Auditing Theory
Disclaimer
This material is not designed to replace the materials provided by the CPA Review Centers. No item in this test will
appear in the actual CPA exams. This test will help you gauge your understanding the auditng concepts.
It is best to print the test and answer the questions for an hour to simulate the actual board exam.
More practice test in www.icpa.ph
Michael & Jones, CPAs, has just accepted an engagement to audit Ginger and Cinnamon, a small
manufacturer of spice products. Jennifer Castro has been selected as the in-charge auditor for the
engagement, and Mark Cruz will be her assistant. In planning the audit field work, Jenkins makes the
following assignments of audit tasks:
Jennifer Castro Mark Cruz
Internal audit
Test internal control over cash receipts Audit property, plant, and equipment
balances
Audit accounts receivable balances Test internal control over cash disbursements
Final audit
Test internal control over sales Audit cash balances
Obtain signed copy of engagement Audit inventory balances
____ 1. What is the order of steps in completing the audit?
a. audit planning, final audit, audit report
b. audit planning, interim audit, final audit, audit report
c. audit planning, interim audit, audit report
d. audit planning, audit report, final audit
____ 2. If you are Jennifer Castro, what is the major strength of this audit planning?
a. The audit tasks are delegated and clear.
b. The signed copy of the engagement will be obtained by Jennifer Castro
c. Audit procedures related cash, accounts receivable and inventory balances will be
performed.
d. The auditors tested internal control over cash receipts and disbursements before auditing
cash balances.
____ 3. If you are Jennifer Castro, what is a correct audit procedure that you can do?
a. Instruct that internal control over sales be performed on the interim audit instead on the
final audit.
b. I will ensure that we obtain the signed copy of the engagement letter before the audit
closing meeting.
c. I will divide the testing of internal control over cash receipts and disbursements to 2
auditors to ensure that 2 eyes will be looking into the process. To follow the money flow is
crucial.
d. I will forego with the internal control over sales transactions to save time because the audit
of cash and accounts receivables balances will mitigate any audit risk.
____ 4. Which of the following statement best describes systematic auditing?
a. Systematic auditing means that the auditor studies and tests the system of internal control
before testing the substance of transactions and balances.
b. Systematic auditing means that the auditor studies and tests the system of internal control
before testing the substance of transactions and balances. Strong internal control
increases the level of confidence and increases the extent of transaction and balance
testing.
c. Systematic auditing means that the auditor studies and tests the system of internal control
before testing the substance of transactions and balances. Strong internal control
increases the level of confidence and decreases the extent of transaction and balance
testing.
d. Strong internal control increases the level of confidence and decreases the extent of
transaction and balance testing.
Ernie Dela Cruz, CPA, has been approached by a prospective new audit client, Double Dragon Enterprises,
Inc. Double Dragon had previously been audited by another CPA. Before accepting the engagement, Dela
Cruz discussed several matters with Double Dragon’s controller and (with Double Dragon’s permission) the
other CPA. As a result of these discussions, the following information was obtained.
Incorporated in 1992, Double Dragon’s primary business is buying, developing, selling, and leasing
commercial real estate. Apartment complexes, shopping malls, and industrial parks make up the major
portion of the company’s business. Starting out in Albuquerque, New Mexico and the surrounding area,
