1) In the context of financial statement auditing, fraud is defined as an intentional
misstatement of a material fact regarding balances, transactions or presentation of the
financial statements.
A) True
B) False
2) Which of the following is most correct when using audit sampling for exception
rates?
A) auditor is concerned with the lowest rate
B) auditor is concerned with the highest rate
C) auditor is concerned with the average on previous audits
D) doesn’t impact the auditors decision
3) Net assets are the most often used base for deciding materiality.
A) True
B) False
4) Inherent risks typically vary across industries.
A) True
B) False
5) Rule 301 of the
A) subpoena or summons
B) peer review
C) complaint filed with the trial board of the Institute
D) request by a client’s largest stockholder
6) Material transactions between the client and the client’s related parties must be
disclosed in the auditor’s report.
A) True
B) False
7) The board of directors has the primary oversight responsibility to assess fraud risks
and establish corporate governance programs and controls to prevent, deter, and detect
fraud.
A) True
B) False
8) The first standard of field work, which states that the work is to be adequately
planned and that assistants, if any, are to be properly supervised, recognizes that:
A) early appointment of the auditor is advantageous to the auditor and the client
B) acceptance of an audit engagement after the close of the client’s fiscal year is
generally not permissible
C) appointment of the auditor subsequent to the physical count of inventories requires a
disclaimer of opinion
D) performance of substantial parts of the examination is necessary at interim dates
9) The Public Company Accounting Oversight Board (PCAOB) provides oversight to
auditors of publically traded and private companies.
A) True
B) False
10) Which of the following most accurately describes constructive fraud?
A) Absence of reasonable care
B) Lack of slight care
C) Knowledge and intent to deceive
D) Extreme or unusual negligence without the intent to deceive
11) Few large companies employ stock transfer agents, but small companies commonly
do so.
A) True
B) False
12) Which of the following statements is most correct?
A) A sample of all items of a population will eliminate sampling risk, but increase
nonsampling risk
B) The use of an appropriate sample selection technique ensures a representative
sample
C) The auditor’s failure to recognize an exception is a significant cause of sampling risk
D) The use of inappropriate audit procedures is a significant cause of nonsampling risk
13) Tolerable misstatement does not affect audit risk, inherent risk, control risk, or
planned detection risk yet the combination of the tolerable misstatement and the four
risks will determine the amount of planned audit evidence.
A) True
B) False
14) Programmers should be allowed access to:
A) user controls
B) general controls
C) systems controls
D) applications controls
15) Which of the following is(are) true concerning the Ethical Principles of the Code of
Professional Conduct?
I.They identify ideal conduct.
II.They are general ideals and difficult to enforce.
A) I only
B) II only
C) I and II
D) Neither I nor II
16) Which of the following is most correct for audits of non-public companies?
A) an audit of internal control is required
B) an audit of internal control is not required
C) an audit of the design of internal controls is required
D) an audit of the operational effectiveness of internal controls is required
17) The auditor is concerned that a client is failing to bill customers for shipments. An
audit procedure that would gather relevant evidence would be to:
A) select a sample of duplicate sales invoices and trace each to related shipping
documents
B) trace a sample of shipping documents to related duplicate sales invoices
C) trace a sample of Sales Journal entries to the Accounts Receivable subsidiary ledger
D) compare the total of the Schedule of Accounts Receivable with the balance of the
Accounts Receivable account in the general ledger
18) In the evaluation of the results of an attributes sample, the fact that the exception
rate in the sample was 2% rather than the estimated population exception rate of 4%
would cause the computed upper exception rate to:
A) be less than the tolerable exception rate
B) equal the tolerable exception rate
C) exceed the tolerable exception rate
D) cannot be determined from the information given
19) In which case were auditors prosecuted for filing false financial statements for a
client with the government?
A) 1136 Tenants case
B) United States v. Simon case
C) Escott et al. v. Bar Chris case, aka Bar Chris
D) Ultramares Corporation v. Touche case
20) If, when obtaining an understanding of control activities of a relatively small client,
the auditor identified no control activities, the auditor would probably reassess whether
the client is auditable.
A) True
B) False
21) Which of the following is not a valid basis for omitting an audit test in forming an
opinion on the clients financial statements?
A) the difficulty and expense involved in testing a particular item
B) the relative risk involved
C) the degree of reliance on the relevant internal controls
D) the relationship between the cost of obtaining evidence and its usefulness
22) The FASB definition of materiality focuses on potential users of financial
statements.
A) True
B) False
23) Acceptable audit risk is ordinarily set by the auditor during planning and:
A) held constant for each major cycle and account
B) held constant for each major cycle but varies by account
C) varies by each major cycle and by each account
D) varies by each major cycle but is constant by account
24) Which of the following is the most efficient audit procedure for the detection of
unrecorded liabilities at the balance sheet date?
A) obtain an attorney’s letter from the client’s attorney
B) confirm large accounts payable balances at the balance sheet date
C) examine purchase orders issued for several days prior to the close of the year
D) compare cash disbursements in the subsequent period with the accounts payable trial
balance at year-end
25) Records that include data about employees such as employment date, performance
ratings and pay rates are the:
A) human resource records
B) employee screening forms
C) summary payroll reports
D) employee folders
26) Professional guidelines for performing internal audits for companies are not as
well-defined as for external audits.
A) True
B) False
27) The auditor uses knowledge gained from the understanding of the client’s business
and industry to assess:
A) client business risk
B) control risk
C) inherent risk
D) audit risk
28) An operational auditor may use “engineered standards” as evaluation criteria.
A) True
B) False
29) If the auditor believes that there will be more than just a few exceptions discovered,
and desires an accurate estimate of the dollar value of the exceptions, he or she will use:
A) attributes sampling
B) monetary-unit sampling
C) block sampling
D) variables sampling
30) No individual with access to time cards, payroll records, or checks should also be
permitted access to:
A) the computer
B) job time tickets
C) personnel records
D) the canceled check file
31) An auditor must obtain written client representations that might be signed by all but
which of the following?
A) Treasurer
B) Chief financial officer
C) Vice president of operations
D) Chief executive officer
32) When auditing a public warehouse, which of the following is the most important
audit procedure with respect to disclosing unrecorded liabilities?
A) observation of inventory
B) review of outstanding receipts
C) inspection of receiving and issuing procedures
D) confirmation of negotiable receipts with holders
33) Current professional auditing standards require the performance of analytical
procedures during the planning and completion phases of the audit.
A) True
B) False
34) The essence of the attest function is to:
A) assure the consistent application of correct accounting procedures
B) determine whether the client’s financial statements are fairly stated in accordance
with an applicable financial reporting framework such as U.S. GAAP or IFRS
C) examine individual transactions so that the auditor may certify as to their validity
D) detect collusion and fraud
35) Which of the following is the best reason for management to emphasize fraud
prevention and deterrence?
A) collusion and false documentation make fraud detection difficult to detect
B) collusion is impossible to detect
C) false Documentation is impossible to detect
D) all of the above are equally valid reasons