University of the East, Manila ACCOUNTING BAT 421 PSA 220 Redrafted Quality Control for an Audit of F/S 1)A CPA establishes quality control policies and procedures for deciding whether to accept a new client or continue to perform services for a current client

University of the East, Manila

ACCOUNTING BAT 421

PSA 220 Redrafted Quality Control for an Audit of F/S

1)A CPA establishes quality control policies and procedures for deciding whether to accept a new client or continue to perform services for a current client. The primary purpose for establishing such policies and procedures is

a.            To lessen the exposure to litigation resulting from failure to detect irregularities in client’s financial

statements.

b.            To enable the auditor to attest to the integrity or reliability of a client.

c.             To comply with the quality control standards established by regulatory bodies.

d.            To minimize the likelihood of association with clients whose management lacks integrity.

 

2.            The following factors affect the nature, timing and extent of an audit firm’s quality control policies and

procedures, except:

a              b             c              d

 

 

•             Size and nature of practice          Yes         Yes         No          No

•             Geographic dispersion                   Yes         Yes         Yes         No

•             Organization      Yes         No          Yes         No

•             Appropriate cost/benefit

Considerations 

Yes        

Yes        

No         

No

 

 

3.            Audit firms are subject to many risks when they carry out an audit assignment. As a result of this, the firm may suffer:

a.            Action through the courts so that damages are payable.

b.            Loss of client.

c.             Adverse publicity and loss of reputation.

d.            All of the following may be suffered by the firm

 

4.            Which of the following statements is incorrect?

a.            Quality controls are the policies and procedures adopted by a firm in all its audit work.

c.             Quality control policies are objectives and goals, while quality control procedures are steps to be taken to accomplish the policies adopted.

d.            The examination by CPAs of a CPA firm’s auditing practices to ascertain compliance with its quality

control system is known as a peer review.

 

5.            Risk audit firms are subject to when they carry out an audit assignment.

a.            Giving an unqualified report when a qualified one was required.

b.            Qualifying a report unnecessarily.

c.             Being negligent such that loss is caused to the client or third party. d. All of the above

 

6.            1st statement – It is in the interests of the firm to manage the firm overall and each individual audit such that the Code of Professional Ethics for CPAs is followed at all times.

 

2nd statement – It is in the interests of the firm to manage the firm overall and each individual audit such that the Philippine Auditing Standards (PSAs) are followed at all times.

 

a.            1st statement is true ; 2nd statement is false

b.            1st statement is false; 2nd statement is true

c.             both statements are true

d.            both statements are false

 

7.            Factors to consider when designing quality control procedures include all of the following except a. Size of the practice

b.            Organization of the practice

c.             Cost-benefit considerations

d.            None of the following

 

8.            Quality control in audit firms, both at the firm level and at the level of a specific audit is essential to all audit firms. Methods of quality control in large firms include all of the following except a. Peer reviews

b.            Use of technical manuals

c.             Sub-contracting work to other practices

d.            Training

 

9.            A review undertaken by a more experienced member of the audit firm to ensure that the work has been performed in accordance with the audit plan and that the conclusions expressed are consistent with the results of the works performed: a. Peer review

b.            Post audit review

c.             “Hot” review

d.            Audit review

 

10.          A CPA firm should establish procedures for conducting and supervising work at all organizational levels to provide reasonable assurance that the work performed meets the firm’s standards of quality. To achieve this goal, the firm most likely would establish procedures for

a.            Evaluating prospective and continuing client relationships.

b.            Reviewing engagement working papers and reports.

c.             Requiring personnel to adhere to the applicable independence rules.

d.            Maintaining personnel files containing documentation related to the evaluation of personnel.

 

11.          The primary reason why a CPA firm establishes quality control policies and procedures for professional development of staff accountants is to

a.            Comply with the continuing educational requirements imposed by various states for all staff accountants in CPA firms.

b.            Establish, in fact as well as appearance, that staff accountants are increasing their knowledge of accounting and auditing matters.

c.             Provide a forum for staff accountants to exchange their experiences and views concerning firm policies and procedures.

d.            Provide reasonable assurance that staff personnel will have the knowledge required to enable them to fulfill responsibilities.

 

12.          A firm of CPAs may use policies and procedures such as notifying professional personnel as to the names of audit clients having publicly held securities and confirming periodically with such personnel that prohibited relations do not exist. This is done to achieve effective quality control in which of the following areas? a. Acceptance and continuance of clients.

b.            Assigning personnel to engagement.

c.             Independence.

d.            Inspection.

 

13.          In pursuing a CPA firm’s quality control objectives, a CPA firm may maintain records indicating which partners or employees of the CPA firm were previously employed by the CPA firm’s clients. Which quality control objective would this be most likely to satisfy? a. Professional relationship.

b.            Supervision.

c.             Independence.

d.            Advancement.

 

14.          Which of the following is not an example of quality control procedure likely to be used by a public accounting firm to meet its professional responsibilities to clients?

a.            Completion of independence questionnaires by all partners and employees.

b.            Review and approval of audit plan by the partner in charge of the engagement just prior to signing the

auditor’s report.

c.             Evaluating professional staff after the conclusion of each engagement.

d.            Evaluating its integrity of management for each new audit client.

 

15.          Which of the following statements regarding quality control policies and procedures is incorrect?

 

a.            Quality control policies and procedures should be implemented at both the level of the audit firm and on an individual audit.

b.            The audit firm should implement quality control policies and procedures designed to ensure that all audits are conducted in accordance with PSAs or relevant national standards or practices.

c.             Quality control policies are objectives and goals while quality control procedures are steps to be taken to accomplish the policies adopted.

d.            PSA 220 prescribes all the procedures to implement each quality control policy applicable to auditing firms.

 

16.          A CPA firm evaluates its personnel advancement experience to ascertain whether individuals meeting stated criteria are assigned increased degrees of responsibility. This is evidence of the firm’s adherence to which of the following prescribed standards: a. Professional ethics.

b.            Supervision and review.

c.             Accounting and review services.

d.            Quality control.

 

17.          A CPA firm’s personnel partner periodically studies the CPA firm’s personnel advancement experience to ascertain whether individuals increased degrees of responsibility. This is evidence of the CPA firm’s adherence to prescribed standards of a. Quality control.

b.            Due professional care.

c.             Supervision and review.

d.            Fieldwork.

 

18.          ABC & Co., a large international CPA firm, is to have an “external peer review”. The peer review will most

likely be performed by

a.            Employees and partners of ABC & Co. who are not associated with the particular audits being reviewed.

b.            Audit review staff of the Securities and Exchange Commission.

c.             Audit review staff of the PICPA.

d.            Employees and partners of another CPA firm.

 

19.          The objective of quality control mandates that a public accounting firm should establish policies and procedures for professional development which provide reasonable assurance that all entry-level personnel

a.            Prepare working papers which are standardized in form and content.

b.            Have the knowledge required to enable them to fulfill responsibilities assigned.

c.             Will advance within the organization.

d.            Develop specialties in specific areas of public accounting.

 

20.          The nature and extent of a CPA firm’s quality control policies and procedures depend on:            CPA firm’s

size        Nature of CPA   Cost-benefit     

firm’s practice   considerations

a.            Yes         Yes         Yes

b.            Yes         Yes         No

c.             Yes         No          Yes

d.            No          Yes         Yes

 

21.          A basic objective of a CPA firm is to provide professional services to conform with professional standards. Reasonable assurance of achieving this basic objective is provided through a. Continuing professional education

b.            System of quality control

c.             Compliance with generally accepted reporting standards.

d.            System of peer review.

 

22.          A CPA firm evaluates its personnel advancement experience to ascertain whether individuals meeting stated criteria are assigned increased degrees of responsibility. This is evidence of the firm’s adherence to which of the following prescribed standards: a. Professional ethics.

b.            Supervision and review.

c.             Accounting and review services.

d.            Quality control.

 

23.          The work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether the

a.            Auditor’s system of quality control has been maintained at a high level.

 

b.            Results are consistent with the conclusions to be presented in the auditor’s report.

c.             Audit procedures performed are approved in the professional standards.

d.            Audit has been performed by persons who have adequate technical training and proficiency as auditors.

 

24.          In pursuing quality control objectives with respect to acceptance of a client, a CPA firm is likely to

a.            Make inquiries of the proposed client’s legal counsel.

b.            Review financial statements of the proposed client.

c.             Make inquiries of previous auditors.

d.            Review the personnel practices of the proposed client.

 

25.          Within the context of quality control, the primary purpose of continuing professional education and training activities, is to enable a CPA firm to provide personnel within the firm with a. Technical training that assures proficiency as an auditor.

b.            Professional education that is required in order to perform with due professional care.

c.             Knowledge required to fulfill assigned responsibilities and to progress within the firm.

d.            Knowledge required in order to perform a peer review.

 

26.          A process comprising an ongoing consideration and evaluation of the firm’s system of quality control, including a periodic inspection of a selection of completed engagements, designed to enable the firm to obtain reasonable assurance that its system of quality control is operating effectively. a. Inspection

b.            Engagement quality control reviewer

c.             Quality review

d.            Monitoring

 

27.          In relation to completed engagements, these are procedures designed to provide evidence of compliance

by engagement teams with firm’s quality control policies and procedures. a. Inspection

b.            Quality control

c.             Monitoring

d.            Engagement quality control reviewer

 

28.          The inspection of a selection of completed engagements is ordinarily performed on a cyclical basis. Engagements selected for inspection include at least:

 

a.            One engagement for each engagement partner over an inspection cycle

b.            Two engagements for each engagement partner over an inspection cycle

c.             One engagement for each firm over an inspection cycle

d.            Two engagements for each firm over an inspection cycle

 

29.          An inspection cycle ordinarily spans no more than:

a.            One year

b.            Two years

c.             Three years

d.            Four years

 

30.          ABC and Company has just completed its annual independence review. Francis, the partner in-charge for independence, is reviewing a completed copy of the independence declaration form and noticed that Miss Myra, an audit manager declared that her husband was newly hired as a controller of a Company where Miss Myra is the engagement manager. As partner-in-charge for independence what is the best course of action to take in the situation?

a.            Discuss the matter with Miss Myra and the engagement partner and ensure that all work done by Miss Myra is properly reviewed by the engagement partner.

b.            Assigned an Engagement Quality Control Reviewer to ensure that all judgment made by Miss Myra are reviewed and ensure she remains objective.

c.             Transfer Miss Myra to another engagement to reduce to risk of non-compliance with the independence requirement.

d.            Discuss the matter with management and those charged with governance and if they agree to continue with Miss Myra as audit manager, then should continue managing the engagement.

 

31.          In performing an acceptance and continuance procedures for a newly accepted engagement, Justine, a new partner in the Firm should obtain information relating to: I. The integrity of the clients management

II.            Independence of the firm

III.           Competency to serve the client appropriately a. I and II only

b.            II and III only

 

c.             I and III only

d.            I, II, III

 

32.          Who is responsible for forming a conclusion on compliance with independence requirements that apply to the audit engagements? a. Audit staff

b.            Audit supervisor

c.             Engagement manager

d.            Engagement partner

33.          The firm should communicate the results of the monitoring of its quality control system to engagement partners and other appropriate individuals within the firm at least: a. Every six months

b.            Every twelve months

c.             Every two years

d.            Every three years

 

34.          The firm should establish policies and procedures requiring appropriate documentation to provide evidence of the operation of each element of its system of quality control. How such matters are documented is based on:

a.            PSQC1

b.            PSA 220

c.             Philippine Audit Practice Statements

d.            The firm’s decision

 

35.          A firm has obtained information that would have caused it to decline an engagement had the information been available earlier. Actions available to the auditor include the following, except:

a.            Reporting the information and its implications to the person(s) who appointed the CPA

b.            Withdraw from the engagement

c.             Withdraw from both the engagement and the client relationship

d.            Continue the engagement, since the Code of Ethics requires started engagements to be finished regardless of subsequent developments and information

 

36.          The following methods are most likely to develop capabilities and competence, except: a. Professional education

b.            Continuing professional development, including training

c.             Work experience and coaching by less experienced staff

d.            Self-study modules on professional accounting and auditing literature

 

37.          Supervision includes:

a.            Tracking the progress of the engagement

b.            Considering the capabilities and competence of individual members of client personnel

c.             Addressing all issues arising during the engagement and modifying the planned approach appropriately

d.            Identifying maters for consultation or consideration by less experienced engagement team members during the engagement

 

38.          Review responsibilities are determined on the basis that              experienced team members, review the work of experienced team members a. more, more

b.            more, less

c.             less, more

d.            less, less

 

39.          An engagement quality control review is required to be performed:

a.            Immediately after the re-assessment of control risk

b.            For all audits of financial statements of listed entities

c.             For all types of audits, regardless of the subject matter of the engagement

d.            At engagement completion after the report is issued

 

40.          What aspects are most important in determining the eligibility of engagement quality control reviewers? a.                Technical qualifications and objectivity

b.            Integrity and objectivity

c.             Competence and independence

d.            All of these

 

“Audit Documentation”

 

1.            According to PSA 230 Redrafted “Documentation”, working papers do not

a.            Assist in the planning and performance of the audit.

b.            Assist in the supervision and review of the audit work.

c.             Record the audit evidence resulting from the audit work performed to support an auditor’s

opinion.

d.            Support the client’s financial statements..

 

2.            1st statement – Working papers are the property of the auditor.

2nd statement – Although portions of or extracts from the working papers maybe made available to the entity at the discretion of the auditor, they may be substitute for the entity’s accounting records. a. 1st statement is True ; 2nd statement is False

b.            1st statement is False; 2nd statement is True

c.             Both statements are True

d.            Both statements are False

 

3.            1st statement – The auditor should prepare working papers which are sufficiently complete and detailed to provide an overall understanding of the audit.

2nd statement – The auditor should record in the working papers information on planning the audit work, the nature, timing and extent of the audit procedures performed, the results thereof, and the conclusions drawn from the audit evidence obtained.

a.            1st statement is True ; 2nd statement is False

b.            1st statement is False ; 2nd statement is True

c.             Both statements are True

d.            Both statements are False

 

4.            Why does an auditor document audit evidence?

a.            To comply with the requirements of gathering all available evidence.

b.            To provide client reference for all account balances and correcting entries.

c.             To support audit opinion and to provide evidence that the audit was carried out in accordance with PSA.

d.            To document all records of misstatements noted in the financial statements.

 

5.            Working papers that record the procedures used by the auditor to gather evidence should be

a.            Considered the primary support for the financial statements being audited.

b.            Viewed as the connecting link between the books of accounts and the financial statements.

c.             Designed to meet the circumstances of the particular engagement.

d.            Destroyed when the audited entity ceases to be a client.

 

6.            Which of the following conditions constitutes inappropriate working paper preparation?

a.            Flowcharts are included in the working papers.

b.            Findings are cross-referenced to supporting documentation.

c.             Tick marks are explained in working papers.

d.            All forms and directives used by the auditee department are included in the working papers.

 

7.            An auditor’s working papers will ordinarily be least likely to include documentation showing how

the a. Client’s schedules were prepared.

b.            Engagement was planned.

c.             Understanding of the client’s internal control was obtained and control risk was assessed.

d.            Unusual matters were resolved.

 

8.            Which of the following is usually included or shown in the auditor’s working papers?

a.            The procedures used by the auditor to verify the personal financial status of members of the

client’s management team

b.            Analyses that are designed to be a part of, or a substitute for, the client’s accounting records

c.             Excerpts from authoritative pronouncements that support the underlying generally accepted accounting principles used in preparing the financial statements

d.            The manner in which exceptions and unusual matters disclosed by the auditor’s procedures

were resolved or treated

 

9.            Which of the following is not generally included in the working papers file?

a.            An indication as to who performed the audit procedures and when they were performed.

b.            Documentation of the auditor’s understanding of the accounting and internal control

systems.

c.             Copy of the internal audit’s audit program.

d.            Analyses of significant ratios and trends.

 

10.          Although the quantity and content of audit working papers vary with each particular

engagement, an auditor’s permanent files most likely include

a.            Schedules that support the current year’s adjusting entries.

b.            Prior years’ accounts receivable confirmations that were classified as exceptions.

c.             Documentation indicating that the audit work was adequately planned and supervised.

d.            Analyses of share capital and other owners’ equity accounts.

 

11.          Audit working papers are indexed by means of reference numbers. The primary purpose of indexing is to

a.            Permit cross-referencing and simplify supervisory review.

b.            Support the audit report.

c.             Eliminate the need for follow-up reviews.

d.            Determine that working papers adequately support findings, conclusions, and reports.

 

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

a.            Interbank transfer schedule       c. Supporting schedule

b.            Carryforward schedule  d. Lead schedule

 

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

a.            Cash flow increases and decreases          c. Reclassifications and adjustments

b.            Audit objectives and assertions d. Reconciliations and tickmarks

 

14.          In the course of the 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 adjustment when they were uncovered. The primary purpose served by this schedule is to

a.            Point out to the responsible client officials the errors made by various company personnel.

b.            Summarize the adjustments that must be made before the company can prepare and submit its income tax returns.

c.             Identify the potential financial statement effects of errors or disputed items that were considered immaterial when discovered.

d.            Summarize the errors made by the company so that corrections can be made after the audited financial statements are released.

 

15.          Which of the following analyses appearing in a predecessor’s working papers is the successor

auditor least likely to be interested in reviewing?

a.            Analysis of noncurrent balance sheet accounts. c.             Analysis of income statement accounts.

b.            Analysis of current balance sheet accounts. d. Analysis of contingencies.

 

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

a.            When satisfied that the audit objectives have been met and the working papers support the conclusions.

b.            When working papers refer to the steps outlined in the audit program.

c.             Only after the auditor who prepared the working papers has signed and dated them.

d.            When proper cross-references to other working papers are noted.

 

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

a.            Efficiently            b. Professionally               c.   Neatly            d. Accurately

 

 

18.          Ordinarily, the audit may use schedules, analyses and other documentation prepared by entity personnel in order to:

 

a.            Lessen auditor’s responsibility.

b.            Eliminate the need to apply any audit procedures on verifying their correctness.

c.             Emphasize that the responsibility on financial statements rests with the client management.

d.            d. Improve audit efficiency.

 

19.          Working papers which contain information relating primarily to the audit of a single period.

a.            Current audit files            c. Financial reporting files

b.            Permanent audit files    d. Correspondence files

 

20.          Which of the following is the least required of the audit working papers?

a.            Substitute for the entity’s accounting records.

b.            Confidentiality of information included in the working papers.

c.             Safe custody of the working papers.

d.            Retention for a period sufficient to meet the needs of the practice.

 

21.          The form and content of working papers are affected by matters such as the following except:

a.            Nature of  the engagement

b.            Type of opinion to be rendered by the auditor

c.             Nature and complexity of the business

d.            Needs in the particular circumstances for the direction, supervision and review of work performed by assistants.

 

22.          Audit working papers should not

a.            Include any client-prepared papers or documents other than those prepared by the CPA or his assistant.

b.            Be kept by the CPA after review and completion of the audit except for items required for the income tax return or the permanent file.

c.             Be submitted to the client to support the financial statements and to provide evidence of the audit work performed.

d.            Be themselves be expected to provide sufficient support for the auditor’s opinion.

 

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

a.            Supervisory personnel may not have an understanding of the capabilities and limitations of computers.

b.            Working paper documentation may not contain readily observable details of calculations.

c.             The audit fieldwork standards for supervision may differ.

d.            Documenting the supervisory review may require assistance of management services personnel.

 

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

a.            A flowchart of the internal controls.        c. A copy of the financial statements

b.            Copies of bond and note indentures.     d. Organization charts

 

25.          Which of the following eliminates voluminous details from the auditor’s working trial balance by

classifying and summarizing similar or related items? a. Account analyses

b.            Supporting schedules

c.             Control accounts

d.            Lead schedules

 

26.          Documentation is a form of evidence

a.            Used in every financial statement audit.

b.            Used in most financial statement audit.

c.             Used on the rare occasions when it is both readily available and less costly than other procedures.

d.            Used when nothing is available that is more competent

 

27.          An audit working paper that shows the detailed evidence and procedures regarding the balance in the accumulated depreciation account in the year under audit will be found in the a. Current file of working papers.

b.            Permanent file of working papers.

c.             Other information working papers in the current file.

d.            Planning memorandum in the current file.

 

28.          In the case of recurring audits, some working papers files may be classified as audit files which are updated with new information of continuing importance. This type of audit file is known as:

a.            Current audit file.            c. Electronic audit file.

b.            Permanent audit file.     d. Planning memorandum file

 

 

29.          A schedule listing account balances for the current and previous years, and columns for adjusting and reclassifying entries proposed by the auditors to arrive at the final amount that will appear in the financial statements, is referred to as a

a.            Working trial balance.    c. Summarizing schedule

b.            Lead schedule.  d. Supporting schedule

 

 

30.          A schedule set up to combine similar general ledger accounts, the total of which appears on the working trial balance as a single amount, is referred to as a

a.            Supporting schedule.     c. Corroborating schedule

b.            Lead schedule.  d. Reconciling schedule

 

31.          What do you call the type of working paper where matters of importance are noted down for further verification?

a.            Summary sheet.               c. Agenda sheet

b.            Audit program. d. Supporting schedules

 

32.          The permanent file portion of the auditor’s working papers generally should include

a.            A copy of the engagement letter.

b.            A copy of key customer confirmation.

c.             Names and addresses of audit staff personnel on the engagements.

d.            Time and expense reports.

 

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

a.            Review notes pertaining to questions and comments regarding the audit work performed.

b.            A schedule of time spent on the engagement by each individual auditor.

c.             Correspondence with the client’s legal counsel concerning pending litigation.

d.            Narrative descriptions of the client’s accounting procedures and internal controls.

 

34.          In general, which of the following statements is correct with respect to ownership, possession, or access to working papers prepared by a CPA firm in connection with an audit?

a.            The working papers may be obtained by third parties where they appear to be relevant to issues raised in litigation.

b.            The working papers are subject to the privileged communication rule which, in a majority of jurisdictions, prevents third-party access to the working papers.

c.             The working papers are the property of the client after the client pays the fees.

d.            The working papers must be retained by the CPA firm for a period of ten years.

 

35.          For what minimum period should audit working papers be retained by the independent CPA?

a.            For the period during which the entity remains a client of the independent CPA.

b.            For the period during which an auditor-client relationship exists but not more than six (6) years.

c.             For the statutory period within which legal action may be brought against the independent CPA. d. For as long as the CPA is in public practice.

 

36.          Which of the following documentation is required for an audit in accordance with PSA?

a.            An internal control questionnaire.

b.            A client engagement letter.

c.             A planning memorandum or checklist.

d.            A client representation letter.

 

37           Audit documentation is the record of audit procedures performed, relevant audit evidence, and the auditor’s conclusions. Which of the following statements concerning audit documentation is incorrect?

 

a.            Audit documentation should include superseded drafts of working papers and financial statements.

b.            Audit documentation prepared after the performance of the audit work is likely to be less accurate than documentation prepared at the time such work is performed.

c.             Audit documentation may include abstracts or copies of the entity’s records such as

significant and specific contracts and agreements

d.            Audit documentation is not a substitute for the entity’s accounting records.

 

38           The auditor is required to complete the administrative process of assembling the final audit file on a timely basis after the date of the auditor’s report. The time limit within which to complete the assembly of the audit file is ordinarily

a.            Not more than 30 days after the date of the auditor’s report.

b.            Not more than 60 days after the date of the auditor’s report.

c.             Not more than 90 days after the end of the entity’s reporting period.

d.            Not more than 60 days after the date the entity’s financial statements are authorized for issue.

 

39.          Audit documentation (working papers) should

a.            Be considered the primary support for the financial statements being audited.

b.            Show that the accounting records agree or reconcile with the financial statements.

c.             Evaluate management’s performance against company goals for the year under audit.

d.            Be provided to the client upon request.

 

40.          Audit documentation (working papers)

a.            Provides evidence of the auditor's compliance with generally accepted auditing standards.

b.            Is a record to be used as a basis for the following year's engagement.

c.             Includes an analysis of the client’s marketing strategies.

d.            Is a client-owned record of conclusions reached by the auditors.

 

41.          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. Preferably, the understanding should be documented and would include all of the following except a. The objectives and scope of the specialist’s work

b.            The specialist’s representations as to his relationship, if any, to the client

c.             The specialist’s understanding of the auditor’s corroborative use of the specialist’s findings

in relation to the representations in the financial statements

d.            A statement that the methods or assumptions to be used are not inconsistent with those used by the

client

 

 

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

Facilitates third-party reviews

b.            Aids in the planning, performance and review of audits

c.             Provides the principal evidential support for the auditor’s report

d.            Aids in the professional development of the operating staff

 

43.          The main advantage of property indexed working papers is to

a.            Reduce the size of the file

b.            Better organize the working papers

c.             Allow division of labor within the audit team

d.            Facilitate the efficient use of audit staff

 

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

a.            Working papers are not permitted to be used as a reference source by the client

b.            The auditor should document his understanding of the client’s internal control which is to

be used to plan the audit

c.             Working papers may be regarded as a substitute for the client’s accounting records

d.            When reporting on comparative financial statements, the independent auditor may discard working papers after two years

 

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

 

a.            Time and expense summary

b.            Engagement letter

c.             Progress flowcharts

d.            Audit program

 

46.          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

a.            Prepare a working paper to indicate that the full scope of the audit was carried out

b.            Familiarize himself with the sequence of working papers so that he will be able to answer questions about the conclusions stated in the report

c.             Eliminate any cross-references to other working papers since the system is unclear

d.            Provide a working paper indexing system that shows the relationship between findings, conclusions, and the related facts

 

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

a.            A copy of a long-term bond indenture

b.            The working trial balance

c.             An analysis of additions and disposals relating to marketable securities

d.            A workpaper analyzing customer replies to confirmation requests

 

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

a.            Review notes pertaining to questions and comments regarding the audit work performed

b.            A schedule of time spent on the engagement by each individual auditor

c.             Correspondence with the client’s legal counsel concerning pending litigation

d.            Narrative descriptions of the client’s internal control policies and procedures

 

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

a.            The audit firm owns the audit documentation

b.            The audit client owns the audit documentation

c.             The audit client and audit firm have joint ownership of the audit documentation

d.            The law is not explicit with respect to the ownership of audit documentation

 

50.          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 actually focuses on

a.            The fair presentation of the financial statements in conformity with applicable reporting framework.

b.            Fraud involving the client’s management and its employees

c.             The materiality of the adjusting entries proposed by the audit staff

d.            The communication of internal control weaknesses to the client’s audit committee