HOMEWORK/SEATWORK IN AUDITING IN CIS ENVIRONMENT

Name: ______________________ Section: ___________ Score:

________
Instruction: Choose the letter that corresponds to your answer through an
excel formatted sheet and prepare a summary of the answers. Please
send it to my gmail account giancatahumcpa@gmail.com. You will be
given until Tuesday at11:59pm to give the answer. This will graded as
your homework and seatwork.

1. An auditor is applying the difference estimation sampling plan. Recorded book

value is P1,000,000 and the auditor estimates a P75,000 understatement
difference. In this case, the auditor’s estimated population value is
a. P1,000,000
b. P1,025,000
c. P1,075,000
d. P925,000
2. Which of the following is ordinarily the best evidence of fair value?
a. Published price quotations in an active market.
b. None of the above.
c. Comparative transaction model.
d. Discounted cash flow analysis.
3. Gathering evidence in a scientific experiment is most similar in an audit to:
a. Evaluating whether financial statement are presented fairly.
b. Planning an engagement
c. Hypothesizing that financial statements are presented fairly
d. Assessing risk and designing audit procedures
4. Which of the following statements is true about non-statistical sampling in test
of controls?
a. The calculated non-statistical sample should never be altered judgmentally
b. The auditor’s judgment in non-statistical sampling is guided by classical
statistical sampling concepts
c. The auditor considers the same parameters when determining a non-
statistical simple size as when determining a statistical sample size
d. Non-statistical sampling plans provide a quantitative measure of sampling
risk
5. Working papers that record the procedures used by the auditor to gather
evidence should be
a. Destroyed when the audited entity cease to be a client
b. Considered the primary support for the financial statements being examined
c. Viewed as the connecting link between the books of account and the financial
statements
d. Designed to meet the circumstances of the particular engagement
6. In evaluating the assumptions on which the estimate is based, the auditor would
need to pay particular attention to a assumptions which are
a. Consistent with those used for other accounting estimates.
b. Consistent with management’s plans which appear appropriate.
c. Reasonable in light of actual result in prior periods.

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 d. Subjective or susceptible to material misstatement.
7. In a PPS sampling plan with a P10,000 sampling interval, an auditor discovered
that a selected accounts receivable with a recorded amount of P5,000 had an
audited value of P2,000. The project error for the sample is:
a. P6,000
b. P8,000
c. P3,000
d. P4,000
8. Which of the following is least considered in determining the sufficiently and
appropriateness of the audit evidence that the auditor will obtain regarding
opening balance?
a. The accounting policies adopted by the entity.
b. The length of years in operations of the entity.
c. The materiality of the opening balance relative to the current period’s
financial statements.
d. The risk of misstatements of accounts
9. Which of the following factors most likely would affect an auditor’s judgment
about the quantity, type, and content of the auditor’s working papers?
a. The number of personnel assigned to the audit.
b. The likelihood of a review by a concurring (second) partner.
c. The content of the management representation letter.
d. The assessed level of control risk.
10. Which of the following sampling plans varies sample size?
a. Attribute estimation
b. Stratified sampling
c. Sequential sampling
d. Systematic sampling
11. The risk of incorrect acceptance relates to the:
a. Allowable risk of tolerable error
b. Effectiveness of the audit
c. Preliminary estimate of materiality
d. Efficiency of the audit
12. The primary reason an auditor request that letters of inquiry be sent to a
client’s attorneys is to provide the auditor with
a. A description and evaluation on litigation, claims, and assessments that
existed at the balance sheet date.
b. Corroboration of the information furnished by management about litigation,
claims, and assessments.
c. The probable outcome of asserted claims and pending or threatened
litigation.
d. The attorneys’ opinions of the client’s historical experiences in recent similar
litigation.
13. An auditor should perform alternative procedures to substantiate the
existence of accounts receivable when
a. Collectability of the receivables is in doubt.
b. No reply to a negative confirmation request is received.
c. Pledging of the receivables is probable.
d. No reply to a positive confirmation request is received.

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14. Describe substantive audit test in the context of an audit of financial
statements.
a. Substantive test are audit procedures that will increase proportionately with
the auditor’s reliance on internal control.
b. Substantive test are audit procedures that are designed to discover
significant subsequent events.
c. Substantive test are audit procedures that may be either test of transactions,
direct test of financial balances, or analytical tests.
d. Substantive test are audit procedures that may be eliminated under certain
conditions.
15. Which of the following statements is correct?
a. The expected population deviation rate has little or no effect on sample size
b. As the population size doubles, the sample size also should double
c. For a given tolerate rate, a larger sample size should be selected as the
expected population deviation rate decreases
d. The population size has little or no effect on sample size except for a very
small populations.
16. If, after performing necessary audit procedures, the auditor is unable to
obtain sufficient appropriate audit evidence concerning opening balances, the
auditor’s report should include: I. A qualified opinion II. A disclaimer of opinion
III. An opinion which is qualified or disclaimed regarding the results of
operations and cash flows and unqualified regarding financial position
a. Any of the above
b. I only
c. Either I or II
d. None of the above
17. Negative confirmation request is unlikely to be used to reduce audit risk to
an acceptable level when:
a. The assessed level of inherent and control risk is low.
b. A large number of small balances is involved.
c. A substantial number of errors is expected.
d. The auditor has no reason to believe that respondents will disregard these
requests.
18. Which of the following accounts is more difficult for the auditor to be satisfied
as to the balance at the beginning of the period?
a. Accrued interest payable
b. Accounts payable
c. Accounts receivable
d. Inventory
19. Which statement is incorrect regarding external confirmation?
a. External confirmation of an account receivable provides strong evidence
regarding the valuation of the account as at a certain date.
b. The auditor may use positive or negative external confirmation requests or a
combination of both.
c. The auditor should tailor external confirmation requests to the specific audit
objective.
d. External confirmation is the process of obtaining and evaluating audit
evidence through a direct communication from a third party in response to a

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 request for information about a particular item affecting assertions made by
management in the financial statements.
20. When auditing related-party transactions, an auditor places primary
emphasis on
a. Verifying the valuation of the related-party transactions.
b. Confirming the existence of the related parties.
c. Ascertaining the rights and obligations of the related parties.
d. Evaluating the disclosure of the related-party transactions.
21. The auditor should carry out procedures in order to become aware of any
litigation and claims involving the entity which may have a material effect on the
financial statements. Such procedures least likely include
a. Using any information obtained regarding the entity’s business including
information obtained from discussions with any in-house legal department.
b. Reviewing board minutes and correspondence with the entity’s lawyers.
c. Making appropriate inquiries of management including obtaining
representations.
d. Examining interest expense accounts.
22. Assume the acceptable risk of incorrect rejection is 10%, the acceptable risk
of incorrect acceptance is 7.5% and tolerable error is P100,000. What is the
desired allowance for sampling risk?
a. Indeterminate
b. P53,200
c. P47,800
d. P50,000
23. The permanent (continuing) file of an auditor’s working papers most likely
would include copies of the
a. Bank statements.
b. Attorney’s letters.
c. Debt agreements.
d. Lead schedules.
24. Which of the following statements concerning litigation, claims, and
assessments, which were extracted from a letter from a client’s lawyer , is most
likely to cause the auditor to request clarification?
a. “I believe that the plaintiff’s case against the company is without merit.”
b. “I believe that the action can be settled for less than the damages claimed”
c. “I believe that the possible liability to the company is nominal in amount.”
d. “I believe that the company will be able to defend this action successfully.”
25. Which statement is incorrect regarding valuation and disclosure of long-term
investments?
a. If market quotations exceed the carrying amounts, the auditor would
consider whether a write-down is required.
b. If there is an uncertainty as to whether the carrying amount will be
recovered, the auditor would consider whether appropriate adjustments
and/or disclosures have been made.
c. When long-term investments are material to the financial statements, the
auditor should obtain sufficient appropriate audit evidence regarding their
valuation and disclosure.

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 d. Audit procedures regarding long –term investments ordinarily include
considering evidence as to whether the entity has the ability to continue to
hold the investments on a long-term basis.
26. Statistical sampling:
a. Allows the same degree of confidence as non-statistical sampling but with
substantially less work
b. Allows the auditor to replace some judgments with quantitative measures
c. Measures quantitatively the risk of testing only part of an audit population
d. Measures the reliability of misstatements
27. For initial audit engagements, the auditor should obtain sufficient appropriate
audit evidence that:
a. Appropriate accounting policies are consistently applied or changes in
accounting policies have been properly accounted for and adequately
disclosed.
b. The prior period’s closing balances have been correctly brought forward to
the current period or, when appropriate, have been restated.
c. All of the above.
d. The opening balances do not contain misstatements that materially affect the
current period financial statements.
28. In a difference estimation sampling plan for a population of 1,500 items, an
auditor found total recorded and audited value for a sample of 100 items to be
P120,000 and P126,000, respectively. What is the total projected monetary
difference for the population?
a. P90,000
b. Indeterminate
c. P126,000
d. P6,000

29. Sample results support the conclusion that recorded account balance is
materially misstated, but unknown to the auditor, the account is not misstated,
suggestion the risk of:
a. Assessing control risk too low
b. Incorrect acceptance
c. Assessing control risk too high
d. Incorrect rejection
30. If the opening balances contain misstatements which could materially affect
the current period’s financial statements and the effect of the misstatement is
not properly accounted for and adequately disclosed, the auditor should express
a
a. Adverse or disclaimer of opinion.
b. Qualified or disclaimer of opinion.
c. Qualified or adverse opinion.
d. Unqualified opinion with explanatory paragraph
31. Which statement is incorrect regarding the auditor’s responsibilities and audit
procedures regarding related parties and transactions with such parties?
a. The auditor needs to have a level of knowledge of the entity’s business and
industry that will enable identification of the events, transactions and
practices that may have a material effect on the financial statements.

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 b. The auditor should perform audit procedures designed to obtain sufficient
appropriate audit evidence regarding the identification and disclosure by
management of related parties and the effect of related party transactions
that are material to the financial statements.
c. An audit cannot be expected to detect all related party transactions.
d. The auditor is responsible for the identification and disclosure of related
parties and transactions with such parties.
32. Regarding fair value measurements and disclosures, the auditor is not
required to
a. Obtain evidence about management’s intent to carry out specific courses of
action, and consider its ability to do so, where relevant to the fair value
measurements and disclosures under GAAP in the Philippines.
b. Evaluate whether the entity’s method for its fair value measurements is
applied consistently.
c. Test the entity’s fair value measurements and disclosures.
d. Use the work of an expert.
33. Assessing control risk too high is that the sample:
a. Contains proportionately fewer deviations from prescribed control procedures
than actually exist in the population as a whole
b. Does not support to tolerable error for some or all management’s assertions
c. Contains monetary misstatements that could be material to the financial
statements when aggregated with misstatements in other account balances
or classes of transactions
d. Contains proportionately more deviations from prescribed control procedures
than actually exist in the population as a whole

34. Which of the following statements about the competence of evidence is

always true?
a. Oral representations made by management are not valid evidence
b. To be competent, evidence must be both reliable and relevant
c. Accounting data developed when control risk is low is more relevant than
data developed when control risk is high
d. Evidence gathered by an auditor from third parties is reliable
35. Working papers least likely
a. Prevent misunderstandings with respect to the engagement.
b. Assist in the planning and performance of the audit.
c. Assist in the supervision and review of the audit work.
d. Record the audit evidence resulting from the audit work performed to
support the auditor’s opinion.
36. Management asserts that all transactions that occurred were recorded. This
is the assertion of:
a. Completeness
b. Rights
c. Existence
d. Occurrence
37. A practitioner uses audit procedure to:
a. Gather sufficient, competent evidence

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 b. Satisfy auditing standards
c. Decide the types and quality of evidence to gather
d. Design test of controls and substantive test of details

38. Which statement is incorrect regarding segment information?

a. When segment information is material to the financial statements, the
auditor should obtain sufficient appropriate audit evidence regarding its
disclosure in accordance with generally accepted accounting principles in the
Philippines.
b. Segment information is information in the financial statements regarding
distinguishable components or industry and geographical aspects of an
entity.
c. The auditor considers segment information in relation to the financial
statements taken as a whole, and is ordinarily required to apply auditing
procedures that would be necessary to express an opinion on the segment
information standing alone.
d. Audit procedures regarding segment information ordinarily consist of
analytical procedures and other audit tests appropriate in the circumstances.
39. The degree to which a fair value measurement is susceptible to misstatement
is a (an)
a. Detection risk
b. Control risk
c. Audit risk
d. Inherent risk

40. The primary source of information to be reported about litigation, claims, and
assessments is the
a. Court records
b. Client’s lawyer
c. Independent auditor
d. Client’s management

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