____
1.
A review does not provide assurance that the CPA will become aware of all significant matters that would be disclosed in an audit.
However, if the CPA becomes aware that information coming to his attention is incorrect, incomplete, or otherwise unsatisfactory, he
should
A. Withdraw immediately from the engagement
B. Perform the additional procedures he deem necessary to achieve limited assurance.
C. Perform a complete audit and issue a standard audit report with appropriate qualifications.
D. Downgrade the engagements to a compilation and issue the appropriate report
____
2.
Which duties should be segregated?
A. Matching purchase requisitions, receiving reports, and invoices and authorizing payment
B. Authorizing payment and maintaining the check register
C. Writing checks and maintaining the check register
D. Authorizing payment and maintaining the accounts payable subsidiary ledger
____
3.
Aquino, CPA, requested permission to communicate with the predecessor auditors of a prospective client. The prospective client refused
contact. The refusal permit will bear directly on Aquino’s decision concerning the:
A. Adequacy of the preplanned audit program.
B. Ability to establish consistency in application of accounting principles between years.
C. Apparent some scope limitation.
D. Integrity of management.
____
4.
Regardless of the assessed level of control risk, an auditor would perform some
A. Tests of controls to determine the effectiveness of internal control policies.
B. Analytical procedures to verify the design of internal control.
C. Substantive tests to restrict detection risk for significant transaction classes.
D. Dual-purpose tests to evaluate both the risk of monetary misstatement and preliminary control risk.
____
5.
When considering internal control, an auditor must be aware of the concept of reasonable assurance which recognizes that
A. The employment of competent personnel provides assurance that the objectives of internal control will be achieved.
B. The establishment and maintenance of a system of internal control is an important responsibility of the management and not of the
auditor.
C. The cost of internal control should not exceed the benefits expected to be derived from internal control.
D. The segregation of incompatible functions is necessary to obtain assurance that the internal control is effective.
____
6.
An auditor is most likely to perform substantive tests of details on payroll transactions and balances when
A. Analytical procedures indicate unusual fluctuations in recurring payroll entries.
B. Cutoff tests indicate a substantial amount of accrued payroll expense.
C. The assessed level of control risk relative to payroll transactions is low.
D. Accrued payroll expense consists primarily of unpaid commissions.
____
7.
Which of the following statements would result to familiarity threat?
A. Performing services for an assurance client that directly affect the subject matter of the assurance engagement.
B. Dealing in, or being a promoter of, share or other securities in an audit client.
C. Potential employment with an audit client.
D. Accepting gifts or undue hospitality from an assurance client
____
8.
A system of internal control, regardless of how carefully designed and implemented, contains certain inherent limitations. Which of the
following errors or irregularities is not caused by an inherent limitation.
A. The president and chief executive officer, with the assistance of the corporate controller, inflated earnings by recording fictitious
sales at year-end.
B. A newly-installed electronic data processing system failed to provide for a comparison of sales order amount with prior customer
balance and credit limit. This resulted in numerous sales to customers who had already exceeded their credit limits.
C. Numerous recording errors occurred because persons analyzing and recording transactions did not have the necessary accounting
background.
D. A computer programmer and a computer operator conspired to divert funds from the company to an account controlled by the
dishonest employees.
____
9.
A well-designed system of internal control that is functioning effectively is most likely to detect an irregularity arising from:
A. The fraudulent action of several employees.
B. The fraudulent action of management.
C. Informal deviation from the official organization chart.
D. Management irregularities.
____
10.
Which of the following is the primary audit test to determine if accounts payable are valued properly?
A. Vouching accounts payable to supporting documentation.
B. An analytical procedure.
C. Verification that accounts payable are reported as a current liability in the balance sheet.
D. Examination of cash disbursements subsequent to year-end.
____
11.
Which of the following, if material, would be considered fraud?
A. Mistakes in the application of accounting principles.
B. Clerical mistakes in the accounting data underlying the financial statements.
C. Misappropriation of an asset or groups of assets.
D. Misinterpretations of facts that existed when the financial statements were prepared.
____
12.
Evidence of proper authorization, approval and review of transactions may appear on the face of documents supporting the transactions.
Which of the following techniques does not provide evidence of proper authorization, approval or review.
A. Purchase orders are signed by the purchasing agent.
B. Receiving reports are signed by persons inspecting and counting incoming goods.
C.
D.
Vouchers are signed or initialed by the person comparing vendors' invoices, purchase orders, and receiving reports for prices,
quantities, and stock description.
Several checks are signed in advance whenever the treasurer is scheduled to be out of town for an extended period.
____
13.
In a small company that employs inadequate number of employees to permit proper division of responsibilities, effective internal control
can best be strengthened by:
A. Direct participation by the owner of the business in the record-keeping activities of the business.
B. Employment of temporary personnel to aid in the separation of duties.
C. Delegation of full clear-cut responsibility to each employee for the functions assigned to each.
D. Affirm in writing management’s approval of limitation on the scope of the audit.
____
14.
During the planning phase, Irah, CPA, is examining the lease agreement between Gelyn Company (Irah’s client) and Cruz Corporation
(lessor). Irah’s primary attention should focus on:
A. Large peso value items.
B. The discovery of related party transactions.
C. Tracing the information to verify correct journal entries.
D. Any suspect of the disagreement affecting financial statements.
____
15.
Which of the following activities represents both an appropriate human resources function and a deterrent to payroll fraud?
A. Distribution of paychecks.
B. Authorization of overtime.
C. Authorization of additions to and deletions from the payroll.
D. Collection and retention of unclaimed paychecks.
____
16.
This is a basic tool used by the auditor to control the audit work and review the progress of the audit.
A. Time and expense summary
C. Progress flowchart
B. Engagement letter
D. Audit program
____
17.
The
A.
B.
C.
D.
____
18.
Quality control policies and procedures should provide the firm reasonable assurance that the policies and procedures relating to other
elements of quality control are being effectively applied. This statements defines the quality control element of
A. Engagement performance
C. Monitoring
B. Leadership responsibilities for quality on audits
D. Ethical requirements
____
19.
Certified Public Accountant (CPA) firms have as their primary responsibility the performance of the audit function on published financial
statements of:
A. All corporations.
B. All corporations listed on the Philippine Stock Exchange.
C. All publicly traded companies.
D. All national chartered corporations.
____
20.
Which of the following is an auditing firm-work safeguard in the work environment to eliminate threats to independence?
A. Leadership of the firm that stresses the importance of compliance with the fundamental principles.
B. Having appropriate body independent of management appoint the external auditor.
C. The creation of corporate governance structure that provides appropriate oversight and communication
regarding the firm’s services.
D. The professional standards
____
21.
In a
A.
B.
C.
D.
E.
____
22.
It refers to the material (working papers) prepared by and for, or obtained and retained by the auditor in connection with the
performance of the audit.
A. Documentation
C. Accounting data.
B. Audit report.
D. Corroborative evidence.
____
23.
If an auditor is unable to agree to a change of the engagement (i.e. from one that provides a higher level of assurance in one that
provides a moderate level) and is not permitted to continue the original engagement, the auditor should:
A.
Withdraw from the engagement and consider whether there is any obligation, either contractual or otherwise, to report to other
parties, such as the board of directors or shareholders, the circumstances necessitating the withdrawal.
B. Qualify the opinion in the engagement and consider whether there is any obligation, either contractual or otherwise, to report to
other parties, such as the board of directors or shareholders, the circumstances necessitating the withdrawal.
C. Withdraw from the engagement and consider whether there is any obligation, either contractual or otherwise, to report to other
parties, such as the custodian of the cleaning equipment, the circumstances necessitating the withdrawal.
D. Withdraw from the engagement and consider whether there is any legal or contractual implications in the change of engagement.
____
24.
A CPA firm’s quality control procedures pertaining to the acceptance of a prospective client would most likely include
A. Inquiry of management as to whether disagreement between the predecessor auditor and the prospective client were resolved
satisfactorily
B. Consideration of whether sufficient competent evidential matter may be obtained to afford a reasonable basis for an opinion.
C. Inquiry of third parties, such as the prospective client’s bankers and attorneys, about information regarding the prospective client
and its management.
following are considered fraudulent financial reporting or management fraud, except
Stealing entity’s assets such as cash, marketable securities and inventory.
Misrepresentation in or intentional omission of the effects of transactions from records or documents.
Recording of transactions without substance and without supporting documents.
Intentional misapplication of accounting policies.
well-designed internal control structure, two task that should be performed by different persons are
Preparation of purchase orders and authorization of monthly payroll
Preparation of bank reconciliation and recording of cash disbursements.
Distribution of payroll checks and approval of credit sales
Posting of amounts from both the cash receipts journal and cash disbursements journal to the general ledger
Posting of amounts from the cash receipts journal to the general ledger and distribution of payroll
D.
Consideration of whether the internal control structure is sufficiently effective to permit a reduction in the required substantive tests.
____
25.
To provide a threshold or cut-off point rather than being a primary qualitative characteristic which information must have if it if to be
useful
A. Materiality
C. Relevance
B. Reliability
D. Misstatement
____
26.
The
A.
B.
C.
D.
____
27.
What is the underlying reason for the Code of Professional Ethics?
A. It is required by the Constitution and RA 9298.
B. To provide the licensing agencies with a basis for measuring the performance of the practitioners
C. The need for public confidence in the quality of service of the profession.
D. That it provides a safeguard against unscrupulous people
____
28.
Confirmation is most likely to be a relevant form of evidence with regard to assertions about accounts receivable when the auditor has
concerns about the receivables’
A. Completeness.
C. Classification.
B. Existence.
D. Valuation
____
29.
Theoretically, which of the following would not have an effect on the amount off audit evidence gathered by the auditor?
A. The type of opinion to be issued.
B. The auditor’s evaluation of internal control.
C. The types of audit evidence available to auditor.
D. Whether or not the client reports to the Securities and Exchange Commission.
____
30.
In a
A.
B.
C.
D.
properly designed set of internal control procedures, the same employee should not be permitted to
Sign checks and cancel supporting documents.
Receive merchandise and prepare a receiving report.
Prepare disbursement vouchers and sign checks.
Initiate a request to order merchandise and approve merchandise received.
____
31.
The
A.
B.
C.
D.
review of the company’s financial statements by a CPA firm:
Culminate an issuance of a report expressing the CPA’s negative assurance as to the fairness of the statements.
Requires detailed analysis of the major accounts.
Is of similar scope as an audit and adds similar credibility to the statements.
Is substantially less in scope of procedures than a compliance.
____
32.
Why
A.
B.
C.
D.
is it important for the auditor to obtain sufficient level of knowledge of the entity’s business?
To eliminate the risk that the auditor will issue an inappropriate opinion in the financial statements.
To enable the auditor to increase the audit fee since it involves additional services.
To identify and understand the events, transactions and practices that may have a significant effect on the financial statements
To obtain information regarding possible audit clients from the entity’s rival companies
____
33.
In testing the completeness assertion for an audit, an auditor ordinarily works from the:
A. Financial unrecorded items in the financial statements.
B. Potentially unrecorded items to the financial statements.
C. Accounting records to the supporting documents.
D. Supporting evidence to the accounting records.
____
34.
The
A.
B.
C.
D.
____
35.
Transactions with related parties are important to the auditors because they will be disclosed in the financial statements if material.
Generally accepted accounting principles would not require disclosure of
A. The nature of the related-party relationship.
B. A description of transactions, including peso amounts.
C. The amounts due from and to related parties.
D. Loans to officers during the year which had been repaid before the balance sheet date.
____
36.
A company makes a practice of investing excess short-term cash in trading securities that are traded regularly on the Philippine Stock
Exchange (PSE). A reliable test of the valuation of those securities is
A. Calculation of premium or discount amortization.
B. Confirmation of securities held by the broker.
C. Consideration of current market quotations.
D. Recalculation of investment value using a valuation model.
____
37.
Prior to beginning the field work on a new audit engagement in which a CPA does not posses expertise in the industry which the client
operates, the CPA should
A. Reduce audit risk by lowering the preliminary levels of materiality.
B. Design special substantive test to compensate for the lack of industry expertise.
C. Engage financial experts familiar with the nature of the industry.
D. Obtain a knowledge of matters that relate to the nature of the entity’s business.
auditor's understanding of the client's internal control is documented in order to substantiate
Conformity of the accounting records with generally accepted accounting principles.
Compliance with generally accepted auditing standards.
Adherence to requirements of management.
The fairness of the financial statement presentation.
primary objective of procedure performed to obtain an understanding of the internal control system is to provide the auditor with:
Evidential matter to use in reducing detection risk.
Knowledge necessary to plan the audit.
A basis which to modify tests of controls.
Information necessary to prepare flowcharts.
____
38.
If the auditor detects a material fraud but has been unable to evaluate whether the effect on financial statement is material or
immaterial, the auditor should do the following, except
A.
Issue a qualified opinion due to material uncertainty and explain in the audit report.
B. Consider the implication for other aspects of the audit particularly the reliability of management representations.
C. Discuss the matter and the approach to further investigation with an appropriate level of that is at least one level above those
involved.
D. Attempt to obtain evidence to determine whether a material fraud in fact exists, and, if so, their effect and suggest that the client
consult with legal counsel about questions of law.
____
39.
An illegal act is discovered during the audit of a publicly held company, the auditor should:
A. Notify the regulatory authorities.
B. Determine who has responsible for the illegal act.
C. Intensify the examination to identify illegal acts.
D. Report the act to high level personnel within the client’s organization and to the audit committee.
____
40.
Which of the following factors would most likely cause a CPA to decide not to accept a new audit engagement?
A. The CPA’s lack of understanding of the prospective client’s internal auditor’s computer-assisted audit techniques.
B. Management’s disregard of its responsibility to maintain an adequate internal control environment.
C. The CPA’s inability to determine whether related-party transactions were consummated on terms equivalent to arm’s-length
transactions.
D. Management’s refusal to permit the CPA to perform substantive tests before the year-end.
____
41.
Which of the following most accurately summarizes what is meant by the term “material misstatement?”
A. Fraud and direct-effect illegal acts.
B. Fraud involving senior management and material fraud.
C. Material error, material fraud, and certain illegal acts.
D. Material error and material illegal acts
____
42.
In an engagement to perform agreed-upon procedures, an auditor is engaged to
A. Carry out those procedures of an audit nature to which the auditor and the entity and any appropriate third parties have agreed
and to report on factual findings.
B. Use accounting expertise as opposed to auditing expertise to collect, classify and summarize financial information.
C. Provide a moderate level of assurance that the information is free of material misstatement.
D. Provide a high, but not absolute, level of assurance that the information is free of material misstatement.
____
43.
If the auditor believes that the misstatement is, or may be the result of fraud, but the effect on the financial statements is not material,
the auditor should
A. Immediately issue qualified or adverse opinion, as the case may be, due to misstatements
B. Refer the matter to the appropriate level of management at least one level above those involved and be satisfied that, given the
position of the likely perpetrator, the fraud has no other implications for other aspects of the audit or that those implications have
been adequately considered
C. Obtain an understanding of the nature of the act and the circumstances in which it has occurred, and report the matter to the
board of directors.
D.
Ignore the misstatements considering that it is immaterial and irrelevant to audit.
____
44.
Cruz, Del Rosario, CPAs, was hired by Ariel Rivera Company to prepare unaudited financial statements. The statement that best
describes this engagement is:
A. The CPA is performing an auditing service rather than an accounting of the financial statements.
B. The financial statements are representations of both management and the CPA.
C. The CPA must perform the basic accepted auditing standards necessary to determine that the statements are in conformity with
generally accepted accounting principles.
D. The CPA does not express any assurance on the compiled financial statements.
____
45.
Auditors may use positive and/or negative forms of confirmation requests. An auditor most likely will use
A. The negative form for small balances.
B. The positive form, when the combined assessed level of inherent and control risk for related assertions is acceptably low, and the
negative form when it is unacceptably high.
C. The positive form to confirm all balances regardless of size.
D. A combination of the two forms, with the positive form used for trade balances and the negative form for other balances.
____
46.
If the auditor is unable to evaluate the effect of fraud on the financial statements because of a limitation on the scope of the auditor’s
examination, the auditor should issue
A. Either qualified or unqualified opinion depending on materiality of misstatements
B. Either qualified or adverse opinion depending on pervasiveness of misstatements
C. Either qualified or disclaimer opinion depending on pervasiveness of misstatements
D. Unqualified opinion
____
47.
An auditor most likely would review a client’s periodic accounting for the numerical sequence of shipping documents and sales invoices
to support management’s financial statement assertion of
A. Existence.
C. Completeness.
B. Rights and Obligations.
D. Valuation and allocation
____
48.
The engagement partner should take responsibility for the direction, supervision and performance of the audit engagement in
compliance with professional standards and regulatory and legal requirements and for the auditor’s report that is issued to be
appropriate in the circumstances. Supervision includes the following, except
A. Tracking the progress of the audit engagement
B. Addressing the significant issues during the audit engagement, considering their significance, and modifying the planned approach
appropriately.
C. Informing the members of the engagement team of their responsibilities.
D. Identifying matters for consultation or consideration by more experienced engagement team members during the audit
engagement
____
49.
What materiality level is used by the auditor in determining which line items in the financial statements are to be tested?
A. Overall materiality
C. Specific materiality
B. Scoping materiality
D. Performance materiality
____
50.
Which of the following statements concerning audit evidence is correct?
A. Appropriateness is the measure of the quantity of audit evidence.
B. Sufficiency is the measure of the quality of audit evidence, that is, its relevance and reliability.
C. The quantity of audit evidence needed is affected by its quality and the risk of misstatement.
D. The sufficiency and appropriateness of audit evidence are not interrelated.
____
51.
Which of the following procedures would an auditor ordinarily perform first in evaluating management’s accounting estimates for
reasonableness?
A. Develop independent expectations of management’s estimates.
B. Consider the appropriateness of the key factors or assumptions used in preparing the estimates.
C. Test the calculations used by management in developing the estimates.
D. Obtain an understanding of how management developed its estimates.
____
52.
Transactions cycles begin and end:
A. At the beginning and end of the fiscal period.
B. At the balance sheet date.
C. An January 1 and December 31
D. At the origin and final disposition of the company.
____
53.
Donald McRonald, CPA, is auditing two entities: the Maximal Finance Company and the Minimal Farmland Development Bank. Donald
noted that the loans receivable of Maximal has a greater chance of uncollectibility compared to the loans receivable of minimal. This is
an application of the concept of:
A. Audit risk
C. Inherent risk
B. Detection risk
D. Control risk
____
54.
Which of the following circumstances most likely would cause an auditor to believe that material misstatements may exist in an entity’s
financial statements?
A. The chief financial officer does not sign the management representation letter until the last day of the auditor’s fieldwork.
B. Management suppresses the recording of certain business transactions near the accounting year-end.
C. Audit trails of computer-generated transactions exist only for a short time.
D. Accounts receivable confirmation request yield significantly higher responses than expected.
____
55.
The
A.
B.
C.
D.
____
56.
The auditor’s responsibility is recognized by the statement in the auditor’s standard report that the auditor.
A. Obtains reasonable assurance about whether the financial statements are free of material misstatement.
B. Evaluates the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management,
as well as evaluating the overall presentation of the financial statements.
C. Realizes that some matters, either individually or in the aggregate, are important, while other matters are not important.
D. Is responsible for expressing an opinion on the financial statements, based on the audit.
____
57.
Fraudulent companies will prepare financial statements that are deceptively optimistic or stable, and materially misleading, by doing all of
the following except:
A. Understate revenues and assets.
B. Understate expenses and liabilities.
C. Show financial performance better than industry average.
D. Have performance exactly meet announced targets,
____
58.
An auditor most likely would analyze inventory turnover rates to obtain evidence concerning management’s assertions about
A. Existence.
C. Presentation.
B. Rights
D. Valuation.
____
59.
The following are the purposes of the analytical procedures during the planning stage, except
A. To identify unusual fluctuations that were not identified in testing phase and to confirm conclusions reached with respect to the
fairness of the financial statements
B. To understand the client’s business.
C. To identify areas that may represent specific risks.
D. To enable the auditor to develop certain expectations regarding the client’s financial position and performance during the period.
____
60.
Audit procedures are primarily designed to:
A. Detect irregularities that result in misstated financial statements.
B. Test the adequacy of internal control.
C. Gather corroborative evidence.
D. Obtain information of informative disclosures.
____
61.
After determining that a related-party transaction has, in fact, occurred, an auditor should
A. Add a separate paragraph to the auditor’s standard report to explain the transaction.
B. Perform analytical procedures to verify whether similar transactions occurred, but were not recorded.
C. Obtain an understanding of the business purpose of the transaction.
D. Substantiate that the transaction was consummated on terms equivalent to an arm’s-length transaction.
____
62.
Which of the following best describes the term operation audit?
strongest criticism of the reliability of audit evidence that the auditor physically observe is that:
The client may conceal items forms the auditor.
The auditor may not be qualified to evaluate items which he or she is observing.
Such evidence is too costly in relation to its reliability.
The observation must occur at a specific time, which is often difficult to arrange.
A.
B.
C.
D.
Constant review of the administrative controls as they relate to the operations of the company.
The job of implementing financial and accounting controls in a newly-organized company.
Seeks out aspects of company operation in which introduction of proper controls would reduce waste.
Verification of the fair presentation of a company’s results of operations
____
63.
Smith is engaged in the audit of cable TV firm that services a rural community. All receivable balances are small, customers are billed
monthly, and internal control is effective. To determine validity of the accounts receivable balances at the balance sheet date, Smith
would most likely
A. Send negative conformation requests.
B. Send positive confirmation requests.
C. Examine evidence of subsequent cash receipts instead of sending confirmation requests.
D. Use statistical sampling instead of sending confirmation requests.
____
64.
The auditor faces a risk that the examination will not detect material misstatements in the financial statements. This is known as:
A. Audit risk
C. Detection risk
B. Control risk
D. Inherent risk
____
65.
After the study and evaluation of a client's internal control policies and procedures has been completed, an auditor might decide to
A. Increase the extent of substantive testing in areas where the internal control policies and procedures are strong.
B. Reduce the extent of control testing in areas where the internal control policies and procedures are strong.
C. Reduce the extent of both substantive and control testing in areas where the internal control policies and procedures are strong.
D. Increase the extent of substantive testing in areas where the internal controls are weak.