AT Chap 1&12 PDF

lOMoARcPSD|6018130 MODULE 1 AUDITING CONCEPTS PSA BASED QUESTIONS 1. The primary purpose of an independent audit of financial statements is to A. provide a basis for a...

lOMoARcPSD|6018130 MODULE 1 AUDITING CONCEPTS PSA BASED QUESTIONS 1. The primary purpose of an independent audit of financial statements is to A. provide a basis for assessing management‘s performance. B. comply with laws and regulations. C. assure management that the financial statements are unbiased and free from material misstatements. D. provide users with an unbiased opinion about the fairness of information presented in the financial statements. 2. Which of the following statements best describes a review service? A. A review engagement focuses on providing assurance on the assertions contained in the financial statements of a public company. B. A review engagement focuses on providing assurance on the internal controls of a public company. C. A review engagement focuses on providing limited assurance on financial statements of a private company. D. A review engagement focuses on providing advice in a three-party contract. 3. Professional skepticism dictates that when management makes a statement to the auditor, the auditors should A. disregard the statement because it ranks low of the evidence quality scale. B. corroborate the evidence with other supporting documentation whenever possible. C. require that the statement be put in writing. D. believe on the statement in order to maintain the professional client-auditor relationship. 4. In performing a financial statement audit, which of the following would an auditor least likely consider? A. Internal control B. Compliance with GAAP C. Quality of managements‘ business decisions D. Fairness of the financial statement amounts 5. The level of assurance provided by an audit of detecting a material misstatement is referred to as: Downloaded by Hiji Xian Go ([email protected])  lOMoARcPSD|6018130 A. Absolute assurance. B. High assurance. C. Negative assurance D. Reasonable assurance. 6. An audit involves ascertaining the degree of correspondence between assertions and established criteria. In the case of financial statement audit, which of the following is not a valid criterion? A. Accounting standards generally accepted in the Philippines. B. International Accounting Standards. C. Authoritative financial reporting framework. D. Philippine Standards on Auditing. 7. Which of the following statements is (are) true regarding the provision of assurance services? I. The third party who receives the assurance generally pays for the assurance received. II. Assurance services always involve a report by one person to a third party on which an independent organization provides assurance. III. Assurance services can be provided either on information or processes. A. I and II. B. I and III. C. III only. D. I, II, and III. 8. Which of the following is least likely an objective of an assurance engagement? A. The engagement is intended to prevent the issuance of materially misleading information. B. The engagement is intended to enhance the credibility of information about a subject matter. C. An assurance engagement is intended for a professional accountant to express a conclusion that provides the intended users with a level of assurance about the subject matter. D. The engagement is intended to provide a level of assurance to be issued by a professional accountant about the information of being in conformity, in all material respects, with suitable criteria. 9. The broad range of assurance engagements includes all, but which of the following? 1.) Engagements intended to provide high or moderate levels of assurance. 2.) Preparation of tax returns, though no conclusion is expressed. Downloaded by Hiji Xian Go ([email protected])  lOMoARcPSD|6018130 3.) Attest and direct reporting engagements. 4.) Engagements to report externally, but not internally. 5.) Engagements in the private and public sector. 6.) Agreed-upon procedure engagement. A. 2, 4, 5 B. 2, 4, 6 C. 2, 5, 6 D. 4, 6 10. Which statement does not accurately describe an assurance engagement? A. The objective of an assurance engagement is for a professional accountant to evaluate or measure a subject matter that is the responsibility of another party against identified suitable criteria, and to express a conclusion that provides the intended user with a level of assurance about that subject matter. B. Not all engagements performed by professional accountants are assurance engagements. C. A particular engagement, to be an assurance engagement, depends upon whether it exhibits all the following elements: a two-party relationship, a subject matter, suitable criteria, and a conclusion. D. An engagement in form of agreed-upon procedures result in the expressions of factual findings. 11. Which of the following is not an element of an assurance engagement? A. A subject matter. B. Suitable criteria. C. A conclusion. D. A two-party relationship. 12. A draft of statement, studies or standards should be discussed by the Council en banc. How many members of AASC are required to approve the draft for exposure? A. Majority B. Ten C. Eight D. Twelve 13. Theoretically, it is possible to provide an infinite range of assurance from a very low level of assurance to an absolute level of assurance in practice, the professional accountants cannot provide absolute assurance because of the following, except: A. The professional accountants employ testing process. Downloaded by Hiji Xian Go ([email protected])  lOMoARcPSD|6018130 B. The internal control has its inherent limitations. C. The use of judgments in gathering evidence and drawing conclusions based on that evidence. D. The lack of expertise of the professional accountants in doing a systematic engagement process. 14. Which is not true of the intended user? A. The intended user is the person or class of persons for whom the professional accountant prepares the report for a specific use or purpose. B. The intended user(s) is (are) always limited to the addressee of the professional accountant‘s report. C. The responsible party may also be the one of the intended users. D. The intended user(s) may not be the addressee of the professional accountant‘s report. 15. Which of the following is least likely a subject matter of an assurance engagement? A. Data. B. System and processes. C. Compliance and regulations. D. Degree of loyalty of employees to their employer. 16. The practitioner‘s report on an assurance engagement should always include the following, except: A. A description of the engagement and identification of the subject matter. B. Identification of the standards under which the engagement was conducted. C. Reference to the work of an expert. D. Identification of the criteria. 17. Some or all of the following are planning considerations: I. Criteria to be used. II. Nature and extent of involvement of the experts. III. Possible sources of evidence. IV. Type of conclusion to be issued. V. Preliminary judgment about materiality and engagement risk. VI. Content of the management letter. Which of the following are matters that need to be considered in planning an assurance engagement? A. All of them. B. I, II, III, V Downloaded by Hiji Xian Go ([email protected])  lOMoARcPSD|6018130 C. II, III, IV, VI D. I, III, V, VI 18. How many members of the AASC are needed to approve the exposed draft as Philippine Standards on Auditing? A. Majority of the regular members. B. At least eight. C. At least ten D. At least twelve. 19. Which of the following is required if the professional accountant uses experts who are not professional accountants? A. The ultimate responsibility or the professional service is assumed by the expert who is not a professional accountant. B. The professional accountant is discouraged to engage the services of experts who are not a professional accountant. C. The professional accountant must take steps to see that such experts are aware of the ethical requirements of the profession. D. Experts who are not professional accountants need not be informed of ethical requirements because they are not members of the Accountancy profession. 20. Which of the following is expected of AASC to do? A. AASC should normally expose a proposed interpretation of statements. B. AASC should normally expose its opinion on specific queries from a practicing CPA. C. When it is deemed necessary to expose its statement for a comment on proposed interpretations of statements, the exposure period is understandably shorter than those of the regular drafts of standards. D. To make the statements on Philippine Standards on Auditing operative, the final statement shall be submitted to the Board of Accountancy for approval. 21. Which one of the following is not a key attribute that is essential to perform an assurance service? A. Subject matter knowledge B. Independence C. Established suitable criteria D. Accounting skills 22. As it relates to an audit, materiality is A. not taken into consideration. B. related party to the sufficiency of procedures performed. Downloaded by Hiji Xian Go ([email protected])  lOMoARcPSD|6018130 C. based upon audit fees. D. determined based upon the importance to a user of the financial statement. 23. The suitability of the criteria to which the professional accountant will base his evaluation of the subject matter partly depends on: A B C D Relevance YES YES YES NO Reliability YES YES YES YES Understandability YES NO YES NO Neutrality NO NO YES YES 24. How did the framework of Philippine Standards on Auditing conceptually describe assurance? A. It refers to the auditor‘s satisfaction as to the reliability of an assertion being made by one party for use by another party. B. The level of assurance that may be provided is determined by the reporting objective. C. An assurance is expressed positively in the report. D. Because of the inherent limitation in an audit, the assurance is of limited one. 25. It provides a threshold or cutoff point rather than being a primary qualitative characteristic which information must have if it is to be useful. A. Materiality B. Reliability C. Relevance D. Misstatement Downloaded by Hiji Xian Go ([email protected])  lOMoARcPSD|6018130 QUIZZERS 1. The difference between what the public expects to get from the audited financial statements and what the public is actually getting is known as: A. Credibility gap B. Audit gap C. Expectation gap D. Level of assurance gap 2. Which of the following statements does not properly describe an element of the theoretical framework of auditing? A. The data to be audited can be verified. B. Short-term conflicts may exist between the managers who prepare the data and the auditors who examine them. C. Auditors act on behalf of management. D. An audit benefits the public. 3. An audit of financial statements is conducted in order to determine if the A. organization is operation efficiently and effectively. B. auditee is following specific procedures or rules set down by some higher authority. C. overall financial statements are stated in accordance with specified criteria. D. client entity prescribes a good internal control system. 4. Which of the following does not describe a condition that creates a demand for auditing? A. Conflict between an information provider and a user can result in biased information. B. Information can have substantial economic consequences for a decision maker. C. Expertise is often required for information preparation and verification. D. Users can directly assess the quality of information. 5. Why does a company choose to have an independent auditor report on its financial statements? A. Independent auditors will always detect management fraud. B. The company‘s management preparing the statements may have a vested interest in reporting certain results. C. Independent auditors guarantee the accuracy of the financial statements. D. An independent audit is designed to search for deficiencies in the company‘s internal control. Downloaded by Hiji Xian Go ([email protected])  lOMoARcPSD|6018130 6. Which of the following criteria is unique to the independent auditor‘s attest function? A. General competence B. Familiarity with the particular industry in which each client operates C. Due professional care D. Independence 7. Which of the following best describes the main reason why the independent auditor‘s report on an entity‘s financial statements? A. A management fraud may exist, and it is likely to be detected by independent auditors. B. The management that prepares the statements and the persons who use the statements may have conflicting interests. C. Misstated account balances may be corrected as a result of an independent audit work. D. The management that prepares the statements may have overlooked a poorly designed system of internal control. 8. Information risk refers to the risk that A. the client‘s financial statements may be materially false and misleading. B. the auditor may express an unqualified opinion on financial statements that are materially misstated. C. the client entity may not be able to remain in business. D. errors and frauds would not be detected by the auditor‘s procedures. 9. Which of the following is responsible for an entity‘s financial statements? A. The entity‘s management B. The entity‘s audit committee C. The entity‘s internal auditors D. The entity‘s board of directors 10. A typical objective of an operational audit for the auditor to A. determine whether the financial statements fairly present the client entity‘s operations. B. evaluate the feasibility of attaining the client entity‘s operational objectives. C. make recommendations to client for improving its performance. D. report on the entity‘s relative success in maximizing its profits. 11. Which of the following types of audit is performed in order to determine whether an entity‘s financial statements are fairly stated, in all material respects in conformity with the generally accepted accounting principles? Downloaded by Hiji Xian Go ([email protected])  lOMoARcPSD|6018130 A. Operational audit B. Financial statement audit C. Compliance audit D. Performance audit 12. An independent audit is important to the readers of financial statements because it A. provides a measure of management‘s stewardship function. B. measures and communicates the financial data included in the financial statements. C. objectively examines and reports on management‘s financial statements. D. reports on the accuracy of information in the financial statements. 13. Which of the following types of audit uses laws and regulations as its criteria? A. Operational audit B. Financial statements audit C. Compliance audit D. Financial audit 14. Which of the following types of auditing is performed most commonly by CPAs on a contractual basis? A. Internal auditing B. Government auditing C. BSP bank audit D. External auditing 15. The primary goal of the CPA in performing the attest function is to A. detect fraud. B. examine individual transactions that the auditor may certify as to their validity. C. determine whether the client‘s assertions as embodied in the financial statements are fairly stated. D. assure the consistent application of correct accounting procedures. 16. An independent audit goal aids in the communication of economic data because the audit A. confirms the accuracy of management‘s financial representation. B. lends credibility to financial statements. C. guarantees that financial data are fairly presented. Downloaded by Hiji Xian Go ([email protected])  lOMoARcPSD|6018130 D. assures the readers of financial statements that any fraudulent activity has been detected and its effect has been corrected. 17. Which of the following best describes the attest process? A. Providing accuracy of the books and records. B. Gathering sufficient evidence about specific and known assertions. C. Assisting management in the successful operations of the company. D. Assembling and filing tax returns and related supplemental information. 18. The assumption underlying an audit of financial statements is that they will be used by A. the regulatory agencies to verify information that is relevant to their supervisory functions. B. the board of directors as basis of detecting cash dividends. C. the general public in making investment decisions. D. different groups for different purposes. 19. Which of the following is an example of an assertion made by the management in an entity‘s financial statements? A. The financial statements are prepared in an unbiased manner. B. The reported inventory balances reflect all related transactions for the period. C. The reported accounts receivable do not include any uncollectible accounts. D. The scope of the auditor‘s investigation is not limited in any way by management. 20. A CPA certificate is an evidence of A. recognition of independence. B. basic competence at the time the certificate is granted. C. culmination of the education process. D. membership in the PICPA. 21. An audit can have a significant effect on A. information risk. B. business risk. C. the risk-free interest rate. D. all of these. 22. Which of the following is a cause of information risk? A. voluminous data. B. biases and motives of the provider of information. Downloaded by Hiji Xian Go ([email protected])  lOMoARcPSD|6018130 C. remoteness of the provider of the information. D. each of these is a cause of information risk. 23. The main way(s) to reduce information risk is to have A. the user verify the information. B. the user share the information risk with management. C. audited financial statements provided. D. all of these. 24. The predominant type of attestation service performed by CPAs is A. audit. B. review. C. compilation. D. management consulting. 25. Upon completion of a typical audit, the auditor has A. total assurance that all material errors and irregularities have been found. B. high level of assurance that all material errors and irregularities have been found. C. a low level of assurance that all material errors and irregularities have been found. D. no assurance that all material errors and irregularities have been found. 26. The single feature that most clearly distinguishes auditing, attestation, and assurance is the A. type of service being rendered. B. training required to perform the service. C. scope of services. D. CPA‘s approach to the service. 27. Which of the following attributes is more closely associated with assurance services performed by a CPA firm than with other lines of professional work? A. Integrity B. Competence C. Independence D. Keeping informed on current professional developments. 28. An investor, while recording the financial statements of Silver Corporation, learned that the statements are accompanied by an unqualified auditor‘s report. From this the investor may conclude that: Downloaded by Hiji Xian Go ([email protected])  lOMoARcPSD|6018130 A. Any disputes over significant accounting issues have been settled to the auditor‘s satisfaction. B. The auditor is satisfied that Silver‘s operationally efficient. C. Informative disclosures in the financial statements but not necessarily in the notes to financial statements are to be regarded as reasonably adequate. D. The auditor has ascertained that Silver‘s financial statements have been prepared accurately. 29. A CPA should maintain objectively and be free of conflicts of interest when performing: A. Audits, but not any other professional services B. All attestation services, but not other professional services C. All attestation and tax services, but not other professional services D. All professional services 30. A summary of findings rather than assurance is most likely to be issued n which engagement? A. Agreed-upon B. Compilation C. Examination D. Review 31. Which of the following professional has primary responsibility for the performance of an audit? A. The managing partner of the firm B. The senior assigned t the engagement C. The manager assigned to the engagement D. The partner in charge of the engagement 32. Which of the following services provides the highest level of assurance to third parties about a company‘s financial statements? A. Audit B. Review C. Compilation D. Each of the above provides the same level of assurance 33. The most common type of audit report contains a(n): A. Adverse opinion B. Disclaimer of opinion C. Qualified opinion D. Unqualified opinion Downloaded by Hiji Xian Go ([email protected])  lOMoARcPSD|6018130 34. The auditor‘s judgment concerning the overall fairness of presentation of financial position, results of operation, and changes in cash flow is applied within the framework of A. Quality control B. Generally accepted auditing standards which include concept of materiality C. The auditor‘s evaluation of the audited company‘s internal control D. Philippine Financial Reporting Standards 35. In ―auditing‖ accounting data, the auditor is concerned with A. determining whether recorded information properly reflects the economic events that occurred during the accounting period. B. determining if fraud as occurred. C. determining if taxable income has been calculated correctly. D. analyzing the financial information to be sure that it complied with government requirement. 36. In all cases, audit reports must A. be signed by the individual who performed that audit procedures. B. certify the accuracy of the quantitative information which was audited. C. inform readers of the degree of correspondence between the quantifiable information and the established criteria. D. communicate the auditor‘s findings to the general public. 37. Which one of the following is an example of management expectations from the independent auditor? A. An expert providing a written communication as the product of the engagement. B. Individuals who perform day-to-day accounting functions on behalf of the company. C. An active participant in management decision-making. D. An individual source of expertise on financial and other matters. 38. When providing consulting services, the CPA acts primarily as a(n): A. independent accountant. B. expert on compliance with industry standards. C. technology specialist. D. objective advisor on how to use the information. 39. In performing attestation services, a CPA will normally: Downloaded by Hiji Xian Go ([email protected])  lOMoARcPSD|6018130 A. improve the quality of information, or its context, for better use of the decision makers B. recommend how to use the information. C. perform market analysis and cost estimates. D. states a conclusion about a written assertion. 40. Which of the following best describes an operational audit? A. It requires a constant review of the administrative controls by internal auditors as they relate to operations of the company. B. It concentrates on implementing financial and accounting control in a newly organized company. C. It attempts of verifying the fair presentation of a company‘s results of operations. D. It concentrates on seeking out aspects of operations in which waste would be reduced by the introduction of controls. 41. Evidence is defined as any information used by the auditor to determine whether the quantifiable information being audited is stated in accordance with the established criteria. Evidence takes many different forms, including A. oral representation (testimony) from the client management. B. written communication (confirmation) with outsiders. C. observations made by the auditor. D. all of these. 42. Because the client company pays the external auditor a professional fee, he A. is absolutely independent and may conduct an audit. B. may be sufficiently independent to conduct an audit. C. is never considered to be independent. D. must receive approval of the Securities and Exchange Commission before conducting an audit. 43. A typical objective of an operational audit is to determine whether an entity‘s A. financial statements fairly present financial position and cash flows. B. financial statements present fairly the results of operations. C. financial statements fairly present financial position, results of operations, and cash flows. D. specific operating units are functioning efficiently and effectively. 44. Which of the following is more difficult to evaluate objectively? A. Efficiency and effectiveness of operations. B. Compliance with applicable government regulations. Downloaded by Hiji Xian Go ([email protected])  lOMoARcPSD|6018130 C. Presentation of financial statements in accordance with the applicable financial reporting criteria. D. All the given criteria are equally difficult to evaluate objectively. 45. An audit which is undertaken in order to determine whether the auditee is following specific procedures or rules laid down by somme higher authority is classified as a(n) A. audit of financial statements. B. compliance audit. C. operational audit. D. production audit. 46. Assurance services involve which of the following? A. Relevance as well as reliability. B. Non-financial information as well as traditional financial statements. C. Electronic databases as well as printed reports. D. All of these. 47. Which of the following is a difference between attestation and auditing standards? A. Attestation standards cover attest engagements other than those involving GAAP financial statement. B. Attestation standards do not require independence in mental attitude. C. Auditing standards apply only to CPAs while attestation standards apply to all accountants. D. Attestation standards do not include standards of reporting. 48. Which of the following pertains to the reliability of audit evidence? A. The independence of the source of evidence. B. The expertise level of the auditor who obtains the evidence. C. Whether the audit client uses a manual or computerized accounting system. D. The quantity of the evidence obtained. 49. The audit committee of the board of directors of a company is responsible for: A. hiring the auditor. B. preparing the financial statements. C. the audit workpapers. D. independence and obtaining evidence. 50. Which of the following statements is true concerning a compliance audit? Downloaded by Hiji Xian Go ([email protected])  lOMoARcPSD|6018130 A. Compliance audits are only performed by government auditors. B. Risks such as inherent risk, control risk, and detection risk are not appropriate in planning and performance of a compliance audit. C. Materiality is difficult to measure in a compliance audit. D. A report on compliance can only include negative assurance. 51. Audits of financial statements include an expression of a conclusion about which of the following financial statement characteristics? A. Governance B. Reliability C. Relevance D. Timeliness 52. A review of company‘s financial statements by a CPA firm: A. is significantly less in scope than an audit and results in a report which provides positive assurance, although not absolute assurance. B. is similar in scope to an audit and adds similar credibility to the statements. C. concludes with the issuance of a report expressing the CPA‘s opinion as to the fairness of the statements. D. is designed to provide only limited or moderate assurance. 53. The attest function: A. is an essential part of every engagement performed by a CPA. B. require a complete review of all transactions during the period under examination. C. requires a review of all transactions during the period under examination. D. includes the preparation of a written report about the CPA‘s conclusion. 54. Broadly defined, the subject matter of any audit consists of A. assertions. B. operating data. C. financial statements. D. economic data. 55. The expertise that distinguishes auditors from accountants is in terms of the A. ability to interpret generally accepted accounting principles. B. requirement to possess education beyond the Bachelor‘s degree. C. accumulation and interpretation of evidence. D. ability to interpret accounting standards. Downloaded by Hiji Xian Go ([email protected])  lOMoARcPSD|6018130 56. Most of the independent auditor‘s work in formulating an opinion on financial statements consists of A. studying and evaluating internal control. B. obtaining and examining evidential matter. C. examining cash transactions. D. comparing recorder accountability with physical existence of property. 57. Attestation risk is limited to a low level in which of the following engagement(s)? A. Both examination and review B. Examination but not review C. Review but not examination D. Neither examination nor review 58. An engagement in which a CPA firm arranges for a critical review of its practices by another CPA firm is referred to as a(n): a. Peer review engagement b. Quality control engagement c. Quality assurance engagement d. Attestation engagement 59. The review of a company‘s financial statements by a CPA firm A. is substantially less in scope of procedures than an audit. B. requires detailed analysis of major accounts. C. has similar scope as an audit and adds similar credibility to the statements. D. culminates in issuance of a report expressing the CPA‘s opinion as to the fairness of the statements. 60. The risk associated with a company‘s survival and profitability is referred to as: A. Business risk B. Information risk C. Detection risk D. Control risk 61. An operational audit differs in many ways from an audit of financial statements. Which of the following is the best example of these differences? A. The unusual audit financial statement covers the four basic financial statements whereas the operational audit is usually limited either the balance sheet or the income statement. B. The boundaries of an operation audit are often drawn from an organization chart and are not limited to a single accounting period. Downloaded by Hiji Xian Go ([email protected])  lOMoARcPSD|6018130 C. Operation audits do not ordinarily result in preparation of a report. D. The operational audit deals with operating profit while financial audit considers both the operating and net profits. 62. The audit of historical financial statements should be conducted by the CPA professionals in accordance with A. Philippine Financial Reporting Standards B. Philippine Standards on Auditing C. The auditor‘s judgment D. The audit program 63. Whenever a CPA professional is engaged to perform an audit of financial statements according to Philippine Standards on Auditing, he is required to comply with those standards in order to A. eliminate audit risk. B. eliminate the professional judgment in resolving audit issues. C. have a measure of the quality of audit performance. D. to reduce the audit program to be prepared by the auditor. 64. What is the overall objective of internal auditing? A. To attest to the efficiency with which resources used. B. Ascertain that the cost of internal control is justified. C. To ascertain that financial statements present accurately the financial position, operating results, and changes in cash and stockholders‘ equity. D. To help other members of the organization of effectively discharging their responsibilities. 65. In determining the primary responsibility of external auditor for an audit if a company‘s financial statements, the auditor owes primarily allegiance to: A. the management of the audit client because the auditor is hired and paid by management. B. the audit committee to the audit client because that committee is responsible for coordinating and reviewing all audit objectives within the company. C. stockholders, creditors, and the investing public. D. the Auditing and Assurance Standards Council, because it determines auditing standards and auditor‘s responsibility. 66. Which of the following would not represent one of the primary problems that would lead the users to demand for independent audits of a company‘s financial statements? A. Management bias in preparing financial statements. Downloaded by Hiji Xian Go ([email protected])  lOMoARcPSD|6018130 B. The downsizing of business and financial markets. C. The complexity of transactions affecting financial statements. D. The remoteness of the user from the organization and thus the inability of the user to directly obtain financial information from the company. 67. Assurance services involve all the following except: A. Improving the quality of information for decision purposes. B. Improving the quality of the decision model used. C. Improving the relevance of information. D. Implementing a system that improves the processing of information. 68. Which of the following is the broadest and most inclusive concept? A. Audits of financial statements B. Internal control audit C. Assurance services D. Compilation services 69. Which of the following is a correct statement? A. An audit provides limited assurance by attesting to the fairness of the client‘s assertions. B. A review provides positive assurance by attesting the reliability of the client‘s assertions. C. Management consulting services provide attestation in all cases. D. Accounting services do not provide attestation. 70. Unlike consulting services, assurance services: A. Make recommendation to management B. Report on how to use information C. Report on the quality of information D. Are two-party contracts 71. Financial statement audits: A. Reduce the cost of capital B. Report on compliance with laws and regulations C. Assess management‘s efficiency D. Overlook information risk 72. A summary of findings rather than assurance is most likely to be included in a(n): A. Agreed-upon procedures report Downloaded by Hiji Xian Go ([email protected])  lOMoARcPSD|6018130 B. Compilation report C. Examination report D. Review report 73. The risk associated with a company‘s survival and profitability is referred to as: A. Business risk B. Information risk C. Detection risk D. Control risk 74. An engagement in which a CPA firm arranges for a critical review of its practices by another CPA firm is referred to as a(n): A. Peer review engagement B. Quality control engagement C. Quality assurance engagement D. Attestation engagement 75. Attestation risk is limited to a low level in which of the following engagement(s)? A. Both examination and reviews B. Examination but not reviews C. Review but not examinations D. Neither examination nor reviews 76. An operational audit differs in many ways from an audit of financial statements. Which of the following is the best example of these differences? A. The unusual audit financial statement covers the four basic financial statements whereas the operational audit is usually limited either the balance sheet or the income statement. B. The boundaries of an operation audit are often drawn from an organization chart and are not limited to a single accounting period. C. Operation audits do not ordinarily result in preparation of a report. D. The operational audit deals with pre-tax income. 77. The review of a company‘s financial statements by a CPA firm A. is substantially less in scope of procedures than an audit. B. requires detailed analysis of major accounts. C. is of similar scope as an audit and adds similar credibility to the statements. D. culminates in issuance of a report expressing the CPA‘s opinion as to the fairness of the statements. Downloaded by Hiji Xian Go ([email protected])  lOMoARcPSD|6018130 78. When performing an engagement to review a nonpublic entity‘s financial statements, an accountant most likely would: A. Obtain an understanding of the entity‘s internal control. B. Limit the distribution of the accountant‘s report. C. Confirm a sample of significant accounts receivable balances. D. Ask about actions taken a board of directors meetings. 79. Which of the following professionals has primary responsibility for the performance of an audit? A. The managing partner of the firm B. The senior assigned to the engagement C. The manager assigned to the engagement D. The partner in charge of the engagement 80. Assurance services may include which of the following? A. Attesting to financial statements B. Examination of the economy and efficiency if governmental operations C. Evaluation of a division‘s performance for management D. All of the given choices 81. The auditor of financial statements must make very difficult interpretations regarding authoritative literature. Additionally, the auditor must A. Proceed beyond PFRS to assess how the economic activity is portrayed in the financial statements. B. Force management to make certain decisions regarding their financial statements. C. Disregard independence in order to find the underlying truth of the evidence. D. Establish new criteria by which financial statements may be compared. 82. Which one of the following is not a part of the attest process? A. Gathering evidence about assertions B. Providing the accuracy of the books and records C. Evaluating evidence against objective criteria D. Communicating the conclusions reached 83. Which one of the following is not a reason why the users of financial statements desire for an independent assessment of the financial statement presentation? A. Complexity f transactions affecting the financial statements B. Lack of criteria on which to base information C. Remoteness of the user from the organization Downloaded by Hiji Xian Go ([email protected])  lOMoARcPSD|6018130 D. All of them are potential reasons 84. Independent professional services that are provided on financial or other information that improve the quality of decision making are known as A. Internal auditing B. Financial auditing C. Assurance services D. Attestation services 85. An audit which determines whether organizational policies are being followed nd whether external mandates are being met is known as A. A financial audit B. A compliance audit C. An operational audit D. None of the above 86. Which of the following statements is correct regarding a review engagement if a nonpublic entity? A. An accountant must establish an understanding with the client in an engagement letter. B. An accountant must obtain an understanding if the client‘s internal control when performing a review. C. A review provides an accountant with a basis for expressing limited assurance on the financial statements. D. A review report contains an accountant‘s opinion that the financial statements, taken as a whole, present fairly the assertions issued by the management. 87. May a CPA hire for the CPA‘s public accounting firm a non CPA system analyst who specializes in developing computer systems? A. Yes, provided the CPA is qualified to perform each of the specialist‘s tasks. B. Yes, provided the CPA is able to supervise the specialist and evaluate the specialist‘s end product. C. No, because non CPA professionals are not permitted to be associated with CPA firms in public practice. D. No, because developing computer systems is not recognized as a service performed by public accountants. 88. Which of the following services may a CPA perform in carrying out a consulting service for client? I. Analysis of the client‘s accounting system Downloaded by Hiji Xian Go ([email protected])  lOMoARcPSD|6018130 II. Review of the client‘s proposed business plan III. Preparation of information for obtaining financing A. I and II only B. I and III only C. II and III only D. I, II, and III 89. Which of the following describes how the objective of a review of financial statements differs from the objective of a compilation engagement? A. The primary objective of a review engagement is to test the completeness of the financial statements prepared, but a compilation tests for reasonableness. B. The primary objective of a review engagement is to provide positive assurance that the financial statements are fairly presented, but a compilation provides no such assurance. C. In a review engagement, accountants provide limited assurance, but a compilation expresses no assurance. D. In a review engagement, accountants provide reasonable or positive assurance that the financial statements are fairly presented, but a compilation provides limited assurance. 90. Which of the following factors most likely would cause a CPA to decline a new audit engagement? A. The CPA does not understand the entity‘s operations and industry. B. Management acknowledges that the entity has had recurring operating losses. C. The CPA is unable to review he predecessor auditor‘s working papers. D. Management is unwilling to permit inquiry of its legal counsel. Downloaded by Hiji Xian Go ([email protected])