1. Most of the auditors set a high inherent risk in the first year of an audit and reduce it in subsequent
years as they gain experience, even when there is an inherent risk.
2. Obtaining the client’s agreement on the engagement letter would not help assess inherent risk
during the planning phase.
3. Auditors commonly allocate materiality to balance sheet accounts rather than income statement
accounts because most income statement misstatement have an EQUAL effect on the balance sheet.
4. Application of the audit risk model is the primary means of dealing with risk in planning decisions
related to audit evidence.
5. Inherent risk is INVERSELY related to detection risk and DIRECTLY related to the amount of audit
evidence.
6. Normally, the most common base for deciding materiality is Net income before taxes.
7. Allocating the preliminary judgement about materiality to FS segments is necessary because
evidence is accumulated by segments rather than for the FS as a whole.
8. An overstatement of an asset account or overstatement of a liability account would NOT have the
same effect on the income statement.
9. Regardless of how the preliminary judgement about materiality is allocated, the auditor must be
confident that the total combined misstatements in all accounts are less than or equal to the
preliminary judgement.
10. Auditors frequently refer to the terms audit assurance, overall assurance, and level of assurance to
refer Acceptable Audit Risk.
11. Fraud does not involve Mathematical or clerical mistake in the underlying records and accounting
data AND Oversight or misinterpretation of facts.
12. The client’s representation letter normally would be dated on the day of the completion of the audit.
13. Transactions that occurred during the year under audit, must be determined whether its lack of
disclosure would affect the auditor’s report.
14.
15. Access to computer facilities and records is limited to authorized personnel on an “as needed” basis
would contribute most to the safeguarding of assets.
16. An independent auditor might consider the procedures performed by the internal auditors because
they are employees whose work might be relied upon.
17. Online real-time system is a computer-based system that is characterized by data that are assembled
from more than one location and records that are updated immediately.
18. If an employee should be able to visit the corporate safe deposit box containing investment
securities without being accompanied by another corporate employee, he could pledge the
corporate investments as security for a short-term personal bank loan.
19. The proof of cash statements is usually prepared by the auditor when Internal control over cash is
weak and control risk is maximum.
20. The auditor is most likely to use Variables sampling when the auditor samples cash disbursements
for minor errors of $5 or less and the parameter to be estimated is the error rate, which might be as
high as 10%.
21. Material financial statement assertions affected by computer processing does NOT relate to the
complexity of CIS activities.
22. To quantify the risk that sample evidence leads to erroneous conclusions about the sampled
population, each item in the sampled population must have an equal or known probability of being
selected.
23.
24. The purpose of the introductory paragraph in the standard unqualified report is to identify the
financial statements audited and the dates and periods covered by the report.
25. An adverse opinion is issued when the auditor believes the overall FS are so materially misstated
that they do not present fairly the financial position or results of operations and cash flows in
conformity with GAAP.
26. If a misstatement is immaterial to the FS of the entity of the entity for the current period but is
expected to have a material effect in the future periods, it is appropriate to issue an Unqualified
Opinion.
27. An auditor determines the FS include a material departure from GAAP may issue an opinion of
Qualified and Adverse but not Disclaimer.
28. An auditor who issues a qualified opinion because sufficient appropriate evidence was not obtained
should describe the limitations in an explanatory paragraph. The auditor should also refer to the
limitation in the Scope paragraph, Opinion paragraph but not on Notes to FS.
29. In the audit of historical FS, the most common accounting bases is GAAP.
30. Any service that requires a CPA firm to issue a report about the reliability of an assertion that
another party makes is an Attestation service.
31. Oral responses to the auditor from employees of the company under audit, Observations made by
an auditor, and Written communications from company employees or outsiders are types of Audit
evidence.
32. Complex business transactions, Large amounts of data and Lack of firsthand knowledge about the
business are common reasons for unreliable financial information.
33. Auditors are responsible for determining whether financial statements are materially misstated, so
upon discovering a material misstatement, they must bring it to the attention of the Client’s
Management.
34. If the auditor believes that the FS are not fairly stated or is unable to conclude because of insufficient
evidence, the auditor has the responsibility of notifying FS users through the auditor’s report.
35. The responsibility for adopting sound accounting policies and maintaining adequate internal control
rests with the Company Management.
1. Under RA 9298, a registered professional shall be permanently exempted from CPE requirements
upon reaching the age of 65 years old.
2. The Board shall elect from among its members for a term 1 year a Vice Chairman.
3. 4 examinees passed the CPA Board Examination.
4. Sectors from Government, Academe and Commerce and Industry are represented by the PICPA to
the membership of AASC having one representative but not from Public Practice.
5. No person shall serve the Professional Regulatory Board of Accountancy for more than 12 years.
6. According to the Code of Ethics for Professional Accountants in the Philippines, a CPA who has a
financial interest in a partnership that invests in a client is considered to have a direct financial
interest in the client.
7. Promoting shares in a listed entity when that entity is a financial statement audit client does not
imply Family Threat.
8. In the financial statement audit of listed entities, the engagement partner and the individual
responsible for the engagement quality control review should be rotated after serving in either
capacity, or combination thereof, for a predefined period, normally no more than 6 years.
9. Authorizing or approving transactions is a form of assistance to a financial statement audit client that
generally threaten the firm’s independence.
10. An auditor with immaterial direct financial interest to the client is NOT independent, and therefore
may not issue a review report.
11. An auditor’s responsibilities for audited financial statements are confined to the expression of the
auditor’s opinion.
12. The auditor is generally required to follow the guidance provided by the Philippine Standards on
Auditing and should be able to justify any departures.
13. An effective internal control structure provides more assurance about the reliability of audit
evidence.
14. Review is a service of a professional accountant that is considered to provide moderate level of
assurance that the information is free of material misstatement.
15. An auditor’s engagement letter most likely would include a statement regarding Management’s
responsibility to provide certain written representations to the auditor.
16. The independent audit is important to readers of financial statements because it involves the
objective examination of and reporting on management-prepared statements.
17. A CPA would lead to conclude that a potential audit engagement should be rejected when it is
unlikely that sufficient appropriate evidence is available to support an opinion on the financial
statements.
18. Before accepting an audit engagement, a successor auditor should make specific inquires of the
predecessor auditor regarding the predecessor’s Understanding as to the reasons for the change of
auditors.
19. Before accepting an engagement to audit a new client, a CPA is required to obtain the prospective
client’s consent to make inquiries of the predecessor auditor, if any.
20. Concern on the integrity of the entity’s management is suspect lead for an auditor concludes that a
financial statement audit cannot be conducted.
21. A CPA may hire, for the CPA’s public accounting firm, a non-CPA systems analyst who specializes in
developing computer systems, provided, the CPA is able to supervise the analyst and evaluate the
analyst’s end product.
22. Making a preliminary judgement about materiality is a procedure that an auditor would most likely
perform in the planning stage of an audit.
23. Documentation of system being reviewed is an item that would NOT be contained in an audit
program.
24. To obtain an understanding of a continuing client’s business in planning an audit, an auditor most
likely would review prior-year audit documentation and the permanent file for the client.
25. Analytical procedures used in planning an audit should focus on Enhancing the auditor’s
understanding of the client’s business.
26. A large number of bearer bonds on hand most likely represents the highest risk of a misstatement
arising from misappropriations of assets.
27. Differences between management and the auditor’s judgement regarding estimates is not type of
known misstatement.
28. Prior to beginning the fieldwork on a new audit engagement in which a CPA does not possess
expertise in the industry in which the client operates, the CPA should obtain a knowledge of matters
that relate to the nature of the entity’s business.
29. Because of the risk of material misstatement, an audit of financial statements in accordance with
PSA should be planned and performed with an attitude of Professional Skepticism.
30. Inquiring od prior year engagement personnel regarding their assessment of management’s honesty
and integrity is not an example of the application of professional skepticism.