Question

51   Which of the following auditing procedures most likely would assist an auditor in identifying related-party transactions?
   A)   Inspecting correspondence with lawyers for evidence of unreported contingent liabilities  
   B)   Vouching accounting records for recurring transactions recorded just after the balance sheet date  
   C)   Reviewing confirmations of loans receivable and payable for indications of guarantees  
   D)   Performing analytical procedures for indications of possible financial difficulties.      

52   Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's
ability to continue as a going concern?
   A)   Cash flows from operating activities are negative   C)   Significant related-party transactions are pervasive;
   B)   Research and development projects are postponed   D)   Stock dividends replace annual cash dividends

53   Auditing procedures differ from auditing standards in that "standards" relate to      
   A)   Measures of performance       C)   Audit principles      
   B)   Acts to be performed       D)   Audit objectives      

54   A measure of success in meeting a set of established goals is called system;      
   A)   Control goals   B) Effectiveness       C)   Efficiency   D)   Monitoring

55   Tests of controls are required to                  
   A)   Accomplishing control over the occurrence of recorded transactions      
   B)   Analytical procedures applied to financial statement assertions          
   C)   Obtaining evidence about the financial statement assertions          
   D)   Obtaining evidence about the operating effectiveness of client control procedures.      

56   Sampling risk is an inherent part of sampling that results from              
   A)   Failure to recognize exceptions   C)   Testing less than the entire population  
   B)   Inappropriate audit procedures   D)   Weaknesses in client's internal control system

57   Statistical sampling is applied by auditors because an audit has to be conducted      
   A)   In a detailed manner   C)   Subject to the reliability of records  
   B)   On a test basis   D)   None of the above      

58   The main purpose of a management representation letter is to              
   A)   Impress upon management its ultimate responsibility for the financial statements and disclosures  
   B)   Provide management a place to make assertions about the quantity and valuation of the physical inventory
   C)   Provide a substitute source of audit evidence for substantive procedures auditors would otherwise perform
   D)   Shift responsibility for financial statements from the management to the auditor.      

59   After issuing a report, an auditor has no obligation to make continuing inquiries or perform other procedures concerning the
audited financial statements, unless
   A)   Management of the entity requests the auditor to reissue the auditor's report.      
   B)   Information about an event that occurred after the end of fieldwork comes to the auditor's attention  
   C)   Information, which existed at the report date and may affect the report, comes to the auditor's attention.
   D)   Final determinations or resolutions are made of contingencies that had been disclosed in the financial statements

60   Which of the following is ordinarily performed last in the audit examination?      
   A)   Obtaining a signed management representation letter.   C)   Performing tests of controls  
   B)   Performing a review of subsequent events       D)   Securing a signed engagement letter from the client

The proper signature

Patrick, a CPA not in public practice, is an employee in the internal audit department of Star
   Power Company. The management has asked Patrick to perform examination of potential acquisitions
   and to express an opinion thereon. Patrick will use the reports for internal purposes and to show
   to its bankers in accordance with certain loan agreements. How should Patrick sign the report?

Explain your (letter choice) answer…
A) Patrick, CPA
B) Patrick, CPA (Internal Auditor)
C) Patrick, Internal Auditor
D) Patrick, Internal Auditor (CPA)

Plese explain your answer.

Answer 1

Answer 51

C)   Reviewing confirmations of loans receivable and payable for indications of guarantees  

Reason: While reviewing the ledger confirmation the auditor will be able to ascertain the frequency, nature of transaction and the type of the relationship with the party.

Answer 52

C)   Significant related-party transactions are pervasive;

Reason: When there are significantly large related party transactions in the company, the auditor raises red flag regarding going concern as the company will be diverting funds of the public to other related parties.

Answer 53

C)   Audit principles   

Reason: Audit procedures are " steps to perform an audit task " and audit standards refers to the principles of auditing to be the followed by every auditor. The audit procedures are optional but standards are complusory.

Answer 54

B) Effectiveness

Reason: The measurement of success in meeting established goals is called system effectiveness

Answer 55

D)   Obtaining evidence about the operating effectiveness of client control procedures.      

Reason: The test of controls are the procedures performed by the auditors to ascertain the efficiency and effectiveness of controls set up by clients. On the basis of results, the auditors will decide whether to increase or decrease audit procedures.