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Q1

1. Which of the following is not a step for assessing the risk of a


material misstatement?
A. Evaluate the magnitude of potential misstatement
B. Evaluate the likelihood of potential misstatement
C. Evaluate who identified the potential misstatement
D. Evaluate the type of potential misstatement

2. Types of test determines the fairness of significant financial


statement assertions
A. TOC
B. Substantive test
C. Inherent test
D. None of the above

3. This type of substantive test involves comparing plausible


relationships among both financial and nonfinancial data
A. Initial procedure
B. Substantive analytical procedures
C. Tests of details of transactions
D. Tests of details of balances

4. The risk that the sample will not be representative of the population
is
A. Inherent risk
B. Audit risk
C. Control risk
D. Sampling risk

5. The .. represents the way the auditor identifies the


performance of internal controls of interest.
A. Population
B. Sampling unit
C. Materiality
D. Sampling risk

6. The .. is the maximum rate of deviation from a control that


an auditor is willing to accept and still use the planned control risk.
A. Tolerable deviation rate
B. Maximum deviation rate
C. Maximum error rate
D. Inherent risk

7. This type of test can be used to estimate the total dollar amount of a
population or the total dollar amount of error in a population
A. Test of control
B. Attribute tests
C. Audit tests
D. Substantive tests

8. The revenue cycle includes all of the following transactions, except


A. Credit sales
B. Cash receipts
C. Inventory purchases
D. Sales return and allowances

9. This internal control component should provide management with


feedback as to whether internal controls pertaining to revenue cycle
transactions and balances are operating is intended
A. Monitoring
B. Initial assessments of control risk
C. Information and communication
D. Control environment

10. This type of confirmation requires a debtor to respond only when


the amount shown is incorrect
A. Positive confirmation
B. Negative confirmation
C. Avoidance
D. Existence

11. This cutoff tests is designed to obtain reasonable assurance that


cash receipts are recorded in the accounting period in which received
A. Sales cutoff test
B. Sales return cutoff test
C. Vouching revenue transaction
D. Cash receipt cutoff test

12. The expenditure cycle consists of all of the following activities,


except
A. Purchase transactions
B. Cash disbursement transactions
C. Sales transactions
D. Purchase adjustments

13. This analytical procedure calculates the average number of days it


takes to retire accounts payables
A. Current ratio
B. Quick ratio
C. Cost of goods sold to accounts payable
D. Accounts payable turn days

14. These items include all checks issued or vouchers paid after the
balance sheet date
A. Purchase return cutoff tests
B. Check summary
C. Subsequent payments
D. Confirmation of accounts payable

15. This analytical procedure commonly used in the audit of the


production cycle is useful in measuring the effectiveness of the
manufacturing process
A. Inventory turn days
B. Inventory growth to cost of sales growth
C. Finished goods produced to direct labor
D. Products defects per million

16. All of the following are functions of the manufacturing process,


except
A. Initiating production
B. Initiating purchases
C. Production of inventory
D. Recording manufacturing and inventory transactions

17. In performing tests of details of balances, the auditor would scan


the client-prepared bank reconciliation and verify the mathematical
accuracy of the reconciliation if detection risk was
A. Very high
B. High
C. Low
D. Very low

18. Who is responsible for establishing the process and controls for
preparing accounting estimates
A. The independent auditor
B. The internal auditor
C. Management
D. The audit committee

19. Audit sampling is involved whenever an auditor


A. Examines 100% of the population
B. Makes an inference about a population characteristics based on
partial examination of that population
C. Performs test of controls
D. Performs substantive tests

20. Which of the following accounts in a merchandising company is


affected by both the revenue cycle and another cycle?
A. Sales
B. Sales returns and allowances
C. Inventory
D. Accounts receivables

21. When the positive form of accounts receivable confirmation is used


and no response is received, the auditor should normally
A. Assume the account is in error
B. Assume the account is in correct
C. Send a second request
D. Send a negative confirmation

22. The specific audit objective that all purchases and cash
disbursements made during the period were recorded relates to
A. Rights and obligations
B. Completeness
C. Existence or occurrence
D. Valuation or allocation

23. The specific objective accounts payable are legal obligations of the
entity at the balance sheet date is derived from the
A. Rights and obligations
B. Completeness
C. Existence or occurrence
D. Valuation or allocation

24. In companies where inventories are at multiple locations, the


auditors observations ordinary should include
A. All inventory locations
B. A random sample of locations
C. A representative sample of locations
D. All significant inventory locations

25. Observation of inventories is a required audit procedure whenever


A. Inventories are material
B. Inventories are material and it is practicable and reasonable
C. It is practicable and reasonable
D. Inventories are material and the auditor consider it to be necessary

Q2

1. Which one of the following is an investing activity?


A.
acquiring debt
B.
capital leases
C.
selling land
D.
issuing bonds
E.
issuing preferred stock

2. The substantive test of calculating fixed asset turnover is categorized


under:
A.
initial procedures
B.
analytical procedures
C.
tests of details of transactions
D.
tests of details of balances
E.
presentation and disclosure

3. The following procedures may be useful to the auditor in determining


whether all retirements have been recorded. Except :
A.
analyze the miscellaneous expense account for proceeds from sales of
plant assets
B.
investigate the disposition of facilities associated with discontinued
product lines and operations
C.
trace retirement work orders and authorizations for retirements to
the accounting records
D.
review assurance policies for termination or reductions of coverage
E.
make inquiry of management as to retirements

4. The following statement about inherent risk for long-lived assets is


not true:
A.
the rights and obligations assertion is significant because assets
are usually pledged as collateral for the underlying debt
B.
impairment of long-lived assets poses an inherent risk for the
valuation assertion
C.
the completeness assertion rarely presents a high inherent risk
D.
misstatements of disclosures represent only a moderate inherent
risk
E.
inherent risk for the existence assertion is often low

5. The auditor will normally find evidence concerning the proper


athorization of transactions in the financing cycle by :
A.
direct confimation by the investors
B.
inquiring of the audit committee
C.
inquiring of management
D.
reading the copies of the contracts
E.
reading the minutes of the board of direction meetings

6. The spesific audit objective for the audit of investments, all


investments are included in the balance sheet investment accounts,
relates to the :
A.
existence or occurance assertion
B.
completeness assertion
C.
rights and obligation assertion
D.
valuation or allocation assertion
E.
presentation or disclosure assertion

7. The auditor should trace bank transfers using a bank transfer


schedule primarily to determine if:
A.
cash has been understated due to kitting
B.
cash has been overstated due to kitting
C.
cash has been understated due to lapping
D.
cash has been overstated due to lapping
E.
any unusual cash receipts or payments occured

8. In working with the bank reconciliation and the bank cutoff


statement, the auditors find that a prior-period check was not on the
reconciliation as an outstanding check. This may be an indication of :
A.
window dressing
B.
lapping
C.
kitting
D.
an attempt to conceal a cash shortage
E.
an attempt to overstate cash

9. A surprise confirmation of accounts receivable at an interim date is


useful when the auditor suspects:
A.
kitting
B.
window dressing
C.
lapping
D.
an attempt to conceal a cash
E.
an attempt to overstate cash

10. In confirming bank deposits, the audtior need not :


A.
send two copies of the standard confirmation to the bank
B.
send requests for accounts with zero balances at the end of the
year
C.
have the bank return the original to the client
D.
personally mail the request
E.
make sure the bank returns the response to him or her directly

11. Which of the following is not among the characteristics of the


procedures performed in completing the audit?
A.
They are optional since they have only an indirect impact on the
opinion to be expressed
B.
They involve many subjective ......... by the auditor
C.
They are performed after the balance sheet date
D.
They are usually performed by audit managers or other senior
members of the audit team who have extensive audit experience with
the client
E.
They do not pertain to spesific transaction cycles or accounts

12. By definiton, subsequent events occur between:


A.
the interim and balance sheet date
B.
the balance sheet date and the report date
C.
the report date and the date report is issued
D.
the date the report is approved and the date the report is issued
E.
the balance sheet date and the date the report is issued

13. In working with the minutes of meeting of stockholders, board of


directors, and its subcommittees, the audtior should
A.
read the minutes of all important meetings
B.
read the minutes of all meetings
C.
read the significant items in all meetings
D.
read the minutes of all stockholders meetings
E.
scan the minutes of all meetings

14. Which of the following subsequent events is least likely to be


discovered by reading the latest interim financial statements?
A.
a new bond issue authorization
B.
a major increase in the write off receivable
C.
a treasury stock purchase ................... after year end
D.
the discontinuance of a product
E.
the payment of a cash dividend

15. The auditor is required to obtain evidential matter on litigation,


claims, and assessments. This information need not include the :
A.
existence of the condition or situation
B.
period in which the underlying cause for legal action occured
C.
degree of probability of an unfavorable outcome
D.
description and evaluation of the situation
E.
amount or range of potential loss

16. The basic levels of assurance are as follows except:


A.
audit or examination level assurance
B.
complete assurance
C.
review level assurance
D.
agreed upon assurance
E.
no assurance

17. Whether the system processing ................. accurate, timely, and


authorized defines:
A.
system security
B.
system availability
C.
system maintainability
D.
system verifiability
E.
system integrity

18. Whether the system is protected againts unauthorized physical and


logical access defines:
A.
system security
B.
system availability
C.
system integrity
D.
system verifiability
E.
system maintainability

19. In performing an attest engagement , a CPA performs all of the


following except:
A.
relies on management statements
B.
gathers evidence to support the assertion
C.
objectively assesses the measurement of assertions
D.
objectively assesses the communications of the individual
making the assertions
E.
reports the findings

20. The attestation standards provide guidance on assesing inherent


risk for all of the following except :
A.
Fraud
B.
Control
C.
Detection
D.
all of the above
E.
none of the above

21. Which of the following is not a correct interpretation of the


definiton of internal auditing provided by the IIA?
A.
Employees of the organization may conduct internal auditing
activities
B.
Internal auditing is a line activities within the organization
C.
All phases of the entitys operation ....... within the scope of
internal auditing
D.
The auditors judgement has valuation .... it is free of bias
E.
Internal auditing exists to aid or benefit the entire organization

22. Internal auditor independence would not be impaired if the


auditor:
A.
made management decisions relating to financial activities
B.
assumes operating responsibilities
C.
reports directly to the controller
D.
reports directly to the treasurer
E.
makes recommendations based on audit findings

23. The most time consuming phase of an operational audit is the:


A.
select auditee phase
B.
plan audit phase
C.
perform audit phase
D.
report finding phase
E.
report follow up phase

24. The essential parts of the definition of operational auditing do not


include :
A.
evaluating an organizations operations
B.
effectiveness, efficiency, and economy of operations
C.
recommendations for improvement
D.
systematic process
E.
reporting to stockholders

25. The phases of an operational audit include all of the following


except :
A.
plan audit
B.
perform follow up
C.
report findings to management
D.
accept client
E.
perform audit