COMPREHENSIVE REVIEWER
IN
AUDITING THEORY
Apolinarion D. Bobadilla
Reynaldo R. Ocampo
MODULE 1
AUDITING CONCEPTS
PSA-BASED QUESTIONS
1. The primary purpose of an independent audit of financial statements is to
a. Provide a basis for assessing management’s performance
b. Comply with laws and regulations
c. Assure management that the financial statements are unbiased and free from material misstatements
d. Provide users with an unbiased opinion about the fairness of information presented in the financial
statements
2. Which of the following statements best describes a review service?
a. A review engagement focuses on providing assurance on the assertions contained in the financial
statements of a public company.
b. A review engagement focuses on providing assurance on the internal controls of a public company
c. A review engagement focuses on providing limited assurance on a financial statements of a private
company
d. A review engagement focuses on providing advice in a three-party contract.
3. Professional skepticism dictates that when management makes a statement to the auditors, the auditor
should
a. Disregard the statement because it ranks low of the evidence quality scale.
b. Corroborate the evidence with other supporting documentation whenever possible
c. Require that statement be put in writing
d. Believe on the statement in order to maintain the professional client-auditor relationship.
4. In performing a financial statement audit, which of the following an auditor least likely to consider?
a. Internal control
b. Compliance with GAAP
c. Quality of management’s business decisions
d. Fairness of the financial statement amounts
5. The level of assurance provided by an audit of detecting a material misstatement is referred to as:
a. Absolute assurance
b. High assurance
c. Negative assurance
d. Reasonable assurance
6. An audit involves ascertaining the degree of correspondence between assertions and established criteria. In
case of financial statement audit, which of the following is not a valid criterion?
a. Accounting standards generally accepted in the Philippines
b. Internal Accounting Standards
c. Authoritative financial reporting framework
d. Philippine Standards on Auditing
7. Which of the following statements is (are) true regarding the provision of assurance services?
I.
The third party who receives the assurance generally pays for the assurance received
II.
Assurance services always involve a report by one person to a third party on which an
independent organization provides assurance
III.
Assurance services can be provided either on information or processes.
a.
b.
c.
d.
I and II
I and III
III only
I, II, and III
8. Which of the following is least likely an objective of an assurance engagement?
a. The engagement is intended to prevent as issuance of materially misleading information.
b. The engagement is intended to enhance the credibility of information about a subject matter
c. An assurance engagement is intended for a professional accountant to express a conclusion that
provides the intended users with a level of assurance about a subject matter.
d. The engagement is intended to provide a level of assurance to be issued by a professional accountant
about the information of being in conformity, in all material respects, with suitable criteria.
9. The broad range of assurance engagements includes all, but which of the following?
1) Engagements intended to provide high or moderate levels of assurance.
2) Preparation of tax returns, though no conclusion is expressed.
3) Attest and direct reporting engagements
4) Engagements to report externally, but not internally
5) Engagements in the public and private sector
6) Agreed-upon procedure engagements
a. 2,4,5
b. 2,4,6
c. 2,5,6
d. 4,6
10. Which statement does not accurately describe an assurance engagement?
a. The objective of an assurance engagement is for the professional accountant to evaluate or measure a
subject matter that is the responsibility of another party against identified suitable criteria, and to
express a conclusion that provides the intended user with a level of assurance about that subject
matter.
b. Not all engagements performed by professional accountants are assurance engagements
c.
A particular engagement, to be an assurance engagement, depends upon whether it exhibits all the
following elements: a two-party relationship, a subject matter, suitable criteria, and conclusion
d. An engagement in form of agreed-upon procedures result in the expression of factual findings.
11. Which of the following is not an element of assurance engagement?
a. A subject-matter
b. Suitable criteria
c. A conclusion
d. A two-party relationship
12. A draft of statement, studies or standards should be discussed by the Council en banc. How many members
of AASC are required to approve the draft of exposure?
a. Majority
b. Ten
c. Eight
d. Twelve
13. Theoretically, it is possible to provide an infinite range of assurance from a very low level of assurance to
an absolute level of assurance. In practice, the professional accountants cannot provide absolute assurance
because of the following except;
a. The professional accountants employ testing process
b. The internal control has its inherent limitations
c. The use of judgment in gathering evidence and drawing conclusion based on that evidence
d. The lack of expertise of professional accountants in doing a systematic engagement process.
14. Which is not true of the intended user?
a. The intended user is the person or class of persons for whom the professional accountant prepares the
report for a specific use or purpose.
b. The intend user is (are) limited to the addressee of the professional accountant’s report
c. The responsible party may also be one of the intended users
d. The intended user(s) may not be the addressee of the professional accountant’s report
15. Which of the following is least likely a subject matter of an assurance engagement?
a. Data
b. Systems and processes
c. Compliance with regulations
d. Degree of loyalty of employees to their employer
16. The practitioner’s report on the assurance engagement should always include the following except;
a. A description of the engagement and identification of the subject matter.
b. Identification of the standards under which the engagement was conducted
c. Reference to the work of an expert
d. Identification of the criteria
17. Some or all of the following are planning considerations
I.
Criteria to be used
II.
Nature and extent of involvement of the experts
III.
Possible sources of evidence
IV.
Type of conclusion to be used
V.
Preliminary judgment about materiality and engagement risks
VI.
Content of the management letter
Which of the foregoing are matters that need to be considered in planning an assurance engagement?
a. All of them
b. I,II,III,V
c. II,III,IV,VI
d. I,III,V,VI
18. How many members of AASC are needed to approve the exposed draft as Philippine Standards on
Auditing?
a. Majority of the regular members
b. At least eight
c. Al least ten
d. At least twelve
19. Which of the following is required if the professional accountant uses experts who are not professional
accountants?
a. The ultimate responsibility for the professional service is assured by the expert who is not a
professional accountant
b. The professional accountant is discouraged to engage the services of experts who are not a
professional accountant
c. The professional accountant must take steps to see that such experts are aware of the ethical
requirements of the profession
d. Experts who are not professional accountants need not be informed of ethical requirements because
they are not members of the Accountancy profession.
20. Which of the following is expected of AASC to do?
a. The AASC should normally expose a proposed interpretation of statements
b. AASC should normally expose its opinion on specific queries from a practicing CPA
c. When it is deemed necessary to expose a statement for a comment on proposed interpretations of
statements, the exposure period is understandably shorter than of those regular drafts of standards
d. To make the statements on Philippine Standards on Auditing operative, the final statement shall be
submitted to the board of accountancy for approval.
21. Which one of the following is not a key attribute that is essential to perform an assurance service?
a. Subject matter knowledge
b. Independence
c. Established criteria or standards
d. Accounting skills
22. As it relates to an adult, materiality is
a. Not taken into consideration
b. Related only to the sufficiency of procedures performed
c. Based upon audit fees
d. Determined based upon the importance to a user of the financial statements
23. The suitability of the criteria to which the professional accountant will base his evaluation of the subject
matter partly depends on:
Relevance
Reliability
Understandability
Neutrality
A
B
C
D
YES
YES
YES
NO
YES
YES
NO
NO
YES
YES
YES
YES
NO
YES
NO
YES
24. How did the framework of the Philippine Standards on Auditing conceptually describe an assurance?
a. It refers to the auditor’s satisfaction as to the reliability of an assertion being made by one party for
use by another party
b. The level of assurance that may be provided is determined by the reporting objective
c. Assurance is expressed positively in the report
d. Because of the inherent limitation in an audit, the assurance is of limited one.
25. It provides a threshold or cut off point rather than being a primary qualitative characteristics which
information must have if it is to be useful.
a. Materiality
b. Reliability
c. Relevance
d. Misstatement
QUIZZERS
1. The difference between what the public expects to het from the audited financial statements and what the
public is actually getting is known as:
a. Credibility gap
b. Audit gap
c. Expectation gap
d. Level of assurance gap
2. Which of the following statements does not properly describe an element of the theoretical framework of
auditing?
a. The data to be audited can be verified
b. Short-term conflicts may exist between the managers who prepare the data and the auditor who
examine them
c. Auditors act on behalf of management
d. An audit benefits the public
3. An audit of financial statements is concluded in order to determine if the
a. Organization is operating efficiently and effectively
b. Auditee is following specific procedures bor rules set down by some higher authority
c. Overall financial statements are stated in accordance with specified criteria
d. Client entity prescribes a good internal control systems
4. Which of the following statements does not describe a condition that creates a demand for auditing?
a. Conflict between an information provider and a user can result in biased information
b. Information can have substantial economic consequences for a decision maker
c. Expertise is often required for information preparation verification
d. Users can directly assess the quality of information
5. Why does a company choose to have an independent auditor report on its financial statements?
a. Independent auditors will always detect management fraud
b. The company’s management preparing the financial statements may have vested interest in reporting
certain results
c. Independent auditors guarantee the accuracy of the financial statements
d. An independent audit is designed to search for deficiencies in the company’s internal controls
6. Which of the following criteria is unique to the independent auditor’s attest function?
a. General competence
b. Familiarity in a particular industry in which each client operates
c. Due professional care
d. Independence
7. Which of the following best describes the main reason why the independent auditors report on an entity’s
financial statements?
a. A management fraud may exist, and it is likely to be detected by independent auditors
b. The management that prepares the statements and the persons who use the statements may have
conflicting interests
c. Misstated account balances may be corrected as a result of an independent audit work
d. The management that prepares the statements may have overlooked a poorly designed system of
internal control
8. Information risk refers to the risk that
a. The clients financial statements may be materially false and misleading
b. The auditor may express an unqualified opinion on financial statements that are materially misstated
c. The clients entity may not be able to remain in business
d. Errors and frauds would not be detected b y the auditor’s procedures
9. Which of the following is responsible for entity’s financial statements?
a. The entity’s management
b. The entity’s audit committee
c. The entity’s internal auditors
d. The entity’s board of directors
10. A typical objective of an operational audit is for the auditor to
a. Determine whether the financial statements fairly present the client entity’s operation
b. Evaluate the feasibility of attaining the client entity’s operational objectives
c. Make recommendations to client for improving its performance
d. Report on the entity’s relative success in maximizing its profits
11. Which of the following types of audit is performed in order to determine whether an entity’s financial
statements are fairly stated, in all material respects, in conformity with generally accepted accounting
principles?
a. Operational audit
b. Financial statement audit
c. Compliance audit
d. Performance audit
12. An in dependent audit is important to the readers of financial statements because it
a. Provides a measure of management’s stewardship function
b. Measures and communicates the financial data included in the financial statements
c. Objectively examine and reports on management’s financial statements
d. Reports on the accuracy of information in the financial statements
13. Which of the following types of audit uses laws and regulations as its criteria?
a. Operational audit
b. Financial statement audit
c. Compliance audit
d. Financial audit
14. Which of the following type of auditing is performed most commonly by CPAs on a contractual basis?
a. Internal auditing
b. Government auditing
c. BSP Bank audit
d. External auditing
15. 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 as embodied in the financial statements are fairly stated
d. Assure the consistent application of correct accounting procedures
16. An independent audit aids in the communication of economic data because the audit
a. Confirms the accuracy of management’s financial representation
b. Lends credibility to the financial statements
c. Guarantees that financial data are fairly presented
d. Assure readers of financial statements that ay fraudulent activity has been detected and its effect have
been corrected
17. Which of the following best describes the attest process?
a. Providing the accuracy of books and records
b. Gathering sufficient evidence about specific and known corrections
c. Assisting management in the successful operations of the company
d. Assembling and filing tax returns and related supplemental information
18. The assumption underlying an audit of financial statements is that they will be used by
a. The regulatory agencies to verify information that is relevant to their supervisory functions
b. The board of directors as basis of declaring cash dividends
c. The general public in making investment decisions
d. Different groups of different purposes
19. Which of the following is an example of an assertion made by the management in an entity’s financial
statements?
a. The financial statements are presented in an unbiased manner
b. The reported inventory balances reflect all related transactions for the period
c. The reported accounts receivable do not include any uncollectible accounts
d. The scope of the auditor’s investigation in not limited in any way by management
20. A CPA certificate is an evidence of
a.
b.
c.
d.
Recognition of independence
Basic competence at the time the certificate is granted
Culmination of the education process
Membership in the PICPA
21. An audit can have significant effect on
a. Information risk
b. Business risk
c. The risk-free interest rate
d. All of these
22. Which of the following is a cause of information risk?
a. Voluminous data
b. Biases and motives of the provider of information
c. Remoteness of the provider of information
d. Each of these is a cause of information risk
23. The main way(s) to reduce information risk is to have
a. The user verify the information
b. The user share the information risk with management
c. Audited financial statements provided
d. All of these
24. The predominant type of attestation services performed by CPAs is
a. Audit
b. Review
c. Compilation
d. Management consulting
25. Upon completion of a typical audit, the auditor has
a. Total assurance that all material errors and irregularities have been found
b. High level of assurance that all material errors and irregularities have been found
c. A low level of assurance that all material errors and irregularities have been found
d. No assurance that all material errors and irregularities have been found
26. The single feature that most clearly distinguishes auditing attestation and assurance is the
a. The type of service being rendered
b. Training required to perform the service
c. Scope of services
d. CPAs approach to the service
27. Which of the following attributes is more closely associated with assurance services performed by a CPA
firms that with other lines of professional work?
a. Integrity
b. Competence
c. Independence
d. Keeping informed with professional development
28. An investor, while reading the financial statements of Silver Corporation, learned that the statements are
accompanied by an unqualified auditor’s report. From this, the investor may conclude that:
a. Any disputes over significant accounting issues have been settled to the auditor’s satisfaction
b. The auditor is satisfied that Silver is operationally efficient
c. Informative disclosures in the financial statements but not necessarily in the notes to financial
statements are to be regarded as reasonably adequate
d. The auditor has ascertained that Silver’s financial statements have been prepared accurately
29. A CPA should maintain objectivity and be free of conflicts when performing
a. Audits, but not any other professional services
b. All attestation services, but no other professional services
c. All attestation and tax services, but no other professional services
d. All professional services
30. A summary of findings rather than assurance is most likely to be issued on which engagement?
a. Agreed-upon procedures
b. Compilation
c. Examination
d. Review
31. Which of the following professional has primary responsibility for the performance of an audit?
a. The managing partner of the firm
b. The senior assigned to the engagement
c. The manager assigned to the engagement
d. The partner in charge of the engagement
32. Which of the following services provides the highest level of assurance to third parties about a company’s
financial statements?
a. Audit
b. Review
c. Compilation
d. Each of the above provides same level of assurance
33. The most common type of audit report contains a(n)
a. Adverse opinion
b. Disclaimer opinion
c. Qualified opinion
d. Unqualified opinion
34. The auditor’s judgment concerning the overall fairness of presentation of financial position, results of
operation, and changes in cash flow is applied within the framework of
a. Quality control
b. Generally accepted auditing standards which include the concept of materiality
c. The auditor’s evaluation of the audited company’s internal control
d. Philippine Financial Reporting Standard
35. In “auditing” accounting data, the auditor is concerned with
a. Determining whether recorded information properly reflects the economic events that occurred during
the accounting period
b. Determining if fraud has occurred
c. Determining if taxable income has been calculated properly
d. Analyzing the financial information to be sure that it complied with government requirement
36. In all cases, audit report must
a. Be signed by the individual who performed the audit procedures
b. Certify the accuracy of the quantitative information which was audited
c. Inform readers of the degree of correspondence between the quantifiable information and established
criteria
d. Communicate the auditor’s findings to the general public.
37. Which of the following is an example of the management expectations from independent auditors?
a. An expert providing a written communication as the product of the engagement
b. Individuals who perform day to day accounting functions on behalf of the company
c. An active participant in management decision making
d. An internal source of expertise on financial and other matters
38. When providing consulting services, the CPA acts primarily as a(n):
a. Independent accountant
b. Expert on compliance with industry standards
c. Technology specialist
d. Objective advisor on how to use the information
39. In performing attestation services, a CPA will normally:
a. Improve the quality of information, or its context, for better use of the decision makers
b. Recommend how to use the information
c. Perform market analyses and cost estimates
d. States a conclusion about a written assertions
40. Which of the following best describes an operational audit
a. It requires a constant review of the administrative controls by internal auditors as they relate to
operations of the company
b. It concentrates on implementing financial and accounting control in a newly organized company
c. It attempts on verifying the fair presentation of a company’s results of operation
d. It concentrates on seeking out aspects of operations in which waste would be reduced by the
introduction of controls
41. Evidence is defined as any information used by the auditor to determine whether the quantifiable
information being audited is stated in accordance with the established criteria. Evidence takes many
different forms, including
a. Oral representation (testimony) from the client management
b. Written communication (confirmation) with outsiders
c. Observation made by the auditor
d. All of these
42. Because the client company pays the external auditor a professional fee, he
a. Is absolutely independent and may conduct an audit
b. May be sufficiently independent to conduct an audit
c. Is never considered to be independent
d. Must receive approval of the Securities and Exchange Commission before conducting an audit
43. A typical objective of an operational audit is to determine whether an entity’s
a. Financial statement fairly present financial position and cash flows
b. Financial statements present fairly the results of operations
c. Financial statements fairly present financial position, results of operations and cash flows
d. Specific operating units are functioning efficiently and effectively
44. Which of the following is more difficult to evaluate objectively?
a. Efficiency and effectiveness of operations
b. Compliance with applicable government regulations
c. Presentation of financial statements in accordance with the applicable financial reporting criteria
d. All given criteria are equally difficult to evaluate objectively
45. An audit which is undertaken in order to determine whether the auditee is following specific procedures or
rules laid down by some higher authority is classified as a(n)
a. Audit of financial statements
b. Compliance audit
c. Operational audit
d. Production audit
46. Assurance services involves which of the following?
a. Relevance as well as reliability
b. Non-financial information as well as traditional financial statements
c. Electronic databases as well as printed reports
d. All of these
47. Which of the following is a difference between attestation and auditing standards?
a. Attestation standards over attest engagements other than those involving GAAP financial statements
b. Attestation standards do not require independence in mental attitude
c. Auditing standards apply only to CPAs while attestation standards apply to all accountants
d. Attestation standards do not include standards of reporting
48. Which of the following pertains to the reliability of audit evidence?
a. The independence of source documents
b. The expertise level of the auditor who obtains the evidence
c. Whether the audit client uses a manual or computerized accounting system
d. The quantity of the evidence obtained
49. The audit committee of the board of directors of a company is responsible for :
a. Hiring the auditor
b. Preparing the financial statements
c. The audit workpapers
d. Independence and obtaining evidence
50. Which of the following statements is true concerning a compliance audit?
a. Compliance audit are only performed by government auditors
b. Risks such as inherent risk, control risk and detection risk are not appropriate in the planning and
performance of a compliance audit
c. Materiality is difficult to measure in a compliance audit
d. A report on compliance can only include negative assurance
51. Audit of financial statements include an expression of a conclusion about which of the following financial
statement characteristics?
a. Governance
b. Reliability
c. Relevance
d. Timeliness
52. A review of a company’s financial statements by a CPA firm:
a. Is significantly less in scope than an audit and results in a report which provides positive assurance,
although not absolute assurance
b. Is similar scope to an audit and adds similar credibility to the statements.
c. Concludes with the issuance of a report expressing the CPAs opinion as to the fairness of the
statements
d. Is designed to only provide limited or moderate assurance
53. The attest function
a. Is an essential part of every engagement performed by a CPA
b. Requires a complete review of all transactions during the period under examination
c. Requires a review of a sample of transactions during the period under examination
d. Includes the preparation of a written report about the CPAs conclusion
54. Broadly defined, the subject matter of any audit consists of
a. Assertions
b. Operating data
c. Financial statements
d. Economic data
55. The expertise that distinguishes auditors form accountants is in terms of
a. The ability to interpret generally accepted accounting principles
b. Requirement to posses education beyond the Bachelor’s degree
c. Accumulation and interpretation of evidence
d. Ability to interpret accounting standards
56. Most of the independent auditor’s work in formulating an opinion on financial statements consists of
a. Studying and evaluating internal control
b. Obtaining and examining evidential matter
c. Examining cash transactions
d. Comparing recorded accountability with physical existence of property
57. Attestation risk is limited to a low level in which of the following engagement (s)?
a. Both examination and review
b. Examination but not review
c. Review but not examination
d. Neither examination nor review
58. An engagement in which a CPA firm arranges for a critical review of its practices by another CPA firm is
referred to as a (n)?
a. Peer review engagement
b. Quality control engagement
c. Quality assurance engagement
d. Attestation engagement
59. The review of a company’s financial statements by a CPA firm
a. Is substantially less in scope of procedures than an audit
b. Requires detailed analysis of the major accounts
c. Has similar scope as an audit and adds similar credibility to the statements
d. Culminates in issuance of a report expressing the CPAs opinion as to the fairness of the statement
60. The risk associated with a company’s survival and profitability is referred to as:
a. Business risk
b. Information risk
c. Detection risk
d. Control risk
61. An operational audit differs in many ways from an audit of financial statements. Which of the following is
the best example of these differences?
a. The usual audit of financial statement covers the four basic financial statement whereas the
operational audit is usually limited either the balance sheet or the income statement
b. The boundaries of an operation audit are often drawn from an organization chart and are not limited to
a single accounting period
c. Operation audits do not ordinarily result in the preparation of a report
d. The operational audit deals with operating profit while financial audit considers both the operating and
net profits
62. The audit of historical financial statements should be conducted by the CPA professionals in accordance
with
a. Philippine Financial Reporting Standards
b. Philippine Standards on Auditing
c. The auditor’s judgment
d. The audit program
63. Whenever a CPA professional is engaged to perform an audit of financial statements according to
Philippine Standards on Auditing, he is required to comply with those standards in order to
a. Eliminate audit risk
b. Eliminate the professional judgment in resolving audit issues
c. Have a measure of the quality of audit performance
d. To reduce the audit program to be prepared by the auditor
64. What is the overall objective of internal auditing?
a. To attest to the efficiency with which resources are used
b. Ascertain that the cost of internal control is justified
c. To ascertain that financial statements present accurately the financial position, operating results and
changes in cash and stockholder’s equity
d. To help other members of the organization of effectively discharging their responsibilities
65. In determining the primary responsibility of the external auditor for an audit of the company’s financial
statements, the auditor owes primary allegiance to:
a. The management of the audit client because the auditor is hired and paid by management
b. The audit committee of the audit client because that committee is responsible for coordinating and
reviewing all audit activities within the company
c. Stockholders, creditors, and the investing public
d. The Auditing and Assurance Standards Council, because it determines auditing standards and auditor’s
responsibility.
66. Which of the following would not represent one of the primary problems that would lead the users to
demand for independent audits of a company’s financial statements?
a. Management bias in preparing financial statements
b. The downsizing of business and financial markets
c. The complexity of transactions affecting financial statements
d. The remoteness of the user from the organization and thus the inability of the user to directly obtain
financial information from the company
67. Assurance services involves all the following, except:
a. Improving the quality of information for decision purposes
b. Improving the quality of the decision model used
c. Improving the relevance of information
d. Implementing a system that improves the processing of information
68. Which of the following is the broadest and most inclusive concept?
a. Audits of financial statements
b. Internal control audit
c. Assurance services
d. Compilation services
69. Which of the following is a correct statement
a. An audit provides assurance by attesting to the fairness of the client’s assertions
b. A review provides positive assurance by attesting the reliability of the client’s assertions
c. Management consulting services provide attestation in all cases
d. Accounting services do not provide attestation
70. Unlike consulting services, assurance services:
a. Make recommendation to management
b. Report on how to use information
c. Report on the quality of information
d. Are two-party contracts
71. Financial statement audits:
a. Reduce the cost capital
b. Report on compliance with laws and regulations
c. Assess management’s efficiency
d. Overlook information risk
72. A summary of findings rather than assurance is most likely to be included in a(n):
a. Agreed-upon procedures
b. Compilation report
c. Examination report
d. Review report
73. The risk associated with a company’s survival and profitability is referred to as:
a. Business risk
b. Information risk
c. Detection risk
d. Control risk
74. An engagement in which a CPA firm arranges for critical review of its practices by another CPA firm is
referred to as a(n):
a. Peer Review Engagement
b. Quality Control Engagement
c. Quality Assurance Engagement
d. Attestation Engagement
75. Attestation risk is limited to a low level in which of the following engagement(s)?
a. Both examination and reviews
b. Examinations, but not reviews
c. Reviews, but not examination
d. Neither examination nor reviews
76. An operational audit differs in any ways from an audit of financial statements. Which of the following is
the best example of one of these differences?
a. The usual audit of financial statements covers the four basic statements, whereas the operational audit
is usually limited to either balance sheet or income statement
b. The boundaries of an operational audit are often drawn from an organization chart and are not limited
to a single accounting period
c. Operational audits do not ordinarily result in the preparation of a report
d. The operational audit deals with pre-tax income
77. The review of a company’s financial statements by a CPA firm;
a. Is substantially less in scope than an audit
b. Requires detailed analysis of major accounts
c. Is similar scope as an audit and adds similar credibility to the statements
d. Culminates in issuance of a report expressing the CPA’s opinion as to the fairness of the statements
78. When performing an engagement to review a nonpublic entity’s financial statements, an accountant most
likely would;
a. Obtain an understanding of the entity’s internal control
b. Limit the distribution of the accountant’s report
c. Confirm a sample of significant accounts receivable balances
d. Ask about actions taken at board of director’s meetings
79. Which of the following professional’s has primary responsibility for the performance of an audit?
a. The managing partner of the firm
b. The senior assigned to the engagement
c. The manager assigned to the engagement
d. The partner in charge of the engagement
80. Assurance services may include which of the following?
a. Attesting the financial statements
b. Examination on the economy and efficiency of governmental operations
c. Evaluations of a division’s performance for management
d. All of the given choices
81. The auditor of financial statements must make very difficult interpretations regarding authoritative
literature. Additionally, the auditor must:
a.
b.
c.
d.
Proceed beyond PFRS to assess how the economic activity is portrayed in the financial statements
Force management to make certain decisions regarding their financial statements
Disregard independence in order to find the underlying truth of the evidence
Establish new criteria by which financial statements may be compared
82. Which of the following is not a part of the attest process?
a. Gathering evidence about assertions
b. Providing the accuracy of the books and records
c. Evaluating evidence against objective criteria
d. Communicating the conclusions reached
83. Which of the following is not a reason why the users of financial statements desire for an independent
assessment of the financial statement presentation?
a. Complexity of the transactions affecting the financial statements
b. Lack of criteria on which to base information
c. Remoteness of the user from the organization
d. All of them are potential reasons
84. Independent professional services that are provided on financial or other information that improve the
quality of decision making are known as
a. Internal auditing
b. Financial auditing
c. Assurance services
d. Attestation services
85. An audit which determines whether organizational policies are being followed and whether external
mandates are being met is known as
a. A financial audit
b. A compliance audit
c. An operational audit
d. None of the above
86. Which of the following statement is correct regarding a review engagement of a nonpublic entity?
a. An accountant must establish an understanding with the client in an engagement letter
b. An accountant must obtain an understanding of the client’s internal control when performing a review
c. A review provides an accountant with a basis for expressing limited assurance on the financial
statements
d. A review report contains an accountant’s opinion that the financial statements, taken as a whole,
present fairly the assertions issued by the management.
87. Can a CPA be 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 permitted 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
88. Which of the following services may a CPA perform in carrying out a consulting service for a client?
I.
Analysis of the client’s accounting system
II.
Review of the client’s proposed business plan
a.
b.
c.
d.
III.
Preparation of information for obtaining financing
I and II only
I and III only
II and III only
I, II, III
89. Which of the following describes how the objective of a review of financial statements differs from the
objective of a compilation statement?
a. The primary objective of a review is to test the completeness of the financial statements prepared, but
a compilation tests for reasonableness
b. The primary objective of a review engagement is to provide positive assurance that the financial
statements are fairly presented, but a compilation provides no such assurance
c. In a review engagement, accountants provide limited assurance, but compilation expresses no
assurance
d. In review engagement, accountants provide reasonable or positive assurance that the financial
statements are
SUGGESTED ANSWER
fairly
presented, but a
compilation
MODULE 1
provides limited
assurance.
PSA
BASED
QUESTIONS
90. Which of
the following
factors
most likely would
cause a
CPA to decline a
AUDITING CONCEPTS
new audit
engagement?
a. The
CPA does not
QUESTION ANSWER
SOURCE
SECTION/
understand the
NUMBER
CHOICE
REFERENCE
PARAGRAPH
entity’s operations
1
D
PSA 120
Sec. 11
and
industry
2
C
PSA 120
sec. 14
b.
Management
3
B
PSA 120
sec. 40
acknowledges that
4
C
PSA 120
sec. 16
the
entity has had
recurring operating
5
D
PSA 120
sec. 4 and 7
losses
6
D
PSA 120
sec. 3
c. The
CPA is unable to
7
C
PFAE
sec. 29-31
review the
8
A
PFAE
sec. 7
predecessor
9
B
PFAE
sec. 11 and 12
auditor’s working
10
C
PFAE
sec. 7 and 12
papers
11
D
PSA 120
sec. 20
d.
Management is
12
A
Preface to PSA
para 29
unwilling to
13
D
PSA 120
sec. 52
permit inquiry of
its
14
B
PFAE
sec 27
legal counsel.
15
D
PFAE
sec 31
16
C
PFAE
sec 49
17
B
PSAE 3000
sec 12
18
C
Preface to PSA
par 29
19
C
PSAE 3000
sec 26-28
20
D
Preface to PSA
par 26 and 30
21
D
22
D
23
C
PFAE
sec 36
24
A
PSA
Glossary of terms
25
A
PSA
Glossary of terms
SUGGESTED
ANSWER
QUIZZERS
AUDITING CONCEPTS
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
C
C
C
D
B
D
B
A
A
C
B
C
C
D
C
B
B
D
B
B
A
D
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
D
A
D
D
A
C
A
D
D
D
D
B
D
A
B
D
A
A
A
C
B
D
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
B
B
C
D
C
B
D
C
D
C
A
A
A
A
B
B
A
D
D
D
A
B
23
24
25
26
27
28
29
30
D
A
B
C
C
A
D
A
53
54
55
56
57
58
59
60
D
A
C
B
B
A
A
A
83
84
85
86
87
88
89
90
B
C
B
C
B
D
C
D
MODULE 2
AUDIITING STANDARDS
1. As guidance for measuring the quality of the performance of an auditor, the auditor should refer to
a. Statements of Financial Accounting Standards Board
b. Philippine Standards on Auditing
c. Interpretations of Rules of Conduct
d. Statements on Quality Control Standards
2. Generally Accepted Auditing Standards (GAAS) and Philippine Standards on Auditing (PSA)should be
looked upon by practitioners as
a. Ideals to work for, but are not achievable
b. Maximum standards which denote excellent work
c. Minimum standards on performance which must be achieve on each audit engagement
d. Benchmarks to be used on all audits, reviews, and compilations
3. The auditor’s responsibility for detection of client’s noncompliance with laws and regulations is:
a. Greater than for errors and fraud
b. Less than for errors or fraud
c. Restricted to information that comes to his attention
d. The same as it is for errors or fraud
4. Reasonable assurance means:
a. Gathering of all corroborating evidence for the auditor to conclude that there are no material
misstatements in the financial statements, taken as a whole
b. Gathering of the audit evidence necessary for the auditor to conclude that the financial statements,
taken as a whole, are free from any material misstatements.
c. Gathering of the audit evidence necessary for the auditor to conclude that the financial statements are
free from material unintentional misstatements.
d. Gathering of the audit evidence necessary for the auditor to conclude that there are no material
misstatements in the financial statements, taken as a whole.
5. Required auditor communication to the Audit Committee concerning noncompliance with laws and
regulations that there were detected includes:
a. All material items
b. All those which are not adequately addressed by management
c. All those that constitute management fraud
d. All of such acts
6. An auditor who accepts an audit engagement but does not possess the industry expertise of the business
entity, should;
a. Engage financial experts familiar with the nature of the business entity
b. Obtain a knowledge of matters that relates to the nature of the entity’s business
c. Refer a substantial portion of the audit to another CPA who will act as the principal auditor.
d. First inform the client management that an unqualified opinion cannot be issued.
7. Auditor focus on
a. Areas where the risk material errors and irregularities is least
b. Areas where the risk of material errors and irregularities is greatest
c. All areas equally
d. A random selection of all area
8. The decision as to how much evidence to be accumulated for a given act of circumstance is
a. Provided by following the generally accepted accounting principles
b. One requiring professional judgment
c. Determined by statistical analysis
d. Provided in the Philippine Standards on Auditing
9. Which of the following statements best describes the primary purpose of Philippine Standards on
Auditing?
a. They are guides to set forth auditing procedures that are applicable to a variety of situations
b. They are procedural outlines which are intended to narrow down the areas of inconsistency and
divergence of auditor’s opinion
c. They are authoritative statements, enforced through Code of Professional Conduct, that are intended to
limit the degree of auditor’s judgment
d. They are interpretations which are intended to clarify the meaning of “generally accepted auditing
standards”
10. An auditor need not abide by a Philippine Standards on Auditing if the auditor believes that
a. The amount is insignificant
b. The requirement of the PSA is impractical to perform
c. The requirement of the PSA is impossible to perform
d. Any of the given three choices is correct
11. Auditing standards are
a. Statutory in nature
b. Rules imposed by the Securities and Exchange Commission
c. Rules imposed by the PICPA
d. General guidelines to help the auditors
12. Though PSAs do not provide “hard and fast rules,” they provide suggestive guidance which allow the
auditors to:
a. Tailor their audit to procedures requested by management
b. Only apply those standards that are important to the audit
c. Accurately interpret the profession’s Professional Code of Conduct
d. Use adequate professional judgment when applying the standards
13. Every independent audit engagement involves both auditing standards and auditing procedures. The
relationship between the two may be illustrated by how they apply form engagement to engagement. The
best representation of this application is that, from one engagement to the next,
a. Both auditing standards and auditing procedures are applied uniformly
b. Auditing standards are applied uniformly but auditing procedures may vary
c. Auditing standards may vary but auditing procedures are applied uniformly
d. Auditing standards are applied uniformly but auditing procedures are optional
14. Philippine Financial Reporting Standards (PFRS) are distinguished from generally accepted standards
(GAAS) in that;
a. PFRS are the principles for presentation of financial statements and underlying transactions, while
GAAS are the standards that the auditor should follow when conducting an audit
b. PFRS are the principles auditor’s follow when conducting an audit, while GAAS are the standards for
presentation of financial statements and underlying transitions
c. PFRS are promulgated by the SEC, while GAAS are promulgated by the FRSC.
d. When PFRS are violated, sufficiently strong GAAS may make up for most FRSC deficiencies
15. The Philippine Standards on Auditing issued by the Auditing and Assurance Standards Council (AASC)
a. Are interpretations of generally accepted accounting standards
b. Are the equivalent of laws for audit practitioners
c. Must be followed in all situations
d. Are optional guidelines which the auditor may chose not to follow when conducting an audit
16. Competence as a CPA includes all of the following except
a. Having the technical qualifications to perform an 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.
17. In any case in which the incoming accountant is not qualified to perform the work, a professional
obligation exists to
a. Acquire the required level of knowledge and skills
b. Recommend someone else who is qualified to perform the work
c. Decline the engagement
d. Any of the given choices
18. Ultimately, the decision about whether or not an auditor is independent must be made by the
a. Auditor
b. Audit committee
c. Client
d. Public
19. To be independent, the auditor:
a. Cannot place any reliance on the client’s verbal and written assertions
b. Is responsible only to third-party users of the financial statements
c. Cannot perform any other professional services for an audit client
d. Must be impartial when dealing with the client
20. What is the meaning of generally accepted auditing standard that requires that the auditor be independent?
a. The auditor must be without bias with respect to the client entity
b. The auditor must adopt a critical attitude during the audit
c. The auditor’s sole obligation is to third parties
d. The auditor may have a direct ownership interest in the client’s business if it is not material
21. A CPA, while performing an audit, strives to achieve independence in appearance in order to
a. Reduce risk and liability
b. Comply with the generally accepted standards of field work
c. Become independent in fact
d. Maintain public confidence in the profession
22. Which of the following best describes the publicly-traded corporations follow the practice of having the
outside auditor appointed by the board of directors or elected by the stockholders?
a. To comply with the regulations of the Financial Reporting Standards Council
b. To emphasize the auditor’s independence from the management of the client entity
c. To encourage the policy of rotation of the independent auditor
d. To provide the corporate owners with an opportunity to voice their opinion concerning the quality of
the auditing firm selected by the directors
23. Practitioner’s independence:
a. Minimizes risk
b. Helps achieve public confidence
c. Defends against professional liability
d. Achieves compliance with the standards of fieldwork
24. If the client refuses to accept an audit report that is qualified due to a known existence of noncompliance
to laws and regulations, the auditor should:
a. Issue an adverse opinion if management agrees to fully disclose the matter
b. Withdraw from the engagement and communicate the reasons to the audit committee in writing
c. Withdraw from the engagement and communicate the reasons to the SEC or other regulatory body in
writing
d. Issue an unqualified opinion if management agrees to fully disclose the matter
25. Which of the following is not required by the GAAS that states that due professional care is to be
exercised in the performance of the audit?
a. Observance of the standards of field work and writing
b. Critical review of the audit work performed at every level of supervision
c. Degree of skill commonly possessed by others in the profession
d. Responsibility for losses because of errors of judgment
26. The standard of due audit care requires the auditor to
a. Apply judgment in a conscientious manner, carefully weighing the relevant factors before reaching a
decision
b. Ensure that the financial statements are free from error
c. Make perfect judgment decisions in all cases
d. Possess skills clearly above the average for the profession
27. Which of the following best describes the functions of AASC?
a. To promulgate auditing standards, practices and procedures that shall be generally accepted by the
accounting profession in the Philippines
b. To monitor full compliance by all auditors to PSAs
c.
To assist the Board of Accountancy in conducting administrative proceedings on erring CPAs in audit
practice
d. To undertake continuing research on both auditing and financial accounting in order to make them
responsive to the needs of the public
28. The exercise of due professional care requires that an auditor
a. Examine all available corroborating evidence
b. Critically review the judgment exercised at every level of supervision
c. Reduce control risk below the maximum
d. Attain the proper balance of professional experience and formal education
29. Which of the following best describes the reference to the expression “taken as a whole” in the fourth
generally accepted auditing standard on reporting?
a. It applies only to a complete set of financial statements
b. It applies equally to each item in the financial statements
c. It applies equally to each material item in each financial statement
d. It applies equally to a complete set of financial statements and to each individual financial statement
30. The Philippine Standards on Auditing issued by AASC
a. Apply to independent examination of financial statements of any entity when such an examination is
conducted for the purpose of expressing an opinion
b. Must not apply to other related activities of auditors
c. Need to be applied on all audit-related engagements
d. Require that in no circumstances would an auditor may judge it necessary to depart from a PSA, even
though such a departure may result to more effective achievement of the objective of the audit
31. Which of the following s not required by the GAAS that states that due professional care is to be exercised
in the performance of the audit?
a. Observance of the standards of fieldwork and reporting
b. Critical review of the audit work performed at every level of supervision
c. Degree of skill commonly possessed by others in the profession
d. Responsibility for losses because of errors of judgment
32. A CPA who has been retained by a client that operates in an industry that is totally new to him
a. May not accept such an engagement
b. May accept the engagement only if the accounting firm specializes in the audit of commercial banks
c. May accept the engagement after attaining a suitable level of understanding of the transactions and
accounting practices unique to commercial banking
d. May accept the engagement because his training as a CPA transcends unique industry characteristics
33. Which of the following is the best statement concerning the concept of materiality?
a. Materiality is determine by reference to PSA matrix
b. Materiality depends only on the peso amount involved
c. Materiality depends on the nature of an item rather than on the peso amount
d. Materiality is a matter of professional judgment
34. The first standard of fieldwork, which states that the work is to be adequately planned and assistants, if
any, are to be properly supervised, recognizes that
a. Early appointment of the auditor is advantageous, both to the auditor and to the client
b. Acceptance of an audit engagement after the close of the client’s fiscal year is generally not
permissible
c.
Appointment of the auditor subsequent to the physical count of inventories requires a disclaimer of
opinion
d. Performance of substantial parts of the engagement is necessary at interim dates
35. Which of the following underlies the application of generally accepted auditing standards, particularly the
standards of field work and reporting?
a. Elements of materiality and risk
b. Element of corroborating evidence
c. Element of internal control
d. Element of reasonable assurance
36. Which of the following is not an attestation standard?
a. The engagement shall be performed by a practitioner having adequate knowledge in the subject matter
of the assertion
b. Sufficient evidence shall be obtained to provide a reasonable basis for the conclusion that is expressed
in the report
c. The work shall be adequately planned, and assistants, if any, shall be properly supervised.
d. The report shall state whether the financial statements are presented in all accordance with generally
accepted accounting principles
37. Which of the following is the conceptual difference between the attestation standards and generally
accepted auditing standards?
a. The attestation standards provide framework for the attest function beyond historical financial
framework
b. The requirement that the practitioner be independent in mental attitude is omitted from the attestation
standard
c. The attestation standard do not permit an attest engagement to be part of a business acquisition study
or a feasibility study
d. None of the standards of fieldwork in generally accepted auditing standards are included in the
attestation standards
38. The auditor’s judgment concerning the overall fairness of the presentation of financial position, results of
operations and changes in financial position is applied within the framework of
a. Philippine Financial Reporting Standards
b. Generally accepted auditing standards
c. Internal control
d. Information systems control
39. The auditor communicates the results of his/her work through the issuance of:
a. Engagement letter
b. Management letter
c. Audit report
d. Financial statements
40. The major steps in conducting an audit are:
I.
Testing internal controls
II.
Audit report
III.
Planning
IV.
Testing transactions and balances
The proper sequence in applying the above steps is:
a.
b.
c.
d.
III, I, IV, II
III, IV, I, II
II, III, IV, I
I, IV, III, II
SUGGESTED ANSWER
MODULE 2
GENERALLY ACCEPTED AUDITING STANDARD
1
B
21
D
2
C
22
B
3
D
23
B
4
D
24
B
5
D
25
D
6
B
26
A
7
B
27
A
8
B
28
B
9
D
29
D
10
D
30
A
11
D
31
D
12
D
32
C
13
B
33
D
14
A
34
A
15
A
35
A
16
C
36
D
17
D
37
A
18
A
38
A
19
D
39
A
20
A
40
A
MODULE 3
PROFESSIONAL AND LEGAL RESPONSIBILITY
PSA BASED QUESTIONS
1. The revised Code of Ethics is mandatory for all CPAs and is applicable to professional services performed
in the Philippines on or:
a. Before June 30, 2008
b. After June 30, 2008
c. Before January 1, 2008
d. After January 1, 2008
2. Which of the following is not explicitly referred to in the Code of Ethics as source of technical standards?
a. Commission on Audit (COA)
b. Auditing and Assurance Standards Council (AASC)
c. Securities and Exchange Commission (SEC)
d. Relevant legislation
3. Immediate family includes:
a. Parent
b. Sibling
c. Non-dependent child
d. Spouse
4. Close family includes the following except;
a. Parent
b. Non-dependent child
c. Sibling
d. Spouse
5. Firm includes the following except;
a. A sole practicing professional accountant
b. An entity that controls a partnership of professional accountants
c. An entity controlled by a partnership or professional accountant
d. A sole practitioner, partnership or corporation of professional accountants
6. Existing accountants, as defined in the Code of Ethics means;
a. A professional accountant employed in industry, commerce, the public sector or education
b. A professional accountant in public practice currently holding an audit appointment or carrying out
accounting, taxation, consulting, or similar professional services for a client
c. Those persons who hold a valid certificate issued by the Board of Accountancy
d. A sole proprietor, or each partner or person occupying a position similar to that of a partner end each
staff in a practice providing professional services to a client irrespective of their functional
classifications (e.g. audit, tax or consulting) and professional accountants in a practice having
managerial responsibilities.
7. The term professional accountant in public practice includes the following except:
a. A sole proprietor providing professional services to a client
b. Each partner or person occupying a position similar to that of a partner staff in practice providing
professional services to a client
c. Professional accountants employed in the public sector having managerial responsibilities
d. A firm of professional accountants in public practice
8. The term receiving accountant includes, except:
a. A professional accountant in Public practice to whom the existing accountant has referred tax
engagement
b. A professional accountant in public practice to whom the client of the existing accountant has referred
audit engagement
c. A professional accountant in public practice who is consulted in order to meet the needs of the client
d. A professional accountant in public practice currently holding an audit appointment or carrying out
accounting, taxation, consulting or similar professional services for a client
9. Related entity is an entity that has any of the following relationship with the client, except;
a. An entity that has direct or indirect control over the client provided that the client is material to such
entity
b. An entity with a direct financial interest in the client even though such entity has no significant
influence over the client provided the interest in the client is material to such entity
c. An entity over which the client has direct or indirect control
d. An entity which is under common control with the client (referred to as a sister entity) provided the
sister entity and the client are both material to the entity that control both the client and sister entity
10. A primary purpose for establishing the code of ethics within a professional organization is to:
a. Demonstrate the acceptance of responsibility to the interest of those served by the professional
b. Reduce the likelihood that members of the profession will be sued for substandard work
c. Ensure that all members of the profession posses approximately same level of competence
d. Require members of the profession to exhibit loyalty in all matters pertaining to the affairs of the
organization
11. Which statement is incorrect regarding the Code of Ethics for Professional Accountants in the Philippines?
a. Professional accountants refer to persons who are registered in the PRC as Certified Public
Accountants and who hold a valid certificate issued by the Board of Accountancy
b. Where a national statutory requirement is in conflict with a provision of the IFAC Code, the IFAC
Code requirement prevails
c. The Code of Ethics for Professional Accountants in the Philippines is mandatory for all CPAs and is
applicable to professional services performed in the Philippines on or after June 30, 2008
d. Professional accountants should consider the ethical requirements as the basic principles which should
they follow in performing their work
12. The communication to the public of facts about professional accountant which are not designed to
deliberate promotion of that professional accountant
a. Publicity
b. Indirect promotion
c. Advertising
d. Solicitation
13. Advertising, as defined in the Code of Ethics, means:
a. The communication to the public of facts about a professional accountant which are not designed for
the deliberate promotion of that professional accountant
b. The approach to a potential client for the purpose of offering professional services
c. The communication to the public of information as to the services or skills provided by professional
accountants in public practice with a view to procuring professional business
d. Any of the given choices
14. The following bodies develop and or issue technical and professional standards for implementation:
I.
Board of Accountancy
II.
National Economic Development Authority
III.
Financial Reporting Standards Council
IV.
Securities and Exchange Commission
V.
Auditing and Assurance Standards Council
VI.
Cooperative Commission of the Philippines
According to the revised code of ethics for CPAs, which of the foregoing are sources of technical and
professional standards in the Philippines?
a. I,III,IV,V
b. I,III,IV,V,VI
c. I,III,IV
d. All of them
15. The attainment of professional competence can be fulfilled by a combination of:
I.
Period of work experience
II.
High standard of professional education
III.
High standard of general education
IV.
Training and examination in professionally relevant subjects
What should be the logical pattern of the foregoing development for a professional accountant?
a.
b.
c.
d.
III, II, IV, I
III, I, II, IV
II ,III, IV, I
II ,III, I, IV
16. Which of the following is least likely the basis of determining audit fees?
a. The skill and knowledge required for the type of work involved
b. The degree of responsibility and urgency that the work entails
c. The expected outcome of the engagement
d. the required level of training and experience of the persons engaged in the work.
17. Which of the following is not allowed by the revised code of ethics?
a. A professional accountant in public practice may issue to client or, in response to an unsolicited
request, to a non-client a factual and objectively worded of the services provided
b. Booklets and other documents bearing the name of a professional accountant and giving technical
information for the assistance of staff or clients may be issued to such persons, other professional
accountants or other interested parties
c. The use of the name of an international accounting firm affiliation/ correspondence is generally
allowed
d. A firm or CPA practitioner can continue to use the name “Accredited” or any similar words or phrase
calculated to convey the same meaning if the claimed accreditation has not expired.
18. How frequent can a professional accountant have press and other media releases commemorating their
anniversaries in public practice by informing the public of their achievements or accomplishments in
contributing toward nation building or enhancing the image or standards of the accounting profession?
a.
2 years
b.
3 years
c.
5 years
d.
6 years
19. Which of the following is not allowed to be included in a website of a firm of professional accountants?
a.
Name of partners/principals with their educational attainment
b.
Membership in any professional body
c.
Awards received
d.
Listings of the firm’s clients
20. In their fiduciary role, the professional accountants owe their primary loyalty to:
a.
The accounting profession
b.
The general public
c.
The client
d.
Government regulatory agencies
21. Which of the following is a distinguishing mark of the accountancy profession?
a.
A drive to excellence
b.
Acceptance of the responsibility to act in the public interest
c.
Professional objectivity
d.
Professional skepticism
22. Which statement is incorrect regarding the Code of Ethics for Professional Accountants in the Philippines?
a. The objectives as well as the fundamental principles are of a general nature and are intended to solve a
professional accountant’s ethical problems in a specific case
b. The code is divided into two parts, Part A and Part B
c. Part A applies to all professional accountants unless otherwise specified
d. Part B applies only to those professional accountants in public practice
23. A professional accountant should comply with relevant laws and regulations and should avoid any action
that discredits the profession. This is a fundamental principle of:
a. Objectivity
b. Professional competence and due care
c. Professional behavior
d. Integrity
24. The IFAC Code of Professional Conduct will ordinarily considered to have been violated when the
member represents that specific consulting services will be performed for a stated fee and it is apparent at
the time of the representation that the
a. Actual fee would be substantially higher
b. Actual fee would be substantially lower than the fees charged by other members for comparable
services
c. Fee was a competitive bid
d. Member would not be independent
25. Which of the following is not one of the fundamental principles of ethical conduct for professional
accountants?
a. Integrity
b. Confidentiality
c. Loyalty
d. Professional competence and due care
26. To what fundamental principles does the following statement best fit? A professional accountant is likened
to a prudent father to his son
a. Professional competence and due care
b. Confidentiality
c. Integrity
d. Objectivity
27. Which of the fundamental principle is seriously threatened by an engagement that is compensated based
on the net proceeds on loans received by the client from a commercial bank?
a. Objectivity
b. Professional behavior
c. Confidentiality
d. Integrity
28. Which of the following is required to comply with the fundamental principle of professional competence
and due care?
a. A professional accountant should not allow bias, conflict of interest or undue influence of others to
override professional or business judgment
b. A professional accountant should act diligently and in accordance with technical and professional
standards when providing professional services
c. A professional accountant should comply with relevant laws and regulations and should avoid any
action that discredits the profession
d. The accountant should observe fair dealings and truthfulness
29. “A professional accountant should be straight forward and honest in all his professional and business
relationships”. This description appropriately describes the fundamental principle of:
a. Integrity
b. Objectivity
c. Confidentiality
d. Professional behavior
30. It is essential that the users of the audited financial statements regard CPA firms as
a. Competent
b. Unbiased
c. technically proficient
d. All of the given choices
31. The code of professional ethics states, in part, that a CPA should maintain integrity and objectivity.
Objectivity refers to the CPA’ s ability to
a. Determine accounting practices that were consistency applied
b. Maintain an impartial attitude on all matters which come under his review
c. Determine the materiality of items
d. Insist on all matters regarding audit procedures
32. Which of the following value is not necessary for a professional accountant
a. Honesty
b. Objectivity
c. Integrity
d. A primary commitment to self-interest
33. Which of the following is not fundamental principle in code of ethics for professional accountants?
a. Act in the client’s best interest
b. Objectivity and independence
c. Maintain the good reputation of the profession
d. Maintain confidentiality
34. Which of following statements about conceptual framework of the code of ethics is incorrect?
a. A conceptual framework that requires a professional accountant to identify, evaluate and address
threats to compliance with fundamental principles, rather than merely comply with a set of specific
rules which may be arbitrary is in public interest
b. As a concern to public interest, the professional accountant should comply with a set of specific rules
rather than arbitrarily identify, evaluate, and address threats to compliance with fundamentals
principles
c. If identified threats are other than clearly insignificant, a professional accountant should appropriately
apply safeguards to eliminate the threats or reduce them to an acceptable level
d. The code provides a framework to assist a professional accountant to identify, evaluate and respond to
threats to compliance with the fundamental principles
35. Which of the following is true of the conceptual framework approach?
a.
It is impossible to define every situation that creates specific threats and specify the appropriate
mitigation action
b. A professional accountant should take qualitative but not quantitative factors into account when
considering the significance of a threat.
c. A professional accountant should take quantitative but not qualitative factors into account when
considering the significance of a threat
d. All inadvertent violations of the Code of Ethics, irrespective of their nature and significance, always
compromise compliance with the fundamental principles
36. Which of the following describes an advocacy threat?
a. The professional accountant may be deferred from acting objectively by threats, actual or perceived
b. Because of a close relationship, a professional accountant becomes too sympathetic to the interest of
others
c. The professional accountant provides a position or opinion to the point that subsequent objectivity
may be compromised
d. The professional accountant needs to reevaluate his previous judgment
37. a threat that prevents a professional accountant from acting objectively by threats, actual or
a.
b.
c.
d.
perceived
Self-interest
Familiarity
Intimidation
Advocacy
38. A form of threat which may occur when a previous judgment needs to be reevaluated by the
professional accountant who is responsible for that judgment.
a.
b.
c.
d.
Self-interest threat
Self-review threat
Familiarity threat
Advocacy threat
39. Advocacy threat may occur:
a. As a result at the financial or other interests of a professional accountant or an immediate or close
family member.
b. When, because of a close relationship, a professional accountant becomes too sympathetic to the
interest of others.
c. When a professional accountant promotes a position or opinion to the point that subsequent
objectivity may be compromised.
d. When professional accountant may be deterred from acting objectively by threats, actual or perceived.
40. It occurs when a firm or a member of the assurance team could benefit from a financial interest in, or other
self-interest conflict with an assurance client.
a.Self-interest threat
b.Self-review threat
c. Advocacy threat
d. Familiarity threat
41. A financial interest beneficially owned through a collective investment vehicle, estate, trust or other
intermediary over which the individual or entity has no control.
a. Indirect financial interest
b. Financial instrument
c. Direct financial interest
d. Client’s monies
42. Financial interest means:
a. Any bank account which is used solely for the banking of client’s monies
b. Any monies received by a professional accountant in public practice to be held or paid out on the
instruction of the person from whom or on whose behalf they are received.
c. A financial interest beneficially owned through a collective vehicle, estate, trust or other
intermediary over which investment the individual or entity has no control.
d. An equity interest or other security, debenture, loan or other debt instrument of an entity ,
including
rights and obligations to acquire such an interest and derivatives directly related to such interest.
43. Direct financial interest is a financial interest:



owned directly by and under the
control of an individual or entity
(including those managed on a
discretionary basis by other)
beneficially owned through a
collective investment vehicle,
estate, trust or other intermediary
over which the individual or entity
has control
beneficially owned through a
collective investment vehicle,
estate, trust or other intermediary
A
B
C
D
Yes
Yes
Yes
No
Yes
Yes
No
No
over which the individual or entity
Yes
No
No
Yes
44. Occurs when any product or judgment of a previous assurance engagement or non-assurance engagement
needs to be re-evaluated in reaching conclusions on the assurance engagement or when a member of the
assurance team was previously a director or officer and significant influence over the subject matter of the
assurance engagement.
a. Self- interest threat
b. Self-interview threat
c. Advocacy threat
d. Familiarity threat
45. Intimidation threat
a. is not a threat to independence
b. occurs when a member of the assurance team may be deferred
from acting objectively and exercising professional skepticism by threats, actual or perceived,
from the directors, officers or employees of an assurance client.
c. occurs when, by virtue of a close relationship with an assurance clients, it’s diorectors, officers of
employees, a firm or a member of the assurance team becomes too sympathetic to the client’s interest.
d. occurs when a firm, or a member of the assurance team, promotes, or may be perceived to promote, an
assurance client’s position or opinion to the point that objectivity may, or may be perceived to be,
compromised.
46. Safeguards created by the profession, legislation or regulation, include the following, except
a. educational, training and experience requirements for entry into the profession.
b. continuing education requirements.
c. legislation governing the independence requirements of the firm.
d. policies and procedures that emphasize the assurance client’s commitment to fair financial
reporting
47. Which of the following is an example of engagement-specific safeguards?
a. advising partners and professional staff of those assurance client’s and related entities from which
they must must be independent.
b. consulting an independent third party, such as a committee of independent directors, a
professional regulatory body or another professional accountant.
c. policies and procedures that will enable the identification of interests or relationships between the firm
or members of engagement teams and clients.
48. Which of the following is not a safeguard created by the profession, legislation or regulation?
a. professional standards
b. policies and procedures to implement and monitor quality control of engagements
c. continuing professional development requirements
d. educational, training and experience requirements for entry into the profession.
49. Safeguards may eliminate or reduce threats to an acceptable level. The following are examples of
safeguards:
these
I. professional or regulatory monitoring and disciplinary procedures.
II. documented internal policies and procedures requiring compliance with the fundamental
principles.
III.policies and procedures to minitor and, if necessary, manage the reliance on revenue received
from a single client.
Which of the foregoing examples of safeguards is/are classified firm-wide safeguards in the work
environment?
a.all of these
b.I and II
C.II and III
D.I and III
50. Which of the following fundamental principles is compromised when a professional accountant is
Associated with reports or returns that are significantly misleading?
a.
b.
c.
d.
a.integrity
b.competence and due professional care
objectivity
d.professional behavior
51. Safeguards may eliminate or reduce threats to an acceptable level. The following are examples of
these safeguards :
I.professional or regulatory monitoring and disciplinary procedures.
II.documented internal policies And procedures requiring compliance with the fundamental
III.policies and procedures to monitor and, if necessary, manage the reliance on revenue
received from a single client.
IV.corporate governance regulations
Which of the foregoing examples of safeguards that can be applied is |(are) creatyed by the
Profession, legislation, or regulation?
a.I and III
b.II and IV
c.I and IV
d.II and III
52. Which of the following examples of safeguards that may be effectively reduce threats to compliance
with the fundamental principles is created by the profession, legislation, or regulation?
a.published policies and procedures to encourage and empower staff to communicate to senior
levels within the firm any issue relating to compliance with the fundamental principles that
concerns them.
b.effective, well-publicized complaints systems operated by the employing organization,the
profession or a regulator, which enable colleagues, employers, and members of the public to
draw attention to unethical behavior.
c.designating a member of senior management to be responsible for
overseeing the adequate functioning of the firm’s quality control system.
d.disclosing to those charged with governance of the client the nature of services provided
and the extent of fees charged.
53. Professional accountants may encounter problems in identifying unethical behavior or in resolving
an ethical conflict. When faced with significant ethical issues, professional accountants should do
the following, except
a.follow the established policies of the employing organization to seek a resolution of such
conflict.
b.review the conflict problem with the immediate superior if the organization’s policies do not
resolve the ethical conflict.
c.if the problem is not resolved with the immediate superior an the professional accountant
determines to go to the next higher managerial level, the immediate superior need not be
notified of the decision.
d.seek counseling and advice on a confidential basis with an independent advisor or the
applicable professional accountancy body or regulatory body to obtain an understanding
of possible courses of action.
54.As a resolution of the conflict in the application of fundamental principles, the auditor, after
considering the ethical issues and revelant facts may do any of the following, except:
a.must immediately resign from the engagement or the employing entity
b.should weigh the consequences of each possible course of action
c. should consult with other appropriate persons within the firm or employing organization
for help to finally resolve the matter.
d.professional accountant may wish to obtain professional advice from the relevant professional
body without breaching confidentially if significant conflict cannot be resolved.
55. Which of the following is incorrect regarding integrity and objectivity?
a.integrity implies not merely honestly but fear dealing and truthfulness.
b.the principle of objectivity imposes the obligation on all professional accountants to be fair,
intellectually honest and free of conflicts of interest.
C.professional accountants serve in many different capacities and should demonstrate their
Objectivity in varying circumstances.
d.professional accountants should neither accept nor offer any gifts or entertainment.
56.If a professional accountant is billing an audit client a number of hours greater than those
Actually worked, which of the following fundamental principles is likely violated?
a.objectivity
b.integrity
c.professional due care
d.confidentially
57. Which of the following is incorrect regarding professional competence?
a.professional accountants may portray themselves as having expertise or experience
they do not possess.
b.professional competence may be divided into two separate phases.
c. the attainment of professional competence requires initially a high standard of
general education.
d.the maintenance of professional competence requires o continuing awareness of
development in the accountancy profession.
58. In which of the following circumstances may disclosure of confidential information be
appropriate?
a.disclosure is necessary as required by legal proceeding.
b.the professional accountant volunteered to reveal information in order to help
a faster resolution of legal proceedings.
c.working papers are turned over to other professional accountant
who purchased the accounting practice.
d.detailed listing of inactive customers of one assurance client is passed on to other non-assurance
client.
59. The underlying reason for a code of professional conduct for any profession is
a.the need for public confidence in the quality of service of the profession.
b.that it provides a ssafeguard to keep unscrupulous people out.
c.that it is required by congress.
d.that it allows Professional Regulation Commission to have a yardstick to measure
deficient performance.
60. A professional accountant may be associated with a tax return that
a.contains a false or misleading statement.
b.contains statements or information furnished recklessly or without any real knowledge
of wether they are true or false.
c.omits or obscures information required to be submitted and such omission or obscurity would
mislead the revenue authorities.
d.uses of estimates if such use is generally acceptable or if it is impractical under the
circumstances to obtain exact data.
61. There are fundamental principles that the professional accountant has to observe when performing
assurance engagements. The requirement of which principle is of particular importance in an
assurance engagement in ensuring that the conclusion of the professional accountant has value
to the intended user?
a.integrity
b.confiddentially
c.professional competence
d.objectivity
62. If a professional accountant is auditing a public company and he receives from his client its shares of
Stock as payment for his audit services, he will be violating the fundamental principle of:
a.integrity
b.professional due care
c.objectivity
d.confidentially
63. Which of the following is least likely an indication that the CPA violates the integrity principle?
The CPA is associated with reports or information that:
a.the CPA issues a qualified opinion due to scope limitation because he fails to arrive at a clear –cut
conclusion.
b.contains a materially false or misleading statement.
c.omits or obscure information required to be included when such omission or obscurity would
make the information misleading
d.contains statements or information furnished recklessly.
64. Which of the following is the least required in attaining professional competence?
a.high standard of general education.
b.specific education, training and examination in professionally relevant subjects.
c.period of meaningful work experience.
d.continuing awareness of development in the accountancy profession.
65. Which of the following is incorrect regarding confidentiality?
a.professional accountants have an obligation to respect the confidentiality of information about a
client’s or employer’s affairs acquired in the course of professional services.
b.the duty of confidentiality ceases after the end of the relationship between the professional
accountant and the client or employer.
c.confidentiality should always be observed by a professional accountant unless specific
authorization has been given to disclose information or there is a legal or professional duty to
disclose.
d.confidentiality requires that a professional accountant acquiring information in the course of
performing professional services neither uses nor appear to use that information for personal
adavantage or for the advantage of a third party.
66. A professional accountant is auditing Maiden Company and providing consulting services to Widow
Company.Both clients are in the same industry. If the professional accountant uses specific
Information from Maiden’s audit to prepare a business plan for Widow, he will be violating the
principle of:
a.integrity
b.professional behavior
c.objectivity
d.confidentiality
67. Which of the following statements is incorrect about the principle opf confidentiality?
a.he professional accountants must refrain from disclosing confidential information acquired as a
result of professional and business relationships to any party outside the firm or employing
organization unless there is a legal or professional right or duty to disclose.
b.the professional accountants must never disclose confidential information obtained as a result
of professional business relationships.
c.he need to comply with confidentiality principle continues ven after the end of relationships
between a professional accountant and a client or employer.
d.a professional accountant should consider that same information may be kept confidential
within the firm or employing organization.
68. The confidential relationships applies to
a.all services provided by CPAs.
b.only audit and attestation services.
c.audit and tax services, but not MAS services.
d.audit and MAS services, but not tax services.
69. Which of the following may not be a professional duty to disclose confidential information?
a.in compliance with the quality review of a member body or professional body.
b.in compliance with technical standards and ethics requirements.
c.in response to specific inquiry from the major stockholder.
d.in protecting the professional interests of the professional accountant in case of litigation.
70. A professional accountant has a professional duty or right to disclose confidential information in
each of the following, except
a.to comply with technical standards and ethics requirements.
b.to disclose to BIR fraudulent scheme committed by the client on payment of income tax.
c.to comply with the quality review of a member body or professional body.
d.to respond to an inquiry or investigation by a member body or regulatory body.
71. What kind of threat to noncompliance to fundamental principles is created if the professional
fees due from a financial statement audit client remain unpaid for a long time?
a.Self-interest threat
b.Self-review threat
c.Familiarity threat
d.No threat is created
72. A CPA in public practice shall not disclose any confidential client information without the specific
consent of the client. The confidentiality rule is violated if a CPA discloses information without a
client’s consent as a result of a
a.subpoena or summons.
b.peer review.
c.complaint filed with the trial board of the Board of Accountancy.
d.request from a client’s largest stockholder.
73.The confidential relationship will be violated if, without the client’s permission, the CPA
working papers about the client to
a.a court of law which subpoenas them.
b.another CPA firm as part of a peer review.
c.another CPA firm which has just purchased the CPA’s entire practice.
d.an investigative or disciplinary body which is conducting a review of the CPA’s practice.
74. Assurance team include
 All professionals participating in
the assurance engagement
 All others within a firm who cn
directly influence the outcome
of the assurance engagement
 For the purposes of an audit
client, all those within a network
firm who can directly influence
the outcome of the audit
engagement
A
B
C
D
Yes
Yes
Yes
Yes
Yes
Yes
No
No
Yes
No
No
Yes
provides
75. Examples of circumstances that may create self-interest threat include:
a.Contingent fees relating to assurance engagements.
b.A direct financial interest or material indirect financial interest in an assurance client.
c.A loan or guarantee to or from an assurance client or any of it’s directors of officers.
d.All of the given choices.
76. Which of the following least likely create “self-interest threat”?
a.Undue dependence on total fees from an assurance client.
b.Concern about the possibility of losing the engagement.
c.Having a close business relationship with an assurance client.
d.Pressure to reduce inappropriately extent of work performed in order to reduce fees.
77. If the firm is involved in the preparation of accounting records or financial statements and those
financial statements are subsequently the subject matter of an audit engagement of the firm, this
will most likely create
a.self-interest threat.
b.self-review threat.
c.intimidation threat.
d.familiarity threat.
78. Examples of circumstances that may create self-review threat least likely include
a.preparation of original data used to generate fianancia statemants or preparation of other
records that are the subject matter of the assurance engagement.
b.a member of the assurance team being, or having recently been, an employee of the
assurance client in a position to exert direct and significant influence over the subject matter of
the assurance engagement.
c.performing services for an assurance client that directly affect the subject matter of the assurance
engagement.
d.potential employment with an assurance client.
79. Family and personal relationships between a member of the assurance team and a director, an
Officer or certain employees, depending on their role, of the assurance client, least likely create.
a.self-interest threat.
b.self-review threat.
c.intimidation threat.
d.familiarity threat.
80.A director, an officer or an employee of the assurance client in a position to exert direct and
significant influence over the subject matter of the assurance engagement has been a member of
the assurance team or partner of the firm. This situation least likely create
a.self-interest threat.
b.advocacy threat.
c. intimidation threat.
d.familiarity threat.
81. A former officer, director or employee of the assurance client serves as a member of the assurance
Team. This situation will least likely create
a.self-interest threat.
b.self-review threat.
c.intimidation threat.
d.familiarity threat.
82. Which of the following will least likely impair independence?
a.An immediate damily member of a member of the assurance team is a director, an officer or an
employee of the assurance client in a position to exert direct and significant influemce over
the subject matter of the assurance engagement.
b.A member of the assurance team participates in the assurance engagement while knowing, or
having reason to believe, that he or she is to, or may, join the assurance client in the future.
c.A partner or employee of the firm serves as an officer or as a director on the board of an assurance
client.
d.A partner or employee of the firm or a network firm serves as Company Secretary for an audit client
the duties and functions undertaken are limited to those of a routine and formal administrative
nature as such as the preparation of minutes and mentainance of statutory returns.
83. The provision of services by a firm or network firm to an audit client that involve the design and
implementation of financial information technology systems that are used to generate information
forming part of a client’s financial statements may most likely create
a.self-interest threat.
b.self-review threat.
c.intimidation threat.
d.familiarity threat.
84. Occurs when a firm, or a member at the assurance team, promotes, or may be perceived to promote, an
assurance client’s position or opinion to the point that objectivity may, or may perceived to be,
compromised. Such may be the case if a firm or a member of the assurance team were to subordinate
their judgment to that of the client.
a.Self-interest threat.
b.Self-review threat.
c.Advocacy threat.
d.Familiarity threat.
85. A CPA-lawyer, acting as a legal counsel to one of his audit client, is an example of
a.Self-interest threat.
b.Self-review threat.
c.Advocacy threat.
d.Familiarity threat.
86. Which of the following is not likely a threat to independence?
a.Acting as an advocate on behalf of an assurance client in litigation o in resolving disputes with third
parties.
b.Long association of a senior member of the assurance team with the assurance client.
c.Threat of replacement over a disagreement with the application of an accounting principle.
d.Owning immaterial indirect financial interest in an audit client.
87. Occurs, when, by virtue of a close relationship with an assurance client, its directors, officers or
employees, a firm or a member of the assurance team becomes too sympathetic to the client’s
interests.
a.Self-interest threat.
b.Self-review threat.
c.Advocacy threat.
d.Familiarity threat.
88. Examples of circumstances that may create familiarity threat least likely include.
a.a member of the assurance tem having an immediate family member or close family member who is
a director or officer of the assurance client.
b.a member of the assurance team having an immediate family member or close family member who,
as an employee of the assurance client, is in a position to exert direct and significant influence over
the subject matter of the assurance engagement.
c.a former partner of the firm being a director, officer of the assurance client ora an employee in a
position to exert direct and significant influence over the subject matter of the assurance
engagement.
d.dealing in, or being a promoter of, share or other securities in an assurance client.
89. Consideration of the nature of the safeguards to be applied will be affected by matters such as the
 Significance of the threat
 Nature of the assurance
engagement
 Intended users of the assurance
report
A
B
C
D
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
Yes
90.The safeguards available to eliminate the threats or reduce them to an acceptable level include
 Safeguards created by the
profession, legislation or
regulation
 Safeguards within the assurance
client
 Safeguards within the firm’s own
systems and procedures
A
B
C
D
Yes
Yes
Yes
Yes
Yes
Yes
No
No
Yes
No
No
Yes
91. Safeguards within the firm’s own systems and procedures, include the following, except:
a.Firm leadership that stresses the importance of independence and expectation that members of
assurance teams will act in the public interest.
b.Externalreview of a firm’s quality control system.
c.Policies and procedures to implement and monitor quality control of assurance engagements.
d.Policies and procedures that will enable the identification of interests or relationships between the
firm or members of the assurance team and assurance clients.
92 . Safeguards within the assurance client, the following, except
a.Professional standards and monitoring and disciplinary processes.
b.The assurance client has complement employees to make managerial decisions.
c.Internal procedures that ensure objective choices in commissioning non-assurance engagements.
d.A corporate governance structure, such as an audit committee, thart provides appropriate oversight
and communications regarding a firm’s services.
93.In determining estimates of fees, an auditor may take into account each of the following, except the:
a.Value of the service to the client,
b.Degree of responsibility assumed by undertaking the engagement.
c.Skills required in performing the service.
d.Attainment of specific findings.
94. The Code of Professional Conduct would be violated if a member accepted a fee for services and the
fees was.
a.fixed by a public authority.
b.based on a price quotation submitted in competitive bidding.
c.based on the result of judicial proceedings.
d.payable after a specified finding was attained.
95. In the marketing and promotion of themselves and their work, professional accountants should:
a.Not use means which brings the profession into disrepute.
b.Not make exaggerated claims for, the services they are able to offer, the qualifications they posses,
or experience they have gained
c.Not denigrate the work of other accountants.
d.All of the above.
96. Which of the following is incorrect regarding independence?
a.Independence consists of independence of mind and independence in appearance.
b.Independence of mind is the state of mind that permits the provision of an opinion without being
affected by influences that compromise professional judgment, allowing an individual to act with
integrity, and exercise objectivity and professional skepticism.
c.Independence in appearance is the avoidance of facts and circumstances that are so significant a
reasonable and informed third party, having knowledge of all relevant information, including any
safeguards applied, would reasonably conclude a firm’s or a member of the assurance team’s
integrity, objectivity or professional skepticism had been compromised.
d.Independence is a combination of impartiality, intellectual honesty and a freedom from conflicts
of interest.
97. The network firms are required to be independent of the client
a.for assurance engagements provided to an audit client.
b.for assurance engagements provided to clients that are not audit clients, when the report is not
c.for assurance engagements provided to clients that are not audit clients, when the assurance report
is expressly restricted for use by identified users.
d.All of the given choices.
98.For assurance engagements provided to an audit client, the following should be independent of the
Client:



The members of the assurance
team
The firm
Network firms
A
B
C
D
Yes
Yes
Yes
Yes
Yes
No
YES
No
No
Yes
No
Yes
99.Using partners who do not report to the audit partners for the provision
an audit client is an example of:
of non-assurance services to
a.Safeguards reducing the risk of conflict interest created by the profession, legislation, or regulation.
b.Safeguards reducing the risk of conflict of interest within a client.
c.Safeguards reducing the risk of conflict of interest within a professional accounting firm.
d.All of these.
100.The recommendation for the appointment of the external auditors by the audit committee is an
Example of:
a.Safeguards reducing the risk of conflict of interest created by the profession, legislation
or regulation.
b.Safeguards reducing the risk of conflict of interest between an auditor and the management.
c.Safeguards reducing the risk of conflict of interest within a professional accounting firm’s own
systems and procedures.
d.All of these.
101. For assurance engagements provided to clients that are not audit clients, when the report is not
expressly restricted for use by identified users, the following should be independent of the client:



The members of the assurance
Team
The firm
Network firms
A
B
C
D
Yes
Yes
Yes
Yes
Yes
No
Yes
No
No
Yes
No
Yes
102. For assurance engagements provided to clients that are not audit clients, when the assurance report is
expressly restricted for use by identified users, the following should be independent of the client:
The members of the assurance
team
The firm
Network firms
A
B
C
D
Yes
Yes
Yes
Yes
Yes
No
Yes
No
No
Yes
No
Yes
103. Contingent fee pricing accounting services is
a.Always strictly prohibited in public accounting practice.
b.Never restricted in public accounting practice.
c.Prohibited for clients for whom attestation services are provided.
d.Consideration an act discreditable to the profession.
104. The firm should be independent of the client in the following engagements:
Assurance engagements provided to
an audit client
Assurance engagements provided to
Clients that are not audit clients,
when the report is not expressly
restricted for use by identified users
Assurance engagements provided to
clients that are not audit clients,
when the assurance report is
expressly restricted for use by
identified users
A
B
C
D
Yes
Yes
Yes
Yes
Yes
Yes
No
No
Yes
No
No
Yes
105. When safeguards available are insufficient to eliminate the threats to independence or to reduce them to an
acceptable level, or when a firm chooses no to eliminate the activities or interest creating the threat, the only
course of action available will be the
a.Issuance of an adverse opinion.
b.Issuance of qualified opinion or disclaimer of opinion.
c. Issuance of unqualified opinion with explanatory paragraph.
d.Refusal to perform, or withdrawal from, the assurance engagement.
106. Which of the following is incorrect regarding engagement period?
a.The period of the engagement starts when the assurance team begins to perform assurance services
and ends when the assurance report is issued, except when the assurance engagement is of a
recurring nature.
b.If the assurance engagement is expected to recur, the period of the assurance engagement ends with
the notification by either party that the professional relationship has terminated or the issuance of the final
assurance report
whichever is earlier.
c.In the case of an audit engagement, the engagement period includes the period covered by the
financial statements reported on by the film.
d.When an entity becomes an audit client during or after the period covered by the financial
statements that firm will report on, the firm should consider whether any threats to independence
may be created by previous services provided to the audit client.
107. If a member of the assurance team, or their immediate family member, has a direct financial interest,
Or a material indirect financial interest, in the assurance client, the self-interest threat created would
Be so significant jthat the only safeguards available to eliminate the threat or reduce it to an
acceptable level would be to (choose the incorrect one)
a.dispose of the direct financial interest prior to the individual becoming a member of the assurance
team.
b.dispose of the indirect financial interst in ttotal prior to the individual becoming a member of the
assurance team.
c.dispose of a sufficient amount of the indirect financial interest so that the remaining interest is no
longermaterial prior to the individual becoming a member of the assurance team.
d.limit the participation of the member of the assurance team.
108.a a member of the assuarance, team, or their immediate family member receives, by way of , for example,
an inheritance, gift or as a result of a merger, a direct financial interest or a material indirect financial
interest in the assurance client, a self—interest threat would be created.
The following safeguards should be applied to eliminate the threat or reduce it to an acceptable level:
a.Disposing of the financial interest at the earliest practical date.
b.Removing the member of the assurance team from the assurance engagement.
c.Either a or b.
d. Neither a or b.
109. When a member of the assurance team knows that his or her close family member has a direct financial
interest or a material indirect financial interest in the assurance client, a self0-interest threat may be
created. Safeguards least likely include:
a.The close family member disposing of all or a sufficient portion of the financial interest at the
earliest practical date.
b.Discussing the matter with those charged with governance,such as committee.
c.Involving a professional accountant who took part in the assurance engagement to review the work
done by the member of the assurance team with the close family relationship or otherwise advise as
necessary.
d.Removing the individual from the assurance engagement.
110. When a firm or a member of the assurance team holds a direct financial interest or a material indirect
financial interest in the assurance client as a trustee, a self-interest threat may be created by the
possible influence of the trust over the assurance client.Accordingly, such an interest cannot be held
when.
a.The member of the assurance team, an immediate family member of the member of the assurance
team, and the firm are beneficiaries of the trust.
b.The interest held by the ttrust in the assurance client is not material to the trust.
c.The trust is not able to exercise significant influence over the assurance client.
d.The member of the assurance team or the firm does not have significant influence over any
investment decision involving a financial interest in the assurance client.
111. An inadvertent violation of the independence rules as it relates to a financial interest in an assurance client
would not impair the independence of the firm, the network firm or a member of the assurance team when:
a.The firm, and the network firm, has established policies and procedures that require all
professionals to report promptly to the firm any breaches resulting from the purchase, inheritance or
other acquisition of a financial interest in the assurance client.
b.The firm, and the network firm, promptly notifies the professional that the financial interest
should be disposed of.
c.The disposal occurs at the earliest practical date after identification of the issue, or the professional is
removed from the assurance team.
d.All of the given choices.
112.The following self-interest threat created would be so significant no safeguard could reduce the threat
To an acceptable level, except
a.If a firm, or a network firm, has a direct financial interest in an audit client of the firm.
b.If a firm, or a network firm, has a material indirect financial interest in an audit client of the firm.
c.If a firm, ofr a network firm, has a material indirect financial interest in an entity that has a controlling
interest in an audit client.
d.If the retirement benefit plan of a firm, or network firm, has a financial interest in an audit client.
113.If a firm, or a network firm, has a direct financial interest in an audit client of the firm, the self-interest
Threat created would be so significant no safeguard could reduce the threat to an acceptable level. The
action appropriate to permit the firm to perform the engagement would be to
a.dispose of the financial interest.
b.dispose of a sufficient amount of it so that the remaining interest is no longer material.
c.Either of the given choices.
d.Neither of the given choices.
114. If a firm, or a network firm, has a direct financial interest in a financial statement audit client of the firm,
the appropriate safeguard against the self-interest threat created would be:
a.Dispose the entire financial interest.
b.Dispose of a sufficient amount of the financial interest so that the remaining interst is no longer
material.
c.Any of the two is appropriate.
d.None of the two is appropriate.
115.If a firm, or a network firm,, has a material financial interest in an entity that has a controlling interest in a
financial statement audit client, the self interest threat created is so significant. The audit firm can only
perform the engagement if it:
I.Dispose of the entire financial interest.
II.Dispose of a sufficient amount of the financial interest so that the remaining interest is no longer s
significant.
a.Either I or II
b.Neither I or II
c.I only
d.II only
116. Which of the following safeguards is inappropriate if a firm has a material financial interest in an entity
That has a contolling interest in a financial statement audit client?
a.Discuss the presence of self-interest threat with the client’s board of directors.
b.Dispose of the financial interest in total.
c.Dispose of a sufficient amount of the financial interest.
d.Either dispose of a sufficient amount of the financial interest or the financial interest in total.
117. The retirement benefit plan of a firm,or a network firm, has a financial interest in a financial statement audit
client . If the self-interest threat that is created by the financial interest is significant, the firm that intends
to continue the engagement should:
a.Reduce the financial interest so that the remaining interest is no monger material.
b.Discuss the matter with the audit committee of the financial statement audit client.
c.Refer thde audit of the stockholders equity of the financial statement audit client to other CPA.
d.Eitherbdispose of the financial interest in total or a sufficient amount so that the remaining
amount so that the remaining amount is no longer material.
118. The following loans and guarantees would not create a threat to independence, except:
a.A loan from, or a guarantee thereof by, an assurance client that is a bank or a similar institution,
to the firm, provided the loan is made under normal lending procedures, terms and requirements and
the loan is immaterial to both the firm and the assurance client.
b.A loan from, or a guarantee thereof by, an assurance client that is a bank otr a similar institution, to
a member of the assurance team or their immediate family, provided the loan is made under normal
lending procedures, terms and requirements.
c.Deposits made by, or brokerage accounts of, a firm or a member of the assurance client that is a bank,
broker or similar institution, provided the deposit or accountant is held under normal commercial terms.
d.If the firm, or a member of the assurance team, makes a loan to an assurance client that is not a bank or
similar institution, or guarantees such an assurance client’s borrowing.
119.Examples of close business relationships that may create self-interest and intimidation threat least likely
includes:
a.Having a material financial interest in a joint venture with the assurance client or a controlling owner,
director, officer or other individual who performs senior managerial functions for that client.
b.Arrangements to combine one or more services or products of the firm with one or more services or
products of the assurance client and to market the package with reference to both parties.
c.Distribution or marketing arrangements under which the firm acts as a distributor or marketer of the
assurance client’s products or services, or the assurance client ats as the distributor or marketer of the
products or services of the firm.
d.The purchase of goods and services from an assurance client by the firm (or from an audit client by a
network firm) or a member of the assurance team, provided the transaction is in the normal course of
business and on an arm’s length basis.
120. When a firm or a member of the assurance team and the audit client or one of its officers hold interest
In a closely-held entity, a threat to independence is not created, except:
a.The relationship is clearly insignificant to the firm or a member of the assurance team and the audit
client.
b.The relationship is other than insignificant which is acceptable for indirect financial interest.
c.The interest held is immaterial to the investor or group of investors, the ability to control the closely-held
entity.
d.The interest does not give the investor, or group of investors, the ability to contol the closely-held entity.
121.When an immediate family member of a member of the assurance team is a director or an officer of the
assurance client in a position to exert direct and significant influence over the subject matter information
of the engagement, the threat to independence can only be reduced to an acceptable level, aside from
withdrawing from the engagement, by:
a.Removing the individual from the assurance team.
b.Reduce the participation of the professional.
c.Discuss the matter with the audit committee of the client entity.
d.Request the audit client management to require the immediate family member of the professional to go
on forced vacation leave.
122.Which of the following relationships is most likely to impair a CPA’s independence with respect to
a particular audit client on which the CPA works as a member of the engagement team?
a.A close relative has a material investment in that client of which the CPA is not aware.
b.A cousin has an immaterial investment in that client of which the CPA is not aware.
c.The CPA’s father is the president of the audit client.
d.The CPA’s spouse participates in a savings plan sponsored by the client.
123.An inadvertent violation of the rules on family and personal relationships would not impair the independence
of a firm or a member of the assurance team when:
a.The firm has established policies and procedures that require all professionals to report promptly to firm
any breaches resulting from changes in the employment status of their immediate or close the family
members or other personal relationships that create threats to independence.
b.Either the responsibilities assurance team are re-structured so that the professional does not deal with
matters that are within the responsibility of the person with whom he or she is related or has a personal
relationships, or, if this is not possible, the firm promptly removes the professional from the assurance
engagement.
c. Additional care is given to reviewing the work of the professional.
d.All of the given choices.
124. If a member of the assurance team, partner or former partner of the firm has joined the assurance client, the
significance of the self-interest, familiarity or intimidation threats created is least likely affected by
a. The position the individual has taken at the assurance client.
b.The amount of any involvement the individual will have with the assurance team.
c.The length of time that the individual was a member of the assurance team or firm.
d.The former position of the individual within the assurance team or firm.
125. Using the same senior personnel on an assurance engagement over a long period of time may create a
familiarity threat. The significance of the threat will least likely depend upon.
a. The length of times that the individual has been a member of the assurance team.
b.The role of the individual on the assurance team.
c.The structure of the client.
D.The nature of the assurance engagement.
126.A small CPA firm provides audit services to a large local company. Almost 80 percent of the CPA firm’s
revenues come from this client, Which statement is most likely to be true?
a. Appearance of independence may be lacking.
b.The small CPA firm does not have proficiency to perform a larger audit.
C.The situation is satisfactory if the auditor exercises due skeptical negative assurance care in the audit.
d.The auditor should provide an “emphasis of a matter paragraph” to gis audit report adequately disclosing
this information and then it may issue an unqualified opinion.
127. A professional accountant has been the partner-in-charge of a particular audit client for the past eight years.
This situation could result to the following threat to professional independence:
a. Self-review
b.Advocacy
c.Intimidation
d.Familiarity
128.Which statement is incorrect regarding long association of senior personnel with audit clients that are listed
entities?
a.Using the same lead engagement partner on an audit over a prolonged period may create a familiarity
threat.
b.The lead engagement partner should be rotated after a predefined period, normally no more than six years.
c.A partner rotating after a pre-defined period should not participate in the audit until a further period of
time, normally two years, has elapsed.
d.When audit client becomes a listed entity the length of time the lead engagement partner has served the
audit client in that capacity should be considered in determining when the partner should be rotated.
129.The professional accountant whos has been the lead engagement partner for an audit engagement for a
prolonged period of time may continue to serve as the lead engagement partner before rotating off the
engagement for how many years after the audit client becomes a listed entity?
a.One year
b.Three years
c.Two years
d.Four years
130. While the lead engagement partner should be rotated after such a pre-defined period, some degree of
flexibility over timing of rotation may be necessary in certain circumstances. Examples of such
circumstances include:
a.Situations when the lead engagement partner’s continuity is especially important to the audit client, for
example, when there will be major changes to the audit client’s structure that would otherwise coincide with
the rotation opf the lead engagement partner.
b.Situations when, due to the size of the firm, rotation is not possible or does not constitute an appropriate
safeguard.
c.Both choices are correct.
d. Both choices are incorrect.
131. A CPA can continue to be an engagement partner on the audit of financial statements of listed entities over a
prolonged period of engagement. In order to avoid a creation of familiarity threat, subject to transitional
provisions, how many years are prescribed by the as maximum for the CPA to continue serving as
engagement partner for a listed entity?
a.Five years
b.Three years
c.Seven years
d.Ten years
132. An engagement partner who is rotated in the audit of financial statements of listed entity can only participate
in the audit engagement for the same client after a period of:
a.Twelve months
b.Two years
c.Three years
d.Five years
133. While the engagement partner for an audit of financial statements of listed entities should be rotated after a
predefined period, some degree of flexibility over the timing of rotation maybe necessary- How many years are
allowed as transitional period for the rotation?
A. Six months
B. One year
C. Two years
D. Three years
134. The following activities would 'generally create self-interest or self-review threats that are so significant and
that only avoidance of the activity or refusal to perform the assurance engagement would reduce the threats to an
acceptable level, except
A. Authorizing, executing or consummating a transaction, or otherwise exercising authority on behalf of
the assurance client, or having the authority to do so.
B. Determining which recommendation of the firm should be implemented.
C. Reporting, in a management role, to those charged with governance.
D. Providing technical assistance and advice on accounting principles for audit clients.
135. Which of the following may not create a self-review threat?
A. Supervising' assurance client employees in the performance of their normal recurring duties.
B. Preparing source documents in electronic or other form evidencing a business transaction.
C. Prolonged period of assignment as member of engagement team in one particular audit engagement.
D. Performing corporate financial services for the audit client,
136,
if firm, or network firm, personnel providing such assistance make management decisions. The self-review
threat created could not be reduced to an acceptable level by any safeguards. Examples of such managerial
decisions include the following, except
A. Determining or changing journal entries, or the classifications for accounts or transactions or other
accounting records without obtaining the approval of the audit clients
B. Authorizing or approving transactions.
C. Preparing source documents or' originating data (including decisions on evaluation assumptions), or
making changes to such documents or data.
D. Assisting an audit client in resolving account reconciliation problems.
1 37. The following services are considered to be a normal part of the audit process and do not, under
circumstances, threaten independence, except
A. Analyzing and accumulating information for regulatory reporting.
B. Assisting in the preparation of consolidated financial statements.
C. Drafting disclosure items.
0. Having custody of an assurance client's assets.
138. If the, firm is involved in the preparation of accounting records or financial statements and those financial
statements are subsequently the subject matter of an audit engagement of the firm, this will most likely create
A. Self-interest threat
B. Intimidation threat
C:' Self-review threat
D. Familiarity threat
39. The firm, or a network firm, may provide an audit client that is not a listed entity - with accounting and
bookkeeping services, including payroll services, of a routine or mechanical nature, provided any self-review threat
created i5 reduced to an acceptable level. Examples of such services least likely include:
A. Recording transactions for which the audit client has determined or approved the appropriate account
classification.
B. Posting coded transactions to the audit client's general ledger.
C. Preparing financial statements based on information in the trial balance.
D. Determining and posting journal entries without obtaining the approval of the audit client.
1 40.The safeguards necessary to reduce the threat created by providing accounting and bookkeeping services to an
audit client that is not a listed entity to an acceptable level might include the following, except.
A. Making arrangements so that such services are not performed by a member of the assurance team.
B. Implementing policies and procedures to prohibit the individual providing such services from making
any managerial decisions on behalf of the audit client.
C. Requiring the source data for the accounting entries to be originated by the assurance team.
D. Obtaining audit client approval for any proposed journal entries or other changes affecting the financial
statements.
1 41. The provision of accounting and bookkeeping services of a routine or mechanical nature to, divisions or
subsidiaries of listed audit clients would not be seen as impairing independence with respect to the audit client
provided that the following conditions are met, except:
A. The services do not involve the exercise of judgment.
B. The divisions or subsidiaries for which the service is provided are collectively immaterial to the audit
client.
C. The services provided are collectively immaterial to the division or subsidiary.
D. The fees to the firm or network firm, from such services are collectively significant.
142. The provision of accounting and bookkeeping services to audit clients jr emergency or other unusual
situations, when it is impractical for the audit client to make other arrangements, would not be considered to pose
an unacceptable threat to independence provided
A. The firm, or network firm, does not assume any managerial role or make any managerial decisions.
B. The audit client accepts responsibility for the results of the work.
C. Personnel providing the services are not members of the assurance team.
D. All of the given choices.
143. If the valuation services involves the valuation of matters material to the financial statements and the
valuation involves a significant degree of subjectivity, the self-review threat created (choose the incorrect one)
A. Could not be reduced to an acceptable level by the application of any safeguard.
B. Could be reduced to an acceptable level by the application of safeguards.
C. Such valuation services should not be provided.
D. The assurance team should withdraw from the audit engagement, if the team opted to perform the
valuation services:
144. The following would not generally create a significant threat to independence, except:
A. When a firm, or a network firm, performs a valuation service for an audit client for the purpose of
making a filing or return to a tax authority.
B. The firm provides formal taxation opinions and assistance in the resolution of tax disputes to an audit
client.
C. The firm renders internal services involving an extension of the procedures required to conduct an audit
in accordance with Philippine Standards on Auditing to an audit client.
D. When a firm, or a network firm, provides assistance in the performance of a client's internal audit
activities or undertakes the outsourcing of some of the activities.
145.
Which of the following may least likely create a self-review threat?
A. The lending of staff by a firm to the financial statement audit client.
B. The firm provides internal audit services to the financial statement audit client.
C. The firm renders litigation support services to the financial statement audit .
D. Recruitment of senior manager for the financial statement audit client.
146. Which of the following is least likely considered to create a threat to independence?
A .The provision tit services by a firm or network firm to an audit client which involve either the
implementation or design of financial information technology system that are used to generate information
forming part of a client’s financial statements
B. The provision of services in connection with the assessment, design and implementation of internal
accounting controls and risk management controls.
C. The lending of staff by a firm, or network firm, to an audit client when the individual is in a position to
influence the, preparation of a client's accounts or financial statements.
D. The provision of litigation support services to an audit client which include the estimation of the
possible outcome and thereby affects the amounts or disclosures to be reflected in the financial statements.
1 47. The lending of staff by a firm to a financial statement audit client maybe made only on the understanding that
the, firm's personnel will not be involved in the following, except:
A. Assembling the annual financial statements based on recorded transactions.
B. Making management decisions.
C. Approving or signing agreements, or other similar documents.
D. Exercising discretionary authority to commit the client.
48. Which of the following is not a factor to evaluate the effect of litigation support services rendered by a firm to
an audit client?
A. The nature of the engagement.
B.
The degree of subjectivity inherent in the matter concerned.
C. The materiality of the amount involved.
D. The manner of payment of professional fee on litigation service.
149. Legal services are defined as:
A. The retaking of assumptions with regard to future developments, the application of certain methodologies and
techniques, and the
D. Any services for which the person providing the services must either be admitted to practice before the Courts
of the $Xis fiction in which such services are to be provided, or have the required legal training to practice low.
150. The provision of legal services to financial statement audit clients most likely create a(an):
A. Familiarity threat
B. Self-interest threat
C. Advocacy threat
D. Intimidation threat
151.
When the firm provides legal services to support a financial statement audit client in the execution of
corporate restructuring, the threat created can be reduced to an acceptable level provided that:
A. Members of the assurance team who are involved in providing the services are given reduced
participation in providing assurance service.
B.
The advice provided was reviewed by a staff who is not a member of the assurance team.
C. The staff who makes the ultimate decision is not a member of the assurance teamD. In relation to the advice provided, the audit client makes the ultimate decision.
152.
Which of the following threats to independence con be eliminated or reduced to an acceptable level?
A. Acting for an audit client in the resolution of a dispute or litigation in such circumstances when the
amounts involved ore material in relation to the financial statements of the audit client.
B. When a firm is asked to act in an advocacy role for an audit client in the resolution of a dispute or
litigation in circumstances when the amounts involved are not material to the financial statements of the
audit client.
C. The appointment of a partner or an employee of the firm or network firm as General Counsel for legal
affairs to an audit client,
D. None of there.
153. The recruitment of senior management for an assurance client, such as those in a position to affect the subject
of the assurance engagement may least likely create:
A. Self-interest threat
B. Intimidation threat
C. Advocacy threat
D. Familiarity threat
1 54. Which of the following corporate finance services create advocacy or self-review threats cannot be reduced to
an acceptable level?
A. Committing the assurance client to the terms of a transaction or consummating a transaction on behalf
of the client.
8. Assisting a client in developing corporate -strategies.
C. Assisting in identifying or introducing a client.to possible sources of capital that meet the client
specifications or criteria.
D. Providing structuring advice and assisting a client in analyzing the accounting effects of proposed
transactions.
155. Which of the following is not likely to -create a threat to independence?
A. The total fees generated by an assurance client represent a large proportion of a firm's total fees.
B. Fees due from an assurance client for professional services remain unpaid for a long time.
C. A firm obtains an assurance engagement 'at a significantly lower fee level than that charged by the predecessor
firm, or quoted by other firms.
D. A court or other public authority is the one that established the fees.
1 56. A client company has not paid its 2008 audit fees. According to the Code of Professional Conduct, for the
auditor to be considered independent with respect to the 2009 audit, the 2008 audit fees must be paid before, the
A.
B.
C.
D.
2008 report is issued
2009 report is issued
2009 field work is started
2010 field work is started
157. When a firm obtains an assurance engagement at a significantly lower professional fee than that charged by
the predecessor firm, or quoted by other firms, a(an):
A. threat to independence is not created.
B. intimidation threat is created.
C. advocacy threat is created.
D. self-interest treat is created.
158. Fees calculated on a predetermined basis relating to the outcome or result of a transaction or the result of the
work performed.
A. Contingent .fees
B. Flat sum fees
C. Retainer fees
D. Per diem fees
159. Which of the following is least likely to create a threat to independence?
A. The fees generated by the assurance client represent a large proportion of the revenue of an individual
partner.
B. The firm charges a contingent fee to an assurance client.
C. Accepting gifts or, hospitality, the value of which is clearly, insignificant, from an assurance client.
D. When litigation takes place, or appears likely, between the firm or a member of the assurance team and
the assurance client.
160. Which of the following does not create a self-interest threat to independence?
A. An audit of an insurance company is engaged by the assurance client based upon the instruction from
the Office of Insurance Commission. The audit fee is contingent upon the assessment by the office of
Insurance Commission of the liquidity of the company.
B. An audit fee on an assurance client that is outstanding for two years
C. An assurance engagement with a fee significantly lower than the fee quoted by other firm.
D. A litigation between the firm and the assurance client that relates to a prior assurance engagement
involving a breach of contract.
161.
When litigation takes place between the firm and the assurance client, the firm and the client management
may be placed in adversarial positions and the firm may face a self-interest threat. Which of the following is least
likely a factor in determining the significance 'of the threat created by this litigation?
A. The nature of the assurance engagement.
B. Whether the litigation relates to a prior assurance engagement.
C. The materiality of the amount involved on litigation.
D. The likelihood of the firm winning the litigation.
162. When independence is threatened by litigation between the member of the assurance team and the-client
management, the following safeguards that can reduce the effect to an acceptable level may be applied, except:
A. Involve an additional professional accountant in the firm who is not a member of the assurance team to
review the work done.
Disclose to the audit committee, or others charged with governance, the extent and the nature of the
litigation.
C. Remove the particular member of the assurance team who is involved in litigation from the
engagement.
D. Submit a new engagement letter.
1 63. Which of the following threats to independence is least likely considered a result of the firm's service ofrecruiting senior managers for an assurance client?
A. Self-interest threat
B. Familiarity. threat
C. Intimidation threat
D. Self-review threat
164. Which of the following combination of threats to independence is most likely to occur as a result of the
prravisiuri of corporate finance services, advice or assistance to an assurance client?
A. Advocacy and self review throats
B. Self-review and familiarity threats
C. Familiarity and advocacy threats
D. Self-review and self-interest threats
165. Which of the following is not allowed to be included in a website of a firm of professional accountants?
A. Names of partners/principals with their educational attainment.
B. Membership to any professional body.
C. Awards received.
D. Listings of the firm's clients.
66. The set of rules and regulations promulgated in 2004
practice of Accountancy in the Philippines.
for the "supervision, control and regulation" of the
A. Philippine Financial Reporting standards.
B. The Code of Ethics for Professional Accountants.
C. Philippine Standards on Auditing.
D. The IRR of the Philippine Accountancy Act of 2004.
167. The objectives of the Philippine Accountancy Act of 2004 are the following except:
A. The standardization and regulation of accounting education.
B, Examination for registration of certified public accountants.
C. Supervision, control, and regulation of the practice of accountancy.
D. Integration of accountancy profession.
168. A document under seal issued to an individual by the Professional Regulation Commission signifying that he
has complied with all the legal and procedural requirements for such issuance including the passing of the licensure
examination for Certified Public Accountants.
A. Certificate of Accreditation
B. Professional Identification Card
C. Certificate of Registration
D. Professional Seal
169. The following is deemed a practice of accountancy, except:
A. Appointment to a position in the government that requires a CPA license as a prerequisite.
B. Employment as budget officer in a local government unit regardless of the officer being a holder of a
CPA license or not.
C. Teaching professional subjects in a. collegiate program leading to the degree of Bachelor of Science in
Accountancy.
D. Representing his clients before government agencies on tax and other matters related to accounting.
1 70. The following statements relate to R.A 9298. Which statement is true?
A. The Professional Regulation Commission has the authority to remove any member of the Board of
Accountancy for negligence, incompetence, or any other just cause.
B. Insanity is not a ground for proceeding against a CPA.
C. A person shall be considered to be in the professional practice of accounting if, as an officer in a private
enterprise, he makes decisions requiring professional accounting knowledge.
D. After three years, subject to certain conditions, the Board of Accountancy may order the reinstatement
of a CPA whose certificate of registration has been revoked.
171.
The president of the Philippines appoints the members of the Board of
Accountancy based on the recommendation submitted to the office of the president. Which of the following is an
incorrect statement about the submission of nominations?
A. The Accredited National Professional Organization of CPAs shall submit the names of its nominees to
the 'PRC not later than 60 days prior to the expiry of the term of an incumbent chairman or member.
B. There should be an adequate documentation to show the qualifications and primary field of professional
activity of each nominee.
C. The Accredited National Professional Organization of CPAs shall submit the names of its nominees to
the PRC not later than 45 days
p nor to the expiry of the term of an incumbent chairman or
r1 Fember..
D. it the A(;i_;rtatlitr3t3 Nuti()►)erl ProfessicPn jl Organization of CF'As fails
to submit its own norninee(s) to the FIR(, within the prescribed period, the PRA.;., in ronsuttc tion with the Board
of Accountancy shall submit to the president of the Philippines a list of three nominees for each position.
172.. Which of the following is not a qualification of a member of the Board of Accountancy?
A. He must be a natural-born citizen and a citizen of the Philippines.
B. He must not be a director or officer of the Accredited National Professional Organization of CPAs at the
time of his appointment.
C. He must be of good moral character and must not have been convicted of crimes involving moral
turpitude.
D. He must be a duly registered certified public accountant with at least ten years of experience in public
accounting.
1 73. The following statements relate to the term of office of the chairman and members of the Board of
Accountancy. Which of them is incorrect?
A. The chairman and members of the Board of Accountancy shall hold office for a term of three years.
B. Any vacancy occurring within the term of a member shall be filled up for the unexpired portion of the term only.
C. Appointment to fill up an expired, term is not' to be considered as a complete term.
D. The Board of Accountancy member who has served two successive complete terms as chairman, or member
shall be eligible for reappointment until the lapse of three years.
174. No person shall serve the Professional Regulatory Board ofAccountancy for more than
A.
B.
C.
D.
3 years
8 years
9 years
12 years
176. The following, are represented • both to the Financial Reporting Standards Council (FRSC) and Auditing and
Assurance Standards Council (AASC), except:
A. Bangko SentraI ng Pilipinas
B. Securities and Exchange Commission
C. Bureau of Internal Revenue
D. Board of Accountancy
177. All of the following are represented to the Financial Reporting Standards Council, except:
A. Commission on Higher Education
B.
Board of Accountancy
C. Securities and Exchange Commission
D. Bureau of Internal Revenue
178. The Financial Reporting Standards Council which is the accounting standards setting body is composed of a
chair and:
A. Fourteen members
8.
Fifteen members
C. Sixteen members
U. Seventeen members
179. The chairman and the members of both Financial Reporting Standards Council and Auditing and Assurance
Standards Council have a
renewable term of:
A.
4 years
B.
2 years
C.
3 years
D.
5 years
180. Which of the following is not a requisite in applying for the CPA licensure examinations?
A. Natural-born citizen of the Philippines
B. Good moral character
C. Holder of the degree of Bachelor of Science in Accountancy
D. Has not been convicted of any criminal offense involving moral turpitude
181.
Which of the following is incorrect?
A. Candidates who fails to obtain a general average of 75% but obtains rating of at least 75% in at least
four subjects shall receive a conditional credit for the subjects passed:
B. To successfully pass the licensure examination, the candidates should obtain a general weighted,
average of at least 75% with no rating lower than 65% in any subject.
C. Conditional candidates shall take an examination in the conditional subject(s) within two, . years from
the preceding examination.
D. Candidates who failed in three complete examinations must enroll in refresher course consisting of
twenty-four units of the subjects given in the licensure examination.
1 82. Which of the following. is one of the reasons for not issuing a certificate of registration to a successful
examinee? The individual:
A. Is of unsound mind.
B. Had been guilty of immoral and dishonorable conduct.
C. Had been convicted by a court of a criminal offense involving moral turpitude.
D. All of the given choices
183.
A CPA whose certificate of registration has been revoked:
A. Can no longer be reinstated.
B. Is automatically reinstated as a CPA by the PRC after two years if he has acted in an exemplary
manner.
C. May be reinstated by the Professional Regulation Commission after two years if he has acted in an
exemplary manner.
D. May be reinstated as a CPA by the Board of Accountancy after two year if he has acted in an exemplary
manner.
184. The Philippine Accountancy Act of 2004 provides that all working papers made during an audit shall be the
property of the auditor. These working papers shall include the following, except:
A. Working papers prepared by the CPA and his staff.
8. Analysis and schedule prepared and submitted to the auditor by his client's staff.
C. Excerpts or copies of documents furnished to the auditor.
D. Any report submitted by the auditor to his client.
185. Who are required to apply for accreditation with the Professional Regulation Commission if the applicant is a
partnership of Professional Accountants?
A. Managing partner only
B. All partners only
C. Partners and staff members
D. Partners, principals, and staff members
186. Which of the following is not included in the seal of a professional accountant?
A. Tax identification number
B. Name of the professional accountant
C. Title of the profession
D. Registration number
187. The body mandated by law to promulgate rules and regulations affecting the practice of Accountancy.
A. Professional Regulation commission
B. Philippine Institute of Certified Public Accountants
C. Professional Regulatory Board of Accountancy
D. Commission on Higher Education
188. Individual CPAs, Firms or Partnerships of CPAs, including partners and staff members thereof shall register
with the BOA and the PRC. If the accreditation of Ak no and Co., CPAs, was renewed on September 30, 2008, the
next renewal must be on or before:
A.September 30,2010
B.September 30,2011
C.December 31,2010
D.December 31,2011
189. How many CPE credit units must be accumulated by a registered accounting professional within the 3-year
period?
A.
15 credit units
B.
45 credit units
C.
60 credit units
D.
90 credit units
1 90. The APO shall renew its Certificate of Accreditation once every how many years after the date of the
Resolution granting the petition for re-accreditation a nd the issuance of the said certificate upon submission of the
requirements? or,
A.
2 years
B.
3 years
C.
4 years.
D.
6 years
191. Engagement letters are widely used in practice for professional engagements of all types. The primary purpose
of the engagement letter is to
A. remind management of its primary responsibility over the financial statements.
B.satisfy the requirements of the Code of Professional Conduct for CPAs.
C. provide a starting point for the auditor's preparation of the preliminary audit program.
D. provide a written record of the agreement with the client as to the services to be provided.
192. The accuracy of information included in the footnotes that accompany the audited financial statements of a
company whose Lh ares are traded on a stock exchange i, ii►e• prirr►c.ury respor►sibiiit� of
the.
A. stock exchange officials.
B. company's management.
C. independent auditor.
D Securities and Exchange Commission.
193.
Which of the following is not likely a quality control procedure on consultation?
A. Identities areas and specialized situations where consultation is required and encourages personnel to
consult with or in use authoritative sources on other complex matters.
B. Designates individuals as specialists to serve as authoritative sources and define their , authority in
consultative situations.
C. Assigns an appropriate person or persons to be responsible for assigning personnel to audits.
D. Specifies the extent of documentation to be provided for the result of consultation in those areas and
specialized situations where consultation is required.
194. According to Philippine Standards on Auditing, because there are inherent limitations in an audit that affect
the auditor's ability to detect material misstatements, the auditor is:
A. neither a guarantor nor an insurer of financial statements.
B. a guarantor but not an insurer of the statements.
C. an insurer but not a guarantor of the statements.
D. both a guarantor and an insurer of the financial statements.
195. The objective of an ordinary examination by the independent auditor
is the expression of on opinion on the:
A. accuracy of the financial statements,
B.
balance sheet and income statement.
C. fairness of the presentation of the financial statements.
D. quality of the decision process of the management.
196. When a CPA expresses an opinion on the financial statements, his responsibilities extend to
A. the underlying wisdom of the client's management decision.
B. active participation in the implementation of the advice given to the client.
C. an ongoing responsibility for the client's solvency.
D. whether the results of the client's operating decisions are fairly presented in the financial statements.
1 97. The working papers prepared by a CPA in connection with an audit engagement are owned by the CPA,
subject to certain limitations. The rationale for this rule is to
A. protect the working papers from being subpoenaed.
B. provide the basis for excluding admission of the working papers as evidence because of the privileged
communication rule.
C. provide the CPA with evidence and documentation which may be helpful in the event of a lawsuit.
D. establish a continuity of relationship with the client whereby indiscriminate replacement of CPAs is
discouraged.
1 98. The responsibility for adopting sound accounting policies, maintaining adequate internal control, and making
fair representations in the financial statements rests
A. with the management.
B. with the independent auditor.,
C. equally with management and the auditor.
D. with the internal audit department.
199. Fraudulent financial reporting is often called:
A. Management fraud
B. Defalcation
C. Theft of assets
D. Employee fraud
200. The ordinary examination of financial statements is not primarily designed to disclose defalcations and other
irregularities although their discovery may result. Normal audit procedures are more likely to detect a fraud arising
from
A. c<U ution on the port of several employee
facture to !e :ord ,:ash rct oip'Ah for services rer►derE j.
C.
� rc nes pan company chN& ::k.s.
D. theft of +nventorius.
21.
The factor shot distinguishes an error from an irregularity is
A. materiality.
B. intent.
C. whether it is peso amount or a process.
D. whether it is a caused by the auditor or the client.
202. Audit standards require an auditor to:
A.
Perform procedures that are designed to detect all instances of fraud.
B.
Provide reasonable assurance that the financial statements are not materially misstated.
C. 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.
203.
If specific information comes to an auditor's attention that implies the existence of possible noncompliance
with laws and regulations that could have a material, but indirect effect on the financial statements the auditor
should next
A. apply audit procedures specifically directed to ascertaining whether a noncompliance with laws and
regulations has occurred.
B. seek the advice of an informed expert qualified to practice low as to possible contingent liabilities.
C. report the matter to an appropriate level of management at least one level above those involved.
D. discuss the evidence with the client's audit committee, or others with equivalent authority.
204. a principal purpose of a letter of representation from management is to
a.
b.
c.
d.
Serve as an introduction to company personnel and on authorization to examine the records.
discharge the auditor from legal liability for his examination
Confirm in writing management's approval of limitations on the scope of the audit.
Remind management of its primary responsibility for financial statements.
205. The auditor should not assume that management is dishonest, but the possibility of dishonesty must be
considered." This is, on example of
a.
b.
c.
d.
expectation gap.
an attitude of professional skepticism.
due diligence.
an ethical requirement.
206. Which of the following statements is true?
a.
b.
c.
d.
It is usually easier for the auditor to uncover irregularities than errors.
It is usually easier for the auditor to uncover errors than irregularities.
It is usually equally difficult for the auditor to uncover errors or irregularities
usually, none of the given statements is true.
207. Should the auditor uncover circumstances that may cause suspicions of management fraud, the auditor must
a.
b.
c.
d.
Issue an adverse opinion.
Issue a disclaimer of opinion.
Evaluate their implications and consider the need to modify audit evidence.
Withdraw from engagement.
208. Generally, the decision to notify parties outside the client's organization regarding a noncompliance with laws
and regulations is the responsibility of the
a. Independent auditor.
b. The management
c. Outside legal counsel.
d. Internal auditors.
209. An audit mode in accordance with Philippine Standards on Auditing generally should
a.
Be expected to provide assurance that noncompliance with laws and regulations will be detected if the
internal control is effective.
b. Be relied upon to disclose indirect-effect noncompliance with laws and regulations.
c. Encompass a plan to search actively for noncompliance with laws and regulations which relate to
operating aspects.
d. Not be relied upon to provide assurance that all noncompliance with laws and regulations will be detected.
210. An auditor who believes that a material irregularity may exist should initially
a.
b.
c.
d.
Discuss the matter with those believed to be involved in the perpetration of material irregularity.
Discuss the matter with a higher level of management.
Withdraw from the engagement.
Consult legal counsel.
211.
When management refuses to disclose in the financial statements noncompliance to laws and regulations
which are identified by the independent' auditor, the- CPA may be charged with unethical conduct for
a. Withdrawing from the engagement.
b. Issuing a disclaimer of opinion.
c. Failure to uncover the noncompliance to laws and regulations during the prior audits.
d. Reporting these activities to the audit committee.
212. In discovering material management fraud and on equally material error, the audit plan
a. Should be expected to provide the same degree of assurance.
b. Cannot be expected to provide the same degree of assurance.
c. Provide no assurance of detecting either
d. Should provide complete assurance of detection
213. an auditor who finds that the client has committed noncompliance with laws and regulations would most
likely withdraw from the engagement when the
a.
Noncompliance with laws and regulations affects the auditor’s ability to rely on management
representations
b. Noncompliance with laws and regulations has material financial statements implications
c. Noncompliance with laws and regulations has received widespread publicity
d. Auditor cannot reasonably estimate the effect of the Noncompliance with laws and regulations on the
financial statements
214. when the auditor knows that a noncompliance with laws and regulations has occurred, the auditor must
a.
b.
c.
d.
Issue an adverse opinion
Withdraw from engagement
Consider the effects on the financial statements, including the adequacy of disclosures
Report it to the proper government authorities
215. When an independent auditor's examination of financial statements discloses special
circumstances that make the auditor suspects that fraud may exist, the auditor's initial course
of action should be to
a.
Recommend that the client pursue the suspected fraud to a conclusion
that is agreeable to the auditor.
b. Extend normal audit procedures in an attempt to detect the full extent of the
suspected fraud.
c.
Reach an understanding with the proper client representative as to whether the auditor
or the client is to make the investigation necessary to determine if a fraud has in fact
occurred.
d. determine whether the fraud, if in fact it does exist, might be of such a
magnitude as to affect the auditor's report on the financial statements.
QUIZZER:
1. A procedure in which a quality control partner periodically tests the application of quality control procedures is
most directly related to which quality control element?
a. Engagement performance
b. independence, integrity, and objectivity
c. Monitoring
d. Personnel management
2. The work of each assistant needs to be reviewed by personnel of at least equal competence. Which of the
following is not of the objectives of his requirement?
a.
b.
c.
d.
The conclusions expressed are consistent with the result of the word performed and support the opinion.
The work performed and the results obtained have been adequately documented.
The audit objectives have been achieved.
All available evidences have been obtained, evaluated and documented.
3. Which of the following acts is prohibited by the Code of Professional Ethics for CPAs?
a.
b.
c.
d.
The use of a firm name which includes the name of a retired partner.
A n announcement in a newspaper of the opening of a public accounting office.
Engaging in civic activities during business hours.
Accepting an engagement or, employment which one cannot reasonably expect to complete or discharge
with professional competence.
4. Which of the following is a violation of the code of professional ethics for certified public accountants?
a.
A CPA permits his name to be used in a client`s advertising as having verified financial data and/or
statistical facts with respect to client’s products.
b. Based on information obtained in an audit, a CPA reports a noncompliance with laws and regulations of
his client to government authorities
c. Three tears after a partner has retired, the remaining partners continue to practice under a firm name that
includes the name of the retired partner.
d. A CPA running for public office uses the professional designation "CPA'' after his name on posters
employed in connection with his election campaign.
5. Which of the following is incorrect regarding the professional accountants’ tax practice?
a. A professional accountant rendering professional tax services is entitled to put forward the
best position in favor of a client or an employer.
b. Doubt may be resolved in favor of the client or the employer if there is a reasonable
support for the position.
c. A professional accountant may hold out to a client or an employer the assurance that the tax return
prepared and the tax advice offered by him are beyond a challenge
d. Professional accountants should ensure that the client or the employer is aware of the limitations
attaching to tax advice and services so that they do not misinterpret an expression of opinion as an
assertion of fact.
6. Which of the following is least likely an application of maintaining an
attitude of professional skepticism?
a. The auditor does not consider representations from management as substitute for
obtaining sufficient appropriate audit evidence to be able to draw reasonable
conclusions on which to base the audit opinion.
b. In planning and performing an audit, the auditor assumes that the management is
dishonest.
c. The auditor is alert to audit evidence that contradicts or brings into question the
reliability of documents or managements representations.
d. The auditor makes a critical assessment, with a questioning mind, of the validity of
audit evidence obtained.
7. prior to beginning the field work on a new audit engagement in which a CPA does not
possess expertise in the industry in which the client operates, the CPA should
a.
b.
c.
d.
Reduce audit risk by lowering the preliminary levels of materiality
Design special substantive tests to compensate for the lack of industry expertise.
Engage financial experts who are familiar with the nature of the industry.
Obtain a knowledge of matters that relates to the nature of the, entity's business.
8. Which of the following statement is true when the CPA has been engaged to do an
attestation engagement?
a. The CPA firm is engaged and paid by the client: therefore, the firm has primary
responsibility to be an advocate for the client
b. The CPA firm is engaged and paid by the client, but the primary beneficiaries of the
audit are the statement users
c. Should a situation arise where there is no convincing authoritative standard available,
and there is a choice of actions which could impacts clients financial statements either
positively or negatively. The CPA is free to endorse the choice which is best in the
clients interest
d. As long as CPA firms are competent, it is not required that they remain unbiased.
9. One difference between auditors and other professionals is that most professionals
a. Need not be concerned about remaining independent.
b. Do not have requirements for continuing education beyond the baccalaureate program.
c. Do not have to pass a rigorous examination.
d. Are not expected to act in public interest.
10. Independence of a CPA with respect to a client is not impaired if:
a.
b.
c.
d.
The CPA has a loan to an officer of the client.
The CPA has an immaterial direct financial interest in the client.
The CPA is a trustee for the client's pension plan.
The CPA has an immaterial joint, closely held with the client.
11. For which of the following services is a CPA profession, rv.J > be independent?
a. Tax returns preparation
b. Audits of historical financial statements
c. Review engagement
d. Examination of a forecast
12. Which of the following will impair the independence of a CPA in public practice?
a.
b.
c.
d.
He has his nor e and address listed on a one page section of the telephone book.
He obtained a loan from a bank under the normal lending procedures, terms and requirements of the bank.
He holds one share of the client's capital stock.
He failed to disclose a client's, departure from GAAP
13. When CPAs are able to maintain an independent attitude in fulfilling their responsibility, it is referred to as
independence in
a.
b.
c.
d.
fact.
appearance.
conduct.
total.
14. When the users of financial statements have confidence in the independence of the CPA, it is referred to as in
independence in
a.
b.
c.
d.
fact.
appearance.
conduct.
total.
15. Which of the following statements is incorrect? CPAs lose their independence if they:
a. Acquire any direct financial interest in a client.
b. Have a material direct financial interest in a client.
c. Acquire any indirect financial interest in a client.
d. Acquire a material indirect financial interest in a client.
16. when determining whether independence is impaired because of an ownership interest in client company,
materiality will affect whether ownership is violation of rule of independence.
a.
b.
c.
d.
In all circumstances
Only for direct ownership
Only for indirect ownership
Under no circumstances
17. A successor auditor is required to communicate with the previous auditor. The primary
concern in this communication is
a. information which will help the successor auditor determine whether the client
management has integrity.
b. to learn about client by examining predecessor's working papers.
c. to enable successor auditor to perform a more efficient audit,
d. to save successor auditor time and money in gathering data.
18. When a CPA firm is requested to provide a written or oral opinion on the application of
accounting principles or the type of audit opinion that would be issued for a specific or hypothetical
transaction relating to an audit client of another CPA firm, primary among the requirements set forth is
that
a. Client is entitled to confidentiality, so the consulting CPA firm is
forbidden from communicating with the CPA firm which does the audit.
b. The consulted CPA firm should communicate with the entity's existing auditors to,
ascertain all the available facts relevant to forming a professional judgment on the matters the
firm has been requested to report on.
c. Client is entitled to confidentiality, so the CPA firm which does the audit should refuse to share
any information with the consulting CPA firm under any circumstances.
d. Client is not entitled to confidentiality under these circumstances so the existing auditors
should share, all information with the consulting CPA firm.
19. A professional accountant has a professional duty or right to disclose confidential information
in each of the following, except:
a. To comply with technical standards and ethics requirements.
b. To disclose to the Bureau of Internal Revenue any fraudulent
scheme ,committed by the client on payment of income tax.
c. To comply with the quality review of a member body or
professional body
d. To respond to an inquiry or investigation by a member body or
regulatory body.
20. Which of the following best describes the passing of confidential information from a
client to its auditor? The information:
a. Should in no circumstances be conveyed to third parties.
b. Is not legally protected and can be subpoenaed by a competent court.
c. Can only be released for peer reviews after receiving permission from the
client..
d. Should be conveyed to the public if it affects the "correctness" of
the financial statements.
21. The CPA must not subordinate his or her professional judgment to that of others in every
a.
b.
c.
d.
engagement.
audit engagement.
engagement except tax services
engagement except management advisory services.
22.Which of the following is an indication of lack of objectivity of an auditor?
a.
The auditor believes that accounts receivable may not be collectible, but
accepts management's opinion without an independent evaluation.
b. In preparing client's tax return, the CPA encourages client to take a deduction which
the CPA believes is valid, but for which there is some but not complete support.
c. Both are violations
d. Neither would be a violation
23. several months after an unqualified audit report was issued, the auditor discovers that the financial
statements were materially misstated. The client’s chief executive officer agrees that the statements are
misstated but refuses to issue a correction, and claims that "Confidentiality" prevents the CPA from
informing anyone.
a. CO Eis Correct, the auditor must maintain confidentiality
b. CEO is wrong, but since auditor's report is issued, it is too torte to retract.
c. CEO is wrong,, and the auditor has an obligation to issue a revised correct audit report, even if
CEO will not revise and correct the financial statements.
d. CEO is correct, but to be ethically correct the auditor should violate the
confidentiality rule and disclose the error.
24. A member in public practice may perform for a contingent fee any professional services for a client
for' whom the member or member's firm performs
a. an audit.
b. a review.
c. a compilation used only by management.
d. an audit of prospective financial information.
25. Which one of the following contingent fee is allowed?
a. All services performed by a CPA firm.
b. Non-attestation services.
c. Non-attestation services, unless the CPA firm was also performing attestation services for the
same client.
d. Attestation services.
26. Solicitation consists of the various means that CPA firms use to engage newclients. Which one of the
following would not be an example of solicitation?
a. Accepting new clients that approach the firm.
b. Taking prospective clients to lunch.
c. Offering seminars on current tax law changes to potential clients.
d. Advertisements in the yellow pages.
27. if requested to perform a review engagement for a nonpublic entity in which an accountant has
an immaterial direct financial interest, the accountant is
a. Independent because the financial interest is immaterial and therefore, may issue a review
report
b. Not independent and, therefore, may not be associated with the financial statements
c. Not independent and, therefore, may not issue a review report
d. Not independent and, therefore, may issue a review report but may not issue an auditor’s
opinion.
28. Which of the following most completely describes how independence, has been defined by the
CPA profession?
a. Performing an audit from the viewpoint of the publicb. Avoiding the appearance of significant interests in the affairs of
an audit client.
c. Possessing the ability to act with integrity and obiectivity.
d. Possessing the ability to act professionally and accordance with a professional code of ethics.
29. To emphasize auditor independence from management, many corporations follow the practice of
a. Appointing a partner of the CPA firm to the corporation’s audit committee.
b. Establishing a policy of discouraging social contact between employees of the corporation
and the staff of the independent auditor.
c. requesting that a representative of the independent auditor be on hand at the annual
stockholders' meeting.
d. having the independent auditor report to an audit committee of outside members of the board
of directors.
30. In determining independence with respect to any audit engagement, the ultimate decision as
to whether or not the auditor is independent must be made by the
a. auditor
b. client
c. audit committee
d. public
31. When a CPA who is not Independent is associated with financial statements, he would be
precluded from expressing an opinion because
a. the public would be aware of his lack of independence and would place little or no faith on
his opinion.
b. he would place himself in the position of suffering an adverse decision in a possible liability
suit.
c. he would be in the position of auditing his own work.
d. any auditing procedures he might perform would not be in accordance with generally
accepted auditing standards.
32. Which of the following statements best describes why the profession of certified public
accountants has deemed it essential to promulgate a code of ethics and to establish- a. mechanism
for enforcing observance of the code?
a. A distinguishing mark of a profession is its acceptance of responsibility to the public.
b. A prerequisite to success is the establishment of an ethical code that stresses primarily the
professional's responsibility to clients and colleagues.
c. The law requires an establishment of a code of ethics.
d. An essential means of self-protection for the profession is the establishment of flexible
ethical standards by the profession.
33. in which of the following circumstances would a CPA be bound by ethics to refrain from
disclosing any confidential information obtained during the course of a professional engagement?
a. The CPA is issued a summons enforceable by a court that orders the CPA to present
confidential information.
b. A major stockholder of a client company seeks accounting information from the CPA after
the management declined to disclose the requested information.
c. Confidential client information is made available as part of a quality review of the CPA's
practice by a peer review team authorized by the PICPA.
d. An inquiry by a disciplinary body of PICPA requests confidential client information
34
Which of the following best describes why publicly-traded corporations follow the practice
of having the outside auditor appointed by the board of directors or elected by the stockholders?
a.
b.
c.
d.
To comply with the regulations of the FRSC
To emphasize the auditor's independence from the management of the corporation.
To encourage a policy of rotation of the independent auditors
To provide the corporate owners with an opportunity to voice their opinion concerning the
quality of the auditing firm selected by the directors.
35. A violation of the ethical standards would most likely have occurred when a CPA
a. made arrangement with a bank to collect notes issued by a client in payment of fees due.
b. joined an accounting firm made up of three non-CPA practitioners.
c. issued an unqualified opinion on the 2009 financial statements when fees for the 2008 audit
were unpaid.
d. purchased a bookkeeping firm's practice of monthly write-ups for a percentage of fees
received over a three-year period.
36. The concept of materiality would be least important to on auditor when considering the
a. decision whether to use positive or negative confirmations of accounts receivable.
b. adequacy of disclosure of a client's noncompliance with laws and regulations.
c. discovery of weaknesses in a client's internal control structure.
d. effects of a direct financial interest in the client upon the CPA's independence.
37. Which of the following is a violation of Confidentiality rule of the Code of Professional
Conduct?
a. The CPA, in response to a court subpoena submits auditor prepared working papers as
evidence of possible noncompliance with laws and regulations perpetrated by the client.
b. The CPA discloses to the board of directors a scheme concocted by top
management to intentionally inflate earnings
c. The CPA warns the client B as to the inadvisability of acquiring Client A. The CPA bases
this warning on knowledge of Client A’s financial condition and a belief that the
management of Client A lacks integrity. This knowledge was obtained by the CPA as , a
result of auditing Client A during the past several years.
d. The CPA, when questioned in court, admits of having knowledge of certain
noncompliance with laws and r :gulp ns perpetrated by the client.
38, An auditor who accepts an audit engagement and does not possess the industry expertise
of the business entity, should
a.
b.
c.
d.
engage financial experts familiar with the nature of the business entity.
obtain a knowledge of matters that relates to the nature of the entity's business.
refer a substantial portion of the audit to another CPA who will act as the principal auditor.
first inform management that an unqualified opinion cannot be issued.
39. A CPA, while performing an audit, strives to achieve independence in appearance in order to
a. reduce risk and liability.
b. comply with the generally accepted standards of fieldwork.
c. become independent in fact.
d. maintain public confidence in the profession.
40. In which of the following instances would the independence of the CPA not be considered to
be impaired? The CPA has been retained as the auditor of a brokerage firm
a. which owes the CPA audit fees for more than one, year
b. in which the CPA has a large active margin account,
c. in which the CPA's brother is the controller,
d. which owes the CPA audit fees for services in the current year and has just filed
a petition for bankruptcy41.
Which of the following fee arrangements is in violation of the Code of Professional
Conduct?
a. A fee based on whether the CPA's report on the clients financial statements results in the
approval of a bank loan.
b. A fee based on the outcome of a bankruptcy proceeding,
c. A fee based on the nature of the service rendered and the CPA's particular expertise instead
of the actual time spent on the engagement.
d. A fee based on the fee charged by the- prior auditor.
42.
a.
b.
c.
d.
The auditor is not liable to his client for
negligence.
bad faith.
dishonesty.
errors of judgment.
43.
When the auditor issues an erroneous opinion as a consequence of an underlying failure to
comply with the requirements of generally accepted auditing standards, it results to
a. business failure.
b. audit failure.
c. audit risk.
d. all of them.
44.
The reason why an auditor accumulates evidence is to
a.
b.
c.
d.
defend himself in the event of a lawsuit.
justify the conclusions he has otherwise reached.
satisfy the requirements of the Bureau of Internal Revenue.
enable him to reach conclusions about the fairness of the financial statements and issue an
appropriate audit report.
45.
The auditor gives an audit opinion on the fair presentation of the financial statements and
associates his or her name with them when, on the' basis of adequate evidence, the auditor concludes
that the financial statements are unlikely to mislead
a. a prudent user.
b. management.
c. the reader.
d. investors.
46. When preparing the financial statements, it is acceptable for the auditor to prepare
a.
b.
c.
d.
the statements for the client.
the footnotes for the client.
a draft of the statements for the client.
a draft of the statements and footnotes for the client
47. Which of the following statements best describes the auditor's responsibility regarding the
detection of material errors and frauds?
a. The auditor is responsible for the failure to detect material errors and frauds only when such
failure results from the misapplication of generally accepted accounting principles.
b. The audit should be designed to provide reasonable assurance that material errors and frauds
are detected.
c. The auditor is responsible for the failure to detect material errors and frauds only when the
auditor fails to confirm receivables or observe inventories.
d. Extended auditing procedures are required to detect unrecorded transactions even if there is
no evidence that material errors and frauds may exist.
48. The auditor has considerable responsibility for notifying users as to whether or not the financial
statements are properly stated. This imposes upon the auditor 'a duty to
a. be an insurer of the fairness of the presentation, of the financial statements.
b. be a guarantor of the fairness in the statements.
c. be equally responsible with management for the preparation of the financial statements.
d. provide reasonable assurance that material misstatements will be detected.
49. Which of the following best distinguishes ordinary negligence from gross negligence?
a. Failure to detect material errors, whether internal control is strong or weak, suggests gross
negligence.
b. Failure to exercise reasonable care denotes ordinary negligence whereas failure to exercise
minimal care indicates gross negligence.
c. Gross negligence is most probable when the auditor fails to detect errors that occurred under
conditions of strong internal control.
d. The more material the undetected error is, the greater the likelihood of ordinary negligence
being committed.
50. The auditor's responsibility for failure to detect fraud arises
a. when such failure clearly results from non-compliance to generally accepted auditing
standards.
b. whenever the amounts involved are material.
c. only when the examination was specifically, designed to detect fraud.
d. only when such failure clearly results from negligence so gross as to sustain an inference of
fraud on the part of the auditor
51.
Which of the following statements is correct concerning the auditor’s responsibility with
respect to noncompliance with laws and regulations? An auditor must design tests to:
a. obtain reasonable assurance of detecting material direct-effect noncompliance with laws and
regulations.
b. detect both immaterial and material
direct-effect noncompliance with laws and
regulations.
c. detect both direct-effect and indirect-effect noncompliance with laws and regulations.
d. detect both material direct effect and material indirect-effect with noncompliance with laws
and regulations.
52. Most accounting and auditing professionals agree that when an audit has failed to uncover
material misstatements, and the wrong type audit opinion is issued, the audit firm:
a.
b.
c.
d.
has failed to follow Philippine standards on auditing (PSAs).
deserves to lose the lawsuit.
should be asked to defend the quality of the audit.
Should not be held responsible for the financial loss suffered by others
53. What is the independent auditor's responsibility prior to the completion
of fieldwork when he believes that a material fraud may have occurred?
a. Notify the appropriate low enforcement authority.
b. Investigate the persons involved, the nature of the. fraud, and the amounts involved.
c. Reach an understanding with the appropriate client representatives as to the desired nature
and extent of subsequent audit work.
d. Continue to perform normal audit procedures and write the audit report in such a way to
disclose adequately the suspicions of material fraud.
54. The risk that on audit will fail to uncover a material misstatement is eliminated
a.
b.
c.
d.
if client has good internal control.
if client follows generally accepted accounting principles.
when the auditor has complied with generally accepted auditing standards.
under no circumstances.
55. The auditor's evaluation of the likelihood of material employee fraud is normally done initially
as a part of
a.
b.
c.
d.
the assessment of whether to accept the audit engagement.
understanding the entity's internal control structure.
the tests of controls.
the tests of transactions.
56. A CPA establishes quality control policies and procedures for deciding whether to accept a new
client or continue to perform services for a current client. The primary purpose for establishing such
policies and procedures is to
a. enable the auditor to attest to the integrity or reliability at a client
b. comply with the quality control standards established by regulatory bodies
c. lessen the exposure of litigation resulting from failure to detect material misstatements due
to irregularities in client’s financial statements
d. minimize the likelihood of association with clients whose managements lacks integrity
57. In which circumstance is a CPA firm’s independence most likely to be impaired?
a. A member of the engagement team has a close relative who is a receptionist for the client.
b. The father of the audit senior holds a material financial interest in the client of which the
senior is unaware.
c. The spouse of a member of, the audit team has an immaterial common stock investment in
the audit client.
d. The partner in charge of the office's compensation is affected by office profitability, a portion
of which arises from this audit.
58. While performing services for their clients, professionals have always had a duty to provide a
level of care which is
a.
b.
c.
d.
reasonable.
greater than average.
superior.
guaranteed to be free from error-
59. The existence of extreme or unusual negligence, even though there was no intent to deceive or
do harm, is a(n)
a.
b.
c.
d.
fraud.
gross fraud.
constructive fraud.
ordinary fraud.
60. The failure of the auditor to meet generally accepted auditing standards is
a. an accepted practice.
b. A suggestion of negligence.
c. an evidence of negligence.
d. Tantamount to criminal behavior
61.
Which of the following statement(s) is (arc) true?
a.
b.
c.
d.
Gross negligence may constitute constructive fraud.
Constructive fraud is also termed recklessness.
Fraud requires the intent to deceive.
All the responses are true.
62. Which of the following, if present, would support a finding of constructive fraud on the part of a
CPA?
a. Privity of contract
b. Intent to deceive
c. Reckless disregard
d. Ordinary negligence
63. In rare cases auditors have been held liable for criminal acts. A criminal conviction against an
auditor can result only when it is demonstrated that the auditor
a.
b.
c.
d.
was negligent.
was grossly negligent.
intended to deceive or harm others.
caused financial loss to an innocent third party.
64. The principal issue to be resolved in cases involving alleged negligence is usually
a. the amount of the damages suffered by the users of the financial statements.
b. whether to impose punitive damages on defendant.
c. the level of care required to be exercised.
d. whether defendant was involved in fraud.
65. "Absence of reasonable care that can be expected of a person in a set of circumstances" is the
description of
a. ordinary negligence.
b. constructive fraud.
c. gross negligence.
d. fraud.
66. A CPA firm is considered independent when it performs which of the following services for a
publicly-traded audit client?
a. Serving as a member of the client's board of directors
b. Determining which accounting policies will be adopted by the client
c. Accounting information system design and implementation
d. Tax return preparation as approved by the board of directors
67. The limitation of an auditor's liability under contract law is known as
a.
b.
c.
d.
privity of contract
contributory liability
statutory liability
common low liability
68.
As a consequence of his failure to adhere to generally accepted auditing standards in the
course of his examination of the Leis Corporation, Herman, CPA, did not detect the embezzlement
of a material amount of funds by the company's controller. As a matter of common law, to what
extent would Herman be liable in Leis Corporation for losses attributable to the theft?
a. He would have no liability, since the ordinary examinations cannot be relied upon to detect
defalcations.
b. He would have no liability because privity of contract is lacking.
c. He would be liable for losses attributable to his negligence.
d. He would be liable only if it could be proven that he was grossly negligent.
69.
In connection with the examination of financial statements, an independent auditor could be
responsible for failure to detect a material fraud if
a. statistical sampling techniques were not used on the audit engagement.
b. the audits planned the work in a hasty and inefficient manner.
c. accountants performing important parts of the work failed to discover a close relationship
between the treasurer and the cashier.
d. The fraud was perpetrated by one client employee, who circumvented the existing internal
control.
70. A CPA is criminally liable if he
a. refuses to turn over the schedules or working papers prepared by the client staff to the client.
b. performs an audit in a negligent manner.
c. intentionally allows an omission of a material fact required to be stated in a financial
statement.
d. was not able to submit the audited financial statements on time.
71.
The auditor's defense of contributory negligence is most likely to prevail when
a. third party injury has been minimal.
b. the auditor fails -to defect fraud resulting' from management override of the control
structure.
c. the client is privately held as contrasted with a public company.
d. undetected errors have resulted in materially misleading financial statements.
72.
Ana and Associates, CPAs, issued an unqualified opinion on the financial statements of Seral
Corp. for the year ended December 31, 2010. It was determined later that Seral's treasurer had
embezzled P300,000 from Seral during 2010. Seral sued Ana because of Ana's failure to discover
the embezzlement. Ana was unaware of the embezzlement. Which of the following is Ana's best
defense?
a. The audit was performed in accordance with PSAs.
b. The treasurer was Seral's agent and, therefore, Seral was responsible for preventing the
embezzlement.
c. The financial statements were presented in conformity with PFRS.
d. Ana had no actual knowledge of the embezzlement.
73.
The factor that distinguishes constructive fraud from actual fraud is
a.
b.
c.
d.
materiality.
quality of internal control.
type of error or irregularity.
intent.
74. If a CPA recklessly abandons standards of due care and diligence while performing an audit, he
or she may be held liable to unknown third parties tor:
a.
b.
c.
d.
Fraudulent misconduct.
Gross misconduct.
Gross negligence.
Contributory negligence.
75.
Salve Corp. orally engaged Rox and Co. CPAs, to audit its financial statements. The
management of Salve informed Rex that it suspected that the accounts receivable were materially
overstated. Although the financial statements audited by Rex did, in fact, include a materially
overstated accounts receivable balance, Rex issued an unqualified opinion. Salve relied on the
financial statements in deciding to obtain a loan from City-Bank to expand its operations. City Bank
relied on the financial statements in making the loan to Salve. As a result of the overstated accounts
receivable balance, Salve has defaulted on the loan and has incurred a substantial toss. It Salve sues
Rex for negligence in failing to discover the overstatement, Rex's best defense would be that
a.
b.
c.
d.
no engagement letter had been signed by Rex.
the audit was performed by Rex in accordance with generally accepted auditing standards.
Rex was not in privity of contract with Salve.
Rex did not perform the audit recklessly or with an intent to deceive.
76. In common law action against an accountant, the lack of privity is a viable defense if the
plaintiff
a.
b.
c.
d.
77.
bases his action upon fraud.
is the accountant's client.
a creditor of the client who sues the accountant for negligence.
can prove the presence of gross negligence which amounts to a reckless disregard for the
truth.
Which of the following conditions suggests an auditor's negligence?
a.
b.
c.
d.
Failure to detect material errors under conditions of weak internal control.
Failure to detect collusive fraud perpetrated by mans middle management.
Failure to detect collusive fraud perpetrated by members of top management.
Failure to detect errors occurring outside the internal control structure.
78. Marcia Corporation orally engaged Legaspi and Lopez, CPAs, to audit its year-end financial
statements. The engagement was to be completed within two months after the close of Marcia's
fiscal year for a fixed fee of P 125,000. Under these circumstances, what obligation is assumed by
Legaspi and Lopez?
a. None. The contract is unenforceable since it is not in writing.
b. An implied promise to exercise reasonable standards of competence and care.
c. An implied obligation to take extraordinary steps to discover all defalcations.
d. The obligation of on insurer of its work, which is liable without fault.
79. A third party sues a public accounting firm for negligence under common law on the basis of
materially false financial statements. Which of the following is the firm's defense?
a.
b.
c.
d.
Lack of privity
Lack of reliance
Lack of intent
Contributory negligence
80. What type(s) of liability do CPA's have in the Philippines?
Common Law Liability
Statutory Law Liability
a. Yes
Yes
b. Yes
No
c. No
Yes
d. No
No
81. A CPA firm issues an unqualified opinion on financial statements that were not prepared in
accordance with GAAP. The CPA firm would have acted with fraud or its equivalent in all the
following circumstances except where the firm
a.
b.
c.
d.
intentionally disregards the truth
has actual knowledge of fraud.
negligently performs auditing procedures
intends to gain monetarily by concealing the fraud
82. Conflict between financial statement users aria auditors often arises because of the
a. high cost of performing an audit.
b. Technical vocabulary which the auditor uses in the report
c. placement of the auditor's report at the back of the client's annual report where it is hard to
locate.
d. expectation gap.
83. A CPA will most likely be negligent when he fails to:
a. Correct errors discovered in the CPA's previously issued audit reports.
b. Detect all of a client's fraudulent activities.
c. Include a negligence disclaimer in the CPA's engagement letter
d. Warn a client's customers of embezzlement that may be perpetuated by the client's
employees.
84.
A CPA should not be liable to any party if he performs his services with:
a.
b.
c.
d.
Ordinary negligence
Regulatory providence
Due professional care
Good faith
85 If a CPA recklessly departs from the standards of due care when conducting an audit, the CPA
will be liable to third parties who are
a.
b.
c.
d.
Ordinary negligence
Gross negligence
Strict liability
Criminal deceit
SUGGESTED ANSWER
MODULE 3
PSA BASED QUESTIONS
PROFESSIONAL AND LEGAL RESPONSIBILITIES
QUESTION
ANSWERSOURCE
CHOICEREFERENCE
SECTION/
PARAGRAPH
NUMBER
1
2
B
A
3
4
5
6
7
8
9
10
11
12
13
14
D
D
D
B
C
D
B
A
B
A
C
A
Code of Ethics
Code of Ethics
the 1FAC code
Code of Ethics
Code of Ethics
RA 9298 IRR
Code of Ethics
Code of Ethics
Code of Ethics
Code of Ethics
Code of Ethics
Code of Ethics
Code of Ethics
Code of Ethics
Code of Ethics
15
16
17
A
C
C
Code of Ethics
Code of Ethics
Code of ethics
18
C
Code of Ethics
19
D
Code of Ethics
20
21
22
23
24
25
B
B
B
C
A
C
Code of Ethics
Code of Ethics
Code of Ethics
Code of Ethics
Code of Ethics
Code of Ethics
Preface, para 5
Preface, Modification to
Definition of terms
Definition of terms
Definition of terms
Definition of terms
Definition of Team
Definition of terms
Definition of terms
Sec 100.1
Preface, paira 3, 5, 8
Definition of Terms
Definition of Terms
Preface (Modification to
the IFAC code)
Preface, Modification
Modification, pow. 240.2
Board Resolution, Series of
2008.Rules # 2, 4. 6
Board Resolution, Series of
2008 Rules # 6
Board Resolution, Series of
2008 Rules # 6
100.1
100.1
100.2-3
100.4
100.4 (o)
100.4
SUGGESTED ANSWER
MODULE 3
PSA BASED QUESTIONS
PROFESSIONAL AND LEGAL RESPONSIBILITIES
188.
189.
B
C
Code of Ethics
Code of Ethics
Annex B pod 1.1
Annex C, para 5
190.
B
Code of Ethics Annex A, Para 3
191.
192.
D
B
PSA 210 (Rev)
PSA 200
Sec 5
Sec 33
193.
194.
C
A
PSQC
PSA 200
Sec 53 - 55
Sec 20
195.
196.
197.
PSA 200
PSA 200
PSA 230
PSA 200
PSA 240
PSA 240
PSA 240
PSA 240
Sec 2
Sec 17&21
202.
C
D
C
A
A
D
B
B
203.
A
204.
205.
D
B
PSA 250
PSA 240
PSA 240
206.
B
207.
208.
C
B
PSA 240
PSA 240
PSA 250
209.
D
PSA 250
210.
B
B
PSA 250
PSA 250
Sec 28
213.
A
A
Sec 2i
Sec 39
214.
C
PSA 240
PSA 250
PSA 250
215.
D
PSA 250
250
198.
199.
200.
201.
211.
212.
Sec- t&5
Sec 33 & 36
Sec, 8- 10
Sec 18 - 20
Sec.4 & 5
Sec 21
Sec 26 & 29
Sec 91
Sec 24 - 25
Sec 18
Sec 61 & 66
Sec 38
Sec 2
Sec 35 - 36
Sec 26 - 27
Sec 58
SUGGESTED ANSWER
MODULE 3
QUIZZERS
PROFESSIONAL AND LEGAL RESPONSIBILITIES
1
C
26
A
51
A
76
C
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
D
D
B
C
B
D
B
A
D
A
C
A
B
C
C
A
B
B
B
A
A
C
C
C
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
C
C
D
A
D
A
B
B
C
D
C
B
D
D
A
D
B
D
A
D
B
D
B
A
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
C
C
D
B
D
C
A
C
C
D
C
C
C
A
D
A
C
B
C
B
A
D
C
B
77
78
79
80
81
82
83
84
85
A
B
A
A
C
D
A
C
B
MODULE 4
AUDIT REPORT
PSA BASED QUESTIONS
1. General purpose financial statements are financial statement prepared in accordance with a financial
reporting framework that is designed to:
A. meet the particular r information needs of to wide range of user,
B. meet the particular information needs of a group of users
C. meet the common information needs of a wide range of users.
D. meet the common information needs of a group of users
2. PSA 700 provides guidance on the:
A. audit report that includes an unqualified opinion
B. audit report that includes an unqualified opinion
C. audit report that includes on unqualified opinion, though auditor's report is modified due to an emphasis
of matter
D. audit report, irrespective of the type of opinion auditor
3. PSA 701 provides guidance on the:
A. auditor's report issued as a result of audit of a complete set general-purpose financial statements
B. auditor's report issued as a result of performing o special-purpose audit engagement
C. auditor's report that contains an opinion other than unqualified and/or a modified report cane to an
emphasis of mullet
D. auditor's report issued as a result of an audit of a single statement or specified account(s)
4. PSA 8W, "The Independent Auditor's Report on Special Purpose Audit Engagements" least likely applies
to auditor's report issued as a result of an audit of
A. Compliance to royalty government
B. Component of a complete set of general-purpose financial statements wherein the opinion of the
auditor is unqualified
C. Complete set of general-purpose financial statements where the auditor is prohibited from observing
the inventory count
D. Summarized financial statements
5.
The auditor's judgment regarding whether the financial statements give a "true and fair view" or "are
presented fairly" in all material respects, is made in the context of:
A, generally accepted auditing standards
B. standards of reporting of generally accepted auditing standards
C. applicable financial reporting framework
D. applicable Philippine Standards on Auditing (PSAs)
6. in forming an opinion on the financial statements,
A. the auditor should evaluate the conclusions drawn from the audit evidence obtained during the course
of the audit
B. the auditor evaluates whether there is a reasonable assurance about whether the financial statements are
free from city misstatements
C. the auditor evaluates whether sufficiently appropriate audit evidence has been obtained to eliminate the
risk of material misstatements
D. the auditor verifies that all errors that misstate the financial statements have been corrected by the client
7. In evaluating whether the financial statements have been prepared and presented in accordance with the specific
requirements of the applicable financial reporting framework for particular classes of transactions, account
balances and disclosures. the auditor should consider
A. That the accounting estimates made by the management are reasonable in the circumstances
B. that the information presented in the financial statements, including accounting policies, is relevant,
reliable, comparable and understandable
C. that the accounting policies selected and applied are consistent with the financial reporting framework
D. All of the choices given are to be considered
8. Which of the following is least likely considered by the auditor when he has to evaluate the fair presentation of
the financial statements?
A. Whether the financial statements, after any adjustments made by the management as a result of audit
process are consistent with the auditor’s understanding of the entity and its environment
B. Whether the financial statements, including the disclosures, faithfully represent the underlying
transactions and, events in a manner that gives a true and fair view of, in all material respects, the
information conveyed in the financial statements within the context of the financial reporting framework.
C. Whether the results of analytical procedures performed at or near the end of the audit help to
corroborate conclusion formed during the audit,
D. Whether the financial statements are approved by the board of directors.
9. If the auditor encounters circumstances that lead him to conclude that compliance with a specific requirement
results to financial statements that are misleading, the auditor:
A. considers the need to appropriately modify the auditor's report
B.
does not need to modify the report
C. needs to issue qualified opinion
D. needs to disclaim his opinion
10.
What is the overriding benefit of having consistency in the report?
A. Consistency promotes credibility in the global marketplace by making more readily identifiable those
audits that have been conducted in accordance with globally recognized standards.
B. Consistency in the form promotes the expression of unqualified
C. Consistency lessens the auditor's legal and civil liabilities.
D. The audit report eliminates some disclosures required in the financial statements.
11. The auditing profession recognizes the need for unitorrnd in reporting as a means of
A. defending against third party litigations.
B. Systematic and easier review of the audit report by the lead engagement partner
C. Standardizing the policies of various CPA firms
D. avoiding confusion.
12. What is the descriptive word in the tilte of an audit report issued on a complete set of general-purpose financial
statements which affirms that the auditor has met all of the relevant ethical requirements
A. Audit
B. Opinion
C. Independent
D. Report
13. The auditor's standard report should always include in its title the word
A. Standard
B. Independent
C. Opinion
D. Audit
14. The auditor's report may be addressed to any of the following, except the client’s
A. Stockholders
B. Chief executive officer
C. Board of directors
D Partners
15. The introductory paragraph of the standard audit report may include the following:
A) Identification of the entity whose financial statements have been audited.
B) Statement that the financial statements have been audited
C title of each of the financial statements that comprise the complete set of financial statements.
D) Reference to "basic financial statements" without indicating the title of each of the financial statements.
E) Reference to the summary of significant accounting policies and other explanatory notes.
F) Specific date and period covered by the financial statements,
G) Reference to Philippine Standards on Auditing.
Which of the foregoing are specifically required by the applicable standards on auditing to be included or referred
to in the introductory paragraph of the standard audit report?
A.
A. B, D. F, G
B.
A.B.C,E.F.G
C.
A. B, C, E, F
D.
B• C, E, F
16.
The purpose of the. introductory paragraph in the standard unqualified report is
A. to clarify the responsibilities of the auditor
B. to identify the financial statements which were audited, and the dates and time periods covered by the
report.
C. to communicate the responsibilities of management in preparing the financial statements, and to clarify
the respective roles of management and the auditor.
D. all of the responses are correct.
17.
The complete set of general-purpose financial statements that are prepared in accordance with PFRS
comprises of:
A. Balance Sheet, Income Statement, Statement of Changes in Equity, Cash Flow Statement
B. Statement of Assets and Liabilities, Income Statement, Statement of Changes in Retained Earnings,
Cash Flow Statement
C. Balance Sheet, Income Statement, Cash Flow Statement, Summary of Significant Accounting Policies
and Other Explanatory Notes
D. Balance Sheet, Income Statement, Cash Flow Statement. Statement of Changes in Equity, Summary of
Accounting Policies and Other Explanatory Notes
18. When an entity presents, together with the financial statements, supplementary information that cannot be
clearly differentiated from the financial statements because of its nature and how it is presented, $Such
supplementary information
A. must be specifically referred to in the introductory paragraph of the auditor’s report
B. Is covered by the auditor’s opinion
C. Is referred by adding an emphasis of matter paragraph
D. Is not covered by the auditor’s opinion
19. Which of the following is an incorrect statement about supplementary information?
A. The auditor’s opinion may or may not cover the supplementary information
B. It is important for the auditor to be satisfied that any Supplementary information that is not covered by
the financial statements
C. The supplementary information that cannot be differentiated from the financial statements is covered
by the auditor's opinion
D. Supplementary information that is presented as an integral part of the financial statements always
needs to be specifically referred to in the introductory paragraph of the auditor's report
20.
Which of the following is not specifically referred to in the second paragraph of the standard audit report
as management's responsibilities?
A. Designing, implementing and maintaining internal control relevant to the preparation and fair
presentation of financial statements.
B. Effectiveness and efficiency of operating decisions.
C. Selecting and applying appropriate accounting policies.
D. Making accounting estimates that are reasonable n the circumstances
21. Managements responsibilities for financial statement is?
A. implicitly represented in the auditors standard report
B. Explicitly represented in the opening paragraph of the auditor’s standard report
C. Explicitly represented in the scope of responsibility of the management paragraph of the auditor’s
standard report
D. Explicitly represented in the opinion paragraph of the auditor’s standard report
22. Which paragraph(s) of the standard auditor's report affirms the responsibility of the management with respect to
the entity's financial statement?
A.
First paragraph
B.
C.
D.
Second paragraph
Second and Third paragraphs
Third paragraph
23.
How are management's responsibility and the auditor's responsibility
represented in the applicable paragraph(s) of the standard auditor's
report?
Management
Auditor
A.
Explicit Explicit
B.
Implicit implicit
C.
Implicit Explicit
D.
Explicit implicit
24.
The auditor's responsibility in an audit, engagement is limited to:
A. expression of an opinion on the financial statements
B. expression of an opinion on the financial statements and adequacy of summary of accounting policies
and other notes
C. opinion issued and the fairness of presentation of the financial statements
D. expression of opinion and an inclusion supplementary information, if necessary
25.
The existence of audit risk is recognized by the statement in the scope paragraph - auditor's responsibility
of the auditor's standard report that the
A. auditor is responsible for expressing an opinion on the financial statements,
B. financial statements are presented fairly, in all material respects, in conformity with PFRS.
C. audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements.
D. auditor obtains reasonable assurance about whether the financial statements are free of material
misstatements..
26. The standard audit report explains that a financial audit include all of the following except
A, Examining support for the amounts and disclosures in the financial statements.
B. Assessing the level of control risk.
C. Assessing the accounting principles used and significant estimates made by management.
D. Evaluating the overall financial statement presentation.
27.
Which of the following statements is a basic element of the standard audit report?
A. The disclosures provide reasonable assurance that the financial statements are free of material
misstatements.
B. The auditor tested compliance to internal control by the client.
C. An audit includes assessing significant estimates made by the management.
D. The financial statements are consistent with those of the prior period
28.
The auditor's report should describe an audit by addressing some concerns that may include:
A. An audit includes evaluating the appropriateness of the accounting policies used.
B. An audit includes evaluating the reasonableness of accounting estimates made by management.
C. Evaluating the overall presentation of the financial statements
D. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the statements.
E. The procedures selected depend on the auditor’s judgment
Which of the foregoing concerns are stated in the audit report?
A.
B.
C.
D.
A,B,C,D,E
A,B,C
A,C,E
A,B,D
29. The audit report date is important to users of financial statements because it indicates
A. the last day of the fiscal period.
B. the date on which the financial statements were filed with the SEC
C. the last date on which users may institute a lawsuit against the client or the auditor.
D. The last day of the auditor's responsibility for the review of significant events that occurred after the
date of the financial statements.
30.
The standard audit report refers to GAAS and PFPS in which paragraph (s) ?
GAAS
A. Scope only
B. introductory only
C. introductory and scope only
D. Introductory only
31.
PFRS
Opinion only
Scope and opinion only
Opinion
All paragraphs
The auditors judgment of whether financial statements are tally presented is made within in the context of:
A. Philippine financial reporting standards.
B. control risk.
C. attestation standards.
D. auditing standards.
32.
The auditor's standard report states that the financial statements are presented fairly
A. with reasonable assurance.
B. in all material respects.
C. without significant errors.
D. on a consistent basis.
33.
How are other reporting responsibilities addressed within the auditor's report?
A. They should be addressed in a separate section that follows the opinion paragraph
C. In addition to the auditor's signature, the auditor may be required to declare the auditor's professional
accountancy designation.
D. The auditor's report filed with the Securities and Exchange Commission (SEC must be manually
signed.
34. Which of the following is incorrect regarding the auditor’s signature?
A. the auditor’s signature is either in the name of the audit firm, the personal name of the auditor or both
as appropriate
B. the auditor’s signature is either in the name of the audit firm, the personal name of the auditor but not
both.
C. In addition to the auditor’s signature, the auditor may be required to declare the auditor’s professional
accountancy designation
D. The auditor’s report filed with the SEC must be manually signed.
35,
which of the following information is(are) required when or, auditor' report is issued on financial
statements to be filed with the Securities and Exchange Commission
1.
2
3.
4.
5.
Audit report is manually signed.
Certifying partner to sign his name.
Partner's Tax Identification Number.
PRC registration number
Accreditation with SEC
A.
B.
C.
D.
12345
245
1345
2345
36. An audit report should be dated as of the
A. date the stockholders approve the audited financial statements.
B. date of management approving the audited financial statements.
C. Balance sheet date of the latest period reported on
D. date a letter of audit inquiry is received from the entity's attorney,
37. Why is the date of the auditor’s report important?
A. To have a basis of determining the audit tees to be paid to the auditor
B. The date of the auditor's report informs the readers that the auditor has considered the effect of events
and transactions of which the auditor came aware and that occurred to that date,
C. To emphasize completeness assertionD. To interim the users of the financial statements that the auditor complied with the applicable Philippine
Standards on Auditing.
38. How is the auditor's report on financial statements find approval by stockholders before such financial
statements are issued publicly dated?
A. The auditor's report should be dated coinciding the date of approval of the financial statements by the
stockholders.
B. The auditor's report should be dated after the approval of the financial statements by the stockholders.
C. The date of the auditor's report coincides the date of approval of the financial statements by the board of
directors.
D. The audit, -report should be dual dated. the first date coinciding the approval by the board of directors
and the second date tocoincide with the approval by the stockholders.
39. The auditor's address is indicated in the auditor's report by:
A. Naming the location in the country where the auditor practices his profession
B. including the complete mailing address of the auditor.
C. identifying the country. from where the auditor had secured his professional license.
D. the auditor's address is omitted in the report.
41. When additional language is added to the auditor's report without modifying the opinion, the additional
language should be included in
A. the introductory paragraph,
B. the scope paragraph..
C. the Opinion paragraph
D. one or more additional paragraphs that follow the opinion paragraph.
42. Which of the following statement is not true
A. A one paragraph report is generally used when the auditor is not independent.
B. A modification of the audit report that involves modified wordings may contain an unqualified opinion.
C. An addition of another paragraph to an otherwise standard audit report always requires a modification
of an unqualified opinion
D. An unqualified opinion may be issued though the audit report requires an additional explanatory
paragraph.
43.
An auditor includes a separate paragraph in an otherwise unmodified report to emphasize that the entity
being reported on had significant transactions with related parties. The inclusion of this separate paragraph
A. is considered on "except for" qualification of the opinion
B. violates generally accepted auditing Standards it this information is already disclosed in the footnotes
to the financial statements.
C. necessitates a revision of he opinion paragraph to include the phrase "with the foregoing explanation."
D. is appropriate and would riot negate the unqualified
44.
An auditor concludes that there is substantial doubt about on entity's ability to continue as a going concern
for a reasonable period of time. If the entity’s disclosures concerning this matter are adequate, the audit report
should include a(an)
ADVERSE OPINION
“EXCEPT FOR” QUALIFIED OPINION
A.
YES
YES
B.
NO
NO
C.
NO
YES
D.
YES
NO
45. Under certain c:ircumstunces, the CPA may wish to emphasize specific matters regarding the financial
statements even though he or she intends to express an unqualified opinion. Normally, such explanatory
information should be included in
A. the introductory paragraph.
B. a separate paragraph following the opinion paragraph in the report.
C. the opinion paragraph.
D. A separate paragraph preceding the opinion paragraph.
46.
Salmon Company's financial
statements adequately disclose uncertainties that concern future events,
the outcome of which cannot reasonably be estimated. The auditor's report should include
a(an)
A. unqualified opinion
B.
"except for" qualified opinion
C. "subject to" qualified opinion
D. adverse opinion
47.
The paragraphs of the report which is modified for uncertainties are
the some as the standard unqualified report. The explanatory paragraph as a form of the modification to describe
the uncertainty is added as the
A. first paragraph
B.
last paragraph
C. third paragraph with the opinion paragraph last
D. second paragraph with the opinion paragraph lost
48.
An explanatory paragraph following an opinion paragraph that describes an uncertainty is as follows:
As discussed in Note X to the financial statements, the company is a defendant in a lawsuit alleging infringement
of certain potent rights and claiming damages, Discovery proceedings are in progress. The ultimate outcome of the
litigation cannot presently be determined. Accordingly, no provision for any liability that may result upon
adjudication has been made in the accompanying financial statements.
What type of opinion should the auditor express in this?
A. Unqualified
R. Disclaimer
C- Qualified
D. adverse
49.
The audit report issued by Lozano and Co., CPAs, included the following paragraph that followed the
opinion paragraph:
Without qualifying our opinion we draw attention to Note I I to the financial statements. The Company is the
defendant in a lawsuit alleging infringement of certain patent rights .. .
The paragraph is considered.
A. an inappropriate reporting practice
B. on additional information to be a part of the notes to financial statements.
C. an emphasis of matter regarding uncertainty which is considered an acceptable reporting practice
D. inappropriate because it contradicts the, unqualified opinion issued by the auditor
50.
In extreme cases such as situations involving multiple uncertainties that
are significant to the financial statements. the auditor
A. may consider to express a disclaimer of opinion
B. may qualify his opinion instead off issuing an unqualified opinion With emphasis of matter paragraph
C. may issue an adverse opinion because of their significance
D. may issue a "subject to" opinion because the situations related to uncertainties
51. A client company has issues that cause substantial doubt regarding
The entity’s ability to continue as a going concern. It is the only major audit issue, which type of opinion will the
auditor usually refrain from issuing?
A. Adverse
B., Unqualified with explanatory language
C;. Clean opinion
E. Disclaimer of opinion
S2.
Which of the following situations, the effect of which is significant, least likely require a decision of
whether to issue a qualified or adverse Opinion?
A. Any disagreement with entity management regarding the acceptability of the accounting policies
selected by the management.
B. Limitation on the scope of the auditor's work.
C. Inadequate disclosures of financial information.
D. Unjustified changes in accounting policies.
53.
The auditor may continue to express unqualified opinion though there
are modifications made in the audit report. Which of the following situations, would the auditor likely modify his
opinion?
A. The existence of multiple uncertainties that are adequately described in the notes to financial
statements.
B. The prior year's financial statements were audited by other CPAs.
C. An important subsidiary whose financial statements were included in the consolidated financial
statements were audited by other CPAs.
D. A substantial doubt about the client's ability to continue as a going concern that is adequately disclosed.
in the financial statements.
54.
In which of. the following situations would qualified opinion be inappropriate?
A. Financial statements are materially misstated.
b. doubt that is more than substantial about the ability of the company to continue as a going concern.
C. A significant scope limitation.
D. The management insisted of not attaching the statement of cash flows.
55. Which of the following is not a reason to issue a modified audit report with opinion other than unqualified
opinion?
A. The scope of the auditor’s work is restricted by the client
B. The amount of inventories at cost as presented in the balance sheet significantly exceeded their
market values
C. Certain significant matter is omitted from either th financial statements or notes to financial statements
D. An adequately disclosed significant uncertainties the resolution of which is dependent upon the future
events and which may affect the financial statements.
56. Which of the following situations may likely require a modified audit report with modified wordings or an
emphasis of matter paragraph?
A. A significant uncertainty, not adequately disclosed in the financial statements
B. An audit of inventory is restricted by the client. The auditor was satisfied about the balance of the
inventory by doin alternative audit procedures
C. A change in the application of generally accepted accounting principle that is justified
D. A less than substantial doubt regarding the ability of the entity to continue as a going concern
57 Witch of the following circumstances may not result to a disclaimer of opinion?
A. A significant scope limitation in auditing the existence inventories. The inventory amour-it comprises
75 percent of the total assets of the client.
B. The auditor believes that there are multiple uncertainties that are significant to the financial statements.
C. The accounts receivable of the client comprises 80 percent of the total assets. The auditor was
instructed by the client not to confirm account balances. The auditor. However, was satisfied of the results
of alternative audit procedure.
D. The auditor’s wife owns very a few number of common shares of the client
58. an auditor may express a qualified opinion because of
A.
B.
C.
D.
Departure from PFRS
YES
NO
YES
NO
Lack of consistency
YES
YES
NO
YES
Scope Limitation
YES
NO
NO
YES
59. Whenever an auditor issues a qualified report, he/she
A. Must use the term “subject to” in the opinion paragraph
B. may use either the terms “subject to” or “except for” in the opinion paragraph depending on the nature
of the qualification.
C. must use the term “except for” in the opinion paragraph
D. Must not use the terms “subject to” or “except for” in the opinion paragraph
60.
An explanatory paragraph may be added to the audit report white at the some time issuing on unqualified
opinion in all cases except when:
A. the client has changed on accounting principal with the agreement of the auditor.
B. there is an immaterial departure from GAAP to ensure fair presentation with the agreement of the
auditor.
C. the audit opinion is partly based on the work of another auditor.
D. the audit work has been significantly limited by management.
61
Under which of the following sets of circumstances might an auditor todisclaim an opinion?
A. The financial statements contain a departure from PFRS, the effect of which is material.
B. The principal auditor decides to make reference to the report of another auditor who audited a
subsidiary.
C. There has been a material change between periods in the method of the application of accounting
principles,
D. There were significant limitations. on the scope of the audit,
62. if an auditor is engaged to audit a client's financial statements cotter the annual physical inventory count was
made and the accounting records are not sufficiently reliable to enable the auditor, to become satisfied as to the
year-end inventory balances, the opinion to be expressed is
A.
B.
C.
D.
either an "except tor" qualified opinion or on adverse opinion
either a disclaimer or opinion or an "except for" qualified opinion,
either an adverse opinion or disclaimer of opinion
An unqualified opinion
63. an adverse opinion is expressed when the auditor believes
a. some parts of the FS are materially misstated or misleading
b. the FS will be found to be misstated or misleading, if an adequate investigation is performed
c. the overall FS are so materially misstated or misleading as a whole that they do not present fairly the
financial position, changes in cash and stockholders equity in conformity with PFRS
d. the audit firm is not independent
64. In the scope of the auditors procedure in conducting an auditis significantly restricted by the client
management, the audit opinion will most likely be
A. Adverse opinion.
B. Qualified opinion.
G. Unqualified with explanatory paragraph.
D. Disclaimer of opinion.
65.
The auditor would most likely disclaim his opinion because of
A client's failure to present supplementary information required by the FRSC.
B. inadequate disclosure of material information.
C the qualification of an opinion by the other auditor of a subsidiary where there is a division of the
responsibility
D.a client-imposed scope limitation.
66. whenever the client imposes restrictions on the scopeof the audit, the auditor should be concerned about the
possibility that management is trying to prevent discovery of misstated information. In such cases, PSA 701 has
encouraged the auditor to issue
A. disclaimer of opinion in all cases
B. Qualification of both scope and opinion in all cases
C. disclaimer of opinion, whenever materiality is in question
D. Qualification of both scope and opinion paragraphs, whenever materiality is in question
67. An explanatory paragraph may be added to the audit report while at the same time issuing an unqualified
opinion in all cases except when:
A. the client has changed an accounting principle with the agreement of the auditor
B. there is an immaterial departure from PFRS to ensure fair presentation with the agreement of the
auditor
C. the audit opinion is partly based on the work. of another auditor
D the audit work has been materially limited by management
68. The most common case in which conditions beyond the client’s and auditor's control cause a scope restriction is
an engagement
A. agreed upon otter the client's balance sheet date.
B. where client will not allow the auditor to confirm receivables for fear of offending its customers.
C. where auditor does not have enough stuff to audit all of client's foreign subsidiaries satisfactorily.
D. where client is going through a bankruptcy.
69.
An audit report contains the following paragraph: "Because of the inadequacies in the company's
accounting records during the year ended June 30. 2008, it was not practicable to extend our auditing procedures to
the extent necessary to enable us to obtain certain evidential matter as it relates to classification of certain items in
the consolidated statements of operations." This paragraph most likely describes
A. A material departure from PFRS requiring a qualified audit opinion.
B. An uncertainty that should not lead to a qualified opinion,
C. A mater that the auditor wishes to emphasize and that does not lead to a qualified audit opinion.
D. A material scope restriction requiring a qualification of the audit opinion.
70.
Which of the following circumstances least likely result to either a qualified opinion or an auditor
disclaiming his opinion.
A. The auditor is unable to carry out an audit procedure believed to be desirable; the auditor carried out
alternative audit procedures to support the management’s assertion
B. The auditor believed that clients accounting records are inadequate
C. A client-imposed limitations with respect to the audit of inventory
D. Circumstances did not permit the auditor to perform certain required audit procedures
71.
Addition of an "emphasis of a matter' paragraph to what remains An unqualified opinion is least likely
required t of which of the following situations
A. Related party transactions.
B. Scope limitation n.
C. A significant subsequent event.
D. An uncertainty.
72.
When the scope of the auditor's work has been limited, the audit report should contain a(n):
A. unqualified opinion if the scope limitation was unavoidable.
B. indication that the financial statements are materially misstated because of a departure from PFRS.
C. estimate of the financial impact of the scope limitation of the financial statements.
D, emphasis of matter paragraph that refers to the particular note to the financial statements.
73. When there is a limitation on the scope of the auditors work ' requires a modification of the audit report:
A. The auditor’s report should either contain a qualified or adverse opinion
B. The auditor’s report may contain an unqualified opinion with an emphasis of matter paragraph that
follows the opinion paragraph
C. The auditors report should describe the limitation and indicate the possible adjustments to the FS that
might have been determined to be necessary had the limitation not existed
D. Should always contain a disclaimer opinion
74. Which of the following least likely requires an expression of unqualified opinion with modified wordings or an
emphasis of matter paragraph?
A. The financial statements of prior period, which are presented for comparative purposes, were audited by
another CPAS.
B. The auditors have substantial doubt about the ability of the entity to continue as a going concern.
C. The entity changed the measurement of certain significant transaction from one GAAP to another
GAAP.
D. The auditors failed to observe physical inventory count; however the auditor was satisfied that the
inventory amount was fairly presented by 'doing alternative audit procedures.
75. When there is a limitation in the scope of the audit that results to a disclaimer of opinion, 'the following
paragraphs are modified, except:
A. Introductory paragraph
B. Management's responsibility for the financial statements.
C. Auditor's responsibility
D. Auditor's opinion.
76. The expression of a qualified opinion means that the financial statements, taken as a whole; in all material
respects, are
A. materially misstated.
B. materially misleading.
C. presented fairly.
D. do not present fairly.
77.When the auditor cannot perform certain required procedures and the amounts ore so material that a disclaimer
of opinion rather than a qualified opinion is required
A. the opinion paragraph will state "do not present fairly".
8, the opinion paragraph will state "present fairly".
C. the scope -- auditor's responsibility paragraph will be deleted.
D. the scope paragraph will be unchanged from the standard unqualified opinion.
78.
Which of the following indicates a qualified opinion?
A. The financial statement do not presents fairly in all material respects, the financial position, results of
operations,
B. The auditor does not express an opinion on the financial statements.
C. The financial statements present fairly, in all material respects, the
financial position, results of operations, and cash flows in conformity with PFRS
D. Except for the effects of a matter, the financial statements present fairly, in all material respects, the
financial position, results of operations, and cash flows in conformity with PFRS.
79. An auditor who qualifies an opinion hPOnr_,Se of his innhility to nhtnin sufficient evidential matter should
describe the limitation in an explanatory paragraph that is inserted between the scope _responsibility of the auditor
and opinion paragraphs. The auditor should also refer to the limitation in the:
SCOPE
A
B
C
D
YES
NO
YES
YES
OPINION
PARAGRAPH
NO
YES
YES
YES
NOTES IN THE
FS
YES
NO
NO
YES
80.Which of the following circumstances requires the auditor to omit the sentence stating the responsibility of
the report?
A. Limitation on the scope of the audit resulting to unqualified opinion
B. Limitation on the scope of the audit resulting to disclaimer of opinion
C. The management refuses to issue a representation letter that prompts the auditor to qualify his
opinion
D. A material misstatement that requires an adverse opinion.
81.When the client is not following PFRS, and the auditor believes that adherence to PFRS would result to
misleading statements, the opinion paragraph of the audit report.
A. mist express an adverse opinion.
B.
must express a qualified opinion.
C. should be unqualified with a required explanatory paragraph.
D. should be the standard unqualified opinion.
82.
In which of the following conditions is an unqualified audit opinion least likely issued?
A. The auditor believes that a substantial doubt about the entity's ability to continue as a going
concern exists.
B. The auditor believes that inventory is valued at market values that accurately reflect market
conditions and materially exceed cost.
C. The audit is conducted with no circumstance or imposed scope limitations
D. PFRS are not consistently applied from year to year.
83. Once the auditor has determined that an exception is material enough to warrant a qualification of his
auditor's report, he must then determine if the exception is sufficiently material to negate an overall opinion.
If the auditor is applying this decision process to an exception based on a departure from Philippine financial
reporting standards, he is deciding
A. Whether to issue an adverse opinion rather than a disclaimer of opinion.
B. Whether to issue a disclaimer of opinion rather than a qualified opinion.
C. Whether to issue an adverse opinion rather than a qualified opinion
D. Nothing because such a decision process is not applicable to this type of exception.
84.
An auditor who is reporting on' financial statements that contain a material departure from PFRS
should include in his audit report a separate explanatory paragraph and
A. not modify the opinion paragraph as long as the departure is adequately disclosed in a footnote.
B. disclaim an opinion on the financial statements.
C. express a qualified or adverse opinion.
D. express a qualified opinion or disclaim an opinion.
85. When the auditor knows that the financial statements may misleading because they are not prepared inbe
conformity with Philippine financial reporting standards, he must issue G(n)
A. a qualified opinion.
B.an adverse opinion.
C. a disclaimer of opinion.
D. a qualified or an adverse opinion, depending on the materiality of the item in question.
86.
An auditor should disclose the substantive reasons for expressing an adverse opinion in an
explanatory paragraph
A. preceding the scope - responsibility of the auditor Paragraph,
B. between the scoop responsibility of the auditor paragraph an the opinion paragraph.
C. following the opinion paragraph.
D. within the notes to the financial statements.
87.
A qualified opinion report can be used only when the auditor believesthat the overall financial
statements are
A. fairly stated.
B.
not fairly stated.
C. materially misstated.
D. materially misleading.
88,
if the auditor believes that a required material disclosure is omitted from the financial statements, the
auditor should decide between issuing a (n)
A. qualified opinion or an adverse opinion.
C. adverse opinion or a disclaimer of opinion.
D. unqualified opinion or a qualified opinion.
89,
An auditor is confronted with an exception sufficiently material to warrant departing from the
standard wording of an unqualified report. If the exception relates to a departure from the Philippine financial
reporting standards, the auditor must decide between a(n)
A.
B.
C.
D.
adverse opinion and an unqualified opinion
Adverse opinion and a qualified opinion.
adverse opinion and a disclaimer opinion
Disclaimer opinion and a qualified opinion.
90. in which of the following situation would ca decision of
opinions be inappropriate?
selecting between a qualified or adverse
A. A limitation in the scope of the audit.
B. The financial statements are significantly misleading
C. A disagreement between the auditor and the client arose because of capitalization of research and
development costs.
D. A required disclosure that is significant is omitted from the financial statements.
91.
When the auditor qualifies his opinion due to his disagreement with the client in applying accounting
policies, the auditor. modifies:
A. The introductory paragraph and opinion paragraph.
B. Management's responsibility for the financial statements and opinion paragraphs.
C. The opinion paragraph only.
D. Management's responsibility for the financial statements, auditor's responsibility and auditor's
opinion paragraphs.
92. Which of the following circumstances requires the modification of both the auditor's responsibility, and
the auditor's opinion paragraphs of the auditor's report?
A. Limitation on the scope of audit that results to qualified opinion.
B. Auditor's disagreement with the client management on accounting policies that requires qualified opinion.
C. inadequate disclosures that requires qualified opinion.
G. Disagreement with the client management regarding accounting policies that requires adverse opinion.
93. In which of the following situations would an auditor ordinarily choose between expressing a qualified
opinion or an adverse opinion?
A. The auditor did not observe the entity's physical inventory and is unable to be satisfied about its
balance by other auditing procedures
B. Conditions that cause the auditor to have substantial doubt about the entity’s ability to continue as
a going concern are not disclosed
C. There has been a change in accounting principles, the material effect on the comparability of the
entity's financial statements has been properly disclosed in the FS
D. The auditor is unable to apply necessary procedures concerning an investor's share on an investee's
earnings recognized on the equity method
94.
How should the auditor address the comparatives that are presented as corresponding figures?
A. The comparatives are specifically identified in the audit report because the auditor's opinion on the
current period financial statements applies also to the corresponding figures.
B. The comparatives are specifically identified in the introductory paragraph and in the opinion
paragraph.
C. The comparatives are not specifically identified because the auditor's opinion applies to the current
period financial statements as a whole, including the corresponding figures.
D. The comparatives are referred to in the opinion paragraph as the auditor applies to both the current
year's financial statements and the corresponding figures.
95.
Which of the following circumstances requires an issuance of unqualified opinion with modified
wordings?
A. A significant uncertainty that may affect the financial statements of the future period is adequately
disclosed in the financial statements.
B. The auditor agrees with the client for a change in accounting
Policy that significantly affects the financial statements
C. An insignificant scope limitation in the work of the auditor.
D. The successor auditor reports on the current year's financial statements
The prior-years
financial statements that were presented as comparatives were audited by another CPA.
96 When management prepares financial statements on the basis of a going concern and the auditor believes
the company may not continue as a going concern, the auditor should issue a (n)
A. qualified opinion.
B.
unqualified opinion with an explanatory paragraph.
C. disclaimer of opinion.
Q. adverse opinion
97. If an amendment is necessary in the other information and the entity refuses to make the amendment, the.
auditor, depending on particular circumstance, may do any of the following, except:
A. Describe the material inconsistency as an emphasis of matter in a paragraph following the opinion
paragraph.
B. The auditor may not issue the auditor's report.
C. The auditor may withdraw from the engagement.
D. The auditor to issue either a qualified or adverse opinion.
98. An auditor concludes that there is a substantial doubt about an entity's ability to continue as a going
concern for a reasonable period of time. If the entity's financial statements adequately disclose these financial
difficulties, the auditor's report is required to include anexplanatory paragraph that specifically mentions
'Management's Plans"
A.
Yes
B.
Yes
C.
No
"Going concern"
Yes
No
Yes
D.
No
No
99.When there is uncertainty about a company's ability to continue as a going concern, the auditor's concern is
the possibility that fhe client may not be able to continue its operations or meet its obligations for a
"reasonable period of time." For this purpose, a reasonable period tt time is considered not to exceed
A. six months from the date of the financial statements.
B. six months from the date of the audit report.
C,: one year from the date of the financial statements.
D. one year from the date of the audit report.
100. When the auditor concludes that there is a substantial doubt about the entity's ability to continue as 0
going concern, he should issue.;
A. unqualified opinion with an explanatory paragraph provided that thereis an adequacy of
disclosures in the FS
B. qualified opinion with an explanatory paragraph, regardless of the adequacy of disclosures in the
financial statements.
C. adverse opinion, regardless of the adequacy of disclosures in the FS
D. standard unqualified report, provided that client has made adequate disclosures in the financial
statements.
QUIZZERS
Which of the following representations does an auditor make explicitly and implicitly when issuing an
unqualified opinion?
Conformity with PFRS Adequacy of Disclosure
A.
Explicitly
Explicitly
B.
Implicitly
Implicitly
C.
Implicitly
Explicitly
D.
Explicitly
Implicitly
2.
Materiality is:
A. addressed within a practitioner's attestation and audit reports.
B.
expressed in terms of pesos.
C. measured using guidelines established by the FRSC.
D. not applicable to attestation engagements.
3.
Which one of the following is an example of the contents of an
opinion paragraph found in a disclaimer of opinion?
A. "except for..."
B.
"nothing came to our attention..."
C. The financial statements do not present fairly...
D. None of these represents a disclaimer of opinion.
4.
An auditor issued an audit report that was dual dated for a
subsequent event occurring after the management's approval of the financial statements but before issuance of
the auditor's report. The auditor's responsibility for events occurring subsequent to the completion of
fieldwork was
A. Extended to subsequent events occurring through the date of issuance of the report.
B. Extended to include all events occurring since the date of approval of the financial statements by
the management.
C, Limited to the specific event referenced.
D. Limited to include only events occurring up to the date of the lost subsequent event referenced
5.
An auditor has been asked to report on the balance sheet of Jane Company but not on the other basic
financial statements. The auditor will have access to all information underlying the basicfinancial statements.
Under these circumstances, the auditor
B. May accept the engagement because such engagements merely involve limited reporting objective.
C. Should refuse the engagement because there is a client-imposed scope limitation.
D. Should refuse the engagement because of a departure from generally accepted auditing standards.
6;
The use of a negative assurance in the audit reports for historical financial statements is
A. a violation of the standards of reporting.
B. supported by PSAs and their interpretations.
C. allowed if the auditors' opinion is unqualified..
D. properly located in the a opinion paragraph of the unqualified report.
7. Which of the following is true of the notes to financial statements that are prepared in accordance with
PFRS?
a. notes are not required, but typically included by all companies
b. notes are not required since they only give additional information contained in FS
c. notes are an integral part of the FS
d. notes are not encompassed in the auditors opinion of the FS since they are supplementary
information
8. if the balance sheet of a publicly held company is dated December 31, 210 the audit report is dated March
6, 2011 and both are released to the public on march 15, 2011, this indicates that the auditor has searched for
material subsequent transactions and events that occurred up to
A.December 31, 2011
B. March 15,2011
C. March 6, 201 1
D., None of these
9.
The three main types of audit opinion other than the unqualified report are the
A. adverse opinion, disclaimer of opinion, and qualified opinion.
B. adverse opinion, reports on unaudited financial statements, and disclaimer. .
C. disclaimer, the qualified opinion, and reports on unaudited financial statements
D. special audit reports, reports on unaudited financial statements, and adverse opinion.
10.
In the scope - responsibility of the auditor paragraph of the audit report, the use of the term "material
misstatements" conveys that auditors are responsible to search for
A. minor misstatements.
B. significant misstatements.
C. fraudulent misstatements.
D. all misstatements.
11.The guidelines which enable auditors to decide when something is immaterial, material, or highly material
are provided by
A. the AASC through its Philippine Standards on Auditing.
B. the FRSC through its Statements' on Financial Accounting Standards.
C. the Securities and Exchange Commission.
D. auditor's judgment.,
12.
When financial statements of prior period are presented on a comparative basis with financial
statements of the current period, the continuing auditor is responsible for
A. expressing dual dated opinions.
B. updating the report on the previous financial statements only if there has not been a change in the
opinion.
C. updating the report on the previous financial statements only if the previous report was qualitied
and the reasons for the qualification no longer exists
D. updating the report on the previous financial statements regardless of the opinion previously
issued.
13. It a principal auditor decides to assume responsibility for anotherauditor's work, the principal auditor
should consider performing all of the following procedures except:
A. Performing a peer review of the other auditor.
B. Reviewing the audit program of the other auditor.
C. Reviewing the working papers of the other auditor
D. Discussing the audit procedures and the results of the audit with other auditor.
14. When the audited financial statements of the prior year are presence together with those of the current
year, the continuing auditor’s report should cover
A. both years.
B. only the current year.
C. only the current year, but the prior year's report should be presented.
D. only the current year, but the prior year's report should be referred to.
15. As a further attempt to appear that the auditor is independent. the addressee of the audit report is usually
the:
A. client company.
B. board of directors of client company.
C President and CEO of the client company
D. stockholders of client company.
16. Which of the following is not a true statement “in the opinion paragraph of the standard unqualified
report, the auditor is required to state
a.
b.
c.
d.
An opinion about the financial statements taken as a whole
A conclusion about whether the company follows PFRS
Whether the managements has or has not made adequate disclosure
That the FS are presented fairly
17. in the auditor’s responsibility – scope paragraph of the audit report the use of the term “reasonable
assurance” is intended to indicate that
a.
b.
c.
d.
No misstatements state in the financial statements
No material misstatements exists in the statements
There is a possibility that material misstatements exists in the FS
There is a possibility that immaterial statements still exists in the FS
18. An audit opinion that is considered a "good" opinion is one that is
A.
A disclaimer of opinion.
B.
Adverse.
C.
Qualified.
D.
Unqualified.
19. Most auditors believe that the financial statements are '-presented fairly" when the statements are in
accordance with Philippine financial reporting standards, but it is also necessary to
A. determine that they are not in violation of FRSC statements.
B. Examine the substance of transactions and balances for misinformation.
C. review the statements using the financial reporting standards that are promulgated by the
Accounting Standards Council.
D. assure investors that the net income reported this year will equal or exceed the prior year's.
20. Whenever an auditor issues on unqualified opinion, the implication is that the auditor
A. does not know if the statements are presented fumy.
B. does not believe the statements are presented fairly.
C. is satisfied that the statements are presented fairly except for a specific aspect of them..
D. is satisfied that the statements ore presented fairly
21.
The most common type of audit report contains a (n)
A.
B.
C..
D.
Old v erse opinion.
disclaimer of opinion.
qualified opinion.
Unqualified opinion
22.
When a misstatement in the financial statements exists, but is unlikely to affect the decisions of a
reasonable user, it would be appropriate to issue
A. unqualified opinion.
B. qualified opinion.
C. disclaimer of opinion.
D. adverse opinion.
23.
A misstatement in the financial statements can be considered material if
A.it overshadows the financial statements as a whole
B. knowledge of the misstatement would affect a decision of a reasonable user of the statements.
C. it affects more than one account on the statements.
D. it affects only one account on the statements.
24.
If a misstatement is immaterial relative to the financial statements of the entity for_ the current period
and is not expected to have a material effect in future periods, it is appropriate to issue a(n)
A. unqualified opinion.
B. qualified opinion.
C. adverse opinion.
D. disclaimer of opinion
25.
The only unqualified reports which use modified wording are those involving
A. the use of other auditors.
B. material uncertainties.
C. substantial doubt about going concern.
D. lack of consistent application of PFRS.
26. When the principal auditor decides to refer to another auditor in his/her report the report should always
include:
A. a qualified or adverse opinion.
8. a disclaimer of opinion regarding the financial statements audited by the other auditor.
C. the percentage and monetary amounts of the portion of the financial statements examined by the
other auditor.
D. reference to a footnote where the division of responsibility between the principal auditor and the
other auditor is described in detail.
27.
A principal auditor decides not to take responsibility for the work of another CPA who audited a
wholly-owned subsidiary of the principal auditor's client. The total assets and revenues of the subsidiary
represent 30% and 24% of the related consolidated totals. What type of opinion should the auditor generally
issue?
A. Unqualified opinion..
8.
Adverse opinion.
C. Qualified opinion.
D. Disclaimer of opinion.
28.
When a principal auditor decides to make reference' to the examination of another auditor, the
principal auditor's report should clearly indicate the
A. Principal auditor's qualification on" the overall fairness of the financial statements, taken as a
whole, "subject to" the work and report of the other auditor.
8,
Procedures that were performed by the other auditor in connection with the other auditor's
examination.
C. Division of responsibility between that portion of the financial statements covered by the
examination made by the principal auditor and that covered by the examination mode by the other
auditor.
D. Procedures that were performed by the principal auditor to obtain satisfaction as to the
reasonableness of the examination the other auditor.
29. The principal auditor is satisfied with the independence and professional reputation of the other auditor
who has audited a subsidiary but wants to indicate the division of responsibility. The principal auditor should
modify
A. Only the introductory paragraph
B. Only the scope- auditor’s responsibility paragraph
C. the introductory, scope- auditor’s responsibility and opinion paragraphs
D. Only opinion paragraphs
30. Francis and Company, CPAs acted as the principal auditor.However since Francis and Company, CPAs,
did not have the resources, it hired other CPA firm to audit a subsidiary of the client located in Bukidnon. If
Francis is willing to take the responsibility for the work of other CPA firm. which type at audit report is
Francis and Company most likely to issue?
A. Standard unqualified report
B. Unqualified with explanatory language.
C. Qualified with explanatory language.
D, Disclaimer of opinion.
31. When the report of a principal auditor makes reference to the examination made by another auditor, the
other auditor may be named it on expressed permission to do so is given and:
A. The report of the principal auditor names the other auditorin boththe scope and opinion
paragraphs.
B. The principal auditor accepts responsibility for the work of other of editor.
C. the report of the other auditor is presented together with the report of the principal auditor
D. The other auditor is not an associate or correspondent firm whose work is done at the request of
the principal auditor
32. When the client declines to disclose essential information in the financial statements or their
accompanying notes, the auditor should?
A. Provide the information in the audit report, if practicable, and qualify his opinion because of a
scope limitation
B. Provide the information in the audit report, if practicableand qualify his opinion because of a
departure from PFRS
C. Issue a disclaimer of opinion because theclient has interfered with the auditor's function of
assessing the adequacy of disclosure
D. issue an unqualifiedopinion but inform the readers by including the omitted information in an
emphasis of matter paragraph.
33.
Magsombot, CPA. is the principal auditor for a multi-national corporation. Another CPA has
examined and reported on the financial statements of a significant subsidiary of the corporation. Magsombol
is satisfied with the independence and professional reputation of the other auditor, as well as the quality of his
examination. With respect to Ma'gsombol's report on the
consolidated financial statements, taken as a whole, Magsombol
A. must not refer to the examination of the other auditor.
B.
must refer to the examination of the other auditor.
C. may refer to the examination of the other auditor.
D. may refer to the examination of the other auditor, in which case Magsombot must include in the
auditor's report on the consolidated financial statements a qualified opinion.
34. If a company's financial statements violate PFRS for an immaterial item which is expected to become
material in the future, the auditor is likely to issue:
A. Unqualified standard report.
B.
Unqualified with explanatory language.
C. Qualified.
D. Adverse.
35.
In performing an audit, the auditor found that the client had changed the estimated useful life of its
assets. The auditor believed that the change in useful lives of the assets is realistic. The appropriate report is:
A, Unqualified standard report.
B.
Unqualified with explanatory
C. Qualified.
D. Disclaimer.
36.
In which of the following circumstances would the auditor most likely issue an unqualified opinion
A. Client company's financial statements show a significant net loss for each of the last three years,
including the current fiscal period.
B. Thefinancial statements have not been prepared in accordance with Philippine financial reporting
standards.
C, The auditor is not independent during the fiscal period under audit.
D. The scope of the auditor's examination has been restricted due to circumstances which are beyond
the control of either the auditor or the client.
37
Comparative financial statements include the prior-year statements that were audited by a predecessor
auditor whose report is not presented. If the predecessor's report was unqualified, the successor should:
A. express an opinion on the current year statements done
and make no reference to the prior
year's statements.
B. Indicate in the auditor's report that the predecessor auditor expressed an unqualified opinion.
C. Obtain a letter of representation from the predecessor concerning any matters that might affect the
successor's opinion.
D. Request that the predecessor auditor reissue the prior report.
38.
The "unqualified report with - explanatory paragraph" and the "unqualified report with modified
wording"
A. arise as a result of an incomplete audit.
B. arise when the financial statements are not quite "presented fairly"
C. meet the criteria of a complete audit with satisfactory results
D. meet the criteria of "a complete audit but with unsatisfactory results.
39.
Which of the following is not a cause of an explanatory paragraph or modified wordings to be added
to the standard report?
A. Emphasis of a matter.
B..Reports involving other auditors.
C. Auditor disagrees with client's departure from
D. Lack of consistent application of PFRS.
40. When determining whether an exception is highly material, the extent to which the exception affects
different parts of the financial statements must be considered. This is referred to as
A. materiality.
B. pervasiveness.
C. financial analysis.
D. ratio analysis.
41.
In order to make materiality decisions when a condition requiring a departure from an unqualified
report exists, the auditor must evaluate
A. the magnitude of the error on the account involved.
B. the effect on- the ' financial statement which contains the erroneous account.
C. the effect of the error on both the income statement and the balance sheet.
D. alt effects on the financial statements.
42.
In which of the following situations would an auditor ordinarily express an unqualified audit opinion
with an explanatory paragraph?
A. The auditor wishes to emphasize that the entity had significantly lost a market share.
B. The auditor decides not to refer to the report of another auditor as a basis, in part, for the auditor’s
opinion.
C. The entity issues financial statements that present financial position and results of operations, but
omits the required notes to financial statements.
D. At the client's request the client's attorney has refused to responds to the auditor's inquiries about
ongoing litigation.
43.
A report other than on unqualified report must be issued whenever any of the three conditions
requiring a departure from an unqualified report
A. exists
B. exists and is material
C. exists is material, and is within management's controls
D. exists, is material, and is within either managements or the auditor's control
44
When a material uncertainty exists the auditor must
A.
B.
C.
D.
Disclose it in the audit report
first determine whether adequate disclosure is included by the client in the financial statements
issue a disclaimer
issue a qualified opinion
45.
Which of the following opinion is appropriate if a company has a probable and material loss
contingency and the company has accrued the loss in the financial statements?
A. Adverse opinion.
B. Qualified opinion.
C. Standard unqualified opinion.
D. Unqualified opinion with explanatory language.
46.
Which of the following conditions most likely requires the auditor to consider issuing a going
concern modification?
A. A decrease in profitability as compared to the previous Year.
B.
A loss contingency related to a lawsuit.
C. Default on a loan agreement.
D. A material related-party transaction.
47.
Which of the following, by itself, would not cause uncertainty about
the ability of a company to continue as a going, concern?
A. A significant net loss.
B. Inability to pay its obligations as they come due.
C. The occurrence of uninsured catastrophes.
D. Legal proceeding that might jeopardize the entity’s ability to continue operating
48
JJ, CPA, has performed most of the audit of Macmood Company's financial statements and qualifies
as the principal auditor. RT, CPA, did the remainder of the work. JJ wishes to assume full responsibility for
RT’s work. Which of the following statements is correct?
Which of the following statements is correct?
A. In such circumstance, when appropriate requirements have been met, JJ should issue a standard
unqualified opinion on the financial statements.
B.
Such assumption of responsibility violates the profession's standards.
C. In such circumstance, when appropriate requirements have been met. JJ should issue an
unqualified opinion but should make appropriate reference to RT in the audit report.
D. JJ should normally qualify his audit 'report on the basis of the scope limitation as there is another
auditor involved in the audit,
49. Which of. the following is a change which does not affect consistency and therefore does not require on
explanatory paragraph?
A. Change in accounting principle, such as a change from LIFO to FIFO.
B. Change in reporting entity, such as the inclusion of an additional company in combined financial
statements.
C. Change in an accounting estimates, such as a decrease in the life of an asset for depreciation
purposes.
D. Correction of errors by changing from non-PFRS to PFRS.
50. If on auditor is not independent of a client, the auditor should issue a(n):
A. unqualified opinion with an explanatory paragraph describing the lack of independence.
B. explanatory letter accompanying the financial statements.
C. disclaimer of opinion.
D. qualified opinion because of the lack -of independence.
51. Whenever an auditor issues an adverse opinion, the implication is that the auditor
A. does not know it the statements are presented fairly.
B. does not believe the statements are presented fairly.
C. is satisfied that the statements are presented fairly except for a specific aspect within the financial
statements.
D. is satisfied that the statements are presented fairly
52. When a misstatement in the financial statements would affect a users decision but the overall statements
are fairly stated, it would be appropriate to issue o(n),
A. unqualified opinion.
B. qualified opinion.
C. adverse opinion.
D. disclaimer of opinion.
53.
Which of the following is most accurate with respect to a CPA's responsibility in considering a going
concern question on financial statement audits?
A. Based on audit procedures performed aimed particularly at assessing substantial doubt about the
entity’s ability to continue as a going concern
B. Perform analytical procedures aimed particularly at assessing whether, bankruptcy is probable.
C. Issue a report with a "going concern" modification when failure is at least reasonably probable.
D. Determine that related uncertainties are properly disclosed and make no mention in the audit
report.
54.
The distinction between an adverse opinion and a disclaimer is
A. the lack of PFRS versus lack of GAAS.
B. knowledge versus lack of knowledge.
C. the audit report versus the review report.
D. AASC statements. versus the FRSC Standards.
55.
The auditor's best course of action with respect to "other financial information" included in an annual
report containing the auditor's report is to
A. indicate in the auditor's report, that the "other financial information" is unaudited.
Consider whether the "other financial information" is accurate by performing a limited review.
C. Obtain written representations from management as to the material accuracy of the "other financial
information."
D. Read and consider the manner of presentation of other financial information
56. A CPA is not able to confirm a large account receivable, but he has satisfied himself as to the proper
statement of the receivable by means of alternative auditing procedures. The auditors report on the financial
statements should include
A. A description of the limitation on the scope of his examination and the alternartive auditing
procedures used, but an opinion is not required,
B. An opinion qualification, but reference to the use of alternative auditing procedures is not
required.
C. both a scope qualification and on opinion qualification
D. Neither a comment on the use of alterative auditing procedures nor an opinion qualification
59 Which of the following statements appropriately distinguishes adisclaimer of opinion from an adverse
opinion?
A. A disclaimer of opinion indicates that the actor is not able to gather enough evidence to render an
opinion on the financial statements, while an adverse opinion indicates that the financial statements
are materially misstated.
B. A disclaimer of opinion indicates that the financial statements are materially misstated, while on
adverse opinion indicates that the auditor is not able to gather enough evidence to render an opinion
on the financial statements.
C. The opinions are generally equivalent, except an adverse opinion includes a going concern
paragraph
D. Adverse opinion indicates that the financial statements are materially misstated, while a disclaimer
indicates that the financial statement are "so pervasively erroneous" that no opinion can be given
60.A departure from PFRS with a material effect on the financial statements is most likely to result in o (n) :
A. Disclaimer of opinion.
B. Qualified opinion.
C. Standard unqualified opinion.
D. Unaualified opinion with explanatory language.
61. When a CPA has concluded that an action should be taken to prevent future reliance on his report, he
should
A. Advise his client to make appropriate disclosure of the newly discovered facts and their impact on
the financial statements to persons who are known to be currently relying or who are likely to rely on
the financial statements and the related auditor's report.
B. Recall the financial statements and issue revised statements and include an appropriate opinion.
C. Advise the client and others not to rely on the financial statements and make appropriate
disclosure of the
correction statements of a subsequent period.
D. Recall the financial statements and issue a disclaimer of opinion which should generally be
followed by revised statements and a qualified opinion
62. In which circumstance would an auditor be most likely to express an adverse opinion?
A, The chief executive officer refuses the auditor’s access of the board of directors' meetings.
B. Tests of controls show that the client's internal control is ineffective that it cannot be relied upon.
C. The financial statements are not in conformity with the FRSC Statements regarding the
capitalization of leases.
D. Information comes to the auditor’s attention that raises substantial doubt about the clients ability
to continue as a going concern.
63. An auditor’s report would be designated as a special report when it is issued in connection with financial
statements that are:
A. for on interim period and are subject to a limited review.
B. unaudited and are prepared from a client's accounting records.
C. prepared in accordance with a comprehensive basis of accounting other than Philippine financial
reporting standards.
D. purported to be in accordance with generally accepted accounting principles but do not include a
presentation of the Statement of Cash Flows.
64. The opinion paragraph of a CPA's report states: "in our opinion, with the exception of the effects of not
observing inventory in one of the client's Mactan warehouses, as discussed in the preceding paragraph, the
financial statements present fairly, in all material respects,..." This paragraph expresses a(n)
A. unqualified opinion.
B. adverse opinion due to scope limitation.
C. qualified opinion due to scope limitation.
D. opinion modified because of on uncertainty.
65.
Which of the following subsequent events will be least likely to result to an adjustment on the
financial' statements?
A. Culmination of events affecting the realization value of accounts Receivable owned as of the
balance sheet date
B. Culmination of events affecting the realization of inventories owned as of the balance Sheet date.
C. Material changes in the settlement of liabilities which were estimated as of the balance sheet date.
D. Material changes in the quoted market prices of listed investment securities since the balance sheet
dale.
66. An auditor was unable to obtain sufficient competent evidential matter concerning certain transactions
because a fire burn down the client’s office building destroying all the company's records, Given these
circumstance, the auditor would choose between a(n)
A. qualified opinion and an unqualified opinion with an explanatory paragraph.
B. unqualified opinion with an explanatory paragraph and an adverse opinion.
C. adverse opinion and a disclaimer of opinion.
D. disclaimer of opinion and a qualified opinion.
67. The necessity to issue a disclaimer of opinion may arise because of
A. a severe limitation on the scope of the audit examination
B. a nonindependent relationship between auditor and client
C. either of the two choices
D. neither of the two choices
68. In his Letter to Stockholders in the annual report, the president of Better Vision's states that this year was
the most profitable year in the company's history. Actually, the company did-better, profit-wise, last year
according to the audited financial statements. What type of opinion should the auditor issue?
A. An unqualified opinion with an emphasis of a matter paragraph
noting the inconsistency.
B. A disclaimer of opinion because the .additional information
accompanying the financial statements wasn't audited.
C. An adverse opinion because the annual report does not present fairly the financial condition of the
company.
D. An "except for "qualification because the President's letter ; not part of the audited financial
statements.
69. Both disclaimers and adverse opinions are used
A. Only when the condition is highly material
B. Whether the condition is material or not
C. regardless of the auditor's independence.
D. regardless of client's choice of a non-PFRS accounting method.
70. Soon after Patricia's audit report was issued, Patricia learned of certain related party transactions that
occurred during the
year under audit. These transactions were not disclosed in the notes to the financial
statements. Patricia should
A .plan to audit the transactions during the next engagement:
B. recall all the copies of the audited financial statements.
C. determine whether the lock of disclosure would affect the auditor’s report
D. ask the client to disclose the transaction in subsequent statements.
71. When an auditor mentions consistency in the audit retort. a reader of the financial statements may infer
A. that PFRS have not been consistently observed in the current period in relation to the preceding
period.
B. that a material departure from PFRS has been detected.
C. that a reclassification of items or change in classification occurred.
D. nothing about application of accounting principles period.
72. As a result of management's refusal to permit the auditor to physically examine -inventory, the auditor has
not accumulated sufficient evidence to conclude whether financial statements are stated in accordance with
PFRS. The auditor must depart from the unqualified audit report because
A. the financial statements have not been prepared in accordance with PFRS.
B. the scope of the audit has been restricted by circumstances beyond either the client's or auditor's
control.
C. the auditor has lost independence.
D. the scope of the audit has been restricted.
73.
A disclaimer of opinion is issued whenever the auditor
A. is unable to satisfy himself that the overall financial statements are Presented fairly.
B. Believes that the overall financial statements are not presented fairly
C. believes that some material parts of the financial statements are not presented fairly
D. has determined that the financial statements are presented fairly