Our Lady of Fatima University

ACCTG 16

SET 4

1)A professional accountant has a professional duty or right to disclose confidential information in each of the following, except:

1. 1. To comply with technical standards and ethics requirements.
   2. To disclose to BIR fraudulent scheme committed by the client on payment of income tax.
   3. To comply with the quality review of a member body or professional body
   4. To respond to an inquiry or investigation by a member body or regulatory body.

2. Which of the following best describes the passing of confidential information from a client to its auditor? The information:
   1. Should in no circumstances be conveyed to third parties.
   2. Is not legally protected and can be subpoenaed by a competent court.
   3. Can only be released for peer reviews after receiving permission from  the client.
   4. Should be conveyed to the public if it affects the "correctness" of the financial statements.

3. If an auditor had a substantial stock investment in a client that s(he)  was auditing, which of the following would be true?
   1. The auditor would lack independence.
   2. The auditor would be violating the PASB standards.
   3. The auditor would be violating the Institute of Management Accounting standards
   4. The auditor would be violating the IIA standards.

4. The CPA must not subordinate his or her professional judgment to that of others in every
   1. Engagement.
   2. Audit engagement.
   3. Engagement except tax services.
   4. Engagement           except          management

advisory services.

5. Which of the following is an indication of lack of objectivity of an auditor?
   1. The auditor believes that accounts receivable may not be collectible, but accepts management's opinion without an independent evaluation.
   2. In preparing client's tax return, the CPA encourages client to take a deduction which the CPA believes is valid, but for which there is some but not complete support.
   3. Both a and b above would be a violation
   4. Neither would be a violation

6. A CPA in public practice shall not disclose any confidential client information without the specific consent of the client. The confidentiality rule is violated if  CPA disclosed information  without  client's consent as a result of a
   1. Subpoena or summons.
   2. Peer review.
   3. Request by client's largest stockholder.
   4. Complaint filed with the trial board of the Board of Accountancy.:

7. The confidential relationship applies to
   1. All services provided by CPAs.
   2. Only audit and attestation services.
   3. Audit and tax services, but no MAS services.
   4. Audit and MAS services, but not tax services.

8. The confidential relationship will be violated if, without client's permission, the CPA provides working papers about client to
   1. A court of law which subpoenas them.
   2. Another CPA firm as part of a  peer review.
   3. Another CPA firm which has just purchased the CPA's entire practice.
   4. An investigative or disciplinary  body which is conducting a review of the CPA's practice.

9. A member in public practice may perform for a contingent fee any professional   services for a client for whom the member or member's firm performs
   1. An audit.

1. 2. A review.
   3. A         compilation            used          only          by management.
   4. An        audit        of       prospective          financial information.

10. Which one of the following contingent fee is allowed?
    1. All services performed by a CPA firm.
    2. Non-attestation services.
    3. Non-attestation services, unless the CPA firm was also performing attestation services for the same client.
    4. Attestation services.

1. 1. A violation  of  the  ethical  standards would most likely have occurred when a CPA
      1. Made arrangement with a bank to collect notes issued by a client in payment of fees due.
      2. Joined an accounting firm made up of three non-CPA practitioners.
      3. Issued an unqualified opinion on the 2006 financial statements when fees for the 2005 audit were unpaid.
      4. Purchased a bookkeeping firm's practice of monthly write-ups for a percentage of fees received over a three-year period.

12. The concept of materiality would be least important to an auditor  when  considering the
    1. Decision whether to use positive or negative confirmations of accounts receivable.
    2. Adequacy of disclosure of a client's illegal act.
    3. Discovery of weaknesses in a client's internal control structure.
    4. Effects of a direct financial interest in the client upon the CPA's independence.

13. Which of the following is a violation Confidentiality rule of the Code of Ethics?
    1. The CPA, in response to  a  court subpoena, submits auditor-prepared workpapers as evidence  of  possible illegal acts perpetrated by the client.
    2. The CPA discloses to the board  of directors a scheme concocted by top management to intentionally inflate earnings.

1. 3. The CPA warns Client B as to the inadvisability of acquiring Client A. The CPA bases this warning on knowledge of Client A's financial condition and a belief that the management of Client A lacks integrity. This knowledge was obtained by the CPA as a result of auditing Client A during the past several year is.
   4. The CPA, when questioned in court, admits to knowledge of certain  illegal acts perpetrated by the client.

14. An auditor who accepts an audit engagement and does not possess the industry expertise of the business entity, should
    1. Engage, financial experts familiar  with the nature of the business entity.
    2. Obtain a knowledge of matters that relates to the nature of the entity's business.
    3. Refer a substantial portion of the audit to another cpa who will act as the principal auditor.
    4. First inform management that an unqualified opinion cannot be issued.

15. In determining estimates of fees, an auditor may take into account each of the following, except the:
    1. Value of the service to the client
    2. Degree     of    responsibility     assumed     by undertaking the engagement.
    3. Skills required to perform the service.
    4. Attainment of specific findings.

1. 1. A CPA, while performing  an audit, strives to achieve   independence   in   appearance in order to
      1. Reduce risk and liability.
      2. Comply       with      the     generally        accepted standards of fieldwork.
      3. Become independent in fact.
      4. Maintain public confidence in the profession

17. The IFAC Code of Professional Conduct will ordinarily be considered to have  been violated when the member represents that specific consulting services  will  be performed for a stated fee and it is apparent at the time of the representation that the

1. 1. Actual fee would be substantially higher.
   2. Actual fee would be substantially lower than the fees charged by other members for comparable services.
   3. Fee was a competitive bid.
   4. Member would not be independent.

18. In which of the following instances would the independence of the CPA not be considered to be impaired? The CPA has been retained as the auditor of a brokerage firm
    1. Which owes the CPA audit fees for more than one year.
    2. In which the CPA has a large  active margin account.
    3. In which the CPA's brother is the controller.
    4. Which owes the CPA audit fees for services in the current year and has just filed a petition for bankruptcy.

19. In performing an audit, Jackson, CPA, discovers that the professional competence necessary for the engagement is lacking. Jackson informs management  of  the situation and recommends  another  local firm, and management engages this other firm. Under these circumstances,
    1. Jackson may request compensation from the other firm for any professional services rendered to it in connection with the engagement.
    2. Jackson may accept a referral fee from the other firm.
    3. Jackson has violated the AICPA Code of Professional Conduct because of nonfulfillment of the duty  of performance.
    4. Jackson's lack of competence should be construed to be a violation of generally accepted auditing standards.

20. Which of the following fee arrangements is in violation of the Code of Professional Conduct?
    1. A fee based on whether the CPA's report on the client's financial statements results in the approval of a bank loan.
    2. A fee based on the outcome of a bankruptcy proceeding.
    3. A fee based on the nature of the service rendered and the CPA's particular

expertise instead of the actual time spent on the engagement.

1. 4. A fee based on the fee charged by the prior auditor.

21. Richard, CPA, performs accounting services for Norton Corporation. Norton wishes  to offer shares to the public and asks Richard to audit the financial statements. Richard refers Norton to Cruz, CPA, who is more competent in the area of registration statements. Cruz performs the audit of Norton's financial statements and subsequently thanks Richard for the referral by giving Richard a portion of the audit fee. Richard accepts the  fee.  Who, if  anyone, has violated professional ethics?
    1. Only Richard
    2. Both Richard and Cruz
    3. Only Cruz
    4. Neither Richard nor Cruz

22. Which of the following would not fit the description of a related-party transaction?
    1. An unusually large sale of merchandise to the company's best and largest customer.
    2. Sales of merchandise between a parent company and its subsidiary.
    3. Exchanges of equipment between two companies owned by the same person.
    4. Loans to corporate officers at market rates of interest with  a  regular repayment schedule.

23. The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether the
    1. Results are consistent with the conclusions to be presented in the auditor's report.
    2. Audit procedures  performed  are approved in the professional standards.
    3. Audit has been performed by persons having adequate technical training and proficiency as auditors.
    4. Auditor's system of quality control has been maintained at a high level.

24. Risk     assessment     procedures    include     the following, except
    1. Analytical procedures.
    2. Confirmation of accounts receivable.

1. 3. Observation and inspection.
   4. Inquiries of management

25. PSA 315 requires:
    1. Obtaining an understanding of the entity and its environment
    2. Identifying and assessing the risks of material misstatement
    3. Discussion among engagement team members about the risk of material misstatement in the financial statements.
    4. All of the above

1. 1. A time budget  is  an  estimate  of  the total hours an audit is  expected  to  take. The following  are  among  the   factors   to be considered in developing this budget, except
      1. Client's size as indicated by its gross assets, sales, number of employees.
      2. Location of client facilities.
      3. The competence and experience of available staff.
      4. Whether the audit is performed during the interim or at year-en

27. The      extent      of     audit      planning        will      vary according to the following:
    1. Auditor’s experience with the entity.
    2. The nature and complexity of the audit engagement.
    3. Size of the entity.
    4. All of the above.

28. The audit plan should (select the exception)
    1. Be flexible
    2. Precede performance of procedures
    3. Succeed action
    4. Be cost-beneficial

29. The establishment of an overall  audit strategy involves

1. Determining the characteristics of the engagement that define its scope.
2. Ascertaining the reporting objectives of the engagement to plan the timing of the audit and the nature of the communications required.
3. Considering the important factors  that will determine the focus of the engagement team's efforts.
   1. I and II only
   2. I and III only
   3. II and III only
   4. I, II, and III

30. In the planning stage of an  audit engagement, the auditor is required to perform audit procedures to obtain an understanding of the entity and its environment, including its internal control.

These procedures are called

1. 1. Substantive tests
   2. Tests of controls
   3. Risk assessment procedures
   4. Dual-purpose tests

31. In planning the audit engagement,  the auditor should consider each of  the following, except
    1. Matters relating to the entity's business and the industry in which it operates.
    2. Materiality level and audit risk.
    3. The kind of opinion (unmodified, qualified, or adverse) that is likely to be expressed.
    4. The entity's accounting policies and procedures.

32. The auditor's understanding of the entity and its environment consists of an understanding of the following aspects except
    1. Industry, regulatory, and other external factors, including the applicable financial reporting framework.
    2. Nature of the entity,  including  the entity's selection and application of accounting policies.
    3. Measurement and review of the entity's financial performance.
    4. Entity's selection and screening process of marketing and production personnel.

33. PSA 315 requires that the auditor should obtain an understanding'  of  relevant industry, regulatory and other external factors including the applicable financial reporting   framework.    Which of the following is not an example of matters relating to regulatory environment that the auditor would usually consider?
    1. Regulatory framework for a regulated industry.
    2. Product technology relating to the entity's product.
    3. Legislation and regulation significantly affecting the entity's operation.

1. 4. Taxation.

34. PSA requires that the auditor should obtain an understanding of the entity's objectives and strategies, and the related business risks that may result in material misstatement of the financial statements. Which of the following is not an example of business risks that may have financial consequences and may affect the financial statements?
    1. A contracting customer base due to industry consolidation that may increase the risk of misstatement associated with the valuation of receivables.
    2. Contracting economy.
    3. New accounting requirements.
    4. Use of new IT.

35. Auditors perform analytical  procedures  in the planning stage of an audit for  the purpose of:
    1. Determining which of the financial statement assertions are the most important for the client's financial statements.
    2. Determining the nature, timing, and extent of audit procedures for  auditing the inventory.
    3. Deciding the matters to cover in an engagement.
    4. Identifying unusual conditions that deserve more auditing effort.

36. For initial audits, additional matters the auditor may consider in the overall audit strategy and audit plan include the following except
    1. Major issues including the application of accounting principles or any auditing and reporting standards discussed with management.
    2. Confirmation of material accounts receivable balance at the end of the year.
    3. Planned audit procedure to obtain sufficient appropriate audit evidence regarding opening balances.
    4. Assignment of firm personnel with appropriate levels of capabilities and competence to respond to anticipated significant risks.

37. Which of the following would not be found in the corporate charter?
    1. The date of incorporation.
    2. The rules and procedures  adopted by the stockholders.
    3. The kinds and amount of capital stock authorized.
    4. The types of business activity that the corporation is allowed to conduct.

38. Which of the following would not usually be included in the minutes of the board of directors and/or stockholders?
    1. Declaration of dividends.
    2. Authorization of long-term loans.
    3. Authorization of individuals to  sign checks.
    4. The duties and powers of the corporate officers.

39. Which of the following is not an inherent risk that is common to all clients in certain industries?
    1. Accounts       receivable        collection        in     the consumer loan industry.
    2. Potential inventory obsolescence in the fashion clothes industry.
    3. Brand        loyalty         in       the       cosmetics industry.
    4. Reserve for loss in the casualty insurance industry.

40. Transactions with related parties are important to the auditors because they will be disclosed in the financial statements if material. Generally accepted accounting principles would not require disclosure of
    1. Loans to officers during the year which had been repaid before the balance sheet date.
    2. The nature of the related-party relationship.
    3. A description of transactions, including peso amounts.
    4. The amounts due from and to related parties.

41. Which       of     the      following       would       not      be classified as a related-party transaction?
    1. Sales of merchandise between affiliated companies.
    2. An advance of one week's salary to an employee.

1. 3. Loans or credit sales to the principal owner or client.
   4. Exchanges of equipment between two companies owned by the same person.

42. Most auditors assess inherent risk as high for related parties and related-party transactions because
    1. Of            the             accounting                disclosure requirement.
    2. Of the lack of independence between the parties.
    3. Both a and b.
    4. It     is     required      by     generally        accepted accounting principles.

43. Experience has shown  that  certain conditions in an organization  are symptoms of possible management fraud. Which of the following conditions would not be considered an indicator of possible fraud?
    1. Managers are regularly assuming subordinates' duties
    2. Managers are subject to formal performance reviews on a regular basis.
    3. Managers are dealing in matters outside their profit center's scope
    4. Managers are not complying with corporate directives and procedures

44. The nature of the entity refers to the following, except:
    1. The    types    of  investments      that    it     is making and plans to make.
    2. Other       external        factors,        such       as general economic conditions.
    3. The way that the entity is structured and how it is financed.
    4. The entity's operations, its ownership, and governance.

45. These result from significant conditions, events, circumstances, actions or inactions that could adversely affect the  entity’s ability to achieve its objectives and execute its strategies or through the setting of inappropriate objectives and strategies.
    1. Business failure
    2. Information risk
    3. Business obstacles
    4. Business risk

46. These are the operational approaches by which management intends to achieve its objectives.
    1. Business risk approaches
    2. Strategies
    3. Planning methods
    4. Operational plans.

47. The auditor's understanding of the entity and its environment consists an understanding of the following aspects:
    1. Industry, regulatory and other external factors, including the applicable financial reporting framework
    2. Nature of the entity,  including  the entity's selection and application of accounting policies
    3. Objectives and strategies and the related business risks that may result in  a material misstatement of the financial statements
    4. All of these.

48. There are fundamental principles that the professional accountant  has  to  observe when performing assurance  engagements. The requirement of which principle is of particular importance in an assurance engagement in ensuring that the  conclusion of the professional accountant has value to the intended user?
    1. Integrity
    2. Confidentiality
    3. Professional competence
    4. Objectivity

49. Existing accountant, as defined in the Code of Ethics, means
    1. A professional accountant employed in industry, commerce, the public sector or education.
    2. Those persons who hold  a  valid certificate issued by the Board of Accountancy.
    3. A professional accountant in public practice currently holding an audit appointment or carrying out accounting, taxation, consulting or similar professional services for a client.
    4. A sole proprietor, or each partner or person occupying a position similar  to that of a partner and each staff in a practice providing professional services

to a client irrespective of their functional classification (e.g., audit, tax or consulting) and professional accountants in a practice having managerial responsibilities.

50. How did the Code of Ethics define public interest?
    1. A distinguishing mark of a profession  is the acceptance of its responsibility to the public.
    2. The accountancy profession's public consists of clients, credit grantors, governments, employers, employees, investors, the business and financial community, and others who rely on the objectivity and integrity of professional accountants.
    3. The collective well-being of the community of people  and institutions the professional accountant serves.
    4. The standards of the accountancy profession are heavily determined by the public interest.

51. Independent auditors of financial statements perform audits that reduce and control
    1. Business risk faced by investors
    2. Information risk faced by investors
    3. Complexity of financial statements
    4. Timeliness of financial statements

52. Which of the following statements is true?
    1. Professional standards prohibit CPAs from performing non-assurance engagements.
    2. Absolute assurance is attainable owing to the fact that much of the evidence available to the CPA is persuasive rather than conclusive.
    3. The CPA’s conclusion provides a level of assurance about the subject matter.
    4. The responsible party expresses a conclusion that provides a level of assurance as to whether the subject matter conforms, in all material respects, with the identified suitable criteria.

53. Which of the following best describes the operational audit?
    1. It requires the constant review  by internal auditors of the administrative controls as they relate to operations of

the company.

1. 2. It concentrates  on  implementing financial and accounting control in  a newly organized company.
   3. It concentrates on seeking out aspects of operations in which waste would be reduced by the introduction of controls.
   4. It attempts and is  designed to  verify the fair presentation of a company's results of operations.

54. What is the proper organizational role of internal auditing?
    1. To serve as an independent, objective assurance and consulting activity that adds value to operations.
    2. To assist the external auditor in order to reduce external audit fees.
    3. To perform studies to assist in the attainment of more efficient operations.
    4. To serve as the investigative arm of the audit committee of the board  of directors.

55. Which of the following is not one of the limitations of an audit?
    1. The use of testing
    2. Limitations imposed by client
    3. Human error
    4. Nature of evidence that the auditor obtains

56. Which of the following terms does not belong to the group
    1. Financial audit
    2. Internal audit
    3. External audit
    4. Independent audit

57. By providing high level  of  assurance  on audit reports on financial statements, the auditor
    1. Guarantees the fair presentation of the financial statements.
    2. Confirms the accuracy of the financial statements.
    3. Enhances the credibility of the financial statements.
    4. Assures the readers that fraudulent activities of employees have been detected.

58. Most  of  the   independent   auditor's   work in formulating an opinion on financial statements consists of
    1. Studying and evaluating internal control
    2. Obtaining and examining evidential matter
    3. Examining cash transactions
    4. Comparing recorded accountability with assets

59. The overall objective of internal auditing is to
    1. Attest to the efficiency with which resources are employed.
    2. Ascertain that controls are costs justified.
    3. Provide assurance that financial  data have been accurately recorded.
    4. Assist members of  the organization in the effective discharge of their responsibilities.

60. Internal auditing is an independent appraisal function established within  an  organization to examine and evaluate its activities.  To that end, internal auditing  provides assistance to
    1. External auditors
    2. Stockholders
    3. Management and the board of directors
    4. Government

61. An audit which is undertaken in order to determine whether the auditee is following specific procedures or rules set down  by some higher authority is classified as a(n)
    1. Audit of financial statements.
    2. Compliance audit.
    3. Operational audit.
    4. Production  audit.

62. The most important function of operational audit report is to:
    1. Direct management to take specified actions.
    2. State          the         auditor’s            opinion           or conclusion.
    3. Report                          findings                            and recommendations.
    4. Report the objective of the audit.

63. Operational audit differs in many ways from an audit of financial statements.  Which of the following is the best example of one of

these differences?

1. 1. The usual audit of the financial statement covers four basic statements, whereas operational audit is usually limited either the statement of financial position or the income statement.
   2. Operational audit do not  necessarily result in the preparation of a report.
   3. The operational audit deals with pre-tax income.
   4. The boundaries of an operational audit are often drawn from an organization chart and are not limited to a single accounting perio

64. Which of the following actions would be an appropriate response by companies to improve the public's perception of their financial reporting?
    1. Requiring internal auditors to report all significant findings of fraud and illegal activity to the company president.
    2. Increased adoption of audit committees.
    3. Keeping external and internal auditing work separated to  maintain independence.
    4. None of the above.

65. Which of the following is considered  a primary reason for creating an internal audit department?
    1. To safeguard resources entrusted to the organization.
    2. To evaluate and improve the effectiveness of control processes.
    3. To ensure the accuracy, reliability, and timeliness of financial and operating data used in management's decision making.
    4. To relieve management of the responsibility for establishing effective controls.

66. What is the overall objective of internal auditing?
    1. To attest to the efficiency with which resources are used.
    2. Ascertain        that      the      cost       of     internal control is justified.
    3. To ascertain that financial statements present accurately the financial position,

operating results, and changes in cash and stockholders' equity.

1. 4. To help members of the organization       to           effectively discharge their responsibilities.

67. Which of the following types of audit uses laws and regulations as its criteria?
    1. Operational audit
    2. Financial statement audit
    3. Compliance audit
    4. Performance audit

68. An audit that involves obtaining and evaluating evidence  about  the  efficiency and effectiveness of an entity's operating activities in relation to specified objectives is a(n):
    1. External audit
    2. Compliance audit
    3. Operational audit
    4. Financial statement audit

1. 1. operational audit is primarily oriented toward
      1. Future improvements to accomplish management’s goals.
      2. Past protection provided by existing internal control.
      3. Operational  information  is   in accordance with generally accepted accounting principles.
      4. Financial statements  are  fairly presented.

70. As used in auditing, which of the following statements best describes "assertions”?
    1. Assertions are the auditor's findings to be communicated in his audit report.
    2. Assertions are found only in the notes to the financial statements.
    3. Assertions are the representations of management as to the reliability of the information system.
    4. Assertions are  the  representations of management as to the fairness of presentation of the financial statements.

71. The internal auditing department's responsibility for deterring fraud is to
    1. Exercise operating authority over fraud prevention activities.

1. 2. Establish an effective internal control system.
   3. Maintain internal control.
   4. Examine and evaluate the system of internal control.

72. Internal auditors review  the  adequacy  of the company's internal control system primarily to
    1. Help determine the nature, timing, and extent of tests necessary to achieve audit objectives.
    2. Determine whether the internal control system ensures that financial statements are fairly presented.
    3. Determine whether the internal control system provides reasonable assurance that the company's objectives and goals are met efficiently and economically.
    4. Ensure that material weaknesses in the system of internal control are corrected.

73. Internal auditors should review the means of physically safeguarding assets from losses arising from
    1. Procedures that are not cost justified.
    2. Exposure to the elements.
    3. Underusage of physical facilities.
    4. Misapplication of accounting principles.

74. The essence of the attest function is to
    1. Detect fraud.
    2. Examine individual transactions so that the auditor can certify as to  their validity.
    3. Determine whether the client's financial statements are fairly stated.
    4. Ensure the consistent application of correct accounting procedures.

1. 1. A typical objective  of  an  operational audit is to determine whether an entity's
      1. Internal control structure is adequately operating as designed
      2. Operational  information  is   in accordance with generally accepted accounting principles.
      3. Specific operating units are functioning efficiently               and effectively
      4. Financial statements present fairly the results of operations

76. Audits of financial statements include an expression of a conclusion about  which  of the following financial statement characteristics?
    1. Governance.
    2. Reliability.
    3. Relevance.
    4. Timeliness.

77. There are four conditions that give rise to the need  for  independent  audits  of financial statements. One  of  these conditions is consequence. In this context, consequence means that the:
    1. Users of the statements may not fully understand the consequences of their actions.
    2. Auditor must anticipate all possible consequences of the report issued.
    3. Impact of using different accounting methods  may  not  be  fully  understood by the users of the statements.
    4. Financial statements are used for important decisions.

78. One of the conditions that give rise to a demand for an external audit of financial statements is expertise. Which of the following best describes the meaning of expertise as used in this context?
    1. Auditors usually rely  on  the  work  of an expert as a  basis  for  evaluating some assertions embodied  in  the financial statements.
    2. The readers of the financial statements must  possess  the   necessary   expertise to be able to understand the financial statements.
    3. Users usually lack the necessary expertise to verify the reliability of the financial information.
    4. As experts, auditors are expected to detect all material misstatements in the financial statements.

79. Operational audits generally have been conducted by internal and COA auditors, but may be performed by certified public accountants. A primary purpose of an operational audit is to provide:
    1. A measure of management performance               in            meeting organizational goals.

1. 2. The results of internal examinations of financial and accounting matters to a company's top-level management.
   3. Aid to the independent-auditor, who is conducting the examination of the financial statements.
   4. A means of assurance that internal accounting controls are functioning as planned.

80. Governmental auditing  often extends beyond examinations  leading to the expression of opinion on the fairness of financial presentation and includes audits of efficiency, economy, effectiveness, and also:
    1. Accuracy
    2. Evaluation
    3. Compliance
    4. Internal control

81. The internal auditing profession has advanced primarily as a result of
    1. Increased interest by Bachelor of Science in Accountancy (BSA) graduates and experienced auditors.
    2. The limitation of financial  statement audit scope.
    3. Job qualification specifications that include added emphasis  on  background knowledge and skills.
    4. Increased                   complexity                    and sophistication                             of           business operations.

1. 1. A typical objective of an operational audit is for the auditor to
      1. Determine whether the financial statements fairly present the entity's operations.
      2. Evaluate the feasibility of attaining the entity's operational objectives.
      3. Make                recommendation                    for improving performance.
      4. Report on the entity's relative success in maximizing profits.

83. An objective of a performance audit is to determine whether an entity's
    1. Operational information is in accordance with government auditing standards.

1. 2. Specific operating units are functioning economically and efficiently.
   3. Financial statements present fairly the results of operations.
   4. Internal control is adequately operating as designed.

84. What is the responsibility of an auditor  who is engaged to audit the financial statements of a government entity?
    1. Assess control risk with respect to each component of internal control.
    2. Assume   responsibility for assuring that the entity complies with applicable laws and regulations.
    3. Obtain an understanding of the possible financial statement effects of laws and regulations having direct and material effects on amounts reported.
    4. Design the audit to provide reasonable assurance that the statements are free of material misstatements resulting from illegal acts having direct or indirect effects.

85. Solicitation consists of the  various  means that CPA firms use to engage new clients. Which one-of the following would not be an example of solicitation?
    1. Accepting new clients that approach the firm.
    2. Taking prospective clients to lunch.
    3. Offering seminars on current tax law changes to potential clients.
    4. Advertisements in the yellow pages of a phone book.

86. Which of the following activities is not prohibited for the CPA firm's attestation service clients?
    1. Competitive bidding on audit jobs.
    2. Contingent fees on audit jobs.
    3. Commissions for obtaining client services on audit jobs.
    4. Referral fees on audit jobs.

87. If requested to perform  a  review engagement for a nonpublic entity in which an accountant has an immaterial direct financial interest, the accountant is
    1. Independent because the  financial interest is immaterial and, therefore, may

issue a review report.

1. 2. Not independent and, therefore, may not be associated with the financial statements.
   3. Not independent and, therefore, may not issue a review report.
   4. Not independent and, therefore,  may issue a review report, but may not issue an auditor's opinion.

88. Which of the following most completely describes how independence has  been defined by the CPA profession?
    1. Performing an audit from the viewpoint of the public.
    2. Avoiding the appearance of significant interests in the affairs of an audit client.
    3. Possessing the ability to act with integrity and objectivity.
    4. Possessing the ability  to  act professionally and accordance with a professional code of ethics.

89. To emphasize auditor independence from management, many corporations follow the practice of
    1. Appointing a partner of the CPA firm conducting the examination to the corporation's audit committee.
    2. Establishing         a     policy       of     discouraging social contact between employees of the corporation  and                                 the         staff  of   the independent auditor.
    3. Requesting that a representative of the independent auditor be on hand at the annual stockholders' meeting.
    4. Having the independent auditor report to an audit committee of outside members of the board of directors.

90. In determining independence with respect to any audit engagement, the ultimate decision as to whether or not the auditor is independent must be made by the
    1. Auditor.
    2. Client.
    3. Audit committee.
    4. Public.

91. When a CPA who is not independent is associated with financial statements, he would be precluded from expressing an opinion because

1. 1. The public would be aware of his lack of independence and would place little or no faith in his opinion.
   2. He would place himself in the position of suffering an adverse decision  in  a possible liability suit.
   3. He would be in the position of auditing his own work.
   4. Any auditing procedures he might perform would not be in accordance with generally accepted auditing standards.

92. In which of the following  circumstances would a CPA be bound by ethics to refrain from disclosing any confidential information obtained during the course of a professional engagement?
    1. The CPA is issue a summons enforceable by a court order which orders the CPA to present confidential information.
    2. A major stockholder of a client company  seeks   accounting information from the CPA after management declined to disclose the requested information.
    3. Confidential client information is made available  as part of a quality review of the CPA's practice by a peer review team authorized by the PICPA.
    4. An inquiry by a disciplinary body of PICPA requests confidential client information.

93. Which of the following best describes why publicly-traded corporations follow the practice of having the outside auditor appointed by the board of directors  or elected by the stockholders?
    1. To comply with the regulations of the Accounting Standards Council.
    2. To emphasize auditor independence from the management of the corporation.
    3. To encourage a policy of rotation of the independent auditors.
    4. To provide the corporate owners with an opportunity to voice their opinion concerning the quality of the  auditing firm selected by the directors.

94. The objective of governmental effectiveness or program auditing is to determine if the desired results of a program are being achieved. What is the