AUDITING REVIEWER

Auditing Practice Part 1 R. Montalban, ACPA, CPA (PH), CMA

1. Which audit procedure is most effective in detecting fictitious cash transactions?

a) Confirmations with financial institutions
b) Observation of cash handling procedures
c) Analytical procedures on cash balances
d) Tracing cash receipts and disbursements to supporting documentation

2. In the context of cash audits, what is the primary objective of performing bank reconciliations?
a) To detect kiting schemes
b) To verify the accuracy of cash balances
c) To identify potential lapping activities
d) To evaluate the adequacy of internal controls over cash

3. Which of the following is a characteristic of a strong internal control system over cash?
a) Cash disbursements made by the same individual who approves them
b) Segregation of duties between cash handling and bank reconciliations
c) Irregular rotation of employees assigned to cash handling tasks
d) Reliance solely on electronic fund transfers for cash transactions

4. Which audit procedure is least likely to detect understatement of cash balances due to theft?
a) Confirmations with customers
b) Observation of cash counts
c) Analytical review of cash flow patterns
d) Review of bank reconciliations

5. Which of the following is a limitation of using confirmations from financial institutions to audit cash
balances?
a) Lack of cooperation from the financial institution
b) Risk of interception and alteration of confirmation requests
c) Inability to verify the existence of cash balances
d) Dependency on internal controls of the financial institution

6. What is the primary purpose of performing cash cutoff procedures during the audit?
a) To identify unrecorded transactions at the end of the period
b) To prevent misstatement of cash balances in the financial statements
c) To reconcile discrepancies between cash receipts and disbursements
d) To ensure compliance with internal control policies related to cash handling

7. Which of the following is a red flag indicating potential fraud in cash disbursements?
a) An unusually high volume of petty cash reimbursements
b) Segregation of duties between authorization and recording of disbursements
c) Timely reconciliation of bank statements by authorized personnel
d) Documentation of all cash disbursements in the general ledger
8. What is the primary purpose of reviewing cash flow projections during the audit of cash?
a) To evaluate the accuracy of budgeting processes
b) To identify discrepancies between forecasted and actual cash flows
c) To assess the adequacy of internal controls over cash management
d) To determine the liquidity position of the organization

9. Which of the following is a limitation of using surprise cash counts as an audit procedure?
a) Risk of collusion among employees
b) Inability to detect kiting schemes
c) Dependence on the honesty of cashiers
d) Lack of documentation for audit trail purposes

10. What is the primary objective of performing analytical procedures on cash balances during the
audit?
a) To identify unusual fluctuations or trends
b) To confirm the accuracy of cash balances with financial institutions
c) To test the effectiveness of internal controls over cash
d) To reconcile discrepancies between cash receipts and disbursements

11. Which of the following audit procedures is least effective in detecting overstatement of accounts
receivable?
a) Confirmation of accounts receivable balances
b) Analytical review of aging schedules
c) Observation of internal control procedures
d) Inquiry of management regarding collectibility of receivables
 AUDITING REVIEWER

Auditing Practice Part 1 R. Montalban, ACPA, CPA (PH), CMA

12. What is the primary objective of performing substantive analytical procedures on accounts
receivable?
a) To detect unauthorized write-offs of bad debts
b) To identify irregularities in the aging of receivables
c) To assess the reasonableness of recorded balances
d) To confirm the existence of trade receivables with customers

13. Which of the following is a limitation of using confirmations from customers to audit accounts
receivable?
a) Risk of customers ignoring or not responding to confirmation requests
b) Inability to verify the valuation of receivables
c) Dependency on internal controls of the customer
d) Lack of relevance to the completeness assertion

14. Which of the following is a red flag indicating potential manipulation of accounts receivable?
a) Decrease in the average collection period
b) Consistent pattern of timely customer payments
c) Frequent reconciliations between sales and receivables
d) Drastic increase in accounts receivable balances near year-end

15. What is the primary purpose of reconciling the accounts receivable subsidiary ledger to the general
ledger control account?
a) To verify the accuracy of sales transactions
b) To detect unauthorized write-offs of bad debts
c) To ensure the completeness of recorded receivables
d) To assess the adequacy of internal controls over receivables

16. What is the primary purpose of performing aging analysis on accounts receivable?
a) To identify potential bad debts for write-off
b) To reconcile discrepancies between the general ledger and subsidiary ledger
c) To confirm the accuracy of sales transactions
d) To assess the effectiveness of collection efforts

17. Which audit procedure is most effective in detecting understatement of accounts receivable due to
failure to record sales?
a) Analytical review of gross margin ratios
b) Confirmation of accounts receivable balances
c) Tracing shipping documents to sales invoices
d) Inspection of sales contracts and agreements

18. Which of the following is a limitation of using analytical procedures to audit accounts receivable?
a) Inability to detect misstatements due to management override
b) Dependency on external market conditions
c) Lack of reliability in financial projections
d) Complexity in analyzing aging schedules

19. What is the primary objective of performing tests of details on accounts receivable?
a) To evaluate the adequacy of internal controls over receivables
b) To identify unauthorized adjustments to receivable balances
c) To detect misstatements in account balances
d) To confirm the existence of receivables with customers

20. Which audit procedure is most effective in detecting unauthorized write-offs of accounts receivable?
a) Confirmation of accounts receivable balances
b) Observation of the process for approving bad debt write-offs
c) Analytical review of aging schedules
d) Reconciliation of the accounts receivable subsidiary ledger to the general ledger

21. What is the primary objective of reviewing the allowance for doubtful accounts during the audit of
accounts receivable?
a) To confirm the existence of specific receivables with customers
b) To assess the adequacy of the allowance for potential bad debts
c) To identify unauthorized adjustments to receivable balances
d) To reconcile discrepancies between the general ledger and subsidiary ledger

22. Which audit procedure is most effective in detecting inventory theft or misappropriation?
a) Observation of physical inventory counts
b) Review of inventory valuation methods
c) Confirmation of inventory balances with suppliers
d) Analytical review of inventory turnover ratios
 AUDITING REVIEWER

Auditing Practice Part 1 R. Montalban, ACPA, CPA (PH), CMA

23. Which of the following is a limitation of using perpetual inventory systems in auditing inventory
balances?
a) Difficulty in reconciling physical counts to perpetual records
b) Inability to detect slow-moving or obsolete inventory
c) Dependency on the accuracy of inventory cost allocations
d) Complexity in tracing inventory movements to specific transactions

24. What is the primary purpose of performing cutoff procedures during the audit of inventories?
a) To ensure that all inventory transactions are recorded in the correct period
b) To reconcile discrepancies between the general ledger and subsidiary records
c) To identify obsolete inventory for potential write-offs
d) To confirm the accuracy of inventory counts with third-party vendors

25. Which of the following is a compensating control for a weak segregation of duties in inventory
management?
a) Implementing a perpetual inventory system
b) Conducting regular physical inventory counts by independent personnel
c) Requiring dual signatures for inventory requisitions
d) Establishing a hotline for reporting suspicious inventory activities

26. What is the primary objective of performing analytical procedures on inventory balances during the
audit?
a) To identify unusual fluctuations or trends
b) To reconcile discrepancies between perpetual and periodic inventory systems
c) To assess the adequacy of internal controls over inventory management
d) To confirm the accuracy of inventory costs with suppliers

27. Which of the following audit procedures is least effective in detecting obsolete inventory?
a) Observation of physical inventory counts
b) Review of inventory turnover ratios
c) Confirmation of inventory balances with suppliers
d) Analytical review of inventory aging schedules

28. Which assertion is most directly related to the accuracy of inventory balances?
a) Completeness
b) Existence
c) Valuation
d) Rights and obligations

29. Which audit procedure is most effective in detecting inventory overstating due to inclusion of
consigned goods?
a) Analytical review of inventory turnover ratios
b) Confirmation of inventory balances with consignment agents
c) Inspection of consignment agreements and contracts
d) Tracing inventory movements to purchase orders

30. What is the primary objective of performing tests of details on inventory balances?
a) To confirm the existence of specific inventory items
b) To evaluate the adequacy of internal controls over inventory management
c) To identify unauthorized adjustments to inventory balances
d) To detect misstatements in inventory balances

31. Which of the following is a limitation of using inventory valuation models (e.g., FIFO, LIFO) in
auditing inventory?
a) Dependency on the accuracy of inventory counts
b) Inability to identify slow-moving inventory
c) Complexity in calculating cost of goods sold
d) Difficulty in reconciling perpetual records to physical counts

32. What is the primary purpose of reconciling the perpetual inventory records to the general ledger
control account?
a) To confirm the accuracy of inventory counts with suppliers
b) To detect unauthorized adjustments to inventory balances
c) To ensure the completeness of recorded inventory transactions
d) To assess the adequacy of internal controls over inventory management
 AUDITING REVIEWER

Auditing Practice Part 1 R. Montalban, ACPA, CPA (PH), CMA

33. Which of the following is a red flag indicating potential manipulation of inventory balances?
a) Consistent pattern of inventory turnover ratios over time
b) Drastic decrease in inventory balances without explanation
c) Regular reconciliation of perpetual records to physical counts
d) Observation of internal control procedures during inventory counts

34. Which audit procedure is most effective in detecting inventory understatement due to inclusion of
consigned goods?
a) Review of consignment agreements and contracts
b) Confirmation of inventory balances with suppliers
c) Analytical review of inventory aging schedules
d) Tracing inventory movements to purchase orders

35. Which of the following is a compensating control for a weak segregation of duties in inventory
counting?
a) Implementing CCTV surveillance cameras in inventory storage areas
b) Requiring employees to take mandatory vacations
c) Conducting regular reconciliations between perpetual and periodic records
d) Using tamper-evident seals on inventory containers

36. Which audit procedure is most effective in detecting inventory theft through shipment errors?
a) Analytical review of inventory turnover ratios
b) Tracing shipping documents to sales invoices
c) Inspection of purchase orders and receiving reports
d) Observation of physical inventory counts

37. What is the primary purpose of reviewing the provision for inventory obsolescence during the audit
of inventories?
a) To confirm the existence of specific inventory items
b) To assess the adequacy of the allowance for potential inventory losses
c) To identify unauthorized adjustments to inventory balances
d) To reconcile discrepancies between the perpetual and periodic inventory records

38. Which assertion is most directly related to the presentation and disclosure of inventories in financial
statements?
a) Completeness
b) Existence
c) Valuation
d) Rights and obligations

39. Which of the following is a limitation of using analytical procedures to audit inventory balances?
a) Inability to detect misstatements due to management override
b) Dependency on external market conditions
c) Lack of reliability in financial projections
d) Complexity in analyzing historical trends

40. What is the primary objective of performing physical inventory counts during the audit of
inventories?
a) To confirm the accuracy of inventory valuation methods
b) To detect misstatements in inventory balances
c) To assess the adequacy of internal controls over inventory management
d) To reconcile discrepancies between perpetual and periodic inventory records

41. During the audit of a company's cash accounts, the auditor finds a significant discrepancy between
the cash balance reported on the bank statement and the cash balance recorded in the company's
books. Which of the following audit procedures would be most appropriate for the auditor to
perform first?
a) Reconcile the company's bank statements for the entire audit period.
b) Verify the accuracy of the company's cash receipts journal.
c) Perform surprise cash counts at various locations within the company.
d) Review the company's internal controls over cash handling.

42. While examining a client's cash disbursement records, the auditor notices a pattern of frequent
payments made to a vendor with no supporting documentation. Which of the following audit
procedures should the auditor perform next to determine the legitimacy of these payments?
a) Request bank confirmations directly from the vendor's bank.
b) Conduct a detailed analysis of the vendor's invoices and contracts.
c) Review the client's purchase orders to ensure proper authorization.
d) Perform a surprise audit of the vendor's financial records.
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Auditing Practice Part 1 R. Montalban, ACPA, CPA (PH), CMA

43. In the course of auditing a company's cash accounts, the auditor discovers several instances where
petty cash disbursements exceed the authorized limit without proper approval. Which of the
following audit procedures would be most appropriate for the auditor to perform next?
a) Reconcile the petty cash account to ensure all disbursements are properly recorded.
b) Interview employees responsible for approving petty cash transactions.
c) Review the company's petty cash replenishment process for compliance.
d) Perform a physical count of the petty cash fund to verify its accuracy.

44. While reviewing a client's bank reconciliation, the auditor notices a significant number of deposits
in transit that have been outstanding for an extended period. Which of the following audit
procedures would be most appropriate for the auditor to perform next?
a) Trace the deposits in transit to the company's cash receipts journal.
b) Verify the validity of the deposits in transit by contacting the payers directly.
c) Reconcile the company's bank statements for the entire audit period.
d) Analyze the company's cash flow forecasts to identify any discrepancies.

45. During the audit of a company's cash accounts, the auditor discovers that the company has not
maintained proper documentation for several large cash transactions. Which of the following audit
procedures would be most appropriate for the auditor to perform to ensure the accuracy and
completeness of these transactions?
a) Review the company's bank reconciliations for any discrepancies.
b) Perform a detailed analysis of the company's cash disbursement journal.
c) Request bank confirmations directly from the company's bank.
d) Interview employees involved in the cash transactions to gather additional information.

46. While conducting an audit of a client's cash accounts, the auditor notices a sudden decrease in
cash balances without corresponding transactions recorded in the company's books. Which of the
following audit procedures would be most appropriate for the auditor to perform next?
a) Investigate the possibility of unauthorized cash withdrawals or embezzlement.
b) Review the company's bank reconciliation for any discrepancies.
c) Perform a detailed analysis of the company's cash receipts journal.
d) Verify the accuracy of the company's cash flow projections.

47. In the process of auditing a company's cash accounts, the auditor discovers a series of large cash
deposits that have not been properly recorded in the company's books. Which of the following
audit procedures would be most appropriate for the auditor to perform to determine the source
and legitimacy of these deposits?
a) Perform surprise cash counts at various locations within the company.
b) Reconcile the company's bank statements for the entire audit period.
c) Interview employees responsible for handling cash transactions.
d) Request bank confirmations directly from the company's bank.

48. During the audit of a company's cash accounts, the auditor discovers several instances of unusually
high cash withdrawals by the company's CEO. The withdrawals are not supported by any
documentation, and the CEO refuses to provide an explanation for them. Which of the following
audit procedures would be most appropriate for the auditor to perform in response to this finding?
a) Review the company's bank reconciliations for any discrepancies.
b) Interview other members of the management team to gather additional information.
c) Request the company's bank statements directly from the bank.
d) Perform surprise cash counts at various locations within the company.

49. While conducting an audit of a client's cash accounts, the auditor notices a significant increase in
the number of outstanding checks compared to the previous year. Additionally, the client's bank
reconciliation indicates a large number of checks that have been outstanding for an extended
period. Which of the following audit procedures would be most appropriate for the auditor to
perform next?
a) Verify the validity of the outstanding checks by contacting the payees directly.
b) Review the company's cash disbursement procedures and controls.
c) Perform additional tests of the client's internal controls over cash handling.
d) Compare the client's cash account balances to industry benchmarks.

50. During the audit of a company's cash accounts, the auditor discovers that the company has a
significant amount of cash held in foreign bank accounts. The company's management claims that
these funds are necessary for international business transactions and are not readily accessible for
use in the company's domestic operations. Which of the following audit procedures would be most
appropriate for the auditor to perform to verify the accuracy and completeness of the company's
foreign cash balances?
a) Request bank confirmations directly from the foreign banks where the cash is held.
b) Analyze the company's foreign currency exchange rates and transaction records.
 AUDITING REVIEWER

Auditing Practice Part 1 R. Montalban, ACPA, CPA (PH), CMA

c) Review the company's cash flow forecasts to determine the necessity of the foreign cash
holdings.
d) Perform a physical inspection of the foreign cash held in the company's overseas offices.

51. While conducting an audit of a company's accounts receivable, the auditor notices a significant
increase in the aging of receivables compared to the prior year. Which of the following audit
procedures would be most appropriate for the auditor to perform next?
a) Perform a detailed review of the company's sales contracts and invoices.
b) Analyze the company's collection efforts and correspondence with customers.
c) Reconcile the aging of receivables to the company's general ledger balances.
d) Confirm the accuracy of the aging of receivables with a sample of customers.

52. During the audit of a client's accounts receivable, the auditor discovers several instances where
sales were recorded but no corresponding receivable balances were established. Which of the
following audit procedures should the auditor perform next to address this discrepancy?
a) Review the company's credit approval process and policies.
b) Analyze the company's allowance for doubtful accounts and bad debt write-off policies.
c) Verify the accuracy of the company's sales transactions and revenue recognition practices.
d) Request explanations from the company's management regarding the unrecorded
receivables.

53. In the course of auditing a company's accounts receivable, the auditor notices a pattern of delayed
payments from several customers, resulting in extended aging of receivables. Which of the
following audit procedures would be most appropriate for the auditor to perform to assess the
collectability of these receivables?
a) Perform a review of the company's historical bad debt experience and trends.
b) Analyze the company's sales returns and allowances for potential adjustments.
c) Reconcile the aging of receivables to the company's customer payment terms.
d) Confirm the collectability of the outstanding receivables with the company's credit
department.

54. While reviewing a client's accounts receivable aging schedule, the auditor notices a significant
increase in the number of receivables classified as "doubtful" compared to the prior year. Which of
the following audit procedures would be most appropriate for the auditor to perform next?
a) Perform a detailed analysis of the company's provision for doubtful accounts.
b) Review the company's credit evaluation process for new customers.
c) Confirm the collectability of the doubtful receivables with the company's customers.
d) Reconcile the aging of receivables to the company's general ledger balances.

55. During the audit of a company's accounts receivable, the auditor discovers that the company has
not properly accounted for sales returns and allowances, resulting in an overstatement of receivable
balances. Which of the following audit procedures would be most appropriate for the auditor to
perform to assess the impact of this misstatement?
a) Perform a detailed review of the company's sales contracts and invoices.
b) Analyze the company's historical sales returns and allowances for reasonableness.
c) Confirm the accuracy of the receivable balances with the company's customers.
d) Request explanations from the company's management regarding the misstatement.

56. While examining a client's accounts receivable aging schedule, the auditor notices several large
balances classified as "current" despite being outstanding for an extended period. Which of the
following audit procedures should the auditor perform next to determine the accuracy of these
balances?
a) Perform a review of the company's allowance for doubtful accounts.
b) Verify the accuracy of the company's sales invoices and customer orders.
c) Confirm the collectability of the outstanding receivables with the company's customers.
d) Reconcile the aging of receivables to the company's general ledger balances.

57. In the process of auditing a company's accounts receivable, the auditor discovers a series of credit
memos that have been improperly recorded, resulting in an overstatement of receivable balances.
Which of the following audit procedures would be most appropriate for the auditor to perform to
correct this misstatement?
a) Review the company's credit approval process for new customers.
b) Analyze the company's allowance for doubtful accounts for potential adjustments.
c) Confirm the accuracy of the receivable balances with the company's customers.
d) Request explanations from the company's management regarding the misstatement.
 AUDITING REVIEWER

Auditing Practice Part 1 R. Montalban, ACPA, CPA (PH), CMA

58. While reviewing a client's accounts receivable aging schedule, the auditor identifies several
accounts with credit balances. Which of the following audit procedures should the auditor perform
next to investigate the reason for these credit balances?
a) Analyze the company's sales returns and allowances for potential adjustments.
b) Verify the accuracy of the company's cash receipts journal.
c) Confirm the accuracy of the receivable balances with the company's customers.
d) Reconcile the aging of receivables to the company's general ledger balances.

59. During the audit of a company's accounts receivable, the auditor discovers that the company has
not properly accounted for discounts taken by customers, resulting in an understatement of
receivable balances. Which of the following audit procedures would be most appropriate for the
auditor to perform to assess the impact of this misstatement?
a) Perform a detailed review of the company's sales contracts and invoices.
b) Analyze the company's historical sales returns and allowances for reasonableness.
c) Confirm the accuracy of the receivable balances with the company's customers.
d) Request explanations from the company's management regarding the misstatement.

60. While conducting an audit of a company's accounts receivable, the auditor notices a significant
increase in the number of accounts with balances past due. Which of the following audit procedures
would be most appropriate for the auditor to perform next to assess the collectability of these
receivables?
a) Perform a review of the company's historical bad debt experience and trends.
b) Analyze the company's sales returns and allowances for potential adjustments.
c) Reconcile the aging of receivables to the company's customer payment terms.
d) Confirm the collectability of the outstanding receivables with the company's credit
department.

61. While conducting an audit of a company's inventory, the auditor discovers discrepancies between
the physical count of inventory and the inventory records maintained by the company. Which of
the following audit procedures would be most appropriate for the auditor to perform next?
a) Perform additional physical counts of inventory at various locations.
b) Review the company's purchase orders and receiving reports for accuracy.
c) Compare the inventory balances to industry benchmarks and standards.
d) Request explanations from the company's management regarding the discrepancies.

62. During the audit of a client's inventory, the auditor observes that the company has not properly
accounted for damaged and obsolete inventory items. Which of the following audit procedures
should the auditor perform next to assess the impact of this misstatement?
a) Analyze the company's inventory valuation methods and policies.
b) Review the company's sales records and inventory turnover ratios.
c) Conduct a detailed inspection of the damaged and obsolete inventory items.
d) Confirm the accuracy of the inventory balances with the company's suppliers.

63. In the course of auditing a company's inventory, the auditor notices a significant increase in the
number of inventory write-downs compared to the prior year. Which of the following audit
procedures would be most appropriate for the auditor to perform to investigate the reason for
these write-downs?
a) Analyze the company's inventory turnover ratios and trends.
b) Review the company's inventory valuation methods and assumptions.
c) Confirm the accuracy of the inventory balances with the company's customers.
d) Perform additional physical counts of inventory at various locations.

64. While reviewing a client's inventory records, the auditor discovers several instances where
inventory items were incorrectly classified as finished goods instead of raw materials. Which of the
following audit procedures should the auditor perform next to address this misclassification?
a) Review the company's production schedules and manufacturing processes.
b) Analyze the company's cost accounting system for accuracy and completeness.
c) Conduct a detailed inspection of the inventory items to verify their classification.
d) Request explanations from the company's management regarding the misclassification.

65. During the audit of a company's inventory, the auditor notices a discrepancy between the inventory
balances reported in the financial statements and those reported in the company's internal records.
Which of the following audit procedures would be most appropriate for the auditor to perform to
reconcile this discrepancy?
a) Perform additional physical counts of inventory at the company's warehouses.
b) Review the company's sales contracts and purchase orders for accuracy.
c) Compare the inventory balances to industry benchmarks and standards.
d) Request explanations from the company's management regarding the discrepancies.
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Auditing Practice Part 1 R. Montalban, ACPA, CPA (PH), CMA

66. While conducting an audit of a company's inventory, the auditor discovers that the company has
not properly accounted for inventory held on consignment. Which of the following audit procedures
would be most appropriate for the auditor to perform to assess the impact of this misstatement?
a) Analyze the company's inventory turnover ratios and trends.
b) Review the company's consignment agreements and inventory consignee records.
c) Perform a detailed inspection of the consigned inventory items.
d) Confirm the accuracy of the consigned inventory balances with the consignors.

67. In the process of auditing a company's inventory, the auditor discovers a series of inventory
shrinkage losses that have not been properly recorded. Which of the following audit procedures
would be most appropriate for the auditor to perform to investigate the reason for these losses?
a) Analyze the company's inventory valuation methods and assumptions.
b) Review the company's physical security measures and inventory control procedures.
c) Conduct additional physical counts of inventory at various locations.
d) Confirm the accuracy of the inventory balances with the company's suppliers.

68. While reviewing a client's inventory records, the auditor identifies several instances where inventory
items were incorrectly valued using the FIFO method instead of the LIFO method. Which of the
following audit procedures should the auditor perform next to address this misstatement?
a) Review the company's inventory valuation policies and accounting practices.
b) Analyze the company's inventory turnover ratios and trends.
c) Conduct a detailed inspection of the inventory items to verify their valuation method.
d) Request explanations from the company's management regarding the misvaluation.

69. During the audit of a company's inventory, the auditor notices a discrepancy between the physical
count of inventory and the perpetual inventory records maintained by the company's computerized
system. Which of the following audit procedures would be most appropriate for the auditor to
perform next?
a) Perform additional physical counts of inventory at various locations.
b) Review the company's inventory valuation methods and assumptions.
c) Compare the perpetual inventory records to the company's purchase orders.
d) Request explanations from the company's IT department regarding the discrepancy.

70. While conducting an audit of a company's inventory, the auditor discovers that the company has
not properly accounted for inventory held on consignment. Which of the following audit procedures
would be most appropriate for the auditor to perform to assess the completeness and accuracy of
the consigned inventory balances?
a) Analyze the company's consignment agreements and inventory consignor records.
b) Review the company's inventory turnover ratios and trends.
c) Perform a detailed inspection of the consigned inventory items.
d) Confirm the accuracy of the consigned inventory balances with the consignees.

71. Which of the following audit procedures is most appropriate for verifying the existence of
investments held by a client?
a) Confirmations from investment custodians
b) Analytical procedures
c) Reconciliation of investment activity to general ledger
d) Observation of investment transactions

72. When auditing investments, which of the following assertions is least relevant to the audit
objective of valuation?
a) Existence
b) Completeness
c) Rights and obligations
d) Accuracy

73. Which of the following valuation techniques is most commonly used to assess the fair value of
investments in publicly traded securities?
a) Market approach
b) Income approach
c) Cost approach
d) Comparable transactions approach

74. Which of the following audit procedures is least likely to be used to test the valuation assertion
for investments in unlisted securities?
a) Obtaining a valuation report from an independent expert
b) Reviewing the terms of the investment agreement
c) Inspecting the physical certificates of the securities
d) Comparing the carrying amount to quoted market prices for similar securities
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Auditing Practice Part 1 R. Montalban, ACPA, CPA (PH), CMA

75. When auditing investments in equity securities, which of the following risk factors is most
relevant to consider?
a) Credit risk
b) Market risk
c) Liquidity risk
d) Operational risk

76. Which of the following statements about the audit of investments is false?
a) Investments are typically a significant component of a company's financial statements.
b) The risk of material misstatement in investments is usually low.
c) Auditors need to understand the client's investment strategy and risk management
practices.
d) Auditors may use external experts to assist in auditing complex investment instruments.

77. Which of the following audit procedures is most appropriate for testing the completeness
assertion for investments?
a) Confirmations from investment custodians
b) Analytical procedures
c) Tracing investment activity to supporting documentation
d) Inquiry of management regarding investment policies

78. In auditing investments, which of the following types of transactions would be most concerning
from a risk perspective?
a) Purchases of marketable securities with readily determinable fair values
b) Sales of long-term investments in affiliates
c) Routine purchases of short-term government bonds
d) Redemptions of money market funds

79. Which of the following control activities is most effective in mitigating the risk of unauthorized
trading in investments?
a) Segregation of duties between trading and custody functions
b) Regular reconciliation of investment positions to custodial statements
c) Review and approval of investment transactions by senior management
d) Implementation of automated trading controls

80. Which of the following statements regarding the audit of investments is true?
a) Auditors are solely responsible for determining the fair value of investments.
b) Audit procedures for investments are generally the same regardless of the nature of the
investment.
c) The risk of material misstatement related to investments is typically higher for publicly
traded companies.
d) Auditors may use information obtained from third parties to corroborate investment
valuations.

81. When auditing investments, which of the following factors is least likely to affect the auditor's
assessment of inherent risk?
a) The complexity of the investment instruments
b) The volatility of the financial markets
c) The effectiveness of the client's internal controls over investments
d) The level of oversight provided by the audit committee

82. Which of the following assertions is most relevant to the audit of investments in debt securities?
a) Existence
b) Completeness
c) Valuation
d) Presentation and disclosure

83. In auditing investments, which of the following procedures is least likely to be performed by the
auditor to test the accuracy assertion?
a) Confirming investment balances with third parties
b) Reperforming calculations of investment income
c) Reconciling investment activity to supporting documentation
d) Reviewing investment contracts for terms and conditions

84. Which of the following audit procedures would be most appropriate for testing the occurrence
assertion for investment income?
a) Vouching investment income to bank statements
b) Confirming investment income with counter parties
c) Inspecting minutes of investment committee meetings
d) Reviewing investment transactions for proper authorization
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85. When auditing investments, which of the following is least likely to be considered a related party
transaction?
a) Purchases of securities from a subsidiary company
b) Investments made by key management personnel in the company's shares
c) Investments managed by an external fund manager on behalf of the company
d) Transactions with entities under common control with the company

86. Which of the following audit procedures would be most appropriate for testing the rights and
obligations assertion for investments?
a) Confirming investment balances with custodians
b) Reviewing minutes of board meetings for authorization of investment transactions
c) Inspecting investment contracts for restrictive clauses
d) Analyzing changes in investment values over time

87. In auditing investments, which of the following factors is least likely to affect the auditor's
assessment of control risk?
a) The complexity of the investment instruments
b) The competence of personnel responsible for investment activities
c) The existence of related party transactions involving investments
d) The level of oversight provided by the board of directors

88. Which of the following audit procedures is most appropriate for testing the completeness
assertion for investments held by a custodian?
a) Confirming investment balances with third-party custodians
b) Tracing investment activity to custodial statements
c) Reviewing investment contracts for completeness of terms
d) Analyzing investment performance relative to benchmarks

89. When auditing investments, which of the following assertions is most relevant to the audit
objective of presentation and disclosure?
a) Existence
b) Completeness
c) Rights and obligations
d) Understandability and classification

90. Which of the following risks is least likely to be mitigated through the use of analytical
procedures in auditing investments?
a) Valuation risk
b) Market risk
c) Compliance risk
d) Control risk

91. During the audit of a multinational corporation, the auditor encounters a complex portfolio of
investments comprising various financial instruments and derivatives. Which of the following
audit procedures would be most effective in verifying the fair value of these investments?
a) Engaging a specialized valuation firm to assess the fair value of each investment.
b) Reviewing the client's investment policy and strategy to understand the rationale behind
the investment decisions.
c) Analyzing historical investment performance to assess the reasonableness of the current
fair values.
d) Conducting confirmations with the counterparties involved in the investment
transactions.

92. A company has recently invested in a startup that operates in a highly volatile industry. The
auditor is concerned about the valuation of this investment due to the lack of an active market
for similar ventures. Which of the following audit procedures would be most appropriate to
address this concern?
a) Inspecting the investment agreement to understand the terms and conditions governing
the valuation of the investment.
b) Engaging an independent valuation expert to assess the fair value of the startup based
on industry benchmarks and financial projections.
c) Comparing the carrying amount of the investment to recent transactions involving similar
startups in the industry.
d) Reviewing the minutes of board meetings to understand the rationale behind the
investment decision.
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93. A client has investments in a private equity fund managed by a related party. The auditor needs
to evaluate the fair value of these investments for inclusion in the financial statements. Which of
the following audit procedures would be most effective in assessing the valuation of these
investments?
a) Confirming the fair value of the investments directly with the fund manager.
b) Reviewing the valuation methodology used by the fund manager and assessing its
reasonableness.
c) Comparing the performance of the private equity fund to industry benchmarks to validate
the fair value.
d) Engaging a valuation specialist to independently assess the fair value of the investments.

94. A company has investments in foreign subsidiaries and associates, and the auditor needs to
evaluate the impairment risk associated with these investments. Which of the following audit
procedures would be most relevant in assessing the impairment risk?
a) Reviewing the financial statements of the foreign subsidiaries and associates for any
indicators of impairment.
b) Assessing the geopolitical risks associated with the countries where the foreign
subsidiaries and associates operate.
c) Engaging a geopolitical risk consultant to assess the political stability of the countries
where the investments are located.
d) Evaluating the carrying amounts of the investments for indicators of impairment, such as
significant declines in market value.

95. A client has invested in a portfolio of real estate properties, and the auditor needs to assess the
fair value of these investments for inclusion in the financial statements. Which of the following
audit procedures would be most appropriate in verifying the fair value of the real estate
investments?
a) Engaging a real estate appraiser to independently assess the fair value of the properties
based on market comparables.
b) Reviewing the historical cost of the properties and adjusting for changes in market
conditions.
c) Confirming the fair value of the properties directly with the tenants and property
managers.
d) Analyzing the rental income and expenses of the properties to assess their market value.

96. A company has invested in a hedge fund that employs complex financial instruments and trading
strategies. The auditor needs to assess the valuation of this investment for inclusion in the
financial statements. Which of the following audit procedures would be most effective in
evaluating the fair value of the hedge fund investment?
a) Reviewing the hedge fund's financial statements and disclosures to understand the
valuation methodology employed by the fund.
b) Engaging a derivatives expert to assess the fair value of the financial instruments held by
the hedge fund.
c) Comparing the performance of the hedge fund to industry benchmarks to validate the
fair value of the investment.
d) Confirming the fair value of the investment directly with the hedge fund manager.

97. A company has invested in a portfolio of bonds issued by various government entities. The
auditor needs to assess the valuation of these investments for inclusion in the financial
statements. Which of the following audit procedures would be most appropriate in verifying the
fair value of the government bonds?
a) Engaging a bond pricing service to independently assess the fair value of the bonds
based on market data.
b) Reviewing the credit ratings of the government entities issuing the bonds to assess their
creditworthiness.
c) Confirming the fair value of the bonds directly with the government entities issuing them.
d) Analyzing the interest rate environment and economic conditions to assess the fair value
of the bonds.

98. A client has invested in a portfolio of structured products, including collateralized debt obligations
(CDOs) and credit default swaps (CDSs). The auditor needs to assess the valuation of these
investments for inclusion in the financial statements. Which of the following audit procedures
would be most effective in evaluating the fair value of the structured products?
a) Engaging a financial engineer to model the cash flows and assess the fair value of the
structured products.
b) Reviewing the credit ratings of the underlying assets and counterparties to assess the
credit risk associated with the structured products.
c) Comparing the market prices of similar structured products to validate the fair value of
the investments.
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d) Confirming the fair value of the investments directly with the counterparties involved in
the transactions.

99. A company has invested in a portfolio of mutual funds managed by third-party asset managers.
The auditor needs to assess the valuation of these investments for inclusion in the financial
statements. Which of the following audit procedures would be most appropriate in verifying the
fair value of the mutual fund investments?
a) Reviewing the net asset value (NAV) calculations provided by the mutual funds to assess
the fair value of the investments.
b) Engaging a mutual fund expert to independently assess the fair value of the investments
based on the underlying holdings.
c) Comparing the performance of the mutual funds to industry benchmarks to validate the
fair value of the investments.
d) Confirming the fair value of the investments directly with the third-party asset managers.

100. A client has invested in a portfolio of cryptocurrencies, including Bitcoin and Ethereum.
The auditor needs to assess the valuation of these investments for inclusion in the financial
statements. Which of the following audit procedures would be most effective in evaluating the
fair value of the cryptocurrency investments?
a) Engaging a blockchain expert to assess the fair value of the cryptocurrencies based on
market data and trading volumes.
b) Reviewing the historical prices of the cryptocurrencies and adjusting for changes in
market conditions.
c) Comparing the performance of the cryptocurrencies to industry benchmarks to validate
the fair value of the investments.
d) Confirming the fair value of the investments directly with the cryptocurrency exchanges.

101. When auditing tangible assets, which of the following assertions is most relevant to the
audit objective of completeness?
a) Existence
b) Valuation
c) Rights and obligations
d) Presentation and disclosure

102. Which of the following audit procedures is most appropriate for testing the valuation
assertion for a company's land and buildings?
a) Obtaining independent appraisals from qualified real estate experts
b) Reviewing lease agreements for related party transactions
c) Inspecting physical assets to verify existence and condition
d) Confirming asset balances with third-party lessors

103. When auditing intangible assets such as patents and trademarks, which of the following
risks is most important to consider?
a) Physical obsolescence
b) Market obsolescence
c) Technological obsolescence
d) Legal obsolescence

104. Which of the following audit procedures would be most effective in testing the existence
assertion for a company's software licenses?
a) Confirming license agreements with software vendors
b) Reconciling software license purchases to vendor invoices
c) Inspecting physical copies of software installation CDs
d) Reviewing software usage reports generated by the IT department

105. When auditing tangible assets, which of the following control activities is most effective
in preventing misappropriation or theft?
a) Implementing surveillance cameras in key asset storage areas
b) Conducting periodic physical inventory counts of assets
c) Segregating duties between asset custodians and asset record keepers
d) Requiring employees to sign acknowledgment forms for issued assets

106. Which of the following audit procedures is most appropriate for testing the impairment of
goodwill?
a) Reviewing management's assessment of the recoverable amount of cash-generating
units
b) Comparing the carrying value of goodwill to the fair value of the reporting unit
c) Confirming the existence of customer contracts related to the goodwill
d) Inspecting purchase agreements for evidence of contingent liabilities
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107. When auditing intangible assets, which of the following assertions is most relevant to the
audit objective of valuation?
a) Completeness
b) Rights and obligations
c) Existence
d) Presentation and disclosure

108. Which of the following risks is least likely to be mitigated through analytical procedures in
auditing tangible assets?
a) Valuation risk
b) Accuracy risk
c) Existence risk
d) Completeness risk

109. Which of the following audit procedures is most appropriate for testing the completeness
assertion for a company's machinery and equipment?
a) Analyzing depreciation expense trends over multiple periods
b) Inspecting purchase invoices and receiving reports for new acquisitions
c) Confirming asset balances with leasing companies
d) Reviewing maintenance records for evidence of repairs and upgrades

110. When auditing intangible assets, which of the following factors is most relevant to
consider when assessing impairment?
a) Technological advancements in the industry
b) Changes in the consumer preferences
c) The economic environment
d) Legal restrictions on the use of the intangible assets

111. Which of the following audit procedures would be most effective in testing the valuation
assertion for a company's investment in a subsidiary?
a) Confirming the fair value of the subsidiary's assets with independent appraisers
b) Reviewing the subsidiary's financial statements and related party transactions
c) Inspecting physical assets and inventory counts at the subsidiary's locations
d) Comparing the carrying value of the investment to the subsidiary's market capitalization

112. When auditing tangible assets, which of the following assertions is most relevant to the
audit objective of existence?
a) Valuation
b) Completeness
c) Rights and obligations
d) Presentation and disclosure

113. Which of the following audit procedures is least likely to be performed by the auditor to
test the accuracy assertion for a company's vehicles?
a) Reperforming calculations of depreciation expense
b) Tracing vehicle identification numbers to the fixed asset register
c) Confirming the ownership of vehicles with the department of motor vehicles
d) Analyzing repairs and maintenance expenses for reasonableness

114. When auditing intangible assets, which of the following control activities is most effective
in preventing unauthorized use or disclosure?
a) Requiring employees to sign confidentiality agreements
b) Implementing access controls to limit employee access to sensitive information
c) Conducting periodic valuations of intangible assets by independent appraisers
d) Segregating duties between employees responsible for creating intangible assets and
those responsible for recording them

115. Which of the following audit procedures would be most appropriate for testing the
existence assertion for a company's trademarks?
a) Confirming trademark registrations with the relevant intellectual property offices
b) Reviewing trademark licensing agreements for related party transactions
c) Inspecting physical copies of trademark registration certificates
d) Analyzing royalty income from trademark licenses

116. When auditing tangible assets, which of the following factors is most relevant to consider
when assessing the risk of material misstatement?
a) The frequency of asset impairments in prior periods
b) The accuracy of the fixed asset register
c) The adequacy of insurance coverage for tangible assets
d) The level of turnover in the company's asset custodian personnel
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117. Which of the following audit procedures is most appropriate for testing the completeness
assertion for a company's land and buildings?
a) Reconciling land and building purchases to title deeds and legal documents
b) Confirming land and building valuations with independent real estate appraisers
c) Reviewing insurance policies for coverage of land and building assets
d) Inspecting land and building lease agreements for related party transactions

118. When auditing intangible assets, which of the following assertions is most relevant to the
audit objective of presentation and disclosure?
a) Completeness
b) Existence
c) Valuation
d) Rights and obligations

119. Which of the following audit procedures would be most appropriate for testing the
existence assertion for a company's software licenses?
a) Confirming software license agreements with vendors
b) Reviewing software usage reports generated by the IT department
c) Inspecting software installation CDs and license keys
d) Analyzing software maintenance expenses for reasonableness

120. When auditing tangible assets, which of the following risks is most important to consider
regarding the risk of material misstatement?
a) The adequacy of physical security measures for safeguarding assets
b) The accuracy of asset valuation methodologies
c) The completeness of assets recorded in the fixed asset register
d) The presentation and disclosure of asset information in the financial statements

121. During the audit of a manufacturing company, the auditor discovers discrepancies
between the recorded inventory of machinery and equipment and the physical count conducted
by the client's personnel. Which of the following audit procedures would be most appropriate for
addressing this discrepancy?
a) Inspecting maintenance records for evidence of repairs and upgrades to the machinery
and equipment.
b) Testing the accuracy of depreciation expense calculations for the machinery and
equipment.
c) Confirming the ownership of the machinery and equipment with third-party leasing
companies.
d) Reconciling the physical count of machinery and equipment to the fixed asset register.

122. A technology company recently acquired a patent for a new software product developed
in-house. The auditor is tasked with verifying the valuation of this intangible asset. Which of the
following audit procedures would be most effective in assessing the valuation of the patent?
a) Engaging an independent intellectual property expert to assess the value of similar
patents in the industry.
b) Reviewing the purchase agreement for the patent to understand the terms and
conditions of the acquisition.
c) Analyzing the historical revenue generated by the software product to estimate the
future cash flows.
d) Confirming the existence of the patent with the relevant intellectual property office.

123. A pharmaceutical company holds a portfolio of patents for various drug formulations. The
auditor needs to evaluate the impairment risk associated with these intangible assets. Which of
the following audit procedures would be most relevant in assessing the impairment risk?
a) Reviewing the company's research and development pipeline for any potential
breakthroughs in drug discovery.
b) Engaging a pharmaceutical industry expert to assess the market potential of the
patented drug formulations.
c) Analyzing the carrying amounts of the patents and comparing them to estimated future
cash flows.
d) Confirming the status of regulatory approvals for the patented drug formulations.

124. A construction company owns a fleet of specialized machinery and equipment used for
various projects. The auditor needs to assess the adequacy of insurance coverage for these
tangible assets. Which of the following audit procedures would be most appropriate for this
assessment?
a) Reviewing insurance policies and verifying coverage limits for each piece of machinery
and equipment.
b) Inspecting maintenance logs to assess the condition and usage of the machinery and
equipment.
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c) Confirming the replacement cost of the machinery and equipment with equipment
dealers.
d) Analyzing historical insurance claims related to machinery and equipment damage.

125. A software development company has capitalized costs associated with the development
of a new software application. The auditor needs to ensure compliance with accounting
standards regarding the capitalization of software development costs. Which of the following
audit procedures would be most effective in evaluating this compliance?
a) Reviewing project documentation to identify eligible costs directly attributable to the
development of the software application.
b) Engaging a software development expert to assess the technical feasibility of the
software project.
c) Confirming the completion status of the software application with end-users.
d) Analyzing the revenue recognition policy for software sales and license agreements.

126. A retail chain has significant leasehold improvements in its store locations. The auditor
needs to assess the valuation of these tangible assets. Which of the following audit procedures
would be most appropriate for verifying the valuation of leasehold improvements?
a) Inspecting lease agreements and reviewing the terms of leasehold improvement
reimbursements.
b) Engaging a construction cost estimator to assess the fair value of the leasehold
improvements.
c) Confirming the depreciation method used for leasehold improvements with management.
d) Analyzing sales trends and foot traffic data to assess the impact of leasehold
improvements on store performance.

127. A technology company has invested in a portfolio of trademarks for its various product
brands. The auditor needs to assess the valuation of these intangible assets. Which of the
following audit procedures would be most effective in evaluating the valuation of trademarks?
a) Engaging a branding agency to assess the market value and recognition of the
trademarks.
b) Reviewing the company's marketing strategy and advertising expenditures for each
trademarked brand.
c) Confirming trademark registrations and renewal status with the relevant intellectual
property offices.
d) Analyzing the profitability of products associated with each trademarked brand.

128. A manufacturing company has significant investments in research and development

(R&D) projects aimed at developing new products. The auditor needs to assess the capitalization
of R&D costs in accordance with accounting standards. Which of the following audit procedures
would be most appropriate for this assessment?
a) Reviewing project documentation to identify eligible costs directly attributable to R&D
activities.
b) Engaging an R&D tax credit specialist to assess the eligibility of R&D expenditures for tax
incentives.
c) Confirming the progress and milestones achieved in R&D projects with project managers.
d) Analyzing the company's R&D budget and comparing it to industry benchmarks.

129. A company has acquired a portfolio of customer contracts as part of a business

combination. The auditor needs to assess the valuation of these customer contracts as intangible
assets. Which of the following audit procedures would be most effective in evaluating the
valuation of customer contracts?
a) Reviewing customer invoices and sales contracts to assess the revenue generated from
the contracts.
b) Engaging a financial analyst to estimate the present value of future cash flows from the
customer contracts.
c) Confirming the existence and terms of the customer contracts with customers directly.
d) Analyzing customer satisfaction surveys and feedback to assess the value of the
customer contracts.
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130. A multinational corporation operates in the technology sector and holds a diverse
portfolio of tangible and intangible assets, including machinery, patents, and trademarks. During
the audit, the auditor encounters a complex scenario where the company has revalued its
machinery to reflect technological advancements and a patent for a groundbreaking innovation in
the industry. The auditor needs to ensure the accuracy of these revaluations and assess the
impact on the company's financial statements. Which of the following audit procedures would be
most appropriate for addressing this scenario?
a) Engaging a team of engineering experts to evaluate the technological advancements and
their impact on the fair value of the machinery.
b) Reviewing the documentation supporting the revaluation of machinery and assessing the
qualifications and independence of the individuals involved in the valuation process.
c) Confirming the ownership and validity of the patent with the relevant intellectual
property offices and conducting market research to assess the potential value of the
innovation.
d) Analyzing the company's financial projections and forecasts to determine the expected
future cash flows generated by the revalued machinery and patented innovation.