Mindanao State University

ACCOUNTING 141

DOCUMENTATION

1)In determining the quantity and qualify of evidence to gather, the auditor will be satisfied when the evidence is

1. 1. irrefutable
   2. highly persuasive
   3. conclusive
   4. completely convincing

2. The current file of the auditor’s working papers generally should include

1. 1. a flowchart of the internal controls
   2. a copy of the financial statements
   3. organization charts
   4. copies of bond and note indentures

3. It refers to the detailed instructions for the collection of a particular type of audit evidence that is to be obtained at some time during the audit

1. 1. sampling plan
   2. audit procedure
   3. audit program
   4. audit plan

4. The auditor’s working papers will least likely include documentation showing how the

1. 1. schedules are prepared by the client personnel.
   2. engagement is planned.
   3. understanding of the client’s internal control is obtained and control risk was assessed.
   4. unusual matters are resolved.

5. Although the quantity and content of audit working papers vary with each particular engagement, an auditor’s permanent files most likely include

1. 1. schedules that support the current year’s adjusting entries.
   2. prior years’ accounts receivable confirmations that are classified as exceptions.
   3. documentation indicating that the audit work is adequately planned and supervised.
   4. analyses of capital stock and other owner’s equity accounts.

6. The audit working paper that reflects the major components of an amount reported in the financial statements is the

1. 1. interbank transfer schedule.
   2. supporting schedule.
   3. carry forward schedule.
   4. lead schedule.

7. An auditor ordinarily uses a working trial balance resembling the financial statements without footnotes, but containing columns for

1. 1. cash flow increases and decreases.
   2. audit objectives and assertions.
   3. reclassifications and adjustments.
   4. reconciliation and tick marks.

8. In the course of an audit of financial statements for the purpose of expressing an opinion thereon, the auditor will normally prepare a schedule of unadjusted differences for which he did not propose adjustments when they were uncovered. The primary purpose of this schedule is to

1. 1. point out to the responsible client officials the errors made by various company personnel.
   2. summarize the adjustments that must be made before the company can prepare and submit its income tax returns.
   3. identify the potential effects on the financial statement of errors or disputed items that

were considered immaterial when discovered.

1. 4. summarize the errors made by the company so that corrections can be made after the

audited financial statements are released.

9. Which of the following analyses appearing in a predecessor’s working papers would the successor auditor least likely review?

1. 1. Analysis of noncurrent balance sheet accounts
   2. Analysis of current balance sheet accounts
   3. Analysis of contingencies
   4. Analysis of income statement accounts

10. Using personal computers in auditing may affect the methods used to review the work of staff assistants because

1. 1. the audit fieldwork standards for supervision may differ.
   2. documenting the supervisory review may require assistance of consulting services personnel.
   3. supervisory personnel may not have an understanding of the capabilities and limitations

of personal computers.

1. 4. working paper documentation may not contain readily observable details of calculations.

11. In an internal audit, the audit supervisor determines that the working papers are complete

1. 1. when satisfied that the audit objectives have been met and the working papers support

the conclusions.

1. 2. when working papers refer to the steps outlined in the audit program.

1. 3. only after the auditor who prepared the working papers has signed and dated them.
   4. when proper cross-references to other working papers are noted.

12. Standardized working papers are often used, chiefly because they allow working papers to be prepared more

1. 1. efficiently.
   2. comprehensively.
   3. neatly.
   4. accurately.

13. After the fieldwork audit procedures are completed, a partner of the CPA firm who has not been involved in the audit performs a second or wrap-up working paper review. This second review usually focuses on

1. 1. the fair presentation of the financial statements in conformity with GAAP.
   2. fraud involving the client’s management and its employeess.
   3. the materiality of the adjusting entries proposed by the audit staff.
   4. the communication of internal control weaknesses to the client’s audit committee.

14. An auditor’s working papers should

1. 1. not be permitted to serve as a reference source for the client.
   2. not contain comments critical of management.
   3. show that the accounting records agree or reconcile with the financial statements.
   4. be considered the primary support for the financial statements being audited.

15. “The detailed description of the results of the various evidence decisions for a specific audit” is called an

1. 1. audit procedure.
   2. audit plan.
   3. audit program.
   4. audit guide.

16. In using the work of a specialist, an understanding should exist among the auditor, the client, and the specialist as to the nature of the work to be performed by the specialist. Preferebly, the understanding should be documented and would include all of the following except

1. 1. the objectives and scope of the specialist’s work.
   2. the specialist’s representations as to his relationship, if any, to the client.
   3. the specialist’s understanding of the auditor’s corroborative use of the specialist’s findings in relation to the representations in the financial statements.
   4. a statement that the methods or assumptions to be used are not inconsistent with those

used by the client.

17. Which of the following is an invalid description of why working papers are developed?

1. 1. Facilitates third-party reviews

1. 2. Aids in the planning, performance, and review of audits
   3. Provides the principal evidential support for the auditor’s report
   4. Aids in the professional development of the operating staff

18. During the working paper review, an audit supervisor finds that the auditor’s reported findings are not adequately cross-referenced to supporting documentation. The supervisor will most likely instruct the auditor to

1. 1. prepare a working paper to indicate that the full scope of the audit was carried out.
   2. familiarize himself with the sequence of working papers so that he will be able to answer

questions about the conclusions stated in the report.

1. 3. eliminate any cross-references to other working papers since the system is unclear.
   4. provide a working paper indexing system that shows the relationship between findings,

conclusions, and the related facts.

19. The main advantage of properly indexed working papers is to

1. 1. reduce the size of the file.
   2. better organize the working papers.
   3. allow division of labor within the audit team.
   4. facilitate the efficient use of audit staff.

20. Which of the following statements about working papers is correct?

1. 1. Working papers are not permitted to be used as a reference source by the client.
   2. The auditor should document his understanding of the client’s internal control which is to be used to plan the audit.
   3. Working papers may be regarded as a substitute for the client’s accunting records.
   4. When reporting on comparative financial statements, the independent auditor may discard working papers after two years.

21. Which of the following is a basic tool used by the auditor to control the audit work and review the progress of the audit?

1. 1. Time and expense summary
   2. Engagement letter
   3. Progress flowchart
   4. Audit program

22. Which of the following working papers would one normally expect to find in the permanent file?

1. 1. A copy of a long-term bond indenture
   2. The working trial balance
   3. An analysis of additions and disposals relating to marketable securities
   4. A workpaper analyzing customer replies to confirmation requests.

23. The permanent file section of the working papers that is kept for each audit client most likely contains

1. 1. review notes pertaining to questions and comments regarding the audit work performed.
   2. a schedule of time spent on the engagement by each individual auditor.
   3. correspondence with the client’s legal counsel concerning pending litigation.
   4. narrative descriptions of the client’s internal control policies and procedures.

24. Which of the following statements is correct with respect to ownership of audit documentation?

1. 1. The audit firm owns the audit documentation.
   2. The audit client owns the audit documentation.
   3. The audit client and audit firm jointly own the audit documentation.
   4. The law is not explicit with respect to the ownership of audit documentation.

25. Which of the following statements is true?

1. 1. The auditor’s objectives follow and are closely related to management assertions.
   2. Management’s assertions follow and are closely related to the auditor’s objectives.
   3. The auditor’s primary responsibility is to find and disclose fraudulent managemetn assertions.
   4. Assertions about presentation and disclosure deal with whether the accounts have been included in the financial statements at appropriate amounts.

26. Which of the following is an incorrect statement about audit objectives?

1. 1. There should be a one-to-one relationship between audit objectives and procedures.
   2. Audit objectives should be developed on the basis of management assertions about the

financial statement components.

1. 3. Selection of tests to meet audit objectives should depend upon the understanding on internal control.
   4. The auditor should resolve any substantial doubt about any of the management’s material financial statement assertions.

27. Which of the following asseertions is least likely to be tested exclusively at an interim date?

1. 1. Existence for inventory
   2. Completeness for accounts receivable
   3. Existence for equipment
   4. Valuation for marketable securities

28. Assuming a low assessed level of control risk, which of the following audit procedures is least likely to be performed?

1. 1. Physical inspection of a sample of inventory
   2. Search for unrecorded cash receipts
   3. Obtaining a client representation letter
   4. Confirmation of accounts receivable

29. Which of the following auditing procedures is ordinarily performed last?

1. 1. Reading the minutes of the directors’ meetingd held during the audit year
   2. Confirming accounts payable balances
   3. Obtaining a management representation letter
   4. Testing of control procedures on purchasing function

30. Which of the following is not one of the broad categories of assertions?

1. 1. General or specific transaction objectives
   2. Existence or occurrence
   3. Valuation or allocation
   4. Presentation and disclosure

31. Determining whether amounts are in conformity with GAAP addresses the proper measurement of assets, liabilities, revenues, and expenses which includes all of the following except:

1. 1. The reasonableness of management’s accounting estimates
   2. Proper application of valuation principles
   3. Proper application of matching principle
   4. The reasonableness of management’s accounting policies

32. For a particular assertion, control risk is the risk that

1. 1. controls will not detect a material misstatement that occurs.
   2. audit procedures will fail to detect a weak control system.
   3. the prescribed control procedures will not be applied uniformly.
   4. a material misstatement will occur in the accounting process.

33. Which of the following is an incorrect statement?

1. 1. An example of a completeness addertion would be that notes payable in the balance sheet includes all such obligations of the entity.
   2. An example of an occurrence assertion would be that sales in the income statement represent exchanges of goods or services that actually take place.
   3. An example of a rights/obligations assertion would be that amounts capitalized for leases

in the balance sheet represent the cost of the entity’s rights to leased property.

1. 4. An example of a valuation/allocation assertion would be that property, plant, and equipment are recorded at market value.

34. A distinction must be made between general audit ojectives and specific audit objectives for each account balance. Which of the following is an incorrect statement?

1. 1. The general audit objectives are applicable to every account balance on the financial statements.
   2. The specific audit objectives are applicable to every account balance on the financial statements.
   3. The general audit objectives are tailored to the engagement.
   4. The specific audit objectives are tailored to the engagement.

35. Which of the following “general transaction-related audit objectives” is not part of the valuation or allocation assertion?

1. 1. Completeness
   2. Accuracy
   3. Classification
   4. Timing

36. Only three of the following management assertions are associated with transaction- related audit objectives. Which one of the following is not?

1. 1. Existence or occurrence
   2. Completeness
   3. Valuation or allocation
   4. Presentation and disclosure

37. Which of the following statements is incorrectly stated?

1. 1. Balance-related audit objectives are applied to account balance.
   2. Transaction-related audit objectives are applied to classes of transactions.
   3. Balance-related audit objectives are applied to the ending balance in balance sheet accounts.
   4. Balance-related audit objectives are applied to both beginning and ending balances in

balance sheet accounts.

38. The detail tie-in objective is not concerned that the details in the account balance

1. 1. agree with related subsidiary ledger accounts.
   2. are properly disclosed, in accordance with PFRS.
   3. foot to the total in the account balance.
   4. agree with the total in he general ledger.

39. The disclosure objective is concerned that

1. 1. the account balance is properly presented in the financial statements.
   2. disclosure requirements are properly presented in the financial statements and in the footnotes.
   3. both responses are correct.
   4. both responses are incorrect.

40. If a long-term note receivable is included in the account receivable listing, there is a violation of the

1. 1. existence objective.
   2. completeness objective.
   3. classification objective.
   4. timing objective.