AUDITING THEORY
1. As an auditor which of the following would be classified as an error?
a. Intentional omission of the recording of a transaction to benefit a third party.
b. Misappropriation of assets for the benefit of management.
c. Misinterpretation by management of the facts that existed when the financial statements were
prepared.
d. Preparation of records by employee to cover a fraudulent transactions.
2. Which of the following circumstances least likely indicate the possibility of fraud or error?
a.
b.
c.
d.
Unrealistic time deadlines for audit completion imposed by management.
Limitation in audit scope imposed by management.
Conservative application of accounting principles.
Significant difficult-to-audit figures in the accounts.
3. Which of management’s concerns with respect to implementing internal controls is the auditor primarily
concerned?
a. Efficiency of operations.
b. Reliability of financial reporting.
c. Effectiveness of operations.
d. Compliance with applicable laws and regulations
4. Which of the following statements is not correct?
a. The principal purpose in conducting a study and evaluation of the existing internal control system is for
the independent auditor to maintain a state of independence in mental attitude in all matters related to
the audit.
b. Working papers can be destroyed after corporate and statutory retention requirements are met.
c. The audit program contains the list of specific tasks to be performed and estimated time required.
d. An audit program would not contain the documentation of system being reviewed.
5. 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.
b. Research and development projects are postponed.
c. Significant related party transactions are pervasive.
d. Stock dividends replace annual cash dividends.
6. Competence as an independent auditor includes all of the following except
a. Having the technical qualifications to perform the engagement
b. Possessing the ability to supervise and evaluate the quality of staff work
c. Warranting the infallibility of the work performed
d. Consulting others if additional technical information is needed
7. Which of the following engagements do not require independence?
a. Assurance.
c. Audit.
b. Compilation.
d. Review
8. What assurance does the auditor provide that the following will be detected?
a.
b.
c.
d.
Errors
Limited
Limited
Reasonable
Reasonable
Fraudulent
Financial
Reporting
Reasonable
Limited
Limited
Reasonable
Misappropriation of
assets
Limited
Reasonable
Limited
Reasonable
9. If permission from client to discuss its affairs with the proposed auditor is denied by the client, the
predecessor auditor should:
a. Keep silent of the denial.
b. Disclose the fact that the permission to disclose is denied by the client.
c. Disclose adequately to proposed auditor all noncompliance made by the client.
d. Seek legal advice before responding to the proposed auditor
10. Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor
auditor regarding
a. Disagreements the predecessor had with the client concerning auditing procedures and accounting
principles.
b. The predecessor’s evaluation of matters of continuing accounting significance.
c. The degree of cooperation the predecessor received concerning the inquiry of the client’s lawyer.
d. The predecessor’s assessments of inherent risk and judgments about materiality.
11. Tracing shipping documents to prenumbered sales invoices provides evidence that
a.
b.
c.
d.
No duplicate shipments or billings occurred.
Shipments to customers were properly invoiced.
All goods ordered by customers were shipped.
All prenumbered sales invoices were accounted for.
12. Which of the following is not a component of an entity’s internal control?
a.
b.
Control risk.
Control activities.
c. Monitoring.
d. Control environment.
13. The permanent file of an auditor’s working papers generally would not include
a.
b.
c.
d.
Bond indenture agreements.
Lease agreements.
Working trial balance.
Flowchart of internal control
14. The audit working paper that reflects the major components of an amount reported in the financial
statements is the
a. Interbank transfer schedule.
b. Carry forward schedule.
c. Supporting schedule.
d. Lead schedule.
15. Cutoff tests designed to detect credit sales made before the end of the year that have been recorded in the
subsequent year provide assurance about management’s assertion of
a. Presentation.
c. Rights.
b. Completeness.
d. Existence.
16. Which of the following is not an expert upon whose work an auditor may rely?
a.
b.
Actuary.
Appraiser.
c. Internal auditor.
d. Engineer.
17. A purpose of a management representation letter is to reduce
a.
b.
c.
d.
Audit risk to an aggregate level of misstatement that could be considered material.
An auditor’s responsibility to detect material misstatements only to the extent that the letter is relied on.
The possibility of a misunderstanding concerning management’s responsibility for the financial
statements.
The scope of an auditor’s procedures concerning related-party transactions and subsequent events.
18. The primary reason an auditor requests letters of inquiry be sent to a client’s attorneys is to provide the
auditor with
a. The probable outcome of asserted claims and pending or threatened litigation.
b. Corroboration of the information furnished by management about litigation, claims, and assessments.
c. The attorneys’ opinions of the client’s historical experiences in recent similar litigation.
d. A description and evaluation of litigation, claims, and assessments that existed at the balance sheet date.
19. When an auditor has chosen a random sample and is using nonstatistical attributes sampling, that auditor
a.
b.
c.
d.
Need not consider the risk of assessing control risk too low.
Has committed a nonsampling error.
Will have to use discovery sampling to evaluate the results.
Should compare the deviation rate of the sample to the tolerable deviation rate.
20. The accounts payable department receives the purchase order form to accomplish all of the following except
to
a.
b.
c.
d.
Compare invoice price to purchase order price
Ensure that the purchase had been properly authorized
Ensure that the goods had been received by the party requesting the goods
Compare quantity ordered to quantity purchased
21. When comparative financial statements are presented, the fourth standard of reporting, which refers to
financial statements "taken as a whole," should be considered to apply to the financial statements of the
a. Periods presented plus the one preceding period
b. Current period only
c. Current period and those of the other periods presented
d. Current and immediately preceding period only
22. Which of the following auditing procedures most likely would assist an auditor in identifying conditions and
events that may indicate substantial doubt about an entity's ability to continue as a going concern?
a. Inspecting title documents to verify whether any assets are pledged as collateral
b. Confirming with third parties the details of arrangements to maintain financial support
c. Reconciling the cash balance per books with the cut-off bank statement and the bank confirmation
d. Comparing the entity's depreciation and asset capitalization policies to other entities in the industry
23. When the auditor is unable to determine the amounts associated with the illegal acts of client personnel
because of an inability to obtain adequate evidence, the auditor should issue a(n)
a. Qualified opinion
b. Disclaimer of opinion
c. Adverse opinion
d. Unqualified opinion with a separate explanatory paragraph
24. The predecessor auditor, after properly communicating with the successor auditor, has reissued a report
because the audit client desires comparative financial statements. The predecessor auditor's report should
make
a. No reference to the report or the work of the successor auditor
b. Reference to the work of the successor auditor in the scope paragraph
c. Reference to both the work and the report of the successor auditor in the opinion paragraph
d. Reference to the report of the successor auditor in the scope paragraph
25. Absolute assurance is provided for in
a. An audit engagement
b. A compilation engagement
c. A review engagement
d. None of the above
26. During a review of the financial statements of a nonpublic entity, the CPA finds that the financial statements
contain a material departure from generally accepted accounting principles. If management refuses to correct
the problem, the CPA should
a. Disclose the departure in a separate paragraph of the report
b. Issue an adverse opinion
c. Attach a footnote explaining the effects of the departure
d. Issue a compilation report
27. Compilations provide which of the following types of assurance about the fair presentation of financial
statements?
a. No assurance
b. Negative assurance
c. Limited assurance
d. Reasonable assurance
28. Which of the following statements is true regarding the performance of an assurance service on information
systems reliability by a CPA?
a. The CPA is not permitted to provide any other services for the client if he or she is to perform the service
b. The service will require the CPA to apply all of the attestation and auditing standards
c. The service provides information regarding whether the information system provides reliable
information for internal operating decisions
d. Performing the service will not require the collection of evidence
29. An accountant may accept an engagement to apply agreed-upon procedures to prospective financial
statements provided that
a. Distribution of the report is to be restricted to the specified users involved
b. The prospective financial statements also are examined
c. Responsibility for the adequacy of the procedures performed is taken by the accountant
d. Negative assurance is expressed on the prospective financial statements taken as a whole
30. The party responsible for assumptions identified in the preparation of prospective financial statements is
usually
a. A third-party lending institution
b. The client's management
c. The reporting accountant
d. The client's independent auditor
31. Responding to a question such as "What would happen if…" is an attribute of which of the following types of
engagements?
a. Financial projection
b. Financial forecast
c. Financial forecast and financial projection
d. Review
32. Preliminary engagement activities include:
a.
b.
c.
d.
Evaluating internal controls.
Assessing audit risk at the account balance level.
Setting materiality.
Determining engagement team requirements.
33. The auditor's report is generally addressed to the:
a.
b.
c.
d.
Chief operating officer.
Securities and Exchange Commission.
Stockholders of the company.
Chief financial officer.
34. When obtaining an understanding of the entity and its environment, the auditor should obtain an
understanding of internal controls primarily to
a. Identify areas of relatively high risk of misstatement and plan the audit accordingly.
b. Provide suggestions for improvement to the client.
c. Serve as a basis for setting audit risk and materiality.
d. Decide whether to perform an audit for the client.
35. Before accepting an engagement to audit a new client, an auditor is required to
a.
b.
c.
d.
Make inquiries of the predecessor auditor.
Tell the client whether or not the auditor is willing to issue a "clean" opinion.
Prepare a memorandum setting forth the staffing requirements and documenting the preliminary audit
plan.
Become a member of the client's board of directors.
36. The accuracy of information included in footnotes accompanying the audited financial statements issued by a
company whose shares are traded on a stock exchange is the primary responsibility of
a. The stock exchange officials
b. The independent auditor
c. The company's management
d. The Securities and Exchange Commission
37. Which of the following best describes the concept of risk assessment on which auditors can provide
independent assurance?
a. The risk that financial statements are misstated because of fraud
b. The risk that financial statements are misstated because of error or fraud
c. Whether management has systems in place to evaluate and effectively manage the entity's business risks
d. Developing client acceptance and continuance practices that minimize the likelihood of lawsuits against
the auditor
38. A typical objective of an operational audit is for the auditor to
a.
b.
c.
d.
Determine whether the financial statements present fairly the entity's operations
Evaluate the feasibility of attaining the entity's operational objectives
Make recommendations for improving performance
Report on the entity's relative success in attaining profit maximization
39. Governmental auditing often extends beyond examinations leading to the expression of an opinion on the
fairness of financial presentation and includes audits of efficiency, effectiveness, and
a. Monetary stimulus
c. Accuracy
b. Evaluation
d. Compliance
40. Which is not an attribute of an external auditor?
a.
b.
c.
d.
Independence
Client advocacy
Objectivity
Concern for the public interest
41. What is the general character of the work conducted in performing a forensic audit for a company?
a.
b.
c.
d.
Providing assurance that the financial statements are not materially misstated
Detecting or deterring fraudulent activity
Offering an opinion on the reliability of the specific assertions made by management
Identifying the causes of an entity's financial difficulties
42. Which of the following is NOT a requirement of the Sarbanes-Oxley Act?
a.
b.
c.
d.
Audit firms cannot provide most types of nonaudit services to their public company audit clients
Audit firms are required to rotate audit partners off audit engagements every five years for public
company audits
Firms that audit public companies are subject to inspection by the PCAOB
A certain number of hours, which is based on the size of the company being audited, must be spent on
each audit engagement
43. With regard to detecting fraud, auditing standards require auditors to
a.
b.
c.
d.
Perform procedures designed to detect all instances of fraud that might affect the financial statements
Provide reasonable assurance that the financial statements are not materially misstated because of fraud
Issue an unqualified opinion only when the auditor is satisfied that no instances of fraud have occurred
Design the audit program to meet financial statement users' expectations concerning fraud
44. An internal auditor is likely to be more concerned with _________________ than the external auditor.
a.
b.
c.
d.
Internal administrative procedures
Cost accounting procedures
The efficiency of operations
Internal control
45. Which of the following is not included in the broad category of assurance services?
a.
b.
c.
d.
operational audit
reporting on internal control
accounting or review services
evaluation of the client's risk management framework
46. Which of the following best describes the role of corporate governance?
a.
b.
c.
d.
Management decides which accounting principles are the most appropriate.
Shareholders vote to decide who should be members of the board of directors.
Holding the management team accountable to shareholders and other constituents for the utilization of
the entity's resources.
Management often is compensated based on the company's profitability.
47. Which of the following would an auditor most likely use in determining the auditor's planning materiality?
a.
b.
c.
d.
The anticipated sample size for planned substantive procedures
The entity's annualized interim (i.e. quarterly) financial statements
The results of the internal control questionnaire
The contents of the management representation letter
48. Tolerable misstatement is
a.
b.
c.
d.
Materiality allocated to an assertion
Materiality for the balance sheet as a whole
Materiality for the income statement as a whole
Materiality allocated to a specific account
49. Which of the following is not a qualitative factor that may affect an auditor's establishment of materiality?
a.
b.
c.
d.
Potential for fraud
The company is close to violating loan covenants
Firm policy sets materiality at 4% of pretax income
A small misstatement would interrupt an earnings trend
50. Engagement risk can be eliminated by
a.
b.
c.
d.
Establishing policies for client acceptance and continuance
Lowering audit risk
Lowering materiality
Engagement risk cannot be eliminated
51. The achieved (actual) level of audit risk
a.
b.
c.
d.
Can always be accurately assessed by the auditor
Should be greater than or equal to acceptable audit risk
Can never be known with certainty
Is the same for all audit clients
52. The risk of material misstatement differs from detection risk in that it
a.
b.
c.
d.
Arises from the misapplication of auditing procedures
May be assessed in either quantitative or qualitative terms
Exists independently of the actions of the auditor
Can be changed at the auditor's discretion
53. When an auditor increases the assessed level of risk of material misstatement because certain control
procedures were determined to be ineffective, the auditor would most likely increase the
a. Extent of tests of controls
b. Level of detection risk
c. Extent of substantive tests
d. Level of inherent risk
54. The risk of material misstatement includes which of the following:
a.
b.
Detection risk
Audit risk
c. Inherent risk
d. Nonsampling risk
55. Which of the following procedures would not be used to obtain an understanding of the entity and its
environment?
a. Observe entity operations
b. Reperform entity processes
c. Verify proper valuation of inventory subject to technological obsolescence
d. Review prior year's audit documentation
56. In general, material frauds perpetrated by which of the following are most difficult to detect?
a.
b.
Internal auditor c. Cashier
Keypunch operator
d. Controller
57. All of the following represent an increased opportunity to commit fraud except:
a.
b.
c.
d.
Significant related party transactions
The auditor's relationship with management is strained
Management is dominated by a single person
The financial statements included highly subjective estimates
58. As the acceptable level of detection risk decreases, an auditor may change the
a.
b.
c.
d.
Timing of tests of controls by performing them at an interim date rather than at year-end
Nature of substantive procedures from less effective to more effective procedures
Timing of tests of controls by performing them at several dates rather than at one time
Assessed level of risk of material misstatement to a higher amount
59. The auditor is most likely to presume that a high risk of a fraud exists if
a.
b.
c.
d.
The entity is a multinational company that does business in numerous foreign countries
The entity does business with several related parties
Inadequate segregation of duties places an employee in a position to perpetrate and conceal theft
Inadequate employee training results in lengthy EDP exception reports each month
60. Which of the following is correct concerning required auditor communications about fraud?
a.
b.
c.
d.
Fraud that involves senior management should be reported directly by the auditor to the audit
committee regardless of the amount involved
Fraud with a material effect on the financial statements should be reported directly by the auditor to the
Securities and Exchange Commission
Any requirement to disclose fraud outside the entity is the responsibility of management and not that of
the auditor
The professional standards provide no requirements related to the communication of fraud, but the
auditor should use professional judgment in determining communication responsibilities
61. Which of the following statements is not correct about materiality?
a.
b.
c.
d.
The concept of materiality recognizes that some matters are important for fair presentation of financial
statements in conformity with GAAP, while other matters are not important
An auditor considers materiality for the aggregate level of misstatements that could be material to any
one of the financial statements individually
Materiality judgments are made in light of surrounding circumstances and necessarily involve both
quantitative and qualitative judgments
An auditor's consideration of materiality is influenced by the auditor's perception of the needs of a
reasonable person who will rely on the financial statements
62. An example of audit evidence with a medium level of reliability is:
a.
b.
Scanning.
Recalculation.
c. Observation.
d. All of the above.
63. Audit documentation prepared on audits of publicly held clients is the property of the
a.
b.
c.
d.
Shareholders
The auditor
The management of the entity being audited
The SEC
64. All of the following are typically in the current file except
a.
b.
c.
d.
Adjusting journal entries
Copies of the audit report
Chart of accounts
Lead schedules
65. You are auditing a store that sells merchandise. Some of the store merchandise is held on consignment.
Which account balance assertion for inventory should you be most concerned about verifying?
a. Existence or occurrence
b. Completeness
c. Rights and obligations
d. Valuation or allocation
66. Each of the following might, by itself, form a valid basis for an auditor to reduce substantive testing except for
the
a.
b.
c.
d.
Difficulty and expense involved in testing a particular item
Assessment of control risk at a low level
Low inherent risk involved
Relationship between the cost of obtaining evidence and its usefulness
67. Your audit client is under intense pressure to meet an earnings target. Which transaction assertion for
transactions within the purchasing process are you most concerned with?
a. Existence or occurrence
b. Completeness
c. Rights and obligations
d. Presentation and disclosure
68. Which of the following are ordinarily designed to detect possible material monetary errors in the financial
statements?
a. Tests of controls
b. Analytical procedures
c. Computer controls
d. Post-audit review of audit documents
69. Which of the following should an auditor obtain from the predecessor auditor prior to accepting an audit
engagement?
a. Analysis of balance sheet accounts
b. Analysis of income statement accounts
c. All matters of continuing accounting significance
d. Facts that might bear on management integrity
70. In assessing the competence of an internal auditor, an independent CPA most likely would obtain information
about the
a. Quality of the internal auditor's work
b. Organization's commitment to integrity and ethical values
c. Influence of management on the scope of the internal auditor's duties
d. Organizational levels to which the internal auditor reports
71. The auditor generally gives most emphasis to ratio and trend analysis in the examination of the
a.
b.
c.
d.
Statement of Changes in Stockholders' Equity and Retained earnings
Income Statement
Balance Sheet
Statement of Cash Flows
72. Which of the following would be least likely to be comparable between similar corporations in the same
industry or line of business?
a. Earnings per share
b. Return on total assets before interest and taxes
c. Accounts receivable turnover
d. Operating cycle
73. In correct order, general types of audit tests include:
a.
b.
c.
d.
Substantive procedures, tests of controls, and risk assessment procedures.
Substantive procedures, risk assessment procedures, and tests of controls.
Risk assessment procedures, tests of controls, and substantive procedures.
Risk assessment procedures, substantive procedures, and tests of controls.
74. An advantage of using systems flowcharts to document information about internal control instead of using
internal control questionnaires is that systems flowcharts
a. Identify whether segregation of duties prevent collusion
b. Provide a visual depiction of clients' activities
c. Indicate whether controls are operating effectively
d. Reduce the need to observe clients' employees performing routine tasks
75. Which of the following audit tests would be regarded as a test of controls?
a.
b.
c.
d.
Tests of the specific items making up the balance in a given general ledger account
Tests comparing inventory pricing to vendors' invoices
Tests of the signatures on canceled checks to the board of director's authorizations
Tests of the additions to property, plant, and equipment by physical inspections
76. Which of the following input controls is a numeric value computed to provide assurance that the original
value has not been altered in construction or transmission?
a. Hash total
c. Encryption
b. Parity check
d. Check digit
77. General controls include all of the following except
a.
b.
c.
d.
Organizational controls
Data validation controls
Access security controls
Application system acquisition controls
78. A limit test is a
a.
b.
c.
d.
Test to ensure that a numerical value does not exceed some predetermined value
Check to ensure that the value in a field falls within an allowable range of values
Check to ensure that the data in a field have the proper arithmetic sign
Check on a field to ensure that it contains either all numeric or alphabetic characters
79. A field test is a
a.
b.
c.
d.
Test to ensure that a numerical value in a field does not exceed some predetermined value
A check to ensure that the value in a field falls within an allowable range of values
A check to ensure that the data in a field have the proper arithmetic sign
A check on a field to ensure that it contains either all numeric or alphabetic characters
80. An auditor's primary consideration regarding an entity's internal controls is whether the policies and
procedures
a. Affect the financial statement assertions
b. Prevent management override
c. Relate to the control environment
d. Reflect management's philosophy and operating style
81. An effective control environment
a.
b.
c.
d.
Allows management to identify all relevant risks
Creates a commitment to competence
Guarantees that all controls are followed as prescribed
Requires an internal audit department
82. An IT specialist is least likely to be necessary when
a.
b.
c.
d.
Data is shared extensively among systems
The entity participates heavily in electronic commerce
The system has not changed from the prior year
Significant audit evidence is in electronic form
83. A substantive strategy differs from a reliance strategy in that a substantive strategy includes
a.
b.
c.
d.
Increased implementation of detailed tests of transactions and balances
Extra tests of controls
Increased emphasis on verbal representations from management
Setting control risk at a minimum level
84. Walkthroughs usually involve all of the following audit procedures except
a. Reperformance
c. Observation
b. Inquiry
d. Inspection
85. Which of the following is a general control that would most likely assist an entity whose systems analyst left
the entity in the middle of a major project?
a. Grandfather-father-son record retention
b. Input and output validation routines
c. Systems documentation
d. Check digit verification
86. A deficiency that implies that there is reasonable possibility of misstatement in the financial statements that
is significant but not material is
a. A material weakness
b. A significant deficiency
c. An insignificant deficiency
d. A probable deficiency
87. As a result of tests of controls, an auditor over relied on internal control and decreased substantive testing.
This overreliance occurred because the true deviation rate in the population was
a. Less than the risk of assessing control risk too low on the auditor's sample
b. Less than the deviation rate in the auditor's sample
c. More than the risk of assessing control risk too low on the auditor's sample
d. More than the deviation rate in the auditor's sample
88. For an attributes sampling plan, the tolerable deviation rate is 4%, the computed upper deviation rate is 7%,
the sample deviation rate is 3% and the desired confidence level is 95%. What is the allowance for sampling
risk included in the computed upper deviation rate?
a. 2%
c. 4%
b. 3%
d. 5%
89. Statistical sampling provides a technique for
a.
b.
c.
d.
Exactly defining materiality
Greatly reducing the amount of substantive testing
Eliminating judgment in testing
Measuring the sufficiency of evidential matter
90. An advantage of using statistical over nonstatistical sampling methods in tests of controls is that the statistical
methods
a. Afford greater assurance than a nonstatistical sample of equal size
b. Provide an objective basis for quantitatively evaluating sample risks
c. Can more easily convert the sample into a dual-purpose test useful for substantive testing
d. Eliminate the need to use judgment in determining appropriate sample sizes
91. In all of the following situations except one, a person is deemed to be engaged in professional accounting
practice. Which of them is the exception?
a. Performing audits or verification of financial transactions and records for more than one client.
b. Employed as the department chairman that supervises the BSA program of an educational institution.
c. Employment as controller of a private business enterprise and such employment requires that the holder
thereof should be a CPA.
d. Appointment in the government where first grade civil service eligibility is a prerequisite.
92. Any position in any business or company in the private sector which requires supervising the recording of
financial transactions, preparation of financial statements, coordinating with the external auditors for the
audit of such financial statements and other related functions shall be occupied only by a duly registered CPA.
Provided (choose the incorrect one)
a. That the business or company where the above position exists has a paid-up capital of at least
P5,000,000 and/or an annual revenue of at least P10,000,000.
b. The above provision shall apply only to persons to be employed after the effectivity of the Implementing
Rules and Regulations of RA 9298.
c. The above provision shall not result to deprivation of the employment of incumbents to the position.
d. None of the above.
93. The following statements relate to CPA examination ratings. Which of the following is incorrect?
a.
b.
c.
d.
To pass the examination, candidates should obtain a general weighted average of 75% and above, with
no rating in any subject less than 65%.
Candidates who obtain a rating of 75% and above in at least four subjects shall receive a conditional
credit for the subjects passed.
Candidates who failed in four complete examinations shall no longer be allowed to take the examinations
the fifth time.
Conditioned candidates shall take an examination in the remaining subjects within two years from the
preceding examination.
94. Which of the following is not one of the grounds for proceedings against a CPA?
a. Gross negligence or incompetence in the practice of his profession.
b. Engaging in public practice while being employed in a private enterprise.
c. Insanity.
d. Immoral or dishonorable conduct.
95. Below are the names of three CPA firms and pertinent facts relative to each firm. Unless otherwise indicated,
the individuals named are CPAs and partners, and there are no other partners. Which firm name and related
facts indicates a violation of the IRR of RA 9298?
a. A, B and C, CPAs (A died about 10 years ago, B and C are continuing the firm)
b. D and E, CPAs ( the name of F a third active partner is omitted in the firm name)
c. F and G, CPAs (F died 25 months ago, G is continuing the firm as a sole proprietor)
d. H and I, CPAs (I died 3 years ago, J was admitted into the partnership 2 months after I’s death.)
96. May a CPA hire for the CPA’s public accounting firm a non-CPA systems analyst who specializes in developing
computer systems?
a. Yes, provided the CPA is qualified to perform each of the specialist’s tasks.
b. Yes, provided the CPA is able to supervise the specialist and evaluate the specialist’s end product.
c. No, because non-CPA professionals are not per- mitted to be associated with CPA firms in public practice.
d. No, because developing computer systems is not recognized as a service performed by public
accountants.
97. Juan Dela Cruz is a CPA who is working as a controller for Bayabas Corporation. Which statement is true?
a.
b.
c.
d.
He may use the CPA designation on his business cards if he also puts his employment title on them.
He may use the CPA designation on his business cards as long as he does not mention Bayabas
Corporation or his title as controller.
He may use the CPA designation on company transmittals but not on his business cards.
He may not use the CPA designation because he is not in public practice.
98. According to the standards of the profession, which of the following activities would most likely not impair a
CPA’s independence?
a. Providing advisory services for a client.
b. Contracting with a client to supervise the client’s office personnel.
c. Signing a client’s checks in emergency situations.
d. Accepting a luxurious gift from a client.
99. On June 1, 2011, a CPA obtained a P1,000,000 personal loan from a financial institution client for whom the
CPA provided compilation services. The loan was fully secured and considered material to the CPA’s net
worth. The CPA paid the loan in full on December 31, 2012. On April 3, 2012, the client asked the CPA to audit
the client’s financial statements for the year ended December 31, 2012. Is the CPA considered independent
with respect to the audit of the client’s December 31, 2012 financial statements?
a. Yes, because the loan was fully secured.
b. Yes, because the CP A was not required to be independent at the time the loan was granted.
c. No, because the CPA had a loan with the client during the period of a professional engagement.
d. No, because the CPA had a loan with the client during the period covered by the financial statements.
100. Based on the Code of Ethics for Professional Accountants, threats to compliance with fundamental
principles arise from all of the following except:
a.
Self interest.
b.
Advocacy.
c.
The audit relationship.
d.
Intimidation.