1. Where the auditor has assessed control risk of a particular area of a reduced level, he or she will then a. Eliminate the need to gather evidence in that area b. Test the effectiveness of the controls in that area c. Proceed to expand the sample sizes in that area d. Negotiate with management to determine which controls will be tested in that area

2. Analytical procedures are those that a. Evaluate the accuracy of the account balances b. Assess the overall reasonableness of transactions and balances c. Review the effectiveness of internal control procedures d. Analyze the effect of management procedures on the accounting system

3. If the auditor has obtained a reasonableness level of assurance about the fair presentation of the financial statements through understanding the internal control structure assessing control risk, testing controls, and analytical procedures, then the auditor a. Can issue an unqualified opinion b. Needs to do additional tests of controls so that the assurance level can be increased c. Can write the engagement letter d. Can significantly reduce the test of details

4. After the auditor has completed all the procedures, it is necessary to combine the information obtained to reach an overall conclusion as to whether the financial statements are fairly presented. This is a highly subjective process that relies heavily on a. Standard on auditing b. The Code of Ethics for Professional Accountants c. Financial reporting standards d. The auditors professional judgment

5. An auditor should recognize that the application of auditing procedures may produce evidential matter indicating the possibility of error or irregularities and therefore should a. Design audit tests to detect unrecorded transactions b. Extend the work to audit most recorded transactions and records of an entity c. Plan and perform the engagement with an attitude of professional skepticism d. Not depending on internal accounting control features that are designed to prevent or detect errors or irregularities

6. When a CPA has concluded that action should be taken to prevent future reliance on his report, he should a. Advise his client to make appropriate disclosure of the newly discovered facts and their impact on the financial statements to persons who are known to be currently relying or who are likely rely on the financial statements and the related auditors report b. Recall the financial statements and issue revised statements and include an appropriate opinion c. Advise the client and others do not rely on the financial statements and make appropriate disclosure of the correction in the statements of a subsequent period d. Recall the financial statements and issue a disclaimer of opinion which should generally be followed by revised statements and a qualified opinion

7. When an independent auditors examination of financial statements discloses special circumstances that make the auditor suspect that fraud may exist, the auditors initial course of action should be to a. Recommend that the client pursue the suspected fraud to conclusion that is agreeable to the auditor b. Extend normal audit procedures in attempt to detect the full extent of the suspected fraud c. Reach an understanding with the proper client representative as to whether the auditor or the client is to make the investigation necessary to determine if a fraud has in fact occurred d. Decide whether the fraud, if in fact it should exist, might be of such a magnitude as to affect the auditors report on the financial statements

8. Audit procedures are normally performed a. Early in the accounting period being examined b. Throughout the accounting period being examined, but with emphasis on the transactions near the end c. Within one to three months after the close of the accounting period d. During all three above periods

9. Analytical procedures are one from of test of balances (substantive test), and their performance should begin a. Early in the audit b. After the tests of control (compliance testing) have been completed c. After the internal control system is reviewed but before it is tested and evaluated d. After all compliance testing and other substantive testing has been concluded

10. Which of the following statements is not correct? a. The effectiveness of clients internal control structure has a significant effect on the reliability of most types of evidence b. Since the auditor performs the analytical procedures, they will be competent evidence even if the internal control structure provides inaccurate data c. Both physical examination and mechanical accuracy are likely to be highly reliable if the internal control structure is effective d. A specific type of evidence is rarely sufficient by itself to provide competent evidence to satisfy any audit objective

11. In documenting the nature, timing and extent of audit procedures performed, the auditor shall record the following except a. The identifying characteristics of the specific items or matters tested. b. Who performed the audit work as well as the date such work was completed. c. Who reviewed the audit work performed and the date and extent of such review. d. The time charges in performing the procedures as well as the corresponding audit revenue generated.

12. Which of the following is not considered among the fraud risk factors? a. The need to meet expectations of third parties to obtain additional equity financing b. The granting of significant bonuses if unrealistic profit targets are met c. Ineffective control environment d. The existence and enforcement of a written code of conduct

13. The reason auditors accumulate evidence is to a. Defend themselves in the event of a lawsuit b. Justify the conclusion they have otherwise reached c. Satisfy the requirements of the Securities Acts d. Enable them to reach conclusion about the fairness of the financial statements and issue an appropriate audit report

14. When an analytical procedure revels no unusual fluctuations, the implication is that a. There are no material errors or irregularities. b. There are no material errors. c. There are no material irregularities. d. The possibility of a material error or irregularity is minimized.

15. Which of the following statements is not a reason for utilizing analytical review procedures? a. To assess the entitys ability to continue as a going concern. b. To identify areas with no unusual fluctuations so that fewer detailed test may be performed on those accounts. c. To highlight changes from the prior year to the current year so that trends can be identified which will influence audit planning. d. To determine the magnitude of errors in the financial statements.

16. Which of the following discoveries through the use of analytical procedures would indicate a relatively high risk of financial failure? a. A decline in gross margin percentages. b. An increase in the balance in fixed assets. c. A higher than normal ratio of long term debt to net worth as well as a lower than average ratio of profits to total assets. d. An increase in the ratio of allowance for uncollectible accounts to gross accounts receivable, while at the same time accounts receivable turnover also decreased.

17. Which of the following statements is not a reason for utilizing analytical review procedures? a. To assess the entitys ability to continue as a going concern b. To identify areas with no unusual fluctuations so that fewer detailed tests may be performed on those accounts c. To highlight changes from the prior year to the current year so that trends can be identified which will influence audit planning d. To determine the magnitude of errors in the financial statements

18. Which of the following discoveries through the use of analytical procedures would indicate a relatively high risk of financial failure? a. A decline in gross margin percentage b. An increase in the balance in fixed assets c. A higher than normal ratio of long term debt to net worth as well as a lower than average ratio of profits to total assets d. An increase in the ratio of allowance for uncollectible accounts to gross accounts receivable, while at the same time accounts receivable turnover also decreased

19. Tests of controls are directed towards the controls a. Efficiency b. Effectiveness c. Efficiency and effectiveness d. Cost benefit ratio

20. Analytical procedures are defined in the statements on Auditing Standards as a. Compliance tests b. Substantive tests c. Tests of controls d. Helpful procedures not possessing the validity of other tests available to the auditor

21. Which of the following audit tests is usually the most costly to perform? a. Analytical procedures b. Tests of controls c. Tests of balances d. Substantive tests of transactions

22. Which of the following audit tests is usually the least costly to perform? a. Analytical procedures b. Tests of controls c. Tests of balances d. Substantive tests of transactions

23. Of the following control environment characteristics, identify the one that contributes must to effective internal control A. The audit committee consists of the president, two vice presidents, and the corporate controller B. The company does not have a centralized human resource function C. The company has an effective internal audit staff that monitors controls on a continuous basis D. The company routinely transacts business with related parties

24. Effective internal control A. Reduces the need for management to review exception reports on a day to day basis B. Eliminated risk and potential loss to the organization C. Cannot be circumvented by management D. Is unaffected by changing circumstances and conditions encountered by the organization

25. Effective internal control requires organizational independence of different departments. Organizational independence would be impaired in which of the following situations? A. The internal auditors report to the audit committee of the board of directors B. The controller reports to the vice president of production C. The payroll accounting department reports to the child accountant D. The cashier reports to the treasurer