6. A proposed auditor makes specific inquiries of the previous auditor, prior to engagement acceptance, to

C. Gain understanding on the reasons for the change of auditor

A. Have knowledge whether PFRS has been consistently applied

B. Inquire or significant subsequent events with respect to the prior period

7. Communication with a predecessor auditor is initiated by:

B. The audit committee of the board of directors

D. The chair of the board of directors

8. Which of the following should an auditor obtain from the previous auditor prior to accepting an audit engagement?

D. Facts that might bear on the integrity of managements.

A. Analysis of balance sheet accounts.

B. Analysis of income statement accounts.

C. All matters of continuing accounting significance.

9. Before accepting an engagement to audit a new client, a CPA is required to obtain

D. The prospective client’s consent to make inquiries of the previous auditor, if any.

A. An understanding of the prospective client’s industry and business.

B. The prospective client’s signature to the engagement letter.

C. A preliminary understanding of the prospective client’s control environment.

10. Which of the following factors most likely would influence an auditor’s determination of the auditability of an entity’s financial statements?

B. The adequacy of the accounting records.

A. The complexity of the accounting system.

C. The existence of related-party transactions.

D. The operating effectiveness of control procedures.

11. Auditors must not only decide whether to accept new clients; they also should periodically review their list of current clients and remove those clients the firm no longer wants to be associated with. Reasons for discontinuing clients might include the following, except:

C. Evidence indicating a client’s management has integrity.

A. Difficulty in working with client personnel.

B. Inability to negotiate an acceptable increase in the audit fee.

D. Client needs specialized services the current firm is unable or unwilling to provide.

12. Which of the following factors most likely would cause a CPA to not accept a new audit engagement?

D. The prospective client is unwilling to make all financial records available to the CPA.

A. The prospective client has already completed its physical inventory count.

B. The CPA lacks an understanding of the prospective client’s operations and industry.

C. The CPA is unable to review the predecessor auditor’s audit documentation.

13. Which of the following factors most likely would lead a CPA to conclude that a potential audit engagement should be rejected?

C. It is unlikely that sufficient appropriate evidence is available to support an opinion on the financial statements.

A. The details of most recorded transactions are not available after a specified period of time.

B. Internal control activities requiring the segregation of duties are subject to management override.

D. Management has a reputation for consulting with several accounting firms about significant accounting issues.

14. If permission from the client to discuss its affairs with the proposed auditor is denied by the client, the predecessor auditor should:

B. Disclose the fact that the permission to disclosure is denied by the client

C. Disclose adequately to proposed auditor all noncompliance made by the client

D. Seek legal advice before responding to the proposed auditor

15. A firm has obtained information that would have caused it to decline an engagement had the information been available earlier. Actions available to the auditor would include the following, except:

D. Issue a disclaimer of opinion

A. Reporting the information and its implications to the person/s who appointed the CPA

B. Withdraw from the engagement

C. Withdraw from the client relationship

16. Which of the following would an auditor most likely use in determining the auditor’s preliminary judgment about materiality?

B. The entity’s annualized interim financial statements.

A. The anticipated sample size of the planned substantive tests.

D. The contents of the management representation letter.

18. Which of the following statements concerning materiality is not correct?

D. The materiality level for the financial statements as a whole determined in the planning stage of the audit should not be affected by changes in the circumstances of the engagement.

A. When establishing the overall audit strategy, the auditor shall determine materiality for the financial statements as a whole.

B. If, in the specific circumstances of the entity, there is one or more particular classes of transactions, account balances or disclosures for which misstatements of lesser amounts than materiality for the financial statements as a whole could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements, the auditor shall also determine the materiality level or levels to those particular classes of transactions, account balances or disclosures.

C. Determining materiality involves the exercise of professional judgment.

19. Analytical procedures used in planning an audit should focus on

C. Enhancing the auditor’s understanding of the client’s business and identifying areas of potential risk.

A. Reducing the scope of tests of controls and substantive tests.

B. Providing assurance that potential material misstatements will be identified.

D. Assessing the adequacy of the available evidential matter.

20. Which of the following would not be considered an analytical procedure?

B. Projecting an error rate by comparing the results of a statistical sample with the actual population characteristics.

A. Estimating payroll expense by multiplying the number of employees by the average hourly wage rate and the total hours worked.

C. Computing accounts receivable turnover by dividing credit sales by the average net receivables.

D. Developing the expected sales based on the sales trend of the prior five years.

21. Which of the following auditing procedures most likely would assist an auditor in identifying related party transactions?

C. Reviewing confirmations of loans receivable and payable for indications of guarantees.

A. Inspecting correspondence with lawyers for evidence of unreported contingent liabilities.

B. Vouching accounting records for recurring transactions recorded just after the balance sheet date.

D. Performing analytical procedures for indications of possible financial difficulties.

22. Which of the following most likely would indicate the existence of related parties?

D. Borrowing money at an interest rate significantly below the market rate.

A. Writing down obsolete inventory just before year-end.

B. Failing to correct previously identified internal control deficiencies.

C. Depending on a single product for the success of the entity.

23. Which of the following is an incorrect statement concerning the relationship of the internal auditor and the scope of the external audit of an entity’s financial statements?

B. The internal auditors may determine the extent to which audit procedures should be employed by the external auditor.

A. The external auditor is not required to give consideration to the internal audit function beyond obtaining a sufficient understanding to identify and assess the risks of material misstatement of the financial statements and to design and perform further audit procedures.

C. Under certain circumstances, the internal auditors may assist the external auditor in performing substantive tests and tests of controls.

D. The nature, timing, and extent of the external auditor’s substantive tests may be affected by the work of internal auditors.

24. If the results of the auditor’s expert’s work do not provide sufficient appropriate audit evidence or are not consistent with other audit evidence, the auditor should

A. Report the matter to the appropriate regulatory agency of the government.

C. Withdraw from the engagement.

D. Express an unqualified opinion with reference to the work of the expert.

25. Which of the following matters should be considered by the auditor in developing the overall audit strategy?

A. Important characteristics of the entity, its business, its financial performance and its reporting requirements including changes since the date of the prior audit.

B. Conditions requiring special attention, such as the existence of related parties.

C. The setting of materiality levels for audit purposes.

27. Which of the following statements is accurate about “fraud risk factors” considered when conducting an audit?

B. Factors whose presence often has been observed in circumstances when frauds have occurred.

A. Factors whose presence indicates that fraud exists.

C. Factors whose presence will require modification to planned audit procedures.

D. Factors obtained during the audit that led to required communications with the audit committee.

28. Which of the following factors most likely would heighten an auditor’s concern about the risk of fraudulent financial reporting?

D. An overly complex organizational structure involving unusual lines of authority.

A. Large amounts of liquid assets that are easily convertible into cash.

B. Low growth and profitability as compared to other entity’s in the same industry.

C. Financial management’s participation in the initial selection of accounting principles.

32. Which of the following is not one of the essential concepts of internal controls?

D. It can be expected to provide absolute assurance regarding that the achievement of the entity’s objectives.

B. It is implemented by those charged with governance, management, and other personnel in an entity.

C. It is a means or tool used by management to achieve the entity’s objectives.

33. Internal control is not primarily designed to achieve objectives with regard to

A. Reliability of financial reporting

B. Compliance with laws and regulations

C. Effectiveness and efficiency of operations

34. Key concepts that underlie management’s design and implementation of internal control are:

B. Inherent limitation and reasonable assurance.

C. Absolute assurance and costs.

36. Which of the following statements does not properly describe the reason why control risk cannot be reduced to zero?

D. Some accounts and transactions are more susceptible to misstatement (whether due to fraud or error) than other accounts and balances.

A. Management may override controls however effective the controls are implemented at the lower level.

B. The cost of designing and implementing controls should not exceed their benefits.

C. People and personnel subject of the controls are prone to errors and mistakes in judgment.

38. An internal control system that is working effectively

C. Reduces the need for management the review exception reports on a day-to-day basis.

A. Eliminates risk and potential loss of to the entity.

B. Cannot be circumvented by management.

D. Is unaffected by changing circumstances and conditions encountered by the entity.

39. Internal controls can never be considered as absolutely effective because:

A. Their effectiveness is limited by the competency and dependability of employees.

B. Not all organizations have initial audit departments.

C. Controls are designed to prevent and detect only material misstatements.

D. Internal controls prevent separation of duties.

40. A secondary objective of the auditor’s study and evaluation of internal control is that the study and evaluation provide.

A. A basis for constructive suggestions concerning improvements in internal control.

B. A basis for reducing the auditor’s assessed level of control risk below the maximum level.

C. An assurance that the records and documents have been maintained in accordance with existing company policies and procedures.

D. A basis for determination of the resultant extent of the tests to which auditing procedures are to be restricted.

Semi-Final Examination - ASUPRIN Refreshers AY 23-24

Authored by Kriz Abellar

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Semi-Final Examination - ASUPRIN Refreshers AY 23-24

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