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系所:會計學系   科目:審計學
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Part I: Multiple Choices (40%)

1. In which of the following instances would the independence of the CPA not be considered to be impaired?
The CPA has been retained as the auditor of a
a. charitable organization in which an employee of CPA serves as treasurer.
b. municipality in which the CPA owns $250,000 of the $2,500,000 indebtedness of the municipality.
c. cooperative apartment house in which the CPA owns an apartment and is not part of the management.
d. company in which the CPA’s investment club owns a one-tenth interest.

2. As audit evidence, physical examination and confirmation, may only be obtained using which of the
following types of tests?
a. Tests of controls.
b. Tests of details.
c. Analytical procedures.
d. Tests of transactions.

3. A basic objective of a CPA firm is to provide professional services to conform to professional standards.
Reasonable assurance of achieving this basic objective is provided through
a. continuing professional education.
b. compliance with generally accepted reporting standards.
c. a system of quality control.
d. a system of peer review.

4. Which of the following statements is not true?

a. A large sample of highly competent evidence is not persuasive unless it is relevant to the objective being tested.
b. A large sample of evidence that is neither competent nor timely is not persuasive.
c. A small sample of only one or two pieces of relevant, competent, and timely evidence lacks
d. The persuasiveness of evidence can be evaluated after considering its competence and its sufficiency.

5. In “auditing ” financial accounting data, the primary 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.


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d. analyzing the financial information to be sure that it complies with government requirements.

6. The test of details of balance procedure which requires the auditor to account for unused inventory tag
numbers to make sure none have been deleted is associated with the audit objective of
a. accuracy.
b. existence.
c. completeness.
d. detail tie-in.


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7. Which one of the following is not an auditor’s concern about a key authorization point in the sales/collection
a. The receiving room must have authorization before releasing items to inventory control.
b. Credit must be authorized before the sale.
c. Goods must be shipped after the authorization.
d. Prices must be authorized.

8. In what order should the following steps occur?

A.Assess client business risk
B. Understand the client’s business and industry
C. Perform preliminary analytical procedures
D.Assess risk of material misstatements
a. D, B, C, A.
b. B, A, D, C.
c. B, D, A, C.
d. D, C, B, A.

9. An independent auditor studies and evaluates a client’s IT system. The auditor’s study includes two phases:
(1) a review of the system and (2) tests of controls. The latter phases might include which of the following?
a. Examination of systems flowcharts to determine whether they reflect the current status of the system.
b. Examination of organization charts to determine whether IT department responsibilities are properly
separated to afford effective control.
c. Examination of the systems manuals to determine whether existing procedures are satisfactory.
d. Examination of the machine room log book to determine whether control information is properly

10. Which of the following discoveries by the auditor would not raise the red flag of increased inherent risk?
a. Management bonuses are based on a percentage of net income.
b. A bond indenture requires a current ratio of at least 3:1.
c. Client makes extensive use of notes receivable and notes payable rather than buying and selling on open
d. Client is a parent company with a subsidiary.

11. Which of the following most likely would be detected by an auditor’s review of a client’s sales cutoff?


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a. Excessive sales discounts.

b. Unrecorded sales for the year.
c. Unauthorized goods returned for credit.
d. Lapping of year-end accounts receivable.


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12.Understanding components of internal control and assessing the level of control risk are primarily used by
the auditor to
a. determine whether procedures and records concerning the safeguarding of assets are reliable.
b. ascertain whether the opportunities to allow any person to both perpetrate and conceal irregularities are
c. modify the initial assessments of inhere risk and preliminary judgments about materiality levels.
d. determine the nature, timing, and extent of substantive tests for financial statement assertions.

13.Which of the following is not one of the principal CPA firm’s alternatives when issuing a report if a
different CPA firm performed part of the audit?
a. Issue a joint report signed by both CPA firms.
b. Make no reference to the other CPA in the audit report, and issue the standard unqualified opinion.
c. Make reference to the other auditor in the report by using modified wording.
d. A qualified opinion or disclaimer, depending on materiality, is required if the principal auditor is not
willing to assume any responsibility for the work of the other auditor.

14.When audit procedures have been completed for an attributes sampling application, the auditor must
generalize from the sample to the population. Which of the following statements would be incorrect
regarding this process?
a. The auditor would use an attributes sampling table to determine the computed upper exception rate.
b. It would be wrong for the auditor to conclude that the population exception rate is exactly the same as
the sample exception rate.
c. The computed upper exception rate is the highest exception rate in the population that the auditor is
willing to accept.
d. In selecting the table corresponding to the risk of overreliance, it should be the same as the acceptable
risk of assessing control risk too low (ARACR) used for determining the initial sample size.

15.In connection with a public offering of first mortgage bonds by DuMond Corp., the bond underwriter has
asked DuMond’s CPA to furnish him with a comfort letter giving as much assurance as possible relative to
DuMond’s unaudited financial statements for the three months ended March 31, 2000.

The CPA had expressed an unqualified opinion on DuMond’s financial statements for the year ended
December 31,1999; he has performed a limited review of DuMond’s financial statements for the three
months ended March 31, 2000. Nothing has come to his attention that would indicate that the March 31,


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2000 statements are not properly presented. Under these circumstances, the CPA’s response to the
underwriter’s request should be to
a. furnish to the underwriters an opinion that the March 31, 2000 statements are fairly presented subject
to year-end audit adjustment.
b. give negative assurance as to the March 31, 2000 financial statements but disclaim an opinion on these
c. inform the underwriters that no comfort letter is possible without an audit of the financial statements
for the three months ended March 31, 2000.
d. Furnish to the underwriters an adverse opinion covering financial statements for the three months
ended March 31, 2000.

16. Which of the following factors is most important concerning an auditor’s responsibility to detect errors and
a. The susceptibility of the accounting records to intentional manipulations, alterations, and the
misapplication of accounting principles.
b. The probability that unreasonable accounting estimates result from unintentional bias or intentional
attempts to misstate the financial statements.
c. The possibility that management fraud, defalcations, and the misappropriation of assets may indicate
the existence of illegal acts.
d. The risk that mistakes, falsifications, and omissions may cause the financial statements to contain
material misstatements.

17. When the auditor knows that an illegal act has occurred, the auditor must
a. report it to the proper governmental authorities.
b. consider the effects on the financial statements, including the adequacy of disclosure.
c. withdraw from the engagement.
d. issue an adverse opinion.

18.The report issued in attestation engagement may provide positive or negative assurance to the reader.
Which of the following types of engagements would provide positive assurance?
a. An examination.
b. A review.
c. An agreed-upon procedures engagement.
d. A compilation.


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19. The concept of “dual dating” on the auditor’s report refers to

a. the client’s date on the statements (12/31/02) and the auditor’s date on the report (3/30/03).
b. the auditor’s date on the report (3/30/03) and the review required when the client files a registration
statement with the SEC (5/30/03).
c. the auditor’s date on the report representing the end of the fieldwork (3/30/03) and the review of an
important event that occurred after the completion of fieldwork (4/5/03) but before the auditor’s report
was issued.
d. the wording problem created because some of client’s statements are for a period of time (for year
ended 12/31/02) and others are for one specific date (12/31/02).

20. Which of the following errors would be least likely to be discovered during the tests of the bank
a. Payment to an employee for more hours than he worked.
b. Cash received by the client subsequent to the balance sheet date was recorded as cash receipts in the
current year.
c. The existence of payments on notes payable that were debited directly to the bank balance by the bank
but were not entered in the client’s records.
d. Deposits recorded in the cash receipts records near the end of the year, deposited in the bank, and
included in the bank reconciliation as a deposit in transit.


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Part II. Essay Questions (60%)

Problem I (17%)

Determine what effect a change in acceptable audit risk, inherent risk, or control risk would have on the
amount audit evidence you would gather.

Example: Compared to the audit of inventory, the audit of prepaid expenses for the same company will
_______the_______ risk, causing the amount of required evidence to .
(Answer: decrease, inherent risk, decrease)

a. A change from auditing a privately held company to auditing a publicly held company would the
_______risk, causing the amount of required evidence to .
b. A large increase in an account balance from the previous year would the risk, causing required
evidence to .
c. You determined during the planning phase of the audit that there has been a significant improvement in
the client’s financial condition relative to the previous year. This year, you would the
_________risk, causing required evidence to .
d. This is the second-year engagement, and there were good audit results in the previous year. You would
___________the risk, causing the amount of required evidence to .
e. In discussion with the client, you learn that management is planning to sell the business in the next few
months. Because of the planned changes, several key accounting personnel quit several months age. You
would the risk and the risk, causing the amount of required evidence to .

Problem II (18%)

Savage, CPA, has been asked by an audit client to perform a nonrecurring engagement involving
implementing an IT information and control system. The client requests that, in setting up the new system
and during the period prior to conversion to the new system, Savage

˙Counsel on potential expansion of business activity plans.

˙Search for and interview new personnel.
˙Hire new personnel.
˙Train personnel.


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In addition, the client requests that, during the three months subsequent to the conversion, Savage

˙Supervise the operation of the new system.

˙Monitor client-prepared source documents and make changes in basic IT-generated data as

Savage may deem necessary without the concurrence of the client.

Savage responds that he may perform some of the services requested but all of them.


Which of these services may Savage perform, and which of them may Savage not perform?


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Problem III (10%)

Post, CPA, accepted an engagement to audit the financial statements of General Company, a new client.
General is a publicly held retailing entity that recently replaced its operating management. In the course of
applying auditing procedures, Post discovered that General’s financial statements may be materially
misstated due to the existence of fraud.


a. Describe Post’s responsibilities to report on General’s financial statements and other communications if
Post is precluded from applying necessary procedures in searching for fraud.

b. Describe Post’s responsibilities to report on General’s financial statements and other communications if
Post concludes that General’s financial statements are materially affected by fraud.

Problem IV (15%)

Lernout & Hauspie (L&H) was the world’s leading provider of speech and language technology products,
solutions, and services to businesses and individuals worldwide. Both Microsoft and Intel invested millions
in L&H. However, accounting scandals and fraud allegations sent the company’s stock crashing, and forced
the firm to seek bankruptcy protection in Belgium and the United States. The following selected
information pertains to L&H’s sales and accounts receivable:

˙Consolidated revenue increased 184 percent from the 1997 fiscal year to the 1998 fiscal year.
˙Revenue in South Korea, which has a reputation as a difficult market for foreign companies to enter,
increased from $97,000 in the first quarter of 1999 to approximately $59 million in the first quarter of
˙In the second quarter of 2000, sales grew by 104 percent but accounts receivable grew by 128 percent.
˙Average days outstanding increased from 138 days in 1998 to 160 days for the six-month period ended June
30, 2000.


a. Based on the above information, which audit objectives for accounts receivable should the auditor be
most concerned with? Why?

b. What audit evidence should the auditor gather to verify the audit objectives for accounts receivable? Be

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系所:會計學系   科目:審計學
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specific as to how each type of evidence relates to the assertions you mentioned in part a of this

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