1. The following four statements were made in a discussion of audit evidence between two CPAs. Which statement is not valid concerning evidential matter?
a. "I am seldom convinced beyond all doubt with respect to all aspects of the statements being examined."
b. "I would not undertake that procedure because at best the results would only be persuasive and I'm looking for convincing evidence."
c. "I evaluate the degree of risk involved in deciding the kind of evidence I will gather."
d. "I evaluate the usefulness of the evidence I can obtain against the cost to obtain it."

2.  Evidential matter supporting the financial statements consists of the underlying accounting data and all corroborating information available to the auditor. Which of the following is an example of corroborating information?
a.  Minutes of meetings
b.  General and subsidiary ledgers
c. Accounting manuals
d. Client's supporting worksheets

3.  From which of the following evidence-gathering audit procedures would an auditor obtain most assurance concerning the existence of inventories?
a.  Observation of physical inventory counts.
b.  Written inventory representations from management.
c.  Confirmation of inventories in a public warehouse.
d.  Auditor's recomputation of inventory extensions.

4.  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.  Show that an adequate audit was performed to support the auditor's opinion.
b.  Support the underlying concepts included in the preparation of the basic financial statements.
c.  Aid the auditor in adequately planning the work.
d.  Provide a point of reference for future audit engagements.

5.  Which of the following best describes the element of relative risk which underlies the application of generally accepted auditing standards, particularly the standards of field work and reporting?
a.  Inventories may require more attention by the auditor on an engagement for a merchandising enterprise than on an engagement for a public utility.
b.  The scope of the examination need not be expanded if errors that arouse suspicion of fraud are of relatively insignificant amounts.
c.  Intercompany transactions are usually subject to less detailed scrutiny than arm's length transactions with outside parties.
d.  Cash audit work may have to be carried out in a more conclusive manner than inventory audit work.

6.  One reason why the independent auditor performs analytical procedures of the client's operations is to identify
a.  Weaknesses of a material nature in the internal control structure.
b.  Noncompliance with prescribed control procedures.
c.  Improper separation of accounting and other financial duties.
d.  Unusual transactions.

7.  Which of the following situations has the best chance of being detected when a CPA compares 1996 revenues and expenses with the prior year and investigates all changes exceeding a fixed percentage?
a.  An increase in property tax rates has not been recognized in the company's 1996 accrual.
b.  The cashier began lapping accounts receivable in 1996.
c.  Because of worsening economic conditions, the 1996 provision for uncollectible accounts was inadequate.
d.  The company changed its capitalization policy for small tools in 1996.

8.  An auditor uses analytical procedures during the course of an audit. The most important phase of this review is the
a.  Computation of key ratios such as inventory turnover and gross profit percentages.
b.  Investigation of significant variations and unusual relationships.
c.  Comparison of client-computed statistics with industry data on a quarterly and full-year basis.
d.  Examination of the client data that generated the statistics that are analyzed.

9.  The auditor will most likely perform extensive tests for possible understatement of
a.  Revenues.
b.  Assets.
c.  Liabilities
d.  Capital

10.  If the auditor was engaged to discover errors or irregularities and the auditor performed detailed work, which of the following could the auditor be expected to detect?
a.  Misposting of recorded transactions.
b.  Unrecorded transactions.
c.  Counterfeit signatures of paid checks.
d.  Collusive fraud.

11.  Which of the following is the least persuasive documentation in support of an auditor's opinion?
a.  Schedules of details of physical inventory counts conducted by the client.
b.  Notation of inferences drawn from ratios and trends.
c.  Notation of appraisers' conclusions documented in the auditor's working papers.
d.  Lists of negative confirmation requests for which no response was received by the auditor.

12.  Which of the following statements relating to the competence of evidential matter is always true?
a.  Evidential matter gathered by an auditor from outside an enterprise is reliable
b.  Accounting data developed under satisfactory conditions of internal control are more relevant than data developed under unsatisfactory internal control conditions.
c.  Oral representations made by management are not valid evidence.
d.  Evidence gathered by auditors must be both valid and relevant to be considered competent.

13.  Audit evidence can come in different forms with different degrees of persuasiveness. Which of the following is least persuasive?
a.  Vendor's notice.
b.  Bank statement obtained from client.
c.  Computations made by the auditor.
d.  Prenumbered client invoices.

14.  Which of the following eliminates voluminous details from the auditor's working trial balance by classifying and summarizing similar or related items?
a.  Account analyses
b.  Supporting schedules.
c.  Control accounts
d. Lead schedules.

15.  In planning an audit engagement, which of the following is a factor that affects the independent auditor's judgment as to the quantity, type and content of working papers?
a.  The estimated occurrence rate of attributes.
b.  The preliminary evaluations based upon initial substantive testing.
c.  The content of the client's representation letter.
d.  The anticipated nature of the auditor's report.

16.  Which of the following is not a primary purpose of audit working papers?
a.  To coordinate the examination.
b.  To assist in preparation of the audit report.
c.  To support the financial statements.
d.  To provide evidence of the audit work performed.

17.  Which of the following factors will least affect the independent auditor's judgment as to the quantity, type and content of working papers desirable for a particular engagement?
a.  Nature of the auditor's report.
b.  Nature of the financial statements, schedules or other information upon which the auditor is reporting.
c.  Need for supervision and review.
d.  Number of personnel assigned to the audit.

18.  An auditor's working papers will generally be least likely to include documentation showing how the
a.  Client's schedules were prepared.
b.  Engagement had been planned.
c.  Client's system of internal control had been reviewed and evaluated.
d.  Unusual matters were resolved.

19.  To test for unsupported entries in the ledger, the direction of audit testing should be from the
a.  Ledger entries.
b.  Journal entries.
c.  Externally generated documents
d.  Original source documents.

20.  Which of the following is not a typical analytical procedure?
a.  Study of relationships of financial information with relevant nonfinancial information.
b.  Comparison of financial information with similar information regarding the industry in which the entity operates.
c.  Comparison of recorded amounts of major disbursements with appropriate invoices.
d.  Comparison of recorded amounts of major disbursements with budgeted amounts.

21.  The third standard of field work states that sufficient, competent evidential matter may in part be obtained through inspection, observation, inquiries and confirmations to afford a reasonable basis for an opinion regarding the financial statements under examination. The evidential matter required by this standard may in part be obtained through
a.  Auditor working papers.
b.  Proper planning of the audit engagement.
c.  Analytical procedures.
d.  Review of the internal control system.

22.  Which of the following analytical procedures should be applied to the Income Statement?
a.  Select sales and expense items and trace amounts to related supporting documents.
b.  Ascertain that the net income amount in the statement of cash flows agrees with the net income amount in the income statement.
c.  Obtain from the proper client representatives, the beginning and ending inventory amounts that were used to determine costs of sales.
d.  Compare the actual revenues and expenses with the corresponding figures of the previous year and investigate significant differences.

23.  An auditor testing long-term investments would ordinarily use analytical procedures to ascertain the reasonableness of the
a.  Existence of unrealized gains or losses in the portfolio.
b.  Completeness of recorded investment income.
c.  Classification between current and non-current portfolios.
d.  Valuation of marketable equity securities.

24.  As a result of analytical procedures, the independent auditor determines that the gross profit percentage has declined from 30% in the preceding year to 20% in the current year. The auditor should
a.  Express an opinion which is qualified due to inability of the client company to continue as a going concern.
b.  Evaluate management's performance in causing this decline.
c.  Require footnote disclosure.
d.  Consider the possibility of an error in the financial statements.

25.  In which of the following instances would it be appropriate for the auditor to refer to the work of an appraiser in the auditor's report?
a.  An unqualified opinion is expressed and the auditor wishes to place emphasis on the use of a specialist.
b.  A qualified opinion is expressed because of a major uncertainty unrelated to the work of the appraiser.
c.  An adverse opinion is based on a difference of opinion between the client and the appraiser as to the value of certain assets.
d.  A disclaimer of opinion is expressed due to a scope limitation imposed on the auditor by the appraiser.

26.  Which of the following would the accountant most likely investigate during the review of F/S of a nonpublic entity if accounts receivable did not conform to a predictable pattern during the year?
a.  Sales return and allowances
b.  Credit sales
c.  Sales of consigned goods
d.  Cash sales.

27.  An example of an analytical procedure is the comparison of
a.  Financial information with similar information regarding the industry in which the entity operates.
b.  Recorded amounts of major disbursements with appropriate invoices.
c.  Results of a statistical sample with the expected characteristics of the actual population.
d.  EDP generated data with similar data generated by a manual accounting system.

28.  Which of the following statements is generally correct about the competence of evidential matter?
a.  The auditor's direct personal knowledge, obtained through observation and inspection, is more persuasive than information obtained indirectly from independent outside sources.
b.  To be competent, evidential matter must be either valid or relevant, but need not be both.
c.  Accounting data alone may be considered sufficient, competent evidential matter to issue an unqualified opinion of F/S.
d.  Competence of evidential matter refers to the amount of corroborative evidence to be obtained.

29.  An entity's F/S were misstated over a period of years due to large amounts of revenue being recorded in journal entries that involved debits and credits to an illogical combination of accounts The auditor could most likely have been alerted to this irregularity by
a.  Scanning the general journal for unusual entries.
b.  Performing a revenue cut-off test at year-end.
c.  Tracing a sample of journal entries to the general ledger.
d.  Examining documentary evidence of sales return and allowances recorded after year-end.