MULTIPLE CHOICE QUESTIONS - THEORY (DO-IT-YOURSELF)
1. Arrange the following phases in proper order:
I. Pre-engagement
II. Internal controls
III. Evidence gathering
IV. Planning
V. Post-audit responsibilities
VI. Reporting
A.
B.
C.
D.
I, II, II, IV,V, VI
I, IV, II, III, VI, V
I, IV, III, III, VI, VI
1, IV, II, III, V, VI
2. Acts to be performed in order to obtain audit evidence.
A. Audit strategy
B. Audit program
C. Audit procedures
D. Audit standards
3. Audit procedures to test the operating effectiveness of controls in preventing or detecting and correcting
material misstatements at the assertion level.
A. Risk assessment procedures
B. Tests of control
C. Substantive procedures
D. Analytical procedures
4. Audit procedures performed to obtain understanding of the entity and its environment, including its internal
control and to assess the risks of material misstatements at the financial statements and assertion levels.
A. Risk assessment procedures
B. Tests of control
C. Substantive procedures
D. Analytical procedures
5. Audit procedures to detect material misstatements at the assertion level.
A. Risk assessment procedures
B. Tests of control
C. Substantive procedures
D. Analytical procedures
6. Assurance engagement
A.
Is an engagement in which a practitioner is engaged to issue, a written communication tha expresses a
conclusion about the reliability of a written assertion that is the responsibility of another party.
B. Is a systematic process of objectively obtaining and evaluating evidence regarding assertions about
economic actions and events to ascertain the degree of correspondence between those assertions and
establishedcriteria and communicating the results to interested users.
C. Is an engagement in which the auditor provides a moderate level of assurance that the information
subject to the engagement is free of material misstatement
D. Is an engagement intended to enance the credibility of information about a subject matter by evaluating
whether the subject matter confirms in all materials respectes with suitable criteria, thereby improving the
likelihood that the information will meet the needs of an intended user.
7. The single feature that most clearly distinguishes auditing, attestation, and assurance is
A. Type of service
B. Scope of service
C Training required to perform the service
D. CPA's apprach to the service
8. It refers to the auditor's satisfaction as to the reliability of an assertion being made by one party for use by
another party.
A. Confidence
B. Reasonableness
C. Assurance
D. Tolerable
9. The three thyoes if attestation services are
A. Audits, review, and compilations
B. Audits, compilations, and other attestation services
C. Reviews, compilations, and other attestation services
D. Audits, reviews, and other attestation services
10. Assurance engagement include the following, except
A. An engagement conducted to provide a high level of assurance that the subject matter conforms in all
material respects with identified suitable criteria
B. An enegagement conducted to provide a moderate level of assurance that the subject matter is plausible
in the
circumstances.
An
engagement
in accordance with the Philippine Standards on Assurance Engagement(s) issued by the
C. Auditing and Assurance Standard Council as approved by the Board of Accountancy/Professional
Regulation Commission.
D. An engagement to perform agreed-upon procedures.
11. Unlike consulting services, assurance services:
A. Make recommendations to management
B. Report on how to use information
C. Report on quality information
D. Are two-party contracts
12. The primary goal of the CPA in performing the attest function is to
A. Detect fraud
B. Examine individual transactions so that the auditor may certify as to their validity.
C Determine whether the client's assertions are fairly stated.
D. Assure the consistent application of correct accounting procedures.
13. Which of the following criteria is unique to the independent practitioner's attest function?
A. General competence
B. Due professional care
C. Independence
D. Familiarity with the particular industry of each client
14. According to Preface on Assurance Engagements, these are the standards or benchmarks used to evakuate
or measure the subject matter of an assurance engagement
A. Criteria
B. Engagement process
C. Assertions
D. Generally accepted auditing standards
The decision of whether the criteria are suitable involves considering whether the subject matter of the
15. assurance engagement is capable of reasonably consistent evauation or measurement using such criteria.
Which of the following characteristics is not considered necessary in determining whether the criteria are
The decision of whether the criteria are suitable involves considering whether the subject matter of the
assurance engagement is capable of reasonably consistent evauation or measurement using such criteria.
Which of the following characteristics is not considered necessary in determining whether the criteria are
A. Relevance
B. Sufficiency
C. Neutrality
D. Reliability
16. A financial statement audit
A. Confirms that FS assertions are accurate
B. Guarantees that FS are fairly presented
C. Assures that fraud had been detected
D. Lends credibility to the FS
17. Which of the following best describes the objective of an audit of financial statements?
A. To express an opinion whether the financial statements are prepared in accordance with prescribed
criteria.
B. To express an assurance as to the future viability of the entity whose financial statements are being
audited.
C. To express an assurance aboout the management's efficiency or effectiveness in conducting the
operations of entity.
D. To express an opinion whether the financial statements are preparedm in all material respect, in
accordance with an identified financial reporting framework.
18. The best statement of the responsibility of the auditor with respect to audited financial statement is:
A. The audit of the financial statements relieves management of its responsibilities.
B.
The auditor's responsibility is confined to his expression of opinion about the audited financial statements.
C. The responsibility over the financial statements rests with the management and the auditor assumes
responsibility with respect to the notes to the financial statements.
D. The auditor is responsible only to his unqualified opinion but not for any other type of opinion.
19.
Which of the following would not be a consideration of a CPA firm ind eciding whether to accept a new client?
A. The client's financial ability.
B. The client's relations with its previous CPA firm.
C. The client's standing in the business community.
D. The client's probability of achieving an unqualified opinion.
20. Which of the following factors most likely would influence an auditor's determination of the auditability of an
entity's financial statements?
A. The operating effectiveness of control procedures.
B. The existence of related-party transactions.
C. The complexity of the accounting system.
D. The adequacy of the accounting records.
21. Management's integrity affects all of the following risks, except:
A. Business risks
B. Financial reporting risks
C. Audit risks
D. All of these risks are affected
22. Prior to the acceptance of an audit engagement with a client who has terminated the services of the
predecessor auditor, the CPA should
A. Contact the predecessor auditor without advising the prospective client and request a complete report of
the circumstances leading to the termination of the engagement with an understanding that all information
disclosed will be kept confidential.
B.
C.
D.
Accept the engagement without contacting the predecessor auditor since the CPA can include audit
procedures to verify the reason given by the client for the termination.
Not communicate with the predecessor auditor because this would in effect be asking the auditor to
violate the confidential relationship between an auditor and the client
Advise the client of the intention to contact the predecessor auditor and request a permission for the
contact.
23. Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor
auditor regarding:
A. The predecessor's evaluation of matters of continuing accounting significance.
B. Disagreement which the predecessor had with the client concerning auditing procedures and accounting
principles.
C.
The degree of cooperation the predecessor received concerning the inquiry of the client's legal counsel.
D. The predecessor's assessment of inherent risk and judgments about materiality.
24. If the prospective client refuses to eprmit the predecessor to respond or limits the predecessor's response, the
successor should:
A. Continue to ask the predecessor auditor questions on facts that might bear on the integrity of
management.
B. Accept the engagement but only after an equitable increase in the professional fee.
C. Inquire as to the reasons and consider implications in deciding whetehr to accept the engagement.
D. Issue a disclaimer of opinion because the limited response of the predecessor auditor constitutes a
significant scope of limitation.
25. When an independent auditor is approached to perform an audit for thr first time, he or she should make
inquiries of the predecessor auditor. Inquiries are necessary because the predecessor may be able to provide
the successor with information that will assist the successor in determining whether
A. The company rotates the auditor.
B. The engagement should be accepted.
C. The predecessor's work should be sued.
D. In the predecessor's opinion, control risk is less than high.
26. If permission from the 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 disclosure 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.
27. According to PSA 10, the auditor and the client should agree on the terms of the engagement. The agreed
terms would need to be recorded in a (n)
A. Memo placed in the permanents ection of the working paper.
B. Client representation letter.
C. Engagement letter.
D. Comfort letter.
28. An engagement letter is best described as
A. A letter from the company to the auditors specifying management's expectations for completion of the
audit on a timely basis and the fees.
B. A letter from the auditors to company management specifying that management is responsible for the
financial statements, and the auditors will issue an opinion on the financial statements.
C. A letter from the auditors to company management that specifies the responsibilities of both the company
and the auditors in completimh the audit and the timing for its completion.
D. A letter from the Board of Directors' audit committee to the auditor that indicates the auditor has been
engaged to perform the audit and the fees to be paid.
A letter from the Board of Directors' audit committee to the auditor that indicates the auditor has been
engaged to perform the audit and the fees to be paid.
29. An engagement letter is prepared with the interests of
A. The auditor only
B The client only
C. The public
D. Both the client and the auditor
30. Engagement letters are widely used in practice for
A. Professional engagements of all types
B Assurance engagements only
C. Related services only
D. Audits only
31. The primary purpose of the engagement letter is to
A. Satisfy the requirements of the CPAs liability insurance policy
B.
Remind management that the primary responsibility for the financial statements rests with management
C. Provide a written record of the agreement with the client as to the servcies to be provided.
D. Provide a starting point for the auditor's preparation of the preliminary audit program.
32. Engagement letter that documents and confirms the auditor's acceptance of the engagement would normally
be sent to the client.
A. Before the commencement of the engagement
B. Before the auditor report is issued.
C. After the audit report is issued.
D. At the end of the fieldwork.
33. An audit engagement letter least likely includes
A. A reference to the inherent limitation of an audit that some material misstatements may remain
undiscovered.
B. Identification of specific audit procedures that the auditor needs to undertake.
C. Description of any letters or reports that the auditor expects to submit to the client.
D. Arrangements concerning the involvement of internal auditors and other client’s staff.
34. Which of the following matters is generally included in the auditor's engagement letter?
A. The factors to be considered ins etting preliminary judgments about materiality.
B. Management's vicarious liability for illegal acts committed by its employees.
C. Management's responsibility for the entity's compliance with laws and regulations.
D. The auditor's responsibility to search for significant internal control deficiencies.
35. The form and content of audit engagement letters may vary for each client, but they would
generally include reference to, except:
A. Management’s responsibility for the financial statements.
B. The scope of the audit, excluding reference to applicable legislation, regulations, or pronouncements of
professional bodies to which the auditor adheres.
C. The form of any reports or other communication of results of the engagement.
D. Unrestricted access to whatever records, documentation and other information requested in connection with the
36.
Arrangements concerning with which of the following are least likely to be included in the engagement letter?
A. Fees and billing
B A predecessor auditor
C. CPA investment in client securities
D. Other services to be provided in addition to the audit.
37. Which of the following statements would least likely appear in an auditor's engagement letter?
A. "Fees for our services are based on regulat per diem rates, plusbtravel and other out-of-pocket expenses.
B. "During the course of our audit, we may observe opportunities for economy in, or improved controls over
your operations"
C. "Our engagement is subject to the risk that material misstatements of farud, if they exists, will not ne
detected."
D. "After performing our preliminary analytical procedures we will discuss with you the other procedures we
consider necessary to complete the engagement"
38. When a CPA is the auditor of a parent entity and also the auditor of its subsidiary, branch, or division
(component), which of the following factors need not be considered ind eciding whetehr to send a separation
engagement letter to the component?
A. Who appoints the auditor of the component.
B. Legal requirements
C. Number of reports to be prepared during the peak audit season
D. Whether a separate audit report is to be issued on the component.
39. On recurring audit engagements, the auditor may decide not to send a new engagement letter each period. In
which of the following situations will there be no need to send a new letter?
A. Revisions or special terms of engagement.
B. Siginificant change in nature or size of the client's business.
C. Indications of misunderstanding of the objective and scope of the audit.
D. Recent change of middle management and rank and file organizational structure.
40. A client's insistence that the audited results are rpeorted quickly after the fiscal year end is of concernto
auditors because
A. Many uncertainties inherent in the financial statements cannot be resolved until several months after the
year-end closing of the books.
B. The financial statements are less reliable because the period covered by the review for subsequent
events is shortened.
C. Many clients have December 31 year ends and it is difficult to complete the audit when many of the
client's personnel are on holidays.
D. Time pressure created by unrealistic deadlines increases the risk of errors in judgment and in the
performance of audit procedures.
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