1. There are three phases in both statistical and non-statistical sampling.

The first phase is to

A. generate random numbers for the sample
B. evaluate the results
C. plan the sample
D. select the sample E. None of the above

2. If a sample of payment vouchers taken by the auditor reflect the characteristics of all
payment vouchers, the sample is said to be:
A. A random sample
B. A representative sample
C. An attribute sample
D. All of the above E. None of the above

3. A sample in which every possible combination of items in the population has an equal
chance of constituting the sample is a
A. random sample
B. statistical sample
C. judgment sample
D. representative sample E. None of the above

4. Which of the following is not an example of sampling risk?

A. Over reliance on internal control
B. Under reliance on internal control
C. Incorrect rejection of account balance
D. Incorrect acceptance of account balance E. None of the above
5. When the auditor selects items for the sample without regard to their size, source, or
other distinguishing characteristics, it is called:
A. Block sample selection.
B. Systematic sample selection
C. Haphazard selection
D. Stratified sample selection E. None of the above
6. The exception rate the auditor will permit in the population and still be willing to
conclude that the control is operating effectively is the
A. tolerable exception rate
B. estimated population exception rate
C. acceptable risk of overreliance
D. sample exception rate E. None of the above

7. Non sampling risk is usually caused by:

A. Testing less that 100% of the population
B. Using ineffective audit procedures
C. Use of less experienced auditors with little/no supervision
D. B and C E. None of the above
8. Which of the following population factors affecting Compliances tests (Tests of
Control) leads to smaller sample sizes:
A. Overreliance on internal control
B. Lower expected rate of deviation in population
C. Higher tolerable rate of deviation or lower planned reliance on internal
control
D. All of the above
E. None of the above

9. The auditor' main objective when using a sample of tests of details of balances is
whether the
A. account balance being audited is fairly stated
B. transactions being audited are free of misstatements
C. controls being tested are operating effectively
D. transactions and account balances being audited are fairly stated
E. None of the above

10. If an auditor desires a greater level of assurance in auditing a balance, the acceptable
risk of incorrect acceptance
A. is reduced
B. is increased
C. is not changed
D. may be reduced or increased depending upon other circumstances
E. None of the above
11. The risk the auditor is willing to take of accepting a balance as correct when the true
misstatement in the balance under audit is greater than the tolerable misstatement is
A. the computed upper limit
B. the tolerable risk
C. the acceptable risk of incorrect acceptance
D. the tolerable exception rate
E. None of the above

12. All of the following reasons justify the fact that an audit work for cash is likely to be
more extensive as compared to its lower size that appear on balance sheet, except:
A. Cash is affected by many transactions
B. Cash is the most liquid asset with greater temptation for misappropriation
C. Cash is classified as high risk account because of its susceptibility to theft
D. All of the above
E. None of the above

13. The capital acquisition and repayment cycle does not include
A. payment of dividends
B. acquisition of capital through interest-bearing debt
C. payment of vendor invoices
D. payment of interest E. None of the above
 14. Which of the following balance-related audit objectives is not applicable to the audit of
notes payable?
A. realizable value
B. detail tie-in
C. cutoff
D. classification E. None of the above

15. All of the following are an accounts that are affected by the sales and collection cycle,
except:
A. cash
B accounts payable
C. allowance for doubtful accounts
D. accounts receivable E. None of the above

16. An event that initiates a transaction in the sales and collection cycle is:
A. receipt of cash
B. delivery of product to a customer
C. customer request for goods or services
D. identification of a new customer E. None of the above

17. Before goods are shipped on account, a properly authorized person must
A. prepare the sales invoice
B. approve the customer's credit
C. approve the journal entry
D. verify that the unit price is accurate E. None of the above

18. Most companies recognize sales revenue when

A. customer’s request for credit is approved
B. payment is received from the customer
C. goods are shipped
D. the customer's order is received E. None of the above

19. A document sent to each customer showing his or her beginning accounts receivable
balance and the amount and date of each sale, cash payment received, any debit or credit
memo issued, and the ending balance is the
A. sales invoice
B. monthly statement
C. remittance advice
D. accounts receivable subsidiary ledger E. None of the above
20. Which one the following procedures performed for the billing function provides evidence
for the completeness assertion?
A. making sure that each shipment is billed to the proper customer
B .making sure that no shipment has been billed more than twice
C. making sure that each shipment is billed at the correct amount
D . making sure that all shipments have been billed
E. None of the above

21. Which of the following types of receivables would deserve the special attention of the
auditor?
A. accounts receivables with credit balances
B. accounts that have been outstanding for a long time
C. receivables from related parties
D. All of the above
E. None of the above

22. Which of the following is/are considered as key control for sales and cash receipts?
A. adequate documents and records
B. adequate separation of duties
C. internal verification procedures
D. All of the above E. None of the above
23. To test for recorded sales for which there were no actual shipments, the auditor vouches
from the
A. bill of lading to the sales journal
B. sales journal to the shipping documents
C. sales journal to the accounts receivable subsidiary ledger
D. bill of lading to the supporting customer order and sales order
E. None of the above

24. The understatement of sales and accounts receivable is best detected by

A. testing internal controls.
B. testing the aged accounts receivable trial balance.
C. substantive tests of transactions for shipments made but not recorded.
D. substantive tests of transactions for bad debts.
E. None of the above

25. The most important test of details of balances to determine the existence of recorded
accounts receivable is
A. tracing details of sales invoices to shipping documents.
B. tracing the credits in accounts receivable to bank deposits.
C. tracing sales returns entries to credit memos issued and receiving room reports.
D. the confirmation of customers' balances.
E. None of the above
26. If the client's internal control for recording sales returns and allowances is evaluated as
ineffective,
A. a larger sample may be needed to verify cutoff
B. sampling is not appropriate
C. all sales returns must be traced to supporting documentation
D. all sales returns must be confirmed with the customer
E. None of the above

27. For effective internal control, employees maintaining the accounts receivable subsidiary
ledger should not also approve
A. employee overtime wages
B. credit granted to customers
C. write-offs of customer accounts
D. cash disbursements E. None of the above

28. Which of the following accounts is not part of the acquisition and payment cycle?
A. prepaid expenses
B. accounts payable
C. sales returns and allowances
D. property, plant, and equipment E. None of the above

29. Which of the following is not one of the classes of transactions in the acquisition and
payment cycle?
A. acquisition of common stock
B. acquisition of goods and services
C. cash disbursements
D. purchase returns and allowances and purchase discounts
E. None of the above

30. At what point in the acquisition and payment cycle do most companies first recognize the
acquisition and related liability on their records?
A. when the purchase requisition is received by the accounting department
B. when the purchase order is prepared
C. when the company receives the invoice from the vendor
D. when the company receives the goods or services from the vendor
E. None of the above

31. A document generally received from the vendor which indicates a reduction in the
amount owed due to the company granting an allowance is a
A. vendor invoice
B. debit memo
C. credit adjustment form
D. credit memo E. None of the above
32. An auditor selects a sample from the file of shipping documents to determine whether
invoices were prepared. This test is to satisfy the audit objective of
A. accuracy
B. existence
C. control
D. completeness E. None of the above

33. A positive confirmation is more reliable evidence than a negative confirmation because
A.fewer confirmations can be sent out.
B. the auditor has a document which can be used in court.
C. the debtor's lack of response indicates agreement with the stated balance.
D. follow-up procedures are performed if a response is not received from the debtor.
E. None of the above

34. When auditors check purchase invoices to ensure that purchases reported on financial
statement is supported by documentary evidence, the auditors perform the action to meet
which transaction related audit objective?
A. Completeness
B. Accuracy
C. Occurrence
D. Rights and obligation E. None of the above
35. Which of the following sequence is correct in preparing and processing documents or
records related to purchase order processing?
I. Purchase order
II. Purchase requisition
III. Receiving Report
A, III, II, I
B, I, II, III
C. II, III, I
D. No specified order E. None of the above

36. The accounts payable department usually has responsibility for approving acquisitions
for payment by comparing the details on the
A. purchase order, receiving report, and vendor's invoice
B. vendor's invoice and the purchase requisition
C. vendor's invoice and the receiving report
D. purchase requisition, purchase order, and receiving report
E. None of the above

37. Which of the following is not a key control in the acquisition and payment cycle?
A. authorization of purchases
B. authorization of credit
C. timely recording and independent review of transactions
D. authorization of payments
E. None of the above
38. Which of the following departments is most likely responsible for pay rate changes and
changes in deductible amounts for employees?
A . Main cashier
B. human resources department
C. accounting and finance department
D. Internal auditing E. None of the above
39. Misstatements are usually considered material if:
A. the combined uncorrected errors and fraud in the financial statements is likely to
influence user’s decisions
B. errors of any amount is discovered in two transaction cycles
C. client’s internal control system is not effective
D. there is an error in applying GAAPs in recording and preparing financial reports
E. None of the above

40. Which of the following make a sample to be sufficient?

A. Inclusion of items with large dollar value
B. Inclusion of items with high likelihood of misstatement
C. Inclusion of items that represent the population
D. All of the above E. None of the above

41. Inventory is a complex area to audit, for all of the following reasons except:
A. . Inventory is often the largest account on the balance sheet
B. There are several acceptable valuation methods and some entities use different
methods for different types of inventory
C. Inventory is often placed in different locations
D. Inventory valuation includes few estimates
E. None of the above

42. By comparing the physical counts with the perpetual inventory record, the auditor
satisfies the balance-related audit objective of
A. classification
B. observation
C. completeness
D. accuracy E. None of the above

43. A major difficulty in the verification of inventory cost records for the purpose of
inventory valuation is in determining the reasonableness of the
A. raw material costs
B. direct labor costs
C .manufacturing overhead costs
D. period costs E. None of the above
44. Which one of the following substantive analytical procedures would be most useful in
alerting the auditor to the possibility of obsolete inventory?
A. Compare gross margin percentage with that of previous years.
B. Compare unit costs of inventory with previous years
C. Compare inventory turnover ratio with previous years
D. Compare current year manufacturing costs with previous years
E. None of the above

45. In the audit of inventory account, the auditor is usually concerned about the possibility of
an inventory overstatement due to inclusion of obsolete/damaged inventory. What is the
best audit procedure to detect obsolete/damaged inventory?
A. Compare the condition of inventory from the previous year's count to the current year
B. Observe the condition of inventory during the client's physical count
C. Compare inventory turnover from the previous year's inventory to the current year's
Inventory
D. Reconcile the inventory counts to the cost accounting records
E. None of the above

46. From which of the following evidence-gathering audit procedures would an auditor
obtain most assurance concerning the existence of inventories?
A. auditor's re-computation of inventory extensions
B. observation of physical inventory counts
C. written inventory representations from management
D. confirmation of inventories in a public warehouse
E. None of the above

47. Which is not one of the tests that would be used in the audit of equipment, depreciation
expense, and accumulated depreciation?
A. Verify current year acquisitions
B. Verify the ending balance in the asset account
C. Send confirmations to the sales personnel who sold the equipment to the company
D. Perform substantive analytical procedures
E. None of the above

48. Failure to capitalize a fixed asset at the correct amount would impact which financial
statements?
A. the balance sheet
B. the income statement
C. the cash flow statement only
D. both the income statement and the balance sheet E. None of the above

49. Identifying and deciding the appropriate accounting treatment for recording or disclosing
contingent liabilities is the responsibility of:
A. auditors
B. legal counsel
C. management
D. management and the auditors E. None of the above
50. When dealing with contingencies,
A. the review for contingent liabilities is only performed at the beginning and the end of
The audit
B. the auditor must exercise considerable professional judgment when evaluating whether
the client has applied the appropriate treatment
C. it is easy for the auditor to detect contingencies without management's cooperation
D. all contingencies must be disclosed or footnoted
E. None of the above