1. Which of the following is least correct with regards to the
objectives in designing and implementing internal controls?
a. Reliability of financial reporting
b. Efficiency and effectiveness of operations.
c. Compliance with laws and regulations.
d. Lesser extent of substantive testing during audit.
2. Which of the following would be preventive controls?
a. Performing more extensive substantive tests with sample
sizes than originally planned
b. Identifying specific controls relevant to specific
assertions
c. Changing the timing of substantive tests by omitting
interim date testing and performing the tests a year-end
d. Reducing inherent risk for most of the assertions relevant
to significant account balances
3. Which of the following is not a scope of the Revised Code of
Corporate Governance?
a. Registered corporations and branches or subsidiaries of
foreign corporations operating in the Philippines that
sell equity and/or debt securities to the public and such
securities are registered in the SEC.
b. Registered corporations and branches or subsidiaries of
foreign corporations operating in the Philippines that
have assets in excess of fifty million pesos and at least
two hundred stockholders owning at least one hundred shares
each of equity securities.
c. Registered corporations and branches or subsidiaries of
foreign corporations whose equity securities are listed on
an exchange.
d. Registered corporations and branches or subsidiaries of
foreign corporations that are grantees of any licenses
from SEC.
4. During the consideration of internal control in financial
statement audit, the auditor is not obliged to:
a. Determine whether the control activities relevant to audit
planning have been placed in the operation
b. Understand the internal control and information system
c. Perform procedures to understand the design of internal
control
d. Search for significant deficiencies of the operation of
internal control
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5. The understanding of the entity and its environment,
including its internal control, is used to plan the design of
further audit procedures, such as:
a. Test of controls
b. Substantive tests
c. Both a and b
d. None of the choices
6. S1: For most uses, flowcharts are superior to narratives as
a method of communicating the characteristics of internal
control.
S2: When documenting their understanding of a client’s
internal controls, auditors are required to use narratives.
a. True, True
b. True, False
c. False, False
d. False, True
7. Determine the correct term for the following statements:
S1: A __________ exists if a significant deficiency, by
itself, or in combination with other significant deficiencies,
results in a more than remote likelihood that internal control
will not prevent or detect material financial statement
misstatements.
S2: A __________ exists if the design or operation of
controls does not permit company personnel to prevent or
detect misstatements on a timely basis.
S3: A __________ exists if one or more control deficiencies
exist that results in more than a remote likelihood that a
misstatement that is more than inconsequential will not be
prevented or detected.
a. Control deficiency, Significant deficiency, Material
Weakness
b. Material Weakness, Control deficiency, Significant
deficiency
c. Significant deficiency, Material weakness, Control
deficiency
d. Control deficiency, Material weakness, Significant
deficiency
8. Which of the following are the qualifications required for a
director(s) or trustee(s) covered by Revised Code on
Corporate Governance?
i. For stock corporations, the director should be an owner
of at least one share capital stock of the corporation in his
own name.
ii. Majority of the directors must be citizens of the
Philippines.
iii. Only natural persons can be elected as a director or
trustee.
iv. College education or equivalent academic degree.
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a. One of the statements is false
b. Two of the statements are false
c. Three of the statements are false
d. All of the statements are false
9. S1: Members of the Board may attend in person or through
teleconferencing during regular and special Board meetings.
S2: Independent directors are required to attend board
meetings.
S3: Conviction by final judgment of an offense punishable by
imprisonment for more than 6 years is a permanent
disqualification from directorship.
S4: All corporations are required to have independent
directors in their Board to ensure proper governance of the
corporation hence the promulgation of the Code of Corporate
Governance.
a. One of the statements is false
b. Two of the statements are false
c. Three of the statements are false
d. All of the statements are false
10. Examples of matters an auditor may consider under measurement
and review of the entity’s financial performance include the
following, except
a. Competitor analysis
b. Key ratios and operating statistics
c. Employee performance measures and incentive compensation
policies
d. Use of information technology
11. Which of the following is incorrect?
a. All objectives and controls are relevant to the auditor’s
risk assessment.
b. The entity’s objectives, and therefore controls, relate
to: financial reporting, efficiency and effectiveness of
operations, and compliance with applicable laws and
regulations.
c. The determination of which controls are relevant to an
audit is a matter of professional judgment
d. Ordinarily, controls that are relevant to an audit pertain
to the entity’s objective of preparing fairly stated
financial statements for external purposes.
12. S1: When a company designs and implements internal controls,
cost of the controls is not a valid consideration as long as
the control meets its operating objectives and functions
yielding profit to the company.
S2: As a client’s information system becomes more complex,
it is likely that an auditor will decrease reliance on
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controls and increase substantive tests to support a control
risk assessment.
S3: If, when obtaining an understanding of control
activities of a relatively small client, the auditor
identified no control activities, the auditor would probably
determine the client were unauditable.
S4: The most important component of internal control is risk
assessment.
a. One of the statements is false
b. Two of the statements are false
c. Three of the statements are false
d. All of the statements are false
13. Which of the following is (are) considered in determining the
auditability of a company?
i. Integrity of management
ii. Adequacy of accounting records
a. i only
b. i and ii
c. ii only
d. neither i nor ii
14. Which of the following is done by an auditor when gaining an
understanding of an entity’s internal controls?
a. Identify the types of potential misstatements that might
occur
b. Initially consider business risk
c. Design the nature, timing and extent of substantive tests
d. Test depreciation for reasonableness
15. Accounting functions that are normally considered
incompatible in a manual system are often combined by computer
software, This necessitates an application control that
prevents unapproved:
a. Testing the modified software
b. Access to the computer library
c. Usage of software
d. Revisions to existing software
16. Proper segregation of duties of functional responsibilities
calls for separation of the functions of:
a. Authorization, execution and payment
b. Custody, execution and reporting
c. Authorization, recording and custody
d. Authorization, payment and recording
17. Which of the following descriptions pertain to performance
reviews?
a. Control activities involving the specific or general
authorization of transaction
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b. Control activities that include review and analyses of
actual performance versus budgets, forecasts, and prior
period performance
c. Assignment of incompatible functions to different people
d. Controls performed to check accuracy, completeness and
authorization of transactions
18. Which of the following statements regarding auditor
documentation of the client’s internal control structure as
correct?
a. No documentation is necessary although it is desirable
b. Documentation must include procedural write-ups
c. No one particular form of documentation is necessary, and
the extent of documentation may vary
d. Documentation must include flowcharts
19. Company-wide policies for the approval of all transactions
within stated limits
a. General authorization
b. Independent check of performance
c. Control environment
d. Specific authorization
20. The auditor has communicated to management the significant
deficiencies and material weaknesses in the company’s
internal control. Assuming the auditor is required to provide
an opinion on the operating effectiveness of the auditee’s
internal controls, which of the following is acceptable?
a. Auditor may communicate the significant deficiencies and
material weaknesses of internal controls either verbally
or written.
b. Findings of the significant deficiencies and material
weaknesses will be communicated to shareholders before
management since the former is the true owner of a company.
c. Management may address the significant deficiency and
material weaknesses in the internal controls before
balance sheet date.
d. The company with significant deficiency and material
weakness in internal control is deemed unauditable.
21. A material weakness is a condition in which material errors
or fraud may occur and not be detected within a timely period
by:
a. Certified fraud examiners when called in to investigate
fraud
b. Employees in the normal course of performing their
functions
c. The external auditor during the annual audit
d. Customer of the organization when they are paying for
services
22. This is a basic concept of internal control which recognizes
that the cost of internal control should not exceed the
benefits expected to be derived from it:
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a. Management by exception
b. Management responsibility
c. Limited liability
d. Reasonable assurance
23. S1: The “Manual” embodying the developed corporate
governance rules in accordance to the Code of Corporate
Governance shall be submitted within 180 business days to the
SEC and BIR.
S2: A director may participate in developing his
remuneration provided that it is not excessive.
S3: During periods of receivership or rehabilitation, SEC
may regulate the payment of remuneration to directors and
officers.
a. True, True, True
b. True, False, True
c. True, True, False
d. True, False, False
24. Monitoring is accomplished by client through:
a. Its Risk Containment department
b. Continuing and periodic evaluations
c. Analyst’s report on the stock of the client
d. SEC reports on the client
25. Which of the following statements is correct concerning
reportable conditions in an audit?
a. An auditor may report that no reportable conditions were
noted during an audit
b. An auditor may communicate reportable conditions during an
audit or after the audit’s completion
c. An auditor is required to search for reportable conditions
during an audit
d. All reportable conditions are also considered to be
material weaknesses
26. Policies and procedures that help ensure necessary actions
are taken to address risks in the achievement of the entity’s
objectives.
a. Control activities
b. Control environment
c. Monitoring
d. Independent check of performance
27. Where no independent stock transfer agents are employed and
the corporation issues its own stocks and maintain stock
records, cancelled stocks certificates should
a. Be defaced and sent to the secretary of state
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b. Not be defaced but segregated from other stock certificates
and retained in a cancelled certificates file
c. Be defaced to prevent reissuance and attached to their
corresponding stubs
d. Be destroyed to prevent fraudulent reissuance
28. In testing controls over cash disbursements, an auditor most
likely would determine that the person who signs the checks
also:
a. Returns the checks to accounts payable
b. Is denied access to the supporting documents
c. Is responsible for mailing the checks
d. Review the monthly bank reconciliation
29. In an integrated audit, which of the following is defined as
weakness in internal control that allows more than a remote
likelihood of misstatement that is more than inconsequential
but less than material?
a. Material weakness
b. Control deficiency
c. Unusual deficiency
d. Significant deficiency
30. S1: If an auditor wishes to rely on the work of internal
auditors (IA), the auditor must obtain satisfactory evidence
related to the IA’s competence, integrity, and objectivity.
S2: Auditing standards prohibit reliance on the work of
internal auditors due to the lack of independence of the
internal auditors.
a. True, True
b. True, False
c. False, False
d. False, True
31. In an auditor’s consideration of internal controls, the
completion of a questionnaire is most closely associated with
which of the following?
a. Separation of duties
b. Flowchart accuracy
c. Understanding the system
d. Tests of controls
32. Which is most likely to be a question asked of employee
personnel during a walkthrough in an audit of the internal
control of an issuer(public) company?
a. Do you believe that you are underpaid?
b. Have you ever been asked to override the process?
c. Who trained you for this job?
d. What do you do when you find a fraudulent transaction?
33. When planning an audit, the auditor’s assessed level of
control risk is:
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a. determined by using actuarial tables.
b. calculated by using the audit risk model.
c. an economic issue, trading off the costs of testing
controls against the cost of testing balances.
d. calculated by using the formulas provided in the AICPA’s
auditing standards.
34. Corporate governance reports are recommended to include all
of the following disclosures except:
a. The company’s vision, strategies, and missions in creating
stakeholder value.
b. The board of director’s composition, independence,
involvements, functions, and evaluation.
c. Competitive trade secrets and research reports.
d. The company’s financial, economic, social, and
environmental indicators.
35. Which of the following statements is not true concerning
corporate governance mechanisms?
a. The effectiveness of corporate governance mechanisms also
depends on the cost-benefit trade-offs among these
mechanisms.
b. Corporate governance mechanisms create effective systems
of checks and balances.
c. Internal and external mechanisms work best when used
independently of the other.
d. None of the above are true statements.
36. A well-balanced implementation of the seven corporate
governance functions should not result in:
a. Responsible corporate governance
b. Reliable financial reports
c. Harm to the company
d. Credible audit services
37. Which of the following statements best describes the
compliance function?
a. The compliance function is composed of a set of laws,
regulations, rules, and standards established by state and
federal legislators which are followed only when
beneficial.
b. Compliance is following your internal bylaws and
regulations.
c. The compliance function is composed of a set of laws,
regulations, rules, and standards established by state and
federal legislators which must be followed regardless of
the cost.
d. Compliance is a nuisance that deters from the company’s
main goal of making money.
38. S1: When internal controls over a given financial statement
account are assessed as highly effective, the auditor need
not obtain audit evidence for that account beyond testing the
controls.
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S2: For proper internal control, there should be adequate
separation of duties. However, the extent of separation of
duties considered “adequate” depends heavily on the size of
the organization.
a. True, True
b. True, False
c. False, False
d. False, True
39. Evaluate the following statements:
S1: The Board of Directors is primarily responsible for the
governance of the corporation.
S2: Companies covered by the Code of Corporate Governance
shall have at least two independent directors.
S3: The positions of Chairman of the Board and Chief
Executive Officer may be unified.
S4: There are 12 articles comprising the Revised Code of
Corporate Governance.
a. True, True, True, True
b. True, True, True, False
c. False, True, False, False
d. False, True, False, True
40. The internal audit function is least effective when the
department:
a. Is non-independent
b. Is competent
c. Is objective
d. Exhibits integrity
41. Which of the following would be considered the least effective
and appropriate best practice of a public company?
a. Executive compensation programs should be designed and
implemented to ensure alignment of interest with the longterm interests of shareowners.
b. The CEO and chairperson of the board should be the same
individual to allow for the congruence of management and
director interests.
c. The board of a publicly owned corporation should have a
substantial degree of independence from management.
d. The board does not impose term limits, as this could
unnecessarily interfere with the continuity, diversity,
developed experience and knowledge, and long-term outlook
the board must have.
42. GLI Corp. maintains a large internal audit staff that reports
directly to the chief financial officer. Audit reports
prepared by the internal auditors indicate that the system is
functioning as it should and that the accounting records are
reliable. An independent auditor will probably:
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a. eliminate tests of controls.
b. increase the depth of the study and evaluation of
administrative controls.
c. avoid duplicating the work performed by the internal audit
staff.
d. place limited reliance on the work performed by the
internal audit staff.
43. Nature of the entity refers to
a. The entity’s operations, its ownership and governance, the
types of investments that it is making and plans to make,
the way that the entity is structured and how it is
financed
b. The overall plans for the entity
c. The operational approaches by which management intends to
achieve its objectives
d. The result of significant conditions, events and
circumstances, actions or inactions that could adversely
affect the entity’s ability to achieve its objectives and
execute the strategies or the setting of inappropriate
objectives and strategies
44. The corporate governance structure is shaped by:
a. Internal governance mechanisms
b. External governance mechanisms
c. Policy interventions through regulations
d. All of the above
45. Certification from Compliance Officer on the extent of the
Corporation’s compliance with the Code of Corporate
Governance is submitted every:
a. January 15th
b. January 30th
c. April 15th
d. June 30th
46. An independent director is one who:
a. Did not attend a school supported by the company.
b. Does not have outside relationships with other directors.
c. Does not have any other relationships with the company
other than his or her directorship.
d. All of the above.
47. Financial resources are made available to the board for all
of the following except:
a. Compensating directors
b. Reimbursing personal expenses
c. Hiring external auditors
d. Obtaining legal counsel
48. Which of the following is not a ground for permanent
disqualification?
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a. A person convicted by final judgment involving moral
turpitude.
b. A person declared as insolvent by a prestigious banks in
the Philippines
c. Failure to remedy or correct the temporary
disqualification within 60 business days from date of
disqualification.
d. All of the above are grounds for permanent
disqualification.
49. The information system consist of the following
a. People
b. Infrastructure and software
c. Procedures and data
d. All of the above
50. In obtaining understanding of internal control relevant to
the audit, the auditor may trace several transactions through
the system, including how the transactions interface with any
service organizations whose services are part of the entity’s
information system. The primary objective of this procedure
is to:
a. Detect fraud
b. Replace substantive tests
c. Evaluate the design of internal control and determine
whether it has been implemented
d. Determine the effectiveness of internal control
51. S1: Internal control systems refer to all the policies and
procedures adopted by the management of an entity to assist
in achieving management’s objectives
S2: the internal control system is confined to those matters
which relate directly to the functions of the accounting
system.
a. False, false
b. False, true
c. True, false
d. True, true
52. Which of the following committees approves management
strategic plans?
a. Governance committee
b. Audit committee
c. Compensation committee
d. All of the above
53. The board committee with the responsibility of approving the
company’s policy for authorizing claims for expenses from the
CEO and other executives is the:
a. Audit committee
b. Compensation committee
c. Nominating committee
d. None of the above
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54. Which of the following conditions supports strong internal
control?
a. Strict monitoring by the BIR
b. The existence of related parties and related party
transactions
c. An economic downturn
d. Pressure by the financial community to improve earnings
performance
55. A procedure that would least likely to be used by an auditor
in performing test of control is:
a. Inspection
b. Reperformance
c. Observation
d. Recalculation
56. Which of the following is not among the often required types
of committees to be established by any company?
a. Governance committee
b. Nominating committee
c. Finance committee
d. Compensation committee
57. The “tone at the top” promotes all of the following ideals
except:
a. Ethical conduct
b. Unlawful behavior
c. Professional accountability
d. Personal integrity
58. These are operational approaches by which management intends
to achieve its objectives
a. Operational plans
b. Business risk approaches
c. Planning methods
d. Strategies
59. The process designed and effected by those charged with
governance, management, and other personnel to provide
reasonable assurance about the achievement of the entity’s
objectives with regards to reliability of financial
reporting, effectiveness and efficiency of operations and
compliance with applicable laws and regulations:
a. Internal Control
b. Accounting Control
c. Administrative Control
d. Control Environment
60. Which of the following factors are included in an entity’s
control environment?
a.Commitment to competence Yes Yes No Yes
b.Integrity and ethical values Yes No Yes Yes
c.Organizational structure No Yes Yes Yes
d.Human resources policies and
procedures
Yes No Yes Yes
END OF EXAM