REVIEW SCHOOL OF ACCOUNTANCY
AUDITING THEORY
AUDITING THEORY
Overview of auditing
1. What are the three (3) most commonly sought assurance services?
A. Audits, review and compilations.
B. Audits, reviews and other assurance services.
C. Audits, compilations and other assurance services.
D. Reviews, compilations and other assurance service.
2.
The "hallmark" of auditing is
A. available audit technology
B. generally accepted auditing standards
C. materiality and audit risk
D. professional judgment
3.
Auditing is based on the assumption that financial data and statements are
A consistently applied.
C. presented fairly.
B. in conformity with appropriate criteria.
D. verifiable.
4.
An audit of financial statements is conducted to determine if the
A. client's internal control is functioning as intended.
B. organization is operating efficiently and effectively.
C. auditee is following specific procedures or rules set down by some higher authority.
D. overall financial statements are stated in accordance with an applicable financial
reporting framework.
5.
Which of the following methods is MOST commonly used to reduce information risk?
A. Allow users to verify information.
B. Have the financial statements audited.
C. Allow all users to prepare the statements.
D. Users share information risk with management.
6.
7.
The purpose of an audit of financial statements is to
A. enhance the knowledge and skills of external auditors
B. enhance understanding of the stakeholders of the company
C. provide government agencies, such as BIR with basis for assessments
D. enhance the degree of confidence of intended users of the financial statements
Which of the following best describes the reason why independent auditors report on financial
statements?
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A. A poorly designed internal control structure may be in existence.
B. A management fraud may exist and it is more likely to be detected by independent
auditors.
C. Different interests may exist between the company preparing the statements and the
persons using the statements.
D. A misstatement of account balances may exist and is generally corrected as the result of
the independent auditor's work.
8.
An external audit:
A. Complements an internal audit
B. Confirms an internal audit
9.
This type of audit is performed in order to determine the degree of adherence to specific
procedures and rules setdown by some higher authority.
A. Compliance audit
C. Internal audit
B. Financial statement audit
D. Operational audit
C. Contradicts an internal audit
D. Overlaps an internal audit
10. Which of the following BEST describes the operational audit?
A. It concentrates on implementing financial and accounting control in a newly organized
company.
B. It attempts and is designed to verify the fair presentation of a company's results of
operations.
C. It concentrates on seeking out aspects of operations in which waste would be reduced
by theintroduction of controls.
D. It requires the constant review by internal auditors of the administrative controls as they
relate tooperations of the company.
11. What are the two (2) most important qualities for an operational auditor?
A. Personality and appearance
B. Independence and competence
C. Competence and technical training
D. Academic background and sufficient experience
12. Which of the following types of audits are MOST similar?
A. Operational audits and compliance audits.
B. Internal audits and independent financial statement audits.
C. Independent financial statement audits and operational audits.
D. Compliance audits and independent financial statement audits.
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AUDITING THEORY
The professional practice of accountancy
13. According to the IAASB Glossary of Terms, this refers to a professional accountant in public
practice.
A. Auditor
C. Professional
B. Practitioner
D. Public accountant
14. The person or persons who in a direct reporting engagement, is responsible for the subject
matter; or in an assertion-based engagement, is responsible for the subject matter
information (the assertion), and may be responsible for thesubject matter.
A. Audit committee
C. Intended users
B. General public
D. Responsible party
15. These are the benchmarks used to evaluate or measure the subject matter including, where
relevant, benchmarks forpresentation and disclosure.
A. Assertions
C. Engagement process
B. Criteria
D. GAAP
16. An auditor should NOT render a report on
A. client internal control
B. management performance
C. quarterly financial information
D. the achievability of forecasts
17. Which of the following BEST describes risk assessment services?
a. An engagement which identifies a set of risks that affect the client organization. It
involves the study of the link between risks and the organization's vision, mission,
objectives and strategies and the development of new and relevant measures.
b. An engagement which provides assurance about whether financial and non-financial
information being reported from the entity's performance measurement system is
reliable.
c. An engagement which involves the evaluation of the quality of health care, medical
services and looksinto the health care delivery system.
d. None of the answers
18. Which of the following matters is NOT included under "regulatory environment"?
A. Accounting principles and industry specific practices.
B. General level of economic activity (for example, recession, growth).
C. Legislation and regulation that significantly affect the entity's operations.
D. Government policies currently affecting the conduct of the entity's business.
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Professional responsibilities
19. A CPA who is engaged to prepare an income tax return has a duty to prepare it in such a
manner that the tax is
A. the legal minimum
B. not subject to change upon audit
C. supported by the client's audited financial statements
D. computed in conformity with generally accepted accounting principles
Quality Standards
20. This is a review that provides an objective evaluation of the significant judgments made bythe
engagement team and the conclusions reached in formulating the report.
A. Peer review.
B. System of quality control.
C. Engagement quality control review.
D. Engagement judgment review procedures.
21. The inspection of a selection of completed engagements is ordinarily performed on a cyclical
basis. Engagementsselected for inspection include at least
A. one engagement for each firm over an inspection cycle.
B. two engagements for each firm over an inspection cycle.
C. one engagement for each engagement partner over an inspection cycle.
D. two engagements for each engagement partner over an inspection cycle.
Accountancy Law
22. The following are among the powers and functions of the Board of Accountancy, EXCEPT:
A. To conduct an oversight into the quality of audits of financial statements.
B. To prescribe and/or adopt a Code of Ethics for the practice of accountancy.
C. To prescribe and adopt the rules and regulations necessary for implementing RA 9298.
D. To ensure, in coordination with the Department of Education, that all higher educational
instructionand offering of accountancy comply with prescribed policies, standards and
requirements of thecourse.
23. The following are grounds for suspension or removal of members of the Board of
Accountancy. EXCEPT:
A. Neglect of duty or incompetence.
B. Pending case on a crime involving moral turpitude
C. Manipulation or rigging of the CPA licensure examination results.
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D. Violation or tolerance of any violation of RA 9298 and its 1RR, or the Code of Ethics and
technicaland professional standards of practice for CPAs.
24. The Chairpersons of the FRSC and the AASC shall be appointed by the
A. Professional Regulation Commission.
B. President of the Republic of the Philippines.
C. Professional Regulatory Board of Accountancy.
D. Philippine Institute of Certified Public Accountants.
25. The Board of Accountancy, subject to the approval of the PRC, may revise or exclude any of
the subjects and theirsyllabi, and add new ones as the need arises, provided that the change
shall NOT be more often than:
A. Every two years.
C. Every four years.
B. Every three years.
D. Every five years.
26. The following are grounds for the refusal to issue a certificate of registration and professional
identification card(select the EXCEPTION):
A. Unsound mind.
B. Conviction for a political offense.
C. Guilty of immoral or dishonorable conduct.
D. Conviction of a criminal offense involving moral turpitude.
27. A CPA whose certificate has been revoked
A. has committed a crime involving moral turpitude
B. can no longer be reinstated as a Certified Public Accountant
C. is required to take the CPA Board Licensure examinations before reinstatement
D. may be reinstated by the BOA after the expiration of 2 years from the date of revocation
28. Individual CPAs, Firms or Partnerships of CPAs, including partners and staff members
thereof shall register with the Board of Accountancy and the Professional Regulation
Commission. If the application for registration of A,& A, CPAs, was approved on July 19,
2013, it shall file for renewal on or before
A September 30, 2015
C. July 19,2016
B. December 31, 2015
D. September 30, 2016
29. The death or disability of an Individual CPA and/or the dissolution and liquidation of a Firm or
Partnership of CPAsshall be reported to the BOA not later than ___ from the date of such
death, dissolution or liquidation.
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AUDITING THEORY
A. 25 days
B. 30 days
C. 60 days
D. 90 days
30. Which of the following names illustrates a firm name, as contrasted to the name of an
individual CPA and apartnership name?
A. Juan S. Sanchez
C. Sanchez & Reyes
B. Juan S. Sanchez and Associates
D. Sanchez & Reyes & Co.
31. Unless otherwise specified by law, engagement documentation is owned by the
A. The Board of Accountancy
C. The client and the Firm
B. The client
D. The Firm
32. Contingent fees are widely used for certain types of non-assurance engagements. They
may, however, give rise tothreats to compliance with the fundamental principles, especially
the principle of
A. objectivity
B. confidentiality
C. professional behavior
D. professional competence and due care
33. The CPA shall be required to indicate which of the following numbers on the documents
he/she signs, uses or issuesin connection with the practice of the profession?
A. Professional tax receipt.
B. Professional Identification Card
C. CPA Certificate of Registration number.
D. All of the choices are required to be indicated.
34. The normal retention period for audit engagement documentation is no shorter than _____
from the date of the audit report.
A. two years
C. five years
B. four years
D. seven years
35. Original paper documentation may be scanned and stored electronically for practical reasons.
After scanning, the original paper document
A. shall be kept on file for future reference.
B. shall be discarded following established principles on waste disposal.
C. shall be considered for retention or disposal depending on legal or regulatory
requirements and otherfactors.
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D. none of the choices
36. May a CPA give a brochure to a non-client?
A. Yes. if the non-client has made an unsolicited request
B. No, because this is a violation of the revised rules in advertising
C. Yes, since this is acceptable under the revised rules in advertising
D. No, unless the non-client becomes a client within 10 days from receipt of the brochure
37. Which of the following CANNOT be mentioned by an author in publicizing a book in
accounting?
A. Name
B. Qualifications
C. Services that the author's firm provides
D. Membership in professional organization
38. Alex, CPA, is the dean of the College of Accountancy in the University of St. Jones. Related
to this, which of thefollowing statements is INCORRECT?
A. Alex is considered to be in the practice of his profession.
B. Alex is practicing accountancy in the education sector (academe).
C. Alex is not considered in the practice of his profession because he occupies an
administrative position.
D. The position of the dean or the department chair or its equivalent that supervises the BS
Accountancyprogram of an educational institution must be a duly registered CPA.
39. At present, the Accredited Professional Organization referred to under the IRR of the
Philippine Accountancy Act is the
A. Board of Accountancy
B. Professional Regulations Commission
C. Association of CPAs in Public Practice
D. Philippine Institute of Certified Public Accountants
40. Which of the following statements is INCORRECT?
A. The SEC shall not register any corporation organized for the practice of public
accountancy.
B. Meaningful experience, as mentioned by RA 9298, is explained in details under Section
28A of theImplementing Rules and Regulations.
C. Single practitioners and partnerships for the practice of public accountancy shall be
registeredCertified Public Accountants in the Philippines.
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AUDITING THEORY
D. A certificate of accreditation shall be issued to certified Dublic accountants in public
practice onlyupon showing, that such registrant has acquired a maximum of three (3)
years meaningful experiencein any of the areas of public practice including taxation.
41. The policy for accreditation covers CPAs involved in teaching of accounting and related
subjects in the
A. primary level only
B. primary and secondary levels only
C. secondary and tertiary levels only
D. primary, secondary, tertiary and graduate level
42. All of the following are requirements for accreditation of Accounting Teachers , EXCEPT:
A. Possession of relevant Master's Degree
B. A total of three years' meaningful experience in actual accounting work
C. Completion of 12 units of relevant education subjects from CHED recognized schools
D. Proof that the CPA has undergone continuing professional education equivalent to 75
units
43. The accreditation granted for accounting teachers is valid for
A. one year
C. three years
B. two years
D. four years
Code of Ethics
44. Which fundamental principle may be threatened when the CPA in public practice is asked to
provide a second opinion on the application of professional standards or principles to specific
circumstances or transactions by, or on behalf of a company or entity that is not an existing
client?
A. Integrity
B. Confidentiality
C. Professional behavior
D. Professional competence and due care
45. A CPA should maintain objectivity and free of conflicts of interest when performing
A. all professional services.
B. audits, but not any other professional services.
C. all attestation services, but not other professional services.
D. all attestation and tax services, but not other professional services.
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46. The following are the fundamental principles of professional ethics, EXCEPT
A. independence.
C. objectivity.
B. integrity.
D. professional competence and due care.
47. Ultimately, the decision about whether or not an auditor is independent must be made by the
A. auditor.
C. PRC.
B. client
D. public
48. Because an external auditor is paid a fee by a client company, he or she
A. is never considered to be independent
B. may be sufficiently independent to conduct an audit
C. is absolutely independent and may conduct an audit
D. must seek approval from the Securities and Exchange Commission prior to conducting
an audit
49. The fundamental principle of integrity requires a CPA to
A. be straightforward and honest in performing professional services.
B. perform professional services with due care, competence and diligence.
C. be fair and should not allow prejudice or bias, conflict of interest or influence of others to
overrideobjectivity.
D. act in a manner consistent with the good reputation of the profession and refrain from
any conduct which might bring discredit to the profession.
50. An inadvertent violation of the Code of Ethics, depending on the nature and significance of
the matter, may not compromise compliance with the fundamental principles provided, once
the violation is discovered,
A. the CPA withdraws from the specific professional service involved.
B. a disclaimer of opinion is issued to the client as a result of the violation.
C. the engagement is promptly transferred to another, non-violating professional
D. the violation is corrected promptly and any necessary safeguards are applied.
51. In which situation would a CPA be in violation of the rules of professional ethics in
determining professional fees?
A. A fee that is based on 10% of the client's adjusted net income for the current year.
B. A fee which is lower compared to the fee charged in the prior year for similar services.
C. A fee based on appropriate rates per hour or per day for the time of each person
engaged inperforming professional services.
D. A fee based on appropriate rates per hour, where the appropriate rate is based on the
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AUDITING THEORY
fundamentalpremise that the organization and conduct of the CPA and the services
provided to clients are wellplanned, controlled and managed.
52. The Code of Ethics would be violated if a CPA represents that specific consulting services
will be performed for astated fee and it is apparent at the time of the representation that the
A. fee was a competitive bid.
B. CPA would not be independent.
C. actual fee would be substantially higher.
D. actual fee would be substantially lower than the fees charged by other professional
accountants forcomparable services
53. A CPA in public practice should not pay or receive a referral fee or commission, unless the
CPA in public practice has established
A. internal controls designed to scientifically compute the referral fee or commission.
B. safeguards to eliminate or reduce threats to fundamental principles to an acceptable
level.
C. another company as recipient, whose name does not include the name of the CPA in
public practice.
D. that explicit approval to pay or receive commissions has been obtained from the
Securities andExchange Commission.
54. When a CPA in business is pressured to become associated with misleading information or
to become associated withmisleading information through the actions of others, what kinds of
threats might arise?
A. Familiarity and self-review threats
C. Self-interest and self-review threats
B. Self-interest and intimidation threats
D. Self-review and advocacy threats
55. The receipt of gifts and hospitality from a client may create threats to fundamental principles.
Which of the following is a correct combination of threat and fundamental principle created by
this situation?
A. Intimidation threat- integrity
B. Advocacy threat - objectivity
C. Self-interest threat - objectivity
D. Self-interest threat - professional competence and due care.
PSAs
56. Philippine Standards on Auditing (PSAs) should be looked upon by practitioners as
A. ideals to strive for, but which are not achievable.
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B. maximum standards which denote excellent work.
C. benchmark to be used on all audits, reviews, and compilations.
D. minimum standards of performance which must be achieved on each audit engagement.
Client acceptance & continuance
57. The following are considered by a CPA firm in deciding whether to accept a new client,
EXCEPT the client’s
A. financial ability.
B. relations with its previous CPA firm.
C. standing in the business community.
D. probability of achieving an unqualified opinion.
58. One of the first things that the auditor will do after accepting a new client is
A. tour the client's facilities
B. study client's internal control structure
C. communicate with predecessor auditor
D. contact client's attorney to discover legal obligations
59. A client seeking a second opinion does not permit the CPA to communicate with the existing
accountant. In such cases, the CPA should
A. communicate the client's refusal directly to the existing accountant.
B. issue a disclaimer of opinion due to a significant client-imposed scope limitation.
C. consider whether, taking all the circumstances into account, it is appropriate to provide
the opinionsought.
D. consider whether to issue a qualified opinion or disclaimer of opinion due to a significant
client-imposed scope limitation.
AUDITING THEORY
C. Insiders recently purchased additional shares of the entity's stock.
D. Management places substantial emphasis on meeting earnings projections.
62. When an identified misstatement may be indicative of fraud, the auditor considers the
implications of the misstatement in relation to other aspects of the audit, particularly the
A. reliability of management representations.
B. adequacy of financial statement disclosures.
C. opinion presented in the financial statements.
D. amount of audit fees documented in the engagement letter.
63. The most difficult type of cash defalcation for the auditor to detect is that which occurs
A. in amounts under P 100.
B. before the cash is recorded.
C. out of the balance kept in the cash register.
D. after cash is recorded but before it goes to the bank.
64. The MOST LIKELY explanation why the auditor's examination cannot reasonably be
expected to bring all illegal acts by the client to the auditor's attention is that
A. illegal acts are perpetrated by management override of internal accounting controls.
B. illegal acts by clients often relate to operating aspects rather than accounting aspects.
C. the client's system of internal accounting control may be so strong that the auditor
performs only minimal substantive testing.
D. illegal acts may be perpetrated by the only person in the client's organization with access
to both assets and the accounting records.
Error, fraud & illegal acts
60. The primary responsibility for the prevention and detection of fraud and error rests with
A. the company's management
B. those charged with governance
C. the company's management and those charged with governance
D. the external auditor, the company's management, and those charged with governance
65. If the auditor suspects that members of senior management, including members of the board
of directors, are involved in noncompliance to laws as regulations, and he believes his report
may not be acted upon, he would
A. do nothing.
B. issue a disclaimer of opinion.
C. consider seeking legal advice.
D. make special investigation in order to fully determine the extent of client's
noncompliance.
61. Which of the following characteristics MOST likely would heighten an auditor's concern about
the risk of intentional manipulation of financial statements?
A. Turnover of senior accounting personnel is low.
B. The rate of change in the entity's industry is slow
66. An auditor concludes that a client has committed an illegal act that has not been properly
accounted for or disclosed. The auditor should withdraw from the engagement if the
A. client refuses to accept the auditor's report as modified for the illegal act.
B. illegal act has an effect on the financial statements that is both material and direct.
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C. auditor is precluded from obtaining sufficient competent evidence about the illegal act.
D. auditor cannot reasonably estimate the effect of the illegal act on the financial
statements.
67. An auditor who finds that the client has committed an illegal act would be most likely to
withdraw from the engagement when the
A. illegal act has received widespread publicity.
B. illegal act has material financial statement implications.
C. illegal act affects auditor's ability to rely on management representations.
D. auditor cannot reasonably estimate the effect of the illegal act on the financial
statements.
Planning & risk assessment
68. The senior auditor responsible for coordinating the field work usually schedules a pre-audit
conference with the audit team primarily to
A. provide an opportunity to document staff disagreements regarding technical issues.
B. give guidance to the staff regarding both technical and personnel aspects of the audit.
C. discuss staff suggestions concerning the establishment and maintenance of time
budgets.
D. discuss staff suggestions concerning the establishment and maintenance of time
budgets.
69. The audit risk model is used primarily
A. while doing tests of controls.
B. to determine the type of opinion to express.
C. to evaluate the evidence which has been gathered.
D. for planning purposes in determining how much evidence to accumulate.
70. Auditors appear NOT to exhibit due audit care if there was a
A. high audit risk
C. low control risk
B. high inherent risk
D. low detection risk
71. Inherent risk and control risk collectively are known as the
A. dependent variables of risk
C. risk of information dissemination
B. dual risk team
D. risk of material misstatement
72. Inherent risk and control risk differ from detection risk in that inherent risk and control risk are
A elements of audit risk white detection risk is not.
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AUDITING THEORY
B. changed at the auditor's discretion while detection risk is not.
C. functions of the client and its environment while detection risk is not.
D. considered at the individual account-balance level while detection risk is not.
73. What are the different levels of risk assessment?
A. "High" and "Low".
C. "High" and "Less than High".
B. "Higher" and "Lower".
D. ''Maximum" and "Minimum".
74. The acceptable level of detection risk (ADR) and the combined level of inherent risk (IR) and
control risk (CR) are ________ related.
A. directly
C. not
B. inversely
D. proportionately
75. Inherent risk is reduced when the likelihood of defalcations is low. This would be true for an
account such as
A. Accounts receivable.
C. Held for trading securities.
B. Cash.
D. Property, plant and equipment.
76. When setting a preliminary judgment about materiality
A. there is no relationship between it and the peso amount of evidence needed.
B. the same amount of evidence is required for either low or high peso amounts.
C. less evidence is required for a low peso amount than for a high peso amount.
D. more evidence is required for a low peso amount than for a high peso amount.
77. When the auditors allocate the preliminary judgment about materiality to account balances,
the materiality allocated to any given account balance is referred to as
A. The error range.
C. Tolerable materiality.
B. The materiality range.
D. Tolerable misstatement.
78. In considering materiality for planning purposes, an auditor believes that misstatements
aggregating P 10,000 would have a material effect on an entity's profit, but that
misstatements would have to aggregate P 20,000 to materially affect the statement of
financial position. Ordinarily, it would be appropriate to design auditing procedures that would
be expected to detect misstatements that aggregate
A. P 10.000
C. P 20,000
B. P 15,000
D. P 30,000
79. Regardless of how the allocation of the preliminary judgment about materiality was done,
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when the audit is complete the auditor must be confident that the combined errors in all
accounts are
A. Equal to the preliminary judgment.
B. Less than the preliminary judgment.
C. More than the preliminary judgment.
D. Less than or equal to the preliminary judgment.
80. After beginning an audit of a new client, Syd, CPA, discovers that the professional
competence necessary for theengagement is lacking. Sydney informs management of the
situation and recommends another CPA, and managementengages the other CPA. Under
these circumstances
A. Syd's lack of competence should be considered to be a violation of generally accepted
auditingstandards.
B. Syd may request compensation from the client for any professional services rendered to
it inconnection with the audit.
C. Syd's request for a commission from the other CPA is permitted because a more
competent audit cannow be performed.
D. Syd may be indebted to the other CPA since the other CPA can collect from the client
only the amountthe client originally agreed to pay Syd.
81. If a change in the type of engagement from higher to lower level of assurance is reasonably
justified, the report based on the revised engagement
A. omits reference to the original engagement.
B. should qualify the opinion due to a scope limitation.
C. should refer to the original engagement in a separate paragraph preceding the opinion
paragraph.
D. should always refer to any procedures that may have been performed in the original
engagement.
82. Cost-benefit considerations are part of audit planning. In relation to this, which of the
following audit procedures isusually the LEAST costly to perform?
A. Analytical procedures.
C. Tests of balances.
B. Substantive tests of transactions.
D. Tests of controls.
83. 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. use of information technology.
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C. key ratios and operating statistics.
D. employee performance measures and incentive compensation policies.
Planning – other strategic issues
84. In which of the following situations would an expert be LEAST likely contracted by a CPA?
A. Valuations of certain types of assets like land and buildings.
B. Determination of fair values using specialized statistical techniques.
C. Application of accounting methods in computing inventory balances.
D. Legal opinions concerning interpretations of engagements, statutes and regulations.
Internal Control Concepts
85. A reason to establish internal control is to
A. have a basis for planning the audit.
B. encourage compliance with organizational objectives.
C. ensure the accuracy, reliability and timeliness of information.
D. provide reasonable assurance that the objectives of the organization are achieved.
86. What is the relationship between an entity's objectives and the controls it implements to
provide reasonable assuranceabout their achievement?
A. Adverse
C. Direct
B. Cannot be determined
D. Inverse
87. An operating committee of a company's board of directors that is in charge of overseeing
financial reporting anddisclosure.
A. Audit committee
C. Governance
B. Control environment
D. Management
88. These are policies and procedures designed to eliminate or to reduce threats to fundamental
principles to an acceptablelevel.
A. Control activities
C. Safeguards
B. Internal controls
D. Segregation of duties
89. The following are components of internal control
A. Control environment
C. Organizational structure
B. Legal environment of the firm
D. Risk assessment process
90. Which of the following descriptions pertain to physical controls?
A. The assignment of incompatible functions to different people.
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B. Controls performed to check accuracy, completeness, and authorization of transactions.
C. physical security of assets, including adequate safeguards such as secured facilities
over access toassets and records.
D. Control activities that include reviews and analyses of actual performance versus
budgets, forecasts,and prior period performance.
AUDITING THEORY
B. different individual should handle custody, authorization and record-keeping.
C. an individual authorizing a transaction maintain custody of the asset that resulted from
thetransaction.
D. an individual maintaining custody of an asset be entitled to access the accounting
records for theasset.
91. An entity's ongoing monitoring activities often include
A. reviewing the purchasing function.
B. periodic audits by the audit committee.
C. the audit of the annual financial statements.
D. control risk assessment in conjunction with quarterly reviews.
97. What is an example of specific transaction authorization?
A. Establishment of sales prices.
B. Setting of automatic reorder points.
C. Establishment of a customer's credit limits.
D. Approval of a construction budget for a new warehouse.
92. A process implemented by management to assess the effectiveness of internal control
performance over time.
A. Monitoring of controls
C. Risk assessment procedures
B. Quality control system
D. Tests of controls
98. For good internal control, which function should be assigned to the company's accounting
department?
A. Signing payroll checks
B. Preparing financial reports
C. Recording financial transactions
D. Reconciling accounting records with existing assets
93. Which of the following would be preventive controls?
A. The use of batch totals.
B. Preparation of bank reconciliation.
C. Requirement that two persons open mail.
D. Reconciling the accounts receivable subsidiary file with the control account.
94. Which of the following conditions supports strong internal control?
A. An economic downturn.
B. Strict monitoring by the Bureau of Internal Revenue.
C. The existence of related parties and related party transactions.
D. Pressure by the financial community to improve earnings performance.
95. An effective internal control structure
A. cannot be circumvented by management.
B. eliminates risk and potential loss to the organization.
C. reduces the need for management to review exception reports on a day-to-day basis.
D. is unaffected by changing circumstances and conditions encountered by the
organization.
96. A proper segregation of duties requires that
A. an individual authorizing a transaction should record it also.
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99. When a compensating control exists, a weakness in the system
A. is reduced but is not removed; therefore, it is still of concern to the auditor
B. could cause a material loss, so it must be tested using substantive procedures
C. is magnified and must be removed from the sampling process and examined in its
entirety
D. is no longer a concern because the potential for misstatement has been sufficiently
reduced
100. After obtaining a sufficient understanding of internal control, the auditor
A. assesses the need to apply GAAS.
B. determines the preliminary assessment of control risk.
C. determines the assessed levels of detection risk and inherent risk.
D. assesses detection risk to determine the acceptable level of inherent risk.
Study &evaluation of internal control
101. In an audit of financial statements, an auditor's primary consideration regarding a control is
whether it
A. affects management's financial statement assertions.
B. enhances management's decision-making processes.
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C. provides adequate safeguards over access to assets.
D. reflects management's philosophy and operating style.
102. An auditor would most likely be concerned with internal control policies and procedures that
provide reasonable assurance about
A. methods of assigning production tasks to employees.
B. the efficiency of management's decision-making process.
C. appropriate prices the entity should charge for its products.
D. the entity's ability to process and summarize financial data.
AUDITING THEORY
C. Are two or more authorized signatures required on checks that repay notes payable?
D. Are assets that collateralize note payable critically needed for the entity's continued
existence?
108. If the auditor anticipates reliance on the client's internal controls, the auditor would
A. eliminate the need for performance of substantive tests.
B. perform tests of controls and increase the amount of substantive tests.
C. no longer perform tests of controls and proceed immediately to substantive tests.
D. test controls and use the results of testing as a basis for determining the nature, extert
and timing ofsubstantive tests.
103. If no changes have occurred since the controls were last tested, a CPA should
A. rely entirely on the performance of substantive audit procedures.
B. test the operating effectiveness of such controls at least once in every third audit.
C. test the operating effectiveness of such controls at least once in every fourth audit.
D. rely on the prior year audit's assessment of internal controls and use this assessment in
the currentyear.
109. Tests of controls are used to test whether controls are
A. operating effectively
B. properly documented by the client.
C. placed in operation or implemented.
D. properly incorporated in the financial statements.
104. If the auditors do NOT perform tests of controls of certain assertions:
A. they must issue a qualified opinion.
B. they have performed a substandard audit.
C. they must assess control risk at the MAXIMUM level for those assertions.
D. they arc not required to communicate reportable conditions relating to those accounts to
management.
110. Which of the following is ordinarily a test of internal control procedures?
A. Count and list cash on hand.
B. Sending confirmation letters to banks.
C. Examination of signatures on checks.
D. Obtain or prepare reconciliation statements of bank accounts as of the balance sheet
date.
105. It is most appropriate that tests of controls be applied to transactions and controls
A. at the balance sheet date.
C. at each quarterly interim period.
B. at the beginning of the fiscal period.
D. for the entire period under audit.
111. Audit evidence concerning segregation of duties ordinarily is best obtained by
A. developing audit objectives that reduce control risk.
B. observing the employees as they apply specific controls.
C. obtaining a flowchart of activities performed by available personnel.
D. performing tests of transactions that corroborate management's financial statement
assertions.
106. Tests of controls are LEAST likely to be omitted with regard to:
A. subsequent events
B. accounts representing few transactions
C. accounts representing many transactions
D. accounts believed to be subject to ineffective control activities
107. Which of the following questions would an auditor most likely include on an internal control
questionnaire for notespayable?
A. Are direct borrowings on notes payable authorized by the board of directors?
B. Are the proceeds from notes payable used for the purchase of noncurrent assets?
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112. Tests of controls, for efficiency, are frequently done at the same time as
A. analytical procedures
C. substantive tests of balances
B. compliance tests
D. substantive tests of transactions
113. The objective of dual-purpose tests is to
A. evaluate whether internal controls are operating effectively.
B. detect material misstatements in the client's financial statements.
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C. identify unusual trends or patterns in comparative financial statements
D. test internal controls; as well as transactions and balances using the same test
procedures.
114. When the auditor identifies an area of the accounting system with missing controls (i.e.,
material weakness), this would lead to a modification of the audit program in that area that
would
A. eliminate the need for a test of controls.
B. increase the amount of tests of controls.
C. increase the reliance on tests of controls.
D. cause the issuance of a qualified or adverse opinion.
115. The development of constructive suggestions to clients for improvements in internal control is
A. a desirable by-product of an audit engagement.
B. addressed by the Auditor only during a special engagement.
C. a requirement of the auditor's consideration of internal control.
D. as important as establishing a basis for reliance upon the internal control structure.
COSO
Financing & treasury cycle
Revenue cycle
116. Which of the following control procedures may prevent the failure to bill customers for some
shipments?
A. Each sales order should be approved by authorized personnel
B. Each sales invoice should be supported by a shipping document.
C. Sales journal entries should be reconciled to daily sales summaries.
D. Each shipment should be supported by a pre-nurnbered sales invoice that is accounted
for.
117. When accounts receivable is considered uncollectible, the person who generally authorizes
the write-off is the
A. accountant
C. sales manager
B. credit manager
D. treasurer
Production cycle
Property, plant & equipment cycle
Expenditure cycle – purchasing
Expenditure cycle – payroll
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AUDITING THEORY
Other cycles
118. When no independent stock transfer agents are employed and the corporation issues its own
stocks and maintainsstock records, cancelled stock certificates should
A. be destroyed to pi-event fraudulent reissuance.
B. be defaced and sent to the Corporate Secretary.
C. be defaced to prevent reissuance and attached to their corresponding stubs.
D. not be defaced but segregated from other stock certificates and retained in a canceled
certificates file.
Communication & reporting
119. Which of the following statements concerning material weaknesses and reportable conditions
is CORRECT?
A. All material weaknesses are reportable conditions.
B. All reportable conditions are material weaknesses.
C. An auditor should identify and communicate material weaknesses separately from
reportableconditions.
D. An auditor should report immediately material weaknesses and reportable conditions
discoveredduring an audit.
120. The auditors who become aware of an internal control reportable condition are required to
communicate this to the
A. audit committee.
B. internal auditors.
C. board of directors and internal auditors.
D. audit committee and client's legal counsel.
121. Significant deficiencies in internal control are to be communicated
a. in writing
c. orally or in writing
b. orally, but may also be in writing
d. under no circumstances
Internal auditing
122. Internal auditing can be best described as a(n)
A. accounting function
C. compliance function
B. activity primarily to detect fraud
D. control function
123. The overall objective of internal auditing is to
A. ascertain that controls are costs-justified.
B. attest to the efficiency with which resources are employed.
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C. provide assurance that financial data have been accurately recorded.
D. assist the members of the organization in the effective discharge of their responsibilities.
124. Which of the following statements is NOT a distinction between independent auditing and
internal auditing?
A. Internal auditors are employees of the auditee, whereas external auditors are
independent contractors.
B. The internal auditor's span of coverage goes beyond financial auditing to encompass
operational and performance auditing.
C. Independent auditors represent third party users external to the auditee entity, whereas
internal
auditors report directly to management.
D. Although independent auditors strive for both validity and relevance of evidence, internal
auditors are concerned almost exclusively with validity.
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C. some procedures are commonly employed on every audit regardless of the
circumstances
D. all procedures are dependent on the adequacy of the controls and me results of the tests
of controls
129. The primary emphasis in most tests of details of balances is on the
A. balance sheet accounts.
C. income statement accounts.
B. cash flow statement accounts.
D. all of these
130. Which of the following income statement accounts is LEAST likely to be verified in
conjunction with the audit of abalance sheet account?
A. Depreciation expense
C. Travel and entertainment
B. Interest expense
D. Uncollectible accounts expense
Audit objectives, evidence & procedures
125. Broadly defined, the subject matter of any audit consists of
A. assertions
C. financial statements
B. economic data
D. operating data
131. If the auditor wants to perform more effective substantive tests, the auditor will perform
A. neither test of details nor analytical procedures
B. test of details and analytical procedures in equal proportion
C. more analytical procedures and less test of details (transactions and balances)
D. more test of details (transactions and balances) and less analytical procedures
126. Management assertions drive the auditor's quest for audit evidence. These assertions are
A. directly related to generally accepted auditing standards.
B. indirectly related to generally accepted auditing standards.
C. directly related to generally accepted accounting principles.
D. indirectly related to generally accepted accounting principles.
132. Complete the statement: "The evidence gathering technique of observation
A. is rarely sufficient by itself."
B is limited to what the auditor sees."
C. is useful in most parts of the audit."
D. requires the gathering of corroborative evidence."
127. Which of the following pieces of evidence is LEAST likely to be examined by the auditor
examines to determinewhether operations are in compliance with the internal control
structure?
A. Cancelled supporting documents.
B. Signatures on authorization forms.
C. Confirmations of accounts receivable.
D. Records documenting usage of IT programs.
133. The strongest criticism of the reliability of audit evidence that the auditor physically observes
is that
A. the client may conceal items from the auditor
B. such evidence is too costly in relation to its reliability.
C. the observation must occur at a specific time, which is often difficult to arrange
D. the auditor may net be qualified to evaluate the items which he or she is observing.
128. Which one of the following statements is true? In deciding on substantive tests of
transactions
A. the materiality of the item will not influence the choice of procedures used
B. results obtained in the prior year's audit will not affect the procedures used this year
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134. Which one of the following types of procedures will aid the auditor in obtaining evidence
regarding the mathematicalaccuracy of accounting records and other information?
A. Confirmation
C. Inspection.
B. Inquiry.
D. Recalculation
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135. The following are descriptions of assertions about classes of transactions and events for the
period under audit. Whichof the following statements refers to cut-off?
A. Transactions and events have been recorded in the proper accounts.
B. Transactions and events have been recorded in the correct accounting period.
C. Transactions and events that have been recorded have occurred, and pertain to the
entity.
D. Amounts and other data relating to recorded transactions and events have been
recorded appropriately.
136. Which of the following statements is NOT a reason for utilizing analytical review procedures?
A. To assess the entity" s ability to continue as a going concern
B. To determine the magnitude of errors in the financial statements.
C. To identify areas with no unusual fluctuations so that fewer detailed tests may be
performed on thoseaccounts.
D. To highlight changes from the prior year to the current year so that trends can be
identified which willinfluence audit planning.
137. For which of the following account balances are substantive tests of details LEAST likely to
be performed unlessanalytical procedures indicate the need to extend detail testing?
A. Legal expense
C. Payroll expense
B. Marketable securities
D. Research and development costs
AUDITING THEORY
requests.
141. The test for recorded sales for which there were no actual shipments, the auditor traces from
the
A. bill of lading to the sales journal
B. sales journal to the bill of lading
C. sales journal to the accounts receivable subsidiary ledger
D. bill of lading to the supporting customer order and sales order
142. To test the possibility of a shipment to a fictitious customer, the auditor traces from the
A. bill of lading to the credit authorization
B. credit authorization to the bill of lading
C. accounts receivable ledger to the bill of lading
D. sales journal to the accounts receivable ledger
143. An effective procedure to test for unbilled shipments is to trace from the
A. sales journal to the shipping documents
B. shipping documents to the sales journal
C. sales journal to the accounts receivable ledger
D. sales journal to the general ledger sales account
138. A confirmation request letter should always be sent under the control of
A. the auditor
C. the recipient
B. the client
D. both the auditor and the recipient
144. An auditor usually examines receiving reports to support entries in the
A. check register and sales journal.
B. voucher register and sales journal.
C. sales journal and sales returns journal.
D. voucher register and sales returns journal.
139. Where no response is received to a positive confirmation request, the auditor should
A. contact the recipient/respondent in order to force a response from such recipient.
B. issue a qualified opinion or a disclaimer of opinion on grounds of a scope limitation.
C. issue a qualified opinion or an adverse opinion, depending on the materiality involved.
D. contact the recipient to elicit a response; and perform alternative procedures as
necessary.
145. The two most important considerations the auditor should keep in mind in the verification of
the write-off ofindividual uncollectible accounts are
A. cut-off and authorization
C. validity and authorization
B. cut-off and completeness
D. validity and completeness
140. Negative confirmation requests may be used when
A. a substantial number of errors is expected.
B. a large number of small balances is involved.
C. the assessed levels of inherent and control risks are HIGH.
D. the auditor has reason to believe that respondents will disregard negative confirmation
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146. Which of the following auditing techniques is used by an auditor to detect kiting between
intercompany banks?
A. Review subsequent bank statements
B. Prepare a year-end bank reconciliation
C. Prepare a schedule of the bank transfers
D. Review composition of authenticated deposit slips
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147 The most reliable form of evidence, other than test of subsequent cash receipts, concerning
the validity of a note receivable balance is a(n)
A. bill of lading
C. external confirmation reply
B. customer purchase order
D. sales invoice
148. The physical count of inventory of a retailer was higher than shown by the perpetual records.
Which of the following could explain the difference?
A. Credit memos for several items returned by customers had not been recorded.
B. No journal entry had been made on the retailer's books for several items returned to its
suppliers.
C. An item purchased "F.O.B. shipping point" had not arrived at the date of the inventory
count and hadnot been reflected in the perpetual records.
D. Inventory items had been counted but the tags placed on the items had not been taken
off the itemsand added to the inventory accumulation sheets.
Audit documentation
149. The audit program usually CANNOT be finalized until the
A. engagement letter has been signed by the auditor and the client.
B. consideration of the entity's internal control has been completed.
C. search for unrecorded liabilities has been performed and documented.
D. reportable conditions have been communicated to the audit committee.
150. An auditor should be able to collect and evaluate documentary evidence. When evaluating
and interpreting evidence,the auditor must be on guard against the possibility of drawing
unwarranted conclusions. An example of a validconclusion is
A. client ownership determined from third-party inquiries about consigned goods.
B. correct inventory valuation as determined from observation of the physical count.
C. proper accounts payable cut-oft at reporting date as determined by a review of raw
materialsrequisitions.
D. existence of a company travel vehicle determined from the examination of the paid
invoice for the saidvehicle.
AUDITING THEORY
A.
B.
C.
D.
Client's outsourced attorneys
Client's accounting and production managers
Public accounting firm's consulting and tax experts
Public accounting firm's audit team on the engagement
Audit sampling
153. Which of the following comments BEST illustrates the concept of sampling risk?
A. The documents related to the chosen sample may not be available for inspection.
B. An auditor may fail to recognize errors in the documents examined for the chosen
sample.
C. An auditor may select audit procedures that are not appropriate to achieve the specific
objective.
D. A randomly chosen sample may not be representative of the population as a
whole on the characteristic of interest.
154. One of the causes of non-sampling risk is
A. failure to draw a random sample.
B. failure to draw a representative sample.
C. the use of inappropriate or ineffective audit procedures.
D. the use of attributes sampling instead of variables sampling.
155. Which of the following involves audit sampling?
A. Analytical procedures.
C. Testing controls that leave no audit trail.
B. Risk assessment procedures
D. None of the choices.
156. What is a sample whose characteristics are the same as those of the population'?
A. A representative sample.
C. A variable sample
B. A random sample.
D. An attributes sample.
157. For purposes of audit sampling in tests of controls, "error" refers to:
A. deviations
C. irregularities
B. inconsistencies
D. misstatements
151. Which of the following is NOT required by the Philippine Standards on Auditing?
A. Attorney letter
C. Management letter
B. Engagement letter
D. Management representation
158. For purposes of audit sampling in substantive tests, "error" refers to:
A. deviations
C. irregularities
B. inconsistencies
D. misstatements
152. Which of these persons generally does not participate in writing the management letter?
159. The risk of assessing control risk too high and the risk of incorrect rejection relate to the:
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A. allowable risk of tolerable error.
B. effectiveness of the audit.
AUDITING THEORY
C. efficiency of the audit.
D. materiality levels.
160. The risk of assessing control risk too low and the risk of incorrect acceptance relates to the
A. allowable risk of tolerable error.
C. efficiency of the audit.
B. effectiveness of the audit
D. materiality levels.
161. One of the ways to reduce sampling risk is to
A. increase the sample size.
B. carefully design the audit procedures to be used.
C. use variables sampling rather than attribute sampling.
D. provide proper supervision and instruction of the audit team.
162. An advantage of statistical sampling over non-statistical sampling is that statistical sampling
helps the auditor to
A. eliminate the risk of non-samplingerrors.
B. minimize the failure to detect errors and irregularities.
C. measure the sufficiency of the evidential matter obtained.
D. reduce the level of audit risk and materiality to a relatively low amount.
163. Should errors in the sample be projected to the population?
A. No, because the sample misstatement is equal to the total misstatement.
B. No, because the sample misstatement is larger than the total misstatement.
C. Yes, because the misstatement in the sample is not necessarily the total misstatement.
D. Yes, because projection of errors is required by generally accepted accounting
standards.
164. One of the ways to control non-sampling risk is through
A. proper supervision and instruction of the audit team.
B. proper supervision and instruction of the client's employees.
C. the use of attributes sampling rather than variables sampling.
D. controls which ensure the sample drawn is random and representative.
165. The tolerable rate of deviations for a compliance test is generally
A. identical to the expected rate of errors in the related accounting records.
B. lower than the expected rate of errors in the related accounting records.
C. higher than the expected rate of errors in the related accounting records.
D. unrelated to the expected rate of errors in the related accounting records.
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166. The tolerable rate of deviation for tests of controls necessary to justify a control risk
assessment depends primarily on which of the following?
A. The cause of errors.
B. The amount of any substantive errors.
C. The limit used in audits of similar clients.
D. The extent of reliance to be placed on the procedures.
Basic EDP concepts
167. This component of an IT system refers to the electronic devices or equipment used to
accomplish each IT function (input, processing, storage, output).
A. Application software
C. Dataware
B. Computer software
D. System software
168. This refers to the computer programs designed to perform specific data processing tasks
such as payroll, billing, orinventory processing.
A. Application software
C. Dataware
B. Computer software
D System software
169. It is a state implying data has certain attributes: completeness, soundness, purity, and
veracity.
A. Data integration.
C. Data statement.
B. Data integrity.
D. Data verification.
Internal control in an EDP environment
170. What are controls that are designed to assure that the information processed by the
computer is valid, complete, andaccurate?
A. General controls
C. Output controls
B. Input controls
D. Processing controls
171. Which of the following employees in a company's computer department should be
responsible for designing new orimproved data processing procedures?
A. Control group head
C. Programmer
B. Flowchart editor
D. System analyst
172. The detection and correction of errors in the of data should be the responsibility of the
A. data processing manager.
C. IT department control group.
B. independent public accountant
D. operator.
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173. Which of the following is a general IT control that would MOST likely assist an entity whose
system analysts left theentity in the middle of a major project?
A. Check digit verification.
B. Systems and documentation.
C. Input and output validation routines.
D. Grandfather-father-son record retention.
174. Echo check is BEST described as
A. two units that provide read-after-write and dual-read capabilities.
B. a component that signals the control unit that an operation has been performed.
C. double writing of the CPU and peripheral unit from communicating with the CPU at the
same time.
D. none of the choices describes an echo check.
175. Which of the following is a computer test made to ascertain whether a given characteristic
belongs to a group?
A. Echo check.
C. Parity check.
B. Limit check.
D. Validity check.
176. Totals of amounts in computer-recorded data fields, which are not usually added but are used
only for data processingcontrol purposes are called
A. field totals
C. hash totals
B. Haas-Larzen Totals
D. record totals
177. Which of the following computer documentation would an auditor MOST LIKELY utilize in
obtaining anunderstanding of an entity's internal control structure?
A. Program listings
C. Record layouts
B. Record counts
D. System flowcharts
178. Which of the following controls MOST likely would assure that an entity can reconstruct its
financial records?
A. Backup CDs of critical files which are stored away from originals.
B. Personnel who are independent of data input perform parallel simulations.
C. Hardware controls are built into the computer by the computer manufacturer.
D. System flowcharts provide accurate descriptions of input and output operations
179. Which of the following procedures would an entity MOST likely include in its computer
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AUDITING THEORY
disaster recovery plan?
A. Maintain a listing of entity passwords with the network manager.
B. Develop an auxiliary power supply to provide uninterrupted electricity.
C. Translate data for storage puiposes with a cryptographic secret code.
D. Store duplicate copies of critical files in a location away from the computer center.
Study & evaluation of EDP controls
180. Internal control is ineffective when computer department personnel
A. originate changes in master files.
B. provide physical security for program files.
C. design documentation for computerized systems.
D. participate in computer software acquisition decisions.
181. Auditing by testing the input and output of an IT system instead of the computer program
itself will
A. provide the auditor with the same type of evidence.
B. detect all program errors, regardless of the nature of the output.
C. not detect program errors which do not show up in the output sampled.
D. not provide the auditor with confidence in the results of the auditing procedures.
182. Tests of controls in an advanced computer system
A. is inadvisable because it may distort the evidence in master files.
B. can be performed using actual transactions or simulated transactions.
C. can be performed using only actual transactions since testing of simulated transactions
is of noconsequence.
D. is impractical since many procedures within the computer activity leave no visible
evidence of havingbeen performed.
183. Using parallel simulation, are processed using
A. live transactions, live programs
C. test transactions, live programs
B. live transactions, test programs
D. test transactions, test programs
Completing the audit
184. Which one of the following factors is NOT a good indicator of potential financial failure?
A. Client is constantly short of cash and working capital.
B. Client has had increasing net losses for several years.
C. Client's retained earnings were reduced by half as a result of a large dividend payout.
D. Client relies heavily on debt financing, especially by financing permanent assets with
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short-termloans.
185. Subsequent events, in the context of PSA 560, refer to:
A. facts discovered after the date of the auditor's report.
B. events occurring between the period end and the date of the auditor's report
C. events occurring between the week immediately before the end of the period and the
date of theauditor's report.
D. events occurring between the period end and the date of the auditor's report and facts
that becomeknown to the auditor after the date of the auditor's report.
186. What or who is the primary source of information to be reported about litigation, claims, and
assessments?
A. Client's lawyer
C. Court records
B. Client's management
D. Independent auditor
187. Regarding litigation, the auditor's primary means of obtaining corroboration of management's
information is a
A. letter of audit inquiry to the client's lawyer.
B. confirmation of claims and assessments from the other parties to the litigation.
C. letter of corroboration from the auditor's lawyer upon review of the legal documentation
D. confirmation of claims and assessments from an officer of the court presiding over the
litigation
188. The primary objective of analytical procedures used in the final review of an audit is to
A. identify areas that represent specific risks relevant to the audit.
B. assist the auditor in assessing the validity of the conclusions reached.
C. obtain evidence from details tested to corroborate particular assertions.
D. satisfy doubts when questions arise about a client's ability to continue in existence.
189. If a lawyer refuses to furnish corroborating information regarding litigation, claims, and
assessments, the auditor should:
A. honor the confidentiality of the client-lawyer relationship.
B. disclose this fact in the notes to the financial statements.
C. consider the refusal to be tantamount to a scope limitation.
D. seek to obtain the corroborating information from management,
190. An attorney responding to an auditor as a result of the client's letter of audit inquiry may
appropriately limit the response to
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A. asserted claims and pending or threatened litigation.
B. items, which have high probability of being resolved to the client's detriment.
C. legal matters subject to unsettled points of law, uncorroborated information, or other
complex judgments.
D. matters to which the attorney has given substantive attention in the form of legal
consultation or representation.
191. The audit inquiry letter to the client's legal counsel should be mailed only by the
A. client after review by the auditor's attorney.
B. client after the auditor has reviewed it for appropriate content.
C. auditor after preparation by the client and review by the auditor.
D. auditor's attorney after preparation by the client and review by the auditor.
192. The appropriate date for the client to specify as the effective date in the audit inquiry to a
lawyer is
A. the balance sheet date.
B. the date of the audit inquiry itself.
C. the expected date of the completion of audit field work.
D. seven working days after the request is received by the lawyer.
193. Written client representation letters are normally signed by the
A. treasurer and the internal auditor.
B. president and the chairperson of the board.
C. chief executive officer and the chief financial officer.
D. corporate counsel and the audit committee chairperson.
194. Management representation letters should be dated as of the date of the:
A. auditor's report.
C. latest interim financial statements.
B. balance sheet
D. latest related party transaction.
195. Prior to the audit report release date, auditors have a responsibility to management's
disclosure of subsequent eventsuntil the
A. audit report release date
C. following year's balance sheet date
B. auditors' report date
D. year-end balance sheet date
Representation letter
196. A representation letter issued by a client:
A. is a substitute for testing.
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B. does not reduce the auditor's responsibility
C. is essential for the preparation of the audit program.
D. reduces the auditor's responsibility only to the extent that it is relied upon.
197. The main purpose of management representations is to:
A. shift responsibility for financial statements from the management to auditors
B. impress on management its ultimate responsibility for the financial statements and
disclosures
C. provide a substitute source of audit evidence for substantive procedures that auditors
would otherwiseperform
D. provide management an opportunity to make assertions about the quantity and valuation
of physicalinventory
198. Which of the following expressions is LEAST likely to be included in a client's representation
letter?
A. Management has made available all financial statements and the related data.
B. Management acknowledges responsibility for illegal actions committed by employees.
C. No events have occurred subsequent to the balance sheet date that require adjustment
to, or disclosurein. the financial statements.
D. The company has complied with all aspects of contractual agreements that would have a
material effect on the financial statements in the event of noncompliance.
199. When considering the use of management's written representations as audit evidence about
the completeness assertion, an auditor should understand that such representations
A. are not parts of the evidential matter considered to support the assertion.
B. complement, but co not replace, substantive test designed to support the assertion.
C. replace reliance on internal accounting controls as evidence to support the assertion.
D. constitute sufficient evidence to support the assertion when considered in combination
with relianceon internal accounting controls.
200. Which of the following is ordinarily performed LAST in the audit examination?
A. Performing final test of control
B. Performing a review of subsequent events
C. Obtaining signed management representation
D. Securing a signed engagement letter from the client
Standard audit report
201. A financial reporting framework designed to meet the common financial information needs of
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AUDITING THEORY
a wide range of users.
A. Fair presentation framework
B. General-purpose framework
C. Philippine Standards on Auditing
D. Financial reporting rules and regulations
202. The auditor's report shall have a title that clearly indicates
A. the name of the client audited.
B. when the audit was completed.
C. that it is the report of an independent auditor.
D. the period covered by the financial statements.
203. The expression "financial statements, taken as a whole" applies
A. only to a complete set of financial statements.
B. equally to each item in each financial statement.
C. equally to each material item in each financial statement.
D. equally to a complete set of financial statements and to an individual financial statement.
204. The phrase used to express the auditor's opinion is
A. "present fairly, in all material respects"
B. "provide reasonable but not absolute assurance"
C. "absence of material and pervasive misstatements in the financial statements"
D. AII of these choices are acceptable phrases to express the auditor's opinion.
205. The opinion expressed by the auditor when the auditor concludes that the financial
statements are prepared, in al lmaterial respects, in accordance with the applicable financial
reporting framework.
A. Modified opinion
C. Unmodified opinion
B. Standardized statement
D. Unqualified explanation
206. An auditor's report should be dated no earlier than the date
A. the report is delivered to the entity audited.
B. of the balance sheet for the latest period reported on.
C. a letter of audit inquiry is received from the entity's attorney of record.
D. the auditor has obtained sufficient, appropriate audit evidence on which to base the
opinion.
207. The auditor's address is also presented in the auditor's report. The address is normally the
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A.
B.
C.
D.
principal place of business of the audit client.
exact location where the auditor's report was signed.
address of the majority shareholder of the audit client.
location in the jurisdiction where the auditor practices.
208. The partner or other person in the firm who is responsible for the group audit engagement
and its performance, and forthe auditor's report on the group financial statements that is
issued on behalf of the firm.
A. Group engagement partner
C. Lead partner
B. Joint engagement partner
D. Managing partner
209. An auditor used the services of an expert during the audit of a client's financial statements.
When issuing anunmodified auditor's report, the auditor should:
A. mention the expert and justify the use of the expert's services.
B. not mention the expert as this might mislead financial statement users.
C. not mention the expert in the opinion and instead disclose the expert in the notes.
D. mention the expert in both the auditor's report and the notes to the financial statements.
210. In which of the following situations would the auditor appropriately issue a standard
unqualified report with no emphasis of a matter paragraph concerning consistency?
A. A change in the percentage used to calculate the provision for warranty expense.
B. Correction of a mistake in the application of a generally accepted accounting principle.
C. A change from an accounting principle that is not generally accepted to one that is
generally accepted.
D. A change in the method of accounting for specific subsidiaries that comprise the group of
companies for which consolidated statements are presented.
211. If an amendment to other information in a document containing audited financial statements
is necessary and theentity refuses to make the amendment, the auditor would consider
issuing
A. qualified or adverse opinion.
B. adverse or disclaimer of opinion.
C. qualified or disclaimer of opinion.
D. unqualified opinion with emphasis of a matter paragraph
Departures from unqualified opinion
212. A qualified opinion, an adverse opinion, or a disclaimer of opinion are known as:
A. modified opinions
C. unqualified explanations
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B. standardized statements
D. unmodified opinions
213. The phrase "Except for the possible effects of the matters...the financial statements present
fairly in all materialrespects the financial position, results of operations, and cash flows in
conformity with GAAP" indicates
A. a disclaimer of opinion
C. an adverse opinion
B. a qualified opinion
D. an unqualified opinion
214. An auditor who concludes that a material (but not pervasive) uncertainty is not adequately
disclosed in the financialstatements should issue a(n):
A. disclaimer of opinion
C. adverse opinion
B. qualified opinion
D. unqualified opinion
215. An auditor may not express a qualified opinion when
A. the auditor's report refers to the work of a specialist.
B. the auditor lacks independence with respect to the audited entity.
C. circumstances prevent the auditor from completing an important audit procedure.
D. an accounting principles at variance with generally accepted accounting principles is
used.
216. An auditor has concluded that hand or error has a material effect on the financial statements.
The fraud/error has not been corrected and reflected in the financial statements. In this case,
the pervasiveness of the effect of fraud and error will determine the opinion. Accordingly, the
auditor should issue a(n):
A. qualified or adverse opinion.
B. adverse or disclaimer of opinion.
C. qualified or disclaimer of opinion.
D. unqualified opinion with emphasis of matter.
217. If management fails to provide adequate justification for a change from one generally
accepted accounting principle to another, the auditor should
A. disclaim an opinion because of uncertainty.
B. neither modify the opinion nor disclose the matter because both principles are generally
accepted.
C. disclose the matter in a separate emphasis of a matter paragraph(s) but not modify the
opinion paragraph.
D. add a basis for modification paragraph and express a qualified or an adverse opinion for
lack of conformity with the applicable financial reporting framework.
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218. An auditor is unable to determine the amounts associated with illegal acts committed by a
client. The auditor would most likely issue:
A. an adverse opinion.
B. a disclaimer of opinion.
C. either a qualified opinion or an adverse opinion.
D. either a qualified opinion or a disclaimer of opinion.
219. 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. adverse opinion.
B. qualified opinion.
C. disclaimer of opinion.
D. unqualified opinion with explanatory paragraph.
220. When the auditors are associated with the financial statements of a public company, but have
NOT audited thefinancial statements, they should:
A. issue a compilation report
C. issue a qualified report
B. issue a disclaimer of opinion
D. not issue any report
221. If the summary financial statements (FS) are not consistent, in all material respects, with or
are not a fair summary of the audited FS. In accordance with the applied criteria, and
management does not agree to make the necessary changes, the auditor shall
A. express an adverse opinion on the summary FS.
B. withdraw from the engagement since management refuses to make amendments to the
summary FS.
C. express a qualified opinion on the summary FS, with a basis for modification paragraph
describing thelack of consistency.
D. express an unqualified opinion on the summary FS, with an emphasis of a matter
paragraphdescribing the lack of consistency.
Reports on comparative statements
Reports on other information
222. This section of the auditor's report is applicable when the auditor addresses other reporting
responsibilities that are inaddition to the auditor's responsibility under PSAs to report on the
financial statements.
A. Basis for modification
C. Other matters paragraph
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B. Opinion paragraph
D. Other reporting responsibilities
Review & compilation
223. Which of the following is an objective of a review engagement?
A. Expressing a limited assurance to users who have agreed as to procedures that will be
performed bythe CPA.
B. Expressing a positive opinion that the financial information is presented in conformity
with generallyaccepted accounting principles.
C. Reporting that the financial statements, in all material respects, fairly present the
financial position andoperating results of the client.
D. Reporting whether material modifications should be made to such financial statements to
make themconform with generally accepted accounting principles.
224. Accountants are permitted to express "negative assurance" in which of the following reports?
A. Review report on unaudited financial statements
B. Compilation report on unaudited financial statements
C. Adverse opinion report on audited financial statements
D. Standard unqualified audit report on audited financial statements
225. Which of the following results in a modification of a review report?
A. A significant uncertainty
B. A change in accounting estimates
C. A change in accounting principles
D. A departure from financial reporting standards
226. When accountants are not independent, which of the following reports can nevertheless be
issued?
A. Compilation report
B. Examination report on a forecast
C. Standard unqualified audit report
D. Examination of internal control over financial reporting
227. Compilation services are intended to enable a CPA firm to compete with:
A. bookkeeping firms
C. management advisory service firms
B. computer service businesses
D. tax preparation businesses
228. The accountant's compilation report should be dated as of the date of
A. completion of field work
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B. completion of the compilation
C. transmittal of the compilation report
D. the latest subsequent event referred to in the notes to the financial statements
229. In the report accompanying compiled financial statements, which of the following statements
should NOT beincluded?
A. "Management is responsible for these financial statements."
B. "We have not audited or reviewed these financial statements and accordingly express no
assurancethereon."
C. "A compilation is substantially less extensive in scope than an examination in
accordance withgenerally accepted auditing standards."
D. "On the basis of information provided by management, we have compiled, in accordance
with thePhilippine Standard on Related Services 4410..."
230. Which of the following does NOT result in a modification of a compilation report?
A. A departure from financial reporting standards
B. A lack of independence on the part of the auditors
C. A lack of adequate disclosure in the financial statements
D. A lack of consistent application of financial reporting standards
Special reports
231. In determining the acceptability of the special-purpose financial reporting framework applied,
the key factor is
A. global acceptance of the special-purpose framework.
B. the financial information needs of the intended users.
C. cost-benefit considerations in applying the framework.
D. ease in auditing the financial statements produced under the special-purpose framework.
232. If the special-purpose financial statements is NOT suitably titled or the basis of accounting is
NOT adequately disclosed, the auditor should
A. withdraw from the engagement.
B. issue an appropriately modified report.
C. reword the title of the financial statements.
D. request for an additional representation in the management representation letter.
233. Which of the following types, of services is MOST likely to result in limited distribution
reports?
A. Agreed-upon procedures
C. Examination
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B. Compilation
D. Review
234 These refer to prospective financial information prepared on the basis of hypothetical
assumptions about future eventsand management actions which are not necessarily
expected to take place; and a mixture of best-estimate andhypothetical assumptions.
A. Budget.
C. Projection.
B. Forecast.
D. Prospective financial statements.
235. Winch of the following is a prospective financial statement for general uses upon which an
accountant mayappropriately report?
A. Financial forecast
C. Partial presentation
B. Financial projection
D. Pro forma financial statement
236 These refer to prospective financial information prepared on the basis of assumptions as to
future events whichmanagement expects to take place and the actions management expects
to take as of the date the information isprepared.
A. Budget.
C. Projection.
B. Forecast.
D. Prospective financial statements.
237. When a CPA is associated with a forecast, all of the following should be disclosed, EXCEPT
with
A. sources of information
B. probability of achieving estimates
C. character of the work performed by the CPA
D. major assumptions in the preparation of the forecast
238. What is the main distinction between a forecast and a projection?
A. projections are frequently non-quantitative in nature
B. only forecasts are based on management's planned course of action
C. forecasts are predictions with a shorter time horizon than projections
D. a projection is based on assumptions that include hypotheses which may be different
from management's opinion of the most likely set of events
239. Which of the following is NOT a currently acceptable form of association with prospective
financial statements?
A. Agreed-upon procedures
C. Examination
B. Compilation
D. Review
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Government auditing
240. Who appoints the members of the Commission on Audit?
A. The Commissioner of the Professional Regulation Commission
B. The Chairman of the Auditing and Assurance Standards Council
C. The Chairman of the Professional Regulatory Board of Accountancy
D. The President, with the concurrence of the Commission on Appointments
241. In government auditing, what are the (3) three elements of expanded scope auditing?
A. Pre-audit, post audit, internal audit.
B. Goal analysis, audit of operations, audit of systems.
C. Financial and compliance, economy and efficiency, program results.
D. National government audit, local government audit, corporation audit.
242. Which of the following government auditing standards is NOT observed by independent
CPAs in the private sector?
A. An evaluation shall be made of the system of internal control.
B. A review shall be made of compliance with legal and statutory requirements
C. The audit is to be adequately planned and assistants are to be properly supervised.
D. Sufficient competent evidential matter shall be obtains through inspection, observation,
inquiries andconfirmations.
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