DE LA SALLE UNIVERSITY

ACYAUDI – T3, AY2023-2024

Quizzer 4 – Audit Objectives, Procedures, Evidence & Documentation, Audit Sampling,

Completing the Audit and Audit in CIS Environment
____ 1. Broadly defined, the subject matter of any audit consist of
a. Operating data
b. Economic data
c. Financial statements
d. Assertions about economic actions and events
____ 2. An auditor should be able to collect and evaluate documentary evidence. When evaluating and interpreting
evidence, the auditor must be on guard against the possibility of drawing unwarranted conclusions. An
example of a valid conclusion is:
a. Correct inventory valuation as determined from observation of physical count.
b. Client ownership determined from third-party inquiries about consigned goods.
c. Proper accounts payable cut-off at reporting date as determined by a review of raw
materials requisitions.
d. Existence of a company travel vehicle determined from the examination of the paid
invoice for the said vehicle.
____ 3. For which of the following account balances are substantive tests of details least likely to be performed unless
analytical review procedures indicate the need to extend detail testing?
a. Available for sale securities c. Marketing expense
b. Interest expense d. Revaluation surplus
____ 4. The test for recorded sales for which there were no actual shipments, the auditor traces from the
a. Bill of lading to the sales journal.
b. Sales journal to the bill of lading.
c. Sales journal to the accounts receivable subsidiary ledger.
d. Bill of lading to the supporting customer order and sales order.
____ 5. An entity has leased an asset and appropriately recorded a finance lease because of the existence of a bargain
purchase option. In addition, the entity expressed that it is certain to exercise the option. The auditor should
determine:
a. That the leased property is being depreciated over the lease term.
b. That the minimum lease payments include contingent rent and executory costs.
c. Whether the interest rate used in computing the present value of the minimum lease
payments is the interest rate implicit in the lease.
d. The recorded cost in the lessee’s books is the same as the carrying value of the property in
the books of the lessor immediately before the lease.
____ 6. When litigation or claims have been identified or when the auditor believes they may exist, the auditor should
seek direct communication with the entity’s lawyers. The letter should be
a. prepared by auditor, sent by the auditor, and request the lawyer to communicate directly
with the auditor.
b. prepared by the management, sent by the auditor, and request the lawyer to communicate
directly with the auditor.
c. prepared by the auditor, sent by the management, and request the lawyer to communicate
directly with the auditor.
 d. prepared by management, sent by the auditor, and request the lawyer to communicate
directly with management.
____ 7. 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
____ 8. During the course of an audit engagement, an auditor prepares and accumulates audit working papers. The
primary purpose of the audit working papers is to
a. Aid the auditor in adequately planning his work.
b. Provide a point of reference for future audit engagements.
c. Support the underlying concepts included in the preparation of the basic financial
statements.
d. Support the auditor's opinion.
____ 9. When reviewing audit working papers, the primary responsibility of an audit supervisor is to determine that
a. each worksheet is properly identified with a descriptive heading.
b. working papers are properly referenced and kept in logical groupings.
c. standard departmental procedures are adhered to with regard to working paper preparation
and technique.
d. working papers adequately support the audit findings, conclusions, and report.
____ 10. In an internal audit, the audit supervisor determines that the 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.
____ 11. All the information used by the auditor in arriving at the conclusions on which the audit opinion is based is
called
a. Audit information c. Accounting records
b. Audit evidence d. Corroborating information
____ 12. Which of the following might be detected by an auditor's review of the entity's sales cutoff?
a. Inflated sales for the year. c. Unrecorded sales discounts.
b. Lapping of year-end accounts receivable. d. Excessive goods returned for credit.
____ 13. Which of the following procedures is least likely to be performed before the balance sheet date?
a. Search for unrecorded liabilities.
b. Confirmation of accounts receivable.
c. Attendance at the physical inventory count.
d. Testing internal control over cash.
____ 14. Periodic or cycle counts of selected inventory items are made at various times during the year rather than a
single inventory count at year-end. Which of the following is necessary if the auditor plans to observe
inventories at interim dates? '
a. Inventory balances are rarely at low levels.
b. Complete recounts by independent teams are performed.
c. Perpetual inventory records are maintained.
d. Unit cost records are integrated with production accounting records.
____ 15. In an audit of shareholders' equity, an auditor is most concerned that
a. Share capital transactions are properly authorized.
b. All changes in the shareholders' equity accounts are monitored by an independent transfer
agent and registrar.
c. Share splits are charged to retained earnings at par or stated value.
d. Dividends declared during the year were approved by the shareholders.

____ 16. In applying variables sampling, an auditor attempts to

a. Estimate a qualitative characteristic of interest.
b. Determine various rates of occurrence for specified attributes.
c. Discover at least one instance of a critical error.
d. Predict a monetary population value within a range of precision.
____ 17. In order to quantify the risk that the sample evidence leads to erroneous conclusions about the sampled
population
a. Each item in the sampled population must have an equal chance of being selected.
b. Each item in the sampled population must have a chance of being selected proportional to
its book value.
c. Each item in the sampled population must have an equal or known probability of being
selected.
d. The precise number of items in the population must be known.
____ 18. Discovery sampling should be used to estimate whether a population contains
a. errors of any kind c. noncritical errors
b. critical deviations d. no errors
____ 19. The tolerable rate of deviation for tests of controls necessary to justify a control risk assessment depends
primarily on which of the following?
a. The cause of errors
b. The extent of reliance to be placed on the procedures
c. The amount of any substantive errors
d. The limit used in audits of similar clients
____ 20. An auditor samples cash disbursement records for significant errors of $5 or more. Upon finding one such
error, these records are scheduled for a complete review. This conclusion is most likely based on a
a. Cluster sample. c. Systematic sample.
b. Discovery sample. d. Stratified sample.
____ 21. Which of the following statements concerning sample size is true?
a. An increase in the tolerable occurrence rate, other factors remaining unchanged, increases
sample size.
b. The higher the expected occurrence rate, other factors remaining unchanged, the larger
will be the sample size.
c. The more critical the attribute being tested, the higher will be the tolerable occurrence rate
set by the auditor, and the larger will be the sample size.
d. The lower the acceptable risk of underassessment of control risk, the smaller will be the
sample size.
____ 22. An advantage of using statistical over non-statistical sampling methods in tests of controls is that the
statistical methods
a. Afford greater assurance than a non-statistical sample of equal size.
b. Provide an objective basis for quantitatively evaluating sample risks.
c. Can more easily convert the sample into a dual-purpose test useful for substantive testing.
d. Eliminate the need to use judgment in determining appropriate sample sizes.
____ 23. The auditor samples cash disbursements for minor errors of $5 or less. The parameter to be estimated is the
error rate, which might be as high as 10%. The auditor is most likely to use
a. Block sampling. c. Attributes sampling.
b. Variables sampling. d. Discovery sampling.
____ 24. To determine the number of items to be selected in a sample for a particular substantive test of details, the
auditor should consider all of the following except
a. Tolerable error. c. Allowable risk of incorrect acceptance.
b. Expected error. d. Characteristics of the population.
____ 25. Which of the following statements concerning alpha and beta risk is true?
a. As alpha risk increases, beta risk decreases.
b. As inherent risk and/or control risk increase, beta risk should also increase.
c. As inherent risk and/or control risk increase, beta risk should decrease.
d. As a "rule of thumb," the auditor generally sets beta risk equal to or less than 10%,
inasmuch as it is the basis for the audit opinion.
____ 26. Auditors who prefer statistical to non-statistical sampling believe that the principal advantage of statistical
sampling flows from its unique ability to
a. Define the precision required to provide adequate satisfaction.
b. Provide a mathematical measurement of risk.
c. Establish conclusive audit evidence with decreased audit effort.
d. Promote a more legally defensible procedural approach.
____ 27. A bank auditor is interested in estimating the average account balance of its depositors based on a sample.
This substantive test is an example of
a. Attribute sampling. c. Acceptance sampling.
b. Discovery sampling. d. Variables sampling.
____ 28. While performing a test of details during an audit, the auditor determined that the sample results supported the
conclusion that the recorded account balance was materially misstated. It was, in fact, not materially
misstated. This situation illustrates the risk of
a. Assessing control risk too low c. Incorrect acceptance
b. Assessing control risk too high d. Incorrect rejection
____ 29. Which of the following is true if certain forms are not consecutively numbered?
a. Systematic sampling may be appropriate.
b. Selection of a random sample probably is not possible.
c. Random number tables cannot be used.
d. Stratified sampling should be used.
____ 30. For which of the following audit tests would an auditor most likely use attribute sampling?
a. Selecting accounts receivable for confirmation of account balances.
b. Examining invoices in support of the valuation of property, plant, and equipment
additions.
c. Making an independent estimate of the amount of FIFO inventory.
d. Inspecting employee time cards for proper approval by supervisors.

____ 31. Before reaching a final decision on the opinion to be issued, a conference generally is held with the client.
At this meeting, all of the following may be expected, except:
a. an oral report of the auditor’s major findings.
b. the auditor’s rationale for proposed adjustments or additional disclosures.
c. an agreement between the auditor and the client on the changes to be made in the financial
statements.
d. the delivery of the management letter.
____ 32. When a higher than normal ratio of long-term debt to net worth is coupled with a lower than average ratio of
profits to total assets, the company
a. is highly successful. c. has a high risk of financial failure.
b. is comparable with industry standards. d. has a liquidity problem.
____ 33. Which of the following income statement accounts is least likely to be subject to extensive detailed tests of
balances?
a. Legal and professional fees c. Cost of sales
b. Contributions d. Officers’ salaries
____ 34. An auditor is concerned with completing various phases of the audit after the balance sheet date. This
subsequent period extends to the date of the
a. Delivery of the auditor's report to the client.
b. Auditor's report.
c. Final review of the audit Working papers.
d. Public issuance of the financial statements.
____ 35. The written representations shall be in the form of a representation letter addressed to the
a. Entity's management c. Entity's chief executive officer
b. Auditor d. Entity's chief financial officer

____ 36. Which of the following is not an advantage of a computerized accounting system?
a. Computers process transactions uniformly.
b. Computers help alleviate human errors.
c. Computers can process many transactions quickly.
d. Computers leave a thorough audit trail which can be easily followed.
____ 37. Which of the following would result to an ineffective control in a computer-based information system?
a. The computer librarian maintains custody of computer program instructions and detailed
listings.
b. Computer operators have access to operator instructions and detailed program listings.
c. The control group is solely responsible for the distribution of all computer output.
d. Computer programmers write and debug programs which perform routines designed by
the systems analyst.
____ 38. All activities related to a particular application in a manual system are recorded in a journal. The name of the
corresponding item in a computerized system is a
a. master file. c. year-to-date file.
b. transaction file. d. current balance file.
____ 39. Unauthorized alteration of on-line records can be prevented by employing:
a. Key verification. c. Computer matching.
b. Computer sequence checks. d. Data base access controls.
____ 40. Given the increasing use of microcomputers as a means for accessing data bases, along with on-line real-time
processing, companies face a serious challenge relating to data security. Which of the following is not an
appropriate means for meeting this challenge?
a. Institute a policy of strict identification and password controls housed in the computer
software that permit only specified individuals to access the computer files and perform a
given function.
b. Limit terminals to perform only certain transactions.
c. Program software to produce a log of transactions showing date, time, type of transaction,
and operator.
d. Prohibit the networking of microcomputers and do not permit users to access centralized
data bases.
____ 41. Generalized audit software is of primary interest to the auditor in terms of its capability to
a. Access information stored on computer files.
b. Select a sample of items for testing.
c. Evaluate sample test results.
d. Test the accuracy of the client's calculations.
____ 42. A control to verify that the dollar amounts for all debits and credits for incoming transactions are posted to a
receivables master file is the:
a. Generation number check. c. Hash total.
b. Master reference check. d. Control total.
____ 43. Which of the following controls would be most efficient in reducing common data input errors?
a. Keystroke verification. c. Balancing and reconciliation.
b. A set of well-designed edit checks. d. Batch totals.

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