AUDTHEO

MULTIPLE CHOICES

1. According to PSA 400, which of the following is correct regarding internal control system?
a. Internal control system refers to all the policies and procedures adopted by the auditor to assist
in achieving management’s objective.
b. A strong environment, by itself, cannot ensure the effectiveness of the internal control system.
c. In the audit of financial statements, the auditor is not concerned with those policies and
procedures within the accounting and internal control systems that are relevant to the financial
statements.
d. The internal control system is confined to those matters which relate directly to the functions of
the accounting system.

2. The three types of attestation services are:

a. Audits, review, and compilations
b. Audits, compilations, and other attestation services
c. Reviews, compilations, and other attestation services
d. Audits, reviews, and other attestation services

3. The responsibility for the prevention and detection of fraud and error rests with both management
and those charged with governance. Hence:
a. The management should establish a control environment and to implement internal control
policies and procedures designed to ensure, among others, the detection and prevention of fraud.
b. The individuals charged with governance of an entity should ensure the integrity of an entity’s
accounting and financial reporting systems.
c. Both A and B suffices
d. Neither A nor B suffices

4. Which of the following is correct about internal control?

a. Accounting and internal control systems provide management with conclusive evidence that
objectives are reached.
b. One of the inherent limitations of accounting and internal control systems is the possibility that
the procedures may become adequate due to changes in conditions, and compliance with
procedures may deteriorate.
c. Most internal controls tend to be directed at non-routine transactions.
d. Management does consider costs of the accounting and internal control systems.

5. Which of the following is not primary category of attestation report?

a. Compilation report
b. Review report
c. Audit report
d. Special audit report based on a basis of accounting other than generally accepted accounting
principles.

6. An employee recorded the purchase of land amounting to P2 million. At the end of the month, he did
not record the depreciation expense for the said asset. This is a best example of:
a. Error
b. Fraud
c. Non-Compliance
d. None of the choices

7. Corporate directors, management, external auditors, and internal auditors all play important roles in
creating a proper control environment. Top management is primarily responsible for
a. Establishing a proper environment and specifying overall internal control.
 b. Reviewing the reliability and integrity of financial information and the means used to collect and
report such information.
c. Ensuring that external and internal auditors adequately monitor the control environment.
d. Implementing and monitoring controls designed by the board of directors.

8. As used in auditing, which of the following statements best describes "assertions"?

a. Assertions are the representations of management as to the reliability of the information system.
b. Assertions are the auditor's findings to be communicated in the audit report.
c. Assertions are the representations of management as to the fairness of the financial statements.
d. Assertions are found only in the footnotes to the financial statements.

9. Evidence gathering can be found on what particular audit process?

a. Performing substantive tests
b. Understanding of internal controls
c. Issuance of opinion
d. Before issuance of opinion

10. Which of the following is required to be performed in an audit but not in review engagement?
a. Complying with the “Code of Professional Ethics for Certified Public Accountants” promulgated by
the Board of Accountancy.
b. Planning the engagement.
c. Agreeing on the terms of engagement.
d. Studying and evaluating internal control structure.

11. Which of the following best describe the interrelated components of internal control?
a. Organizational structure, management philosophy, and planning.
b. Control environment, risk assessment, control activities, information and communication
systems, and monitoring, organizational structure.
c. Risk assessment, information and communication systems, control environment
d. Legal environment of the firm, management philosophy, and organizational structure.

12. Which of the following statements is false?

a. Obtaining understanding of the client’s business is a continuous and cumulative process.
b. For continuing engagements, the auditor should evaluate new data or information gathered
previously, including information in the prior year’s working papers, and update this information,
if needed.
c. To make effective use of the knowledge about the client’s business and industry, the auditor
should consider how it affects the financial statements and whether the assertions in the financial
statements are consistent with the auditor’s knowledge of the entity.
d. Assessing risks, planning, evaluating evidence, and providing better service to the client will assist
the auditor in understanding the business.
13. Which of the following would not be appropriate to a report on an engagement to apply agreed-upon
procedures to specified financial statement items?
a. Indicate the intended distribution of the report.
b. Provide an opinion on the specified elements, accounts, or items.
c. Enumerate the procedures performed.
d. State that the report relates only to the elements, accounts, or items specified.

14. In an audit of financial statements, an auditor’s primary consideration regarding a control is whether
it
a. Reflects management’s philosophy and operating style.
b. Affects management’s financial statement assertions over corporate social responsibility.
c. Provides adequate safeguards over access to assets.
d. Impacts the assertions over financial statements.
15. The 20-year accountant preparing the financial statements of the company for more than 10 years
estimated a sum-of-years digit in accounting for the company’s depreciation instead of the straight
line method in the year 11. This is a best example of:
a. Error
b. Fraud
c. Non-Compliance
d. None of the choices

16. Engagement letter for a review of financial statements least likely includes
a. The objective of the service being performed.
b. The fact that the engagement cannot be relied upon to disclose errors, illegal acts or other
irregularities, for example, fraud or defalcations that may exist.
c. A statement that an audit is not being performed and that an audit opinion will not be expressed.
d. The fact that because of the test nature and other inherent limitations of an audit, together with
the inherent limitations of any accounting and internal control system, there is an unavoidable
risk that even some material misstatement may remain undiscovered.

17. Effective internal control

a. Eliminates risk and potential loss to the organization.
b. Can be circumvented by management.
c. Is unaffected by changing circumstances and conditions encountered by the organization.
d. Increases the need for management to review exception reports on a day-to-day basis.

18. What is the main difference between the steps of accepting an engagement and audit planning?
a. The gathering of sufficient and appropriate evidence in order to provide a reasonable assurance
b. The level of knowledge obtained during the gathering of the prospective client’s business and
industry.
c. The evaluation of the auditor’s qualification as well as the auditability of the prospective client’s
financial statements
d. The consideration of the entity’s internal control structure taken as a whole

19. Because an external auditor is paid a fee by a client company, he or she

a. Is absolutely independent and may conduct an audit
b. May be sufficiently independent to conduct an audit
c. Is never considered to be independent
d. Must receive approval of the Securities and Exchange Commission before conducting an audit

20. Which of the following is an objective of a review engagement?

a. Expressing a positive opinion that the financial information is presented in conformity with
generally accepted accounting principles.
b. Expressing a limited assurance to users who have agreed as to procedures that will be performed
by the CPA.
c. Reporting whether material modifications should be made to such financial statements to make
them conform with generally accepted accounting principles.
d. Reporting that the financial statements, in all materials respects, fairly present the financial
position and operating results of the client.

21. Which of the following statements about internal control is correct?

a. Properly maintained internal controls cannot assure that collusion among employees cannot
occur.
b. Establishing and maintaining internal control is the internal auditor’s responsibility.
c. Exceptionally strong control allows the auditor to eliminate substantive tests.
d. The cost-benefit relationship should not be considered in designing internal control.

22. Which of the following best describes why an independent auditor reports on financial statements?
 a. Independent auditors are likely to detect fraud
b. Competing interests may exist between management and the users of the statements
c. Misstated account balances are generally corrected by an independent audit.
d. Ineffective internal controls may exist.

23. Integrity of the management is measured when:

a. Making inquiries with the management’s legal counsel
b. Communicating directly with the predecessor auditor
c. Communicating with the current auditor
d. Inquiring about the company’s bank accounts from different banks

24. The ultimate purpose of assessing control risk is to contribute to the auditor’s evaluation of the risk
that
a. Tests of controls may fail to identify controls relevant to assertions.
b. Material misstatements may not exist in the financial statements.
c. Specified controls requiring segregation of duties may be circumvented by collusion.
d. Financial statements may contain material misstatements.
e. Entity policies may be overridden by senior management.

25. The Audit Standard which requires “adequate technical training and proficiency” is normally
interpreted as requiring the auditor to have
a. Formal education in auditing and accounting
b. Adequate practical experience for the work being performed
c. Continuing professional education
d. All of the above

26. Which of the following statements is false?

a. Obtaining understanding of the client’s business is a continuous and cumulative process.
b. For continuing engagements, the auditor should evaluate new data or information gathered
previously, including information in the prior year’s working papers, and update this information,
if needed.
c. To make effective use of the knowledge about the client’s business and industry, the auditor
should consider how it affects the financial statements and whether the assertions in the financial
statements are consistent with the auditor’s knowledge of the entity.
d. Assessing risks, planning, evaluating evidence, and providing better service to the client will assist
the auditor in understanding the business.

27. An auditor who accepts an audit engagement and does not possess the industry expertise of the
business entity, should
a. Engage financial experts familiar with the nature of the business entity.
b. Obtain a knowledge of matters that relate to the nature of the entity's business.
c. Refer a substantial portion of the audit to another CPA who will act as the principal auditor.
d. First inform management that an unqualified opinion cannot be issued.

28. A proper understanding of the client’s internal control is an integral part of the audit planning process.
The results of the understanding
a. Must be reported to the shareholders and the SEC.
b. Bear relationship to the extent of substantive testing to be performed.
c. Are not reported to client management.
d. May be used as the basis for withdrawing from a review engagement.

29. Which of the following tests is false?

a. The stronger the internal control is, the more assurance it provides about the reliability of the
accounting data and the financial statements.
 b. If the results of the test of control proves that the internal control is weak, the auditor will have
to deal for this strength by performing more effective and extensive substantive procedures.
c. If the internal control is functioning effectively, the scope of the auditor’s substantive tests can
be reduced.
d. All of the choices

30. In any case in which the CPA or the CPA’s assistants are not qualified to perform the work, a
professional obligation exists to
a. Acquire the requisite knowledge and skills
b. Suggest someone else who is qualified to perform the work
c. Decline the engagement
d. Any of the above

31. An entity should consider the cost of a control in relationship to the risk. Which of the following
controls best reflects this philosophy for a large peso investment in heavy machine tools?
a. Conducting an annual physical inventory of individual tools.
b. Placing security guards at every entrance 24 hours a day.
c. Imprinting a controlled identification number on each group of tools based on category.
d. Having all dispositions approved by the vice president of sales.

32. The auditor should obtain a sufficient level of knowledge of the entity’s business to, except:
a. Evaluate the reasonableness of the client’s estimates and policies.
b. Identify and understand the events, practices, and transactions that may have a significant effect
on the financial statements.
c. Understand the entity’s objectives and strategies, and the related business risks.
d. Obtain an understanding of the entity’s performance as this may create pressures on the entity
that may either motivate management to take action to improve its performance.

33. The third general standards states that due care is to be exercised in the performance of the
examination. This standard should be interpreted to mean that a CPA who undertakes an
engagement assumes a duty to perform.
a. With reasonable diligence and without fault or error.
b. As a professional who will assume responsibility for losses consequent upon error of judgment.
c. To the satisfaction of the client and third parties who may rely upon it.
d. As a professional possessing the degree of skill commonly possessed by others in the field.

34. Audit evidence concerning segregation of duties ordinarily is best obtained by

a. Performing tests of transactions that corroborate management’s financial statement assertions
b. Observing the employees as they study specific controls.
c. Obtaining a flowchart of activities performed by available personnel.
d. Watching employees side by side perform specific control activities.
e. Developing audit objectives that reduce control risk.

35. The essence of the attest function is to

a. Detect fraud
b. Examine individual transactions so that the auditor can certify as to their validity
c. Determine whether the client’s financial statements are fairly stated
d. Ensure the consistent application of correct accounting procedures

36. Which of the following statements about preliminary assessment of control risks is correct?
a. After obtaining an understanding of the accounting and internal control systems, the auditor
should make a preliminary assessment of control risks, at the assertion level, for material accounts
or transaction classes.
b. The preliminary assessment of control risk can be done only after completing tests of controls.
 c. The preliminary assessment of control risk for a financial assertion is normally low, unless the
auditor is able to identify weaknesses that may indicate ineffectiveness of accounting and internal
control system.
d. The auditor ordinarily assesses control risk at high level for some or all assertions when it is cost
efficient to do tests of controls.

37. The auditor accepts some level of uncertainty in performing the audit function. The auditor’s objective
is not to eliminate the risk but to reduce it at an acceptably low level by applying effective audit
procedures.
a. Concept of audit risk
b. Concept of materiality
c. Concept of gathering sufficient appropriate evidence
d. Concept of reasonable assurance

38. The Framework of PSA applies to

a. Taxation b. Consultancy c. Accounting advice d. Compilation

39. Which of the following statements concerning control risk is correct?

a. When control risk is at the maximum level, an auditor is required to document the basis for that
assessment.
b. Control risk may be assessed sufficiently low to eliminate substantive testing for significant
transaction classes.
c. When assessing control risk, an auditor should consider evidence obtained in prior audits about
the operation of controls.
d. Assessing control risk and obtaining an understanding of an entity’s internal control may not be
performed concurrently.

40. The Audit Risk Model captures:

a. Audit planning, consideration of internal control, and performing substantive tests
b. Audit planning, consideration of internal control, performing substantive tests, and evidence
gathering
c. Audit planning, consideration of internal control, performing substantive tests, and report
issuance
d. Accept/ reject engagement, audit planning, consideration of internal control, performing
substantive tests, and report issuance
41. The auditor’s opinion
a. Enhances the credibility of the financial statements.
b. Is an assurance as to the future viability of the entity.
c. Is an assurance as to the efficiency with which management has conducted the affairs of the
entity, but not effectiveness.
d. Certifies the correctness of the financial statements.

42. Based on a consideration of internal control completed at an interim date, the auditor assessed
control risk at a low level and performed interim substantive tests. The records and procedures would
most likely not be tested again at year-end if
a. Tests of controls were not performed by the internal auditor during the remaining period.
b. Internal control provides a basis for limiting the extent of substantive testing.
c. Rollforward procedures up to year end are sufficient based on the audit program.
d. Inquiries and observations lead the auditor to believe that conditions have changed.

43. The following pertains to the fraud risk factors relating to susceptibility of assets to misappropriation,
except:
a. Lack of ownership identification of property, plant and equipment
b. Grouped high value inventory items
c. Easy convertible computer chips
 d. Large cash on hand processed

44. In “auditing” accounting data, the concern is with

a. Determining whether recorded information properly reflects the economic events that occurred
during the accounting period.
b. Determining if fraud has occurred.
c. Determining if taxable income has been calculated correctly.
d. Analyzing the financial information to be sure that it complies with government requirements.

45. Although substantive tests may support the accuracy of underlying records, these tests frequently
provide no affirmative evidence of segregation of duties because
a. Substantive tests rarely guarantee the accuracy of the records if only a person who performs
incompatible functions.
b. The records may be accurate even though they are maintained by a person who performs
incompatible functions.
c. Substantive tests relate to the entire period under audit, but tests of controls ordinarily are
confined to the period during which the auditor is on the client’s premises.
d. Many computerized procedures leave no audit trail of who performed them, so substantive tests
may necessarily be limited to inquiries and observation of office personnel.

46. The main reason the auditor is required to understand the internal control is for the auditor to:
a. Provide a reasonable assurance on the entity’s financial statements
b. Anticipate the type of potential misstatements that can occur in the financial statements
c. Prepare a complete audit procedure for the conduct of audit proper
d. Obtain an understanding and deeper knowledge about the entity’s business

47. A review of any part of an organization’s procedures and methods for the purpose of evaluating
efficiency and effectiveness is classified as a (n)
a. Audit of financial statements c. Operational audit
b. Compliance audit d. Production audit

48. After obtaining an understanding of internal control and assessing control risk, an auditor decided to
perform additional tests of controls. The auditor most likely concluded that the
a. Additional evidence to support a further reduction in control risk was not cost-beneficial to
obtain.
b. Assessed level of inherent risk exceeded the assessed level of control risk.
c. Internal control was properly designed and justifiably may be relied on.
d. Evidence obtainable through tests of controls would support a decreased assessment of control
risk.

49. Which of the following statements is false?

a. Audit program executes the audit strategy.
b. Audit program serves as a set of instructions to all auditors involved in the audit and as a means
to control and record the proper execution of the work.
c. Audit program sets out in detail the audit procedures to be performed in each segment of the
audit.
d. None of the choices

50. Which of the following types of auditing is performed most commonly by CPAs on a contractual basis?
a. Internal auditing c. Government auditing
b. BIR auditing d. External auditing

51. The objective of tests of details of transactions performed as tests of controls is not to
a. A reduction in the assessment of control risk results in a higher acceptable detection risk for the
audit.
 b. Support a lower control risk assessment to assist the auditor perform an efficient audit.
c. Detect material misstatements in the account balances of the financial statements resulting from
tests.
d. Evaluate whether controls operated effectively during the audit period in question.

52. What is the main difference between the tests of controls and performing substantive tests?
a. Understanding of the internal control structure
b. Detection of material misstatements in the financial statements
c. Obtaining reasonable assurance that the financial statements are presented fairly
d. The reliability of the financial statements

53. Which of the following is responsible for an entity’s financial statements?

a. The entity’s management c. The entity’s audit committee
b. The entity’s internal auditors d. The entity’s board of directors

54. An auditor wishes to perform tests of controls on a client’s cash disbursements procedures. If the
controls leave no audit trail of documentary evidence, the auditor most likely will test the procedures
by
a. Confirmation and observation. c. Analytical procedures and confirmation.
b. Observation and inquiry. d. Inquiry and analytical procedures

55. Since the audit planning is often performed before the year-end, what are the usual activities of the
auditors? Except:
a. Compute for the final estimate of materiality
b. Gathering of the prior year financial and non-financial information
c. Gathering of budgeted financials for the current year
d. None of the choices

56. Generally Accepted Auditing Standards (GAAS) and Philippine Standards on Auditing (PSA) should be
looked upon by practitioners as:
a. Ideals to work towards, but which are not achievable
b. Maximum standards which denote excellent work.
c. Minimum standards of performance which must be achieved on each audit engagement.
d. Benchmark to be used on all audits, reviews, and compilations.

57. Upon performing the analysis of the entity’s financial records, the auditor found out that the official
receipt received from customer totaled to P2 million. However, it was verified in the supplies expense
account that the amount related to the same transaction was missing. The auditor is checking for the:
a. Existence/ completeness assertion – test for understatement
b. Completeness assertion – test for understatement
c. Completeness assertion – test for overstatement
d. Existence/ completeness assertion – test for overstatement

58. Which of the following types of evidence would an auditor most likely examine to determine whether
controls are operating as designed?
a. Confirmations of receivables verifying account balances.
b. Letters of representations corroborating inventory pricing.
c. Attorneys’ responses to the auditor’s inquiries.
d. Client records documenting the use of computer programs.
e. None of these
f. All of these

59. This allows the auditor to design the appropriate audit procedures that will be applied to specific
accounts.
a. Financial Statement Level
 b. Account Balance Level
c. Aggregate Amount Level
d. Audit Risk Level

60. An auditor is least likely to test controls that provide for

a. Classification of revenue and expense transactions by to determine proper GL balances
b. Approval of the purchase and sale of trading securities
c. Segregation of the functions of recording disbursements and reconciling the bank account
d. Comparison of receiving reports and vendors’ invoices with purchase orders
e. None of these are valid tests of controls
f. All of these can be valid tests of controls

61. Which of the following statements is false concerning risk?

a. When control risk declines, it means there is an effective internal control in place.
b. If there is an effective internal control, it means there is a lesser substantive procedure to be
conducted.
c. When the internal control is weak, it means the control risk increases.
d. If there are additional substantive procedures, it means an effective internal control.

62. Which of the following is true of the communication to management of significant deficiencies in
internal control?
a. Communication must be in writing via the management representation letter.
b. Oral communication of material weaknesses, when appropriate, would be documented in the
audit working papers.
c. The communication should indicate that the auditor had extensively examined the accounting
and internal control system of the client.
d. The auditors should indicate in the communication that the examination is primarily designed to
determine whether the accounting and internal control is adequate.
e. None of these.
f. All of these can be proper communication methods.

63. An auditor issued an unqualified opinion on a particular entity doing private businesses. After
identifying subsequent events and prior transactions not included in the samples, it turns out that the
opinion issued should be with qualification due to material issues on investments. It affects the
concept of:
a. Audit risk
b. Auditor non-compliance to PSA
c. Assurance risk
d. Risk on professional judgment

64. Which statement is incorrect regarding audit evidence?

a. Audit evidence is all the information used by the auditor in arriving at the conclusions on which
the audit opinion is based.
b. Audit evidence includes the information contained in the subsidiary accounting records
underlying the financial statements and other information.
c. Audit evidence is cumulative in nature.
d. Auditors are expected to address all information that may exist, if material to the audit.

65. Accounting records least likely include the following, except

a. The records of initial entries and supporting records.
b. The general and subsidiary ledgers related to environmental reporting
c. Work sheets and spreadsheets supporting allocations of opportunity costs.
d. Comparable data about competitors (benchmarking).
66. Which statement is correct regarding the sufficiency and appropriateness of audit evidence?
a. Sufficiency is the measure of the quality of audit evidence.
b. Appropriateness is the measure of the quantity of audit evidence; that is, its relevance and its
reliability in providing support for, or detecting misstatements in, the classes of transactions,
account balances, and disclosures and related assertions.
c. The quantity of audit evidence needed is unaffected by the risk of misstatement (the greater the
risk, the more audit evidence is likely to be required) and also by the quality of such audit evidence
(the higher the quality, the less may be required).
d. Merely obtaining more audit evidence may not compensate for its poor quality.

67. Which of the following statements is incorrect regarding relevance of audit evidence?
a. A given set of audit procedures may provide audit evidence that is relevant to certain assertions,
but not others.
b. The auditor often obtains audit evidence from different sources or of a different nature that is
irrelevant to the same assertion.
c. Obtaining audit evidence relating to a particular assertion is not a substitute for obtaining audit
evidence regarding another assertion.
d. None of the these.
e. All of these.

68. Which of the following generalizations in assessing the reliability of audit evidence is incorrect?
a. Audit evidence is more reliable when it is obtained from independent sources outside the entity.
b. Audit evidence that is generated externally is not affected by the effectiveness of the controls
imposed by the entity.
c. Audit evidence obtained directly by the auditor is less reliable than audit evidence obtained
indirectly or by inference.
d. Audit evidence is more reliable when it exists in documentary form.
e. None of the these.
f. All of these.

69. Which statements is incorrect regarding audit evidence?

a. The auditor should obtain sufficient appropriate audit evidence to be able to draw unreasonable
conclusions on which to base the audit opinion.
b. Accounting records alone do provide sufficient audit evidence.
c. The auditor uses professional judgment and exercises professional skepticism in evaluating the
quantity of audit evidence only, and thus its appropriateness, to support the audit opinion.
d. The matter of difficulty or expense involved is a valid basis for omitting an audit procedure for
which there is no alternative.
e. None of the these.
f. All of these.

70. Assertions about classes of transactions and events for the period under audit least likely include
a. Transactions and events that have been recorded have occurred and pertain to the entity.
b. All transactions and events that should have been recorded have been recorded.
c. Transactions and events have been recorded in the correct accounting period.
d. All of these.
e. None of these.

71. The auditor obtains audit evidence to draw reasonable conclusions on which to base the audit opinion
by performing audit procedures 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 for assets,
liability and equity balances.
b. Test the operating effectiveness of controls in preventing, or detecting and correcting, material
misstatements at the assertion level.
c. Detect material misstatements at the assertion level for assets, liability and equity balances.
 d. All of the above.
e. None of these.

72. The auditor is not always required to perform

a. Analytical procedures as risk assessment procedures.
b. Test of controls after the interim date.
c. Substantive procedures for the existence assertion.
d. Both a and c
e. All of the these.
f. None of these.

73. Which statement is incorrect regarding Inspection as an audit procedure?

a. Inspection consists of examining records or documents if held by an outside custodian.
b. Inspection of tangible assets may provide reliable audit evidence with respect to their existence
and about the entity’s rights and obligations on the assets.
c. Inspection of individual inventory items ordinarily does not accompany the observation of
inventory counting.
d. Some documents when inspected represent direct audit evidence of the completeness of an asset
balance.
e. All of the these.
f. None of these.

74. Which of the following audit procedures is used extensively throughout the audit and often is
complementary to performing other audit procedures?
a. Inspection b. Observation c. Inquiry d. Confirmation

75. Which statement is incorrect regarding Inquiry performed during an audit?

a. Responses to inquiries may provide the auditor with information not previously possessed or with
corroborative review evidence.
b. Responses to inquiries might not provide information that differs significantly from other
information that the auditor has obtained.
c. Responses to inquiries may provide a basis for the auditor to modify or perform additional review
procedures.
d. Inquiry alone is sufficient to test the operating effectiveness of controls.
e. All of the these.
f. None of these.

76. Observation during an audit

a. Consists of looking at a process or procedure being performed by others to complete the review.
b. Consists of seeking information of knowledgeable persons, both financial and non-financial,
throughout the entity or outside the entity.
c. Is the process of obtaining a representation of information or of an existing condition directly
from a third party.
d. Is the auditor’s independent execution of procedures or controls that were originally performed
as part of the entity’s internal control.
e. All of the these.
f. None of these.

77. This consists of checking the mathematical accuracy of documents or records.

a. Reperformance b. Recalculation c. Confirmation d. Inspection

78. Which of the following is a false statement about audit objectives?

a. Audit objectives should be developed in light of management assertions about the financial
statement components for the engagement to review assertions.
 b. Selection of tests to meet review procedures should depend upon the understanding of internal
control.
c. The auditor should resolve some substantial doubt about any of management’s material financial
statement assertions
d. There should be a one-to-one relationship between audit objectives and procedures.
e. All of the these.
f. None of these.

79. Which of the following explains the difference, if any, between audit objectives and audit procedures?
a. Audit procedures establish broad general goals, audit objectives specify the detailed work to be
performed.
b. Audit objectives are tailor-made for each assignment, audit procedures are generic in application.
c. Audit objectives define specific desired accomplishments; audit procedures support
management’s financial statements.
d. Audit procedures and audit objectives are essentially the same.
e. All of the these.
f. None of these.

80. The competence of evidence available to an auditor is least likely to be affected by

a. The relevance of such evidence to the financial statement assertion being investigated.
b. The relationship of the preparer of such evidence to the entity being audited.
c. The timeliness of such audit evidence.
d. The sampling method employed by the auditor to obtain a sample of such evidence.
e. All of the these.
f. None of these.

81. Which of the following procedures would provide the most reliable audit evidence?
a. Inquiries of the client’s internal audit staff held in private.
b. Inspection of prenumbered client purchase orders filed in the vouchers payable department.
c. All of these are less reliable if compared to evidence obtained from a related party.
d. None of these more reliable if compared to evidence obtained directly from a third party.
e. Analytical procedures performed by the auditor on the entity’s trial balance.
f. Inspection of bank statements obtained directly from the client.

82. The least reliable form of documentary evidence are those documents that are
a. Prenumbered and complete confirmation replies
b. Not easily duplicated
c. Externally generated outside the office (i.e. by a branch instead of the home office)
d. Authorized by a responsible official

83. Which of the following presumptions does not relate to the competence of audit evidence?
a. The more effective internal control, the more assurance it provides about the accounting data
and financial statements.
b. Evidence obtained from independent sources outside the entity is more reliable than evidence
secured solely within the entity.
c. The independent auditor’s direct personal knowledge, obtained through observation and
inspection, is more persuasive than information obtained indirectly.
d. All of the these.
e. None of these.

84. Which of the following statements is incorrect?

a. The auditor’s report must state whether the financial statements were prepared with GAAP.
b. The auditor’s report must state whether GAAP was consistently followed from the prior period to
the current period.
c. The auditor’s report must imply whether the client has provided adequate disclosure on the
financial statements and in the accompanying notes.
 d. The auditor’s report must express an opinion on the financial statements taken as a whole, or
explain why there is no opinion provided.

85. Which of the following is not required by the Generally Accepted Auditing Standards that states that
due professional care is to be exercised in the performance of the audit?
a. Observance of the standards of field work and reporting
b. Critical review of the audit work performed at every level of supervision
c. Degree of skill commonly possessed by others in the profession.
d. Responsibility for losses because of errors of judgment