1.

Prior to the acceptance of an audit engagement with a client who has terminated the services of the
predecessor auditor, the CPA should
a. Contact the predecessor auditor without advising the prospective client and request a complete
report of the circumstance leading to the termination with the understanding that all information
disclosed will be kept confidential.
b. Accept the engagement without contacting the predecessor auditor since the CPA can include audit
procedures to verify the reason given by the client for the termination.
c. Not communicate with the predecessor auditor because this would in effect be asking the auditor to
violate the confidential relationship between auditor and client.
d. Advise the client of the intention to contact the predecessor auditor and request permission for the
contact.
2. Before accepting an audit engagement, a successor auditor should make specific inquiries of the
predecessor auditor regarding the predecessor’s
a. Opinion of any subsequent events occurring since the predecessor’s audit report was issued.
b. Understanding as to the reasons for the change of auditors.
c. Awareness of the consistency in the application of GAAP between periods.
d. Evaluation of all matters of continuing accounting significance.
3. A successor auditor most likely would make specific inquiries of the predecessor auditor regarding
a. Specialized accounting principles of the client’s industry.
b. The competency of the client’s internal audit staff.
c. The uncertainty inherent in applying sampling procedures.
d. Disagreements with management as to auditing procedures.
4. Which of the following should an auditor obtain from the predecessor auditor prior to accepting an audit
engagement?
a. Analysis of balance sheet accounts
b. Analysis of income statement accounts
c. All matters of continuing accounting significance
d. Facts that might bear on the integrity of management
5. When an independent auditor is approached to perform an audit for the first time, he or she should
make inquiries of the predecessor auditor. Inquiries are necessary because the predecessor may be
able to provide the successor with information that will assist the successor in determining whether
a. The predecessor’s work should be used.
b. The company rotates auditors.
c. In the predecessor’s opinion, control risk is low.
d. The engagement should be accepted.
6. If permission from client to discuss its affairs with the proposed auditor is denied by the client, the
predecessor auditor should:
a. Keep silent of the denial.
b. Disclose the fact that the permission to disclose is denied by the client.
c. Disclose adequately to proposed auditor all noncompliance made by the client.
d. Seek legal advice before responding to the proposed auditor
7. The objective and scope of the audit and the extent of the auditor’s responsibilities to the client are best
documented in
a. Independent auditor’s report c. Client’s representation letter
b. b. Audit engagement letter d. Audit program
8. Which of the following is least likely included in an audit engagement letter?
a. The objective of financial reporting.
b. Management responsibility for the financial statements.
c. The form of any reports or other communication of the results of the engagement.
d. Arrangement concerning the involvement of other auditors or experts in some aspects of the audit.
9. An audit engagement letter least likely includes
a. A reference to the inherent limitation of an audit that some material misstatements may remain
undiscovered.
b. Identification of specific audit procedures that the auditor needs to undertake.
c. Description of any letters or reports that the auditor expects to submit to the client.
d. Arrangements concerning the involvement of internal auditors and other client’s staff.
10. Which of the following least likely requires the auditor to send a new engagement letter?
a. An indication that the client misunderstands the objective and scope of the audit.
b. Any revised or special terms of the engagement.
c. A recent change in the audit firm’s management.
d. Legal requirements and other government agencies’ pronouncements.
11. Which of the following least likely influence the auditor’s decision to send a separate engagement letter
to a component of parent entity client?
a. Legal requirements
b. Degree of ownership over a component entity by parent company
c. Location of the principal place of business of the component entity
d. Who appoints the auditor of the component
12. According to PSA 210, which of the following statements is correct?
a. The auditor and the client need not agree on the terms of the engagement.
b. Where the terms of the engagement are changed, the auditor and the client need not agree on the
new terms if they already agreed on the old terms.
c. The engagement letter assists in the supervision and review of the audit work.
d. The auditor may agree to a change of engagement where there is reasonable justification for doing
so.
13. Which of the following is a NOT valid reason for a change of the engagement to a lower “level of
assurance”?
a. Change in circumstances affecting the need for the service.
b. Restriction on the scope of the engagement.
c. Misunderstanding as to the nature of the engagement originally requested.
d. The client’s need is satisfied by an engagement that provides lower level of assurance.
14. When a change in the type of engagement from higher to lower level of assurance is reasonably
justified, the report based on the revised engagement
a. Should contain a separate paragraph that refers to the original engagement.
b. Should always refer to any procedures that may have been performed in the original engagement.
c. Should qualify the opinion due to scope limitation.
d. Omits reference to the original engagement.
15. The development of a general strategy and a detailed approach for the expected nature, timing, and
extent of audit refers to :
a. Supervision
b. Audit procedures
c. Directing
d. Planning
16. The auditor should consider the nature, extent, and timing of the work to be performed and should
prepare a written audit program for every audit. Which audit standard is most closely related to this
requirement?
a. The audit is to be performed by a person or persons having adequate technical training and
proficiency as an auditor.
b. In all matters relating to the assignment, an independent mental attitude is to be maintained by the
auditor(s).
c. Due professional care is to be exercised in the planning and performance of the audit and
preparation of the report.
d. The work is to be adequately planned and assistants, if any, are to be properly supervised.
17. Which of the following would a successor auditor normally perform after acceptance of an audit client?
a. Inquiry of predecessor auditor regarding the client.
b. Review the SEC filings of the client.
c. Inquiry of bankers regarding the client.
d. Review of predecessor auditor working papers.
18. To obtain an understanding of a continuing client’s business in planning an audit, an auditor most likely
would
a. Perform tests of details of transactions and balances.
b. Review prior-year working papers and the permanent file for the client.
c. Read specialized industry journals.
d. Reevaluate client’s internal control environment.
19. Which of the following is required documentation in an audit in accordance with generally accepted
auditing standards?
a. A flowchart or narrative of the information system describing the recording and classification of
transactions for financial reporting.
b. An audit program setting forth in detail the procedures necessary to accomplish the engagement’s
objectives.
c. A planning memorandum establishing the timing of the audit procedures and coordinating the
assistance of entity personnel.
d. An internal control questionnaire identifying policies and procedures that assure specific objectives
will be achieved.
20. Which of the following procedures would an auditor most likely perform in planning a financial
statement audit?
a. Inquiring of the client’s legal counsel concerning pending litigation.
b. Comparing the financial statements to anticipated results.
c. Examining computer generated exception reports to verify the effectiveness of internal controls.
d. Searching for unauthorized transactions that may aid in detecting unrecorded liabilities.
21. Analytical procedures used in planning an audit should focus on
a. Reducing the scope of tests of controls and substantive tests.
b. Providing assurance that potential material misstatements will be identified.
c. Enhancing the auditor’s understanding of the client’s business.
d. Assessing the adequacy of the available evidential matter.
22. Analytical procedures, which means the analysis of significant ratios and trends including the resulting
investigation of fluctuations and relationships that are inconsistent with other relevant information or
which deviate from predicted amounts, are not required to be applied
a. At the planning stage of the audit c. As substantive procedures
b. Overall review stage of the audit d. None of the above
23. Which of the following statements is correct concerning analytical procedures?
a. Analytical procedures usually involve comparisons of ratios developed from recorded amounts to
assertions developed by management.
b. Analytical procedures used in planning an audit generally use data aggregated at a high level. c.
Analytical procedures can replace tests of controls in gathering evidence to support the assessed level
of control risk.
d. Analytical procedures are more efficient, but not more effective, than tests of details and
transactions.
24. Which of the following is an effective audit planning and control procedures that helps prevent
misunderstandings and inefficient use of audit personnel?
a. Make copies, for inclusion in the working papers, of those client supporting documents examined by
the auditor.
b. Provide the client with copies of the audit programs to be used during the audit.
c. Arrange a preliminary conference with the client to discuss audit objectives, fees, timing, and other
information.
d. Arrange to have the auditor prepare and post any necessary adjusting or reclassification entries prior
to final closing.
25. Which of the following is an aspect of scheduling and controlling the audit engagement?
a. Including in the audit program a column for estimated and actual time.
b. Performing audit work only after the client’s books of account have been closed for the period under
examination.
c. Writing a conclusion in individual working papers indicating how the results of the audit will affect the
auditor’s report.
d. Including in the engagement letter an estimate of the minimum and maximum audit fee.
26. Which of the following is an engagement attribute for an audit of an entity that processes most of its
financial data in electronic form without any paper documentation?
a. Discrete phases of planning, interim, and year-end field work.
b. Increased effort to search for evidence of management fraud.
c. Performance of audit tests on a continuous basis.
d. Increased emphasis on the completeness assertion.
27. Which of the following statements is not correct about materiality?
a. The concept of materiality recognizes that some matters are important for fair presentation of
financial statements in conformity with GAAP, while other matters are not important.
b. An auditor considers materiality for planning purposes in terms of the largest aggregate level of
misstatements that could be material to any one of the financial statements.
c. Materiality judgments are made in light of surrounding circumstances and necessarily involve both
quantitative and qualitative judgments.
d. An auditor’s consideration of materiality is influenced by the auditor’s perception of the needs of a
reasonable person who will rely on the financial statements.
28. The risk that the assertion contains material misstatements that, when aggregated with misstatements
in other assertions, could make the entire financial statements materially misstated is:
a. Individual audit risk
b. Inherent risk
c. Control risk
d. Detection risk
29. Incremental risk is the increased risk that errors may not be detected at the balance sheet date
because:
a. Audit procedures were performed at an interim date
b. Inherent risk was assessed too low.
c. Analytical procedures were not performed.
d. Detection risk was set too high a level.
30. Adequate planning of the audit work helps the auditor of accomplishing the following objectives, except:
a. Gathering of all corroborating audit evidence.
b. Ensuring that appropriate attention is devoted to important areas of the audit.
c. Identifying the areas that need a service of an expert.
d. The audit work is completed efficiently.
31. The extent of planning will vary according to any of the following, except:
a. Size of the audit client.
b. Auditor’s experience with the entity and knowledge of the business.
c. The nature and complexity of the audit engagement
d. The assessed level of control risk.
32. Which of the following is least likely considered by the auditor in developing the overall audit plan?
a. Understanding of the accounting and internal control systems.
b. Relevant risk and materiality.
c. The involvement of other auditors in the audit of major component of financial statements
d. The general level of competence of audit assistants.
33. Which of the following is not considered by the CPA when he makes an overall audit plan?
a. Identification of complex accounting areas including those involving accounting estimates.
b. The information technology used by the client.
c. The content of the representation letters.
d. The nature and timing of reports or other communication with the entity that are expected under the
engagement.
34. Which of the following least likely affect the form and content of the overall audit plan?
a. Complexity of the audit engagement.
b. Methodology and technology used by the auditor.
c. The entity’s form of business organization.
d. The size of the entity.
35. The audit program should contain the following, except:
a. Audit objective
b. Time budget for the various audit areas
c. Set of planned audit procedures
d. The combined assessed level of inherent and control risk
36. Which of the following will most likely help the auditor to identify and understand the events,
transactions and practices of his audit client?
a. Obtaining a sufficient knowledge of the business of his client.
b. Understanding of accounting and internal control.
c. Testing control policies and procedures.
d. Obtaining a representation letter from the client management.
37. The auditor should have or obtain a knowledge of the client’s business sufficient to:
a. Evaluate whether the financial statements are materially misstated.
b. Document material weaknesses in accounting and internal control systems.
c. Identify and understand events, transactions and practices that may have effect on financial
statements.
d. Have an overall evaluation of whether financial assertions are fairly presented in the financial
statements.
38. The auditor is not expected to have
a. A particular knowledge of the economy and the industry within which the entity operates.
b. A particular knowledge of how the entity operates.
c. A level of knowledge of business ordinarily less than that possessed by management.
d. A knowledge of business which is used in assessing inherent and control risk.
39. Understanding the business and using this information appropriately assists the auditor in, except
a. Deciding whether to do tests of controls.
b. Evaluating audit evidence.
c. Assessing risks and identifying potential problems.
d. Planning and performing the audit effectively and efficiently.
40. Which of the following is the ultimate concern of the knowledge about the business?
a. Consideration of how it affects the financial statements taken as a whole.
b. Assists the auditor in enforcing quality control procedures.
c. To assure that sufficient audit evidence is obtained.
d. It assists in determining the type of audit report to be issued.
41. A knowledge of the business is a frame of reference within which the auditor exercises professional
judgment. This assists the auditor in carrying out the following objectives, except:
a. Assessing risks and identifying problems.
b. Evaluating audit evidence.
c. Determining the audit opinion to be expressed.
d. Planning and performing the audit effectively and efficiently.
42. Throughout the course of the audit, the auditors make judgment about many matters where knowledge
of the business is important. These procedures do not include:
a. Evaluating accounting estimates and management representations.
b. Identifying related parties and related party transactions.
c. Assessing inherent and control risks.
d. Assessing the appropriateness of using statistical sampling instead of judgmental sampling.
43. Which of the following factors is inappropriately relevant to the management’s assessment of the going
concern assumption?
a. The degree of uncertainty associated with the outcome of an event or condition decreases
significantly the further into the future of judgment being made about the outcome of an event or
condition.
b. Any judgment about the future is based on information available at the time at which the judgment is
made.
c. The size and complexity of the entity, and the nature and conditions of its business affect the
judgment regarding the outcome of events or conditions.
d. Subsequent events can contradict a judgment which was reasonable at the time it was made.
44. Which of the following may not cast significant doubt about the going concern assumption of an entity?
a. The entity heavily used equity financing for investment in permanent assets.
b. Non-compliance with capital or other statutory requirements.
c. Pending legal or regulatory proceeding against the entity that may, if successful, result in claims that
are unlikely to be satisfied.
d. Changes in legislation or government policy expected to adversely affect the entity.
45. When events or conditions have been identified which may cast significant doubt on the entity’s ability
to continue as a going concern, the auditor should:
a. Review management’s plans for future actions based on its going concern assessment.
b. Gather sufficient appropriate audit evidence to confirm or dispel whether or not a material uncertainty
exists through carrying out procedures considered necessary, including considering the effect of any
plans of management and other mitigating factors.
c. Seek written representations from management regarding its plans for future action.
d. All of the above.