for a new client, the CPA discovered a material error in a previously filed tax
return prepared by another CPA. In such a case, he should
A. Advise the client to file a corrected return regardless of whether or not the error resulted in an
overstatement or understatement of tax
 B. Inform the BIR of the error
C. Prepare an affidavit with respect to the error
D. Recommend compensating for the prior year’s error in the current year’s tax return where such
action will mitigate the client’s cost and inconvenience
16. A violation of the professional ethical standards would most likely occur when a CPA
A. Is also admitted to the Bar represents on letterhead to be both an attorney and a CPA
B. Is controller of a bank and permits the bank to use the controller’s CPA title in the listing of officers in
its publications
C. Is the sole shareholder in a professional accountancy corporation uses the designation and the
company in the firm title
D. Writes a newsletter on financial management permitting a publishing company to solicit
subscriptions by direct mail
17. A company issued bonds for cash during the year under audit. To ascertain that this transaction was
properly recorded, the auditor’s best course of action is to
A. Confirm the results of the issuance with the underwriter or investment banker
B. Trace the cash received from the issuance to the accounting records
C. Request a statement from the bond trustee as to the amount of the bonds issued and outstanding
D. Verify that the net cash received is credited to the Bonds Payable account
18. An audit program for the examination of retained earnings account should include a step that requires
verification of the
A. Approval of the adjustment to the beginning balance as a result of a write-down of account
receivable
B. Authorization for both cash and stock dividends
C. Market value used to charge retained earnings to account for a 2-for-1 stock split
D. Gain or loss from disposition of treasury shares
19. An audit of stockholder’s equity should include
A. Confirming shares outstanding with stockholders
B. Determining that dividend declarations comply with debt agreements
C. Reviewing minutes of board meetings to determine the number of shares outstanding
D. Tracing individual dividend payments to the capital stock records
20. As one of the year-end audit procedures, the auditor instructed the client’s personnel to prepare a standard
bank confirmation request for a bank account that had been closed during the year. After the client’s
treasurer had signed the request, it was mailed by the assistant treasurer. What is the major flaw in this
procedure?
A. Sending the request was meaningless because the account was closed before the year ends.
B. The confirmation request was signed by the treasurer
C. The CPA did not signed the confirmation request before it was mailed
D. The request was mailed by the assistant treasurer
21. In order to efficiently establish the correctness of the Accounts Payable cutoff, an auditor would be most
likely to
A. Compare cutoff reports with purchase orders
B. Compare vendor’s invoices with vendor’s statements
C. Coordinate cutoff tests with physical inventory observation
D. Coordinate mailing of confirmations with cutoff tests
22. Which statement is correct regarding assurance engagements?
A. All engagements performed by professional accountants are assurance engagements
 B. All engagements undertaken by an auditor that is similar to an agreed-upon procedures
engagement does not result in the expression of a conclusion that provides a level of assurance
C. The objective of an assurance engagement is for a professional accountant to evaluate or measure
a subject matter that is the responsibility of another party against identifiable suitable criteria, and
to express a conclusion that provides the intended user with a level of assurance about that subject
matter
D. Whether a particular engagement is an assurance engagement will depend upon whether it
exhibits all the following elements – a three-party relationship, a subject matter, suitable criteria
and conclusion
23. Analytical review procedures are
A. Analytical tests of financial information made by a computer.
B. Substantive tests of financial information made by a study and comparison of relationship among
data.
C. Diagnostic test of financial information, which may not be, classified as evidential matter.
D. Statistical test of financial information designed to identify areas requiring intensive investigation.
24. The auditor’s opinion
A. Certifies the correctness of the financial statements
B. Guarantees the credibility of the financial statements
C. Is an assurance as to the future viability of the entity
D. Is not an assurance as to the efficiency with which management has conducted the affairs of the
entity
25. The following statements relate to RA 9298. Which statement is true?
A. After 3 years, subject to certain conditions, the Board of Accountancy may order the reinstatement
of a CPA whose certificate of registration has been revoked
B. A person shall be considered to be in the professional practice of accounting if, as an officer in
private enterprise, he makes decisions requiring professional accounting knowledge
C. Insanity is not a ground for proceeding against a CPA
D. The PRC has the authority to remove any member of the Board of Accountancy for negligence,
incompetence, or any other just cause
26. Are the following CPAs required to comply with the requirements on continuing professional education?
CPAs in Public CPAs in Commerce CPAs in Education/ CPAs in
Accountancy & Industry Academe Government
A. Yes No Yes No
B. Yes Yes Yes No
C. Yes Yes No No
D. Yes Yes Yes Yes
27. How many CPE credit units must be accumulated by a registered accounting professional within the three-
year period?
A. 15
B. 45
C. 120
D. 90
28. Statement 1 – A CPA in public accounting shall not pay or offer to pay a commission to obtain a client, or
shall he accept or agree to accept a commission for a referral to a client or products or services of others.
Statement 2 – A CPA may practice public accounting, whether as an owner or employee, only in the form of
proprietorship or partnership.
Statement 3 – A partner surviving the death or withdrawal of all of other partners may continue to practice
under the partnership name for 5 years after becoming a sole practitioner.
 A. 1st statement is true, 2nd is false.
B. 1st statement is false, 2nd is true.
C. 1st statement is true, 3rd is false.
D. All statements are true.
29. What provides the highest level of assurance?
A. Audit
B. Agreed-upon procedures
C. Review
D. It depends on the nature of the engagement
30. When hiring a new staff member, what should the firm consider to comply with quality control standards?
A. The person should have a broad range of interests to ensure that they become “well-rounded
employees
B. The person should have adequate qualifications
C. The person should have proven skills in working within a team environment
D. The person should have high morals to ensure that they will comply with all ethical standards
31. An independent audit provides a number of benefits to the company because it
A. Assures the readers of financial statements that all fraud has been detected
B. Confirms the accuracy of management’s financial representations
C. Guarantees that financial information is true and fair
D. Lends credibility to the financial statements
32. What is the meaning of the principle that requires the auditor to be independent?
A. The auditors must be without bias with respect to the client under audit
B. The auditor must adopt a critical attitude during the audit
C. The auditor’s responsibility is to third parties
D. The auditors may have a direct ownership interest in their client’s business if it is not material
33. Which of the following is a prime objective of Auditing Standards?
A. To provide guidance on all procedural matters to be followed during an audit
B. To give assurance to auditors that they are performing the audit appropriately so they will not subject
to litigation
C. To ensure that the auditors are fulfilling their duties required by law
D. To detail mandatory procedures and principles with which the auditors must comply
34. Which of the following best describes why the accounting profession issued a Code of Professional Conduct
and established means for ensuring its observance?
A. A requirement for a profession is the establishment of ethical standards that stress primarily a
responsibility to clients and colleagues
B. A distinguishing mark of a profession is its acceptance of responsibility to the public
C. An essential means of self-protection for a profession is the establishment of ethical standards
D. The government requires that all professions established a code of ethics
35. Which of the following is most likely to be ethically unacceptable?
A. Sending a brochure to all managing directors of the top 50 firms in your local region advertising
your services
B. Earning large commission for recommending life insurance services to a client
C. Receiving a bonus for performing the annual audit of a client within a prescribed time period
D. Holding client’s monies in trust for extended periods of time
36. What does a signed audit report mean with respect to the possibility of fraud within a company?
A. There is reasonable expectation that material irregularities due to fraud have been detected
B. It is unlikely that immaterial irregularities have been detected, however, all material irregularities
should have been detected
 C. An audit is not designed to detect fraud, therefore, an audit report gives no assurance as to
whether fraud did or did not occur during the year
D. All frauds should have been detected
37. In which of the following situations is it least likely that the auditors would have been negligent in failing to
detect a material misstatement of stocks?
A. The auditors relied on a certificate provided by an independent expert
B. The audit program is drawn up by an experienced auditor and was fully signed by the junior staff
member assigned to audit the stocks
C. The senior partner called for further investigation of discrepancies after receiving personal
assurance from the chairman of the company that stocks were properly valued
D. As in previous years, the auditor relied on the investigation of internal audit rather than increase
audit costs by duplicating the audit work
38. In which of the following situations would failure to detect a fraud constitute grounds for claim of negligence?
A. The fraud was perpetrated by a senior management override of internal controls which had been
relied upon in reducing the extent of detailed testing
B. The auditors reported discrepancies to local management but did not investigate further as the
likely impact on the accounts was not material
C. The auditors accepted local management representations as to discrepancies as the potential
impact of the fraud was not material to the accounts as a whole
D. The auditors relied on sample evidence and thus failed to detect the fraudulent transactions
39. As a consequence of his failure to adhere to auditing standards in the course of examination of an audit
client, the auditor did not detect the embezzlement of a material amount of funds by the company’s
controller. To what extent would the auditor be liable to the client for losses attributable to the theft?
A. He would have no liability because of privity of contract is lacking.
B. He would have no liability since the ordinary examination cannot be relied upon to detect
defalcation.
C. He would be liable if it could be proven that he was grossly negligent.
D. He would be liable for losses attributable to his negligence.
40. In which of the following situations might a claim arise under privity of contract?
A. A bank makes a loan to a company on the strength of a report commissioned by the bank
B. A bank makes a loan to a company on the strength of a report commissioned by the company for
that specific purpose
C. The holder of 100% of the shares increases investment in the company on the strength of the
audited accounts
D. The engagement letter calls for the preparation of accounts of a partnership without an audit, but
one of the partner tells the public accountant that another partner is suspected of fiddling expenses
41. Which of the following can be controlled by the auditor?
A. Inherent risk
B. Detection risk
C. Control risk
D. Both detection and control risk
42. Inherent risk would be considered to be high when
A. The company’s profit for the year is the same as last year
B. The chief accountant has been with the company for 15 years
C. The newly appointed finance director was previously the marketing manager
D. The company has decided to set-up an internal audit department.
43. Which of the following statements best describes the audit approach to materiality?
A. Materiality is a matter of professional judgment
B. Materiality is only relevant when planning the audit
C. Materiality relates to the relative size of items within the financial statements
D. Materiality is determine by reference to professional standards
44. Which of the following audit procedures is primarily intended to provide evidence as to completeness?
A. Adding the debtor’s aged trial balance
B. Searching for unmatched goods received with notes
C. Confirming debtor’s balances with customers
D. Reviewing the outstanding check listings
45. In verifying the valuation of work completed, by a construction company, on a long-term building contract,
which source of evidence would you consider as most reliable?
A. An independent architect called in to supply a valuation but who has not otherwise been involved
with the contract
B. An architect employed by the other party to the contract who has been involved throughout n
liaising with the company
C. An architect employed by the company who has direct responsibility for building work on the
contract
D. An independent but unqualified building surveyor
46. Engagement letters are widely used in practice for professional engagements of all types. The primary
purpose of the audit engagement letter is to
A. Remind management that the primary responsibility for the f/s rests with management
B. Satisfy the requirements of the auditor’s liability insurance policy
C. Provide a starting point for the auditor’s preparation of the audit program
D. Provide a written record of the agreement with the client as to the services to be provided
47. In the tour of the client’s operations, the auditor noted two machines were not operating in the client’s
factory. This meant that production was 25% lower than normal. The factory manager informed the auditor
that this was because the machines were being serviced. However, the auditor saw no evidence of this.
How would this affect the audit plan?
A. It would have no effect. The factory manager’s explanation should be accepted
B. It would increase the amount of the audit work on plant and machinery
C. It would be necessary to perform a more thorough review of sales for the year and the sales
forecasts
D. It would be necessary to perform more work to check for obsolescence
48. The auditor’s permanent working paper file should not normally include
A. Copies of the memorandum of association
B. Extracts from the client’s bank statements
C. Details of mortgages
D. Past year’s financial statements
49. The primary objective of obtaining an understanding of the information system is to provide the auditor with
A. Audit evidence to use in forming an overall opinion on the company
B. Enough understanding to design procedures to gather sufficient audit evidence
C. Enough evidence to express an audit opinion
D. Enough understanding to express an opinion on the adequacy of the entity’s internal controls
50. Which of the following would not be relevant in obtaining an understanding of the control environment?
A. The existence of an internal audit department
B. A need to demonstrate compliance with the requirements of a regulatory agency
C. The existence of a sound budgetary control system
D. Adoption of accounting policies in conformity with accounting standards
51. In a study of the system of internal control, the completion of a questionnaire is most closely associated with
which of the following?
A. Separation of duties.
B. Review of the system.
C. Flowchart accuracy.
D. Tests of compliance.
52. Where the preliminary assessment of control risk is low for any particular audit objective
 A. The auditor must perform tests of controls in order to confirm that controls are operating effectively
B. The auditor may proceed directly to performing a reduced level of substantive testing
C. The auditor may consider performing tests of controls to confirm the preliminary assessment if it
would result in a reduction of the extent of the audit effort
D. The auditor may reduce the extent of tests of controls otherwise necessary in confirming the
assessment of control risk
53. The maximum reliance an auditor may place on control procedures in reducing the extent of substantive
procedures is determined by
A. The results of tests of controls over operating effectiveness
B. Their design effectiveness in providing assurance the errors will be prevented or detected on a
timely basis
C. Their design effectiveness subject to sufficient evidence from tests of controls that are operating
effectively
D. The reduction in audit effort that could be achieved through reliance on controls
54. What would most effectively describe the risk of incorrect rejection 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 has rejected an item for his or her sample and later found the item was materially
incorrect
C. The auditor concludes that the balance is materially misstated when in actual fact it is not
D. The auditor decides to perform a predominantly compliance-based audit due to an evaluation that
the controls were effective within the company. Midway through the audit, the auditor realizes the
controls are not good, and decides to expand substantive testing
55. The auditor is more likely to use analytical review as a substantive test when
A. Planned detection risk is high
B. Inherent risk is assessed as high
C. Control risk is assessed as low
D. Planned audit risk is high
56. Statement 1 – In an entity with few, but large accounts receivable, the accounts individually are more
important and the possibility of material errors is greater than in another entity that has greater number of
small accounts aggregating the same total.
Statement 2 – In industrial and merchandising enterprises, inventories are usually of great importance to
both financial position and results of operations and accordingly may require relatively more attention by an
auditor than would inventories of a public utility company.
A. Both statements are true.
B. Both statements are false.
C. Statement 1 is true, statement 2 is false.
D. Statement 1 is false, statement 2 is true.
57. Which of the following controls would most likely ensure that all deliveries are invoiced?
A. The invoicing department supervisor matches pre-numbered shipping documents with entries in
the sales journal
B. The accounting department supervisor controls the mailing of monthly statements to customers,
and investigates any differences reported by customers
C. Customers are required to acknowledge receipt of the goods by signing a copy of the delivery note
D. All orders are required to be approved by the credit controller before the goods are delivered
58. For which of the following reasons causes inherent risk over the occurrence of sales transactions be
assessed as high?
A. There is large volume of such transactions during the year
B. Sales department staff earn a bonus if hey achieve annual sales targets
C. Cash from sales transactions is easily misappropriated
D. There are poor controls over the year-end cut-off sales transactions
59. Which of the following would give the most assurance concerning the existence of debtors?
A. Tracing amounts in the subsidiary ledger to details on shipping documents
B. Comparing debtor’s turnover ratios with industry statistics for reasonableness
C. Sending a debtor’s confirmation letter
D. Ensuring the sales subsidiary ledger has been correctly added
60. On receipt of supplier’s invoices the purchase clerk should
A. Prepare a check in payment of an invoice
B. Match the invoice with goods received note and purchase order
C. Send it to the purchasing officer for approval
D. Ignore it as payments are based on statement amount
61. The principal reason for the auditor to examine supplier’s statements at balance sheet date is to obtain
evidence that
A. The supplier exists
B. Recorded purchases actually occurred
C. There are no unrecorded liabilities
D. Payment transactions were properly made
62. Which of the following procedures would not be appropriate for an auditor in discharging his or her
responsibilities concerning the existence of the entity’s stocks?
A. Obtaining written representation from the entity as to the existence, quality and value of the stocks
B. Carrying-out stock-taking procedures at an interim date
C. Supervising the annual stock-take
D. Confirming the goods in the hands of public warehouses
63. What audit procedures would be most likely detect the incorrect capitalization of an expense to fixed
assets?
A. Checking a sample of repairs and maintenance expenses to supporting documents
B. Selecting a sample of additions to fixed assets, and ensuring that they have adequate supporting
documentation
C. Discussing the capitalization policy with the manager
D. Selecting a sample of large assets, and sighting them
64. When counting cash on hand, the auditor should
A. Obtain a receipt from the custodian as to its return
B. Have two audit staff present to minimize the risk of its being stolen
C. Note the details of cash and checks and other items making up the balance
D. Perform the count on the same date as the receivables’ confirmation to ensure a reliable cut-off
65. Which of the following is least likely to require special attention when auditing consolidated financial
statements?
A. Subsidiaries audited by other auditors
B. Fair values of assets of subsidiaries acquired during the year
C. 100% owned subsidiaries
D. Subsidiaries located and operating in foreign countries
66. In the auditor’s completion of the audit, which of the following is not a subsequent event procedure?
A. Read available minutes of meetings of directors
B. Make inquiries with respect to the preciously audited f/s to establish whether information has
become available that might affect that report
C. Read available interim financial statements
D. Discuss with officers the current status of items in the f/s that were accounted for on the basis of
inconclusive data
67. Which of the following is ordinarily included among the written management representations obtained by the
auditors?
A. Sufficient audit evidence has been made available to permit the issue of an unqualified opinion
B. All books of accounts supporting documentation have been made available
 C. Management acknowledges that there are no material weaknesses in internal control
D. Management acknowledges responsibility for illegal actions committed by employees
68. The Statement of Auditing Standards promulgated was issued by the
A. Financial Reporting Standard Council
B. Board of Accountancy
C. Auditing Standard & Practice Council
D. Professional Regulation Commission
69. Statement 1 – The objective of the ordinary examination of financial statements by the auditor is the
expression of an opinion on the fairness of such financial statements.
Statement 2 - The auditor’s report is the medium through which the auditor expresses his opinion, or if
circumstances require, disclaims an opinion.
A. Both statements are true.
B. Both statements are false.
C. Statement 1 is true, statement 2 is false.
D. Statement 1 is false, statement 2 is true.
70. An auditor faces a risk that the examination will not detect material errors that occur in the accounting
process. To minimize this risk, the auditor primarily relies on
A. Compliance tests
B. Internal control
C. Statistical analysis
D. Substantive test
71. Auditors who prefer statistical sampling to non-statistical sampling may do so because statistical sampling
helps the auditor
A. Measure the sufficiency of the evidential matter obtained.
B. Eliminate subjectivity in the evaluation of sampling results.
C. Reduce the level of tolerable error to a relatively low amount.
D. Minimize the failure to detect a material misstatement due to non-sampling risk.
72. In order to quantify the risk that sample evidence leads to erroneous conclusions about the sampled
population
A. Each item in the sampled population must have an equal chance of being selected.
B. Each item in the sampled population must have a chance of being selected proportional to its book
value
C. Each item in the sampled population must have an equal or known probability of being
selected.
D. The precise number of items in the population must be known.
73. Which of the following statements is not true regarding audit risk assessment?
A. The auditor studies the business and industry and applies analytical procedures as a basis for
assessing inherent risk.
B. When control risk and inherent risk are high, the auditor increases detection risk to maintain
overall audit risk at the desired level.
C. The auditor studies and evaluates internal control policies and procedures for assessing control
risk.
D. The auditor designs substantive audit procedures to reduce detection risk to an acceptable level.
74. An advantage of statistical over non-statistical sampling is that statistical sampling:
A. Enables auditors to objectively measure the reliability of their sample results.
B. Permits use of a smaller sample size than would be necessary with non-statistical sampling.
C. Is compatible with a wider variety of sample selection methods than is non-statistical sampling.
D. Allows auditors to inject their subjective judgment in determining sample size and selection
process in order to audit items of greatest value and highest risk.
75. In examining cash disbursements, an auditor plans to choose a sample using systematic selection with a
random start. The primary advantage of such a systematic selection is that population items
 A. Which include errors will not be overlooked when the auditor exercises compatible reciprocal
options.
B. May occur in a systematic pattern, thus making the sample more representative.
C. May occur more than once in a sample.
D. Do not have to be prenumbered in order for the auditor to use the technique.
76. Which of the following statements concerning sample size is true?
A. An increase in the tolerable occurrence rate, other factors remaining unchanged, increases sample
size.
B. The higher the expected occurrence rate, other factors remaining unchanged, the larger will
be the sample size.
C. The more critical the attribute being tested, the higher will be the tolerable occurrence rate set by
the auditor, and the larger will be the sample size.
D. The lower the acceptable risk of underassessment of control risk, the smaller will be the sample
size.
77. As a result of tests of controls, an auditor underassessed control risk and decreased substantive testing.
This underassessment occurred because the true occurrence rate in the population was
A. Less than the risk of underassessment in the auditor's sample
B. Less than the occurrence rate in the auditor's sample.
C. More than the risk of underassessment in the auditor's sample
D. More than the occurrence rate in the auditor's sample
78. Which of the following statements concerning the independent auditor's required communication of material
weaknesses in internal control is correct?
A. Weaknesses reported at interim dates must be repeated in the final communication.
B. If the auditor does not become aware of any material weaknesses during the examination, that fact
must be communicated
C. Weaknesses that had been reported in prior years' communications and have not been corrected
need not be repeated in the current year's communication.
D. Although written communication is preferable, the auditor may communicate the findings
orally.
79. Which of the following would be the best procedure to determine whether purchases were properly
authorized?
A. Discuss authorization procedures with personnel in the controller's and purchasing functions.
B. Review and evaluate a flowchart of purchasing procedures.
C. Determine whether a sample of entries in the purchase journal is supported by properly
executed purchase orders.
D. Vouch payments for selected purchases to supporting receiving reports.
80. If the independent auditor decides that the work performed by internal auditors may have a bearing on the
independent auditor's own procedures, the independent auditor should consider the objectivity of the
internal auditors. One method of judging objectivity is to
A. Review the recommendations made in the reports of the internal auditor.
B. Examine, on a test basis, documentary evidence of the work performed by internal auditors.
C. Inquire of management about the qualifications of the internal audit staff.
D. Consider the client's practices for hiring, training, and supervising the internal audit staff.