AUDITING THEORY TEST BANK
ASSURANCE SERVICES
1. Which of
of the followin
following
g statements
statements best
best describe
describess assurance
assurance service
services?
s?
A. Independent professional services that are intended to enhance the
credibility of information to meet the needs of an intended user.
B. Serv
Servic
ices
es desi
design
gned
ed to expr
expres
esss an op
opin
inio
ion
n on the
the fa
fair
irne
ness
ss of hist
histori
orica
call fi
fina
nanci
ncial
al
statements based on the results of an audit.
C. The
The prep
prepar
arat
atio
ion
n of fina
financ
ncia
iall st
stat
atem
emen
ents
ts or the
the coll
collec
ecti
tion
on,, cl
clas
assi
sifi
fica
cati
tion
on,, an
and
d
summariation of other financial information.
!. Services
Services designed
designed for the improvement
improvement of opera
operations,
tions, resultin
resulting
g in better outcome
outcomes.
s.
". Whic
Which
h of th
the
e foll
followi
owing
ng is
is not an assurance service?
#. $xamination of prospective financial information
information
B. #udit of histori
historical
cal financial
financial statements
statements
C. %eview
%eview of
of financ
financial
ial statem
statement
entss
D. Compilati
Compilation
on of financi
financial
al informat
information
ion
&. Suitable
Suitable criteria
criteria are re'uired
re'uired for
for reasonabl(
reasonabl( consistent
consistent evaluat
evaluation
ion or measuremen
measurementt of the
sub)ect matter of an assurance engagement.
engagement. Which of the following
following statements
concerning the characteristics of suitable criteria is correct
correct??
#. %eliable criteria contribute to conclusions that are clear, comprehensive, and not
sub)ect to significantl( different interpretations.
B. %elevant
%elevant criteria
criteria allow
allow reasonabl(
reasonabl( consistent
consistent evaluati
evaluation
on or measurement
measurement of the sub)ect
matter including, where relevant, presentation and disclosure, when used in similar
circumstances b( similarl( 'ualified practitioners.
C. Neutral
Neutral criteria
criteria contribute
contribute to conclusi
conclusions
ons that are free
free from bias.
!. Criteria
Criteria are sufficientl
sufficientl(
( complete
complete when the( contribute
contribute to conclusions
conclusions that are clear,
clear,
comprehensive, and not sub)ect to different interpretations.
*. +n an assurance
assurance engageme
engagement,
nt, the outcome
outcome of the evalu
evaluation
ation or measurem
measurement
ent of a sub)ect
sub)ect
matter against criteria is called
A. Subject matter information
B. Su
Sub)
b)ec
ectt matt
matter
er
C. #ssuran
rance
!. Co
Conc
ncllus
usio
ion
n
. What t(pe
t(pe of assurance
assurance engage
engagement
ment is involve
involved
d when the practit
practitioner
ioner expresse
expressess a
positive form of conclusion?
#. -imited assurance engagement
B. ositiv
ositive
e assura
assurance
nce e
enga
ngagem
gement
ent
C. #bs
Reason
Reaolute
sonabl
assuran
assu
ce
engagem
enga
ent
!.
#bsolu
teable
assura
asseurance
ncerance
engage
eng
agemen
mentgement
t
/. What t(pe
t(pe of assurance
assurance engage
engagement
ment is involve
involved
d when the practit
practitioner
ioner expresse
expressess a
negative form of conclusion?
#. %easonable assurance engagement
B. 0egati
0egative
ve assu
assuran
rance
ce engag
engageme
ement
nt
C. #ssert
#ssertion
ionba
based
sed assuran
assurance
ce engageme
engagement
nt
D. Limi
Limited
ted assurance
assurance engagement
engagement
2. Which of the following statements
statements is true concerning evidence in a
an
n assurance
engagement?
A. Sufficiency is the measure of the
the uantity of evidence.
B. #pprop
#ppropria
riaten
teness
ess is the measure
measure of the 'ualit(
'ualit( of eviden
evidence,
ce, that is, its rel
reliab
iabili
ilit(
t( and
persuasiveness.
C. The reliabil
reliabilit(
it( of evidence
evidence is influenced
influenced not
not b( its nature
nature but b( its
its source.
source.
!. 3btaining
3btaining more evide
evidence
nce ma( compens
compensate
ate for its
its poor 'ualit(
'ualit(..
Page |2
4. #ssuran
#ssurance
ce engag
engageme
ement
nt ris5
ris5 is
is the ris
ris5
5
A. !hat the practitioner e"presses an inappropriate conclusion #hen the
subject matter information is materially misstated.
B. 3f expressing
expressing an inappropr
inappropriate
iate conclusi
conclusion
on when the sub)ect
sub)ect matter
matter information
information is
is not
materiall( misstated.
C. Through loss
loss from litigatio
litigation,
n, adverse
adverse publicit(,
publicit(, or other
other events arising
arising in connection
connection
with a sub)ect matter reported on.
!. 3f expres
expressin
sing
g an ina
inappr
ppropri
opriate
ate conclusi
conclusion
on when
when the sub)ect
sub)ect matter
matter informat
information
ion is
either materiall( misstated or not materiall( misstated.
6. %educing
%educing assurance
assurance engagement
engagement ris5
ris5 to ero is ver( rarel(
rarel( at
attaina
tainable
ble or cost benefici
beneficial
al as
a result of the following factors, except
#. The use of selective testing.
B. The fact that much of the evidence
evidence avail
availabl
able
e to the practi
practitio
tioner
ner is pe
persua
rsuasiv
sive
e rather
rather
than conclusive.
C. !he practition
practitioner
er may not have the reuired
reuired assu
assurance
rance $no#ledg
$no#ledge
e and s$ills
to gather and evaluate evidence.
!. The use of )udgment
)udgment in gather
gathering
ing and evalu
evaluati
ating
ng evide
evidence
nce and formin
forming
g conclu
conclusio
sions
ns
based on that evidence.
17. The hilippine
hilippine 8ramewor5
8ramewor5 for #ssurance
#ssurance $ngag
$ngagements
ements
#. Contains basic principles, essential procedures, and related guidance for the
performance of assurance engagements.
%. Defi
Define
nes
s and
and desc
descri
ribe
bes
s th
the
e el
elem
emen
ents
ts and
and obje
object
ctiv
ives
es of an ass
ssur
uran
ance
ce
engagement& and identifies engagements to #hich 'SAs& 'SR(s& and 'SA(s
apply.
C. rovid
rovides
es a frame
frame of refere
reference
nce for C#s in public
public practi
practice
ce when performi
performing
ng audits,
audits,
reviews, and compilations of historical financial information.
!. $stablishes
$stablishes standards
standards and provides
provides procedural
procedural re'uiremen
re'uirements
ts for the performance of
assurance engagements.
Page |3
AUDITING AND RELATED SERVICES
11. S%$
S%$ "*77 9$ngagem
9$ngagement
entss to %ev
%eview
iew 8inanci
8inancial
al Stateme
Statements:
nts:,, as amende
amended
d b( the ##SC
##SC in
8ebruar( "774, applies to
#. %eviews of an( historical financial information of an audit
audit client.
%. Revie#
Revie#s
s of any historical
historical financia
financiall information
information by a practitione
practitionerr other than
the entity
entity s auditor.
auditor.
C. %eview
%eviewss of historica
historicall fin
financi
ancial
al or other
other informat
information
ion b( a practi
practitio
tioner
ner other than the
entit( s auditor.
auditor.
!. %eviews
%eviews of historical
historical financia
financiall or other info
informati
rmation
on of an audit client.
client.


1". When perform
performing
ing a compil
compilation
ation engagement,
engagement, the accounta
accountant
nt is reuired to
#. #ssess internal controls.
B. ;a5e
;a5e in
in'u
'uir
irie
iess of ma
mana
nage
geme
ment
nt to as
asse
sess
ss the
the relia
reliabi
bili
lit(
t( and
and co
comp
mple
lete
tene
ness
ss of the
the
information provided.
C. <erif(
<erif( matt
matters
ers a
and
nd expla
explanat
nation
ions.
s.
D. Obtain
Obtain a general
general knowledg
knowledge
e of the business
business and operatio
operations
ns of the
entity.
1&.
1&. +n
+n'u
'uir
irie
iess an
and
d an
anal
al(t
(tic
ical
al proc
proced
edur
ures
es or
ordi
dina
nari
ril(
l( fo
form
rm the
the ba
basi
siss fo
forr whic
which
h t(
t(pe
pe of
engagement?
#. #greedupon procedures.
B. #udit.
C. $x
$xam
amin
inat
atio
ion.
n.
D. Revie#.
1*. # practiti
practitioner
oner should
should accept
accept an
an assurance
assurance engagement
engagement onl( if
#. The sub)ect matter is in the form of financial information.
B. The criteria
criteria to be used
used are not
not available
available to the intended
intended users.
users.
C. !he
!he prac
practi
titi
tion
oner
er s conclusion is to be contained in a #ritten
# ritten report.
!. The sub)ect matter
matter is the responsibil
responsibilit(
it( of either the intended
intended users
users or the practitioner.
practitioner.

1. The auditor
auditor is
is re'uired
re'uired to mainta
maintain
in professio
professional
nal s5eptici
s5epticism
sm throughout
throughout the
the audit.
audit. Which of
the following statements concerning professional s5epticism is false?
A. A belief that management and those charged #ith governance are honest
and have integrity relieves the auditor of the need to maintain professional
s$epticism.
B. ;ainta
;aintaini
ining
ng profes
professio
sional
nal s5ep
s5eptic
ticism
ism througho
throughout
ut the audit
audit reduce
reducess the ris5 of using
using
inappropria
inapp
ropriate
te assumptions
assumptions in determini
determining
ng the nature, timing, and exten
extentt of the audit
procedures and evaluating the results thereof.
C. rofessiona
rofessionall s5epticism
s5epticism is necessar(
necessar( to the critical assessme
assessment
nt of audit evidence.
evidence.
!. ro
rofes
fessio
sional
nal s5e
s5epti
pticism
cism is an attitu
attitude
de that
that inc
includ
ludes
es 'uesti
'uestioni
oning
ng contrad
contradict
ictor(
or( audit
audit
evidence obtained.
1/. Which
Which of the follow
following
ing best descri
describes
bes the reason
reason wh( indepe
independe
ndent
nt auditors
auditors report
report on
financial statements?
#. # management fraud ma( exist and it is more li5el( to be detected b( independent
auditors.
%. Di
Diff
ffer
eren
entt inte
intere
rest
sts
s may e"i
e"ist bet#
bet#ee
een
n the
the com
compan
pany prep
prepa
ari
rin
ng the
the
statements and the persons using the statements.
C. # misstatement
misstatement of account
account balances
balances ma( exist
exist and is generall(
generall( corrected
corrected as the result
result
of the independent
independent auditors
auditors wor5.
!. oorl( designed
designed internal
internal control ma( be in existence
existence..

12. Which of the followi
following
ng professiona
professionals
ls has primar(
primar( responsib
responsibilit
ilit(
( for the performance
performance of
of an
audit?
#. The managing partner of the firm.
B. The senio
seniorr assign
assigned
ed to th
the
e engage
engagemen
ment.
t.
C. The manag
manager
er assign
assigned
ed to the e
enga
ngagem
gement
ent..
D. !he pa
partner
rtner in
in charge
charge of the
the engagement
engagement..
14. What is the proper
proper organia
organiational
tional role of
of internal
internal auditin
auditing?
g?
Page |4
A. !o serve as an independent& objective assurance and c
consulting
onsulting activity that
that
adds value to operations.
B. To assist the
the external
external auditor
auditor in order
order to reduce
reduce external
external audit
audit fees.
C. To perform
perform studies
studies to assist
assist in the attainm
attainment
ent of more effici
efficient
ent operatio
operations.
ns.
!. To serve as the investi
investigativ
gative
e arm of the audit
audit committee
committee of the board
board of directors.
directors.
16.
3perational audits
audits generall(
generall( have been conducted b( internal and C3# auditors, but ma(
be performed b( certified
certified public accountants. # primar( purpose of an operational audit is
to provide
A. A measure of management
management performance in meeting organi)ational
organi)ational goals.
B. The
The re
resu
sult
ltss of inte
intern
rnal
al ex
exam
amin
inat
atio
ions
ns of fi
fina
nanc
ncia
iall an
and
d ac
acco
coun
unti
ting
ng matt
matter
erss to a
compan( s toplevel
toplevel management.
C. #id to the indepe
independe
ndent
nt auditor,
auditor, who is conducti
conducting
ng the examinat
examination
ion of the fin
financ
ancial
ial
statements.
!. # means of assurance
assurance that
that internal
internal accounting
accounting controls
controls are functioni
functioning
ng as planned.
planned.

"7
"7.. Whic
Which
h of the follo
followi
wing
ng terms
terms best
best descri
describe
bess the
the audi
auditt of a taxp
taxpa(
a(er
er s retur
return
n b( a B+%
B+%
auditor?
#. 3perational audit.
B. +n
+nte
tern
rnal
al au
audi
dit.
t.
C. Co
Comp
mpli
lian
ance
ce aud
audit
it..
!. =ove
=overnm
rnmen
entt audi
audit.
t.

"1. Which of the
the following
following stateme
statements
nts concerning
concerning consulti
consulting
ng services
services is false?
false?
#. The performance of consulting services for audit clients does not, in and of itself,
impair the auditor s independence.
independence.
B. Consul
Consultin
ting
g servic
services
es diffe
differr fundam
fundament
entall
all(
( from the C# s functi
function
on of attest
attesting
ing to the
assertions of other parties.
C. Consultin
Consulting
g services ordinar
ordinarily
ily involve
involve e"ternal
e"ternal reporting
reporting..
!. ;ost C#s,
C#s, including
including those who provide
provide audit and tax services,
services, also
also provide
provide consulting
consulting
services to their clients.


"". Which of the follow
following
ing is the most
most appropriate
appropriate action
action to be ta5en
ta5en b( a C#
C# who has been
as5ed to perform a consulting services engagement concerning the anal(sis of a potential
merger if he>she has little experience with the industr( involved?
A. Accept the engagement but he*she should conduct research or consult #ith
others to obtain sufficient competence.
B. !ecline
!ecline the engageme
engagement
nt because
because he>she
he>she lac5s
lac5s sufficient
sufficient 5nowledge
5nowledge..
C. #ccep
#cceptt the
the enga
engage
geme
ment
nt and
and issu
issue
e a re
repo
port
rt that
that con
conta
tain
inss his>
his>he
herr op
opin
inio
ion
n on the
the
achievabilit( of the results of the merger.
!. #cce
#ccept
pt the engage
engagemen
mentt and perform
perform it in accordanc
accordance
e with
with hilip
hilippin
pine
e Standa
Standards
rds on
#uditing 9S#s:.
"&. #n ob)ectiv
ob)ective
e of a performance
performance audit
audit is to determine
determine whether
whether an entit(
entit( s
#. 3perational information is in accordance with government auditing standards.
%. Specific
Specific operating
operating units are functionin
functioning
g economically
economically and efficiently
efficiently..
C. 8inancial
8inancial statemen
statements
ts present
present fairl(
fairl( the results
results of operatio
operations.
ns.
!. +nternal
+nternal control
control is ade'uatel
ade'uatel(
( operating
operating as designe
designed.
d.

"*.
The internal auditing department s responsibilit( for deterring fraud is to
#. $stablish an effective internal control s(stem.
B. ;ainta
;aintain
in interna
internall cont
control
rol..
C. ("amine
("amine and evaluate
evaluate the
the system of
of internal
internal control.
control.
!. $xercise
$xercise operating
operating authorit(
authorit( over fraud
fraud prevention
prevention activiti
activities.
es.
".
+nternal
+nternal auditors
auditors review
review the
the ade'uac(
ade'uac( of the compan(
compan( s internal
internal control
control s(stem
s(stem primaril
primaril(
(
to


#. elp determine the nature, timing, and extent of tests necessar( to achieve audit
ob)ectives.
Page |5
%. Dete
Determ
rmin
ine
e #het
#hethe
herr th
the
e in
inte
tern
rnal
al co
cont
ntro
roll sy
syst
stem
em pr
prov
ovid
ides
es reas
reason
onab
able
le
assurance
assur
ance that the company s object
objectives
ives and goals are met efficiently
efficiently and
economically.
C. $nsure that
that material
material wea5nesses
wea5nesses in the s(stem
s(stem of internal
internal control
control are corrected.
corrected.
!. !etermine
!etermine whether
whether the internal control
control s(stem ensures
ensures that financial
financial statements
statements are
fairl( presented.

THE ACCOUNTANCY
ACCOUNTANCY PROFESSION
PROFESSIO N
"/. The members
members of the rofessiona
rofessionall %egulator(
%egulator( Board
Board of #ccountanc(
#ccountanc( shall
shall be appointed
appointed b(
the
#. hilippine +nstitute of C#s 9+C#:.
B. rofessiona
rofessionall %egulation
%egulation Commission
Commission 9%C:.
C. 'reside
'resident
nt of the
the 'hili
'hilippi
ppines
nes..
!. #ssociation
#ssociation of
of C#s in ublic
ublic ractice
ractice 9#C#
9#C#:.
:.
"2
"2.. Th
The
e fo
foll
llow
owin
ing
g stat
statem
emen
ents
ts rela
relate
te to the
the subm
submis
issi
sion
on of nomi
nomina
nati
tion
onss to the
the Boar
Board
d of
#ccountanc(. Which is correct?
#. The #ccredited 0ational rofessional 3rganiation of C#s 9#3: shall submit its
nominations to the president of the hilippines not later than sixt( 9/7: da(s prior to
the expir( of the term of an incumbent chairman or member.
B. The #3 shall
shall submit
submit its nominati
nominations
ons to the %C
%C not later
later than thirt(
thirt( 9&7: da(s
da(s prior
prior to
the expir( of the term of an incumbent chairman or member.
C. +f the #3 fails
fails to submit
submit its own nomine
nominee9s
e9s:: to the %C withi
within
n the re'uired
re'uired period
period,,
the %C in consultation with the Board of #ccountanc( shall submit to the president of
the hilippines a list of five 9: nominees for each position.
D. !here
!here should
should be adeua
adeuate
te docume
documenta
ntatio
tion
n to sho#
sho# the ualifi
ualificat
cation
ions
s and
primary field of professional activity of each nominee.
"4. The following
following stateme
statements
nts relate
relate to the term
term of office
office of the chairman
chairman and
and members
members of the
Board of #ccountanc( 9B3#:. Which is false?
false?
#. The chairman and members of the B3# shall hold office for a term of three 9&: (ears.
B. #n( vacanc(
vacanc( occurring
occurring within
within the term
term of a member
member shall be fille
filled
d up for the une
unexpired
xpired
portion of the term onl(.
C. No person
person #ho has served
served t#o success
successive
ive complet
complete
e ter
terms
ms as chairm
chairman
an or
member shall be eligible for reappointment until the lapse of t#o +,- years.
!. #ppointment
#ppointment to fill
fill up an unexpired
unexpired term is not to be conside
considered
red as a complete
complete term.
"6. The Board
Board of #ccountanc(
#ccountanc( has
has the power to conduct
conduct an ov
oversig
ersight
ht into the 'ualit
'ualit(
( of audi
audits
ts
of financial statements through a review of the 'ualit( control measures instituted b(
auditors in order to ensure compliance with the accounting and auditing standards and
practices. This power of the B3# is called
A. uality assurance revie#
revie#
C. #ppraisal
B. eer review
!. @ualit( control
&7. Which of the followin
following
g statements
statements concerning
concerning the issuance
issuance of Certificate
Certificatess of %egistration
%egistration
and rofessional +dentification Cards to successful examinees is correct?
#. The Certificate of %egistration issued to successful examinees is renewable ever( three
9&: (ears.
B. The rofessiona
rofessionall +dentificati
+dentification
on Card issued
issued to successful
successful examinees
examinees shall remain
remain in full
force and effect until withdrawn, suspended or revo5ed in accordance with %# 6"64.
C. !h
!he
e %/A
%/A shal
shalll not
not re
regi
gist
ster
er and
and is
issu
sue
e a Cert
Certif
ific
icat
ate
e of Regi
Regist
stra
rati
tion
on and
and
'rofessiona
'rofess
ionall Identifica
Identification
tion Card to any successful
successful e"aminee
e"aminee of unsound
unsound
mind.
!. The B3# ma(, after
after the expirati
expiration
on of three 9&: (ears
(ears from the da
date
te of revocation
revocation of a
Certificate of %egistration, reinstate the validit( of a revo5ed Certificate of %egistration.
&1. Which of the followin
following
g statements
statements concerning
concerning ownership
ownership of wor5ing
wor5ing papers
papers is incorrect?
incorrect?
Page |6
#. #ll wor5ing papers made b( a C# and his>her staff in the course of an examination
remain
remai
n the propert( of such C# in the absence of a written agreement
agreement between the
C# and the client to the contrar(.
B. Wor5ing
Wor5ing papers
papers includ
include
e schedu
schedules
les and memorand
memoranda
a prepar
prepared
ed and submit
submitted
ted b( the
client of the C#.
C. 0or$ing
0or$ing papers
papers include
include reports
reports submitted
submitted by a C'A to
to his*her
his*her client.
client.
!. Wor5ing
Wor5ing papers shall
shall be treated confidenti
confidential
al and privilege
privileged
d unless such documents
documents are
re'ui
re'
uire
red
d to be pr
prod
oduce
uced
d throu
through
gh subp
subpoe
oena
na is
issu
sued
ed b( an(
an( co
cour
urt,
t, tribu
tribuna
nal,
l, or
government regulator( or administrative bod(.
&". #n( person
person who shall
shall violate
violate an( of the provisio
provisions
ns of the #ccoun
#ccountan
tanc(
c( #ct or an( of its
implementing rules and regulations promulgated b( the Board of #ccountanc( sub)ect to
the approval of the %C, shall, upon conviction, be punished b(
#. # fine of not more than 7,777.
B. +mprisonment
+mprisonment for a period
period not exceeding
exceeding two
two (ears.
(ears.
C. A fi
fine
ne of not
not le
less
ss than
than '12&
'12&22
222
2 or by im
impr
priiso
sonm
nmen
entt fo
forr a peri
period
od not
not
e"ceeding t#o years or both.
!. -etha
-ethall in)
in)ec
ecti
tion
on..
&&. # partner
partner surviving
surviving the death
death or withdrawal
withdrawal of all the
the other partners
partners in a partnershi
partnership
p ma(
continue to practice under the partnership name for a period of not more than how man(
(ears after becoming a sole proprietor?
#. 1
C. &
%. ,
!. *
&*. The death or disabil
disabilit(
it( of an individua
individuall C# and>or
and>or the dissolution
dissolution and li'uida
li'uidation
tion of a firm
or partnership of C#s shall be reported to the B3# not later than how man( da(s from
the date of such death, dissolution or li'uidation.
#. 1
C. /7
%. 32
!. 67
&. Which
Which of the follow
following
ing statem
statement
entss concer
concernin
ning
g a C# s disclo
disclosur
sure
e of confi
confiden
dentia
tiall cli
client
ent
information is ordinaril( correct?
A. Disclosure may be made
made to any party on consent of tthe
he client.
B. !isc
!isclo
losu
sure
re shou
should
ld no
nott be made
made ev
even
en if such
such di
disc
sclo
losu
sure
re wi
will
ll prot
protec
ectt the
the C
C#
#s
professional interests in legal proceedings.
proc eedings.
C. !isclo
!isclosure
sure should
should be made onl(
onl( if there
there is a legal
legal or professi
professiona
onall dut( to ma5e
ma5e the
disclosure.


!. !isclosure
!isclosure ma( be
be made to an(
an( government
government agenc(
agenc( without
without subpoena
subpoena..
Page |7

THE CPA S PROFESS
PROFESSIONAL
IONAL RESPONSIBILIT
RESPONSIBILITIES
IES
&/. Which
Which of the follow
following
ing statem
statement
entss best explains
explains wh( the C# profess
profession
ion has found
found it
essential to establish ethical standards and means for ensuring their observance?
#. <igorous enforcement of an established code of ethics is the best wa( to prevent
unscrupulous acts.
B. $thica
$thicall standa
standards
rds that emphas
emphasie
ie excellen
excellence
ce in perfor
performan
mance
ce over
over materi
material
al rew
reward
ardss
establish a reputation for competence and character.
C. A distinguis
distinguishing
hing mar$ of a professio
profession
n is its acceptanc
acceptance
e of responsibili
responsibility
ty to
the public.
!. # re'uirement
re'uirement for a profession
profession is to establish
establish ethical
ethical standards
standards that
that stress primaril(
primaril( a
responsibilit( to clients and colleagues.
&2
&2.. Whic
Which
h of the
the fol
follo
lowi
wing
ng wil
willl not create selfinterest threat for a professional accountant in
public practice?
#. The possibilit( of losing a significant client.
B. !irect financial
financial inter
interest
est in
in the assurance
assurance client
client..
C. Andue dependence
dependence on total
total fees
fees from
from a client.
client.
D. 'repari
'reparing
ng the origin
original
al data used to genera
generate
te records
records that
that are the subject
subject
matter of the assurance engagement.
&4. 8amiliarit
8amiliarit(
( threat
threat could be created
created under
under the followi
following
ng circumstance
circumstancess e"cept
A. A professional accountant accepting gifts from a client #hose value is
inconseuential or trivial.
B. Senior personne
personnell having
having a long associat
association
ion with
with the assurance
assurance client.
client.
C. # director
director or officer
officer of the client
client or an emplo(e
emplo(ee
e in a position
position to exert signifi
significant
cant
influence over the sub)ect matter of the engagement having recentl( served as the
engagement partner.
!. # member of the engagem
engagement
ent team having
having a close or immedia
immediate
te famil(
famil( member who
is a director or officer of the client.
&6
&6.. Whic
Which
h of th
the
e fo
foll
llow
owin
ing
g circu
circums
msta
tance
ncess ma
ma(
( crea
create
te ad
advo
voca
cac(
c( thre
threat
at fo
forr a prof
profes
essi
sion
onal
al
accountant in public practice?
A. !he firm promoting shares in
in an audit client.
B. # fir
firm
m issuin
issuing
g an assuranc
assurance
e report on the effect
effective
ivenes
nesss of the operat
operation
ion of finan
financia
ciall
s(stems after designing or implementing the s(stems.
C. # firm being
being threatened
threatened with
with dismissal
dismissal from
from a client
client engagemen
engagement.
t.
!. # firm being
being concerned
concerned about the possibi
possibilit(
lit( of losing
losing a significant
significant client.
client.
*7. The followin
following
g circumstance
circumstancess ma( create
create intimi
intimidatio
dation
n threats,
threats, e"cept
#. Being threatened with dismissal or replacement in related to a client
client engagement.
B. Being
Being pressure
pressured
d to reduce
reduce inappr
inappropr
opriat
iatel(
el( the extent
extent of wor5 performe
performed
d in order to
reduce fees.
C. Being
Being threat
threatene
ened
d wit
with
h liti
litigat
gation
ion..
D. A member of the assu
assurance
rance team
team being& or having
having recently
recently been& a director
director
or officer of the client.
Page |8
*1. Which
Which of the follow
following
ing is an exampl
example
e of engage
engagemen
ments
tspec
pecifi
ificc safegu
safeguard
ardss in the wor5
environment?
#. #dvising partners and professional staff of those assurance clients and related entities
from which the( must be independent.
%. Disclo
Disclosin
sing
g to those charge
charged
d #ith
#ith govern
governanc
ance
e of the client
client the nature
nature of
service provided and e"tent of fees charged.
C. # disc
discip
ipli
lina
nar(
r( mech
mechan
anis
ism
m to prom
promot
ote
e comp
compli
lian
ance
ce wi
with
th the
the fi
firm
rm s po
poli
lici
cies
es an
and
d
procedures.
!. ublished
ublished policies
policies and procedures
procedures to encourage
encourage and empower
empower staff
staff to communicate
communicate to
senior levels within the firm an( issue relating to compliance with the fundamental
principles that concerns them.

*". #ccording
#ccording to Section
Section "*7 of the Code of $thics,
$thics, fees
fees charged
charged for assurance
assurance engageme
engagements
nts
should be a fair
fair reflection of the value
value of the wor5 involved. +n determining professional
fees, the following should be ta5en into account, e"cept
#. The time necessaril( occupied b( each person engaged on the wor5.
%. !he outc
outcome
ome or result
result of a transact
transaction
ion or the result
result of the
the #or$ performed.
performed.
C. The s5ill
s5ill and 5nowledg
5nowledge
e re'uired
re'uired for the
the t(pe of wor5
wor5 involved
involved..
!. The level
level of training
training and experience
experience of the
the persons necessar
necessaril(
il( engaged
engaged on the wor5.
wor5.
*&
*&.. 8ina
8inanc
ncia
iall in
inte
tere
rest
stss ma(
ma( be held
held thro
throug
ugh
h an inte
interm
rmed
edia
iar(
r( 9f
9for
or ex
exam
ampl
ple,
e, a co
coll
llec
ecti
tive
ve
investment
inve
stment vehicle,
vehicle, estate
estate or trust:. When control over
over the investment
investment vehicle or the
abilit( to influence investment decisions exists, the code defines that financial interest to
be
A. Direct financial interest.
interest.
B. ;ateri
;aterial
al direct
direct finan
financia
ciall inte
interest
rest..
C. +ndirect
+ndirect fin
financ
ancial
ial intere
interest.
st.
!. ;aterial
;aterial indirect
indirect financial
financial inter
interest.
est.
**. The concept
concept of material
materialit(
it( is le
least
ast important
important to
to an auditor
auditor when consideri
considering
ng the
A. (ffects of a direct financial interest in the client upon the auditor s
independence.
B. !ecision
!ecision whether
whether to use positive
positive or negative
negative confirma
confirmations
tions of accounts
accounts receivabl
receivable.
e.
C. #de'ua
#de'uac(
c( of disc
disclos
losure
ure of
of a client
client s illega
illegall act
act..
!. !iscover(
!iscover( of wea5ne
wea5nesses
sses in
in a client
client s internal
internal control.
control.



*. #
direct
direct fin
financ
intere
interest
st or
material
mater
ial indire
indirect
ct financi
finamember
ncial
al interes
inte
restt create
in theaaudit
audi
t client
client self
of a
member
of ancial
theial
audit
team
or ahis
immediate
famil(
ma(
significant
interest
inter
est threat.
threat. Which of the following
following safeguards
safeguards would be least li5el(
li5el( considered
considered to
eliminate the threat or reduce it to an acceptable level?
A. Discuss the matter #ith
#ith those charged #ith governance
governance of the audit client.
B. !ispose
!ispose of the direct financi
financial
al interest
interest prior to the individ
individual
ual becoming
becoming a member
member of
the audit team.
C. !ispose
!ispose of the indirect
indirect financial
financial interest
interest in total
total or dispose
dispose of a sufficient
sufficient amount
amount of it
so that the remaining interest is no longer material prior to the individual becoming a
member of the audit team.
!. %emove
%emove the member
member of the audit
audit team
team from the audit
audit engageme
engagement.
nt.
*/. When an immedi
immediate
ate famil(
famil( member
member of a member
member of the assuran
assurance
ce team is a director
director,, an
officer, or an emplo(ee of the assurance client in a position to exert direct and significant
influence over the sub)ect matter information of the assurance engagement, or was in
su
such
ch a po
posi
siti
tion
on du
duri
ring
ng the
the pe
peri
riod
od cove
covere
red
d b( the
the en
enga
gage
geme
ment
nt,, the
the thre
threat
atss to
independence can onl( be reduced to an acceptable level b(
#. Where possible, structuring the responsibilities of the assurance team so that the
profess
prof
ession
ional
al does
does not de
deal
al with
with matter
matterss that
that are wit
within
hin the res
respon
ponsib
sibili
ilit(
t( of the
immediate famil( member.
Page |9
B. Withdrawing
Withdrawing from the assurance
assurance engagement
engagement..
C. Removing
Removing the indivi
individual
dual from
from the
the assurance
assurance team.
team.
!. !isc
!iscus
ussi
sing
ng the
the issu
issue
e wi
with
th thos
those
e char
charge
ged
d wi
with
th go
gove
vern
rnan
ance
ce,, such
such as the
the au
audi
ditt
committee.
*2. Which of the
the following
following would
would not general
generall(
l( create
create a threat
threat to independen
independence?
ce?
A. !he purchase of goods and services from an assurance client by the firm +or
from a financial statement audit client by a net#or$ firm- or a member of
the assurance team provided that the transaction is in the normal course of
business and on an arm s length basis.
basis.
B. # partner
partner or emplo(ee
emplo(ee of the firm
firm or a networ5
networ5 firm
firm serves
serves as Compan(
Compan( Secretar(
Secretar( for
for

a financial statement audit client.
C. !eterminin
!etermining
g which recommenda
recommendations
tions of the
the firm should
should be implem
implemented.
ented.
!. %eporting,
%eporting, in a management
management role,
role, to those charged
charged with
with governance.
governance.
*4. The followi
following
ng forms of assistanc
assistance
e to a financia
financiall sta
statem
tement
ent audit
audit cli
client
ent do not genera
generall(
ll(
threaten the firm s independence, e"cept
#. #nal(ing and accumulating information for regulator( reporting.
B. #ssisting
#ssisting in
in resolving
resolving account reconciliati
reconciliation
on problems.
problems.
C. Authori)i
Authori)ing
ng or
or approvi
approving
ng transacti
transactions.
ons.
!. #ssisting
#ssisting in the preparati
preparation
on of consolidate
consolidated
d financial
financial statements.
statements.

*6. The following
following statemen
statements
ts relate to the provisi
provision
on of taxation,
taxation, internal
internal audit
audit or +T S(stems
services to audit clients. Which is false?
A. 'reparing calculations of current and deferred ta" liabilities +or assets- for
an audit client for the purpose of preparing accounting entries that #ill be
subseuently audited by the firm creates a self4interest threat.
B. # selfr
selfrevi
eview
ew threat
threat ma(
ma( be created
created when a firm,
firm, or networ
networ5
5 firm, provide
providess intern
internal
al
audit services to an audit client.
C. The provision
provision of services
services b( a firm
firm or networ5 firm
firm to an audit
audit client that
that involve
involve the
design and implementation of financial information technolog( s(stems that are used
to generate information
information formi
forming
ng part of a client
client s financial
financial state
statements
ments ma( create a
selfreview threat.
!. Th
The
e pr
prov
oviision
sion of se
serv
rviice
cess in co
conn
nne
ectio
ction
n with
with the
the asse
assess
ssm
ment,
ent, de
desi
sign
gn,, and
implementation of internal accounting controls and ris5 management controls does not
create a threat to indep
independen
endence
ce provided that firm or networ5
networ5 firm personnel
personnel do not

perform management functions.
7. What threat
threat to independen
independence
ce is created
created when the litigatio
litigation
n support service
servicess provided
provided to
an audit client include the estimation of the possible outcome and thereb( affects the
amounts or disclosures to be reflected
r eflected in the financial statements?
A. Self4revie# threat
B. #d
#dvo
voca
cac(
c( thr
threa
eatt
C. +ntim
+ntimid
idat
atio
ion
n thre
threat
at
!. 8ami
8amili
liar
arit
it(
( threa
threatt
1. What
What threat
threat to indepen
independen
dence
ce ma( be create
created
d if fees
fees due from
from an assura
assurance
nce client
client for
profession
profe
ssional
al services remain unpaid for a long time, especiall(
especiall( if a significan
significantt part is not
paid before the issue of the assurance report for the following (ear?
#. #dvocac( threat
%. Self4
Self4in
inte
tere
rest
st threat
threat
C. +ntim
+ntimid
idat
atio
ion
n thre
threat
at
!. Self
Selfr
rev
evie
iew
w threa
threatt
". These are fees
fees calculate
calculated
d on a predetermi
predetermined
ned basis
basis relating
relating to the outcome
outcome or result
result of a
transaction or the result of the wor5 performed.
P a g e | 10
A. Contingent fees
B. 8ixed fe
fees
C. rede
redete
term
rmin
ined
ed fe
fees
es
!. Co
Comm
mmis
issi
sion
ons.
s.
&. #s defined
defined in the Code
Code of $thics,
$thics, what
what is the communicat
communication
ion to the public
public of informat
information
ion
as to the services or s5ills
s5ills provided
provided b( professiona
professionall accountants in public
public practice
practice with a
view to procuring professional business?
A. Advertising
B. ublicit
cit(
C. So
Soli
lici
cita
tati
tion
on
!. ;ar
;ar5et
5eting
ing profes
professio
sional
nal ser
servic
vices
es
*. #s defined
defined in the Code
Code of $thics,
$thics, what
what is the communicat
communication
ion to the public
public of facts
facts about a
profes
pro
fessio
sional
nal accoun
accountan
tantt which
which are not des
design
igned
ed for the delibe
deliberate
rate promoti
promotion
on of that
that
professional accountant?
#. #dvertising
%. 'ubl
'ubliicity
city
C. So
Soli
lici
cita
tati
tion
on
!. ;ar
;ar5et
5eting
ing profes
professio
sional
nal ser
servic
vices
es
. Which of
of the followin
following
g statements
statements concerni
concerning
ng publicit(
publicit( is incorrect?
incorrect?
#. Boo5lets and other documents bearing the name of a professional accountant and
giving technical information for the assistance of staff or clients ma( be issued to such
persons, other professional accountants or other
ot her interested parties.
%. 'rofe
'rofess
ssio
iona
nall ac
acco
coun
unta
tant
nts
s #ho
#ho auth
author
or boo$s
boo$s or ar
arti
ticl
cles
es on prof
profes
essi
sion
onal
al
subjec
sub
jects
ts may
may state
state their
their name
name and profes
professio
sional
nal uali
ualific
ficati
ations
ons55 give
give the
name of their organi)ation5 and give any information as to the services that
the firm provides.
C. #p
#ppr
prop
opri
riat
ate
e news
newspa
pape
pers
rs or maga
magai
ine
ness ma
ma(
( be used
used to info
inform
rm the
the publ
public
ic of the
the
establishment of a new practice, of changes in the composition of a partnership of
professional accountants in public practice, or of an( alteration in the address of a
practice.
!. # professional
professional accountan
accountantt ma( develop
develop and maintain
maintain a website in the +nternet
+nternet in such
suitable length and st(le which ma( also include announcements, press releases,
publications and such other necessar( and factual information.
/. # professio
professional
nal accounta
accountant
nt in publi
publicc practice
practice is allowed
allowed to
#.
use ors cite
actual
purported
testimonials
b( etc.:
third advertise
parties.
B. %efer
ublish
ublishto,services
service
in billboard
billboa
rdor
9e.g.,
tarpauli
tarpaulin,
n, streamers,
streamers,
adv
ertisements
ments..
C. ublis
ublish
h and compare
compare fees with other
other C#s or C# firms
firms or compare
compare those
those service
servicess
with those provided b( another firm or C# practitioner.
D. In
Info
form
rm in
inte
tere
rest
sted
ed part
partie
ies
s th
thro
roug
ugh
h any
any medi
medium
um th
that
at a part
partne
ners
rshi
hip
p or
salaried employment of an accountancy nature is being sought.
2. #fter evaluat
evaluating
ing the significa
significance
nce of the threat
threat created b( an actual
actual or threatened
threatened litiga
litigation,
tion,
the following safeguards should be applied to reduce the threat to an acceptable level,
except
#. !isclosing to the audit committee, or others charged with governance, the
t he extent and
nature of the litigation.
B. +f the litigat
litigation
ion involv
involves
es a member
member of the assuran
assurance
ce team, removin
removing
g that
that indivi
individua
duall
from the assurance team.
C. +nvolving
+nvolving an additiona
additionall professiona
professionall accountant
accountant in the firm who was not
not a member of
the assurance team to review the wor5
w or5 or otherwise advise as necessar(.
D. 0ith
0ithdra#
dra# from&
from& or refuse to accept&
accept& the assurance
assurance engageme
engagement.
nt.
4. The following
following statements
statements relate
relate to the
the provision
provision of
of legal
legal services
services to an
an audit
audit client.
client. Which
is incorrect?
P a g e | 11
A. !he provision of legal services to an audit client involving matters that
#ould not be e"pected to have a material effect on the financial statements
may create a self4revie# threat.
B. -egal
-egal serv
servic
ices
es to supp
support
ort an audi
auditt clie
client
nt in the
the ex
exec
ecuti
ution
on of a tran
transa
sacti
ction
on 9e.g
9e.g.,
.,
contract support: ma( create a selfreview threat.
C. #c
#cti
ting
ng fo
forr an au
audi
ditt clie
client
nt in the
the re
reso
solu
luti
tion
on of a di
disp
sput
ute
e or li
liti
tiga
gati
tion
on in such
such
circumstances when the amounts involved are material in relation to the financial
statem
sta
tement
entss of the audit
audit cli
client
ent woul
would
d create
create adv
advoca
ocac(
c( and selfr
selfrevi
eview
ew threats
threats so
significant no safeguards could reduce the threats
thr eats to an acceptable level.
!. The appointment
appointment of a partner
partner or an emplo(ee
emplo(ee of the firm
firm or networ5
networ5 firm as =eneral
=eneral
Counsel for legal affairs to an audit client would create selfreview and advocac(
threats that are so significant no safeguards could reduce the threats to an acceptable
level.
6. The followi
following
ng cir
circum
cumsta
stance
ncess cre
create
ate advocac
advocac(
( threat
threatss for a profess
profession
ional
al accoun
accountan
tantt in
public practice except
#. romoting shares in an audit client.
B. #cting
#cting as an advoca
advocate
te on behalf
behalf of an audit
audit client
client in litiga
litigatio
tion
n or dis
disput
putes
es with third
third
parties.
C. #cting as
as campaign
campaign manager
manager for the presiden
presidentt of a client who
who is running for
for a public
office.
D. A me
memb
mber
er of th
the
e as
assu
sura
ranc
nce
e te
team
am havi
having
ng a si
sign
gnif
ific
ican
antt cl
clos
ose
e busi
busine
ness
ss
relationship #ith an assurance client.
/7. The primar(
primar( purpose
purpose of establishing
establishing 'ualit(
'ualit( control
control policies
policies and procedures
procedures for decidin
deciding
g
whether to accept a new client
c lient is to
#. #nticipate before performing an( fieldwor5 whether an un'ualified opinion can be
expressed.
B. $nable
$nable the C# firm
firm to attest
attest to the reliabi
reliabilit(
lit( of the
the client.
client.
C. Satisf(
Satisf( the C# firm
firm s dut( to the public
public concerni
concerning
ng the acceptance
acceptance of
of new clients.
clients.
D. 6inimi)e the
the li$elihood of association
association #ith clients
clients #hose management lac$s
integrity.

/1
/1.. #s define
defined
d in S@C
S@C 1, wh
what
at is a pr
proce
ocess
ss compri
comprisi
sing
ng an ongoin
ongoing
g co
cons
nsid
ider
erat
atio
ion
n and
and
evalua
eva
luatio
tion
n of the firm s s(stem
s(stem of 'ualit
'ualit(
( contro
control,
l, includ
including
ing a period
periodic
ic inspec
inspectio
tion
n of a
select
sel
ection
ion of comple
completed
ted engage
engagemen
ments,
ts, des
design
igned
ed to provid
provide
e the firm
firm with
with reason
reasonabl
able
e
assurance that its s(stem of 'ualit( control is operating effectivel(?
A. 6onitoring
B. +n
+nsp
spe
ect
ctiion

C.
$ng
agemen
ment
'ualit( contro
controll review
review
!. $ngage
Su
Supe
perv
rvis
isio
ion
n t 'ualit(
/". Which element
element of a s(stem
s(stem of 'ualit(
'ualit( control
control is addressed
addressed b( the
the establishme
establishment
nt of policies
policies
and procedure
proceduress design
designed
ed to provid
provide
e the fir
firm
m with
with reason
reasonabl
able
e assura
assurance
nce that
that it has
suffic
suf
ficien
ientt personn
personnel
el with
with the compet
competenc
ence,
e, cap
capabi
abilit
lities
ies,, and commit
commitmen
mentt to ethica
ethicall
principles?
#. ;onitoring
B. -eadership
-eadership respons
responsibil
ibilities
ities for
for 'ualit(
'ualit( within
within the firm
C. 7uma
7uman
n re
reso
sour
urce
ces
s
!. $ngage
$ngagemen
mentt perf
perform
ormanc
ance
e
/&. 8or audits
audits of financia
financiall sta
statem
tement
entss of listed
listed entiti
entities,
es, the engageme
engagement
nt par
partne
tnerr sho
should
uld not
issue the auditor s report until the completion of the
A. (ngagement uality Control
Control Revie#
B. ;ana
;anage
geme
ment
nt %e
%evi
view
ew

C. $ngage
$ngagemen
mentt Team
Team %eview
%eview
!. $ngage
$ngagemen
mentt artne
artnerr %eview
%eview
/*. Who should
should ta5e responsibi
responsibilit(
lit( for
for the overall
overall 'ualit(
'ualit( on each audit
audit engagement?
engagement?
P a g e | 12
#. $ngagement 'ualit( control reviewer
%. (ngage
(ngagemen
mentt partn
partner
er
C. $n
$nga
gage
geme
ment
nt team
team
!. C# firm
/. The engageme
engagement
nt pa
partne
rtnerr sho
should
uld ta5e responsib
responsibili
ilit(
t( for the dir
direct
ection
ion,, superv
supervisi
ision,
on, and
performance
perfo
rmance of the audit engagement
engagement in compliance
compliance with professiona
professionall standards
standards and
regula
reg
ulator
tor(
( and legal
legal re'uir
re'uireme
ements
nts,, and for the auditor
auditor s report
report that is iss
issued
ued to be
appropriate in the circumstances. Supervision includes the following, except
#. Trac5ing the progress of the audit engagement.
B. #ddressing
#ddressing significa
significant
nt issues arising
arising during the audit
audit engagem
engagement,
ent, considering
considering their
their

significance, and modif(ing the planned approach appropriatel(.
C. Informing
Informing the members
members of the engagemen
engagementt team of their responsi
responsibili
bilities.
ties.
!. +dentif(in
+dentif(ing
g matters for consultation
consultation or considerati
consideration
on b( more experienced
experienced engage
engagement
ment
team members during the audit engagement.
THE FINANCIAL STATEMENT
STATEMENT AUDIT
AUDIT:: CLIENT ACCEPTANCE
ACCEPTANCE AND PLANNING
//
//.. Whic
Which
h of th
the
e fo
foll
llowi
owing
ng woul
would
d an audi
audito
torr most
most li5e
li5el(
l( use in dete
determ
rmin
inin
ing
g the
the audi
audito
torr s
preliminar( )udgment about materialit(?
#. The anticipated sample sie of the planned substantive tests.
%. !he en
entity
tity s annual
annuali)ed
i)ed interi
interim
m financi
financial
al statem
statements.
ents.
C. The results
results of the internal
internal control
control 'uestionnair
'uestionnaire.
e.
!. The contents
contents of the
the managemen
managementt representat
representation
ion letter.
letter.


/2.
Which of the following
following statements concerning materialit( is not correct?
#. When establishing the overall audit strateg(, the auditor shall determine materialit(
materialit( for
the financial statements as a whole.
B. tran
+f, insactio
the
specific
speci
fic circumstances
circum
stances
thedisclo
entit(,
entit(
, there
or more
particu
ptement
articular
lar
clas
of
transac
tions,
ns, accoun
acc
ountt balance
bal
ancess oforthe
dis
closur
sures
es foris one
which
which
missta
misstatem
ents
s classes
of ses
lesser
lesser
amounts than materialit( for the financial statements as a whole could reasonabl( be
expected to influence the economic decisions of users ta5en on the basis of the
financial statements, the auditor shall also determine the materialit( level or levels to
those particular classes of transactions, account balances or disclosures.
C. !eterminin
!etermining
g materialit(
materialit( involves
involves the exercise
exercise of professiona
professionall )udgment.
)udgment.
D. !he materi
materialit
ality
y level for the financial
financial statements
statements as a #hole determined
determined in
the planning stage of the audit should not be affected by changes in the
circumstances of the engagement.
/4. #nal(tical
#nal(tical procedures
procedures used
used in plannin
planning
g an audit
audit should
should focus
focus on
#. %educing the scope of tests of controls and substantive tests.
B. roviding
roviding assurance
assurance that potential
potential material
material misstate
misstatements
ments will be identifi
identified.
ed.
C. (nha
(nhanc
ncin
ing
g the
the audi
audittor s unde
nderst
rstand
anding
ing of the
the cl
clie
ient
nt s bus
busines
iness
s and
and
identifying areas of potential ris$.


!. #ssessing
#ssessing the ade'uac(
ade'uac( of the avail
available
able evident
evidential
ial matter.
matter.
/6. Which of the
the following
following would
would not be conside
considered
red an anal(ti
anal(tical
cal procedure?
procedure?
#. $stimating pa(roll expense b( multipl(ing the number of emplo(ees b( the average
hourl( wage rate and the total hours wor5ed.
P a g e | 13
%. 'roject
'rojecting
ing an error rate
rate by comparing
comparing the results
results of a statistica
statisticall sample
sample #ith
the actual population characteristics.
C. Comput
Computing
ing accounts
accounts receivab
receivable
le turnover
turnover b( di
divid
viding
ing credit
credit sales
sales b( the average
average net
receivables.
!. !eveloping
!eveloping the expected
expected sales
sales based
based on the sales trend
trend of the prior five
five (ears.
(ears.
27
27.. Whic
Which
h of th
the
e fo
foll
llowi
owing
ng audi
auditi
ting
ng pr
proce
ocedu
dure
ress most
most li5e
li5el(
l( woul
would
d as
assi
sist
st an au
audi
dito
torr in
identif(ing related part( transactions?
#. +nspecting correspondence with law(ers for evidence of unreported contingent
liabilities.
B. <ouching
<ouching accounting
accounting records
records for recurring
recurring transactio
transactions
ns recorded
recorded )ust after the balanc
balance
e
sheet date.
C. Revie#ing
Revie#ing confirmat
confirmations
ions of loans
loans receivable
receivable and payable
payable for indication
indications
s of
guarantees.
!. erforming
erforming anal(tical
anal(tical procedures
procedures for indications
indications of possible financial
financial difficulti
difficulties.
es.
21. Which of the followin
following
g most li5el(
li5el( would indica
indicate
te the existence
existence of related
related parties?
parties?
#. Writing down obsolete inventor( )ust before (earend.
B. 8ailing
8ailing to correct previous
previousl(
l( identifie
identified
d internal
internal control deficie
deficiencies.
ncies.
C. !epending
!epending on a single
single product
product for the success of the entit(
entit(..
D. %orro#
%orro#ing
ing money at an interest
interest rate significa
significantly
ntly belo# the mar$et
mar$et rate.
2". +f the result
resultss of the auditor
auditor s expert
expert s wor5 do not provid
provide
e suffici
sufficient
ent appropr
appropriat
iate
e audi
auditt
evidence or are not consistent with other audit evidence, the auditor should
#. %eport the matter to the appropriate regulator( agenc( of the government.
%. Reso
Resolv
lve
e the
the matt
matter.
er.
C. Withdr
Withdraw
aw ffrom
rom the enga
engagem
gement
ent..
!. $xpress
$xpress an un'ualified
un'ualified opinion
opinion with
with reference
reference to the wor5 of the expert.
expert.


RISK ASSESSMENTS AND INTERNAL CONTROL
2&. # measure
measure of how willing
willing the audito
auditorr is to accept
accept that the finan
financia
ciall statemen
statements
ts ma( be
materiall( misstated after the audit is completed and an unmodified opinion has been
issued is the
#. +nherent ris5.
%. Accept
Acceptabl
able
e audi
auditt ris$.
ris$.
C. Co
Cont
ntro
roll ri
ris5
s5..
!. !ete
!etecti
ction
on ris5
ris5..
2*.
Which
Whi
ch of
of the
the foll
followi
owing
ng is not one of the three primar( ob)ectives of effective internal
control?
#. %eliabilit( of financial reporting.
B. $fficienc(
$fficienc( and effective
effectiveness
ness of operati
operations.
ons.
C. Compli
Complianc
ance
e with laws
laws and regul
regulati
ations
ons..
D. Assur
Assurance
ance of elimi
eliminati
nation
on of business
business ris$.
ris$.
2.
Which of the following
following statements concerning the relevance of various t(pes of controls to
a financial statement audit is correct?
#. #ll controls are ordinaril( relevant to a financia
financiall statement audit.
B. Controls
Controls over safeguardi
safeguarding
ng of assets and liabili
liabilities
ties are of primar(
primar( importance,
importance, while
while
controls over the reliabilit( of financial reporting ma( also be relevant.
C. Co
Cont
ntro
rols
ls over
over th
the
e re
reli
liab
abil
ilit
ity
y of fi
fina
nanc
ncia
iall re
repo
port
rtin
ing
g ar
are
e or
ordi
dina
nari
rily
ly most
most
directly relevant to a financial statement audit& but other controls may also
be relevant.
!. #n auditor
auditor ma( ordinaril(
ordinaril( ignore
ignore a consideration
consideration of controls
controls when a substantive
substantive audit
audit
approach is ta5en.
2/. #n auditor
auditor should
should conside
considerr two 5e( issue
issuess when obtainin
obtaining
g an unders
understan
tandin
ding
g of a client
client s
internal controls. These issues are
#. The effectiveness and efficienc( of the controls.

P a g e | 14
B. The fre'uen
fre'uenc(
c( and
and effectiv
effectiveness
eness of the controls.
controls.
C. !he design
design and
and implemen
implementatio
tation
n of the
the controls.
controls.
!. The implemen
implementatio
tation
n and efficie
efficienc(
nc( of the
the controls.
controls.
22. #uthoriati
#uthoriations
ons can
can be either
either general
general or specifi
specific.
c. Which of the
the following
following is not an example
of a general authoriation?
#. #utomatic reorder points for raw materials inventor(.
%. A sa
sales
les manager
manager s authori
authori)ati
)ation
on for
for a sales
sales return.
return.
C. Credit
Credit limits
limits for various
various classes
classes of
of transactio
transactions.
ns.
!. # sal
sales
es price
price list
list for me
mercha
rchandi
ndise.
se.


24. #n auditor
auditor should
should obtain
obtain sufficient
sufficient 5nowledge
5nowledge of an
an entit( s information
information s(stem,
s(stem, includi
including
ng
the related business processes relevant to financial reporting, to understand the
#. olicies used to detect the concealment of fraud.
%. 'roces
'rocess
s used to prepare
prepare significan
significantt accounting
accounting estimate
estimates.
s.
C. Safeguards
Safeguards used
used to limit
limit access
access to compute
computerr facilities
facilities..
!. rocedures
rocedures used
used to assure proper
proper authori
authoriatio
ation
n of transaction
transactions.
s.
26. Which
Which of the follow
following
ing control
controlss most
most li5el(
li5el( would
would provid
provide
e reasona
reasonable
ble assuran
assurance
ce that all
credit sales transactions of an entit( are recorded?
#. The accounting department supervisor controls the mailing of monthl( statements to
customers and investigates an( differences reported b( customers.
B. The accounting
accounting department
department superviso
supervisorr independentl
independentl(
( reconciles,
reconciles, on a monthl(
monthl( basis,
basis,
the accounts receivable subsidiar( ledger to the accounts receivable control account.
C. !he
!he bi
bill
llin
ing
g depa
depart
rtme
ment
nt su
supe
perv
rvis
isor
or matc
matche
hes
s pr
pren
enum
umbe
bere
red
d sh
ship
ippi
ping
ng
documents #ith entries in the sales journal.
!. The billing
billing department
department supervisor
supervisor sends
sends copies of approve
approved
d sales orders
orders to the credit
department for comparison to authoried credit limits and current customer account
balances.
47. Which of the
the following
following control
control activi
activities
ties in an
an entit(
entit( s revenue>rec
revenue>receipt
eipt c(cle
c(cle would
would provide
provide
reasonable assurance that all billed sales are correctl( posted to the accounts receivable
ledger?
#. $ach shipment of goods on credit is supported b( a prenumbered sales invoice.
B. The accounts
accounts receivable
receivable subsidiar
subsidiar(
( ledger is reconcile
reconciled
d dail( to the accounts
accounts recei
receivabl
vable
e
control account in the general ledger.
C. Da
Dail
ily
y sale
sales
s summ
summar
arie
ies
s ar
are
e co
comp
mpar
ared
ed to dail
daily
y post
postin
ings
gs to th
the
e ac
acco
coun
unts
ts
receivable ledger.

!. $ach sales
sales invoice
invoice is supported
supported b( a prenumbere
prenumbered
d shipping
shipping document.
document.
41.
41. Whic
Which
h of th
the
e fo
foll
llow
owin
ing
g cont
contro
rols
ls is no
nott us
usua
uall
ll(
( pe
perf
rfor
orme
med
d in the
the ac
acco
coun
unts
ts pa
pa(a
(abl
ble
e
department?
#. +ndicating on the voucher the affected asset and expense accounts to be debited.
B. #pproving
#pproving vouchers
vouchers for pa(ment
pa(ment b( having
having an authorie
authoried
d emplo(ee
emplo(ee sign the vouchers
vouchers..
C. Accountin
Accounting
g for unused prenumbere
prenumbered
d purchase
purchase orders and receivi
receiving
ng reports.
reports.
!. ;at
;atchi
ching
ng the vendor
vendor s invoic
invoice
e with
with the rela
related
ted purchase
purchase re'uisi
re'uisitio
tion,
n, purchase
purchase order,
order,
and receiving report.

4".
#fter gaining
gaining an understandi
understanding
ng of internal control
control and assessing
assessing the ris5s of material
material
misstateme
misst
atement,
nt, an auditor decided
decided to perform tests of controls.
controls. The auditor
auditor most li5el(
decided that
#. #dditional evidence to support a further reduction in control ris5 is not availabl
available.
e.
%. It is not possib
possible
le or practicable
practicable to reduce
reduce the ris$s of material
material misstat
misstatement
ement
at th
the
e as
asse
sert
rtio
ion
n le
leve
vell to an ac
acce
cept
ptab
ably
ly lo
lo#
# le
level
vel #ith
#ith audi
auditt evid
eviden
ence
ce
obtained only from substantive test procedures.
C. There were man(
man( internal
internal control wea5ne
wea5nesses
sses that could
could allow misstateme
misstatements
nts to enter
the accounting s(stem.
P a g e | 15
!. #n incre
increas
ase
e in the
the as
asse
sesse
ssed
d le
leve
vell of con
contr
trol
ol ris5
ris5 is )ust
)ustif
ifie
ied
d fo
forr ce
cert
rtai
ain
n fi
fina
nanc
ncia
iall
statement assertions.
4&. #n auditor
auditor ma( decide
decide to assess
assess control ris5
ris5 at the maximum
maximum level for
for certain asserti
assertions
ons
because the auditor believes
A. Controls are unli$ely to pertain
pertain to the assertions.
B. The entit
entit(
( s control
control compo
componen
nents
ts are inte
interrel
rrelate
ated.
d.
C. Sufficient
Sufficient appropriat
appropriate
e audit evidence
evidence to support the assertio
assertions
ns is li5el( to be availab
available.
le.
!. ;ore emphasis
emphasis on tests
tests of controls
controls than substantive
substantive tests
tests is warranted.
warranted.

4*. Which of the followi
following
ng statements
statements is correct
correct concerning
concerning an
an auditor
auditor s assessment
assessment of
of control
control

ris5?
A. Assessing control ris$ may be performed concurrently during an audit #ith
obtaining an understanding
understanding of the entity s internal control.
control.
B. $vidence
$vidence about
about the operation
operation of controls
controls in prior
prior audits
audits ma( not be considere
considered
d during
the current (ear s assessment of control ris5.
C. The basis
basis for an auditor
auditor s conclusions
conclusions about
about the assessed
assessed level
level of control
control ris5
ris5 need not
not
be documented unless control ris5 is assessed at the maximum level.
!. The lowe
lowerr the assesse
assessed
d level of control
control ris5, the less
less assura
assurance
nce the evidenc
evidence
e must
must
provide that the controls are operating effectivel(.



4.
+n performi
performing
ng tests of the operati
operating
ng effectiv
effectivene
eness
ss of an entit(
entit( s control
controls,
s, an audito
auditorr
selects from a variet( of techni'ues, including
A. Reperformance and observation.
B. +n'uir(
+n'uir( and
and anal(t
anal(tica
icall procedu
procedures
res..
C. Compar
Compariso
ison
n an
and
d confi
confirma
rmatio
tion.
n.
!. +nsp
+nspect
ection
ion and
and ve
verif
rifica
icatio
tion.
n.
4/.
Which of the followin
following
g tests of controls
controls most li5el
li5el(
( would help
help assure an auditor
auditor that
goods shipped are properl( billed?
#. Scan the sales )ournal for se'uential and unusual entries.
%. ("ami
("amine
ne shipping
shipping documents
documents for
for matching
matching sales
sales invoices.
invoices.

C. Compare
Compare the accounts
accounts receivab
receivable
le ledger
ledger to dail(
dail( sales
sales summaries.
summaries.
!. +nspect unused
unused sales
sales invoices
invoices for
for consecutive
consecutive prenumber
prenumbering.
ing.
42
42.. When
When th
ther
ere
e are
are nume
numero
rous
us pr
prop
oper
ert(
t( an
and
d e'
e'ui
uipm
pmen
entt tran
transa
sacti
ction
onss duri
during
ng the
the (e
(ear
ar,, an
auditor who plans to assess control ris5
r is5 at a low level usuall( performs
#. Tests of controls and extensive tests of propert( and e'uipment balances at the end of
the (ear.
B. #nal(tical
#nal(tical procedures
procedures for
for current (ear
(ear propert(
propert( and e'uipmen
e'uipmentt transactions.
transactions.
C. !ests of controls
controls and
and limited
limited tests of current
current year
year property
property and euipment
euipment
transactions.
!. #nal(tical
#nal(tical procedures
procedures for
for propert(
propert( and e'uipment
e'uipment balances
balances at the end
end of the (ear.
P a g e | 16
8RA9D AND (RR/R
44.
44. $r
$rro
rorr incl
includ
udes
es


#. $ngaging in complex transactions that are structured to misrepresent the financial
position or financial performance of the entit(.
B. Concea
Concealin
ling,
g, or not disclos
disclosing
ing,, fac
facts
ts that could affect
affect the amounts
amounts recorded
recorded in the
financial statements.
C. An
incorrect
accounting
estimate
arising
from
oversight
or
misinterpretation of facts.
!. +nte
+ntenti
ntiona
onall misapp
misapplic
licati
ation
on of accoun
accountin
ting
g polici
policies
es rel
relati
ating
ng to amount
amounts,
s, classi
classific
ficati
ation,
on,
manner of presentation, or disclosure.
46. 8raud involvi
involving
ng one or more members
members of managem
management
ent or those charged
charged with
with governance
governance
is referred to as
A. 6anagement fraud.
C. 8raudu
8raudulen
lentt financ
financial
ial repo
reporti
rting.
ng.
B. $mplo(ee fraud.
!. ;isappropriation of assets.
67. The auditor
auditor is concerned
concerned with fraud
fraud that causes
causes a material
material misstate
misstatement
ment in the financia
financiall
statements
state
ments.. There are two t(pes of intentional
intentional misstatement
misstatementss that are relevant to the
auditor misstatements resulting from fraudulent financial reporting and misstatements
resulting from
#. ;anagement fraud.
B. $mpl
$mplo(
o(ee
ee fr
frau
aud.
d.
C. 6isapp
6isapprop
ropria
riatio
tion
n of assets
assets..
P a g e | 17
!. Collusion
Collusion within
within the
the entit(
entit( or with
with third partie
parties.
s.
61. 8raudulent
8raudulent financial
financial reporting
reporting involve
involvess intentional
intentional misstateme
misstatements
nts including
including omissions
omissions of
amounts
amoun
ts or disclosures
disclosures in financial
financial stat
statement
ementss to deceive
deceive financial
financial statement
statement users. +t
ma( be accomplished in a number of wa(s, including
#. $mbeling receipts.
B. Stealing
Stealing ph(sica
ph(sicall assets
assets or intell
intellectual
ectual propert(.
propert(.
C. Asing
Asing a
an
n entit(
entit( s asset
assetss for
for perso
personal
nal use
use..
D. 6ani
6anipula
pulation&
tion& falsifica
falsification&
tion& or alteration
alteration of accounting
accounting records or supporting
supporting
documentation from #hich the financial statements are prepared.

6".
The following
following are examples
examples of fraud
fraud ris5 factors
factors relating
relating to misstatements
misstatements arising
arising from
misappropriation of assets, except
A. Recurring negative cash flo#s from operating activities #hile reporting
earnings and earnings gro#th.
B. +nade'uate
+nade'uate ph(sical
ph(sical safeguard
safeguardss over cash, investme
investments,
nts, inventor(,
inventor(, or fixed
fixed assets.
C. +nade'uate
+nade'uate segreg
segregation
ation of
of duties
duties or independ
independent
ent chec5s.
chec5s.
!. #dverse
#dverse relationship
relationship between
between the entit(
entit( and emplo(e
emplo(ees
es with access
access to cash or other
assets susceptible to theft created b( recent changes made to emplo(ee compensation
or benefit plans.
6&. 3pportuniti
3pportunities
es to misappro
misappropriat
priate
e assets
assets increase
increase when
when there are
are
#. nown or anticipated future emplo(ee la(offs.
B. romotions,
romotions, compensa
compensation,
tion, or other
other rewards inconsis
inconsistent
tent with expectat
expectations.
ions.
C. %ecent or anticipa
anticipated
ted changes
changes to emplo(ee
emplo(ee compensati
compensation
on or benefit
benefit plans.
D. Invent
Inventory
ory items that
that are small
small in si)e& of high
high value& or in high demand.
demand.
6*. Which
Which of the followi
following
ng condition
conditionss or event
eventss ma( create
create incentive
incentives>p
s>pres
ressure
suress to commit
commit
fraud?
#. +nade'uate s(stem of authoriation and approval of transactions.
B. -ac5 of mandator(
mandator( vacati
vacations
ons for emplo(ee
emplo(eess performing
performing 5e( control
control functions.
functions.
C. ("ce
("cess
ssiv
ive
e pr
pres
essu
sure
re on manag
anagem
emen
entt or oper
operat
atin
ing
g pers
person
onne
nell to me
meet
et
financial targets established by those charged #ith governance& including
sales or profitability incentive goals.
!. +nade'uate
+nade'uate access controls
controls over
over automated
automated records
records..
6.
When the auditor identifies
identifies a misstatement in the financial statements, the auditor should
consider whether such a misstatement ma( be indicative of fraud and if there is such an
indication, the auditor should
A. Consider the implications of the misstatement
misstatement in relation to other aspects of
the audit.
B. Withdr
Withdraw
aw ffrom
rom the engage
engagemen
ment.
t.
C. Communicate
Communicate the informa
information
tion to regulator(
regulator( and
and enforcement
enforcement authoriti
authorities.
es.
!. %eport the
the matter
matter to the person
person or persons
persons who made
made the audit
audit appointme
appointment.
nt.
AUDITING IN A CIS/IT ENVIRONMENT
6/. The use of a computer
computer changes
changes the processing
processing,, storage,
storage, and communica
communication
tion of financial
financial
information. # C+S environment
environment ma( affect the following, e"cept
#. The accounting and internal control s(stems of the entit(.
%. !he overall
overall objective
objective and
and scope
scope of an audit.
audit.
C. The auditor
auditor s design
design and performa
performance
nce of tests
tests of control
control and
and substantive
substantive procedures
procedures
to satisf( the audit ob)ectives.
!. The specific
specific procedu
procedures
res to obtain 5nowle
5nowledge
dge of the entit(
entit( s accoun
accountin
ting
g and interna
internall
control s(stems.


62. The followi
following
ng are benefits
benefits of
of using
using +Tbased
+Tbased controls
controls,, e"cept
#. #bilit( to process large volume of transactions.
%. /ver4relia
/ver4reliance
nce on computer4g
computer4generat
enerated
ed reports.
reports.
C. #bilit(
#bilit( to replace
replace manual
manual controls
controls with compute
computerbas
rbased
ed controls.
controls.
!. %eduction
%eduction in misstatemen
misstatements
ts due to consistent
consistent processing
processing of transacti
transactions.
ons.
64. Which of the following
following statements
statements concerni
concerning
ng the +nternet
+nternet is incorrect
incorrect??
#. The +nternet is a shared public networ5 that enables communication with other
entities and individuals around the world.
P a g e | 18
%. !he Interne
Internett is a privat
private
e net#or$
net#or$ that
that only
only al
allo#
lo#s
s access
access to author
authori)e
i)ed
d
persons or entities.
C. The +n
+nte
tern
rnet
et is inte
interop
roper
erab
able
le,, which
which me
mean
anss that
that an(
an( co
comp
mput
uter
er co
conn
nnec
ecte
ted
d to the
the
+nternet can communicate with an( other computer connected to the +nternet.
!. The +nternet
+nternet is a worldwide
worldwide networ5 that
that allows
allows entities
entities to engage in
in ecommerce>e
ecommerce>e
business activities.
66.
The auditor
auditor shall conside
considerr the entit( s C+S environment
environment in designi
designing
ng audit procedure
proceduress to
reduce ris5 to an acceptabl(
acceptabl( low level. Which of the following statements
statements is incorrect
incorrect??
#. The auditor s specific audit ob)ectives do not change whether financial information is
processed manuall( or b( computer.


%. !he methods
methods of applying
applying audit
audit procedures
procedures to gather
gather audit evidence
evidence are not
not
influenced by the methods of computer processing.
C. The au
audi
dito
torr ma(
ma( use
use ei
eith
ther
er manu
manual
al audi
auditt proc
proced
edur
ures
es,, compu
compute
ter
ras
assi
sist
sted
ed audi
auditt
techni'ues 9C##Ts:, or a combination of both to obtain sufficient appropriate audit
evidence.
!. +n some C+S environment
environments,
s, it ma( be difficult
difficult or impossible
impossible for the auditor
auditor to obtain
certain data for inspection, in'uir(, or confirmation without the aid of a computer.
177. # characteristic that distinguishes computer processing from manual processing is
#. The potential for s(stematic error is ordinaril( greater in manual processing than in
computeried processing.
B. $rrors or fraud
fraud in computer
computer processing
processing will be detected
detected soon
soon after their
their occurrences.
occurrences.
C. ;ost
;ost co
comp
mput
uter
er s(st
s(stem
emss are
are desi
design
gned
ed so that
that tran
transa
sact
ctio
ion
n trai
trails
ls usef
useful
ul fo
forr audi
auditt
purposes do not exist.
D. Computer
Computer processing
processing virtually
virtually eliminates
eliminates the occurrence
occurrence of computational
computational
errors normally associated #ith manual processing.
171. Which of the following statements most li5el( represents a disadvantage
disadvantage for an entit( that
maintains data files on personal computers 9Cs: rather than manuall( prepared files?
#. +t is usuall( more difficult to compare recorded accountabilit( with the ph(sical count
c ount
of assets.
B. %andom
%andom error associate
associated
d with
with pro
proces
cessin
sing
g simila
similarr tra
transa
nsacti
ctions
ons in dif
differ
ferent
ent wa(s is
usuall( greater.
C. #ttention
#ttention is focused
focused on the accurac(
accurac( of the programmin
programming
g process rather
rather than errors
errors in
individual transactions.
D. It is usually
usually easier
easier for unauthori)ed
unauthori)ed persons to access and alter the files.
17".. The internal
17"
internal control
controlss over
over comput
computer
er pro
proces
cessin
sing
g includ
include
e both
both manual
manual procedure
proceduress and
procedures
proced
ures designed
designed into computer programs
programs 9programmed
9programmed control procedures:.
procedures:. These
manual and programmed control procedures comprise the general C+S controls and C+S
application controls. The purpose of general C+S controls is to
#. $stablish specific control procedures over the accounting applications in order to
provide reasonable assurance that all transactions are authoried and recorded and
are processed completel(, accuratel(, and on a timel( basis.
%. (stabl
(stablish
ish a frame#
frame#or$
or$ of overal
overalll contro
controls
ls over the CIS activit
activities
ies and to
provid
pro
vide
e a reason
reasonabl
able
e level
level of assura
assurance
nce that
that the overal
overalll object
objective
ives
s of
internal control are achieved.
C. rov
rovid
ide
e reas
reason
onab
able
le as
assu
sura
rance
nce that
that s(st
s(stem
emss are
are deve
develo
lope
ped
d and
and main
mainta
tain
ined
ed in an
authoried and efficient manner.
!. rovide
rovide reasonable
reasonable assurance
assurance that access
access to data and computer programs
programs is restricted
restricted
to authoried personnel.
P a g e | 19
17&. #n entit( has recentl(
recentl( converted
converted its purchasing
purchasing c(cle
c(cle from a manual process
process to an online
computer s(stem. Which of the following
following is a probable result associated
associated with conversion
to the new +T s(stem?
A. !raditional duties are
are less separated.
B. +ncreas
+ncreased
ed process
processing
ing time.
time.
C. %educti
%eduction
on in
in the entit(
entit( s ris5
ris5 e
expo
xposure
sure..
!. +ncreas
+ncreased
ed proce
processi
ssing
ng errors
errors..

17*. #n entit(
entit( should plan
plan the ph(sical
ph(sical location
location of its
its computer
computer facilit(.
facilit(. Which of the followi
following
ng
is the primar( consideration for selecting a computer site?
#. +t should be in the basement or on the ground floor.
B. +t should
should maximie
maximie the visibil
visibilit(
it( of the computer.
computer.
C. +t should minimie
minimie the distance
distance that
that data control
control personnel
personnel must travel
travel to deliver
deliver data
and reports and be easil( accessible b( a ma)orit( of compan( personnel.
D. It should
should provi
provide
de securi
security.
ty.
17.. #n entit(
17
entit( install
installed
ed antivir
antivirus
us software
software on all its personal
personal comp
compute
uters.
rs. The softwar
software
e was
designed to prevent initial infections, stop replication attempts, detect infections after
their occurrence, mar5 affected s(stem components, and remove viruses from infected
components. The ma)or ris5 in rel(ing
rel(ing on antivirus software is that it ma(
#. Consume too man( s(stem resources.
B. +nterfe
+nterfere
re with
with s(stem
s(stem operat
operation
ions.
s.
C. Not dete
detect
ct certa
certain
in virus
viruses.
es.
!. ;a5e software
software install
installation
ation too comple
complex.
x.
AUDIT OBJECTIVES, PROCEDURES,EVIDENCE, AND DOCUMENTATION
17/. Which of the following
following should
should be considered b( the auditor
auditor in deciding
deciding which means 9or
combination of means: to use in selecting items for testing?
+. The ris5 of material
material missta
misstatemen
tementt related
related to the
the assertion
assertion being
being tested.
tested.
++. #udit
#udit effici
efficienc
enc(.
(.
#. + onl(
C. Both + and ++
B. ++ onl(
!. 0
0e
either + nor ++
172. The 'uantit(
'uantit( of audit evidence
evidence needed
needed is affected b( the ris5 of misstatemen
misstatementt and also b(
the 'ualit( of such audit evidence.
The reliabilit( of audit evidence is influenced b( its source and b( its nature and is
dependent on the individual circumstances under which it is obtained.
P a g e | 20
A. Both statements are true.
B. Both statements are false.
C. TrueD 8alse.
!. 8alseD True.
174. Which of the following
following is a false statement
statement about
about audit ob)ective
ob)ectives?
s?
A. There should be a onetoone relationship between audit ob)ectives and procedures.
B. #udit
#udit ob)ectiv
ob)ectives
es should
should be develope
developed
d in light of manage
managemen
mentt assert
assertion
ionss about
about the
financial statement components.
C. Selection
Selection of tests to meet
meet audit ob)ective
ob)ectivess should depend
depend upon the understandi
understanding
ng of
internal control.
!. The auditor
auditor should
should resolve
resolve an( substanti
substantial
al doubt
doubt about an(
an( of managemen
managementt s material
material
financial statement assertions.

176. Which of the following
following statement
statementss concerning
concerning evidential
evidential matter
matter is true
true??
#. #ppropriate evidence supporting management s assertions should be convincing rather
than merel( persuasive.
B. $ffect
$ffectiv
ive
e intern
internal
al control
control contri
contribut
butes
es lit
little
tle to the reliabil
reliabilit(
it( of the evidenc
evidence
e create
created
d
within the entit(.
C. The cost of obtainin
obtaining
g evide
evidence
nce is not an importan
importantt considera
consideratio
tion
n to an auditor
auditor in
deciding what evidence should be obtained.
D. # client s accounting records cannot be considered sufficient evidence to
t o support the
financial statements.


117. Which of the following
following t(pes
t(pes of audit evidence
evidence is the most persuasive?
persuasive?
#. renumbered purchase order forms.
B. Client
Client wor5shee
wor5sheets
ts supporti
supporting
ng cost
cost a
alloca
llocations.
tions.
C. Ban5 statements obtained from the client.
!. Client
Client repres
represent
entati
ation
on letter
letter..
111. Which of the following
following generaliations
generaliations does not relate
relate to the appropriateness of evidence?
evidence?
#. #udit evidence from external sources 9for example, confirmation received
r eceived from a third
part(: is more reliable than that generated internall(.
%. #n auditor s opinion, to be economicall( useful, is for
formed
med within reasonable time and
based on evidence obtained at a reasonable cost.
C. #udit evidence
evidence generated
generated internall
internall(
( is more reliable
reliable when the related
related accounting
accounting and
internal control s(stems are effective.
!. #ud
#udit
it evidence
evidence obtaine
obtained
d direct
directl(
l( b( the auditor
auditor is more
more rel
reliab
iable
le than that obtained
obtained
from the entit(.

11". $ach of the followin
following
g might, b( itself,
itself, form a valid
valid basis for an auditor
auditor to decide
decide to omit a
test except for the
A. !ifficult( and expense involved in testing a particular item.
B. #ssess
#ssessmen
mentt of control
control ris5
ris5 at a low
low level.
level.
C. +nher
+nheren
entt ris5
ris5 invol
involve
ved.
d.
!. %elationshi
%elationship
p between the
the cost of obtaining
obtaining evidence
evidence and
and its usefulness.
usefulness.
11&. +n which of the following
following circu
circumstanc
mstances
es would the use of the negative
negative form of acco
accounts
unts
receivable confirmation most li5el( be )ustified?
#. # substantial number of accounts ma( be in dispute and the accounts receivable
balance arises from sales to a few ma)or customers.
B. # subs
substa
tant
ntia
iall numb
number
er of ac
acco
coun
unts
ts ma(
ma( be in di
disp
sput
ute
e and
and the
the ac
acco
coun
unts
ts rece
receiv
ivab
able
le
balance arises from sales to man( customers with small balances.
C. # small number
number of accounts
accounts ma( be in dispute
dispute and the accou
accounts
nts rece
receiv
ivabl
able
e balance
balance
arises from sales to a few ma)or customers.
D. # small number of accounts ma( be in dispute and the accounts receivable balance
arises from sales to man( customers with small balances.
P a g e | 21
11*. Which of the following
following statements
statements is correct concerning the use of negative conf
confirmat
irmation
ion
re'uests?
A. Anreturned negative confirmation re'uests rarel( provide significant explicit evidence.
B. 0egative
0egative confirmati
confirmation
on re'uests
re'uests are effective
effective when
when detection
detection ris5 is low.
low.
C. Anretur
Anreturned
ned negati
negative
ve confir
confirmat
mation
ion re'ues
re'uests
ts indica
indicate
te that
that altern
alternati
ative
ve proced
procedure
uress are
necessar(.
!. 0ega
0egati
tive
ve confi
confirm
rmat
atio
ion
n re'u
re'ues
ests
ts are
are ef
effe
fecti
ctive
ve when
when unde
underst
rstat
atem
emen
ents
ts of ac
acco
coun
untt
balances are suspected.
11. Which of the following most li5el( would
would give the most assurance concerning the v
valuation
aluation
and allocation assertion of accounts receivable?
#. <ouching amounts in the subsidiar( ledger to details on shipping documents.
B. Comparing
Comparing receivabl
receivable
e turnover
turnover ratios with industr(
industr( stati
statistics
stics for reasonable
reasonableness.
ness.
C. +n'uiring
+n'uiring about
about receivable
receivabless pledged
pledged under
under loan agreemen
agreements.
ts.
D. #ssessing the allowance for uncollectible accounts for reasonableness.
11/. Confirmati
Confirmation
on is the process
process of obtaini
obtaining
ng and evaluat
evaluating
ing a direct
direct communica
communication
tion from a
third part( in response to a re'uest for information about a particular item affecting
fin
financ
ancial
ial statem
statement
ent assert
assertion
ions.
s.
Two asserti
assertions
ons for which
which confirma
confirmatio
tion
n of accoun
accounts
ts
receivable balances provides primar( evidence are
#. Completeness and valuation
B. <aluat
<aluation
ion and
and rights
rights and
and obli
obligat
gation
ionss
C. %ights and obligations and existence
!. $xi
$xiste
stence
nce and
and comp
complet
letene
eness
ss


112. To gain assurance
assurance that all inventor(
inventor( items
items in a client s inventor(
inventor( listing
listing schedule
schedule are valid,
valid,
an auditor most li5el( would vouch
#. +nventor( tags noted during the auditor s observation to items listed in the inventor(
listing schedule.
B. +nven
+nvento
tor(
r( tags
tags note
noted
d duri
during
ng the
the audi
audito
torr s ob
obse
serv
rvat
atio
ion
n to it
item
emss list
listed
ed in rece
receiv
ivin
ing
g
reportss and vendors invoices.
report
invoices.
C. +te
+tems
ms listed
listed in the inventor(
inventor( listing
listing schedul
schedule
e to inv
invent
entor(
or( tags and the audito
auditorr s
recorded count sheets.
!. +tems listed
listed in receiving
receiving reports
reports and vendors
vendors invoices
invoices to the inventor(
inventor( listing
listing schedule.
schedule.






114.. Which
114
Which of the follow
following
ing is not an audit
audit procedur
procedure
e that
that the indepen
independen
dentt audito
auditorr would
would
perform with respect to litigation, claims, and assessments?
#. +n'uire of and discuss with management the policies and procedures adopted for
litigation, claims, and assessments.
B. 3btai
3btain
n fr
from
om mana
manage
geme
ment
nt a desc
descri
ript
ptio
ion
n and
and ev
eval
alua
uati
tion
on of liti
litiga
gati
tion
on,, cl
clai
aims
ms,, and
and
assessments that existed at the balance sheet date.
C. 3btain assuranc
assurance
e from management
management that
that if has disclosed
disclosed all unassert
unasserted
ed claims
claims that the
law(er has advised are probable of assertion and must be disclosed.
D. Con
Confir
firm
m direct
directl(
l( with
with the client
client s law(e
law(err that
that all claims
claims have
have been
been record
recorded
ed in the
financial statements.

116.. #udit
116
#udit documen
documentat
tation
ion ma( be re
record
corded
ed on paper
paper or on electro
electronic
nic or other
other media.
media. The
following are examples of audit documentation, except
#. #udit programs
B. -etters
-etters of
of confirm
confirmation
ation and representa
representation
tion
C. Corresponden
Correspondence
ce 9including
9including email
email:: concerning
concerning significa
significant
nt matters
matters
D. The entit( s accounting
accounting records

P a g e | 22
1"7. The completion
completion of the assembl
assembl(
( of the final audit
audit file
file after the date
date of the auditor
auditor s report
does not ordinaril( involve
A. The performance of new audit procedures or the drawing of new conclusions.
B. Sorting,
Sorting, collating
collating and
and crossref
crossreferenci
erencing
ng wor5ing
wor5ing papers.
papers.
C. !eleting
!eleting or
or discardi
discarding
ng supersed
superseded
ed document
documentation.
ation.
!. Signing
Signing off on completion
completion che
chec5lis
c5lists
ts relati
relating
ng to the file assembl(
assembl( process
process..

AUDIT SAMPLING
1"1. #udit sampling
sampling involves
involves the
#. Selection of all items over a certain amount.
P a g e | 23
%. #pplication of audit procedures to less than 177E of items within a class of
transactions or an account balance such that all items have a chance of selection.
C. #pplicatio
#pplication
n of audit procedure
proceduress to all items
items that comprise
comprise a class of transacti
transactions
ons or an
account balance.
!. #pplicatio
#pplication
n of audit procedure
proceduress to all items
items over a certain
certain amount and those
those that are
unusual or have a histor( of error.
1"". opulation
opulation,, as defined in S# &7, means
means the entire set of data from whi
which
ch a sample is
selected and about which the auditor wishes to draw conclusions. +t is important for the
auditor to ensure that the population is
+. #ppropriate
#ppropriate to the
the ob)ecti
ob)ective
ve of
of the audit procedure.
procedure.
++.
++. Co
Comp
mple
lete
te..
#. + onl(
C. Both + and ++
B. ++ onl(
!. 0
0e
either + nor ++
1"&. #n advantage of statistical over nonstatistical sampling methods in tests of controls is that
the statistical methods
#. #fford greater assurance than a nonstatistical sample of e'ual sie.
%. rovide an ob)ective basis for 'uantitativel( evaluating sampling ris5s.
C. Can more easil(
easil( convert
convert the sample
sample into a dualpur
dualpurpose
pose test useful
useful for substanti
substantive
ve
testing.
!. $liminate
$liminate the need
need to use )udgment
)udgment in determining
determining appropri
appropriate
ate sample
sample sies.
sies.
1"*. Which of the following
following best illustra
illustrates
tes the concept of sampling
sampling ris5?
ris5?
A. # randoml( chosen sample ma( not be representative of the population
population as a whole on
the characteristic of interest.
B. #n auditor
auditor ma( select audit
audit procedures
procedures that
that are not appropriat
appropriate
e to achieve
achieve the specific
specific
ob)ective.
C. #n auditor
auditor ma( fail
fail to recogni
recognie
e errors in
in the documents
documents examined
examined for
for the chosen
chosen
sample.
!. The documents
documents related
related to the chosen
chosen sample ma(
ma( not be available
available for
for inspection.
inspection.
1".. Which
1"
Which of the followin
following
g statis
statistic
tical
al selectio
selection
n techni
techni'ue
'uess is least
least desira
desirable
ble for use b( an
auditor?
#. S(stematic selection
C. Bloc5 selection
B. Stratified selection
!. Se'uential selection
COMPLETING THE AUDIT AND POST-AUDIT RESPONSIBILITIES
P a g e | 24
1"/. #nal(tical procedures used in the overall review
review stage of the audit generall( include
#. %etesting controls that appeared to be ineffective during the assessment of control
ris5.
%. Con
Consid
sideri
ering
ng unu
unusua
suall or unexpe
unexpecte
cted
d accoun
accountt balance
balancess that
that were
were not previo
previousl
usl(
(
identified.
C. =athering
=athering evidence
evidence concerning
concerning account
account balances
balances that have
have not changed from
from the prior
(ear.
!. er
erfor
formin
ming
g tests
tests of tra
transa
nsacti
ctions
ons to corrobo
corroborat
rate
e manage
managemen
mentt s fin
financ
ancial
ial statemen
statementt
assertions.

1"2.. #nal(t
1"2
#nal(tica
icall procedu
procedures
res performe
performed
d in the overall
overall review
review stage
stage of an audit
audit sugges
suggestt that
that
several
seve
ral accounts
accounts have unexpected relation
relationships
ships.. The results of these procedures
procedures most
li5el( indicate that
#. The communication with the audit committee should be revised.
B. +rregularit
+rregularities
ies exist
exist among the relevan
relevantt account
account balances.
balances.
C. #dditional substantive tests of details are re'uired.
re'uired.
!. +nternal
+nternal control activi
activities
ties are not
not operating
operating effectivel
effectivel(.
(.
1"4. Which of the following
following events most li5el( iindicates
ndicates the existence of related parties?
A. ;a5ing a loan without scheduled terms for repa(ment
r epa(ment of the funds.
B. !iscussing
!iscussing merger
merger terms
terms with a compan(
compan( that is
is a ma)or
ma)or competitor.
competitor.
C. Selling
Selling real estate
estate at a price that
that differs
differs significant
significantl(
l( from its boo5
boo5 value.
value.
!. Borrowing
Borrowing a large
large sum of mone(
mone( at a variabl
variable
e rate of interes
interest.
t.
1"6. #n auditor searching for related part(
part( transactions should obtain an understanding of each
subsidiar( s relationship to the total entit( because
#. This ma( permit the audit of intercompan( account balances to be performed as of
concurrent dates.
B. This ma( reveal
reveal whether
whether particular
particular transacti
transactions
ons would have
have ta5en place
place if the parties
parties
had not been related.
C. The busi
busine
ness
ss st
stru
ructu
cture
re ma(
ma( be deli
delibe
bera
rate
tel(
l( desi
design
gned
ed to ob
obsc
scure
ure rela
relate
ted
d part(
part(
transactions.
!. +nte
+ntercom
rcompan
pan(
( transa
transacti
ctions
ons ma( have
have bee
been
n consum
consummat
mated
ed on terms
terms e'uiva
e'uivalen
lentt to
arm slength
slength trans
transaction
actions.
s.


1&7. #fter determining that a related
related part( transaction has, in fact, occurred, an auditor should
A. 3btain an understanding of the business purpose of the transaction.
B. Substantiate
Substantiate that the transact
transaction
ion was
was consummated
consummated on terms
terms e'uivalen
e'uivalentt to an arm s
length transaction.
C. #dd a separat
separate
e paragraph
paragraph to
to the auditor
auditor s report
report to explain
explain the
the transactio
transaction.
n.
!. erform
erform anal(tical
anal(tical procedures
procedures to verif(
verif( whether
whether similar transacti
transactions
ons occurred,
occurred, but were


not recorded.
1&1. Which of the following
following statements best
best describes the date of the financial
financial statements?
statements?
#. The date on which those with the recognied authorit( assert that the( have prepared
the entit( s complete set of financial statements,
statements, including the related notes, and that
the( have ta5en responsibilit( for them.
B. The date that
that the auditor
auditor s report and
and audited
audited financial
financial statement
statementss are made avail
available
able
to third parties.
C. The date of the end of the latest period covered b( the financial statements, which is
normall( the date of the most recent balance sheet in the financial statements sub)ect
to audit.
!. The date on which the auditor
auditor has obtai
obtained
ned sufficient
sufficient appropria
appropriate
te audit evidence
evidence on
which to base the opinion on the financial statements.




P a g e | 25
1&". Which of the following
following procedures would an auditor most li5el( perform
perform to obtain evidence
evidence
about the occurrence of subse'uent events?
A. +n'uiring as to whether an( unusual ad)ustments were made after the date of the
financial statements.
B. Confirming
Confirming a sample
sample of material
material accounts receivab
receivable
le established
established after
after the date of the
financial statements.
C. Comparing
Comparing the financia
financiall statem
statements
ents being
being reported
reported on with those of the prior
prior period.
period.
!. +nvestigati
+nvestigating
ng personnel
personnel changes in the accounting
accounting depart
department
ment occurring
occurring after the date
of the financial statements.
1&&. Which of the following
following statement
statementss best expresses
expresses the auditor
auditor s responsibil
responsibilit(
it( with respect
respect
to facts discovered after the date of the auditor
auditor s report but before the date the financial
statements are issued?
#. The auditor should amend the financial statements.
B. +f the facts discove
discovered
red will material
materiall(
l( affect
affect the financia
financiall statem
statement
ents,
s, the audito
auditorr
should issue a new report which contains either a 'ualified opinion or an adverse
opinion.
C. The audito
auditorr should
should consid
consider
er whethe
whetherr the fin
financi
ancial
al statem
statement
entss need
need amendm
amendment
ent,,
discuss the matter with management, and consider ta5ing actions appropriate in the
circumstances.
!. The auditor
auditor should
should withdraw
withdraw from
from the engagement
engagement..


1&
1&*.
*. #f
#fte
terr issu
issuin
ing
g a re
repo
port
rt,, an audi
audito
torr has
has no ob
obli
liga
gati
tion
on to ma
ma5e
5e co
cont
ntin
inui
uing
ng in'u
in'uir
irie
iess or
perform other procedures concerning the audited financial statements, unless
#. 8inal determinations or resolutions are made of contingencies that had been disclosed
in the financial statements.
B. +nformation
+nformation about
about an event
event that
that occurred
occurred after the
the date of
of the auditor
auditor s report comes
comes
to the auditor
auditor s attention.
attention.
C. The control
control environm
environment
ent changes
changes after
after issuance
issuance of
of the report.
report.
D. +nformation, which existed at the report date and ma( affect the report, comes to the
auditorr s attention.
audito
attention.



1&.. Which
1&
Which of the follow
following
ing events
events occurrin
occurring
g after the issuance
issuance of an audito
auditorr s report
report most
li5el(
li5el( would cause
cause the audito
auditorr to ma5e
ma5e furthe
furtherr in'
in'uir
uiries
ies about
about the previo
previousl
usl(
( iss
issued
ued
financial statements?
#. # technological development that could affect the entit( s future
futur e abilit( to continue as
a going concern.
B. The entit
entit(
( s sale
sale of a subs
subsid
idia
iar(
r( that accou
account
ntss fo
forr &7E of the
the enti
entit(
t( s conso
consoli
lida
date
ted
d
sales.
C. The discover( of information regarding a contingenc( that existed before the financial




statements were issued.
!. The final resolut
resolution
ion of a lawsuit
lawsuit disclosed
disclosed in the notes
notes to the financial
financial statements.
statements.
1&/. Which of the following
following statemen
statements
ts best describes
describes the auditor
auditor s responsibili
responsibilit(
t( concerning
concerning
the appropriateness of the going concern assumption in the preparation of the financial
statements?
#. The auditor s responsibilit( is to ma5e a specific assessment of the entit( s abilit( to
continue as a going concern.
B. The auditor
auditor s responsibi
responsibilit(
lit( is to
to predict
predict future events
events or conditio
conditions
ns that ma(
ma( cause the
entit( to cease to continue as a going concern.
C. The auditor s responsibilit
responsibilit(
( is to consider the appro
appropriat
priateness
eness of management
management s use of
the going concern assumption
assumption and consider whether there are material uncertainties
uncertainties
about the entit( s abilit( to continue
continue as a going concern
concern that need to be disclosed
disclosed in
the financial statements.
!. The audi
auditor
tor s responsi
responsibil
bilit(
it( is to give a guaran
guarantee
tee in the audit
audit report
report that the entit(
entit(
has the abilit( to continue as a going concern.








1&2. Which of the following
following conditions
conditions or events most li5el(
li5el( would cause an audit
auditor
or to have
substantial doubt about an entit( s abilit( to continue as a going concern?
A. Cash flows from operating activities are negative.

P a g e | 26
B. Stoc5 dividends
dividends replace
replace annual
annual cash divi
dividends.
dends.
C. Significan
Significantt related
related part( transactions
transactions are
are pervasive
pervasive..
!. %esearch
%esearch and developme
development
nt pro)ects
pro)ects are
are postpone
postponed.
d.
1&4. Which of the following
following conditions
conditions or events most li5el(
li5el( would cause an audit
auditor
or to have
substantial doubt about an entit( s abilit( to continue as a going concern?
#. %estrictions on the disposal of principal assets are present.
%. Asual trade credit from suppliers is denied.
C. Significan
Significantt related
related part( transactions
transactions are
are pervasive
pervasive..
!. #rrearages
#rrearages in
in principal
principal stoc5
stoc5 divide
dividends
nds are paid.
paid.

1&6. Which of the following
following audit procedures
procedures would most li5el(
li5el( assist an auditor in identif(ing
identif(ing
conditions and events that ma( indicate
indicate there could be substantial doubt a
about
bout an entit( s
abilit( to continue as a going concern?
#. Confirmation of ban5 balances.
B. Confirmatio
Confirmation
n of accounts
accounts receiva
receivable
ble from
from ma)or
ma)or customers.
customers.
C. %econciliat
%econciliation
ion of interes
interestt expense
expense with
with debt outstan
outstanding.
ding.
D. %eview of compliance with terms of debt agreements.

1*7. When an auditor
auditor concludes
concludes that there is substantia
substantiall doubt about a continuing
continuing audit
audit client s
abilit
abi
lit(
( to contin
continue
ue as a going
going concern
concern for a reason
reasonabl
able
e period
period of time,
time, the auditor
auditor s
responsibilit( is to
A. Consider the ade'uac( of disclosure about the client s possible inabilit( to continue as
a going concern.
B. +ssue a 'ualifie
'ualified
d or adverse opinio
opinion,
n, depending
depending upon materia
materialit(
lit(,, due to the possible
possible
effects on the financial statements.
C. %eport
%eport to the client
client s audit commit
committee
tee that manag
manageme
ement
nt s accountin
accounting
g estimate
estimatess ma(
need to be ad)usted.
!. %eissue
%eissue the prior
prior (ear
(ear s auditor
auditor s report
report and add
add an emphasi
emphasiss of matter
matter paragra
paragraph
ph that
specificall
specif
icall(
( refers
refers to substantial
substantial doubt and going concern.
concern.











1*1.. When
1*1
When an audit
audit is made
made in accord
accordanc
ance
e wit
with
h genera
generall(
ll( accepted
accepted auditin
auditing
g standa
standards
rds,, the
auditor should alwa(s
#. 3bserve the ta5ing of ph(sical inventor( on the balance sheet da
date.
te.
%. 3btain certain written representations from management.
C. $mplo(
$mplo( anal(ti
anal(tical
cal procedure
proceduress as sub
substa
stanti
ntive
ve tests to obtain
obtain evidenc
evidence
e abo
about
ut specif
specific
ic
assertions related to account balances.
!. !ocum
!ocumen
entt the
the unde
unders
rsta
tand
ndin
ing
g of the
the clie
client
nt s inte
interna
rnall co
cont
ntrol
rol and the
the basi
basiss fo
forr all
all
conclusions about the assessed level of control ris5 for financial statement assertions.

1*".. When
1*"
When consid
consideri
ering
ng the use of manageme
management
nt s writte
written
n repres
represent
entati
ations
ons as audit
audit evidence
evidence

about the completeness assertion, an auditor should understand that such representations
#. Constitute sufficient appropriate audit evidence to support the assertion when
considered in combination with a sufficientl( low assessed level of control
contro l ris5.
B. #re not part
part of the audit
audit evidence
evidence considere
considered
d to support
support the assertion.
assertion.
C. %eplace
%eplace a low assessed
assessed level
level of control ris5
ris5 as audit evidence
evidence to support
support the assertio
assertion.
n.
D. Complement, but do not replace, substantive tests designed to support the assertion.
1*
1*&.
&. # writ
writte
ten
n repr
repres
esen
enta
tati
tion
on fr
from
om a clie
client
nt s mana
manage
geme
ment
nt that
that,, amon
among
g ot
othe
herr matt
matter
ers,
s,
ac5now
ac5
nowled
ledges
ges respon
responsib
sibili
ilit(
t( for the fai
fairr presen
presentat
tation
ion of fin
financ
ancial
ial statem
statement
ents,
s, should
should
normall( be signed b( the
#. Chief financial officer and the chair of the board of directors.
%. Chief executive officer and the chief financial officer.
C. Chief executi
executive
ve officer,
officer, the chair
chair of the
the board of directo
directors,
rs, and the
the client
client s law(er.
law(er.
!. Chair of
of the audit
audit committe
committee
e of the board of
of directors.
directors.


1**. The date of the management representation
representation letter should coincide with the date of the
#. Statement of 8inancial osition
B. -atest
-atest relat
related
ed part(
part( tran
transac
sactio
tion
n
C. #uditor s report
!. -atest interim
interim financial
financial inform
informatio
ation
n

P a g e | 27
1*. Which of the following
following statements concerning management representations is incorrect?
A. %epresentations b( management can be a substitute for other audit evidence that the
auditor could reasonabl( expect to be available.
B. +f the audito
auditorr is unable
unable to obtain
obtain suffic
sufficien
ientt app
approp
ropria
riate
te audit eviden
evidence
ce regardin
regarding
g a
matter, which has, or ma( have, a material effect on the financial statements and such
audit evidence is expected to be available, this will constitute a limitation in the scope
of the audit, even if a representation from management has been received on the
matter.
C. +f a repr
repres
esen
enta
tati
tion
on b( mana
manage
geme
ment
nt is co
contr
ntrad
adic
icte
ted
d b( ot
othe
herr audi
auditt ev
evid
iden
ence
ce,, the
the
auditor should investigate the circumstances and, when necessar(, reconsider the
reliabilit( of other representations b( management.
!. The audi
auditor
tor s wor
wor5in
5ing
g papers
papers would
would ordina
ordinaril
ril(
( includ
include
e a summar(
summar( of oral
oral discussio
discussions
ns
with management or written representations from management.

1*/. What t(pe
t(pe of opinion
opinion should be expressed
expressed if the
the client s management
management refuses
refuses to provide
provide a
representation that the auditor considers necessar(?
A. @ualified opinion or a disclaimer of opinion.
B. @ualified
@ualified opinion
opinion or
or an adverse
adverse opini
opinion.
on.
C. #dverse
#dverse opinio
opinion
n or a disclaime
disclaimerr of opinion.
opinion.
!. An'
An'ual
ualifi
ified
ed opinio
opinion.
n.

1*
1*2.
2. Th
The
e pr
prim
imar
ar(
( reas
reason
on an audito
auditorr re'u
re'ues
ests
ts that
that letter
letterss of in'u
in'uir
ir(
( be sent to a cl
clie
ient
nt s
attorne(s is to provide the auditor with
#. # description and evaluation of litigation, claims, and assessments that existed at the
balance sheet date.
B. The attorne(s
attorne(s opinions
opinions of the client
client s historical
historical experi
experiences
ences in
in recent
recent similar
similar litigati
litigation.
on.
C. Corroboration of the information furnished b( management about litigation, claims,
and assessments.
!. The probable
probable outcome of asserted
asserted claims
claims and pending
pending or threatened
threatened litigation.
litigation.



1*4. The letter
letter of audit
audit in'uir(
in'uir( should be
#. repared and sent b( the auditor.
%. repared b( management and sent b( the auditor.
C. repar
repared
ed and
and sent
sent b( manage
managemen
ment.
t.
!. repared
repared b( the auditor
auditor and sent
sent b( management
management..
1*6. The refusal
refusal of a client s law(er to provide
provide a representati
representation
on on the legalit(
legalit( of a particular
particular
act committed b( the client is ordinaril(
#. roper grounds to withdraw from the engagement.
B. +nsufficien
+nsufficientt reason to modif(
modif( the auditor
auditor s report
report because
because of the law(er
law(er s obligatio
obligation
n of
confidentialit(.
C. Considered to be a scope limitation.
!. Suf
Suffic
ficien
ientt reason
reason to issue
issue a sub)ec
sub)ectt to opi
opinio
nion.
n.





17.. ;anage
17
;anagemen
mentt s refusa
refusall to give the audit
auditor
or permissi
permission
on to commun
communica
icate
te with the entit(
entit( s
legal counsel is most li5el( to lead to
#. #n adverse opinion.
B. # 'ualifi
'ualified
ed opinion
opinion or an adverse
adverse opinio
opinion.
n.
C. #n un'ual
un'ualifi
ified
ed opinio
opinion.
n.
D. # 'ualified opinion or a disclaimer of opinion.


P a g e | 28

THE AUDITOR S REPORT ON FINANCIAL STA
STATEMENTS
11. The followin
following
g statements
statements relate
relate to
to the date
date of the
the auditor
auditor s report.
report. Which iiss false?
false?
#. The auditor should date the report as of the completion date of the audit.
B. The date
date of the audito
auditorr s report
report should
should not be earlie
earlierr than
than the dat
date
e on whic
which
h the
the
financial statements are signed or approved b( management.
C. The date of the audito
auditorr s report
report should
should not be later than the date on which the
financial statements are signed or approved b( management.
!. The dat
date
e of the audito
auditorr s report
report should
should alwa(s
alwa(s be later
later than the date
date of the financ
financial
ial
statements 9i.e., the balance sheet date:.




1". +n which of the following
following circumstances
circumstances would
would an auditor most li5el(
li5el( add an emphasis
emphasis of
matter paragraph to the auditor
auditor s report while expressing an un'ualified opinion?
A. There is a substantial doubt about the entit( s abilit( to continue as a going concern.
B. ;anagement
;anagement s estimates
estimates of
of the effects
effects of
of future events
events are unreason
unreasonable
able..
C. 0o depreciati
depreciation
on has been
been provided
provided in the financi
financial
al statement
statements.
s.
!. Cer
Certai
tain
n transa
transacti
ctions
ons cannot
cannot be tested
tested becaus
because
e of manageme
management
nt s record
recordss retent
retention
ion
polic(.




1&. # note to the financial
financial statements
statements of the rudent
rudent Ban5 indi
indicates
cates that all
all of the records
rel
relati
ating
ng to the ban5 s busine
business
ss operati
operations
ons are stored
stored on magnet
magnetic
ic dis5s,
dis5s, and that
that no
emerge
eme
rgenc(
nc( bac5up
bac5up s(stems
s(stems or duplic
duplicate
ate dis5
dis5ss are stored
stored becaus
because
e the ban5 and its
auditors
audit
ors consider
consider the occurrence of a catastrophe
catastrophe to be remote. Based upon
upon this note,
the auditor s report should express
#. # 'ualified opinion
C. #n adverse opinion
%. #n unmodified opinion
!. # sub)ect to opinion




1*. When would
would the auditor
auditor refer
refer to the wor5
wor5 of an apprais
appraiser
er in the auditor
auditor s report?
report?
A. #n adverse opinion is expressed based on a difference of opinion between the client
and the outside appraiser as to the value of certain assets.
B. # disclaime
disclaimerr of opinion
opinion is expresse
expressed
d because
because of a scope limitat
limitation
ion imp
impose
osed
d on the

auditor b( the appraiser.
C. # 'ualifie
'ualified
d opinion
opinion is expresse
expressed
d because
because of a matter
matter unrela
unrelated
ted to the wor5 of the
appraiser.
!. #n un'ualifie
un'ualified
d opinion is expressed
expressed and
and an emphasis
emphasis of matter paragrap
paragraph
h is added to
disclose the use of
of the appraise
appraiserr s wor5.

1.. When
1
When audite
audited
d fin
financ
ancial
ial statemen
statements
ts are presente
presented
d in a documen
documentt 9e.g.,
9e.g., annual
annual report
report::
containing other information, the auditor
A. Should read the other information to consider whether it is inconsistent with the
audited financial statements.
B. as
as no resp
respon
onsi
sibi
bili
lit(
t( for the
the ot
othe
herr info
inform
rmat
atio
ion
n beca
becaus
use
e it is not part
part of the basi
basicc
financial statements.
C. as an obligatio
obligation
n to perform auditin
auditing
g procedures
procedures to corroborate
corroborate the other
other informatio
information.
n.
!. +s re'ui
re'uired
red to express
express a 'ualif
'ualified
ied opinio
opinion
n if the other inf
inform
ormati
ation
on has a materi
material
al
misstatement of fact.
1/. #n auditor
auditor concludes that there
there is a material
material inconsisten
inconsistenc(
c( in the other information
information in an
annuall report to shareholders
annua
shareholders containing
containing audited
audited financial
financial statements.
statements. +f the auditor
concludes that the financial statements do not re'uire revision, but the client refuses to
revise or eliminate the material inconsistenc(, the auditor ma(
P a g e | 29
#. !isclaim an opinion on the financial statements after explaining the material
inconsistenc( in an emphasis of matter paragraph.
%. %ev
%evise
ise the audito
auditorr s report
report to includ
include
e an other
other mat
matter
ter paragrap
paragraph
h descri
describin
bing
g the
material inconsistenc(.
C. $xpress
$xpress a 'ualified
'ualified opinio
opinion
n after discussi
discussing
ng the matter
matter with the client
client s directors.
directors.
!. Co
Cons
nsid
ider
er the
the matt
matter
er clos
closed
ed beca
becaus
use
e the
the ot
othe
herr info
inform
rmat
atio
ion
n is not
not in the
the audi
audite
ted
d
statements.


1
12.
2. +n which
which of the
the fo
foll
llow
owin
ing
g situ
situat
atio
ions
ns wo
woul
uld
d an au
audi
dito
torr ordi
ordina
nari
ril(
l( choos
choose
e betwe
between
en
expressing a 'ualified opinion or an adverse opinion?
#. The auditor wishes to emphasie an unusuall( important subse'uent event.
%. The financial
financial statements
statements fail to disclose
disclose information
information that is re'uired
re'uired b( hilippine
hilippine
8inancial %eporting Standards.
C. $vents
$vents disclose
disclosed
d in the fin
financ
ancial
ial stateme
statements
nts cause the audito
auditorr to have substanti
substantial
al
doubt about the entit( s abilit( to continue as a going concern.
!. The audi
auditor
tor did not observe
observe the entit(
entit( s ph(sical
ph(sical invent
inventor(
or( and is unable
unable to become
become
satisfied as to its balance b( other auditing procedures.


14. #n auditor should
should disclose the substantive
substantive reasons
reasons for expressing
expressing an adverse opinion
opinion in
the Basis for #dverse 3pinion paragraph
#. 8ollowing the opinion paragraph.
%. receding the opinion paragraph.
C. 8ollow
8ollowing
ing the introd
introduct
uctor(
or( pa
parag
ragrap
raph.
h.
!. Within
Within the notes
notes to the financia
financiall statemen
statements.
ts.
16. The predecessor
predecessor auditor,
auditor, who is satisfied
satisfied after
after properl( communicati
communicating
ng with the incoming
incoming
auditor,
audit
or, has reissued
reissued his>her
his>her auditor
auditor s report on prior
prior (ear financia
financiall statements.
statements. The
predecesso
prede
cessorr auditor s report should
#. %efer to the wor5 of the incoming auditor in the scope and opinion paragraphs.
B. %efer to the
the report of
of the incoming
incoming auditor
auditor onl(
onl( in the scope
scope paragraph
paragraph..
C. %efer
%efer to both the wor5 and the rep
report
ort of the incoming
incoming audito
auditorr onl( in the opinion
opinion
paragraph.
D. 0ot refer to the report or the wor5 of the incoming auditor.


1/7.. The follow
1/7
following
ing statement
statementss rel
relate
ate to unaudi
unaudited
ted prior (ear
(ear fin
financ
ancial
ial statemen
statements
ts that
that are
presented in comparative
comparative form with audited
audited current (ear financial
financial statements. Which is
incorrect?
#. The incoming auditor should state in the auditor s report that the comparative financial
statements are unaudited.
%. The incoming auditor need not perform audit procedures regarding opening balances
of the current period.
C. Clear disclosur
disclosure
e in the financial
financial statements
statements that the comparati
comparative
ve financial
financial statement
statementss
are unaudited is encouraged.
!. +n situat
situation
ionss where
where the incomin
incoming
g audito
auditorr identi
identifie
fiess that
that the prior
prior (ear
(ear unaudi
unaudited
ted
figures are materiall( misstated, the auditor should re'uest management to revise the
prior
prior (ea
(earr s fig
figure
uress or if manage
managemen
mentt refuse
refusess to do so, appropri
appropriate
atel(
l( modif(
modif( the
report.


P a g e | 30
OTHER REPORTING RESPONSIBILITIES
1/1. 8inancial
8inancial statements
statements of an entit(
entit( that have been reviewe
reviewed
d b( an accountant should
should be
accompanied b( a report stating that a review
#. rovides onl( limited assurance that the financial statements
statements are fairl( presented.
B. +n
+ncl
clud
udes
es ex
exam
amin
inin
ing,
g, on a te
test
st ba
basi
sis,
s, info
inform
rmat
atio
ion
n that
that is the
the repr
repres
esen
enta
tati
tion
on of
management.
C. Con
Consis
sists
ts princi
principal
pall(
l( of in'uir
in'uiries
ies of compan
compan(
( pe
person
rsonnel
nel and anal(t
anal(tica
icall procedu
procedures
res
applied to financial data.
!. !oe
!oess not contem
contempla
plate
te obtain
obtaining
ing corrobo
corroborat
rating
ing evidenti
evidential
al matter
matter or appl(i
appl(ing
ng certai
certain
n
other procedures ordinaril( performed during an audit.
1/".. #n accounta
1/"
accountant
nt s report
report on a review
review of the fin
financ
ancial
ial statem
statement
entss of an entit(
entit( should
should state
state
that the accountant
#. !oes not express an opinion or an( form of limited assurance on the financial
statements.
%. Co
Cond
nduct
ucted
ed the
the revi
review
ew in ac
acco
cord
rdan
ance
ce with
with the
the hil
hilip
ippi
pine
ne Stan
Standa
dard
rd on %e
%evi
view
ew
$ngagements.
C. 3btaine
3btained
d reason
reasonabl
able
e assura
assurance
nce about whether
whether the fin
financ
ancial
ial stateme
statements
nts are free
free of
material misstatements.
!. $xa
$xamin
mined
ed evidenc
evidence,
e, on a test basis, sup
suppor
portin
ting
g the amounts
amounts and disclosu
disclosures
res in the
financial statements.

1/&. 8inancial
8inancial statements
statements of an entit(
entit( that have been reviewe
reviewed
d b( an accountant should
should be
accompanied b( a report stating that
#. The scope of the in'uir( and anal(tical procedures performed b( the accountant has
not been restricted.
%. The financial statements are the responsibilit( of the compa
compan(
n( s management.
C. # review
review include
includess examin
examining
ing,, on a test
test basis,
basis, eviden
evidence
ce supporti
supporting
ng the amount
amountss and
disclosures in the financial statements.
!. # review is greater
greater in scope than
than a compilation,
compilation, the
the ob)ective
ob)ective of which is to present
present
financial statements that are free of material misstatements.

1/*. When compiling
compiling the financial
financial statement
statementss of an entit(, an accountant
accountant should
#. %eview agreements with financial institutions for restrictions on cash balances.
%. Anderstand the accounting principles and practices
practices of the entit( s industr(.
C. +n'uire
+n'uire of 5e( personnel
personnel concerning
concerning related
related parties
parties and subse'u
subse'uent
ent events.
events.
!. erform
erform ratio anal(se
anal(sess of the financial
financial data
data of comparable
comparable prior
prior periods.
periods.

1/. When compiling
compiling an entit(
entit( s financial
financial statements,
statements, an accountant
accountant would be least
least li5el(
li5el( to
A. erform anal(tical procedures designed to identif( relationships that appear to be
unusual.
B. %ead the compiled
compiled financi
financial
al statements
statements and conside
considerr whether the(
the( appear
appear to include
ade'uate disclosure.
C. 3btain
3btain an ac5now
ac5nowled
ledgme
gment
nt from
from manage
managemen
mentt of its responsi
responsibil
bilit(
it( for the financia
financiall
statements.

P a g e | 31
!. lan the wor5
wor5 so that
that an effective
effective engage
engagement
ment will
will be performe
performed.
d.
1//.. Which
1//
Which of the follow
following
ing should
should not be includ
included
ed in an accounta
accountant
nt s report
report based
based upon the
compilation of an entit( s financial statements?
statements?
#. # statement that a compilation of the compan( s financial statements was made in
accordance with the hilippine Standard on %elated Services applicable to compilation
engagements.
B. # statement
statement that manageme
management
nt is responsible
responsible for
for the financial
financial statement
statements.
s.
C. # statement
statement that the
the accountant
accountant has not
not audited
audited or reviewed
reviewed the
the statements.
statements.
D. # statement that the accountant does not express an opinion but provides onl(
negative assurance on the statements.



1/2. #n accountant
accountant ma( accept an engagement
engagement to appl( ag
agreed
reedupon
upon procedures
procedures that are not
sufficient to express an opinion on one or more specified accounts or items of a financial
statement provided that
#. The accountant s report does not enumerate the procedures performed.
B. The financia
financiall sta
statem
tement
entss are prep
prepare
ared
d in accordanc
accordance
e with
with a compreh
comprehens
ensive
ive basis
basis of
accounting other than generall( accepted accounting principles.
C. !istribution of the accountant s report is restricted.
!. The accounta
accountant
nt is also the entit(
entit( s continuin
continuing
g auditor.
auditor.



1/4. When an accountant
accountant examines
examines prospectiv
prospective
e financial
financial statements
statements,, the accountant
accountant s report
should include a separate paragraph that
A. Contains an opinion as to whether the prospective financial statements are properl(
prepared on the basis of the assumptions and are presented in accordance with
generall( accepted accounting principles in the hilippines.
B. rovides
rovides an explanati
explanation
on of the difference
differencess between
between an examination
examination and an
an audit.
C. States
States that
that the accoun
accountan
tantt is respons
responsibl
ible
e for event
eventss and circumsta
circumstance
ncess up to 1 (ear
after the
the report s date.
!. !isclaims
!isclaims an opinion
opinion on whether
whether the assumptions
assumptions provide
provide a reasonable
reasonable basis
basis for the
prospective financial statements.


1/6. The following
following statements
statements relate
relate to the examination
examination of prospectiv
prospective
e financial informatio
information.
n.
Which is false?
A. The au
audi
ditor
tor shou
should
ld expr
expres
esss an op
opin
inio
ion
n as to wheth
whether
er the
the resu
result
ltss shown
shown in the
the
prospective financial information will be achieved.
B. Before
Before acceptin
accepting
g an eng
engage
agemen
mentt to examin
examine
e prospe
prospecti
ctive
ve fin
financ
ancial
ial informa
informatio
tion,
n, the
auditor should consider the intended use of the information.
C. The auditor
auditor should not accept,
accept, or should
should withdraw
withdraw from, an engagem
engagement
ent to examine
examine
prospective financial information when the assumptions are clearl( unrealistic.
!. When in the auditor
auditor s )udgment
)udgment an appropria
appropriate
te level
level of satisfactio
satisfaction
n has been obtaine
obtained,
d,
the audito
auditorr is not preclu
precluded
ded from
from expres
expressin
sing
g positi
positive
ve assura
assurance
nce regard
regarding
ing the
assumptions.

127. Which of the following
following is a prospective financial information for general
general use upon which an
accountant ma( appropriatel( report?
#. 8inancial pro)ection
B. arti
artial
al pre
prese
sent
ntat
atio
ion
n
C. ro form
forma
a finan
financia
ciall state
statemen
mentt
D. 8inancial forecast
 (ND 