26 Which of the following is an incorrect phrase? A) Auditing is a systematic process C) Auditing evaluates evidence regarding assertions B) Auditing subjectively obtains and evaluates evidence D) Auditing communicates results to interested users 27 Which of the following criteria is unique to the independent auditor's attest function? A) General competence C) Due professional care B) Familiarity with the particular industry of each client D) Independence 28 Which of the following must accompany unaudited financial statements which are prepared by a CPA? A) Qualified opinion B) Adverse opinion C) :Piecemeal opinion D) Disclaimer opinion 29 Material weaknesses in internal controls prevent the auditor's collection of sufficient, competent evidential matter and will justify issuance of: A) Disclaimer opinion B) Qualified opinion C) Unqualified opinion D) Adverse opinion 30 Which of the following statements reflects an auditor's responsibility for detecting fraud and error? A) An auditor is responsible for detecting employee errors and simple fraud, but not for discovering fraud involving employee collusion or management override. B) An auditor should plan the audit to detect errors and fraud that are caused by departures from the applicable accounting principles. C) An auditor is not responsible for detecting errors and fraud unless the application of PSAs would result in such detection D) An auditor should design the audit to provide reasonable assurance of detecting errors and fraud that are material to the financial statements. 31 If a CPA who is deemed not independent is 'associated' with financial statements this suggests A) Unqualified opinion B) Qualified opinion C) Adverse opinion D) Disclaimer 32 When the auditor believes that required disclosures of a significant nature are omitted from the financial statements under examination, should decide between issuing A) A qualified opinion or an adverse opinion C) An adverse opinion or disclaimer of opinion B) A disclaimer of opinion or a qualified opinion D) An unqualified opinion or a qualified opinion 33 Auditors are responsible for the quantity of the work related to management and control of A) Control risk B) Detection risk C) Inherent risk D) Relative risk 34 It is appropriate and acceptable under PAS for an auditor to A) Assess both inherent and control risk at 100% and achieve an acceptable low audit risk by performing extensive detection work. B) Assess control risk at zero and perform a minimum of detection work. C) Assess inherent risk at zero and perform a minimum of detection work. D Decide that audit risk can be 40% 35 When setting a preliminary judgment about materiality A) more evidence us required for a low peso amount than for a high peso amount. B) less evidence is required for a low peso amount than for a high peso amount. C) the same amount of evidence is required for either low or high peso amount. D) There is no relationship between it and the peso amount of evidence needed. 36 Which of the following statements is not correct? A) Normally, the most important base used as the criterion for deciding materiality is total assets B) Materiality is a relative rather than an absolute concept. C) Qualitative factors as well as quantitative factors affect materiality D) Given equal peso amounts, irregularities are usually considered more important than errors. 37 Regardless of how the allocation of the preliminary judgment about materiality was done, when the audit is complete the auditor must be confident that the combined errors in all accounts are A) less than or equal to the preliminary judgment C) equal to the preliminary judgment B) less than the preliminary judgment D) more than the preliminary judgment 38 The audit risk model is used primarily A) For planning purposes in determining how much evidence to accumulate B) While doing test of controls C) To determine the type of opinion to express D) To evaluate the evidence which has been gathered 39 Which of the following discoveries by the auditor would not raise the red flag of increased inherent risk? A) Client makes extensive use of notes receivable and notes payable rather than buying and selling on open account B) Client is a parent company with a subsidiary C) Management bonuses are based on a percentage of net income D) A bond indenture requires a current ratio of at least 3:1 40 The audit risk against which the auditor requires reasonable protection is a combination of two separate risks. The first of these is that material errors will occur in the accounting process by which the financial statements are developed and the second is that A) a company's system of internal control is not adequate to detect errors and irregularities B) management may possess an attitude that lacks integrity C) evidential matter is not competent enough for the auditor to form an opinion based on reasonable assurance D) those errors that occur will not be detected in the auditor's examination 41 Inherent risk is reduced where the likelihood of defalcation is low. This would be true for an account such A) accounts receivable B) inventory C) marketable securities D) cash 42 As acceptable level of detection risk decreases, the assurance directly proved from A) substantive tests should increase C) tests of controls should increase B) substantive tests should decrease D) tests of controls should decrease 43 Which of the following type of audit evidence is the most persuasive? A) Pre-numbered client purchase order form, C) Bank statements obtained from the client B) Client work sheets supporting cost allocation D) Client representation letter 44 Which of the following types of audit evidence is the least persuasive? A) Pre-numbered purchase order forms C) Test counts of inventory performed by auditor B) Bank statements obtained from the client D) Correspondence from the client's attorney 45 In evaluating the reasonableness of an accounting estimate, an auditor most likely would concentrate on key factors that are... A) Consistent with prior periods C) Objective and not susceptible to bias B) Similar to industry guidelines D) Deviations from historical patterns 46 An auditor may achieve audit objective related to particular assertions by A) Performing analytical procedures C) Preparing audit working papers B) Adhering to a system of quality control D) Increasing the level of detection risk. 47 The permanent file of auditor's working papers generally would not include A) Bond indenture agreements C) Working trial balance B) Lease agreements D) Flowchart of internal control 48 An auditor concluded that no excessive costs for the plant were charged to inventory. This conclusion most likely related to the auditor's objective to obtain evidence about the financial statement assertions regarding inventory including presentation and disclosure and A) Valuation and allocation C) Existence or occurrence B) Completeness D) Rights and obligations 49 Which of the following statements is correct about the auditor's use of the work of a specialist? A) The specialist should not have an understanding of the auditor's corroborative use of the specialist's findings B) The auditor is required to perform substantive procedures to verify the specialist's assumption and findings C) The client should not have an understanding of the nature of the work to be performed by the specialist D) The auditor should obtain an understanding of the methods and assumptions used the specialist. 50 Refusal of a client's attorney to provide information requested in an inquiry letter generally is considered A) Grounds for an adverse opinion C) Reason to withdraw from the engagement B) A limitation on the scope of the audit D) Equivalent to a reportable condition