1. A successor auditor ordinarily should request to review the predecessor's audit documentation relating to
b. Internal control
2. Which of the following factors most likely would lead a CPA to conclude that a potential audit engagement should be rejected?
a. Internal control activities requiring the segregation of duties are subject to mgmt override
b. It is unlikely that sufficient appropriate evidence is available to support an opinion on the FS
i. B (a post-acceptance)
3. In assessing the objectivity of internal auditors, an independent auditor should?
i. Determine the organization level to which the internal auditors report
4. The work of internal auditors may affect the independent auditor's
a. Procedures performed in obtaining an understanding of internal control
b. Procedures performed in assessing the risk of material misstatement
c. Substantive procedures performed in gathering direct evidence
i. All (the internal auditor's work may affect the nature, timing, and extent of the audit, including procedures the auditor performs when obtaining an understanding of the entity's internal control, when assessing risk, and when performing substantive procedures.)
6. The work of a specialist who has a contractual relationship with the client may be acceptable under certain circumstances
i. the auditor should assess the risk that the specialist's objectivity might be impaired.
ii. If the auditor believes that the relationship might impair the specialist's objectivity, the auditor should perform additional procedures with respect to the specialist's assumptions, methods or findings to determine that the findings are not unreasonable...
7. Which of the following would an auditor most likely use in determining the auditor's preliminary judgment about materiality ?
a. The entity's annualized interim FS
b. The results of the internal control questionnaire
i. A (b is for the preliminary judgment about risk)
8. An internal auditor's work would most likely affect the nature, timing and extent of an independent CPA's auditing procedures when the internal auditor's work relates to assertions about the
a. Existence of contingency
b. Valuation of intangible assets
c. Valuation of related party transactions
d. Existence of fixed assets additions
i. D (a-c are subjective)
9. During an audit an internal auditor may provide direct assistance to an independent CPA in
a. Obtaining an understanding of internal control
b. Performing tests of controls
c. Performing substantive tests
10. In using the work of a specialist, an auditor of a nonissuer may refer to the specialist in the auditor's report,if, as a result of the specialist's findings, the auditor:
a. Becomes aware of conditions causing substantial doubt about the entity's ability to continue as a going concern
b. Discovers significant deficiencies in the design of the entity's internal control that management does not correct...
i. A (not b because the report does not express opinion on internal control)
11. In planning an audit of a new client, an auditor most likely would consider the methods used to process acct information because such methods:
a. Influence the design of internal control
b. Affect the auditor's preliminary judgment about materiality levels
12. The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether the
a. Results are consistent with the conclusions to be presented in the auditor's report
b. Audit has been performed by persons having adequate technical training and proficiency as auditors
i. A (b is not a review )
13. When assessing an internal auditor's competence, a CPA ordinarily obtains info about all of the following, except
a. Quality of audit documentation
b. Educational level and professional experience
c. The audit plan and audit procedures
d. Access to info about related parties
i. D (that has nothing to do with auditor's competence)
14. Before applying principal substantive tests to an entity's accounts receivable at an interim date, an auditor should:
a. Ascertain that AR are immaterial to the FS
b. Assess the difficulty in controlling the incremental audit risk
i. B (assess the incremental risk involved)
15. Which of the following risks may be assessed in qualitative and quantitative terms?
a. Control risk
b. Detection risk
c. Inherent risk
16. When an auditor increases the assessed level of control risk because certain control activities were determined to be ineffective, the auditor most likely would increase the
a. Extent of test of details
b. Extent of test of controls
17. Control risk should be assessed in terms of
a. Financial statements assertions
b. Control environment factors
18. Which statement is true with respect to discussion among engagement personnel regarding the risk of material misstatement due to fraud?
a. It is recommended but not required
b. Audit documentation must include a description of the discussion
19. Which of the following is not an inquiry the auditor should make to identify the risks of material misstatement due to fraud?
a. Whether operating personnel have communicated to mgmt regarding internal control and how it functions to prevent, deter or detect material misstatement due to fraud
b. How management communicates to employees its views on acceptable business practices?
i. A (it should be whether the management has communicated to those charged with governance)
20. Which of the following journal entries would the auditor least likely examine in an effort to address the risk of mgmt override of controls?
a. A journal entry made to record recurring periodic accounting estimates
b. A journal entry made by an individual who does not typically make journal entries
c. A journal entry made to a seldom-used account
21. Which of the following factors most likely would heighten an auditor's concern about the risk of fraudulent financial reporting?
a. Low growth and profitability as compared to other entities in the same industry
b. Large amounts of liquid assets that are easily convertible into cash
c. An overly complex organizational structure involving unusual lines of authority
i. C (not b b/c it would heighten misappropriation of assets)
22. Which of the following circumstances most likely would cause an auditor to consider whether material misstatements exist in an entity's financial statements?
a. Significant deficiencies in internal control previously communicated to management are not corrected
b. Transactions selected for testing are not supported by proper documentation
23. Which of the following procedures would least likely result in the discovery of possible illegal acts?
a. Making inquiries of the client's management
b. Reviewing an internal control questionnaire
i. B (b/s it does not tell the transactions have occurred)
24. Which of the following situations represents a risk factor that relates to misstatements arising from misappropriation of assets?
a. A lack of independent checks
b. An inability to generate cash flow from operations
25. Which of the following relatively small misstatements most likely could have a material effect on an entity's financial statements?
a. An illegal payment to a foreign official that was not recorded
b. A piece of obsolete office equipment that was not retired
c. A petty cash fund disbursement that was not properly authorized
d. An uncollectible account receivable that was not written off
26. When performing a substantive test of a random sample of cash disbursements, an auditor is supplied with a photocopy of vendor invoices supporting the disbursements for one particular vendor rather than the original invoices. The auditor is told that the vendor's original invoices have been misplaced. What should the auditor do in response to this situation?
a. Increase randomly the number of items in the substantive test
b. Reevaluate the risk of fraud, and design alternate tests for the related transactions
27. During the audit of a new client, the auditor determined that mgmt had given illegal bribes to municipal officials during the year under audit. The auditor notified the client's BOD, but the BOD refused to take any actions bc the amount was immaterial to the FS. What should the auditor do?
a. Add an explanatory paragraph emphasizing
b. Withdraw from the engagement
28. Which of the following procedures would an auditor most likely perform in planning a financial statement audit?
a. Inquiring of the client's legal counsel concerning pending litigation
b. Comparing the FS to anticipated results
29. Which of the following factors would most likely be considered an inherent limitation to an entity's internal control
a. The complexity of the info processing system
b. Human judgment in the decision making process
30. Which of the following components of an entity's internal control includes the development of personnel manuals documenting employee promotion and training policies?
a. Control environment
b. Quality control system
i. A ( b is not an internal control)
31. Which of the following statements about internal control is correct?
a. The establishment and maintenance of internal control is an important responsibility of the internal auditor
b. The cost-benefit relationship is a primary criterion that should be considered in designing internal control
i. B... (a is mgmt's responsibility)
32. An auditor uses the knowledge provided by the understanding of internal control and the final assessed risk of material misstatement primarily to determine the nature, timing and extent of the
a. Tests of controls
b. Substantive tests
33. In obtaining an understanding of an entity's internal control, an auditor is required to obtain knowledge about the
a. Operating effectiveness of controls
b. Design of controls
i. B only (a is not for planning stage)
34. Objectives of an entity include
a. Info and communication systems
b. Reliable financial reporting
c. Effective and efficient operating
i. B &C (not a, it should be compliance)
35. Internal control over safeguarding of assets may include controls relating to
a. Financial reporting objectives
b. Operations objectives
c. Compliance objectives
i. A and b only
36. Which of the following factors is most relevant when an auditor considers the client's organizational structure in the context of control risk?
a. Management's attitude toward info processing
b. The suitability of clients lines of reporting
37. Which of the following is an inherent limitation of internal controls??
a. Judgmental sampling
i. B( not a bc sampling is not a judgment)
38. In planning an audit, the auditor's knowledge about the DESIGN of relevant internal controls should be used to:
a. Identify the types of potential misstatements that could occur
b. Document the assessed level of control risk
i. A (not b because tests of controls determine b)
39. Which of the following types of evidence would an auditor most likely examine to determine whether internal controls are operating as designed
a. Gross margin info regarding the client's industry
b. Confirmations of receivables verifying account balances
c. Client records documenting the use of EDP programs
d. Anticipated results documented in budgets or forecasts
40. An advantage of using systems flowcharts to document information about internal control instead of using internal control questionnaires is that system flowcharts:
a. Provide a visual depiction of client's activities
b. Identify internal control weaknesses more prominently
i. A (not b bc it needs understanding)
41. When there are numerous property and equipment transactions during the year, an auditor who plans to assess control risk at a low level usually performs
a. Tests of controls or limited tests of current year property and equipment transactions
b. Analytical procedures for current year property and equipment transactions
42. Tests of controls include procedures
i. inspecting documentation
the objectives of tests of details transactions performed as tests of controls is to
a. Determine whether internal controls have been implemented
b. Evaluate whether internal controls operate effectively
44. Which of the following audit techniques ordinarily would provide an auditor with the least assurance about the operating effectiveness of an internal control activity
a. Preparation of system flowcharts
b. Inquiry of client personnel
45. In an environment that is highly automated, an auditor determines that it is not possible to reduce detection risk solely by substantive tests of transactions. Under these circumstances, the auditor most likely would:
a. Perform tests of controls to support a lower level of assessed control risk
b. Increase the sample size to reduce sampling risk and detection risk
c. Adjust the materiality level and consider the effect on inherent risk
d. Apply analytical procedures and consider the effect on control risk
46. Which of the following factors would least likely affect the extent of the auditor's consideration of the client's internal controls?
a. The amount of time budgeted to complete the engagement
b. How frequently the control is performed
c. The expected deviation rate from the control
d. The extent to which other tests provide evidence about the same assertion
47. Which of the following statements about performing tests of controls to support a lower level of control risk is not ture?
a. Observation by the auditor provides more assurance than inquiry alone
b. Inquiry alone generally will support a conclusion for a lower assessed level of control risk
i. B ( not conclusion)
48. After performing risk assessment procedures, an auditor decided not to perform tests of controls. The auditor most likely decided that
a. The available evidence obtained thru tests of controls would not support an increased level of control risk
b. It would be inefficient to perform tests of controls that would result in a reduction in planned substantive tests
i. B (not a bc it would not support a decreased level of control risk)
49. As part of understanding internal control, an auditor is not required to:
a. Ascertain whether internal controls have been implemented
b. Obtain knowledge about the operating effectivenss of internal control
i. B ( evaluate not obtain knowledge)
50. What is the most likely course of action that an auditor would take after determining that performing substantive tests on inventory will take less time than performing tests of controls
a. Assess control risk at a low level
b. Perform only substantive tests on inventory
c. Perform only tests of controls on inventory
51. An audit client failed to maintain copies of its procedures manuals and organizational flowcharts. What should the auditor do in an audit of FS?
a. Document the auditor's understanding of internal controls
b. Assess control risk at the maximum level
i. A (
52. Which of the following explanations best describes why an auditor may decide to reduce tests of details for a particular audit objective?
a. Analytical procedures have revealed no unusal or unexpected results
b. There were many transactions posted to the account during the period
53. the most likely explanation why the auditor's examination cannot reasonably be expected to bring an illegal acts by the client to the auditor's attention is that
a. illegal acts by clients often relate to operating aspects rather than accounting aspects
b. illegal acts are perpetrated by management override of internal accounting control
i. a (not b -the audit should be designed to identify material misstatements due to illegal acts, even if they are caused by mgmt override of internal controls)