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b. The external auditor should obtain a sufficient of internal audit activities to CEBUunderstanding CPAR CENTER assist in planning the audit and developingMandaue an effective City,audit Cebuapproach. c. During the course of planning the audit, the external auditor should perform a preliminary assessment of the internal audit function when it appears that internal auditing is relevant to AUDITING THEORY external audit of the financial statements in specific audit areas. FINALthe PREBOARD EXAMINATION d. When the external auditor intends to use specific work of internal auditing, the external auditor need not evaluate and test that work to confirm its adequacy for the external INSTRUCTIONS: CHOOSE THE BEST ANSWER FOR EACH OF THE FOLLOWING. MARK auditor's purposes. THE LETTER OF YOUR CHOICE WITH A VERTICLE LINE ON THE ANSWER SHEET PROVIDED. STRICTLY NO ERASURES ARE ALLOWED. 8. The independent auditor lends credibility to client’s financial statements by a. Maintaining a clear-cut distinction between management’s representations and the auditor’s 1. Which of the following best describes “high level of assurance”? representation. a. It refers to under the professional havingstatements. obtained evidence based on procedures b. Testifying oath aboutaccountant client’s financial themanagement practitioner letter and the users to be satisfied that findings be c. agreed Statingupon in thebetween auditor’s thatintended the examination was made in accordance reported to the accepted intended auditing users. standards. with generally b. It refers toan theauditor’s professional accountant havingfinancial obtainedstatements. sufficient external and internal d. Attaching opinion to the client’s appropriate evidence to be satisfied that the subject matter is plausible in the circumstances. It refers to the professional accountant obtained sufficient appropriate 9.c.Which of the following is responsible forhaving the fairness of representations made inevidence financialto conclude that the subject matter conforms in all material respects with identified suitable statements? a. criteria. The independent auditor.c. The client's management. d. The It refers to the professional accountant having obtained sufficient evidence to conclude that b. internal auditor.d. The audit committee. he has no knowledge of any required modifications to be made in the financial statements in order for them to conform of prescribed criteria. 10. The exposure period allowed for each exposure draft of PSA to be considered by the organizations and persons to whom it is sent for comment is generally a. Four monthsc. Two months b. Threestatement monthsd.isSix monthsregarding assurance engagement risk? 2. Which incorrect a. Engagement risk is the risk that the practitioner will express an inappropriate conclusion that the subject matter conforms in all material respects with suitable criteria. 11. Which statement is incorrect regarding the pronouncements of ASPC? b. All components of the engagement risk model will be significant for all assurance a. The PSAs and Interpretations may also have application, as appropriate, to other related engagements. activities of auditors. c. The extent to which the practitioner considers the relevant components of engagement risk b. PSAs contain basic principles and essential procedures (identified in bold type black will be affected by the engagement circumstances. lettering) together with related guidance in the form of explanatory and other material. d. Business risk is not part of engagement risk and does not affect the application of Philippine c. PSAs need only be applied to material matters. Standard on Assurance Engagements. d. The Interpretations have the same authority as the PAPSs. 3. statementshould is incorrect regarding to perform procedures? 12.Which The following be occupied onlyanbyengagement a duly registered CPA,agreed-upon except a.a.An auditor is engaged to carry out those procedures of an audit nature to which the auditor Any position in any business or company in the private sector which requires supervising and entity and any appropriate third parties have agreed and to report on factual the the recording of financial transactions. b.findings. Any position in any business or company in the private sector which requires preparation of b. The recipients of the report must form their own conclusions from the report by the auditor. financial statements. c.c.The report is restricted to thoseorparties thatinhave agreed to the procedures to becoordinating performed. Any position in any business company the private sector which requires d. The on factual findings is expressed in the form of negative assurance. withreport the internal auditors for the audit of financial statements. d. The position of the dean that supervises the BSA program of an educational institution. 4. Which of the following engagements provides third parties the highest level of assurance about client’s statements? 13.theWhich of financial the following is not represented in the Auditing and Assurance Standards Council? a.a.Auditc. Agreed-upon procedures Board of Accountancyc. Bureau of Internal Revenue b. Compilation b.Reviewd. Bangko Sentral ng Pilipinasd. Securities and Exchange Commission 5. the following situations third parties responsibility of theof auditor 14.InAwhich study, of appraisal, or review by thecan BOA or its duly assume authorized representatives, the quality of regarding association with financial information? audit of financial statements through a review of the quality control measures instituted by an a.Individual When theCPA, auditor attaches a report to information. Firm or Partnership of that CPAs engaged in the practice of public accountancy. b. the auditor consentsreview to the use of the auditor's name in a professional connection. a. When Peer reviewc. Analytical c.b.Either a or b. Quality reviewd. Administrative review d. Neither a nor b. 15. Emong, CPA is applying for renewal of his professional license. He is exempted from the CPE 6. A concept relating to the accumulation of the audit evidence necessary for the auditor to requirements conclude there65are no material misstatements in the financial statements taken as a whole. a. If he isthat at least years old. a.b.Reasonable assurancec. Moderate If he is working abroad and he hasassurance been out of the country for at least two years b. immediately Positive assuranced. prior to Negative the date ofassurance renewal. c. Either a or b. d. Under no circumstances. 7. Which statement is incorrect regarding the external auditor’s consideration of the work of internal auditing? a. The external auditor should consider the activities of internal auditing and their effect, if any, 16. The following statements relate to RA 9298. Which statement is true? on external audit procedures.
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a. The Professional Regulation Commission has the authority to remove any member of the Board of Accountancy for negligence, incompetence, or any other just cause. b. Insanity is not a ground for proceeding against a CPA. c. A person shall be considered to be in the professional practice of accounting if, as an officer in a private enterprise, he makes decisions requiring professional accounting knowledge. d. After three years, subject to certain conditions, the Board of Accountancy may order the reinstatement of a CPA whose certificate of registration has been revoked. 17. There is a need for assurance that all services obtained from a professional accountant are carried out to the highest standards of performance. This statement relates to a. Credibilityc. Quality of Services b. Professionalismd. Confidence 18. Indicate the normal pattern of development for a professional accountant. I. A period of work experience. II. High standard of general education. III. Specific education, training and examination in professionally relevant subjects a. I, II, IIIb. II, III, Ic. III, II, Id. II, I, III 19. A partner or employee of the firm serving as an officer or as a director on the board of an assurance client will most likely create a. Intimidation threatc. Advocacy threat b. Self-review threatd. Familiarity threat 20. Which of the following least likely create a self-review threat? a. A former officer, director or employee of the assurance client serve as a member of the assurance team. b. A director, an officer or an employee of the assurance client in a position to exert direct and significant influence over the subject matter of the assurance engagement has been a member of the assurance team or partner of the firm. c. Assisting an audit client in matters such as preparing accounting records or financial statements. d. A firm, or network firm, provides internal audit services to an audit client.
21. This process may include, particularly in the case of large complex audits, requesting personnel not otherwise involved in the audit to perform certain additional procedures. a. Directionc. Review b. Supervisiond. All of these 22. Which of the following is least likely a factor that affects the extent of quality control procedures? a. The size of the firm.c. The number of practice offices. b. The type of clients that the firm serves.d. The nature of the practice. 23. Which statement is incorrect regarding the auditor’s responsibility to consider fraud and error in the audit of financial statements? a. The auditor is entitled to accept records and documents as genuine. b. The auditor is may be held responsible for the prevention of fraud and error. c. The auditor should consider the risk of material misstatements in the financial statements resulting from fraud or error. d. The risk of not detecting a material misstatement resulting from error is lower than the risk of not detecting a material misstatement resulting from fraud. 24. Which statement is incorrect regarding “fraud risk factors”? a. Using the auditor’s knowledge of the business, the auditor may identify events or conditions that provide an opportunity, a motive or a means to commit fraud, or indicate that fraud may already have occurred. b. A missing document, an out of balance general ledger, or an analytical procedure that does not make sense may be the result of circumstances other than fraud. c. Fraud risk factors indicate the existence of fraud because they often have been present in circumstances where frauds have occurred. d. The presence of fraud risk factors may affect the auditor’s assessment of inherent risk or control risk.
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25. Cash receipts from sales on account have been misappropriated. Which of the following acts would conceal this defalcation and least likely to be detected by an auditor? a. Understating the sales journal. b. Overstating the accounts receivable control account. c. Overstating the accounts receivable subsidiary ledger. d. Understating the cash receipts journal. 26. Example of the type of information that may come to the auditor's attention that may indicate that noncompliance with laws or regulations has occurred most likely include a. Payments for specified services or loans to consultants, related parties, employees or government employees. b. Payments for goods or services made to the country from which the goods or services originated. c. Purchasing at prices significantly above or below market price. d. Sales commissions or agent's fees that appear reasonable in relation to those ordinarily paid by the entity or in its industry or to the services actually received.
27. When the auditor knows that an illegal act has occurred, the auditor must a. Issue an adverse opinion. b. Withdraw from the engagement. c. Report it to the proper government authorities. d. Consider the effects on the financial statements, including the adequacy of disclosure. 28. Which statement is correct regarding the auditor’s communications of audit matters with those charged with governance? a. The auditor’s communications of matters include all audit matters of governance interest. b. An audit of financial statements is designed to identify all matters that may be relevant to those charged with governance. c. The auditor’s communications with those charged with governance may be made orally or in writing. d. None of the above. 29. It is in the interest of both client and auditor that the auditor sends an engagement letter, preferably before a. The performance of substantive testing. b. The commencement of the engagement. c. The completion of audit. d. Before the issuance of audit report. 30. When a change in the type of engagement from higher to lower level of assurance is reasonably justified, the report based on the revised engagement (choose the incorrect one) a. Should not contain a separate paragraph that refers to the original engagement. b. Should not refer to any procedures that may have been performed in the original engagement. c. Should qualify the opinion due to scope limitation. d. Omits reference to the original engagement. 31. A basic tool used by the auditor to control the audit work and review the progress of the audit. a. Audit programc. Engagement letter. b. Progress flowchartd. Time and Expense Summary 32. Which of the following is not normally a planning procedure? a. Assess the conclusions reached and the evaluation of the overall financial statement presentation through the use analytical procedures. b. Consider the risk of the existence of related-party transactions. c. Consider the nature of the audit reports expected to be rendered. d. Identify items likely to require adjustments. 33. An understanding of the client’s business and industry and knowledge about the company’s operations are essential for doing an adequate audit. For a new client, most of this information is obtained a. From the predecessor auditor.c. At the client’s premises. b. From the SEC.d. From the permanent file.
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34. The c. Eliminate management’s the risk assessment that controls of the willentity’s be circumvented. ability to continue as a going concern covers a period d. Consistently of: apply predefined business rules and perform complex calculations in a. Not processing longer than large 12volumes months from of transactions balance date. or data. b. At least 12 months from the balance sheet date. c. Not longer than 12 months from the date of audit report. 43. Control environment d. At least 12 months from the date of audit report. a. Consists of the policies and procedures that help ensure that management directives are carried out. b. Includes governance andanmanagement the attitudes,the awareness, 35. Which of thethe following would auditor mostfunctions likely useand in determining auditor’sand preliminary actions of those charged with governance and management concerning the entity’s internal judgment about materiality? control and in thequestionnaire. entity. a. The results ofits theimportance internal control c. Is the entity’s process for identifying business letter risks relevant to financial reporting objectives b. The contents of the management representation and deciding about actions to address those risks, c. The entity’s annualized interim financial statements.and the results thereof. Consists of thesample procedures totests. initiate, record, process, and report d. d. The anticipated size ofand therecords plannedestablished substantive entity transactions (as well as events and conditions) and to maintain accountability for the related assets, liabilities, and equity. 36. How can the audit program best be described at the beginning of the audit process? a. Tentative.c. Conclusive. b. Comprehensive.d. Optional. 44. Which of the following situations will normally result to increase in the extent of audit procedures? Decrease in the risk of is material misstatement. 37.a.Which of the following appropriate about risk assessment? b. Decrease in theisdegree of assurance the auditor to obtain. a. Detection risk eliminated if an auditor were toplans examine 100 percent of the account c. balance Decrease materiality level. orin class of transactions d. None of theinverse above. relationship between detection risk and the combined level of inherent b. There is an and control risk. c. The assessed level of inherent and control risk can be sufficiently low, thus resulting to 45. The auditor should determine overalltests. responses to address the risks of material misstatement eliminating the need for substantive at the financial statement level. Such responses mostby likely include d. Audit risk may be more appropriately determined assessing inherent and control risk a. separately. Assigning less experienced staff. b. Emphasizing to the audit team the need to maintain professional skepticism in gathering and evaluating audit evidence. c. Performing predictable further audit procedures. 38.d.Which of the substantive following shows an appropriate relationship between acceptable Performing procedures at an interim date instead of at the period end. level of detection risk and the combined level of inherent and control risk? Auditor’s Assessment of Acceptable of timing and extent of tests of controls? 46. Which statement is incorrect regarding thelevel nature, Inherent RiskControl Risk__ inquiry combined with inspection or a. Those controls subject toRiskDetection testing by performing a.LowHighLower reperformance ordinarily provide more assurance than those controls for which the audit b.LowHighMedium evidence consists solely of inquiry and observation. c.HighHighLower b. If the auditor plans to rely on controls that have not changed since they were last tested, the d.LowLowHigher auditor should test the operating effectiveness of such controls at least once in every third audit. c. The length of time period between retesting controls is a matter of professional judgment, 39. Which of the following directly illustrates inherent risk? but cannot exceed threemost years. a. segregation of duties. d. Inadequate The more the auditor relies on the operating effectiveness of controls in the assessment of b.risk, Confirmation bythe an auditor’s auditor fails detect a material misstatement. the greaterofisreceivables the extent of teststoof controls. c. ABC Company, a client company, lacks sufficient working capital to continue operations. d. A client fails to discover employee fraud on a timely basis because bank accounts are not reconciled monthly. 47. Which of the following statements is correct regarding the auditor’s primary objective in performing procedures to obtain an understanding of the internal control structure? The primary objective is provide the auditor evaluation the consistency of 40.a.Which of the following is to a valid statement aboutwith the an assessment ofof control risk? application of management’s a. There is a positive relationshippolicies. between detection risk and the combined level of inherent b.and Thecontrol primaryrisk. objective is to provide the auditor with knowledge necessary for audit planning. c. The objective is to provide the auditor evidential use in b. The primary auditor should consider the assessed levelswith of inherent andmatter controltorisks in assessing determining inherent risk. the nature, timing, and extent of substantive procedures required to eliminate audit risk. d. The primary objective is toby provide the auditor with aprocedures basis for modifying controls. c. Misstatements discovered conducting substantive may causetests the of auditor to modify the previous assessment of control risk. d. The assessed level of inherent and control risks can be sufficiently low in order to eliminate 48. Which of the following would substantive most likely tests indicate internal control deficiency for the revenue the auditor’s need to perform on some assertions. cycle (including cash receipts)? a. Credit is granted by a credit department. Cash receipts received in the mailof arethe received by aassecretary with noprocedure? recordkeeping 41.b.The auditor should perform which following risk assessment responsibility. a. Analytical proceduresc. Recalculation c. Cash is deposited weekly. b. Confirmationd. Reperformance d. Cash disbursements over P100,000 does not require two signatures on the check. 42. Which of the following is least likely a potential benefit of effectiveness and efficiency for an internal statements control thatrelate IT provides? 49.entity’s The following directly to test of controls except a. May Enhance the timeliness, availability, and accuracy of information. involve comparisons of financial information with nonfinancial information. Enhancethe theplanned ability to monitor the of performance activities and its policies and b. Setting assessed level control riskofatthe theentity’s maximum will eliminate these tests. procedures. c. Often performed concurrently with obtaining an understanding of internal control.
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d. Inquire of the accounts receivable clerk regarding the effectiveness of the computer program in updating accounts receivable balances. 50. After obtaining an understanding of an entity’s internal controls, an auditor may assess control risk at the maximum for some assertions because the auditor: a. Believes internal control activities are unlikely to be effective. b. Determines that internal control is not well-documented. c. Performs tests of controls to restrict detection of risk to an acceptable level. d. Identifies control activities that are likely to prevent material misstatements. 51. The report of the service organization auditor on the suitability of design (Type A) will not ordinarily include an opinion by the service organization auditor that: a. The description of the service organization's accounting and internal control systems, ordinarily prepared by the management of the service organization is accurate. b. The systems' controls have been placed in operation. c. The accounting and internal control systems are operating effectively based on the results from the tests of control. d. The accounting and internal control systems are suitably designed to achieve their stated objectives.
52. Which statement is correct regarding the audit evidence? a. The greater the risk, the less audit evidence is likely to be required. b. The higher the quality, the more may be required c. Merely obtaining more audit evidence may not compensate for its poor quality. d. Obtaining audit evidence relating to a particular assertion is a substitute for obtaining audit evidence regarding another assertion. 53. Assertions used by the auditor fall into three categories. Existence is included under a. Assertions about classes of transactions and events for the period under audit. b. Assertions about account balances at the period end. c. Assertions about presentation and disclosure. d. All of the above. 54. Which of the following statements is incorrect regarding the reliability of audit evidence? a. Oral representation by the client management is not a valid evidence. b. Audit evidence obtained directly by the auditor is more reliable than that one provided by the client management. c. The effectiveness of accounting and internal control adds to the reliability of internal audit evidence. d. While internal audit evidence is considered to be acceptable, the auditor usually prefers audit evidence form external sources. 55. Which statement is incorrect regarding the auditor’s attendance at physical inventory counting? a. When inventory is material to the financial statements, the auditor should obtain sufficient appropriate audit evidence regarding its existence and condition by attendance at physical inventory counting unless impracticable. b. When the quantities are to be determined by a physical inventory count and the auditor attends such a count, the auditor would ordinarily observe count procedures and perform test counts. c. To obtain assurance that management’s procedures are adequately implemented, the auditor would observe employees’ procedures and perform test counts. d. The physical inventory count cannot be conducted at a date other than period end.
56. The auditor considers the status of legal matters up to a. The date of the audit report. c. The issuance of financial statements. b. The balance sheet date.d. Up to the date of receipt of letter from lawyers. 57. Which statement is correct regarding valuation and disclosure of long-term investments? a. Regardless of the amount of long-term investments, the auditor should obtain sufficient appropriate audit evidence regarding their valuation and disclosure. b. Audit procedures regarding long-term investments ordinarily include considering evidence as to whether the entity has the ability to sell the investment in the near term. c. If the carrying amounts do not exceed market quotations, the auditor would consider whether a write-down is required.
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d. If there is an uncertainty as to whether the carrying amount will be recovered, the auditor would consider whether appropriate adjustments and/or disclosures have been made. 58. In relation to opening balances, which of the following may cause the auditor to disclaim his opinion? a. The inability of the auditor to obtain sufficient appropriate audit evidence concerning opening balances. b. The opening balances contain misstatements that could materially affect the current period’s financial statements and such misstatements have not been corrected. c. The current period’s accounting policies have not been consistently applied in relation to opening balances and the effect of such change is not properly accounted for or disclosed. d. The assessed substantial doubt about the entity’s ability to continue as a going concern as indicated by consistent negative cash flows.
59. The auditor notices significant fluctuations in key elements of the company's financial statements. If management is unable to provide an acceptable explanation, the auditor should a. Withdraw from the engagement. b. Consider the matter a scope limitation. c. Perform additional audit procedures to investigate the matter further. d. Intensify the examination with the expectation of detecting management fraud. 60. In evaluating the assumptions on which the estimate is based, the auditor would least pay particular attention to assumptions which are a. Subjective. b. Sensitive to variation. c. Susceptible to material misstatement. d. Reasonable in light of actual results in prior periods. 61. Which statement is correct regarding auditing fair value measurements and disclosures? a. Many measurements based on estimates, including fair value measurements, are inherently precise. b. Assumptions used in fair value measurements are similar in nature to those required when developing other accounting estimates. c. Underlying the concept of fair value measurements is a presumption that the entity will be liquidated. d. The measurement of fair value may be relatively complex for assets that are bought and sold in active and open markets.
62. The auditor needs to be aware of the existence of related parties and transactions between such parties. Which of the following is the least likely reason? a. GAAP in the Philippines require disclosure in the financial statements of certain related party relationships and transactions. b. Related parties and transactions between such parties are considered unusual features of business. c. The source of audit evidence affects the auditor's assessment of its reliability. d. A related party transaction may be motivated by other than ordinary business considerations.
63. Which of the following is most likely a procedure that would be performed by the auditor regarding subsequent events? a. Reading the minutes of the meetings of shareholders, the board of directors and audit executive committees held throughout the audit year. b. Reading the entity’s latest available interim financial statements. c. Send second requests to the client’s customer who failed to respond to initial accounts receivable confirmation requests. d. Review the cutoff bank statements for several months after the year-end. 64. A client acquired 30% of its outstanding capital stock after year-end and prior to the completion of the auditor’s fieldwork. The auditor should a. Disclose the acquisition in the opinion paragraph of the auditor’s report. b. Advise management to adjust the balance sheet to reflect the acquisition. c. Issue pro forma financial statements giving effect to the acquisition as if it had occurred at year-end. d. Advise management to disclose the acquisition in the notes to the financial statements.
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65. If a representation by management is contradicted by other audit evidence, the auditor should a. Withdraw from the engagement. b. Investigate the circumstances and, when necessary, reconsider the reliability of other representations made by management. c. Issue a qualified or adverse opinion. d. Issue a qualified or disclaimer of opinion. 66. Which statement is incorrect regarding the auditor’s use of the work of an expert? a. Determination of amounts using specialized techniques or methods, for example, an actuarial valuation will likely require the services of an expert. b. The auditor's education and experience enable the auditor to be knowledgeable about business matters in general. c. The auditor need not assess the objectivity of the expert since latter may be related to the entity. d. When planning to use the work of an expert, the auditor should assess the professional competence of the expert.
67. Which statement is incorrect regarding inter-bank confirmations? a. The requirement for bank confirmation arises from the need of the bank's management and its auditors to confirm the financial and business relationships. b. Inter-bank relationships are different in nature from those between the bank and a non-bank customer. c. The auditor should decide from which bank or banks to request confirmation, have regard to such matters as size of balances, volume of activity, degree of reliance on internal controls, and materiality within the context of the financial statements. d. It is not usual practice to request a response only if the information submitted is incorrect or incomplete.
68. Which statement is correct regarding small entities? a. There is concentration of ownership and management in a small number of individuals (often a single individual). b. An entity owned by another enterprise cannot be regarded as a “small entity”. c. The meaning of “small entity” gives consideration only to the size of an entity. d. Small entities do not have internal controls. 69. The inability of the client to prepare certain audit requirements may most likely lead the auditor to a. Withdraw from the engagement. b. Express qualified opinion or a disclaimer. c. Express qualified or adverse opinion. d. Express unqualified opinion with explanatory paragraph. 70. Which statement is incorrect regarding working papers? a. The auditor should document matters which are important in providing evidence to support the audit opinion. b. The auditor should prepare working papers which are sufficiently complete and detailed to provide an overall understanding of the audit. c. Portions of or extracts from the working papers may be made available to the entity at the discretion of the auditor since working papers are substitute for the entity’s accounting records. d. Working papers would include the auditor’s reasoning on all significant matters which require the exercise of judgment, together with the auditor’s conclusion thereon.
71. Which of the following statements about working papers is correct? a. Working papers are not permitted to be used as a reference source by the client. b. The auditor should document the understanding of the client's internal control obtained to plan the audit. c. Working papers may be regarded as a substitute for the client's accounting records. d. When reporting on comparative financial statements, the independent auditor may discard working papers after two years.
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79. Which 72. Identifyofasthe to following whether sampling statements or nonsampling most likely represents risk, following a disadvantage the same for order: an entity that I. The microcomputer-prepared keeps auditor might reach a different data files conclusion rather than based manually on samples prepared used files? from the conclusion a. Itifisit usually were themore entire difficult population to detect subjected transposition to the same errors. audit procedure II. Transactions b. The auditor might are usually use inappropriate authorized before procedures they are executed and recorded. III. c. ItThe is usually auditoreasier mightfor misinterpret unauthorized the persons evidenceto access and alter the files. a. d. Nonsampling, Random error sampling, associated nonsampling with processing similar transactions in different ways is usually b.greater. Sampling, nonsampling, nonsampling c. Sampling, nonsampling, sampling d. Nonsampling, sampling, sampling 80. Gateway is a. A hardware and software solution that enables communications between two dissimilar networking or protocols. 73. Which of thesystems following is correct about sampling risks? b. A device that forwards frames based on to destination addresses. a. The risk of incorrect acceptance relates the efficiency of the audit. c. A device that connects and passes packets between two network segments that use the b. The risk of assessing control risk too low relates to the efficiency of the audit. communication protocol. c. same Sampling risk includes the auditor’s failure to recognize errors in the documents examines d.for A device that regenerates and retransmits the signal on a network. the chosen sample. d. The likelihood of assessing control risk too high is the risk that the sample selected to test controls does not support the auditor’s planned assessed level of control risk when the true 81. Database are distinguished bystructure two important characteristics: operatingsystems effectiveness of the control justifies such an assessment. a. Data sharing and data independence. b. Data dictionary and database administration. c. Data sharing and database 74. Identify the sample selectionadministration. method used, following the same order: d. Data dictionary and data independence. I. Selecting items using a constant interval between selections; the first interval having a random start. II. Selecting fromgenerally the entiredopopulation with no intention to include or exclude specific 82. General CISitems controls not include: units I.Controls over processing and computer data files III. All items in and the population or controls within each stratum have a known chance of selection II.Organization management a. Systematic, random, haphazard. III. Development and maintenance controls b. Systematic, haphazard, random. IV. Delivery and support controls c. Haphazard, systematic, random. V.Monitoring controls d. Random, VI. Controlssystematic, over input haphazard. VII. Controls over output a. All of the abovec. I, II, III, IV and V 75.b.When for I,attributes, which of the following would decrease sample size? II, III,sampling IV and Vd. VI and VII abcd Intended reliance internal controlsIncreaseDecreaseIncreaseDecrease Tolerable deviation rateDecreaseIncreaseIncreaseIncrease 83. An auditor anticipates assessing control risk at a low level in a computerized environment. Expected deviation rateIncreaseDecreaseDecreaseDecrease Under these circumstances, on which of the following procedures would the auditor initially Risk of assessing control risk too lowDecreaseIncreaseIncreaseDecrease focus? a. Programmed control procedures c. Application control procedures b. Output control procedures General control procedures 76. In substantive testing, which of the following would increased.sample size? abc offollowing inherent riskIncreaseIncreaseIncrease 84.Assessment Which of the is not explicitly included in the opening paragraph of an audit report? on internal a.Reliance Identification of thecontrolsIncreaseDecreaseDecrease financial statements that have been audited. errorDecreaseIncreaseDecrease b.Tolerable A statement by the auditor that the audit provides a reasonable basis for the opinion. errorIncreaseDecreaseIncrease c.Expected Statement that the financial statements are the responsibility of the entity’s management. of incorrect acceptanceDecreaseIncreaseDecrease d.Risk Statement that the responsibility of the auditor is to express an opinion on the financial statements based on his audit.
d Decrease Increase Increase Decrease Increase
77. A CIS environment least likely affects The overall scope of ana audit. 85.a.Which of the objective followingand is least likely description of audit contained in the scope paragraph of b. The procedures followed by the auditor in obtaining a sufficient understanding of the the auditor’s report? internal a. accounting Examining and evidence to control support systems. the financial statement amounts and disclosures. c. consideration of inherent risk and control through which auditorstatements. arrives at the b. The Assessing the accounting principles used in therisk preparation of the the financial assessment. c. risk Assessing the significant estimates made by management in the preparation of the financial d. The auditor’s design and performance of tests of control and substantive procedures statements. the financial audit objective. d.appropriate Evaluating to themeet overall statement presentation. 78. A CIS environment 86. The auditor issued a qualified opinion covering the financial statements of Client A for the year ended a. Exists December when a computer 31, 2004. of The any reason type or forsize the is qualification involved inwas the processing a departureby from theGAAP. entity of In financial comparative information of significance to the audit, whether that computer operated by the presenting statements for the years ended December 31, 2004 isand 2005, the client entity revised or by athe third 2004 party. financial statements to correct the previous departure from GAAP. The b. Is the electronic transmission of documents between organizations in a statements machine-readable auditor's 2005 report on the 12/31/04 and 12/31/05 comparative financial will a. form. Express unqualified opinions on both the 2004 and 2005 financial statements. c. the policies and procedures the entity implements and the IT infrastructure b. Consists Express aofqualified opinion on the 2004that financial statements and an unqualified opinion on (hardware, the 2005 statements. operating systems, etc.) and application software that it uses to support operations achieve business c. business Retain the qualifiedand opinion covering the strategies. 2004 statements, but add an explanatory d. A paragraph communications describing network the correction that serves of the users prior within departure a confined from geographical GAAP. area.
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d. Render qualified audit opinions for both 2004 and 2005 financial statements given the 2005 carryover of theprocedures 2004 error.does an accountant in a compilation engagement of a 95. Which of theeffect following nonpublic entity ordinarily perform? Reading financial statements to consider whether are free the of obvious mistakes 87.a.When the the financial statements of the prior period were they not audited, incoming auditorin the application of accounting principles. should: b. Insist Obtaining written from management that the compiled financial a. that an audit representations of prior year’s financial statementsindicating must be made. statements will not be used to obtain credit. b. Obtain sufficient appropriate audit evidence that the corresponding figures meet the c. requirements Making inquiries management concerning taken at meetings of the stockholders of theofrelevant financial reportingactions framework.’ board directors. c. and Notthe allow the of inclusion of the corresponding figures in the financial statements of the d.current Applying analytical procedures designed to corroborate management's assertions that are period. embodied in financial components. d. Disclaim histhe opinion and statement treat the unaudited corresponding figures as basis of scope limitation. 96. Which of the following should the auditor perform in a review engagement ? Understand matters that arefinancial relevant statements to the financial statements. 88.a.When a misstatement in the exists, but is unlikely to affect the decisions of Understanduser, the entity’s control to system. ab.reasonable it wouldinternal be appropriate issue c. Observe the physical countAof inventory. a. An unqualified opinion.c. qualified opinion. d. Inquire of legal counsel of pending litigations. b. A disclaimer of opinion.d. An adverse opinion. 97. An 89. Theauditor’s audit report report dateonisfinancial important statements to users because preparedit in indicates accordance the with another a. Last day of the comprehensive basis fiscal of period. accounting should include all of the following except: b. An a. Lastopinion day of as thetoauditor’s whetherresponsibility the basis of accounting for the review used of is significant appropriateevents under that the occurred after the date of the financial statements. circumstances. c. An b. Dateopinion on which as to thewhether financial thestatements financial statements were filed are withpresented the SEC.fairly in conformity with the d.comprehensive Last day on which basisusers of accounting. may institute a lawsuit either client or auditor. c. Reference to the note to the financial statements that describes the basis of presentation. d. A statement that the basis of presentation is a comprehensive basis of accounting other 90. When the principal auditor concludesprinciples. that the work of the other auditor cannot be used and the than generally accepted accounting principal auditor has not been able to perform sufficient additional procedures regarding the financial information of the component audited by the other auditor, the principal auditor will issue report would be designated as a special report when it is issued in connection with 98.likely An auditor's a. Unqualified opinion. financial statements that are b. Unqualified opinion a. For an interim periodwith and explanatory are subjectedparagraph to a limited review. c. Qualified or adverse opinion b. Unaudited and are prepared from a client's accounting records. d. Qualifiedinoraccordance disclaimer with of opinion c. Prepared a comprehensive basis of accounting other than generally accepted accounting principles. d. Purported to be in accordance with generally accepted accounting principles but do not 91. When there is a limitation on the scope ofofthe audit that results to a disclaimer of opinion, the include a presentation of the Statement Cash Flows. three paragraphs of the auditor report are: IntroductoryScopeOpinion a.ModifiedModifiedModified 99. Eddie Lares, a partner in a CPA firm performs free accounting service for a club of which he is ab.UnmodifiedModifiedModified treasurer. The most preferable way for Lares to issue the yearly statements of the club is a.c.UnmodifiedUnmodifiedModified On the firm's letterhead with a disclaimer on lack of independence. b.d.ModifiedUnmodifiedModified On the firm's letterhead with the caption that the statement is unaudited. c. On the club's letterhead with Lares signing as treasurer. d. On plain paper with no reference to Lares as a CPA. 92. If an amendment to other information in a document containing audited financial statements is necessary and the entity refuses to make the amendment, the auditor would most likely issue a. Unqualified opinion. 100. The CPA who regularly examines the Marcos corporate financial statements was asked to b. Unqualified opinion with explanatory paragraph prepare pro forma income statements for the next three years based on the corporation's c. Qualified or adversefor opinion operating assumptions the internal use of the client. The CPA should Qualified or disclaimersince of opinion a.d.Reject the engagement the statements are to be based on assumptions. b. Reject the engagement because the statements are for internal use only. c. Accept the engagement provided full disclosure is made of the assumptions used and the 93. The auditor’s report on summarized financial statements should include extent of the responsibility of the CPA. a. An opinion as to whether the information in theofsummarized financial d. Accept the engagement provided the president Marcos Corp. certifiesstatements in writingisthat the presented fairly, in all material respects. statement will be solely for internal use. b. An opinion as to whether the information in the summarized financial statements is consistent with the audited financial statements from which it was derived. c. A statement of negative assurance. 101. When there isof a change from manual processing to CIS environment in anofaudit client, d. A description the auditor’s factual findings including sufficient details errors and the overall objective and scope of an audit: exceptions found. a. Is modified.c. Is unchanged. b. Is extended.d. Becomes unlimited. 94. A CPA's report on agreed-upon procedures related to management's assertion about an entity'sWhich compliance specified should 102. of the with following is therequirements least affected by thecontain: use of computer? a. A statement of limitations on the use of the report. a. The auditor’s design and performance of tests of controls. b. An b. opinion about whether management's assertion is fairlyastated. The procedures followed by the auditor in obtaining sufficient understanding of the c. Negative assurance control risk has not been assessed. accounting andthat internal control. d. An c. acknowledgment of responsibility for theinternal sufficiency of the procedures. The auditor’s objective of considering control.
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d. The consideration of inherent risk and control risk through which the auditor arrives at the risk assessment. 103. Which of the following procedures to be performed by the auditor least requires the auditor to have specialized CIS skills in an audit? a. Obtain a sufficient understanding of the accounting and internal control systems affected by the CIS environment. b. Determine the applicability of using statistical sampling instead of judgmental sampling. c. Design and perform appropriate tests of controls and substantive procedures. d. Determine the effect of the CIS environment on the assessment of overall risk and of risk at the account balance and class of transaction level. 104. Which of the following CIS personal computer environment is a general control? a. A regular reconciliation of record counts or has totals. b. A system of authorization and documentation of modification of the systems and applications software. c. A system of transaction logs and batch balancing. d. A practice of direct supervision. 105.
Which of the following is least likely an advantage of using personal computers? a. They are small enough to be transportable. b. Their operating system software is equally comprehensive as those found in larger computerized environments. c. They are relatively inexpensive to acquire and maintain. d. There is an ease of using personal computers.
106.
Which of the following is not a type of installation of personal computers? a. A workstation connected to a server. b. a stand-alone workstation operated by a single user or a number of users at different times. c. A workstation which is part of a local area network of personal computers. d. A stand-alone workstation operated by a single user or a number of users simultaneously using the same or different applications.
107. A computer program that attaches itself to a legitimate program or data file and users it as a transport mechanism to reproduce itself without the knowledge of the user: a. Trojan horsec. Hacker b. Virusd. Backup 108. It refers to the plans made by the entity to obtain access to comparable hardware, software and data in the event of their failure, loss or destruction. a. Simulation.c. Documentation. b. Backup.d. Parallel run. 109. Which of the following is the least concern of the auditor when he intends to rely on internal accounting controls that relate to stand-alone personal computers? a. Segregation of duties and balancing controls. b. Access to the personal computers and files. c. A system of authorization before a transaction is executed. d. Use of third-party software. 110. How does the stand-alone personal computer environment of the client entity affect the auditor’s audit procedures? a. The auditor often assumes that control risk is reasonably low. b. Because of the advantage provided by the use of stand-alone personal computers, the audit procedures are restricted to low level. c. The auditor usually concentrates the audit efforts on substantive tests at or near the end of the year. d. To be cost effective, the auditor makes an extensive review of general CIS and CIS application controls as basis of reducing the audit efforts to be performed on detailed testing of balances and transaction classes.
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111. Computer-assisted audit may include the use of: AB Client softwareYESYES Auditor’s own software programsYESNO
C NO YES
D NO NO
112. Which of the following may not be a purpose of using computer-audit software? a. Add transactions or balances in the data files for comparison with control account balances. b. Select accounts or transactions for detailed testing. c. To evaluate the collectibility of accounts receivable. d. To examine data bases for unusual items. 113. When the client has a large number of transactions that are processed by stand-alone personal computer, the auditor: a. May do tests of controls which he intends to rely on, if appropriate, to reduce the assessed control risk, and do audit work on the data at a preliminary date. b. Understand the control environment and flow of transactions but must omit preliminary audit tests. c. May do tests of controls and if those controls can be relied on, do interim testing and omit year end audit testing. d. Usually omits the understanding of control environment because the stand-alone personal computer environment is not reliable.
114. The establishment of a framework of overall control over the computer information systems activities to provide a reasonable level of assurance that the overall objectives of internal control are achieved 1. general controls in computer information systems 2. application controls in computer information systems 3. control environment in information systems 4. control procedures in information systems 115. In a computer system environment the GAAS most affected are the a. general standardsc. general and fieldwork standards b. fieldwork and reporting standardsd. entire GAAS standards 116. A company that executes transactions and maintains related accountability or records transactions and processes related data is a. related partyc. service organization b. external auditord. expert 117. These represent information obtained by the auditor in arriving at the conclusions on which the audit opinion is based a. audit documentationc. audit assertions b. audit evidenced. audit conclusions 118. Generally, the auditor prefers external evidence to internal evidence. This is a measure of a. Relevancec. analysis b. Appropriatenessd. evidence gathering 19.
It refers to the correspondence of an evidence to a particular audit objective: a. Competence or reliability.c. Persuasiveness. b. Relevance.d. Corroboration.
20. A transaction or event is recorded at the properly amount and revenue or expense is allocated at the proper period is a financial assertion of: a. occurrencec. valuation b. completenessd. measurement 21. The three major categories of documentary audit evidence are: 1. Documentary audit evidence created by third parties and held by the client entity 2. Documentary audit evidence created and held by third parties 3. Documentary audit evidence created and held by the client eneity What is the order of their degree of reliability? a. 1, 3, 2 b. 3, 1, 2
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c. 2, 1, 3 d. 2, 3, 1 22. An audit schedule which is designed to show the activity in a general ledger account during the period under audit, tying together the beginning and ending balances: a. Analysisc. reconciliation b. tests of transactionsd. vouching 23. Confirmation is required for Accounts receivable Cash Inventory Accounts payable
A Yes Yes Yes Yes
B Yes Yes No No
C No No Yes Yes
D Yes No No No
24. The negative request form of accounts receivable confirmation is useful particularly when the Assessed level of controlNumber of smallConsideration by the Risk relating to receivable isbalances isrecipient is a.LowManyLikely b.LowFewUnlikely c.HighFewLikely d.HighManyLikely 25. According to PSA 500 (Audit Evidence), which of the following is incorrect of audit evidence? a. Audit evidence may be obtained entirely from substantive procedures. b. The appropriateness of the audit evidence is the measure of both the quality and quantity of audit evidence. c. Audit evidence is obtained form an appropriate mix of tests of control and substantive procedures. d. Substantive procedures mean tests performed to obtain audit evidence to detect material misstatements in the financial statements. 26.Which of the following is an invalid statement about audit evidence? a. Ordinarily, audit evidence regarding one assertion will compensate for failure to obtain audit evidence regarding another assertion. b. Ordinarily, audit evidence is obtained regarding each financial assertion. c. The nature, timing and extent of substantive tests will vary depending on the assertions. d. Audit tests can provide audit evidence about more than one assertion. 27. The following statements are discussions about financial assertions and audit evidence. Which of them is(are) correct? II. When in substantial doubt as to a material financial statement assertion, the auditor likely attempt to obtain sufficient appropriate audit evidence to remove such doubt. III. Difficulty and cost involved is a valid basis for omitting a necessary procedure. IV. In obtaining audit evidence, the auditor needs to consider the relationship between the cost of obtaining it and its usefulness. V. When there are inconsistent evidences provided by two different sources, the auditor may need to modify his audit opinion. a. II, III, IVc. II, IV b. I, IIId. I, III, IV
28. The detailed instruction for the collection of a type of audit evidence that is to be obtained at some time during the audit: a. Audit program.c. Audit technique. b. Audit procedure.d. Working papers. 29. The following statements relate to audit evidence, except: a. The competence of audit is likely improved by selecting a larger sample size or different population items. b. The evidence obtained from a source outside the client entity is more persuasive than that one obtained from within. c. When a client’s accounting and internal controls are effective, the evidence obtained is more reliable.
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c. To d. Thegather evidence corroborative obtained directly evidence. by the auditor through physical examination, computation, d.observation, To verify theoraccuracy confirmation of account is more balances. competent than an information obtained indirectly. 38. What 30. Theisfollowing meant bystatements timelinesswere of audit made evidence? in a discussion of audit evidence by two independent a. Evidence auditors.isWhich more reliable statement forisbalance untrue?sheet accounts when it is obtained as close to the balance a. “I amsheet seldom dateconvinced as possible. beyond all doubt about all aspects of the financial statements being b. Evidence audited.” is more reliable for income statement accounts if the sample comes from part of the b. “I period would asnot close undertake to balance thatsheet procedure date asbecause, possible.at best, the results would only be c. Tests persuasive of transactions and I'm should lookingbefor performed convincing close evidence.” to balance sheet date. d. Tests c. “I evaluate of account thebalances degree ofmust riskbe involved performed in deciding before the thebalance kind of sheet evidence date.I will gather.” d. “I evaluate the usefulness of the evidence I can obtain against the cost to obtain it.” 31. In which of the following would the judgment of the auditor be least critical? a. Verification of the authenticity of the transferused certificate of title. 39. Which of the following would not be a method to conduct tests of controls? a. b. Inquiryc. Confirmation Determination of the material level. b. c. Walkthroughd. Observation Assessment of the management plans of action in order to improve cash flows. d. Assessing the reasonableness of the estimates made by the management. 40. In which of the following would the judgment of the auditor be least critical? Verification the authenticity of the transfer certificate of title. 32.a.The auditor’s of attendance to client’s physical inventory count would not enable him to b. Physically Determination of the materialitems. level. a. inspect inventory c. Assessment of the management plans of actionitems. in order to improve cash flows. b. Review the accuracy of pricing the inventory d. Observe Assessingcompliance the reasonableness of the estimates made by management. c. with the prescribed procedures forthe recording and controlling the results of the count. d. Provide evidence as to reliability of management’s procedures. 41. Which of the following is the least required of the audit working papers? a. Confidentiality of information included in the working papers. 33. If, performing thepapers auditor is unable to obtain sufficient, appropriate evidence b. after Safe custody ofprocedures, the working concerning opening balances, the auditor may express modified opinion on financial c. Substitute for the entity’s accounting records statements during and as of year end of the current period:of the practice d. Retention for a period sufficient to meet the needs Income StatementBalance Sheet QualifiedDisclaimerQualifiedDisclaimer 42. a.YesYesYesYes Which of the following statements about working papers is incorrect? a.b.YesYesNoNo Working papers are not permitted to be used as a reference source by the client. b.c.YesNoYesNo The auditor should document the understanding of the client’s internal control in order to d.NoNoYesYes plan the audit. c. Working papers are not be regarded as a substitute for the client’s accounting records. d. When reporting on comparative financial statements, the independent auditor may not discardofworking papersisafter years. concern in obtaining sufficient appropriate audit 34. Which the following not two an auditor’s evidence for initial engagements? a. opening balances do not contain misstatements that materially affect the current period’s 43. As afinancial result ofstatements tests of controls, an auditor assessed control risk too low and decreased substantive testing. assessment because the true deviation ratetointhe thecurrent b. the prior period’sThis closing balancesoccurred have been correctly brought forward population was period or when appropriate, have been restated a. c. Less than the risk of assessing control risk too low,applied based on auditor’s sample. policies appropriate accounting policies are consistently or the changes to accounting b. Less than theproperly deviationaccounted rate in theforauditor’s sample. disclosed have been and adequately c. d. More than balances the risk ofhave assessing control by riska competent too low, based on the auditor’s sample. opening been audited auditor d. More than the deviation rate in the auditor’s sample. 35. The following considerations need to be observed by the auditor when he has to observe 44. When designing audit procedures, the auditor should determine appropriate means of selecting physical inventory count or he has to perform alternative procedures: items for testing. The means available to the auditor are the following except: ABCD a. Selecting all items Inherent, control and detection risks b. Selecting specific items identified by the auditor That are related to inventoryYESYESNONO c. Selecting specific items identified by the client The timing of the countYESYESNONO d. Audit sampling A requirement for an expertNOYESYESYES The nature of accounting and internal control all systems regarding 45. Selecting items used for testing may least be appropriate for one of the following: inventoryNOYESYESNO a. tests of controls b. substantive tests c. when population constitute of small number of large value items 36.d. when Auditors try to identify relationships whentest using analytical procedures. the repetitive naturepredictable of calculation makes 100% more cost effective Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence? 46. Which of the payablec. followingAccounts factors would least be considered by the auditor in selecting items for a. Accounts receivable examination b. Payroll expensed. Advertising expense a. Items to test proceduresc. High value or key items b. Items to obtain informationd. Items under a specific amount 37. Which of the following best describes the primary purpose of audit procedures? a. To detect errors or irregularities. 47. Ab.sample in which possible combination of items in the population has an equal chance To comply withevery generally accepted accounting principles. of constituting the sample is
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a. representative sample b. statistical sample
c. random sample d. judgment sample
48. A sample in which the characteristics in the sample are the same as those of the population is a (an) a. representative samplec. random sample b. statistical sampled. judgment sample 49. Sampling risk occurs when the auditor a. uses an inappropriate audit procedure b. fails to recognize exceptions c. tests less than the entire population d. identifies weaknesses in client’s internal control system 50. When the auditor goes through a population and selects items for the sample without regard to their size, source or other distinguishing characteristics, this is called a. block selectionc. systematic selection b. haphazard selectiond. statistical selection 51. The risk that the auditor is willing to take of accepting a control as being effective when it is not is a. tolerable deviation ratec. estimated population deviation rate b. acceptable risk of overrelianced. finite correction factor 52. The risk of incorrect acceptance and the likelihood of assessing control risk too low relate to the: a. Allowable risk of tolerable misstatement.c. Type I Error b. Preliminary estimates of materiality levels.d. Type 2 Error 53. The true deviation rate is a. the number of deviations in the population divided by the sample size b. the number of items in the population multiplied by the number of deviations in the sample c. the number of deviations in the sample divided by the sample size d. the number of deviations in the population divided by the population size 54. An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor to plan the a. sample sizec. nature and timing of test b. sampling riskd. report to be issued 55. Difference estimation, ratio estimation, and mean-per-unit estimation are all techniques that constitute the general class of methods called a. attribute samplingc. block sampling b. monetary unit samplingd. variables sampling 56. The method used to measure the estimated total error amount in a population when there is both a recorded value and an audited value for each item in the sample is a. difference estimationc. ratio estimation b. mean-per-unit estimationd. monetary-unit sampling 57. If the size of the errors in the population is proportionate to the recorded value of the population items, smaller sample sizes will be generated using a. difference estimationc. ratio estimation b. mean-per-unit estimationd. monetary unit sampling 58. The auditor is concerned with the audited value rather than the error amount of each item in the sample when using a. difference estimationc. ratio estimation b. mean-per-unit estimationd. monetary-unit sampling 59. Which of the following is not a characteristic of probability-proportional-to-size sampling? a. Using a sample selection technique in which the same account balance could be selected more than once. b. Selecting a random starting point and then sampling every nth peso unit.
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c. Combining negative and positive peso error items d. Defining the sampling unit as an individual peso and not as an individual account balance. 60. What is the relationship of the following factors controls? a Expected Deviation RateInverse RelianceoninternalInverse control Tolerable deviation rateDirect Population SizeNo Effect
to sample size when using sampling on tests of b Direct Inverse
c Inverse Direct
d Direct Direct
Inverse No Effect
Direct Direct
Inverse No Effect
61. What is the relationship of the following factors to sample size when using sampling on substantive tests? abcd Reliance on other substantiveInverseDirectInverseDirect test Overall assurance requiredInverseDirectDirectInverse Tolerable ErrorInverseInverseInverseDirect Confidence LevelDirectInverseDirectDirect
62. Identify as to whether sampling or nonsampling risk, following the same order: abc The auditor tests onlySamplingSamplingNon-sampling few samples The auditor uses inappropriateNon-sampling Non-sampling Non-sampling procedures The auditor fails toSamplingNon-sampling Non-sampling recognizeerrorin sample The auditor haphazardlySamplingSamplingNon-sampling chose the samples
D Sampling Non-sampling Non-sampling
Non-sampling
63. This refers to the approximation of the amount of the item in the absence of a precise means of measurement a. Allocationc. Provision b. Accounting Estimated. Allowance 64. Which of the following statements is incorrect regarding audit of fair value measurements and disclosures? a. The auditor should obtain an understanding of the entity's process for determining fair value measurements and disclosures and of the relevant control procedures sufficient to develop an effective audit approach b. Management is responsible for making the fair value measurements and disclosures included in the financial statements while the auditor is responsible for ensuring that fair value measurements are correct c. The auditor should evaluate whether the fair value measurements and disclosures in the financial statements are in accordance with GAAP in the Philippines d. Where alternative methods for measuring fair value are available under GAAP in the Philippines, or where the method of measurement is not prescribed, the auditor should evaluate whether the method of measurement is appropriate in the circumstances under GAAP in the Philippines
65. A representation letter issued by a client a. is essential for the preparation of the audit program b. is a substitute for testing c. does not reduce the auditor’s responsibility d. reduces the auditor’s responsibility only to the extent it is relied upon 66. When the external auditor intends to use specific work of internal auditing, the external auditor should a. evaluate and test that work to confirm the adequacy for external auditor’s purposes b. reperform the procedures done by the internal auditors c. place no reliance since internal auditors are not independent of management
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76. Which d. ask of management the following to attest is nottoa the basic independence element of an ofaudit the internal report?auditors a. opening paragraphc. opinion paragraph paragraphd. starting and would completion dates not of the audit 67.b.Inscope which of the following cases an auditor need the services of an expert? a. The measurement of work completed and to be completed on contracts in progress Legal of opinions concerning of agreements, statutes and regulations 77.b.Which the following is notinterpretations a basis of dating the audit report? c. of certain types of assets like land and buildings a. Valuations when the audit fee was collected d. the company’s control b. Evaluating as of the completion date ofinternal the audit c. as of any date earlier than the date on which the financial statements are signed of approved by management 68. When determining the need to use the work of an expert, the auditor would least likely d. upon completion of fieldwork consider: a. the materiality of the financial statement item being considered; the risk based on the nature and relevant complexity of the an matter being considered 78.b.Which ofof themisstatement following procedures is most likely to obtain information about events c. availability of the expert or conditions that cast significant doubt on the entity’s ability to continue as a going concern d. the quantity and assessed quality ofbyother audit evidence available. beyond the period management? a. Inspectionc. Inquiry b. Observingd. Analysis 69. If as a result of the work of the expert, the auditor decides to issue a modified auditor’s report, the auditor should not the believes work of the 79.a.Ifdescribe the auditor thatexpert the entity will not be able to continue as a going concern and the b. refer and name theare expert even on without permission financial statements prepared a going concern, the auditor’s report should include c. Unqualified describe the opinion extent ofwith the expert’s workparagraphc. Adverse opinion a. explanatory d. and name the expert only after obtaining permission from the expert b. refer Qualified opiniond. Disclaimer of opinion 80. The 70. These management represent information denied the in auditor’s the financial requeststatements that management regardinghas distinguishable to extend its assessment components or its of industry going and concern geographical ability. However, aspects ofthe anauditor’s entity other procedures are sufficient to assess a. related the appropriateness party information of management use of the going concern assumption in the preparation of the b. segment financialinformation statements. The auditor should issue: a. c. confirmation unqualified opinionc. adverse opinion d. unqualified b. document accompanying opinion with explanatory financial statements paragraphd. disclaimer of opinion 81. A 71. If matter comparative whosefinancial outcomestatements depends onare future presented actions and or the events present not under auditorthe has direct audited control bothof the entity but years, the may auditor affect should: the financial statements a. reissue Uncertaintyc. the reportc. subsequent redate event the report b. accounting dual date theestimated. reportd. update projection the report 82. An 72. When auditor financial has astatements responsibility of a to prior evaluate periodthe aregoing presented concern on astatus comparative of an audit basis client withfor financial a (an) statements a. Period ofofone theyear current fromperiod, the balance the continuing sheet date. auditor is responsible for a. b. expressing Period of one dual year dated from report the date of the auditor’s report. c. Period b. updating of the tworeport years on from thethe previous balancefinancial sheet date statements only if there has been no change in d. Indefinite the opinionperiod. c. updating the report on the previous financial statements only if the previous audit report was qualified and the reasons for the qualification no longer exists 73.d.All the following mayonindicate substantial doubt as to an entity’s ability to opinion continue as a going updating the report the previous financial statements regardless of the concern except previously expressed a. Work stoppagesc. Purchase of catastrophe insurance b. Legal proceedingsd. Operating losses 83. The objective of the consistency standard is to provide assurance that there audited are no variations in the format presentation of financial statements 74.a.When financial statements areand presented in a client’s document containing other b.information, substantiallythe different and events are not accounted for on an identical basis auditortransactions should c. auditor is consulted before material changes are made in thethe application of accounting a. the Perform inquiry and analytical procedures to ascertain whether other information is principles reasonable. d. Add the comparability ofparagraph financial statements between periods is not materially affectedon bythe b. an explanatory to the auditor’s report without changing the opinion changes instatements. accounting principles without disclosure financial c. Perform the appropriate substantive auditing procedures to corroborate the other information. 84.d.ARead dual the dated report contains the dates of a that subsequent event and date the financial other information to determine it is consistent withthethe audited a. auditor completed fieldwork in the client’s office statements. b. financial statements were prepared c. subsequent event was resolved d. audit report was delivered 75. Audit report may be addressed to the: Audited EntityStockholder Chair of the Audit Committee 85. If the principal auditor decides to take responsibility for the work of other auditors, the principal No auditor should: a. No Yes No a. modify the opening paragraph b. Yes Yes Yes b. modify the opening and Yes opinion paragraphs c. Yes Yes c. modify all three paragraphs d. Yes No d. issue a standard audit report
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86. If an auditor wishes to emphasize a matter included in the financial statements by adding an explanatory paragraph, the following paragraphs should also be modified a. introductory paragraphc. opinion paragraph b. scope paragraphd. none 87. Which of the following modifications of the standard auditor’s report does not require an explanatory paragraph? a. reference to other auditorsc. scope limitation b. inconsistencyd. adverse opinion 88. When determining whether an exception is highly material, the extent to which the exception affects different parts of the financial statements must be considered. This is referred to as a. Materialityc. financial analysis b. Pervasivenessd. ratio analysis 89. The following circumstances result in a modified, but unqualified report, except: a. inconsistent application of accounting principles b. emphasis of a related party transaction that is disclosed in a footnote c. Lack of disclosure of a restriction on payment of dividends d. Other auditors perform work for which the principal auditor does not assume responsibility 90. According to PSA 710, how does a CPA issue his independent audit report when comparative financial statements are issued by the client? a. For comparative financial statements, the auditor’s report refers to each period that financial statements are presented. b. The auditor’s report only refers to the financial statements of the current period. c. The auditor’s report refers to the financial statements of the current period and explicitly refers to the financial statements of the prior period(s) as corresponding figures. d. The auditor issues separate audit report for financial statements of different periods. 91. Special purpose auditor’s report is one issued in connection with the independent audit of financial information other than the auditor’s report and may include the following, except: a. compliance with contractual agreements b. summarized financial statements c. specified accounts, elements of accounts, or items in a financial statement d. financial statements prepared in conformity with generally accepted accounting principles 92. Which of the following is a criteria least likely required of assurance engagements a. a subject matterc. an engagement process b. a two-party relationshipd. a suitable criteria 93. Which of the following describes “high level of assurance”? a. It refers to the professional accountant having obtained sufficient external and internal appropriate evidence to be satisfied that the subject matter is plausible in the circumstances b. It refers to the professional accountant having obtained evidence based on procedures agreed upon between the practitioner and the intended users to be satisfied that findings be reported to the intended users c. It refers to the professional accountant having obtained sufficient appropriate evidence to conclude that the subject matter conforms in all material respects with identified suitable criteria d. it refers to the professional accountant having obtained sufficient evidence to conclude that he has no knowledge of any required modifications to be made in the financial statements in order for them to conform of prescribed criteria
94. Which of the following is least likely an objective of an assurance engagement? a. The engagement is intended to prevent the issuance of materially misleading information b. The engagement is intended to enhance the credibility of information about a subject matter c. An assurance engagement is intended for a professional accountant to express a conclusion that provides the intended uses with a level of assurance about the subject matter d. The engagement is intended to provide a level of assurance to be issued by a professional accountant about the information of being in conformity, in all material respects , with suitable criteria
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95. Which of the following is least likely a subject matter of an assurance engagement? a. Datac. Compliance with regulations b. Systems and processesd. Degree of loyalty of employees to their employer 96. Which of the following is least likely an objective of an assurance engagement? a. The engagement is intended to prevent the issuance of materially misleading information b. The engagement is intended to enhance the credibility of information about a subject matter c. An assurance engagement is intended for a professional accountant to express a conclusion that provides the intended uses with a level of assurance about the subject matter d. The engagement is intended to provide a level of assurance to be issued by a professional accountant about the information of being in conformity, in all material respects , with suitable criteria
97. Which is incorrect of the intended user? a. the intended user is the person or class of persons for whom the professional accountant prepares the report for a specific use or purpose b. The intended user is always limited to the addressee of the professional accountant’s report c. The responsible party may also be one of the intended users d. The intended user(s) may not be the addressee of the professional accountant’s report 98. The objective of a review of interim financial information of a public entity is to provide an accountant with a basis for reporting whether a. material modifications should be made to conform with GAAP b. a reasonable basis exists for expressing an updated opinion regarding the financial statements that were previously audited c. condensed financial statements or pro forma financial information should be included in a registration statement d. the financial statements are presented fairly in accordance with GAAP 99. Which of the following is not a basis of the auditor in determining the specific nature, timing and extent of review procedures? a. Assessed level of control risk b. The extent to which a particular item is affected by management judgment c. The materiality of transactions and account balances d. Any knowledge acquired by carrying out reviews of the financial statements for prior periods. 100. Which of the following is incorrect about agreed-upon procedures engagement? a. An engagement to perform agreed-upon procedures may involve the auditor in performing certain procedures concerning individual items of financial data. b. Users of the agreed-upon procedures report assess for themselves the procedures and findings reported by the auditor and draw their conclusion from the auditor’s work. c. The auditor should be independent of the financial data or financial statements where agreed procedures have to be applied. d. The report is restricted to those parties that have agreed to the procedures to be preformed.
101. a. b. c. d. 102. a. b. c. d.
A CPA's report on agreed-upon procedures related to management's assertion about an entity's compliance with specified requirements should contain: A statement of limitations on the use of the report. An opinion about whether management's assertion is fairly stated. Negative assurance that control risk has not been assessed. An acknowledgment of responsibility for the sufficiency of the procedures. When compiling financial statements of an non-public entity, an accountant should review agreements with financial institutions for restrictions of cash balances understand the accounting principles and practices of the entity’s industry inquiry of key personnel concerning related parties and subsequent event perform ratio analyses of the financial data of comparable periods
- end of examinationGood Luck!
AT-3rdBatch-FinPB
