AUDITING THEORY TESTBANKS / REVIEWERS
When an auditor believes that an understanding with the client has
not been established, he or she should ordinarily
Perform the audit with increase professional skepticism.
Decline to accept or perform the audit.
Assess control risk at the maximum level and perform a primarily
substantive audit.
Modify the scope of the audit to reflect an increased risk of
material misstatement due to fraud.
An auditor should design the written audit program so that
All material transactions will be selected for substantive testing.
Substantive tests prior to the balance sheet date will be minimized.
The audit procedures selected will achieve specific audit
objectives.
Each account balance will be tested under either tests of controls
or tests of transactions.
Which of the following fraudulent activities most likely could be
perpetrated due to the lack of effective internal controls in the
revenue cycle?
Fictitious transactions may be recorded that cause an
understatement of revenues and overstatement of receivables.
Claim received from customers for goods returned may be
intentionally recorded in other customer’s accounts.
Authorization of credit memos by personnel who receive cash may
permit the misappropriation of cash.
The failure to prepare shipping documents may cause an
overstatement of inventory balances.
Accepting an engagement to examine an entity’s financial
projection most likely would be appropriate if the projection were to
be distributed to
All employees who work for the entity.
Potential stockholders who request a prospectus or a registration
statement.
A bank with which the entity is negotiating for a loan.
All stockholders of record as of the report date.
In assessing control risk for purchases, an auditor vouches a
sample of entries in the voucher register to the supporting
documents. Which assertion would this test of controls most likely
support?
Completeness c. Valuation or allocation
Existence or occurrence d. Rights and obligations
Which of the following comparisons would an auditor most likely
make in evaluating an entity’s costs and expenses?
The current year’s accounts receivable with the prior year’s
accounts receivable.
The current year’s payroll expense with the prior year’s payroll
expense.
The budgeted current year’s sales with the prior year’s sales.
The budgeted current year’s warranty expense with the current
year’s contingent liabilities.
An auditor is planning an audit engagement for a new client in a
business that is unfamiliar to the auditor. Which of the following
would be the most useful source of information for the auditor
during the preliminary planning stage, when the auditor is trying to
obtain a general understanding of audit problems that might be
encountered?
Client manuals of accounts and charts of accounts.
Industry Audit Guides.
Prior year documentation of the predecessor auditor.
Latest annual and interim financial statements issued by the client.
An auditor’s report on financial statements prepared in accordance
with the financial reporting provisions of a contract (that is, a
special purpose framework) to comply with the provisions of that
contract should include all of the following, except
An opinion as to whether the financial statements are presented
fairly, in all material respects, in accordance with the financial
reporting provisions of the contract.
A statement that indicates the basis of accounting used.
An opinion as to whether the basis of accounting used is
appropriate under the circumstances.
Reference to the note to the financial statements that describes
the basis of presentation.
An entity’s management is responsible for the preparation and fair
presentation of the financial statements. Its responsibility includes
the following, except
Designing, implementing, and maintaining internal control
relevant to the preparation and presentation of financial
statements.
Making accounting estimates that are reasonable in the
circumstances.
Selecting and applying appropriate accounting policies.
Assessing the risks of material misstatement of the financial
statements.
Which of the following statements best expresses the objective of
the traditional audit of financial statements?
To express an opinion on the fairness with which the
statements present financial position, financial performance,
and cash flows in accordance with Philippine Financial
Reporting Standards.
To express an opinion on the accuracy with which the
statements present financial position, financial performance,
and cash flows in accordance with Philippine Financial
Reporting Standards.
To make suggestions as to the form or content of the
financial statements or to draft them in whole or in part.
To assure adoption of sound accounting policies and the
establishment and maintenance of internal control.
