CPR REVIEW SCHOOL OF He PHILIPRINES anila AUDITING THEORY ‘APRIL 13, 2019 FINAL PREBOARD EXAMINATION sarunosy, s00pH 6.0 SETA INSTRUCTIONS: CHOOSE THE BEST ANSWER FOR EACH OF THE FOLLOWING. FULLY SHADE ‘ONLY ONE BOX FOR EACH ITEM. STRICTLY NO ERASURES ALLOWED. 1. The following statements relate to the auditor's responsibies regarding related parties ‘and transactions with such parties. Which is incorrect? |A. Management is required to implement adequate intemal control to ensure that transactions with related parties are appropriately identified in the information system and disciosed in the financel statements, The auditor should have @ sufficent understanding of the entty and its environment to identify events, transactons, and practices thet may result in 2 risk of material misstatement regarding reiatad parties and transections with such parties. C. A financial staternent audit cannot be expected to detect all related party transactions. . The auditor is responsinie for the identification and disclosure of réated parties and transactions with such parties. 2. In planning an audit, the auditor considers audit nak. Audit risk is the A. Suscentiblicy of 21 essertion to material misstatement assuming there are no related controls. Rick that a miavecel misstetement in an assertion will nct be prevented or detected on a timely buss by the cient’s intemal contre. CC. Risk tat tie auditor's procedures for venfying decount balances will not detect @ material misstecement that in fat exists. D. Risk thar the audicar may unknowingly fell to azpropriately modify the opinion on Financia statements that are matenally misstated. oto obtain reasonatie assurance about whether the financial (© material msstatement, whether due t0 iraud or esror. In all cases ‘tie auditor's report should contain a/an 3, The auditor is re statements are free when reasonable assurance cannot be obsaines AL Unmodified epirion 2. Qualified or adverse opinion C._ Qualified or disclaimer of opinion ©. Disclaimer of onion 4. Which of the following i the greatest advantage of a datebase system? ‘A. Data redundancy oan be reduced. Backup and recovery procertures are mirimized. CC. Multiple occurrences of data items are useful for consistency checking 1. Conversion to 3 datalese system is inexpensive and can be accomplished quicky. 5. On January 2, 2020, the TANYA CO. received 8 notice from its primary suppliers that effective immediately ail wholesale prices would be increesed 10%. On the basis of the nonce, TANYA revalued its December 31, 7019 inventory to reflect the higher costs. AS @ Tesult, the statement of nancial postion reflects inventory stated at an amount higher than its nek realizable value. The inventory Constuuted a material proportion of total assets; however, the effect of the revaluation wes matestal to current assets but not to total assets (or net come. In reporting on the company’s financial statements for the year ended Page 1 of 12(PAREYIEW SCH. OF TE LIFES (CPA) MANA rout pmsoan> euvensrion ‘December 31, 2039, in which inventory is valued a the adjusted amount, the auditor would ‘most likely ‘A. Express an unmodified opinion proved the nature ofthe adjustment and the amounts involved are disclosed in notes tothe finandal statements. B, Express a qualified opinion. . Discaim an opinion. ©. Express an adverse opinion. {6 Which of the folowing is true of generalized audit software programs? ‘A. They can be used only in auditing on-line computer systems. BL They can be used on any computer without modification. CC. They each have their own characteristics thatthe auditor must carefully consider before using in given audit situation. D. They enable the auditor to perform all manual tests of control procedures less expensively. 7. As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses ‘control isk higher than approprate. The most lily explanation for this stuabon is that: ‘A. The ceviaton rate inthe aucitor’s sample is less than the tolerable rate, Dut the deviation rate in the population exceeds the tolerable rate. 8. The deviation rate in the auditor's sample exceeds the tolerable rate, but the deviation rate {nthe population less than the tolerable rate, CC. The deviation rates of both the auditor's sample and the population exceed the tolerable rte, 1. The deviation rates of both the auctio’s sample and the population are less than the twierable rate, 8. A service organization's internal control may interact wth that of the client. The user auditor ‘A. 1s not required to evaluate the service organization's contro. ‘8. Should obtain absolute assurance that the service organization's internal control will Prevent or detect errors or fraud, CC. Should not consider weaknesses In the service organization's Internal control to be ‘weaknesses in the clents system. D. Need not be concemed with the service organization's interna contro ifthe client has effective controls related to service organization processing ‘9. An external aucitor will use internal auctors to assist the audit of accounts receivable. OF the following procedures, the one that would be most appropriate for the intemal ‘auditors to perform isthe ‘A. Assessment of control risk for accounts receivable, 8, Determination of the number of positive confirmation requests to be mailed to Substantiate the existence of accounts receivable, C. Preparation of an aged tial balance of accounts receivable. D. Establishment of the amount of accounts recevabe that is considered material 10. An austin accordance with PSASs performed onthe premise that management and, where appropiate, those charged with governance have responsibiites that are fundamental to the conduct ofthe audit: Which of the following isnot one of those responsibilities? ‘A. To comply with all relevant PSAS in the preparation and presentation of the entity's financial statements, B. To provide the auctor wth all information, such as records and documentation, and ‘ther matters that are relevant to the prepaetion and presentation of the fancal statements. . To provide unrestricted access to|those within the entity from whom the auditor deere trocerary toa alt eee . To design, implement, and maintain intemal control relevant to the preparation and presentation of financial statements that are free from material misstatement, whether caused by fraud or emer. Page 2 of 12ry CPAREMEN S001 OF He Mares, (oan) Fou passoano Bu u. n 4, 45, 16. vy. id ‘The auditor is required to ql ‘complete the administrative process of assembiing the final aud ease tl after the dete of the autor report. The te eit tin which 2 soit the assembly of the act fe sodnary Br Nrmere than 30 days ater te cate of he audtors report & Not more than 60 days after the cate of te audtor’s report. Not more than 90 days after the end ofthe entity’ reprtng period Not more than 60 days afer the date the ena franca statment are autosand J ‘When the financial statements contain material but not pervasive misstatements because ‘the accounting polices selected are not consistent with the applicable financial reporting framework, the auditor should ‘A. Bigress a qualified opinion and describe the matter giving rise to the modification In a separate paragraph. 8. Express 2 qualified opinion and describe the mater ging se tothe modfcation within the opinion parosraph. C. Disclaim an epnion and describe the matter giving ise tothe modification ina separate paragraph. ©. scam an opinion and deseribe the matter giving rise tothe modification within the pinion paragraph. |A.CPA has been engaged to perform review services for a dient. Identify which of the following is a corect statement. A. The CPA must perform the basic aucit procedures necessary to determine that the statements are in conformity withthe applicable financial reporting framework. The financial statements are primarily representations of the CPA CC. The CPA may prepare the statements from the books but may not assist in adjusting and closing the books. D. The CPA is performing an assurance engagement other than an aucit ofthe financial statements, ‘An auditor believes that there is substantial doubt about an entity's abilty to continue as 2 going ‘concer for @ reasonable period of time. In evaluating the enity’s plans for dealing with the ‘adverse effects of future conditions and events, the auditor most Hkely would consider, a5 & rretgating factor, the ent’ plan to: ‘A. Repurchase the ents stock at a price below its book value. B. Issue stock options to key executives. CC Lease rather than purchase operating facies. . Accelerate the due date ofan existing mortgage. ‘A continuing accountant is one who has been engaged to audit, review, or compile and report onthe financial statements ofthe current period and one or more consecutive periods ‘immediately price to the current period. A continuing accountent who performs the same (or a higher level of service with respect to the financial statements of the current period should ‘A. Update his/her report on the financial statements of a prior period. 8. Disclaim any assurance on the prior periods’ statements. (C. Reissue the report on the financial statements of a prior period. . Express an adverse opinion with respect to the prior period's financial statements. Documentary evidence is one of the principal types of corroborating information used by an ‘auditor to substantiate an opinion. Which one of the folowing examples of documentary ‘evidence would be the most reliable? A. Time tickets. , B, Material requisition lips. C Copies of sales invoices. D. Bank statements, Which ofthe folowing statements relating to stratification is incorrect? Page 3 of 12|. When performing tests of details of transactions and account balances, the popuiation (s often stratified by monetary value B. The results of auct procedures applied to a sample of items within a stratum can be projected to the entire population. Cc. When verifying the valuation assertion for accounts receivable, account balances may be stratified by age. 1. Stratification reduces the variability of items within each stratum. 18, Which ofthe flloning fundamental ethical principles prohibits assodation of professional ‘accountants with reports, retums, communications or ether information that is believed to Contain a material false or misleading statement? ‘A. Integrity BL Objectivity C. Professional competence and due care ©. Confdentiaity 19, PSA 620 (Using the Work of an Auditor's Expert) considers the folowing individuals as “exper, except An exper in taxation law. An individual with expertise In complex modeling for the purpose of valuing fiancal insouments.. C Anindiadual with expertise in the valuation of assets acquires and labities assumed in business combinations. 1. An indivcual wth expertise in applying methods of accountng for deferred income tax. 20, Which of the folowing Is the least persuasive documentation in support of an auctor’s ‘pinion? [A Notation of inferences drawn from ratios and trends. '._Nozation of appraisers’ conclusions documented in the auditor's working papers. CC. Liss of negative confirmation requests for which no response wes received by the autor, . Schedules of details of physical inventory counts conducted by the client, 21, The mast relable procedure for an auctor to use to test the existence ofa cent’ inventory at an outsde location would be to ‘A. Observe physical counts ofthe inventory ites. 1B. Trace the total onthe inventory sting to the general ledger inventory account. CC. Obtain a confemation from the cient ndcating inventory ownesshi. 1. Analytcaly compare the curentyear inventory balance tothe prior-year balance. 22. Comparative financial statements include the prior year's statements that were audited by 2 predecessor ausitor whose report 's not presented. If the predecessors report was Unmodified, the successor auditor should |A. Express an opinion on the current year's statements alone and make no reference to the prior year's statements. 8 nde ne ators repr tht the refers stor eres an unas C. Obtain a letter of representations from the predecessor conceming any matters that might affect the suocessor’s opinion. 1, Request the predecessor auditor to reissue the prior years report. 23. A*proof of cash” used by an auctor ‘A. Proves thatthe client's year-end balance of cash is fity stated. B. Confirms thatthe dient has property sépareted the custody function from the recording function with respect to cash. CC. Valdates that client's bank did not make an error during the period being examined. Determines if there were any unauthorized disbursements or unrecorded deposits for the given period Page 4 of 12cere SEEN TC wn RN sun SOLE as 24: Which of the folowing circumstances may create selfinterest threats for @ professional accountant in pubic rte? A financial interest in acento ointy holding a financial interest with a cnt. B. Performing a service for a cient that drectiy affects the subject matter of the assurance engagement. Being threatened with itigation, D. Acting a an atveate on beta of an assurance cietn gabon or sts with id es. 25. The following are characteristics of "direct reporting” assurance engagements, except ‘A. The subject matter information Is in the form of an assertion by the responsible party that is made avaiable to the intended users BB, The subject matter inforration is provided to the intended usersin the assurance report. C. The practitioner either drecty performs the evaluation or measurement of the subject matter or obtains a representation from the responsible party that has performed the {evaluation or measurement. D, The representation of the responsible party that has performed the evaluation or ‘measurement of the subject matter is not avatabe tothe intended users. 26, The following are valid statements concerning an internal contr system, except ‘A. No one person should be responsite for the custodial responsibility and the recording responsibilty for an asset. 8. Transactions must be propesty authorized before such transactions are processed. CC. Because ofthe cost/benefit relationship, @ cient may apply contr procedures on 2 test basis. ©. Contrel procedures reasonably insure that collusion among employees cannot occur 27, Which ofthe following best describes the responsibilty ofthe CPA in performing compilation services for a company? |A. The CPA must understand the cient’ business and accounting methods, and read the financial statements for reasonableness, 1B. The CPA nas only to satisfy himsalf or herself that the financial statements were prepared in conformity with PFRS, CC. The CPA should obtain an understanding cf internal control and perform tests of controls. D. The CPA is relieved of any resocneibilty to third parties. 28 Which ofthe following cumstances wotad an eusitor most lkely considera risk factor relating to misstatements arising from “cuaulenfnancia' reang? A. Several memoars of management have recently purchased additional shares of the entity's stock. 8. Several members of the bose of drectars have recently sold shares of the entity's stock. C. The entity dstrbutes fnarcal forecass ‘0 fnercie| analysts that predict conservative o. ‘operating resis. Management is intetested in maintaining the entity eamings trend by using aggressive ‘ecouniing prachces. 29. The following are contol enviccrment factors, except ‘A. Limiting direct physical access to astels and records. B. The furcuen of the coard of directors una its committees, CC. Management's philosspny and operating style D. Management's contr system indusing dhe intemal aud Function, personne! polices ‘and procedures and segregation of duties. 30. Which of the folowing statements best descrives a positive request for confirmation of an ‘accounts receivable bsiance? ‘AL The customer wil be asked to indicate tothe auctor the current balance in the account. The customer wi be asked to respond to the confirmation request only ifthe balance: Indicated in the request is incorect. : Page Sof 12(PA REIEW SOOO OFTHE HLPFINES (OAR lua PREBOARD EXAMINATION 5 (MOKA C. The customer will be asked to inform the auditor whether the balance indicated in the request is correct and to respond regardless of whether such stated balance is correct. D. The customer will be asked to indicate to the auditor the balance in his/her account only Uf is posiuve (Le, greater than zero). 34, Which ofthe following isnot a contingent fee? ‘A. A fee that ts dependent upon the apprevel of the assurance cent’ loan application. B. An aust fee that is based on 5% ofthe client's adjusted net income forthe current year. CC. A fee that is fixed by a court or other public authority. . An arrangement whereby no fee wil be charged unless a specified finding or resut is tained. 32. If the fee quoted for a professional service is so low, it may be difficult for the CPA to Perform the engagement in accordance with applicable technical and professional standards for that price, ‘This stuation may create a selfinterest threat to | Professional competence and due care B. Objectivity ©. Integrity . Professional behavior 33. In assessing sampling ris, the risk of incorrect rejection and the risk of assessing contra "sk too high on internal control relate to the ‘A. Efficiency of the audit 8. Effectiveness of the audit . Selection ofthe sample . Audit quaity controls 34, Which of the folowing best describes a CPA's engagement to report on an entity’ internal contra? |A. An assurance engagement to examine and report on management's written assertions. ‘about the effectiveness ofits intemal contr, An auait engagement to render an opinion on the entity's internal control. CA prospective engagement to project, fora period cf time nat to exceed One year, and report on the expected benefits of the entity’ internal contol. D. A consulting engagement to provide coastrctive advice fo the entity on its internal control. 35. After testing a cient'sinvenal control activites, an audtor discovers 2 number of significant Geficiencies in the operation cf 2 client's internal Contos. Under these circumstances the auditor ‘mest likely would |. Issue a ascaimes of onion about the intel coivos as part ofthe audtor's report. B. Increase the assessment of corrol rk ard increase the eae of substantive tests. C_Issue a quaitied opinion cf ts finding as parc the aadner’s report .Wandraw from the auct because tre internal contos are ineffective, 36. The preliminary assessment of control risk Is the process of evaluating the efficiency of an entity's accounting ard internal control systems in preverting or detechng and correcting ‘material misstatements. ‘The auctor should document in the audit working papers the understanding obtained of the entity's accounting and internal control systems ane the assessment of control risk. “There will always be some contro risk because of the inherenc imitations of any accounting ‘and internal control systems. ‘A. False; True; True. B. True; True; False. C. False; Fale; True, D. True; False; True, Page 6 of 12‘pa reaew scr OF We OFT Pres (oan) = MANOA FINAL peupoann ExaMeNATION wana ite semua scores 37. Which A + Nelther sampling risk nor nonsampling isk can be reduced by the auditor. B. Sampling ris, but not nonsampling rick, canbe reduced by the autor. ~Nonsampling risk, but not sampling risk, can be reduced by the auditor. 'B. Both sampling risk and nonsampling risk can be reduoed by the auditor. SNe OF the folowing statements concerning sampling risk and nonsampling risk is 38. An entity's accounting records generally nude the records of intial entries and supporting Fecords including ‘A. Confirmations from thed 8B. nformation obtajned by the auctor from such audit procedures as inquiry, observation, and inspection . Worksheets and spreadsheets supporting cost allocations. . Other information developed by, oF avaliable to, the auditor to permit him/her to reach ‘conclusions through valid reasoning. 39. Assurance engagement risk isthe risk ‘A. That the practitioner expresses sn inappropriste conclusion when the subject matter Information is materially misstate, B, Of expressing an inappropriate conclusion when the subject matter information is not. matenally misstated. CC. Through loss from Itigation, adverse publicity, or other events arising in connection with a subject matter reported on. D. OF expressing an inappropriate conclusion when the subject matter information is either materially misstated or not materiaty misstated. 40. Which statement is incorrect regarding the evaluation of general CIS contros and CIS application controls? ‘A. The general CIS controls may have a pervasive effect on the processing of transactions {in application systems. 8. If general CIS controls are not effective, there may be a risk thet misstatements might occur and go undetected in tne axalcation systems. C. Manual procedures exercised by users may provide effective control at the application level D. Weaknesses in generel CIS controls cannct oreclude testing certain CIS application controls 41, When the finendial statemen's contan materi! but rot yervasive misstatements because the accounting polices sulsced are nct consistent with the applicable financial reporting framenorx, the avcitor should AL Eapress a cualisd opinion and descrite the metter giving nse to the modification in a separate paragraph. 8. Express a qveilied cpinion and deserve the inatter giving rise to the modification within the opinion paragraph. C. Disclaim an opinion and describe the matte: ging rise: to the modification in a separate D. Daragrach. Disclaim an opinion and describe the matiar gi ing rise to the modification within the opinion paragraph, 42, Which of the folowing factors would most likely influence an auditor's consideration of the reliability of data when perfo:ming analytical procedures? ‘A. Whether the data were developed in = compitered or a manusl accounting system. 8 Whether the data were prepared on the cash bass orn conformity vith PERS. CC. Whether the data were developad under a svstem with adequate controls . Whether the data were processed ini an one system or a batch entry system. 43. Substantive tests are performed to obtam evidence about the effectiveness of the 1. Design of the accounting and mnteinal conti! systems, that's, whether they are suttably designed bo pravent or detect and cxeverct material misstatements. Page 7 of 12‘paves scrcu OF THe LPP (PAR) = MARA {IMAL PREBOARD BCAMINATION 7. 2. Operation of the internal controls throughout the period. A Lonly. B. only. ©. Both 1 and2, D. Neither 1 nor 2. |All ofthe following are examples of substantive tests to verify the valuation of net accounts receivable except the ‘A. Recomputaton ofthe allowance for bad debts. 'B.Inspection of accounts for current versus noncurent status inthe statement of financial postion. (Inspection ofthe accounts receivable aging schedule. 1. Comparson ofthe allowance for bad debts with past periods. “Which of the folowing statements concerning audit evidence is correct? |A. Appropriateness isthe measure ofthe quantity of audit evidence. 8 Suffidency Is the measure of the quality of audit evidence, that is, tts relevance and reiablty C. The quantity of aust evidence needed Is affected by its quality and the risk of misstatement. 'D. The sufficiency and appropriateness of audit evidence are not intereated, ‘Application controls are ‘A. Manual or automated procedures that typically operate at a business process level and ‘apply to the processing of transactions by individual applications, B, Policies and procedures that reiate to many applications. © Controls that maintain the integrity of information and security of data such as controls ‘over system software acquistion, change and maintenance. 1. Controls that relate to many applications and support the effective functioning of general controls. Which statement s incorrect regarding the characteristics ofa CIS organizational structure? ‘A. Cerin date processing personnel may be the only ones with @ detailed knowledge of the interelationship between the source of data, how itis processed and the distribution and use ofthe output. 'B. Many conventional controls based on adequate segregation of incompatible functions may not exist, or n the absence of access and other controls, may be less effective. Transaction and master fe det are oen concentrated, usaly mn machinerencele . ‘Systems employing CIS methods do not include manual operations since the number of Persons involved in the processing of financial information is significantly reduced, Without affecting the CPA's wilingness to express an unmodified opinion on the cents financal statements, corporate management may refuse a request 10 |A. Authorize its attorney to confirm that alist of pending or threatened ligation prepared bby management includes all tems known tothe attorney. B. Change its basis of accountng for inventories from firstin, first-out (FIFO) method to ‘weighted average metiod. C. Write down to salvage value certain equipment that is no longer useful 1B. Allow the CPA to examine tax returns for years prior to thet of the financial statements being audited, When an auditor tests the internal controls of a computerized accounting system, which of the. following is ue ofthe test data approach? [A Test data are coded to a ummm subsidiary so they cn be extracted from the system under ‘actual operating conatons. 18 Test data programs need not be tailor-made by the audtor for each client's computer applications. Page 8 of 12cranevcw S00. OF HE PHPINES ‘Shia mrony =" (oan) ‘mat pasnouno poyNATION 50. 51 33. Test data progr b sonplarce ed an tal consist of all possible valid and invalid conditions regarding . Test data are processed with the Tes cts ae processed wih te cls compan the ets ae compared wit the Each me on autor drs 9 enon Based on eee (om 8 oF acsiionat Sk sample inode. An amb smheg 8S t improperly applying a proper audit procedure to sample data. Properly applying an improper audit procedure to sample: data. C. Projecting the results of sampling beyond ‘the population tested. D. Drawing an eroneats concuson from sample dat tn performing an aut, wich one of te flowing procedures would be considered 2 “substantive test? Fe eeettonng lost year's intrest expense with this years interest expense Fe st Mrrex on checks with the signatures ofauthonzes Check SGNes- Reviewing intals on reewng documents. D. Reviewing procedures, followed in receig, “The auditor Is required by the standard to conside: the IT enviranment i) GES Tpocedures to reduce risk tc an acceptably cw level. Which ofthe foowing incorrect? ROUTE? sors specie avi objectives donot change whether financial Information Is ‘marwsally or Dy computer B Pressed ag aud procedures to gater vet dence are rat nuenced by the methods of computer processing. ee nay ese einer monal aut procedure, compe asset aut re es (ChAT), or a combination of eth to obtain suficent appropriate audit evidence. . In some IT environments, certain data for taspection, Inquiy, depositing, and disbursing of cash. jgning audit is it may be diicut or Imgossite for the auditor to obtain fof confirmaton withour the aid of @ computer. Control activities slate to the following, excert A, Segregation of duties B. Performance renews C. An intersal aucit Suaction . Authorization ‘An euoitor used test data to wry the evstence of cons ina certan complet ORE Ae pro-am performed wel onthe test, the autor mey stl nave @ concem that Fine program tesced i te seme ane used inthe guar production ns. BL Genueaived aust software may have been a fetter Tet te 3. . bata entry procetures may change ard renge: the test weeless, B. The test cata will oz be raevant in subsequent aut per'ods. ‘The prince of protessonst competence and due care imposes wich ofthe following obloations 0° orofsesonay accounlarts? Cogan ot ales ivowiedge ad Sk tthe eve required to ensure that cents or employers rereive competent srofessionZ: Sen'ce acts re gcloang confident formatan ceained a 2 result of professions Tosetar Mom onsups winou per ano specie aor ures thee i 2192 for profess right or duty to dsclece eee nit clever laws ard requletons and aveé any station that may Bing discredit to te profession. 0 eee ee ice wofessonal or business judgment because of bie, confit of interest or undue infuence of others. Page 9 of 12 ee{SAREVEW SOIC. OF THE ALIFE CPA) - MLA rina pranoano BUKNATION 56. At the conclusion of an audit, 2n auctor Is reviewing the evidence gathered in support of the financal statements, With regard tothe valuabion of inventory, the audtor condudes thatthe ‘evidence obtained Is not sufcent to support managements representations. Which of the following actions s the auditor mos ely to take? ‘A. Consult withthe audit committee and ssue a disclaimer of opinion. B. Consult with the aut committee and isue 2 quaifed opinion. . Obtain adattional evidence regarding the valuation of inventory. 1. Obtain a statement from management supporting ther inventory valuation. 57. Under which ofthe following circumstances Is a disclaimer of opinion inappropriate? ‘A. The client refuses to permit its attorney to furnish information requested in 2 letter of aucit inquiry, B. Theaucitoris engaged after fiscal year-end and Is unable to observe physical inventories or apply alternative procedures to verity their balances. CC. The financial statements fail to contain adequate disclosure concerning related party transactions. . The auditors unable to determine the amounts associated with fraud committed by the client's management. ‘58, The primary purpose of the representation leter is the ‘A. Acceptance of the auditors engagement letter. B. Evcluaton by management of the auditor’ CC. Acknowedgment of managements responsibilty for the financial statements. 1. Agreement by management to engage the auditor forthe next annual auch. 58, Which ofthe fllowing statements relating to stratification is incorrect? ‘A. When performing tests of deals of transactions and account balances, the population 's often stratified by monetary value 8. The results of audit procedures applied to a sample of items within a stratum can be projected to the entire population, C_Wnen venting the valuation assertion for accounts receivable, account balances may be stratified by age. D. Stratification reduces the variablity of items within each stratum. 60. The accounts payable department generally should ‘A. Cancel supporting documents after a cash payment Is mailed. Aaprove he price and quantity of each purchase requiston ssure quantity ordered is omitted from the rece mare sett ving departments copy of the D. Agree the vendor's invoice with the receiving report and purchase order. 61. Which statement is incorrect regarding extemal confirmation? ‘A. Extemal confirmation Is the process of obtaining and evaluating audit evidence through €@ direct communication from 2 third partyin response to a request for information about 2 particular item affecting assertions made by management inthe financial statements B. Extemal confirmation of an account receivable provides strong evidence regarding the valuation of the account as at a certain date. CC. The aucitor should talor external confirmation requests tothe specific audit objective. D. The auditor may use positive or negative external confirmation requests or a ‘combination of both. €2. ‘Safeguards created by the profession, legislation or regulation include the folowing, except 'A. Continuing professional development requirements. B, Professional standards. ‘ C. Fimwie and engagement specie safeguards 1. Educational training and experience requirements for ery nto the profession, 63. An audt supervisor reviewed the work performed by the staff to determine # the audit was ‘adequately performed, The supenrsor actomplished tis by primary reviewing which of the following? Page 10 of 126. 67, {FINAL PREBOARD EXAMINATION canesteNe of riated partes and transactions between such pares are considered or re of business. Which ofthe folowing statements concerning the need for the autor to became aware of them is ncarect” ‘The appicale financial reporting framework may require disclosure inthe financial SSatements of certain related part relationships and transactions. A greater degree of relance sheuld be placed on audt evidence that i obtained from or created by relate third partes. Te existence of rated partes and eoted party transactions may affect the franca ments. A related party transaction may be motivated by other than ordinary business considerations such as profit sharing or fraud. poe Attribute sampling in statistical sampling is ‘A. method of samaling that divides the population into strata and then selects random ‘samples from the strata, A procedure used to determine an estimated ocourence rate of @ particular ‘characteristic in a population. ‘A method af samoling in which individual items are drawn at random from a popuiation ‘So that each sample of a given size has an equal chance of being selected. ‘A procedure in which each characteristic selected permits a specified probablity of focating an occurrence in @ populaticn. so» Before accepting an audit engagement, a proposed (successor) auditor should make Inquires of the previous (predecessor) auditor regarding the previous auditors ‘A. Evaluation ofall matte's of continuing accounting significance. BL Understanaing 2s to the 1e2sors for the change of aucita's. C._Awareness 3° the consistency in the application of PFRS between periods. . Opinion of any subsequent events occurring since the previous auaitor’s report was (ssued. To achieve avait ficiency and effectiveness with @ oersonal computer, the two crucial requirements are selscting A. The argrormate sai tesks for personal coma applications and the appropriate sofware te pertonr the seerted Suit ta 18. The apcroprie softwave to verform the siectad audit tasks and data that can be accessed oy the auditor's ce:sona! comaur-. €. Company data that can be accessed by the auditer’s personal computer and the appropriate 2uait tasks for personai computer apriicatcns, D. The appropriate sample of company data to test wit> the euchtor's personal computer and the appropnate softvare to perform the selocted suds task. In evaluating the assumptions on which the estimate is based, the auditor would need to pay particular attention to assumptions whch are 1A. Reasonable in ight of actual resuits.n prior periods. BB, Consistent with those used for other accounting estnietes. . Consistent with management's plans which appear appropriate. . Subsectve or susceptibie to material misstatement. “The following are examples cf cireumstances that may create familarity threats, except A. Promating shores itz Hsted entity when that entity i # financial statement audit client. B. Long assadation of senior personne! with the assurance clent CC. Amember of tie engagerrert team, having a Juze o- immediate family relationship with a director or oftce of the Ghent. Page 11 of 12(PAREN SCO. OF THE LINES (CPR) MANA ‘2HAL PREDOARD EXAMINATION D. A former partner ofthe frm being a director or officer ofthe cent or an employee in 2 position to exert direct and significant influence over the subject matter of the engagement. 70. Which of te folowing mates isan audio requred to communicate to thse charge wih ‘governance? J. Adjustments that were suggested by the audtor and recorded by management that have 8 significant effect on the entity's financial reporting process. 18. The aucitor’s consideration of sk factors in assessing the risk of material misstatement arising trom tne msappropriaton of assets. C. The results of the aucito's analytical procedures performed in the review stage of the engagement that indicate significant variances from expected amounts. . Changes in the audttors preliminary judgment about meteraity that were coused by projecting the resus of statistical sarnping for tests of transactions. “END OF EXAMINATION Page 120f 12