INTEGRATED AUDITING THEORY

Audit Objectives, Procedures, Evidences and Documentation

1. All the information used by the auditor in arriving at the conclusion
on which the audit opinion is based. It includes the information
contained in the accounting records underlying the financial
statements (underlying accounting data) and other information
(corroborating information).
a. Audit Evidence c. Audit risk
b. Audit opinion d. Audit program

2. All of the following are underlying accounting data, except:

a. Records of initial entries and supporting documents c.
Worksheets and spreadsheets for cost allocations
b. General and subsidiary ledgers d. Minutes of meetings

3. The following statements are correct, except:

a. The greater the risk of misstatement, the more audit evidence is
likely to be required.
b. The higher the quality of audit evidence, the less may be required.
c. Obtaining more audit evidence will compensate for its poor quality.
d. The sufficiency and appropriateness of audit evidence are
interrelated.

4. The most reliable form of documentary evidence are those documents

that are:
a. Internally generated c. Authorized by a responsible official
b. Pre-numbered d. Easily duplicated

5. Which of the following statements is/are correct?

Statement 1: The auditor considers the relationship between the cost
of obtaining audit evidence and the usefulness of the information
obtained.

Statement 2: The difficulty and the expense involved are valid basis
for omitting an audit procedure for which there is no alternative.

Statement 3: The auditor relies on audit evidence that is persuasive

rather than conclusive.

Statement 4: The auditor uses professional judgment and exercise

professional skepticism to determine the sufficiency and
appropriateness of evidence.
a. Only one statement is correct c. Only three statements are correct
b. Only two statements are correct d. All statements are correct

6. Assertions used by the auditor fall into the following categories,

except:
a. Assertions about the faithful representations
b. Assertions about classes of transactions and events
c. Assertions about account balances at period end
d. Assertions about presentation and disclosure
7. Management assertions are:
a. Directly related to PSAs c. Directly related to GAAP
b. Indirectly related to PSAs d. Indirectly related to GAAP

8. The assertion of cut-off means that:

a. All transactions and events that should have been recorded have
been recorded
b. Amounts and other data relating to recorded transactions and events
have been recorded appropriately
c. Transactions and events have been recorded in the correct
accounting period
d. Transactions and events have been recorded in the proper accounts

9. The auditor notices that a client’s cash-basis financial statements

are prepared with accrual basis financial titles. This situation
bears on which financial statement assertion?
a. Valuation or allocation c. Rights and obligations
b. Presentation and disclosure d. Completeness

10. When vouching,

a. The direction of the test is from the recorded item back to the
underlying support.
b. A complete examination of the transactions in the account is
performed.
c. Recomputations are performed.
d. The auditor selects a transaction and follows it forward to
recording in the accounting records.

11. Which of the following statements relating to the competence of

evidential matter is always true?
a. Evidence gathered by auditors must be both valid and relevant to
be considered competent.
b. Properly designed analytical procedures will detect material
misstatements.
c. Evidential matter gathered by an auditor from outside a client is
reliable.
d. Oral representations made by management are not valid.

12. Acts to be performed in order to obtain audit evidence.

a. Audit standards c. Audit program
b. Audit procedures d. Audit strategy

13. Which of the following procedures is not required to be performed

by the auditor?
a. Risk assessment procedures c. Substantive procedures
b. Tests of control d. Analytical procedures

14. Examining records or documents, whether internal or external, in

paper form, electronic form, or other media.
a. Inspection of records or documents c. Observation
b. Inspection of tangible assets d. Inquiry
15. Physical examination of the assets.
a. Inspection of records or documents c. Observation
b. Inspection of tangible assets d. Inquiry

16. Consists of looking at a process or procedures being performed by

others.
a. Inspection of records or documents c. Observation
b. Inspection of tangible assets d. Inquiry

17. Evaluation of financial information made by study of plausible

relationships among both financial and non-financial data.
a. Reperformance c. Reconciliation
b. Confirmation d. Analytical procedures

18. Physical examination of tangible assets is not a sufficient form

of evidence when the auditor wants to determine the:
a. Existence of the asset c. Condition or quality of the asset
b. Quantity & description of the asset d. Ownership of the asset

19. Who signs the confirmation requests?

a. The appropriate level of management c. The CEO/CFO of the client
b. The audit partner d. Both management and the auditor

20. Negative confirmation requests may be used when:

a. The assessed levels of inherent and control risks are high
b. A large number of large 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

21. When the recipient has accomplished the confirmation request,

replies should be:
a. Sent directly to the auditor
b. Sent directly to the client, after which the client gives the
replies to the auditor
c. Sent directly to the auditor, with another copy of the reply going
to the client
d. Not sent back since a confirmation request does not necessitate
replies

22. Which of the following statements is incorrect about accounting

estimates?
a. Management is responsible for making accounting estimates included
in the financial statements.
b. When evaluating accounting estimates, the auditor should pay
particular attention to assumptions that are objective and are
consistent with industry patterns.
c. The risk of material misstatement is greater when accounting
estimates are involved.
 d. The evidence available to support an accounting estimate will often
be more difficult to obtain and less conclusive than evidence
available to support other items in the financial statements.

23. In evaluating the reasonableness of an entity’s accounting

estimates, an auditor normally would be concerned about assumptions
that are
a. Susceptible to bias c. Insensitive to variations
b. Consistent with prior periods d. Similar to industry guidelines

24. Which of the following would an auditor ordinarily perform first

inevaluating management’s accounting estimates for reasonableness?
a.Develop independent expectations of management’s estimates.
b.Consider the appropriateness of the key factors or assumptions used
in preparing the estimates.
c. Test the calculations used by management in developing the
estimates.
d. Obtain an understanding of how management developed its estimates.

25. Which of the following is not a specialist upon whose an auditor

may rely?
a. Actuary c. Appraiser
b. Internal auditor d. Engineer

26. According to PSA 230 “Documentation”, working papers do not

a.Assist in the planning and performance of the audit.
b.Assist in the supervision and review of the audit work.
c.Record the audit evidence resulting from the audit work performed
to support an auditor’s opinion.
d. Prove the independence of the auditor.

27. Consider the following statements.

Statement 1: Working papers are the property of the auditor.

Statement 2: Although portions of or extracts from the working papers

maybe made available to the entity at the discretion of the auditor,
they may be substitute for the entity’s accounting records.
a. Only statement one is correct c. Both statements are correct
b. Only statement two is correct d. Both statements are incorrect

28. The primary purpose of audit working papers is to

a. Provide evidence of compliance with auditing standards.
b. Provide management with an independent copy of financial records.
c. Provide protection against litigation.
d. Document deficiencies in client policies and procedures.

29. Which of the following statements is incorrect?

a. Documentation prepared at the time the work is performed is likely
to be more accurate than documentation prepared subsequently.
b. The auditor ordinarily includes in audit documentation superseded
drafts of working papers and financial statements, notes that
reflect incomplete or preliminary thinking, previous copies of
 documents corrected for typographical or other errors, and
duplicates of documents.
c. It is neither necessary nor practicable to document every matter
the auditor considers during the audit.
d. Oral explanations by the auditor, on their own, do not represent
adequate support for the work the auditor performed or conclusions
the auditor reached, but may be used to explain or clarify
information contained in the audit documentation.

30. In the case of recurring audits, some working papers files may be
classified as audit files which are updated with new information of
continuing importance. This type of audit file is known as:
a. Current audit file c. Electronic audit file
b. Permanent audit file d. Planning memorandum file

31. For what minimum period should audit working papers be retained by
the independent CPA?
a. For the period during which the entity remains a client of the
independent CPA.
b. For the period during which an auditor-client relationship exists
but not more than six (6) years.
c. For the statutory period within which legal action may be brought
against the independent CPA.
d. For as long as the CPA is in public practice.

32. How many days after the date of the auditor’s report is considered
an appropriate time for the auditor to complete the assembly of the
financial audit file?
a. 30 c. 60
b. 90 d. 120

33. In confirming accounts receivable, an auditor decided to confirm

customers' account balances rather than individual invoices. Which of
the following most likely would be included with the client's
confirmation letter?
a. A client-prepared statement of account showing the details of
the customer's account balance
b. An auditor-prepared letter requesting the customer to supply
missing and incorrect information directly to the auditor
c. A client-prepared letter reminding the customer that a
nonresponse will cause a second request to be sent
d. An auditor-prepared letter explaining that a nonresponse may
cause an inference that the account balance is correct

34. Which of the following statements is correct concerning an

auditor's use of the work of a specialist?
a. If there is a material difference between a specialist's findings
and the assertions in the financial statements, only an adverse
opinion may be issued
b. If an auditor believes that the determinations made by a specialist
are unreasonable, only a qualified opinion may be issued
 c. An auditor may not use a specialist in the determination of physical
characteristics relating to inventories
d. The work of a specialist who is related to the client may be
acceptable under certain circumstances

35. Which of the following is not a universal rule for achieving control
over cash?
a. Decentralize the receiving of cash as much as possible.
b. Have bank reconciliations performed by employees who do not handle
cash.
c. Separate the cash-handling (receipts and disbursements) and record-
keeping functions.
d. Deposit each day's cash receipts by the end of the day.

36. Which of the following best prevents lapping?

a. Request that customer checks be made payable to the company and be
addressed to the treasurer.
b. Have customers send payments directly to a lock-box at the
company's bank.
c. Segregate duties so that accounting personnel have no access to
incoming mail containing remittances.
d. Segregate duties so that no employee has access both to checks from
customers and to currency from daily cash receipts.

37. Which of the following audit procedures is the most efficient at

detecting unrecorded liabilities at the balance sheet date?
a. Examine purchase orders issued for several days prior to the close
of the year.
b. Compare cash disbursements in the subsequent period with the
accounts payable trial balance at year-end.
c. Obtain a letter from the client's attorney.
d. Confirm large accounts payable balances at the balance sheet date.

38. The auditor is testing the labor charges and tracing them to entries
in the job costing records and into work-in-process inventory. This
procedure primarily addresses which of the following assertions?
a. Valuation or allocation.
b. Existence or occurrence.
c. Authorization.
d. Presentation and disclosure.

39. Which of the following procedures is most effective in providing

reasonable assurance that payroll checks are distributed only to bona
fide employees?
a. All unclaimed paychecks are returned to an employee independent of
payroll preparation and distribution.
b. An employee independent of payroll preparation compares
endorsements on canceled payroll checks with employee signatures
in personnel records.
c. All changes in pay rates and deductions are reviewed and approved
by a responsible official independent of payroll preparation and
distribution.
 d. All personnel and payroll records and documents are prenumbered
and physically protected from unauthorized access.

40. The auditor's review of obsolete inventory primarily addresses

which assertion?
a. Completeness.
b. Fairly stated financial statements.
c. Valuation or allocation.
d. Presentation and disclosure.

41. On the date of the inventory count, the auditor does all of the
following except
a. Observe the client's count teams counting the inventory.
b. Make test counts of the client's inventory.
c. Make recommendations to the client on controls over inventory.
d. Note slow-moving inventory.

42. To protect against improper disbursements, checks should be

a. Perforated or otherwise canceled after being returned with the bank
statement.
b. Signed by an official after necessary supporting evidence has been
examined.
c. Reviewed by the purchasing department before mailing.
d. Sequentially numbered and accounted for by internal auditors.

43. The accounts payable department receives the purchase order to

accomplish all of the following except
a. Compare quantity ordered to quantity purchased.
b. Ensure that the purchase had been properly authorized.
c. Ensure that the party requesting the goods had received the goods.
d. Compare invoice price to purchase order price.

44. Which of the following pieces of information is most important

when auditing shareholders' equity?
a. Entries in the capital stock account can be traced to the minutes
of the board of directors.
b. Stock dividends are capitalized at par or stated value on the
dividend declaration date.
c. Changes in the capital stock account are verified by an independent
stock transfer agent.
d. Stock dividends and/or stock splits during the year were approved
by the shareholders.

45. An unrecorded check issued during the last week of the year is most
likely be discovered by the auditor when the
a. Search for unrecorded liabilities is performed.
b. Bank confirmation is reviewed.
c. Cutoff bank statement is reconciled.
d. Check register for the last month is reviewed.
46. Of the financial statement accounts listed below, which is least
likely affected by the accuracy of payroll and the distribution of
payroll costs to jobs?
a. Finished goods inventory.
b. Work in process inventory.
c. Cash.
d. Cost of sales.

47. The completeness assertion would be violated if

a. unbilled shipments had occurred during the period.
b. disclosure in the statements of pledged receivable was inadequate.
c. the balance of accounts payable was overstated.
d. fictitious sales transactions were included in accounts receivable.

48. Which of the following would most likely be detected by an auditor's

review of a client's sales cutoff?
a. Unauthorized goods returned for credit.
b. Lapping of year-end accounts receivable.
c. Unrecorded sales for the year.
d. Excessive sales discounts.

49. Which of the following is not a common activity of the

expenditure/disbursement cycle?
a. Receiving.
b. Fixed asset additions.
c. Recording of disbursements.
d. Purchasing.

50. An auditor usually examines receiving reports to support entries

in the
a. Voucher register and sales returns journal.
b. Check register and sales journal.
c. Sales journal and sales returns journal.
d. Voucher register and sales journal.

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