MULTIPLE-CHOICE QUESTIONS
1. Which of the following procedures would an auditor typically perform first when assessing the reasonableness of management's estimate of its pension liability?
a. Inspect documentation related to the pension transactions that the client has recorded.
b. Develop an understanding of management's process for developing the estimate.
c. Identify sensitive management assumptions.
d. Review transactions occurring prior to the report release date to assess the reasonableness of management estimates.

2. Which of the following is a reason that accounts containing management estimates pose a high level of risk of material misstatement for auditors?
a. Accounting estimates are especially susceptible to management bias.
b. Accounting estimates are a means for management to manage or misstate the financial statements.
c. Accounting estimates are sensitive to variations in management assumptions.
d. All of the above are reasons that accounts containing management estimates pose a high level of risk of material misstatement for auditors.

3. For which of the following audit judgments would an auditor be least likely to use an audit specialist?
a. Existence of cash.
b. Valuation of works of art.
c. Valuation of oil and gas reserves.
d. Interpretation of laws and regulations.

4. Which of the following statements is true regarding the auditor's use of the work of a specialist?
a. The specialist, not the auditor, is responsible for evaluating whether the specialist's findings support the assertions in the financial statements.
b. Because the individual is considered a specialist, the auditor does not need to evaluate the professional qualifications of the specialist.
c. The auditor should obtain an understanding of the methods and assumptions used by the specialist.
d. All of the above statements are true.

5. Which of the following statements is most accurate regarding the auditor's primary focus on a client's related-party transactions?
a. The auditor wants reasonable assurance that all related-party transactions are accounted for differently than transactions with unrelated parties.
b. The auditor will want to confirm the existence of the related parties.
c. The auditor wants reasonable assurance that all related-party transactions have been appropriately disclosed.
d. The auditor will focus on verifying the valuation of the related party transactions.

6. Which of the following transactions would be least likely to be a related-party transaction?
a. A purchase transaction between an entity and its owners.
b. A debt-related transaction between an entity and one of its SPEs.
c. An exchange of property between an entity and a joint venture in which the entity has part ownership.
d. Writing-off obsolete inventory prior to year end.

7. Which of the following statements is true regarding audit documentation?
a. Auditors document only those significant issues that have not been resolved by the audit report date.
b. Audit documentation provides the principal support for the audit opinion expressed by the auditor.
c. Audit documentation would identify who reviewed the audit work, but not who performed the audit work.
d. Documentation must be in paper format.

8. Which of the following items would typically not be included in the heading of a workpaper?
a. Client name.
b. Client balance sheet date.
c. Audit firm name.
d. A descriptive explanatory title.

9. Which of the following statements describes a purpose of an audit program?
a. An audit program is used to specify the procedures to be performed in obtaining audit evidence.
b. An audit program is used to record the completion of each audit step.
c. An audit program is useful for monitoring the progress of the audit.
d. All of the above statements describe the purpose of an audit program.

10. Which of the following items would typically not be included in an audit program?
a. A list of audit procedures to be performed.
b. An indication of who performed the procedure.
c. A workpaper heading.
d. All of the above would typically be included in an audit program.