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WorksheetsAuditing Theory Evaluation
Total questions: 40
Worksheet time: 20mins
When obtaining an understanding of the entity and its environment, including its internal control, the auditor may identify events or conditions that indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. Such events or conditions are referred to as
Fraud conditions
Fraud risk factors
Fraudulent activities
Fraud environment
When the prior period financial statements are not audited, the incoming auditor should state in the auditor’s report that:
I. The corresponding figures are unaudited;
II. The incoming auditor is not required to perform procedures regarding opening
balances of the current period.
I only
II only
Both I and II
Neither I and II
Which of the following is ordinarily considered a test of internal control procedures?
Send confirmation letters to banks
Count and list cash on hand
Examine signatures on check vouchers
Obtain or prepare reconciliations of bank accounts as of the balance sheet date
When the total fees generated by an assurance client represent a large proportion of a firm’s total fees, the dependence on that client or client group and concern about the possibility of losing the client may create a/an
Self-interest threat
Self-review threat
Intimidation threat
Advocacy Threat
An auditor intends to perform tests of control on a client’s cash disbursements procedures. If the control procedures leave no audit trail of documentary evidence, the auditor most likely will test the procedures by
Inquiry and analytical procedures
Inquiry and observation
Analytical procedures and confirmation
Confirmation and observation
Which of the following tests of controls most likely would help assure an auditor that goods shipped are properly billed?
Scan the sales journal for sequential and unusual entries.
Examine shipping documents for matching sales invoices.
Compare the accounts receivable ledger to daily sales summaries.
Inspect unused sales invoices for consecutive prenumbering.
Which of the following is of least concern to an auditor in assessing the risks of material misstatement?
Signed checks are distributed by the controller to approved payees
Checks are signed by one person.
Cash receipts are not deposited intact daily
Treasurer does not verify the names and addresses of check payees
Analytical procedures performed in the overall review stage of an audit suggest that several accounts have unexpected relationships. The results of these procedures most likely indicate that
The communication with the audit committee should be revised.
Irregularities exist among the relevant account balances.
Additional substantive tests of details are required
Internal control activities are not operating effectively.
Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity’s ability to continue as a going concern?
Cash flows from operating activities are negative.
Stock dividends replace annual cash dividends.
Significant related party transactions are pervasive.
Research and development projects are postponed.
Which of the following most likely would give the most assurance concerning the valuation and allocation assertion of accounts receivable?
Vouching amounts in the subsidiary ledger to details on shipping documents.
Comparing receivable turnover ratios with industry statistics for reasonableness
Inquiring about receivables pledged under loan agreements
Conducting an assessment of the provisions or allowances for doubtful accounts
The preliminary judgment about materiality and the amount of audit evidence accumulated are ________ related.
directly
indirectly
not
inversely
Which of the following is not an auditing procedure that is commonly used in performing tests of controls?
Conducting inquiries
Documenting observations
Evaluating the reasonable of allowances of doubtful accounts
Inspecting supporting documents
Which of the following conditions would not normally cause the auditor to question whether material errors or possible fraud exists?
The general ledger is not integrated with the subsidiary ledger
Differences exist between control accounts and subsidiary records
Transactions are not supported by proper documentation
There are frequent changes of auditors
To determine whether the client's system of internal control operated effectively to minimize errors of failure to invoice a shipment, the auditor would select a sample of transactions from the population represented by the
Customer order file
Bill of lading file
Open invoice file
Sales invoice file
Proper segregation of functional responsibilities in an effective structure of internal controls calls for separation of functions of
Authorization, execution and payment
Authorization, recording and custody
Receiving, custody and recording
Authorization, payment and recording
When the auditor attempts to understand the operation of the accounting system by tracing a few transactions through the accounting system, the auditor is said to be:
Tracing
Vouching
Performing a walkthrough
Testing Controls
An auditor uses the knowledge provided by the understanding of internal control and the final assessed level of control risk primarily to determine the nature, timing and extent of the
Attribute tests
Test of Controls
Sampling Procedure
Substantive Procedures
After conducting a walkthrough, an auditor determines that the design of the internal control is effective to prevent or detect risks of material misstatements. What should the auditor do next?
Perform analytical procedures
Perform test of controls
Perform reduced substantive testing
Increase the sample size
An assertion that transactions are recorded in the proper accounting period is
Existence
Accuracy
Occurrence
Cut-off
Evidence is generally considered appropriate when:
it has been obtained by random selection
there is enough of it to afford a reasonable basis for an opinion on the financial statements
it has the qualities of being relevant, objective and free from known bias
it consists of written statements made by managers of the enterprise under audit
Which of the following is least likely to be an output of an Accounting Information System?
A check
A report
An invoice
A bar code
A Chart of Accounts would be a good example of a:
Transaction file
Master file
Field
Record
Which of the following is a compensating control?
Transaction authorization
Supervision
3-way matching
Independent verification
Three-way matching is performed by comparing these documents:
Purchase requisition, sales order and invoice
Purchase order, receiving report and sales invoice
Purchase order, receiving report and check voucher
Receiving report, sales invoice and check voucher
The management and control of all materials, funds, and related information in the logistics process, from the acquisition of raw materials to the delivery of finished products to the end user is referred to as:
Supply chain management
Management information system
Logistics management
Accounting information system
Audit sampling for test of control is generally appropriate when
Control leaves evidence of performance
Control leaves no evidence of performance
100% of the transactions are tested
Examining specific high value items in the population
If the auditor is concerned that a population may contain exceptions, the determination of a sample size sufficient to include at least one such exception is a characteristic of
Discovery sampling
Random sampling
Systematic sampling
Stratified sampling
Which of the following is not an expert upon whose work an auditor may rely?
Actuary
Internal auditor
Appraiser
Engineer
The sufficiency and appropriateness of evidential matter ultimately is based on
the availability of corroborating data
Philippine Standards on Auditing
Philippine Financial Reporting Standards
auditor judgment
Which of the following is not a medium that can normally be used by an auditor to record information concerning a client's internal control policies and procedures?
Narrative memorandum
Procedures manual
Flowchart
Questionnaire
Which of the following should an auditor obtain from the predecessor auditor prior to accepting an audit engagement?
Analysis of balance short accounts
Analysis of income statements accounts
All matters of continuing accounting significance
Facts that might bear on the integrity of management
An example of a document that the auditor receives from the client, but which was prepared by someone outside the client’s organization, is a:
Secretary's Certificate
Billing Statement supporting Client's Sales
Vendor Invoices
Bank Reconciliation
Which of the following is not correct regarding an auditor’s decision that a lower acceptable audit risk is appropriate?
More evidence is accumulated
Less evidence is accumulated
Special care is required in assigning experienced staff
Review of audit documentation is performed by personnel not assigned to the engagement
Audit sampling for substantive tests is appropriate when
Analytical procedures are used
The auditor wants to eliminate sampling risks
A population contains small number of large value items
Tests of details are performed
The relationship between sample size and the allowable sampling risks is
Direct
Indirect
Inverse
Equivalent to the standard deviation of detection risk multiplied by the product of inherent risk and control risk
In assessing sample risk, alpha risk relates to the
Efficiency of the audit
Effectiveness of the audit
Selection of the sample
Audit quality controls
In assessing sample risk, beta risk relates to the
Efficiency of the audit
Effectiveness of the audit
Selection of the sample
Determination of the audit assertions for testing
The audit engagement letter should generally include a reference to each of the following except
The expectation of receiving a written management representation letter
A request for the client to confirm the terms of engagement
A description of the auditor’s method of sample selection
The risk that material misstatements may remain undiscovered
A procedure designed to test for monetary misstatements directly affecting the validity of the financial statement balances is a
Test of Controls
Substantive Test
Test of 1
Monetary-unit sampling test
An auditor should design the written audit program so that
All material transactions will be selected for substantive testing
Substantive tests prior to the balance sheet date will be minimized
The audit procedures selected will achieve specific audit objectives
Each account balance will be tested under either tests of controls or tests of transactions.
