Our Lady of Fatima University

ACCTG 16

SET 5

1)The establishment of the overall audit strategy involves

a.Determining the characteristics of the engagement that defines its scope.

1. 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.
   4. All of the answers

2. Which of the following is least likely to be required on an audit?
   1. Review accounting estimates for biases
   2. Test appropriateness of journal entries and adjustment
   3. Make       a       legal         determination          of whether fraud has occurred
   4. Evaluate         the      business        rationale        for significant, unusual transactions

3. Which of the following should be included in the audit plan?

1. The nature, timing and extent of planned risk assessment procedures.
2. The nature, timing and extent of planned further audit procedures at the assertion level.
   1. I only
   2. II only
   3. Both I and II
   4. Neither I nor II

4. Which of the following matters would an auditor least likely consider when setting the direction of the audit?
   1. The selection of the engagement  team and the assignment of audit work to the team members.
   2. The engagement budget which includes consideration of the appropriate amount of time to allot for areas where there may be higher risks of material misstatement.
   3. The availability of client personnel and data.
   4. The manner in which the auditor emphasizes to engagement  team members the need to maintain a questioning mind and to exercise professional skepticism in the gathering and evaluation of audit evidence.

5. Which of the following matters would an auditor most likely consider  when establishing the scope of the audit?

1. 1. Audit areas where there is a higher risk of material misstatement.
   2. The expected audit coverage, including the number  and locations of the entity's components to be included.
   3. The entity's timetable for reporting, such as at interim and final stages.
   4. The discussion with the entity's management concerning the expected communications on the status of audit work throughout  the  engagement  and the expected deliverables resulting from the audit procedures.

6. An auditor should consider materiality when

1. Determining the nature, timing, and extent of audit procedures.
2. Evaluating the effect of misstatements.

1. I only
2. II only
3. Both I and II
4. Neither I nor II

7. It is the amount or amounts set by the auditor at less than materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole.
   1. Lower materiality
   2. Lesser materiality
   3. Performance materiality
   4. Materiality

8. A basic premise underlying analytical procedures is that
   1. The study of financial ratios is an acceptable alternative to  the investigation of unusual fluctuations.
   2. Plausible relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary.
   3. These procedures cannot replace tests of details of transactions and balances.
   4. Statistical tests of financial information may lead to the detection of material misstatements in the  financial statements.

9. Which of the  following  statements concerning analytical procedures is true?
   1. Analytical procedures are more efficient, but not more effective, than tests of details of transactions.
   2. Analytical procedures used as risk assessment procedures use data aggregated at a high level.
   3. Analytical procedures can replace tests of controls in gathering audit evidence to support the assessed level of control risk.
   4. Analytical procedures usually involve comparisons of ratios developed from recorded amounts with ratios developed by management.

10. In relation to audit planning, the auditor should document the following:
    1. The overall audit strategy.
    2. The detailed audit plan.
    3. Significant  changes        made    during     the audit engagement.
    4. All of the answers

11. Audit programs generally include procedures to test actual transactions and resulting balances. These procedures are primarily designed to
    1. Detect        irregularities           that        result        in misstated financial statements.
    2. Test the adequacy of internal control.
    3. Gather corroborative evidence.
    4. Obtain          information           of        informative disclosures.

12. An audit process is a well-defined methodology for organizing an audit  to ensure that
    1. The evidence gathered is both sufficient and competent.
    2. All      appropriate         audit       objectives        are specified.
    3. All appropriate audit objectives are met.
    4. All of these

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

14. Which of the following is most likely to require special planning considerations related to asset valuation?
    1. Accelerated depreciation methods are used for amortizing the costs of factory equipment.
    2. The client has recently purchased an expensive copy machine.
    3. Assets costing less than P5,000 are expensed even when the expected life exceeds one year.
    4. Inventory is comprised of diamond rings.

15. The responsibility for the detection and prevention of errors, fraud and noncompliance with laws and  regulations rests with:
    1. Auditor
    2. Client's legal counsel
    3. Internal auditor
    4. Client management

16. The following statements relate to the auditor's responsibility for the detection of errors and fraud. Which of the statement is correct?

1. Due to the inherent limitations of the audit, there is a possibility that material misstatements in  the  financial statements may not be detected.
2. The subsequent discovery of material misstatement of the financial information resulting from fraud or error does not, in itself, indicate that the auditor failed to follow the basic principles and essential procedures of an audit.
   1. I only
   2. II only
   3. Both statements are true
   4. Both statements are false

17. Which of the following is not an assurance that the auditors give to the parties who rely on the financial statements?
    1. Auditors know how the amounts and disclosures in the financial statements were produced.
    2. Auditors gathered enough evidence to provide a reasonable basis for forming an opinion.

1. 3. Auditors give assurance that the financial statements are accurate.
   4. If the evidence allows the auditors to do so, auditors give assurance in the form of opinion, as to whether the financial statements taken as a whole are fairly presented in conformity with GAAP.

18. Material misstatements in financial statements may arise from all of  the following except
    1. Fraud
    2. Error
    3. Limitations of the audit
    4. Noncompliance with laws and regulations

19. Which of the following is an example of an error?
    1. Defalcation
    2. Misapplication of  accounting policies.
    3. Suppression or omission of the effects of transactions from the records or documents.
    4. Recording of transactions without substance.

20. An intentional act by one or more individuals among management, employees, or third parties which results in misrepresentation of financial statements refers to
    1. Illegal acts
    2. Error
    3. Fraud
    4. Noncompliance

21. The primary factor that distinguishes errors from fraud is
    1. Whether the misstatement is perpetrated by an employee or by a member of management
    2. Whether the underlying cause of misstatement is intentional or unintentional.
    3. Whether the misstatement is concealed.
    4. Whether the underlying cause of misstatement relates to misapplication of accounting principles or to clerical processing.

22. The factor that distinguishes an error from fraud is
    1. Materiality.
    2. Intent.

1. 3. Whether it is peso amount or a process.
   4. Whether it is a caused by the auditor or the client.

23. Fraudulent financial reporting is often called
    1. Misappropriation or theft of assets
    2. Management fraud
    3. Defalcation
    4. Employee fraud

24. In comparing management fraud with employee fraud, the auditor's risk of failing to discover the fraud is
    1. Greater for employee fraud because  of the larger number of employees in the organization.
    2. Greater for management fraud because of management's ability to override existing internal controls.
    3. Greater for employee fraud because  of the higher crime rate among blue collar workers.
    4. Greater for management fraud because managers are inherently smarter than employees.

25. Which of the following statements about fraud or error is incorrect?
    1. The responsibility for the prevention and detection of fraud and error rests with management.
    2. The auditor should plan and perform the audit with an attitude of professional skepticism, recognizing that conditions or events may be found that fraud or error may exist.
    3. The likelihood of detecting fraud is ordinarily higher than that of detecting error.
    4. The auditor is not and can not be held responsible for the prevention of fraud and error.

26. Which of the following is an "error" as distinguished from "fraud"?
    1. Lapping
    2. Embezzlement of company's fund
    3. Clerical mistakes in  the processing of transactions
    4. Window dressing

27. Which of the following could be an example of fraud?

1. 1. Misappropriation of assets or group of assets.
   2. Errors in the application  of  the accounting principles.
   3. Clerical errors in accounting data underlying the financial statements.
   4. Misinterpretation of facts that existed when financial statements  were prepared.

28. Which of the following is an example of fraudulent financial reporting?
    1. Misappropriating collections on accounts receivable
    2. Using inappropriate assumptions in accounting estimate
    3. Stealing inventory
    4. Payments       to      fictitious        employees        or vendors

29. These refer to events or conditions that may indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud.
    1. Fraud conditions
    2. Fraud risk factors
    3. Fraudulent activities
    4. Fraud events

30. The following are fraud risk factors except:
    1. Incentive or pressure to commit fraud
    2. Opportunity to commit fraud
    3. Attitude      or     rationalization         to     commit fraud
    4. All of the above

31. Certain characteristics or circumstances may increase the susceptibility of assets to misappropriation.                                                            Opportunities to misappropriate assets increase due to the following except:
    1. Inventory items that are small in size, of high value, or in high demand.
    2. Known or anticipated future employee layoffs.
    3. Easily convertible assets, such as bearer bonds, diamonds, or computer chips.
    4. Fixed assets which are small in size, marketable, or lacking observable identification of ownership.

32. The auditor is most likely to presume that a high risk of fraud exists if
    1. The  client  is  a  multinational  company

that does business in numerous foreign countries.

1. 2. The client does business with several related parties.
   3. Inadequate segregation of duties places an employee in a position to perpetrate and conceal thefts.
   4. Inadequate employee training results in lengthy EDP exception reports each month.

33. All of the following conditions are indicators of possible pressures on an entity except
    1. The industry in which the entity operates is declining.
    2. There is inadequate working capital due to declining profits or too  rapid expansion.
    3. The client is heavily dependent on one or a few products or customers.
    4. There is a significant and prolonged understaffing of the accounting department.

34. Which of the following is most likely to be a response to the  auditor's  assessment  that the risk of material misstatement due to fraud for the existence of inventory is high?
    1. Observe test counts of inventory at certain locations on an unannounced basis.
    2. Perform analytical procedures rather than taking test counts.
    3. Request that inventories be counted prior to year end.
    4. Request that inventory counts at the various locations be counted on different dates so as to allow the same auditor to be present at every count.

35. The term used to refer to acts of omission or commission by the entity being audited, either intentional or unintentional, which are contrary to the prevailing laws and regulations is
    1. Misappropriation.
    2. Fraud.
    3. Illegal acts.
    4. Noncompliance.

36. Noncompliance with laws and regulations are also called
    1. Irregularities
    2. Illegal acts

1. 3. Misappropriation
   4. Defalcation

37. The responsibility for the detection and prevention of noncompliance with laws and regulations rests with
    1. The auditor
    2. The client's legal counsel
    3. The auditor’s legal counsel
    4. The client management

38. The term “noncompliance” as used in PSA 250 refers to acts of omission or commission by the entity being audited,  either intentional or unintentional, which are contrary to the prevailing laws  or regulations. Such acts include the following except
    1. Transactions entered into by the entity
    2. Transactions entered into in the name of the entity
    3. Transactions entered into by the entity on its behalf by its management  or employees
    4. Personal misconduct (unrelated to the business activities of the entity) by the entity’s management or employees.

39. As part of audit planning, CPAs should design audit programs for each individual audit and should include audit steps and procedures to
    1. Ensure      that      only      material       items      are audited.
    2. Provide             assurance              that            the objectives of the audit are met.
    3. Detect and eliminate fraud.
    4. Increase the amount of management information available.

40. How can the audit program  best  be described at the beginning of the audit process?
    1. Conclusive
    2. Confirmed
    3. Optional
    4. Temporary

41. Internal auditing can affect the scope of the external auditor's audit of financial statements by
    1. Decreasing the external auditor's need to perform detailed tests.

1. 2. Eliminating the need to observe the physical inventory taking.
   3. Allowing the external auditor to limit his/her   audit   to   the   performance   of substantive test procedures.
   4. Limiting direct testing by the external auditor to management assertions not directly tested by internal auditing.

42. The external auditor should obtain a sufficient understanding of the internal audit function because
    1. The understanding of the internal audit function is an important substantive test to be performed by the external auditor.
    2. The audit programs, working papers, and reports of internal auditors may often be used as a substitute for the work of the external auditor's staff.
    3. The procedures performed by the internal audit staff may eliminate the external auditor's need for considering internal control.
    4. The work performed by internal auditors may be a factor in determining the nature, timing, and extent of the external auditor's procedures.

43. In determining whether the work of the internal auditors is likely to be adequate for purposes of the audit, the external auditor shall evaluate the internal auditor's
    1. Efficiency and experience
    2. Competence and objectivity
    3. Independence and review skills
    4. Training and supervisory skills

44. In assessing the technical competence of an internal auditor, an external auditor most likely would obtain information about the
    1. Organizational level to which the internal auditor reports.
    2. Quality of working paper documentation, reports, and recommendations.
    3. Influence of management on the internal auditor's duties.
    4. Entity's commitment to integrity and ethical values.

45. Given that an audit in accordance with generally accepted auditing standards is influenced by the possibility of material

errors and fraud, the auditor should conduct the audit with an attitude of

1. 1. Professional responsiveness.
   2. Conservative advocacy.
   3. Professional skepticism.
   4. Objective judgment.

46. The primary difference between financial statement errors and fraud is that
    1. Errors are intentional misstatements by management, while fraud involves unintentional mistakes or omissions.
    2. Errors are more likely to provide an indication that an illegal act  has occurred.
    3. Errors are unintentional mistakes or omissions, while fraud involves intentional misstatements.
    4. There is no difference as errors and fraud have the same meaning.

47. Which of the following statements is correct relating to the auditor’s consideration of fraud?
    1. The auditor’s interest in fraud consideration relates to fraudulent acts that cause a material misstatement                     of                 financial statements.
    2. A primary factor that distinguishes fraud from error is that fraud is always intentional, while errors are  generally, but not always, intentional.
    3. While an auditor should be aware of the possibility of fraud,  management,  and not the auditor, is responsible for detecting fraud.
    4. Fraud always involves a pressure or incentive to commit fraud, and a misappropriation of assets.

48. Which of the following factors or conditions is an auditor least likely to plan an audit to discover?
    1. High turnover of senior management.
    2. Inadequate monitoring of significant controls.
    3. Inability to generate positive cash flows from operations.
    4. Financial pressures affecting employees.

49. Which of the  following  statements concerning audit planning is incorrect?

1. 1. Planning is a continual and iterative process.
   2. Planning is a discrete phase of an audit.
   3. In a recurring audit,  planning  often begins shortly after (or in  connection with) the completion of the  previous audit and continues until the completion of the current audit engagement.
   4. In planning an audit,  the  auditor considers the timing of certain planning activities and audit procedures that are to be completed prior to the performance of further audit procedures.

50. The generally accepted  auditing  standards of fieldwork pertain most directly to:
    1. Improving internal control as a result of the audit.
    2. Due professional care in the performance of the audit.
    3. The required training and proficiency of the auditors.
    4. The planning of the audit.

51. With respect to the auditor's planning of a year-end examination, which of the following statements is always true?
    1. An engagement should not be accepted after the fiscal year-end.
    2. It is an acceptable practice to carry out substantial parts of the examination at interim dates.
    3. An inventory count must be observed at the balance sheet date.
    4. The client's audit committee should not be told of the specific audit procedures that will be performed.

52. An initial (first-time) audit requires more audit time to complete than a  recurring audit. One of the reasons for this is that
    1. New auditors are usually assigned to an initial audit.
    2. A larger proportion of customer accounts receivable need to be confirmed on an initial audit.
    3. The client's business, industry, and internal control are unfamiliar to the auditor and need to be carefully studied.
    4. Predecessor auditors need to be consulted.

53. Which of the following is not required by PSA No. 315, "Consideration of Fraud in  a Financial Statement Audit"?
    1. Conduct a continuing assessment of the risks of material misstatement due to fraud throughout the audit.
    2. Conduct a discussion by the audit team of the risks of material misstatement due to fraud.
    3. Conduct inquiries of the audit committee as to their views about the risks of fraud and their knowledge of any fraud or suspected fraud.
    4. Conduct the audit with professional skepticism, which includes an attitude that assumes balances are incorrect until verified by the auditor.

54. Inherent risk is defined as the susceptibility of an account balance or  class  of transactions to error that could be material assuming that there were no related internal controls. Of the following conditions, which one does not increase inherent risk?
    1. The board of directors approved a substantial bonus for the president and chief executive officer, and also approved an attractive stock option plan for themselves.
    2. The client has entered into numerous related party transactions  during  the year under audit.
    3. Internal control over shipping, billing, and recording of sales revenue is weak.
    4. The client has lost a major customer accounting for approximately 30% of annual revenue.

55. Which of the following is true?
    1. Auditors are responsible for detecting all fraudulent financial reporting.
    2. Auditors must specifically consider fraud risk from overstating liabilities.
    3. Auditors must specifically consider fraud risk from management override of controls.
    4. All of the above are true

56. Which of the following is an example of fraudulent financial reporting?
    1. The treasurer diverts customer payments to his personal due, concealing his

actions by debiting an expense account, thus overstating expenses.

1. 2. Company management changes inventory count tags and overstates ending inventory, while understating cost of goods sold.
   3. An employee steals inventory and the “shrinkage” is recorded in cost of goods sold.
   4. An employee steals small tools from the company and neglects to  return  them; the cost is reported as a miscellaneous operating expense.

57. The type of transactions that ordinarily have a high inherent risk because they involve management judgments or assumptions are referred to as
    1. Estimation transactions.
    2. Nonroutine transactions.
    3. Related-party transactions.
    4. Routine transactions.

58. Professional skepticism
    1. Assumes that management is either dishonest or assumes unquestioned honesty.
    2. Either assumes that management is honest or dishonest.
    3. Neither assumes that management is dishonest nor assumes unquestioned honesty.
    4. None of the above is a correct statement

59. Which of the following conditions identified during fieldwork of an audit is most likely to affect the auditor’s assessment of the risk of misstatement due to fraud?
    1. Year-end adjusting journal entries.
    2. Checks            for           significant              amounts outstanding at year-end.
    3. Missing documents.
    4. Computer generated documents.

60. Which of the following best describes what is meant by the term “fraud risk factor?”
    1. Factors whose presence  indicates  that the risk of fraud is high.
    2. Factors whose presence requires modification of planned audit procedures.
    3. Factors whose presence often have been observed in circumstances where frauds have occurred.

1. 4. Reportable conditions identified during an audit.

61. Which of the following may cause management to intentionally understate profits?
    1. Management wants to create "cookie jar" reserves for a rainy day.
    2. The company is under scrutiny by tax authorities.
    3. The company is suffering a large loss and wants to take a "big bath."
    4. All of the above

62. Which of the following characteristics most likely would heighten an auditor’s concern about the risk of intentional manipulation of financial statements?
    1. Turnover of senior accounting personnel is low.
    2. Insiders recently purchased additional shares of the entity’s stock.
    3. Management places substantial emphasis on meeting earnings projections.
    4. The rate of change in the  entity’s industry is slow.

63. Which of the following statements reflects an auditor’s responsibility for detecting misstatements due to errors and fraud?
    1. An auditor is responsible for detecting employee errors and simple fraud,  but not for discovering fraud involving employee collusion or management override.
    2. An auditor should design the audit to provide reasonable assurance of detecting misstatements due to errors and fraud that are material to the financial statements.
    3. An auditor should plan the audit to detect misstatements due to errors and fraud that are caused by  departures  from GAAP.
    4. An auditor is not  responsible  for detecting misstatements due to  errors and fraud unless the application of GAAS would result in such detection.

64. An auditor is required to obtain a basic understanding of the client's internal control to plan the audit. The auditor may then decide to perform tests of controls on all

internal control procedures

1. 1. That would aid in preventing fraud.
   2. Documented in the flowchart.
   3. Considered to be weaknesses that might allow errors to enter the accounting system.
   4. Considered to be strengths for which the auditor desires further reduction in the assessed level of control risk.

65. When considering fraud risk factors  relating to management’s characteristics, which of the following is least likely to indicate a risk of possible misstatement due to fraud?
    1. Failure to correct known reportable conditions on a timely basis.
    2. Use of unusually conservative accounting practices.
    3. Nonfinancial                                     management’s preoccupation with the selection of accounting principles.
    4. Significant portion of management’s compensation represented by bonuses based upon achieving unduly aggressive operating results.

66. With respect to errors and fraud, the auditor should plan to
    1. Search for errors or fraud  that  would have a material effect on the financial statements.
    2. Discover errors or fraud that would have a material effect on the financial statements.
    3. Search for errors that would have a material effect and for fraud that would have either material or immaterial effects on the financial statements.
    4. Search for fraud that would have a material effect and for errors that would have either material or immaterial effects on the financial statements.

67. Auditor responsibility for identifying "direct effect" illegal acts differs from their responsibility for detecting
    1. Errors.
    2. Indirect-effect illegal acts.
    3. Fraud.
    4. Management fraud.

68. Management’s attitude toward aggressive financial reporting and its emphasis on

meeting projected profit goals most likely would significantly influence an entity’s control environment when

1. 1. External policies established by parties outside the entity affect its accounting practices.
   2. Management is dominated by one individual who is also a shareholder.
   3. Internal auditors have direct  access  to the board of directors and the entity’s management.
   4. The audit committee is active in overseeing the  entity’s  financial reporting policies.

69. Which of the following is least likely to be required on an audit?
    1. Review accounting estimates for biases.
    2. Test appropriateness of journal entries and adjustment.
    3. Make       a       legal         determination          of whether fraud has occurred.
    4. Evaluate         the      business        rationale        for significant unusual transactions.

70. Which of the following is most likely to be an overall response to fraud risks identified in an audit?
    1. Supervise members of the audit team less closely and rely more upon judgment.
    2. Only use certified public accountants on the engagement.
    3. Place increased emphasis on the audit of objective transactions rather than subjective transactions.
    4. Use less predictable audit procedures.

71. The most likely explanation  why  the auditor’s examination cannot reasonably be expected to bring all illegal acts by the client to the auditor’s attention is that
    1. Illegal acts are perpetrated by management override of internal control.
    2. Illegal acts by clients often relate to operating aspects rather than accounting aspects.
    3. The client’s internal control may be so strong that the auditor performs only minimal substantive testing.
    4. Illegal acts may be perpetrated by the only person in the client’s organization

with access to both assets and the accounting records.

72. Which of the following relatively small misstatements most likely could have a material effect on an entity’s financial statements?
    1. A piece of obsolete office equipment that was not retired.
    2. An     illegal         payment       to     a     foreign official that was not recorded.
    3. A petty cash fund disbursement that was not properly authorized.
    4. An uncollectible account receivable that was not written off.

73. Which of the following might be considered a "red flag" indicating possible fraud in a large manufacturing company with several subsidiaries?
    1. A consistent record of above average return on investment for all subsidiaries
    2. The existence of a financial subsidiary
    3. Use of separate bank accounts for payrolls by each subsidiary
    4. Complex sales-transactions and transfers of funds between affiliated companies

74. Warning signs that cause the auditor to question management integrity must  be taken seriously and pursued  vigorously. Which of the following may lead the auditor to suspect management dishonesty?
    1. The client has been named  as  a defendant in a product liability suit.
    2. The client has experienced a decrease in revenue from increased import competition.
    3. A new statutory regulation making customer licenses more difficult to obtain may adversely affect the client's operations.
    4. The president and chief executive officer of the client corporation has held numerous meetings with the controller for the purpose of discussing accounting practices that will maximize reported profits.

75. Which of the following methods may be used to commit fraudulent financial reporting?
    1. Understate liabilities
    2. Fail to provide adequate disclosure

1. 3. Overstate revenues
   4. Each of the above can be used to commit fraudulent  financial reporting

76. The absence of which of the following internal controls increases the  opportunity for fraud?
    1. Appropriate        segregation        of     duties      or independent checks
    2. Job applicant screening for employees with access to assets
    3. Mandatory vacations for employees with access to assets
    4. The absence of any of the above increases the opportunity for fraud

77. Whom should auditors contact when they suspect a fraud?
    1. Senior management
    2. Expected perpetrators of the fraud
    3. Audit committee of the board of directors
    4. A and C

78. Auditors would normally interview all but which of the following individuals as part of their assessment of fraud risk?
    1. Senior management
    2. Audit committee
    3. Various employees whose duties do not include normal financial reporting responsibilities
    4. All of the above

79. After studying and evaluating a client's existing internal control, an auditor has concluded that the policies and procedures are well-designed and functioning as intended. Under these circumstances, the auditor would most likely
    1. Perform further control tests to  the extent outlined in the audit program.
    2. Determine the control policies and procedures that should prevent or detect errors and fraud.
    3. Set detection risk at a higher level than would be set under conditions of weak internal control.
    4. Set detection risk at a lower level than would be set under conditions of weak internal control.

80. An audit plan is a
    1. Detailed  plan  of  analytical  procedures

and all substantive tests to be performed in the course of the audit.

1. 2. Generic document that auditing  firms have developed to lead the  process  of the audit through a  systematic  and logical process.
   3. Budget of the time that should be necessary to complete each phase of the audit procedures.
   4. Document that provides an overview of the company and a general plan for the audit work to be accomplished, timing of the work, and other matters of concern to the audit.

81. An audit program is
    1. A generic document that auditing firms have developed to lead the  process  of the audit through a  systematic  and logical process.
    2. An overview of the company and  a general plan for the audit work to be accomplished.
    3. The detailed plan of audit procedures to be performed in the course of the audit.
    4. A budget of the time that should be necessary to complete each phase of the audit procedures.

82. Which of the following concepts is  most useful in assessing the scope of an auditor's program relating to various accounts?
    1. Attribute sampling
    2. Management fraud
    3. Materiality
    4. The reliability of information

83. One of the primary roles of an audit program is to
    1. Provide for a standardized approach  to the audit engagement.
    2. Serve as a tool for planning, directing, and controlling audit work.
    3. Document an auditor's understanding of the internal control.
    4. Delineate the audit risk accepted by the auditor.

84. The principal reason for developing a written audit program is to help assure that the
    1. Audit work is properly supervised.

1. 2. Audit      report  contains         only      significant findings.
   3. Audit work is properly planned and documented.
   4. Work of different auditors is properly coordinated.

85. An auditor should design the written audit program so that
    1. All material transactions will be selected for substantive testing.
    2. Substantive tests prior to the balance sheet date will be minimized.
    3. Each account balance will be  tested under either tests of controls or tests of transactions.
    4. The audit procedures selected will achieve specific audit objectives.

86. In the preparation of an audit  program, which of the following items is not essential?
    1. Assessment of inherent risk
    2. The preparation of a budget identifying the costs of resources needed
    3. A review of material from prior audits
    4. An understanding of controls established by management

87. Which of the following is not a consideration in the development of audit programs?
    1. Internal control over the recording of plant asset additions and repairs and maintenance expenditures is found to be weak.
    2. The members of the board of directors are elected by the stockholders during the annual meeting.
    3. The client is a private university located in Southern Philippines.
    4. The client constructed a major  addition to its central manufacturing  facility during the year under audit.

88. The element of the audit planning process most likely to be agreed upon with the client before implementation of the audit strategy is the determination of the
    1. Procedures to be undertaken to discover litigation, claims, and assessments.
    2. Timing         of      inventory         observation procedures to be performed.
    3. Evidence  to  be  gathered  to  provide  a

sufficient basis for the auditor's opinion.

1. 4. Pending legal matters to be included in the inquiry of the client's attorney.

89. When a CPA expresses an opinion on the financial statements, his responsibilities extend to
    1. The underlying wisdom of the client's management decision.
    2. Active participation in  the implementation of the advice  given  to the client.
    3. An ongoing responsibility for the client's solvency.
    4. Whether the results of the client's operating decisions are fairly presented in the financial statements.

90. The accuracy of information included in the footnotes that accompany the audited financial statements of a company whose shares are traded on a stock exchange is the primary responsibility of
    1. The stock exchange officials.
    2. The company's management.
    3. The independent auditor.
    4. The            Securities            and            Exchange Commission.

91. The responsibility for adopting sound accounting policies, maintaining adequate internal control, and making fair representations in the financial statements rests
    1. With management
    2. With the independent auditor
    3. Equally with management  and  the auditor
    4. With the internal audit department.

92. Audit standards require an auditor to:
    1. Perform procedures that are designed to detect all instances of fraud.
    2. Provide reasonable assurance that the financial statements are not materially misstated.
    3. Issue an unqualified opinion only  when the auditor is satisfied that no instances of fraud have occurred.
    4. Design the audit program to  meet financial statement users' expectations concerning fraud.