Preface to the Philippine Standards on Quality Control, Auditing Review, Other Assurance and Related Services Philippine Framework for Assurance ngagements O!"ective and #eneral Principles governing an Audit of Financial Statements$PSA %&& 'amended as a result of PSA (&& $revised)*)
1. The preface to the the Philippine Standards on Quality Control, Auditing, Other Assurance and Related Services is issued to facilitate understanding of the I O!ectives and operating procedures of the Auditing and Assurance Standards Council "AASC#. II Scope and authority of the docu$ents issued y the AASC. A. %. C+ &.
I only II only oth - and -'either I nor II
(. Its $ission $ission is the pro$ulgation of auditing standards, practices and procedures )hich shall shall e generally accepted y the accounting profession in the Philippines. A. *ina *inanc ncia iall Rep Repor orti ting ng Stan Standa dard rdss Coun Counci cill "*RS "*RSC# C#.. + Audi Auditi ting ng and and Assu Assura ranc ncee Sta Stand ndar ards ds Coun Counci cill $AA $AASC SC)+ )+ C. Inte Intern rnat atio iona nall *ed *eder erat atio ion n of Acco Accoun unta tant ntss "I* "I*AC AC#. #. &. Phil Philip ippi pine ne Inst Instit itut utee of Pul Pulic ic Acco Accoun unta tant ntss "PIC "PICP PA#. A#. +. hich of the follo)ing are collectively referred to as -ngage$ent Standards/0 Standards/0 A. PSAs and PSRs %. PSAs, PSRs and PSAs C+ PSAs, PSRs, PSAs and PSRSs &. PSA PSAs, PSR PSR s, PS PSAs, PSR PSRSs Ss and PSQCs . hich of the follo)ing Philippine Standards are to e applied to to co$pilation engage$ents, engage$ents to apply agreed2upon procedures to infor$ation and other related services engage$ents as specified y the AASC0 A. PSAs %. PSAs C+ PSRSs &. P S R s 3. These are issued issued to provide interpretive interpretive guidance and practical practical assistance to professional professional accountants in i$ple$enting PSAs and to pro$ote good practice. A+ PAPSs %. Practical State$ents C. PRSPSs &. PAPSs 4. Professional accountants should e a)are of and consider Practice State$ents applicale to the engage$ent. A professional professional accountant )ho does not consider and apply the guidance included in a relevant Practice State$ent need not e5plain ho) the asic principles and essential procedures in the ngage$ent Standard"s# addressed y the Practice State$ent have een co$plied )ith. A. %oth st state$ents ar are tr true. %. %oth st state$ents ar are fa false. C+ .rue/ False &. *alse6 True
7. The Philippine *ra$e)or8 for Assurance ngage$ents defines and descries the ele$ents and o!ectives of an assurance engage$ent, and identifies engage$ents to )hich PSAs, PSRs and PSAs apply. The Philippine *ra$e)or8 for Assurance ngage$ents is not itself estalish standards or provide procedural re9uire$ents for the perfor$ance of assurance engage$ents. A+ oth statements are true+ %. %oth st state$ents ar are fa false. C. True6 *alse &. *alse6 True :. hich of the follo)ing follo)ing state$ents state$ents est descries assurance assurance services0 A+ -ndep -ndepend enden entt profe professi ssiona onall servi service cess that that are are inten intende ded d to enha enhanc ncee the the credi credi!il !ility ity of of information to meet the needs of an intended user+ %. Servi Service cess desig designe ned d to e5pr e5pres esss an opin opinio ion n on the the fai fairn rnes esss of his histo tori rica call fina financ ncia iall state$ents ased on the results of an audit. C. The prepar preparati ation on of of the financ financial ial state$ state$ent entss or or the collec collecti tion, on, classi classific ficati ation, on, and su$$ari;ation of other financial infor$ation. &. Servic Services es design designed ed for the i$prov i$prove$e e$ent nt of of oper operati ations ons,, resu result lting ing in etter etter outco$ outco$es. es. <. The follo)ing state$ents relate relate to the t)o types of assurance engage$ents that a practitioner practitioner is per$itted to perfor$= reasonale assurance engage$ent and li$ited assurance engage$ent. State$ent 1 The o!ective of a reasonale assurance engage$ent is a reduction in assurance engage$ent ris8 to an acceptaly lo) level in the circu$stances of the engage$ent as a asis for a positive for$ of e5pression of the practitioner>s conclusion. State$ent ( The o!ective of a li$ited assurance engage$ent en gage$ent is a reduction in assurance engage$ent e ngage$ent ris8 to a level that is acceptale in the circu$stances of the engage$ent, ut )here the ris8 is greater than for a reasonale assurance engage$ent, as the asis for a positive of e5pression of the practitioner>s conclusion. State$ent + The o!ective of a reasonale assurance engage$ent is a reduction in assurance engage$ent ris8 to an acceptaly lo) level in the circu$stances of the engage$ent as the asis for a negative for$ of e5pression of the practitioner> p ractitioner>ss conclusion.
A. + C. &.
State$ent 1 *alse .rue True *alse
State$ent ( True False True *alse
State$ent + True False *alse True
1?. A practitioner practitioner )ho is engaged to perfor$ an assurance engage$ent other than an audit or a revie) of historical financial infor$ation should co$ply )ith )hich of the follo)ing standards0 A+ PSAs %. PSAs and PSAs C. PSAs and PSRs &. PSAs, PSRs and PSAs 11. Assurance engage$ents enco$pass the follo)ing types of services, e5cept A. Attestation se services %. Revie) engage$ents C. Audi Auditt of of his histtori orical cal fi financ nanciial stat state$ e$en entts 0+ 1anagement co consulting
7. The Philippine *ra$e)or8 for Assurance ngage$ents defines and descries the ele$ents and o!ectives of an assurance engage$ent, and identifies engage$ents to )hich PSAs, PSRs and PSAs apply. The Philippine *ra$e)or8 for Assurance ngage$ents is not itself estalish standards or provide procedural re9uire$ents for the perfor$ance of assurance engage$ents. A+ oth statements are true+ %. %oth st state$ents ar are fa false. C. True6 *alse &. *alse6 True :. hich of the follo)ing follo)ing state$ents state$ents est descries assurance assurance services0 A+ -ndep -ndepend enden entt profe professi ssiona onall servi service cess that that are are inten intende ded d to enha enhanc ncee the the credi credi!il !ility ity of of information to meet the needs of an intended user+ %. Servi Service cess desig designe ned d to e5pr e5pres esss an opin opinio ion n on the the fai fairn rnes esss of his histo tori rica call fina financ ncia iall state$ents ased on the results of an audit. C. The prepar preparati ation on of of the financ financial ial state$ state$ent entss or or the collec collecti tion, on, classi classific ficati ation, on, and su$$ari;ation of other financial infor$ation. &. Servic Services es design designed ed for the i$prov i$prove$e e$ent nt of of oper operati ations ons,, resu result lting ing in etter etter outco$ outco$es. es. <. The follo)ing state$ents relate relate to the t)o types of assurance engage$ents that a practitioner practitioner is per$itted to perfor$= reasonale assurance engage$ent and li$ited assurance engage$ent. State$ent 1 The o!ective of a reasonale assurance engage$ent is a reduction in assurance engage$ent ris8 to an acceptaly lo) level in the circu$stances of the engage$ent as a asis for a positive for$ of e5pression of the practitioner>s conclusion. State$ent ( The o!ective of a li$ited assurance engage$ent en gage$ent is a reduction in assurance engage$ent e ngage$ent ris8 to a level that is acceptale in the circu$stances of the engage$ent, ut )here the ris8 is greater than for a reasonale assurance engage$ent, as the asis for a positive of e5pression of the practitioner>s conclusion. State$ent + The o!ective of a reasonale assurance engage$ent is a reduction in assurance engage$ent ris8 to an acceptaly lo) level in the circu$stances of the engage$ent as the asis for a negative for$ of e5pression of the practitioner> p ractitioner>ss conclusion.
A. + C. &.
State$ent 1 *alse .rue True *alse
State$ent ( True False True *alse
State$ent + True False *alse True
1?. A practitioner practitioner )ho is engaged to perfor$ an assurance engage$ent other than an audit or a revie) of historical financial infor$ation should co$ply )ith )hich of the follo)ing standards0 A+ PSAs %. PSAs and PSAs C. PSAs and PSRs &. PSAs, PSRs and PSAs 11. Assurance engage$ents enco$pass the follo)ing types of services, e5cept A. Attestation se services %. Revie) engage$ents C. Audi Auditt of of his histtori orical cal fi financ nanciial stat state$ e$en entts 0+ 1anagement co consulting
1(. Assurance services differ differ fro$ consulting services services in that they I *ocus on providing advice. II Involve $onitoring $onitoring of one party party y another. another. A + C. &.
I only -- only %oth I and II 'either I nor II
1+. Assurance engage$ents involve A. T)o sep separ arat atee parti parties es== a prof profes essi siona onall acco account untan antt and and an int inten ended ded use userr. %. T)o sep separ arat atee parti parties es== a prof profes essi siona onall acco account untan antt and a res respo pons nsi ile le par party ty.. C. T)o sep separ arat atee part partie ies= s= a res respo pons nsi ile le party party and and an inte intende nded d user user.. 0+ .hree .hr ee sep separa arate te par partie ties2 s2 a pro profes fessi siona onall accou accounta ntant, nt, a resp respons onsi!l i!lee party party and an intended user+ user+ 1. An assurance engage$ent should have )hich of the follo)ing ele$ents0 I II III I@ @ A. %. C. 0+
A three party relationship involving a practitioner, practitioner, a responsile party and intended users. An appropriate su!ect $atter. $atter. Suitale criteria. Sufficient appropriate evidence. A )ritten assurance report.
I, II, and III only II, III, I@ and @ only I, II, III and I@ only -, --, ---, -3 and 3.
13. The su!ect $atter $atter of an assurance assurance engage$ent $ay include A. ist istor oric ical al or pros prospe pect ctiv ivee fina financ ncia iall inf infor or$a $ati tion on.. %. An ent entity> ity>ss int inter erna nall con conttrol rol or or IT IT sys syste te$ $. C. Co$pliance )i )ith re regulations. 0+ All of the a!ove . 14. These are the ench$ar8s used to evaluate or $easure the su!ect $atter $atter of an assurance engage$ent. A+ Criteria %. BAA P C. Assertions &. Conclusions
17. Suitale criteria should have )hich )hich of the follo)ing characteristics0 characteristics0 I II III A. %. C. 0+
Relevance Co$pleteness Reliaility
I, II, and III only II, III, I@ and @ only I, II, III and I@ only -, --, ---, -3 and 3+
I@ @
'eutrality nderstandaility
1:. In an assurance engage$ent, the person or persons, either as individuals individuals or representatives of an entity, entity, responsile for the su!ect $atter is the A. Intended user + Responsi!le p pa arty C. Practitioner &. Client 1<. In an assurance engage$ent, the person or class of persons for )ho$ the professional accountant prepares the report for a specific use or purpose is the A+ -ntended user %. Responsile party C. Danage$ent &. Client (?. An assurance engage$ent ris8 is the ris8 that the practitioner practitioner e5presses an inappropriate conclusion )hen the su!ect $atter infor$ation is $aterially $isstated. An assurance engage$ent ris8 is the ris8 that the practitioner e5presses an inappropriate conclusion )hen the su!ect $atter infor$ation is not $aterially $isstated. A+ .rue/ False %. %oth state$ents are true C. *alse6 True &. %oth state$ents are false. (1. hat level of assurance is is provided y the auditor in an audit engage$ent0 A. Asolute 4igh, !ut not a!solute C. Doderate &. 'o assurance ((. hat level of assurance is is provided y the auditor in a revie) engage$ent0 A. 'o assurance %. igh, ut not asolute C. Reasonale 0+ 1oderate (+. hat assurance is provided y the the auditor in an agreed2upon procedures engage$ent0 A. Reasonale %. Asolute C. Doderate 0+ 5o assurance (. In a co$pilation engage$ent, the accountant is engaged to to use accounting e5pertise as opposed to auditing e5pertise to collect, co llect, classify, classify, and su$$ari;e financial infor$ation. hat type of assurance is provided y the accountant )hen heEshe perfor$s this engage$ent0 A. Positive assurance %. 'egative assurance C+ 5o assurance &. Fi$ited assurance (3. The follo)ing state$ents relate to a revie) of financial state$ents. state$ents. hich is incorrect0 A. The o!ect o!ective ive of a revie revie) ) of financ financial ial state$ state$ent entss is to enale enale an an audit auditor or to to state state )hethe )hetherr, on the asis of procedures )hich do not provide all the evidence that )ould e re9uired in an audit, anything has co$e to the auditor>s attention that causes the auditor to elieve that the financial state$ents are not prepared, in all $aterial respects, in acco rdance )ith an identified financial reporting fra$e)or8. %. A revie) revie) co$prises co$prises in9uiry in9uiry and analytical analytical procedures procedures )hich are designed designed to revie) the
C+
&.
reliaility of an assertion assertion that it is is the the responsiility responsiility of one party for for use use y another party. party. A review review ordinar ordinarily ily involve involvess an assessm assessment ent of acco accounti unting ng and interna internall contr control ol syste systems, ms, tests tests of records, and of responses to in6uiries !y o!taining corro!orating evidence through inspection, o!servation, confirmation, and computation . The level level of of assur assuranc ancee provi provided ded in a revie) revie) report report is less less than than that that given given in an an audit audit report report..
(4. In an engage$ent to perfor$ agreed2upon procedures, an auditor is engaged to A+ Carry out those procedures of an audit nature to which the auditor and the entity and any appropriate third parties have agreed and to report on factual findings+ %. se account accounting ing e5per e5pertis tisee as oppos opposed ed to to auditi auditing ng e5per e5perti tise se to to collec collect, t, class classify ify,, and su$$ar su$$ari;e i;e financial infor$ation. C. Provid Providee a $ode $oderat ratee level level of assura assurance nce that that the the info infor$a r$atio tion n is free free of $ateri $aterial al $iss $isstat tate$e e$ent. nt. &. Provid Providee a high high,, ut ut not not asol asolute ute,, level level of assu assuran rance ce that that the infor$ infor$ati ation on is is free free of $ate $ateria riall $isstate$ent. (7. hich of the follo)ing state$ents state$ents concerning co$pilation engage$ent is incorrect0 A. In a co$pil co$pilati ation on engag engage$e e$ent, nt, the account accountant ant is engaged engaged to use use acco account unting ing e5perti e5pertise se as as oppos opposed ed to auditing e5pertise to collect, classify, classify, and su$$ari;e financial infor$ation. + .he pro proce cedur dures es empl employe oyed d in a comp compila ilatio tion n engag engagem ement ent ena! ena!le le the the accoun accounta tant nt to e7p e7pre ress ss a moderate level of assurance on the compiled financial information+ C. sers sers of of the the co$pi co$piled led fina financi ncial al info infor$a r$atio tion n derive derive so$e so$e enefi enefitt as a resul resultt of the acco account untant ant>>s involve$ent ecause the service has een perfor$ed )ith due professional s8ill and care. &. A co$pil co$pilati ation on enga engage$ ge$ent ent ordina ordinari rily ly enta entails ils reduci reducing ng detail detailed ed data data to a $anag $anagea eale le and and understandale for$ )ithout a re9uire$ent to test the assertions underlying that infor$ation. (:. The auditor should conduct an audit in accordance )ith )ith Philippine Standards on Auditing. The auditor should plan and perfor$ the audit )ith an attitude of professional s8epticis$. A+ %. C+ &.
oth statements are true True6 *alse %oth state$ents are false. *alse6 True
(<. The pri$ary reason for a financial financial state$ent audit y an independent CPA CPA is to A+ Provi Provide de incr increa eased sed ass assur uranc ancee to user userss as to to the the fair fairnes nesss of the the fin financ ancial ial stat statem ement entss . %. Buarant Buarantee ee that that there there are are no no $isst $isstate ate$en $ents ts in in the the financ financial ial state$ state$ent entss and and ensure ensure that that any any fraud fraud )ill e discovered. C. Sati Satisf sfy y gove govern rn$e $ent ntal al regu regula lato tory ry re9u re9uir ire$ e$en ents ts.. &. Reli Reliev evee $ana $anage ge$e $ent nt of of res respo pons nsi iil ilit ity y for for the the fin financ ancia iall stat state$ e$ent ents. s. +?. Independent auditing auditing can est e descried descried as A. A ranch of accounting. %. A profes professi sional onal activi activity ty that that $easur $easures es and co$$un co$$unica icates tes financi financial al and and usine usiness ss data. data. C+ A discipli discipline ne which which attest attest to to the the resul results ts of of accou accountin nting g and and other other fun functio ctional nal operatio operations ns and and data+ &. A regula regulator tory y funct function ion that that preve prevents nts the issuanc issuancee of i$prop i$proper er financ financial ial infor$ infor$ati ation. on. +1. hich of the follo)ing state$ents is correct concerning an auditor>s auditor>s responsiilities regarding financial state$ents0 A+ An audit auditor8 or8ss respo responsi! nsi!ilit ilities ies for for audited audited financi financial al state statemen ments ts are are confined confined to the the e7pressi e7pression on of the auditor8s opinion+ %. The fair fair presen presentat tation ion of of audit audited ed financ financial ial state$ state$ent entss in conf confor$ or$ity ity )ith )ith BAAP BAAP is an an i$pli i$plicit cit part part of the auditor>s responsiilities. C. Da8ing Da8ing sugge suggesti stions ons that that are are adopted adopted aout aout the the for$ for$ and conten contentt of an entit entity> y>ss fina financi ncial al state$ents i$pairs an auditor>s independence. &. The audi auditor> tor>ss repor reportt shoul should d provid providee an ass assura urance nce as as to the future future viail viaility ity of the the entit entity y.
+(. hat is the proper organi;ational role of internal auditing0 A+ .o serve as an independent, o!"ective assurance and consulting activity that adds value to operations . %. To assist the e5ternal auditor to reduce e5ternal audit fees. C. To perfor$ studies to assist in the attain$ent of $ore efficient operations. &. To serve as the investigative ar$ of he of the audit co$$ittee of the oard of directors. ++. hich of the follo)ing est descries the scope of internal auditing as it has developed to date0 A. Internal auditing involves appraising the econo$y and efficiency )ith )hich resources are e$ployed. %. Internal auditing has evolved to verifying the e5istence of assets and revie)ing the $eans of safeguarding assets. C+ -nternal auditing has evolved to more of an operational orientation from a strictly financial orientation+ &. Internal auditing has evolved to verifying the e5istence of assets and revie)ing the $eans of safeguarding assets. +. hich of the follo)ing is considered a pri$ary reason for creating an internal audit depart$ent0 A+ .o evaluate and improve the effectiveness of control processes+ %. To ensure the accuracy, reliaility, and ti$eliness of financial and operating data used in $anage$ent>s decision $a8ing. C. To relieve $anage$ent of the responsiility for estalishing effective controls. &. To safeguard resources entrusted to the organi;ation. +3. In conducting an appraisal of the econo$y and efficiency )ith )hich co$pany resources are used, an internal auditor>s responsiility is to A. @erify the accuracy of asset valuation. %. Revie) the reliaility of operating infor$ation. C. @erify the e5istence of assets. 0+ 0etermine whether operating standards have !een esta!lished . +4. Operational audits generally have een conducted y internal and COA auditors, ut $ay e perfor$ed y certified pulic accountants. A pri$ary purpose of an operational audit is to provide A+ A measure of management performance in meeting organi9ational goals+ %. The results of internal e5a$inations of financial and accounting $atters to a co$pany>s top2level $anage$ent. C. Aid to the independent auditor, )ho is conducting the e5a$ination of the financial state$ents. &. A $eans of assurance that internal accounting controls are functioning as planned. +7. Bovern$ental auditing often e5tends eyond e5a$inations leading to the e5pression of opinion on the fairness of financial presentation and includes audits of efficiency, econo$y, effectiveness, and also A. Accuracy + Compliance C. valuation &. Internal Control +:. A govern$ental audit $ay e5tend eyond an audit leading to the e5pression of opinion on the fairness of financial presentation to include Progra$ Results Co$pliance cono$y and fficiency A+ :es :es :es %. Ges Ges 'o C. Ges 'o Ges &. 'o Ges Ges +<. An o!ective of a perfor$ance audit is to deter$ine )hether an entity>s A. Operational infor$ation is in accordance )ith govern$ent auditing standards.
+ C. &.
Specific operating units are functioning economically and efficiently . *inancial state$ents present fairly the results of operations. Internal control is ade9uately operating as designed.
?. In co$parison to the independent auditor, an internal auditor is $ore li8ely to e concerned )ith A. Fegal and regulatory co$pliance. %. Cost accounting procedures. C+ Operational auditing+ &. Internal control syste$. 1. A pervasive characteristics of a CPA>s role in a consulting services engage$ent is that of eing a "an# A. Independent practitioner. %. Co$puter e5pert. C. Confidential revie)er. 0+ O!"ective advisor+ (. hich of the follo)ing state$ents concerning consulting services is false0 A. The perfor$ance of consulting services for audit clients does not, in and of itself, i$pair the auditor>s independence. %. Consulting services differ funda$entally fro$ the CPA>s function of attesting to the assertions of other parties. C+ Consulting services ordinarily involve e7ternal reporting+ &. Dost CPAs, including those )ho provide audit and ta5 services, also provide consulting services to their clients. +. hich of the follo)ing are considered consulting services0 Advisory Services Transaction Services Assurance Services A. 'o Ges Ges + :es :es 5o C. Ges 'o Ges &. Ges Ges Ges . Reyes, CPA, has een as8ed to perfor$ a consulting services engage$ent concerning the analysis of a potential $erger. She has little e5perience )ith the industry involved. hat is his $ost appropriate action0 A. Accept the engage$ent and perfor$ it in accordance )ith PSAs. + Accept the engagement and perform additional research or consult with others to o!tain sufficient competence+ C. Accept the engage$ent and issue a report vouching for the achievaility of the results of the $erger. &. &ecline the engage$ent ecause he lac8s sufficient 8no)ledge. 3. hich of the follo)ing state$ents applies to consultation services engage$ents0 A. A practitioner should otain an understanding of the internal control to assess control ris8. %. A practitioner is not per$itted to co$pile a financial forecast. C+ A practitioner should o!tain sufficient relevant data to complete the engagement+ &. A practitioner is to $aintain an appearance of independence.
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PSQC1
Quality Control for Firms that Perform Audits and Reviews of 4istorical Financial -nformation, and Other Assurance and Related Services PSA ((? "revised# Quality Control for Audits of 4istorical Financial PSA (1? "a$ended y PSA 7?? revised# .erms of Audit ngagements
1. One of a CPA fir$>s asic o!ectives is to provide professional services that co$ply )ith professional standards and regulatory and legal re9uire$ents. Reasonale assurance of achieving this asic o!ective is provided through A+ A system of 6uality control+ %. Continuing professional education. C. Co$pliance )ith generally accepted reporting standards. &. Co$pliance )ith the funda$ental principles of the Philippine Code of thics. (. hich of the follo)ing are ele$ents of a CPA fir$>s 9uality control that should e considered in estalishing its 9uality control policies and procedures0 u$an Resources Donitoring ngage$ent Perfor$ance A. Ges Ges 'o + :es :es :es C. 'o Ges Ges &. Ges 'o Ges +. Quality control policies and procedures should provide the fir$ )ith reasonale assurance that the policies and procedures relating to the other ele$ents of 9uality control are eing effectively applied. This state$ent defines the 9uality control ele$ent of A. Acceptance and continuance of client relationships and specific engage$ents. %. thical re9uire$ents. C+ 1onitoring+ &. Feadership responsiility for 9uality )ithin the fir$. . A CPA fir$ should estalish procedures for conducting and supervising )or8 at all organi;ational levels to provide reasonale assurance that the )or8 perfor$ed $eets the fir$>s standards of 9uality. To achieve this goal, the fir$ $ost li8ely )ould estalish procedures for A. valuating prospective and continuing client relationships. + Reviewing engagement working papers and reports+ C. Re9uiring personnel to adhere to the applicale independence rules. &. Daintaining personnel files containing docu$entation related to the evaluation of personnel. 3. The pri$ary purpose of estalishing 9uality control policies and procedures for deciding )hether to accept a ne) client is to A. nale the CPA fir$ to attest to the reliaility of the client. %. Satisfy the CPA fir$>s duty to the pulic concerning the acceptance of ne) clients. C+ 1inimi9e the likelihood of association with clients whose management lacks integrity+ &. Anticipate efore perfor$ing any field )or8 )hether an un9ualified opinion can e e5pressed. 4. A CPA fir$>s 9uality control procedures pertaining to the acceptance of a prospective audit client )ould $ost li8ely include A. In9uiry of $anage$ent as to )hether disagree$ents et)een the predecessor auditor and the prospective client )ere resolved satisfactorily. %. Consideration of )hether sufficient appropriate evidential $atter $ay e otained to afford a reasonale asis for an opinion. C+ -n6uiry of third parties, such as the prospective client8s !ankers and attorneys, a!out information regarding the prospective client and its management+ &. Consideration of )hether internal control is sufficiently effective to per$it a reduction in the e5tent of re9uired sustantive tests. 7. According to PSQC 1, a fir$ should estalish policies and procedures to provide it )ith reasonale assurance that the policies and procedures relating to the syste$ of 9uality control are relevant, ade9uate, operating effectively and co$plied )ith in practice. Such policies and procedures should include an ongoing consideration and evaluation of the fir$>s syste$ of 9uality control, including a periodic inspection of a selection of co$pleted engage$ents is ordinarily perfor$ed on a cyclical asis. ngage$ents selected for inspection include
A. %. C. 0+
At least one engage$ent for each engage$ent partner over an inspection cycle, )hich ordinarily spans no $ore than ( years. At least one engage$ent for each engage$ent partner over an inspection cycle, )hich ordinarily spans no $ore than 1 year. At least + engage$ent for each engage$ent partner over an inspection cycle, )hich ordinarily spans no $ore than 3 years At least one engagement for each engagement partner over an inspection cycle, which ordinarily spans no more than ; years+
:. nder PSQC 1, the fir$ should co$$unicate the results of the $onitoring of its 9uality control syste$ to engage$ent partners and other appropriate individuals )ithin the fir$ at least A. Donthly %. ee8ly C. Quarterly 0+ Annually <. As defined in PSQC 1, it is a process designed to provide an o!ective evaluation, efore the report is issued, of the significant !udg$ents the engage$ent tea$ $ade and the conclusions they reached in for$ulating the report. A+ ngagement 6uality control review+ %. ngage$ent perfor$ance. C. Donitoring. &. Continuing professional education. 1?. PSA ((? "revised# re9uires the engage$ent partner to consider )hether $e$ers of the engage$ent tea$ have co$plied )ith the ethical re9uire$ents relating to audit engage$ents of the Ph ilippine Code. The Philippine Code estalishes the funda$ental principles of professional ethics, )hich include I Integrity II O!ectivity III Professional co$petence and due care I@ Confidentiality @ Professional ehavior A. %. C. 0+
I, II, I@, and @ only. II, III, I@, and @ only. I, III, I@, and @ only. -, --, ---, -3 and 3+
11. *or audits of financial state$ents of listed entities, the engage$ent partner should A. &eter$ine that an engage$ent 9uality control revie)er has een appointed. %. &iscuss significant $atters arising during the audit engage$ent, including those identified during the engage$ent 9uality control revie), )ith the engage$ent 9uality revie)er. C. 'ot issue the auditor>s report until the co$pletion of the engage$ent 9uality control revie). 0+ All of the a!ove+ 1(. An engage$ent 9uality control revie) should include an o!ective evaluation of I. The significant !udg$ents $ade y the engage$ent tea$. II The conclusions reached in for$ulating the auditor>s report. A. %. C+ &.
I only II only oth - and --+ 'either I nor II.
1+. A fir$>s syste$ of 9uality control should ordinarily provide for the $aintenance of A. A file of $inutes of staff $eetings. %. pdated personnel files.
C+
&.
0ocumentation to provide evidence of the operation of each element of its system of 6uality control+ &ocu$entation to de$onstrate co$pliance )ith regulatory re9uire$ents.
1. The audit )or8 perfor$ed y each assistant should e revie)ed to deter$ine )hether it )as ade9uately perfor$ed and to evaluate )hether the A. Auditor>s syste$ of 9uality control has een $aintained at a high level. + Results are consistent with the conclusions to !e presented in the auditor8s report+ C. Audit procedures perfor$ed are approved in the professional standards. &. Audit has een perfor$ed y persons having ade9uate technical training and proficiency as auditors. 13 The nature and e5tent of a CPA fir$>s 9uality control policies and procedures depend on The CPA The 'ature of the Cost2 %enefit *ir$>s Si;e CPA *ir$>s Practice Considerations A+ :es :es :es %. Ges Ges 'o C. Ges 'o Ges &. 'o Ges Ges 14. The engage$ent letter docu$ents and confir$s the A Auditor>s acceptance of the appoint$ent Ges O!ective and scope of the audit Ges 5tent of the auditor>s responsiilities to the client 'o *or$ of any reports Ges
% Ges 'o Ges 'o
C Ges Ges 'o 'o
0 :es :es :es :es
17. An auditor>s docu$ent includes the follo)ing= -e )ill conduct our audit in accordance )ith Philippine Standards on Auditing. Those Standards re9uire that )e co$ply )ith ethical re9uire$ents and plan and perfor$ the audit to otain reasonale assurance )hether the financial state$ents are free fro$ $aterial $isstate$ent./ The aove passage is $ost li8ely fro$ aEan A. $phasis2of2$atter paragraph of a -su!ect to/ 9ualified auditor>s report. %. Fetter of acceptance C+ ngagement letter+ &. Danage$ent representation letter. 1:. hich of the follo)ing state$ents )ould least li8ely appear in an auditor>s engage$ent letter0 A. *ees for our services are ased on our regular per die$ rates, plus travel and other out2of2poc8et e5penses. %. Danage$ent is responsile for $a8ing all financial records and related infor$ation availale to us. C. Our engage$ent is su!ect to the ris8 that $aterial errors or fraud, if they e5ist, )ill not e detected. 0+ After performing our preliminary analytical procedures, we will discuss with you the other procedures we consider necessary to complete the engagement+ 1<. The auditor of a parent entity )ho is also the auditor of its susidiary, ranch or division "co$ponent# should send a separate engage$ent letter to the entity>s co$ponent. On recurring audits, the auditor should send a ne) engage$ent letter each period. A. + C.
%oth state$ents are true. oth statements are false+ True6 *alse
&.
*alse= True
(?. An auditor )ho, efore the co$pletion of the engage$ent, is re9uested to change the engage$ent to one )hich provides a lo)er level of assurance, should A. ithdra) and consider )hether there is any oligation to report to other parties the circu$stances necessitating the )ithdra)al. %. Issue a report that includes reference to the original engage$ent and any procedures that $ay have een perfor$ in the original engage$ent. C+ 5ot agree to a change of engagement where there is no reasona!le "ustification for doing so+ &. Consider the change reasonale if it relates to infor$ation that is incorrect, inco$plete or other)ise unsatisfactorily.
PSA +?? "rev.# Planning an Audit of Financial Statements PSA +13 <50RS.A50-5# .4 5.-.: A50 -.S 53-RO515. ASSSS-5# .4 R-S=S OF 1A.R-A> 1-SS.A.15.
1. According to PSA +??, it involves estalishing the overall audit strategy for the engage$ent and developing an audit plan in order to reduce audit ris8 to an acceptaly lo) level. A. Reporting + Planning C. *ield )or8 &. Organi;ing (. Ade9uate planning of the audit )or8 helps to ensure that A Appropriate attention is devoted to i$portant areas of the audit Ges Potential prole$s are identified Ges The )or8 is co$pleted e5peditiously 'o
%
C
&
'o Ges Ges
:es :es :es
'o 'o 'o
+. The auditor should plan the audit so that the audit )ill e perfor$ed in an effective $anner. The e5tent of planning )ill vary according to the % C & A :es Si;e of the entity Ges 'o 'o Co$ple5ity of the audit Ges 'o :es 'o Auditor>s e5perience )ith the entity and :es 8no)ledge of the usiness Ges Ges 'o . Otaining 8no)ledge of the entity>s usiness is an i$portant part of planning the audit )or8.
A+ %. C. &.
The auditor>s 8no)ledge of the entity>s usiness assists in the identification of events, transactions and practices )hich $ay have a $aterial effect on the financial state$ents oth statements are true+ %oth state$ents are false. True6 *alse *alse= True
3. According to PSA +??, the auditor $ay discuss ele$ents of planning )ith those charged )ith governance and the entity>s $anage$ent. The audit plan sets the scope, ti$ing and direction of the audit guides the develop$ent of the $ore detailed overall audit strategy.
The overall audit strategy is $ore detailed than the audit plan and includes the nature, ti$ing and e5tent of audit procedures to e perfor$ed y engage$ent tea$ $e$ers to otain sufficient appropriate audit evidence to reduce audit ris8 to an acceptaly lo) level. A. *alse6 *alse6 True %. True6 True6 *alse C+ .rue/ False/ False &. *alse6 True6 *alse 4. hich of the follo)ing $atters should e considered y the auditor in developing the overall audit strategy0 A. I$portant characteristics of the entity, its usiness, its financial perfor$ance and its reporting re9uire$ents including changes since the date of the prior audit. %. Conditions re9uiring special attention, such as the e5istence of related parties. C. The setting of $ateriality levels for audit purposes. 0+ All of the a!ove+ 7. Audit ris8 has three co$ponents= inherent ris8, control ris8, and detection ris8. hich of the follo)ing state$ents is correct0 A. &etection ris8 is a function of the efficiency of an auditing procedure. + Cash is more suscepti!le to theft than an inventory of coal !ecause it has a greater inherent risk+ C. The ris8 that $aterial $isstate$ents )ill not e prevented or detected on a ti$ely asis y internal control can e reduced to ;ero y effective controls. &. The e5isting levels of inherent ris8, control ris8, and detection ris8 can e changed at the discretion of the auditor. :. hich of the follo)ing audit ris8 co$ponents $ay e assessed in 9uantitative ter$s0 Inherent Ris8 Control Ris8 &etection Ris8 A. Ges 'o Ges + :es :es :es C. 'o 'o 'o &. 'o 'o Ges <. So$e account alances, such as those for retire$ent enefits and finance leases, are the results of co$ple5 calculations. The susceptiility to $aterial $isstate$ents in these types of accounts is referred to as A. Audit ris8 %. &etection ris8 C+ -nherent risk &. Control ris8 1?. There is an inverse relationship that e5ists et)een the acceptale level of detection ris8 and the A. Ris8 of failing to discover $aterial $isstate$ents. + Assurance provided !y su!stantive tests+ C. Preli$inary !udg$ents aout $ateriality levels. &. Ris8 of $isapplying audit procedures. 11. It is the process designed and effected y those charged )ith governance, $anage$ent, and other personnel to provide reasonale assurance aout the achieve$ent of the entity>s o!ectives. A. Internal auditing + -nternal control C. %usiness strategy &. Accounting process 1(. This internal control co$ponent is the foundation for all other co$ponents. It sets the tone of the organi;ation, provides discipline and structure, and influences the control consciousness of e$ployees. A. Control activities
%. C+ &.
Donitoring of controls Control environment The entity>s ris8 assess$ent process.
1+. hich of the follo)ing are considered control environ$ent ele$ents0 Co$$it$ent to Co$petence &etection Ris8 Organi;ational Structure A. 'o Ges 'o %. Ges Ges Ges C+ :es 5o :es &. 'o 'o Ges 1. hich of the follo)ing state$ents concerning the relevance of various types of controls to a financial state$ents audit is correct0 A. All controls are ordinarily relevant to a financial state$ent audit. %. Controls over safeguarding of assets and liailities are of pri$ary i$portance, )hile controls over the reliaility of financial reporting $ay also e relevant. C+ Controls over the relia!ility of financial reporting are ordinarily most directly relevant to a financial statement audit, !ut other controls may also !e relevant+ &. An auditor $ay ordinarily ignore a consideration of controls )hen a sustantive audit approach is ta8en. 13. nder PSA +13, $onitoring of controls is an internal control co$ponent that involves a process of assessing the 9uality of internal control perfor$ance of ti$e. It involves assessing the design and operations of control on a ti$ely asis and ta8ing necessary corrective actions. Donitoring of controls is acco$plished through ongoing $onitoring activities, separate evaluations, or a co$ination of the t)o. An entity>s ongoing $onitoring activities often include A. Periodic reporting y the entity>s internal auditors aout the functioning of internal control. + Reviewing the purchasing function+ C. Periodic audits y the audit co$$ittee. &. The audit of the annual financial state$ents. 14. Control activities constitute one of the five co$ponents of internal control. hich of the follo)ing is not included in this internal control co$ponent0 A. Segregation of duties %. Perfor$ance revie)s C+ An internal audit function &. Authori;ation 17. An internal control syste$ that is )or8ing effectively A. li$inates ris8 and potential loss to the entity. %. Cannot e circu$vented y $anage$ent. C+ Reduces the need for management to review e7ception reports on a day?to?day !asis+ &. Is unaffected y changing circu$stances and conditions encountered y the entity. 1:. hen considering an entity>s syste$ of internal control, one of the auditor>s $a!or concerns is to ascertain )hether internal control is designed to provide reasonale assurance that A+ Financial statements are fairly presented+ %. The accounting $anager revie)s al accounting transactions. C. Profit $argins are $a5i$i;ed, and operational efficiency is opti$i;ed. &. Corporate $orale prole$s are addressed i$$ediately and effectively. 1<. hen otaining 8no)ledge aout an entity>s internal control, it is i$portant for the auditor to consider the co$petence of its e$ployees, ecause their co$petence ears directly and i$portantly upon the A. Cost2enefit relationship of internal control. %. Co$parison of recorded accountaility )ith assets.
C+ &.
Achievement of the o!"ectives of internal control+ Ti$ing of sustantive tests to e perfor$ed.
(?. Control activities are the policies and procedures that help ensure that $anage$ent directives are carried out. These include activities relating to authori;ation, perfor$ance revie)s, infor$ation processing, physical controls, and segregation of duties. There is proper segregation of duties )hen an individual )ho A+ Records a transaction does not compare the accounting record of the asset with the asset itself+ %. Authori;es a transaction and records it. C. Authori;es a transaction and $aintains custody of the asset that resulted fro$ the transaction. &. Daintains custody of an asset and has access to the accounting records for the asset. (1. An auditor should otain sufficient 8no)ledge of an entity>s infor$ation syste$, including the related usiness processes relevant to financial reporting, to understand the A. Policies used to detect the conceal$ent of fraud. + Process used to prepare significant accounting estimates+ C. Safeguards used to li$it access to co$puter facilities. &. Procedures used to assure proper authori;ation of transactions. ((. The pri$ary o!ective of procedures perfor$ed to otain an understanding of internal control is to provide an auditor )ith A+ =nowledge necessary to plan the audit+ %. A asis for $odifying tests of controls. C. Infor$ation necessary to prepare flo)charts. &. vidence to use in reducing detection ris8. (+. In otaining an understanding of internal control relevant to the audit, an auditor is re9uired to otain 8no)ledge aout the A. ffectiveness of controls that have een i$ple$ented. %. Consistency )ith )hich controls are currently eing applied. C+ 0esign of the controls pertaining to internal control components+ &. Controls related to each class of transactions and account alance. (. The auditor uses the understanding of internal control to I Identify types of potential $isstate$ents. II Consider factors that affect the ris8s of $aterial $isstate$ents. III &esign the nature, ti$ing, and e5tent of further audit procedures. A. %. C. 0+
I and II only. I and III only. II and III only -, --, and ---
(3. Infor$ation aout segregation of duties ordinarily is est otained y A. Perfor$ing tests of transactions that corroorate $anage$ent>s financial state$ents assertions. %. &eveloping audit o!ectives that reduce control ris8. C+ O!serving employees as they apply specific controls+ &. Otaining a flo)chart of activities perfor$ed y entity personnel. (4. In conducting an audit in accordance )ith PSAs, the auditor is re9uired to identify and assess the ris8s of $aterial $isstate$ents at the financial state$ent level, and at the assertion level for classes of transactions, account alances, and disclosures. So$e of these ris8s, in the auditor>s !udg$ent, re9uire special audit consideration, such as those that involve fraud or co$ple5 transactions. Such ris8s are called A. %usiness ris8s
%. C+ &.
Audit ris8s Significant risks Daterial ris8s
(7. As a result of otaining an understanding of an entity>s internal control syste$, the auditor $ay eco$e a)are of $aterial )ea8nesses in the design or i$ple$entation of internal control. The auditor is re9uired to co$$unicate this $atter to A+ .hose charged with governance or management %. Chief e5ecutive officer C. Securities and 5change Co$$ission &. %oard of Accountancy (:. hich of the follo)ing controls $ost li8ely )ould provide reasonale assurance that all credit sales transactions of an entity are recorded0 A. The accounting depart$ent supervisor controls the $ailing of $onthly state$ents to custo$ers and investigates any differences reported y custo$ers. %. The accounting depart$ent supervisor independently reconciles, on a $onthly asis, the accounts receivale susidiary ledger to the accounts receivale control account. C+ .he !illing department supervisor matches prenum!ered shipping documents with entries in the sales "ournal+ &. The illing depart$ent supervisor sends copies of approved sales orders to the credit depart$ent for co$parison to authori;ed credit li$its and current custo$er account alances. (<. A sound internal control procedure should re9uire that defective $erchandise returned y custo$ers e presented initially to the A+ Receiving clerk %. Accounts receivale supervisor C. %illing cler8 &. Shipping depart$ent supervisor +?. Dacho &ancer Co$pany uses its sales invoices for posting perpetual inventory records. Inade9uate internal control over the invoicing function allo)s goo ds to e shipped ut not invoiced. The inade9uate controls could cause )hat type of $isstate$ent in each of the follo)ing accounts0 Revenues Receivales Inventories A. nderstate$ent nderstate$ent nderstate$ent %. Overstate$ent Overstate$ent nderstate$ent C+ s revenueEreceipt cycle )ould provide reasonale assurance that all illed sales are correctly posted to the accounts receivale ledger0 A. ach ship$ent of goods on credit is supported y a prenu$ered sales invoice. %. The accounts receivale susidiary ledger is reconciled daily to the accounts receivale control account in the general ledger. C+ 0aily sales summaries are compared to daily postings to the accounts receiva!le ledger+ &. ach sales invoice is supported y a prenu$ered shipping docu$ent. +(. The auditor>s pri$ary o!ective in otaining an understanding of the client>s controls over the purchasing function is to A. Investigate the recording of unusual transactions regarding ra) $aterials. + 0etermine the relia!ility of financial reporting !y the purchasing function+ C. Oserve the annual physical count. &. Ascertain that ra) $aterials paid for are on hand. ++. ffective controls relevant to purchasing of ra) $aterials should usually include all of the follo)ing, e5cept A. &eter$ining the need for the ra) $aterials prior to preparing the purchase order.
%. C. 0+
Syste$atic reporting of product changes that )ill affect ra) $aterials. Otaining financial approval prior to $a8ing a co$$it$ent. O!taining third?party written 6uality and 6uantity reports prior to payment for the raw materials+
+. hich of the follo)ing controls is not usually perfor$ed in the accounts payale depart$ent0 A. Indicating on the voucher the affected asset and e5pense accounts to e deited. %. Approving vouchers for pay$ent y having an authori;ed e$ployee sign the vouchers. C+ Accounting for unused prenum!ered purchase orders and receiving reports+ &. Datching the vendor>s invoice )ith the related purchase re9uisition, purchase order, and receiving report. +3. The follo)ing are appropriate 9uestions on an internal control 9uestionnaire concerning purchase transactions, e5cept A. Are all goods received in a centrali;ed receiving depart$ent and counted, inspected, and co$pared )ith purchase orders on receipt0 + Are intact cash receipts deposited daily in the !ank@ C. Are prenu$ered purchase orders and receiving reports used and accounted for0 &. Are an approved purchase re9uisition and a signed purchase order re9uired for each purchase0 +4. hich of the follo)ing is of least concern to an auditor in assessing the ris8s of $aterial $isstate$ent0 A. Signed chec8s are distriuted y the controller to approved payees. + Checks are signed !y one person+ C. Cash receipts are not deposited intact daily. &. Treasurer does not verify the na$es and addresses of chec8 payees. +7. hich of the follo)ing is an essential control procedure to ensure the accuracy of the recorded inventory 9uantities0 A. Calculating unit costs and valuing osolete or da$aged inventory ite$s in accordance )ith inventory policy. %. Testing inventory e5tensions. C. Perfor$ing a gross profit test. 0+ sta!lishing a cutoff for goods received and shipped+ +:. ffective internal controls over inventories are designed and i$ple$ented for the follo)ing reasons, e5cept A. Inventories typically represent a large co$ponent of an entity>s current assets. + -nventories are the most li6uid assets+ C. Inventories directly affect the financial perfor$ance of an entity. &. Inventories typically represent a large portion of an entity>s total assets. +<. Gour client, a $erchandising concern, has annual sales of P+?,???,??? and a ?H gross profit rate. Tests reveals that (H of the peso a$ount of purchases do not get into inventory ecause of rea8age and inventory pilferage y e$ployees. The co$pany esti$ates that these losses could e reduced to ? .3H of purchases y designing and i$ple$enting certain controls costing appro5i$ately P+3?,???. Should the controls e designed and i$ple$ented0 A. Ges, regardless of cost2enefit considerations, ecause the situation involves e$ployee theft. %. Ges, ecause the ideal syste$ of internal control is the $ost e5tensive one. C+ 5o, !ecause the cost of designing and implementing the added controls e7ceeds the pro"ected savings+ &. Ges, ecause the e5pected enefits to e derived e5ceed the cost of the added controls. ?. hich of the follo)ing controls $ost li8ely )ould e i$ple$ented to achieve the production cycle control o!ective of $aintaining accurate inventory records0 A+ Periodic inventory counts are used to ad"ust the perpetual inventory records+ %. A !ust2in2ti$e inventory ordering syste$ 8eeps inventory levels to a desired $ini$u$.
C. &.
Perpetual inventory records are periodically co$pared )ith the net reali;ale value of individual inventory ite$s. Purchase re9uisitions, receiving reports, purchase orders, and vendor invoices are independently $atched efore pay$ent is approved.
1. hich of the follo)ing is the $ost li8ely procedure an auditor )ould perfor$ in otaining an understanding of a $anufacturing entity>s internal control for inventory alances0 A. Perfor$ test counts of inventory )hen oserving the entity>s physical count. %. Perfor$ analytical procedures designed to identify significant cost variances. C. Analy;e the li9uidity and turnover ratio of the inventory. 0+ Review the entity8s description of inventory policies and procedures+ (. The follo)ing controls are appropriate for property, plant, and e9uip$ent "PP#, e5cept, A. ritten policies for capitali;ation and e5penditure and revie) of application of depreciation $ethods. + 0isposal of fully depreciated PP items+ C. Proper authority for ac9uisition and retire$ent of PP ite$s. &. &etailed PP records and physical controls over PP ite$s. +. An internal control o!ective concerning property, plant, and e9uip$ent "PP# ac9uisitions is that they e recorded at the correct a$ounts and in the proper period, and properly classified. In )hich of the follo)ing conditions )ould an auditor $ost li8ely to assess a high level of ris8 of $aterial $isstate$ents0 A. All $aterial ac9uisitions of PP are re9uired to e approved y the oard of directors. + 1ost additions are self?constructed !y the entity+ C. Recently ac9uired loans include covenants that preclude further plant ac9uisitions for 3 years. &. Bross PP increased +?H during the current period. . hich of the follo)ing controls )ould an entity $ost li8ely used in safeguarding against the loss of trading securities0 A. The independent auditor traces all purchases and sales of trading securities through the susidiary ledgers to the general ledger. + An independent trust company that has no direct contact with the employees who have record keeping responsi!ilities has possession of the securities+ C. The internal auditor inspects the trading securities in the entity>s safe each year on the alance sheet date. &. A designated $e$er of the oard of directors controls the securities in a an8 safe2 deposit o5. 3. The follo)ing controls are designed to protect invest$ent securities, e5cept A. Invest$ent securities should e properly controlled physically in order to prevent unauthori;ed usage. + Custody over investment securities should !e limited to personnel having record?keeping responsi!ility over the securities+ C. Securities should e registered in the entity>s na$e. &. Access to securities should e vested in t)o individuals. 4. ffective controls over the payroll function $ay include A. Custody of rate authori;ation records y the supervisor of the payroll depart$ent. %. Preparation of payroll transaction !ournal entries y an e$ployee )ho reports to the supervisor of the personnel depart$ent. C+ 3erification of agreement of "o! time tickets with employee clock card hours !y a payroll department employee+ &. Reconciliation of totals on !o ti$e tic8ets )ith !o reports y e$ployees responsile for those specific !o.
7. Organi;ational independence in the processing of payroll can e achieved y segregating the functions of authori;ation, record28eeping, and c ustody of assets. hich one of the follo)ing functional separations is not re9uired for internal control purposes0 A. Separation of payroll preparation and paychec8 distriution. %. Separation of personnel function fro$ payroll preparation. C. Separation of ti$e8eeping fro$ payroll preparation. 0+ Separation of payroll preparation and maintenance of year?to?date records+ :. hich of the follo)ing situations represents an internal control )ea8ness in the payroll depart$ent0 A. The ti$e8eeping function is independent of the payroll depart$ent. %. Payroll records are periodically reconciled )ith ta5 reports. C+ Paychecks are distri!uted !y the employees8 immediate supervisor+ &. Payroll depart$ent personnel are rotated in their duties. <. hich of the follo)ing personnel depart$ent procedures reduces the ris8 of payroll fraud and represents an appropriate responsiility for the depart$ent0 A+ Authori9ing the addition or deletion of employees from the payroll+ %. Authori;ing overti$e hours. C. Collection and retention of unclai$ed paychec8s. &. &istriuting paychec8s. 3?. $ployees of a $anufacturing entity are often re9uired to use ti$e cards and !o ti$e tic8ets. hich of the follo)ing state$ents concerning the use of these docu$ents is incorrect0 A. Ti$e reported on !o ti$e tic8ets should e reconciled to ti$e cards. + Payroll should !e calculated !ased on "o! time tickets+ C. ach e$ployee should have only one ti$e card. &. An e$ployee $ay have one or $any !o ti$e tic8ets in a day. 2222222222222222222222222222222222222222222222222222222222222222222222222222222222222222222222222222222222222222222
PSA ++?
.4 A<0-.OR8S PROC0
1. In a financial state$ent audit, the auditor is re9uired to perfor$ tests of controls )hen I. II.
A. %. C+ &.
The auditor>s ris8 assess$ent includes an e5pectation of the operating effectiveness of controls. hen sustantive procedures alone do not provide sufficient appropriate Audit evidence at the assertion level.
I only II only ither - or -'either I nor II
(. Tests of controls are concerned pri$arily )ith each of the follo)ing 9uestions, e5cept A. %y )ho$ )ere the controls applied0 %. ere the necessary controls consistently perfor$ed0 C. o) )ere the controls applied0 0+ hy were the controls@ +. Control ris8 should e assessed in ter$s of A. Specific control procedures. %. Types of potential fraud. C+ Financial statement assertions+ &. Control environ$ent factors.
. An auditor intends to perfor$ tests of control on a client>s cash disurse$ents procedures. If the control procedures leave no audit trail of docu$entary evidence, the auditor $ost li8ely )ill test the procedures y A. In9uiry and analytical procedures. + -n6uiry and o!servation+ C. Analytical procedures and confir$ation. &. Confir$ation and oservation. 3. The follo)ing state$ents relate to the use of audit evidence )hen testing the operating effectiveness of relevant controls. hich is false0 A+ An auditor who o!tains sufficient appropriate audit evidence a!out the operating effectiveness of controls during the interim period should no longer o!tain additional evidence of operating effectiveness for the remaining period+ %. An auditor $ay plan to use audit evidence aout the operating effectiveness of controls otained in prior audits. C. If an auditor plans to rely on controls that have changed since they )ere last tested, the auditor should test the operating effectiveness of such controls in the current a udit. &. Audit evidence pertaining only to appoint in ti$e $ay e sufficient for the auditor>s purpose, for e5a$ple, )hen testing controls over an entity>s physical count of inventories at year2end. 4. After gaining an understanding of internal control and assessing the ris8s of $aterial $isstate$ent, an auditor decided to perfor$ tests of controls. The auditor $ost li8ely decided that A. Additional evidence to support a further reduction in control ris8s is not availale. + -t is not possi!le or practica!le to reduce the risks of material misstatement at the assertion level to an accepta!ly low level with audit evidence o!tained only from su!stantive test procedures+ C. There )ere $any internal control )ea8nesses that could allo) $isstate$ents to enter the accounting syste$. &. An increased in the assessed level of control ris8 is !ustified for certain financial state$ent assertions. 7. An auditor $ay decide to assess control ris8 at the $a5i$u$ level for certain assertions ecause the auditor elieves A+ Controls are unlikely to pertain to the assertions+ %. The entity>s control co$ponents are interrelated. C. Sufficient appropriate audit evidence to support the assertions is li8ely to e availale. &. Dore e$phasis on tests of controls than sustantive tests is )arranted. :. hich of the follo)ing state$ents is correct concerning an auditor>s assess$ent of control ris80 A+ Assessing control risk may !e performed concurrently during an audit with o!taining an understanding of the entity8s internal control+ %. vidence aout the operation of controls in prior audits $ay not e considered during the current year>s assess$ent of control ris8. C. The asis for an auditor>s conclusions aout the assessed level of control ris8 need not e docu$ented unless control ris8 is assessed at the $a5i$u$ level. &. The lo)er the assessed level of control ris8, the less assurance the evidence $ust provide that the controls are operating effectively. <. According to PSA ++? "The Auditor>s Procedures in Response to Assessed Ris8s#, an auditor )ho plans to rely on controls that have not changed since they )ere last tested should test the operating effectiveness of such controls at least once every A. Second audit + .hird audit C. *ourth audit &. *ifth audit
1?. On the asis of audit evidence gathered and evaluated, an auditor decides to increase the assessed level of control ris8 fro$ that originally planned. To achieve an overall audit ris8 level that is sustantially the sa$e as the planned audit ris8 level, the auditor )ould A. Increase inherent ris8. %. Increase $ateriality level. C. &ecrease inherent ris8. 0+ 0ecrease detection risk+ 11. hen an auditor increases the planned assessed level of control ris8 ecause certain controls )ere deter$ined to e ineffective, the auditor )ould $ost li8ely increase the A+ 7tent of tests of details+ %. Fevel of inherent ris8. C. 5tent of tests of controls. &. Fevel of detection ris8. 1(. Regardless of the assessed level of control ris8, an auditor )ould perfor$ so$e A. Tests of controls to deter$ine the effectiveness of internal control policies. %. Analytical procedures to verify the design of internal control procedures. C+ Su!stantive tests to restrict detection risk for significant transaction classes+ &. &ual2purpose tests to evaluate oth the ris8 of $onetary $isstate$ents and preli$inary control ris8.
1+. hen an accounting application is processed y co$puter, an auditor cannot verify the reliale operation of progra$$ed control procedures y A. Danually co$paring detail transaction files used y an edit progra$ )ith the progra$>s generated error listings to deter$ine that errors )ere properly identified y the edit progra$. %. Constructing a processing syste$ for accounting applications and processing actual data fro$ throughout the period through oth the client>s progra$ and the auditor>s progra$. C+ 1anually reperforming, as of a moment in time, the processing of input data and comparing the simulated results with the actual results+ &. Periodically su$itting auditor2prepared test data to the sa$e co$puter process and evaluating the results.
1. In perfor$ing tests of the operating effectiveness of an entity>s controls, an auditor selects fro$ a variety of techni9ues, including A+ Reperformance and o!servation+ %. In9uiry and analytical procedures. C. Co$parison and confir$ation. &. Inspection and verification. 13. An auditor intends to perfor$ tests of control on a client>s cash disurse$ent procedures. If the control procedures leave no audit trail of docu$entary evidence, the auditor $ost li8ely )ill test the procedures y A. In9uiry and analytical procedures. + -n6uiry and o!servation+ C. Analytical procedures and confir$ation. &. Confir$ation and oservation. 14. hich of the follo)ing tests of controls $ost li8ely )ould help assure an auditor that goods shipped are properly illed0 A. Scan the sales !ournal for se9uential and unusual entries. + 7amine shipping documents for matching sales invoices+ C. Co$pare the accounts receivale ledger to daily sales invoices. &. Inspect unused sales invoices for consecutive prenu$ering.
17. An auditor is least li8ely to test controls that provide for A. Approval of the purchase and sale of trading securities. + Classification of revenue and e7pense transactions !y product line+ C. Segregation of the functions of recording disurse$ents and reconciling the an8 account. &. Co$parison of receiving reports and vendor>s invoices )ith purchase orders. 1:. An auditor uses the 8no)ledge provided y the understanding of internal control and the final assessed level of control ris8 pri$arily to deter$ine the nature, ti$ing, and e5tent of the A. Attriute tests %. Co$pliance tests C. Tests of controls 0+ Su!stantive tests 1<. hen there are nu$erous property and e9uip$ent transactions during the year, an auditor )ho plans to assess control ris8 at a lo) level usually perfor$s A. Tests of controls and e5tensive tests of property, plant and e9uip$ent alances at the end of the year. %. Analytical procedures for current year property and e9uip$ent transactions. C+ .ests of controls and limited tests of current year property and e6uipment transactions+ &. Analytical procedures for property and e9uip$ent alances at the end of the year. (?. hich of the follo)ing procedures concerning accounts receivale )ould an auditor $ost li8ely to perfor$ to otain evidential $atter in support of an assessed level of controls ris8 elo) the $a5i$u$ level0 A+ O!serving an entity8s employee prepare the schedule of past due accounts receiva!le, %. Sending confir$ation re9uest>s to an entity>s principal custo$ers to verify the e5istence of accounts receivale. C. Inspecting an entity>s analysis of accounts receivale for unusual alances. &. Co$paring an entity>s uncollectile accounts e5pense to actual uncollectile accounts receivale. (1. Tests of controls are least li8ely to e o$itted )ith regard to A. Accounts elieved to e su!ect to ineffective controls. %. Accounts representing fe) transactions. C+ Accounts representing many transactions+ &. Suse9uent events. ((. hich of the follo)ing types of evidence )ould an auditor $ost li8ely e5a$ine to deter$ine )hether controls are operating as designed0 A. Confir$ations of receivales verifying account alances. %. Fetters of representations corroorating inventory pricing. C. Attorney>s responses to the auditor>s in9uiries. 0+ Client records documenting the use of computer programs+ (+. An internal control 9uestionnaire indicates that an approved receiving report is re9uired to acco$pany every chec8 re9uest for pay$ent of $erchandise. hich of the follo)ing procedures provides the greatest assurance that this control is operating effectively0 A. Select and e5a$ine receiving reports and ascertain that the related canceled chec8s are dated no earlier than the receiving reports. %. Select and e5a$ine receiving reports and ascertain that the related canceled chec8s are dated no later than the receiving reports. C. Select and e5a$ine cancelled chec8s and ascertain that the related receiving reports are dated no earlier than the chec8s. 0+ Select and e7amine cancelled checks and ascertain that the related receiving reports are dated no later than the checks+
(. %ased on oservations $ade during an audit, the independent auditor should discuss )ith $anage$ent the effectiveness of the co$pany>s controls that protect against the purchase of A. Re9uired supplies provided y vendor )ho offers no trade discounts. %. Re9uired supplies provided y vendor )ho offers no cash discounts. C. Inventory ite$s ac9uired ased on an econo$ic order 9uantity "OQ# inventory $anage$ent concept. 0+ Supplies individually ordered, without considering possi!le volume discounts+ (3. In assessing control ris8 for the purchasing cycle, the auditor )ill e least influenced y A+ .he effectiveness of the controls in other cycles, e+g+, the sales?receiva!les?cash receipts cycle+ %. The e5istence )ithin the purchasing cycle of internal control strengths that offset )ea8nesses. C. The audit )or8 perfor$ed in the purchasing cycle y the co$pany>s internal auditor. &. The availaility of a co$pany $anual descriing policies and procedures for the purchasing cycle.
PSA +(? PSA 3(? PSA 33? PSA 41? PSA 4(?
A<0-. 1A.R-A>-.: A5A>:.-CA> PROC0A.0 PAR.-S CO5S-0R-5# .4 OR= OF -5.R5A> A<0-.
Dateriality should e considered y the auditor )hen deter$ining the nature, ti$ing and e5tent of audit procedures. There is an inverse relationship et)een $ateriality and the level of audit ris8. Dateriality need not e considered )hen evaluating the effect of $isstate$ents. A+ %. C. &.
.rue/ .rue/ False *alse6 *alse6 True True6 True6 True *alse6 *alse6 True
(. hich of the follo)ing )ould an auditor $ost li8ely use in deter$ining the auditor>s preli$inary !udg$ent aout $ateriality. A. The anticipated sa$ple si;e of the planned sustantive tests. + .he entity8s annuali9ed interim financial statements+ C. The results of the internal control 9uestionnaire. &. The contents of the $anage$ent representation letter. +. In evaluating the fair presentation of the financial state$ents, the auditor should assess )hether the aggregate of uncorrected $isstate$ents that have een identified during the audit is $aterial. The aggregate of uncorrected $isstate$ents co$prises I. Specific $isstate$ents identified y the auditor including the net effect of uncorrected $isstate$ents identified during the audit of previous period. II. The auditor>s est esti$ate of other $isstate$ents )hich cannot e specifically identified. A. %. C+ &.
I only II only oth - and --+ 'either I nor II.
. A asic pre$ise underlying analytical procedures is that
A. %. C. 0+
These procedures cannot replace tests of alances and transactions. Statistical tests of financial infor$ation $ay lead to the discovery of $aterial $isstate$ents in the financial state$ents. The study of financial ratios is an acceptale alternative to the investigation of unusual fluctuations. Plausi!le relationships among data may reasona!ly !e e7pected to e7ist and continue in the a!sence of known conditions to the contrary+
3. *or audits of financial state$ents $ade in accordance )ith PSAs, the use of analytical procedures is re9uired to so$e e5tent In the Planning Stage As a Sustantive Test In the *inal Revie) Stage A. 'o Ges Ges %. Ges Ges 'o C+ :es 5o :es &. 'o 'o 'o 4. Analytical procedures used in planning an audit should focus on A. Reducing the scope of tests of controls and sustantive tests. %. Providing assurance that potential $aterial $isstate$ents )ill e identified. C+ nhancing the auditor8s understanding of the client8s !usiness and identifying areas of potential risk+ &. Assessing the ade9uacy of the availale evidential $atter. 7. hich of the follo)ing state$ents concerning analytical procedures is true0 A. Analytical procedures $ay e o$itted entirely for so$e financial state$ent audits. %. Analytical procedures used in planning the audit should not use nonfinancial infor$ation. C. Analytical procedures usually are effective and efficient for tests of controls. 0+ Analytical procedures alone may provide the appropriate level of assurance for some assertions+ :. hich of the follo)ing )ould not e considered an analytical procedure0 A. sti$ating payroll e5pense y $ultiplying the nu$er of e$ployees y the average hourly )age rate and the total hours )or8ed. + Pro"ecting an error rate !y comparing the results of a statistical sample with the actual population characteristics+ C. Co$puting accounts receivale turnover y dividing credit sales y the average net receivales. &. &eveloping the e5pected sales ased on the sales trend of the prior five years. <. hich of the follo)ing procedures )ould an auditor $ost li8ely to perfor$ in planning a financial state$ent audit0 A. In9uiring aout the client>s legal counsel concerning pending litigation. + Comparing the financial statements with anticipated results+ C. 5a$ining co$puter2generated e5ception reports to verify the effectiveness of internal control. &. Searching for unauthori;ed transactions that $ay aid in directing unrecorded liailities. 1?. hich of the follo)ing ite$s tend to e the $ost predictale for purposes of analytical procedures applied as sustantive tests0 A. Relationships involving alance sheet accounts. %. Transactions su!ect to $anage$ent discretion. C+ Relationships involving income statement accounts+ &. &ata su!ect to audit testing in the prior period. 11. The pri$ary o!ective of analytical procedures used in the overall revie) stage of an audit is to A. Otain evidence fro$ details testing to corroorate particular assertions. %. Identify areas that represent specific ris8s relevant to the audit. C+ Assist the auditor in assessing the validity of the conclusions reached+ &. Satisfy douts )hen 9uestions arise aout a client>s aility to continue in e5istence.
1(. Analytical procedures used in the overall revie) stage of an audit generally include A+ Considering unusual or une7pected account !alances that were not previously identified+ %. Perfor$ing tests of transactions to corroorate $anage$ent>s financial state$ent assertions. C. Bathering evidence concerning account alances that have not changed fro$ the prior year. &. Retesting controls that appeared to e ineffective during the assess$ent of control ris8. 1+. hen auditing related party transactions, an auditor places pri$ary e$phasis on A. Confir$ing the e5istence of the related parties. %. @erifying the valuation of the related party transactions. C+ valuating the disclosure of the related party transactions+ &. Ascertaining the rights and oligations of the related parties. 1. hich of the follo)ing auditing procedures $ost li8ely )ould assist an auditor in identifying related party transactions. A. Inspecting correspondence )ith la)yers for evidence of unreported contingent liailities. %. @ouching accounting records for recurring transactions recorded !ust after the alance sheet date. C+ Reviewing confirmations of loans receiva!le and paya!le for indications of guarantees+ &. Perfor$ing analytical procedures for indications of possile financial difficulties. 13. hich of the follo)ing $ost li8ely )ould indicate the e5istence of related parties0 A. riting do)n osolete inventory !ust efore year2end. %. *ailing to correct previously identified internal control deficiencies. C. &epending on a single product for the success of the entity. 0+ orrowing money at an interest rate significantly !elow the market rate+ 14. After deter$ining that a related party transactions has, in fact, occurred an auditor should A. Sustantiate that related party transactions )ere consu$$ated on ter$s e9uivalent to those that prevail in ar$>s2length transactions. %. Perfor$ analytical procedures to verify )hether si$ilar transactions have occurred, ut )ere not recorded. C+ O!tain an understanding of the purpose of the transactions+ &. &eter$ine )hether a particular transaction )ould have occurred if the parties had not een related. 17. The e5ternal auditor should otain a sufficient understanding of the internal audit function ecause A. The understanding of the internal audit function is an i$portant sustantive test to e perfor$ed y the e5ternal auditor. %. The audit progra$s, )or8ing papers, and reports of internal auditors $ay often e used as a sustitute for the )or8 of the e5ternal auditor>s staff. C. The procedures perfor$ed y the internal audit staff $ay eli$inate the e5ternal auditor>s need for considering internal control. 0+ .he work performed !y internal auditors may !e a factor in determining the nature, timing, and e7tent of the e7ternal auditor8s procedures+ 1:. If the e5ternal auditor decides that it is efficient to consider ho) the )or8 perfor$ed y the internal auditors $ay affect the nature, ti$ing, and e5tent of audit procedures, heEshe should assess the internal auditors> A. fficiency and e5perience %. Independence and revie) s8ills C. Training and supervisory s8ills 0+ Competence and o!"ectivity 1<. In assessing the technical co$petence of an internal auditor, an e5ternal auditor $ost li8ely )ould otain infor$ation aout the A+ Quality of working paper documentation, reports, and recommendations+ %. Organi;ational level to )hich the internal auditor reports.
C. &.
Influence of $anage$ent on the internal auditor> duties. ntity>s co$$it$ent to integrity and ethical values.
(?. PSA 4(? "sing the or8 of an 5pert# provides guidance on using the )or8 of an e5pert as audit evidence. According to this standard, an e5pert $ay e A. Contracted y the auditor ut never y the entity. %. Contracted y the entity ut never y the auditor. C. Contracted ut not e$ployed y the entity. 0+ Contracted or employed !y the entity or auditor+ (1. hich of the follo)ing state$ents is correct concerning the auditor>s use of the )or8 of an e5pert0 A. The auditor is re9uired to perfor$ sustantive test procedures to verify the e5pert>s assu$ptions and findings. + .he auditor should o!tain an understanding of the methods and assumptions used !y the e7pert+ C. The should not have an understanding of the nature of the )or8 to e perfor$ed y the e5pert. &. The e5pert should not have an understanding of the auditor>s corroorative use of the e5pert>s findings. ((. In using the )or8 of an e5pert, an understanding should e5ist a$ong the auditor, the entity and the e5pert as to the nature, scope, and o!ective of the e5pert>s )or8. The docu$entation of this understanding should cover A. The conditions under )hich a division of responsiility $ay e necessary. %. A state$ent that the e5pert assu$es no responsiility to update the e5pert>s report for future events or circu$stances. C+ .he intended use !y the auditor of the e7pert8s work, including the possi!le communication to third parties of the e7pert8s identity and e7tent of involvement+ &. The auditor>s disclai$er as to )hether the e5pert>s findings corroorate the representations in the financial state$ents. (+. hich of the follo)ing is not an e5pert upon )hose )or8 an auditor $ay rely0 A. Actuary %. ngineer C. Appraiser 0+ -nternal auditor (. If the results of the e5pert>s )or8 do not provide sufficient appropriate audit evidence or are not consistent )ith other audit evidence, the auditor should A. Report the $atter to the appropriate regulatory agency of the govern$ent. + Resolve the matter+ C. ithdra) fro$ the engage$ent. &. 5press an un9ualified opinion )ith reference to the )or8 of the e5pert. (3. hen issuing an un$odified auditor>s report, the auditor A. Day refer to the )or8 of an e5pert. %. Should refer to the )or8 of an e5pert to indicate a division of responsiility. C. Should include in the auditor>s report the identity of the e5pert and the e5tent of the e5pert>s involve$ent. 0+ Should not refer to the e7pert8s work+
PSA 3?? "revised# PSA 3?1 PSA 3?3 PSA (+? "revised#
Audit vidence Audit vidence Additional Considerations on Specific -tems 7ternal Confirmations Audit 0ocumentation
D+ hich of the following statements concerning audit evidence is correct@
A. + C.
&.
To e appropriate, audit evidence should e either reliale or relevant, ut it need not e oth. .he measure of the validity of audit evidence lies in the auditor8s "udgment+ The difficulty and e5pense of otaining audit evidence concerning an account alance is a valid asis for o$itting the test. A client>s accounting records can e sufficient audit evidence to support the financial state$ents.
(. The 9uantity of audit evidence needed is affected y the ris8 of $isstate$ent and also y the 9uality of such audit evidence. The reliaility of audit evidence is influenced y its source and y its nature and is dependent on the individual circu$stances under )hich it is otained. A+ oth statements are true+ %. %oth state$ents are false. C. True6 *alse &. *alse6 True +. hich of the follo)ing is a false state$ent aout audit o!ectives0 A+ .here should !e one? to one relationship !etween audit o!"ectives and procedures+ %. Audit o!ectives should e developed in light of $anage$ent assertions aout the financial state$ent co$ponents. C. Selection of tests to $eet audit o!ectives should depend upon the understanding of internal control. &. The auditor should resolve any sustantial dout aout any of $anage$ent>s $aterial financial state$ent assertions. . Danage$ent $a8es certain assertions that are e$odied in financial state$ent co$ponents6 for e5a$ple, t)o such categories of assertions are co$pleteness and valuation and allocation. hich of the follo)ing is not a road category of $anage$ent assertions0 A. Rights and oligations %. Co$pleteness C. 5istence 0+ rrors or fraud 3. The o!ective of tests of details of transactions perfor$ed as sustantive tests is to A. Co$ply )ith generally accepted auditing standards. %. Attain assurance aout the reliaility of the accounting syste$. C+ 0etect material misstatements in the financial statements+ &. valuate )hether $anage$ent>s policies and procedures operated effectively. 4. In testing the e5istence assertion for an asset, an auditor ordinarily )or8s fro$ the A. *inancial state$ents to the potentially unrecorded ite$s. %. Potentially unrecorded ite$s to the financial state$ents. C+ Accounting records to the supporting evidence+ &. Supporting evidence to the accounting records. 7. In deter$ining )hether transactions have een recorded, the direction of the audittesting should e fro$ the A. Beneral ledger alances %. Ad!usted trial alance C+ Original source documents &. Beneral !ournal entries :. hich of the follo)ing state$ents concerning evidential $atter is true0 A. Appropriate evidence supporting $anage$ent>s assertions should e convincing rather than $erely persuasive.
%. C. 0+
ffective internal control contriutes little to the reliaility of the evidence created )ithin the entity. The cost of otaining evidence is not an i$portant consideration to an auditor in deciding )hat evidence should e otained. A client8s accounting records cannot !e considered sufficient evidence to support the financial statements+
<. hich of the follo)ing is an e5a$ple of -other infor$ation/ that could e used y an auditor as evidential $atter supporting the financial state$ents. A. or8sheets supporting cost allocations. + Confirmation of accounts receiva!le+ C. Special !ournals. &. Accounting $anuals. 1?. Audit evidence can co$e in different for$s )ith different degrees of persuasiveness. hich of the follo)ing is the least persuasive type of evidence0 A. %an8 state$ent otained fro$ the client. %. Test counts of inventory $ade y the auditor. C+ Prenum!ered purchase order forms+ &. Correspondence fro$ the client>s attorney aout litigation. 11. hich of the follo)ing types of audit evidence is the $ost persuasive0 A. Prenu$ered purchase order for$s. %. Client )or8sheets supporting cost allocations. C+ ank statements o!tained from the client+ &. Client representation letter. 1(. hich of the follo)ing generali;ations does not relate to the appropriateness of evidence0 A. Audit evidence fro$ e5ternal sources "for e5a$ple, confir$ation received fro$ a third party# is $ore reliale than the generated internally. + An auditor8s opinion, to !e economically useful, is formed within reasona!le time and !ased on evidence o!tained at a reasona!le cost+ C. Audit evidence generated internally is $ore reliale )hen the related accounting and internal control syste$s are effective. &. Audit evidence otained directly y the auditor is $ore reliale than that otained fro$ the entity. 1+. ach of the follo)ing $ight, y itself, for$ a valid asis for an auditor to decide to o$it a test e5cept for the A+ 0ifficulty and e7pense involved in testing a particular item+ %. Assess$ent of control ris8 at a lo) level. C. Inherent ris8 involved. &. Relationship et)een the cost of otaining evidence and its usefulness. 1. hich of the follo)ing state$ents concerning audit evidence is correct0 A. An audit usually involves the authentication of docu$entation. + A given set of procedures may provide audit evidence that is relevant to certain assertions, !ut not others+ C. Audit evidence otained fro$ an independent e5ternal source is al)ays reliale. &. An entity>s accounting records can e sufficient audit evidence to support the financial state$ents. 13. PSA 3?? re9uires the auditor to use assertions for classes of transactions, account alances, and presentation and disclosures in sufficient detail to for$ a asis for the assess$ent of ris8s of $aterial $isstate$ents and the design and perfor$ance of further audit procedures. Assertions aout classes of transactions include occurrence, co$pleteness, accuracy, cutoff, and A. @aluation and and allocation.
%. C. 0+
Rights and oligations. 5istence. Classification+
4. In )hich of the follo)ing circu$stances )ould the use of the negative for$ of accounts receivale confir$ation $ost li8ely to e !ustified0 A. A sustantial nu$er of accounts $ay e in dispute and the accounts receivale alance arises fro$ sales to a fe) $a!or custo$ers. %. A sustantial nu$er of accounts $ay e in dispute and the accounts receivale alance arises fro$ sales to $any custo$ers )ith s$all alances. C. A s$all nu$er of accounts $ay e in dispute and the accounts receivale alance arises fro$ sales to fe) $a!or custo$ers. 0+ A small num!er of accounts may !e in dispute and the accounts receiva!le !alance arises from sales to many customers with small !alances+ 17. hich of the follo)ing state$ents is correct concerning the use of negative confir$ation re9uests0 A+ s periodic accounting for the nu$erical se9uence of shipping docu$ents and invoices to support $anage$ent>s financial state$ent assertion of A. 5istence %. Rights and oligations C. @aluation and allocation 0+ Completeness 1<. hich of the follo)ing $ight e detected y an auditor>s revie) of the client>s sales cut2off0 A. 5cessive goods returned for credit. %. nrecorded sales discounts. C. Fapping of year2end accounts receivale. 0+ -nflated sales for the year+ (?. Cutoff tests designed to detect credit sales $ade efore the end of the year that have een recorded in the suse9uent year provide assurance aout $anage$ent>s assertion of A. Classification C. Rights and oligations. + Cutoff &. 5istence (1. hich of the follo)ing $ost li8ely )ould give the $ost assurance concerning the valuation and allocation assertion of accounts receivale0 A. @ouching a$ounts in the susidiary ledger to details on shipping docu$ents. %. Co$paring receivale turnover ratios )ith industry statistics for reasonaleness. C. In9uiring aout receivales pledged under loan agree$ents. 0+ Assessing the allowance for uncollecti!le accounts for reasona!leness+ ((. Confir$ation is -the process of otaining and evaluating a direct co$$unication fro$ a third party in response to a re9uest for infor$ation aout a particular ite$ affecting financial state$ent assertions./ T)o assertions for )hich confir$ation of accounts receivale alances provides pri$ary evidence are A. Co$pleteness and valuation. %. @aluation and rights and oligations. C+ Rights and o!ligations and e7istence &. 5istence and co$pleteness
(+. An auditor confir$s a representative nu$er of open accounts receivale as of &ece$er +1 and investigates respondents> e5ceptions and co$$ents. %y this procedure the auditor )ould e $ost li8ely to learn of )hich of the follo)ing0 A+ One of the cashiers has !een covering a personal em!e99lement !y lapping+ %. One of the sales cler8s has not een preparing charge slips for credit sales to fa$ily and friends. C. One of the co$puter control cler8s has een re$oving all sales invoices applicale to his account fro$ the data file. &. The credit $anager has $isappropriated re$ittances fro$ custo$ers )hose accounts have een )ritten off. (. The auditor $ay consider confir$ing accounts receivale alances at an interi$ date if A. Collections suse9uent to year2end are to e revie)ed + .he assessed level of risk of material misstatement relative to financial statement assertions a!out receiva!les is accepta!ly low+ C. 'egative confir$ations are to e used for a sa$ple of accounts. &. Cash and accounts receivale are audited at the sa$e ti$e. (3. hen an auditor does not receive replies to positive re9uests for year2end accounts receivale confir$ations, the auditor $ost li8ely )ould A. Inspect the allo)ance account to verify )hether the accounts )ere suse9uently )ritten off. %. Increased the assessed level of detection ris8 for the valuation and co$pleteness assertions. C+ Send the customer a second confirmation+ &. Increase the assessed level of inherent ris8 for the revenue cycle. (4. The return of positive accounts receivale confir$ation )ithout an e5ception attests to the A. Collectiility of the accounts receivale. %. Accuracy of the aging of accounts receivale. C+ Accuracy of the receiva!les !alance+ &. Accuracy of the allo)ance for ad dets. (7. hich of the follo)ing procedures )ould an auditor $ost li8ely to perfor$ for year2end accounts receivale confir$ations )hen the auditor did not receive replies to second re9uests0 A. Revie) the cash receipts !ournal for the $onth prior to year2end. %. Intensify the study of internal control concerning the revenue cycle. C. Increased the assessed level of detection ris8 for the e5istence assertion. 0+ -nspect the shipping records documenting the merchandise sold to the de!tors+ (:. hich of the follo)ing sets of infor$ation does an auditor usually confir$ on one for$0 A. Accounts payale and purchase co$$it$ents. + Cash in !ank and collateral for loans+ C. Inventory on consign$ent and contingent liailities. &. Accounts receivale and accrued interest receivale. (<. The pri$ary purpose of sending a standard confir$ation re9uest to financial institutions )ith )hich the client has done usiness during the year is to A. &etect 8iting activities that $ay other)ise not e discovered. + Corro!orate information regarding deposit and loan !alances+ C. Provide data necessary to prepare proof of cash. &. Re9uest infor$ation aout contingent liailities and secured transactions. +?. hich of the audit procedures is the $ost appropriate )hen internal control over cash is )ea8 or )hen a client re9uest for an investigation of cash transactions0 A+ Proof of cash+ %. %an8 reconciliation. C. Cash confir$ation. &. valuate ratio of cash to current liailities
+1. The usefulness of the standard an8 confir$ation re9uest $ay e li$ited ecause the an8 e$ployee )ho co$pletes the for$ $ay A. 'ot elieve that the an8 is oligated to verify confidential infor$ation to third party. %. Sign and return the for$ )ithout inspecting the accuracy of the client>s an8 reconciliation. C. 'ot have access to the client>s cutoff an8 state$ent. 0+ e unaware of all the financial relationships that the !ank has with the client+ +(. An auditor should test an8 transfers for the last part of the audit period and first part of the suse9uent period to detect )hether A. The cash receipts !ournal )as held open for a fe) days after year2end. %. The last chec8s recorded efore year2end )ere actually $ade y year2end. C+ Cash !alances were overstated !ecause of kiting+ &. Any unusual pay$ents to or receipts fro$ related parties occurred. ++. hich of the follo)ing procedures )ould an auditor $ost li8ely perfor$ in auditing the state$ent of cash flo)s0 A. Co$pare the a$ounts included in the state$ent of cash flo)s to si$ilar a$ounts in the prior year>s state$ent of cash flo)s. %. Reconcile the cutoff an8 state$ents to verify the accuracy of the year2end an8 alances. C. @ouch all an8 transfers for the last )ee8 of the year and first )ee8 of the suse9uent year. 0+ Reconcile the amounts included in the statement of cash flows to the other financial statements8 !alances and amounts+ +. To gain assurance that all inventory ite$s in a client>s inventory listing schedule are valid, an auditor $ost li8ely )ould vouch A. Inventory tags noted during the auditor>s oservation to ite$s listed in the inventory listing schedule. %. Inventory tags noted during the auditor>s oservation to ite$s listed in the receiving reports and vendors> invoices. C+ -tems listed in the inventory listing schedule to inventory tags and the auditor8s recorded count sheets+ &. Ite$s listed in receiving reports and vendors> invoices to the inventory listing schedule. +3. An auditor selected ite$s for test counts )hile oserving a client>s physical inventory. The auditor then traced the test counts to the client>s inventory listing. This procedure $ost li8ely otained evidence concerning $anage$ent>s assertion of A. + C. &.
Rights and oligations Completeness 5istence @aluation and allocation
+4. hile oserving a client>s annual physical inventory, an auditor recorded test counts for several ite$s and noticed that certain test counts )ere higher than the recorded 9uantities in the client>s perpetual records. This situation could e the result of the client>s failure to record A. Purchase discounts C. Sales %. Purchase returns 0+ Sales returns ;(+ .he primary source of information to !e reported a!out litigation, claims, and assessments is the C+ Client8s management A. Client>s la)yer %. Court records &. Independent auditor ;E+ hich of the following is an audit procedure that an auditor most likely would perform concerning litigation, claims, and assessments@ A. Re9uests the client>s la)yer to evaluate )hether the client>s pending litigation, clai$s, and assess$ents indicate a going concern prole$.
%. C+
&.
5a$ine the legal docu$ents in the client>s la)yer>s possession concerning litigation, clai$s, and assess$ent to )hich the la)yer has devoted sustantive attention. 0iscuss with management its policies and procedures adopted for evaluating and accounting for litigation, claims, and assessments+ Confir$ directly )ith the client>s la)yer that all litigation, clai$s, and assess$ents have een recorded or disclosed in the financial state$ents.
+<. hich of the follo)ing is not an audit procedure that the independent auditor )ould perfor$ )ith respect to litigation, clai$s, and assess$ents0 A. In9uire of and discuss )ith $anage$ent the policies and procedures adopted for litigation, clai$s, and assertions. %. Otain fro$ $anage$ent a description and evaluation of litigation, clai$s, and assess$ents that e5isted at the alance sheet date. C. Otain assurance fro$ $anage$ent that it has disclosed all unasserted clai$s that the la)yer has advised are proale of assertion and $ust e disclosed. 0+ Confirm directly with the client8s lawyer that all claims have !een recorded in the financial statements+ ?. The follo)ing are ordinarily e5cluded fro$ audit docu$entation= A Superseded drafts of )or8ing papers and financial :es state$ents 'otes that reflect inco$plete or preli$inary thin8ing Ges Previous copies of docu$ents corrected for :es typographical or other errors &uplicates of docu$ents Ges
%
C
&
'o Ges
'o 'o
Ges 'o
Ges 'o
Ges Ges
Ges 'o
1. The auditor should co$plete the asse$ly of the final audit file on a ti$ely asis after the date of the auditor>s report. As PSQC 1 indicates, JJJJJ days after the date of the auditor>s report is ordinarily an appropriate ti$e li$it )ithin )hich to co$plete the asse$ly of the final audit file. A. +? C+ & %. s report. C. + A+ G %. 7 &. 1? H;+ -n documenting the nature, timing and e7tent of audit procedures performed, the auditor should record I. ho perfor$ed the audit )or8 and the date such )or8 )as co$pleted. II. ho revie)ed the audit )or8 and the date and e5tent of such revie).
A. %.
I only II only
C+ &.
oth - and -'either I nor II
. The per$anent "continuing# file of an auditor>s )or8ing papers $ost li8ely )ould include copies of the A. Fead schedules C. %an8 state$ents 0+ 0e!t agreements %. Attorneys> letters 3. The current file of an auditor>s )or8ing papers $ost li8ely )ould include copy of the C. Articles of incorporation A+ ank reconciliation %. Pension plan contract &. *lo)chart of the internal control activities
PSA (? "revised (??3#
.he Auditor8s Responsi!ility to Consider Fraud in an Audit of Financial Statements
PSA (3? PSA (4?
Consider of >aws and Regulations in an Audit of Financial Statements Communications of Audit 1atters with those Charged with #overnance
1. Disstate$ents in the financial state$ents can arise fro$ fraud or error. The distinguishing factor et)een fraud and error is )hether the underlying action that results in the $isstate$ent of the financial state$ents is I Intentional or unintentional II Rational or irrational A+ %.
- only II only
C. &.
%oth I and II 'either I nor II
(. /rror/ includes A. ngaging in co$ple5 transactions that are structured to $isrepresent the financial position or financial perfor$ance of the entity. %. Concealing, or not disclosing, facts that could affect the a$ounts recorded in the financial state$ents. C+ An incorrect accounting estimate arising from oversight or misinterpretation of facts+ &. Intentional $isapplication of accounting policies relating to a$ounts, classification, $anner of presentation, or disclosure. +. *raud involving one or $ore $e$ers of $anage$ent or those charged )ith governance is referred to as C. *raudulent financial reporting. A+ 1anagement fraud %. $ployee fraud. &. Disappropriation of assets. . The auditor is concerned )ith fraud that causes a $aterial $isstate$ent in the financial state$ents. There are t)o types of intentional $isstate$ents that are relevant to the auditor= $isstate$ents resulting fro$ fraudulent financial reporting and $isstate$ents resulting fro$ A. Danage$ent fraud. %. $ployee fraud. C+ 1isappropriation of assets+ &. Collusion )ithin the entity or )ith third parties. 3. *raudulent financial reporting involves intentional $isstate$ents including o$issions of a$ounts or disclosures in financial state$ents to deceive financial state$ent users. It $ay e acco$plished in a nu$er of )ays, including A. $e;;ling receipts. %. Stealing physical assets or intellectual property. C. sing an entity>s assets for personal use. 0+ 1anipulation, falsification, or alteration of accounting records or supporting documentation from which the financial statements are prepared+ 4. hich of the follo)ing conditions are generally present )hen $isstate$ents due to fraud occur0 I Incentive or pressure. II Perceived opportunity. III Rationali;ation. A. %. C.
I and II only. II and III only. I and III only
0+
-, --, and ---
7. The pri$ary responsiility for the prevention and detection of fraud rests )ith A. Those charged )ith governance of the entity. %. Danage$ent of the entity. C+ oth those charged with governance of the entity and management+ &. The auditor. :. hich of the follo)ing state$ents est descries an auditor>s responsiility regarding $isstate$ents0 A+ An auditor should o!tain reasona!le assurance that the financial statements taken as a whole are free from material misstatement, whether caused !y fraud or error+ %. An auditor should otain asolute assurance that $aterial $isstate$ents in the financial state$ents )ill e detected. C. An auditor is responsile to detect $aterial errors ut has no responsiility to detect $aterial fraud that is concealed through e$ployee collusion or $anage$ent override of internal control. &. An auditor>s failure to detect a $aterial $isstate$ent resulting fro$ fraud is an indication of nonco$pliance )ith the re9uire$ents of the Philippine Standards on Auditing "PSAs#. <. hen otaining an understanding of the entity and its environ$ent, including its internal control, the auditor $ay identify events or conditions that indicate an incentive or pressure to co$$it fraud or provide an opportunity to co$$it fraud. Such events or conditions are referred to as A. *raud conditions C. *raudulent activities. &. *raud environ$ent. + Fraud risk factors+ 1?. The follo)ing are e5a$ples of fraud ris8 factors relating to $isstate$ents arising fro$ $isappropriation of assets, e5cept A+ Recurring negative cash flows from operating activities while reporting earnings and earnings growth+ %. Inade9uate physical safeguards over cash, invest$ents, inventory, or fi5ed assets. C. Inade9uate segregation of duties or independent chec8s. &. Adverse relationship et)een the entity and e$ployees )ith access to cash or other assets susceptile to theft created y recent changes $ade to e$ployee co$pensation or enefit plans. 11. Opportunities to $isappropriate assets increase )hen there are A. Kno)n or anticipated future e$ployee layoffs. %. Pro$otions, co$pensation, or other re)ards inconsistent )ith e5pectations. C. Recent or anticipated changes to e$ployee co$pensation or enefit plans. 0+ -nventory items that are small in si9e, of high value, or in high demand+ 1(. hich of the follo)ing conditions or events $ay create incentivesEpressures to co$$it fraud0 A. Inade9uate syste$ of authori;ation and approval of transactions. %. Fac8 of $andatory vacations for e$ployees perfor$ing 8ey control functions. C+ 7cessive pressure on management or operating personnel to meet financial targets esta!lished !y those charged with governance, including sales or profita!ility incentive goals+ &. Inade9uate access controls over auto$ated records. 1+. %ecause of the ris8 of $aterial $isstate$ent, an audit of financial state$ents in accordance )ith PSAs should e planned and perfor$ed )ith an attitude of A. I$partial conservatis$. %. O!ective !udg$ent. C. Independent integrity. 0+ Professional skepticism+ 1. hen planning the audit, the auditor should $a8e in9uiries of $anage$ent. Such in9uiries should address the follo)ing, e5cept
A. %. C+ &.
Danage$ent>s assess$ent of the ris8 that the financial state$ents $aye $isstated due to fraud. Danage$ent>s process for identifying and responding to the ris8s of fraud in the entity. 1anagement8s consideration of how an element of unpredicta!ility will !e incorporated into the nature, timing, and e7tent of the audit procedures to !e performed+ Danage$ent>s co$$unication, if any, to those charged )ith governance regarding its processes for identifying and responding to the ris8s of fraud in the entity.
13. hen the auditor identifies a $isstate$ent in the financial state$ents, the auditor should consider )hether such a $isstate$ent $ay e indicative of fraud and if there is such an indication, the auditor should A+ Consider the implications of the misstatements in relation to other aspects of the audit+ %. ithdra) fro$ the engage$ent. C. Co$$unicate the infor$ation to regulatory and enforce$ent authorities. &. Report the $atter to the person or persons )ho $ade the audit appoint$ent. 14. PSA (+? "&ocu$entation# re9uires the auditor to docu$ent $atters )hich are i$portant in providing evidence to support the audit opinion, and states that the )or8ing papers include the auditor>s reasoning on all significant $atters )hich re9uire the auditor>s !udg$ent, together )ith the auditor>s conclusion thereon. hich of the follo)ing should e docu$ented y the auditor0 A. *raud ris8 factors identified as eing present during the auditor>s ris8 assess$ent process. %. Auditor>s responses to identified fraud ris8 factors. C+ oth fraud risk factors identified as !eing present during the auditor8s risk assessment process and the auditor8s response to any such factors+ &. The standard does not re9uire docu$entation of the identified fraud ris8 factors and the auditor>s responses to the$. 17. The follo)ing state$ents relate to co$$unication of $isstate$ents resulting fro$ fraud to $anage$ent and to those charged )ith governance. hich is false0 A+ .he auditor need not !ring to the attention of those charged with governance any material weaknesses in internal control related to the prevention and detection of fraud+ %. If the auditor has identified a fraud, )hether or not it results in a $aterial $isstate$ent in the financial state$ents, the auditor should co$$unicate these $atters to the appropriate level of $anage$ent on a ti$ely asis, and consider the need to report such $atters to those charged )ith governance. C. If the auditor has otained evidence that indicates that fraud $ay e5ist "even if the potential effect on the financial state$ents )ould not e $aterial#, the au ditor should co$$unicate these $atters to the appropriate level of $anage$ent on a ti$ely asis, and consider the need to report such $atters to those charged )ith governance. &. The auditor>s co$$unication )ith those charged )ith governance $ay e $ade orally or in )riting. 1:. As used in PSA (3? "Consideration of Fa)s and Regulations in an Audit of *inancial State$ents#, this ter$ refers to acts of o$ission or co$$ission y the entity eing audited, either intentional or unintentional, )hich are contrary to prevailing la)s or regulations. A+ 5oncompliance C. rotic acts %. Illegal acts &. nforgivale acts 1<. According to PSA (3?, the ter$ -nonco$pliance/ as used in the standard refers to acts of o$ission or co$$ission y the entity eing audited, either intentional or unintentional, )hich are contrary to the prevailing la)s or regulations. Such acts do not include A. Transactions entered into y the entity. %. Transactions entered into in the na$e of the entity. C. Transactions entered into on the entity>s ehalf y its $anage$ent or e$ployees. 0+ Personal misconduct $unrelated to the entity8s !usiness activities) !y the entity8s management or employees+ (?. The responsiility for the prevention and detection of nonco$pliance rests )ith
A. +
The auditor. 1anagement+
C. &.
The auditor>s la)yer. The client>s la)yer.
(1. ((. (+. If the auditor concludes that the nonco$pliance has a $aterial effect on the financial state$ents, and has not een properly reflected in the financial state$ents, the auditor should e5press A+ A 6ualified or an adverse opinion+ %. A 9ualified opinion or a disclai$er of opinion. C. An adverse opinion &. An adverse opinion or a disclai$er of opinion (. If the auditor is precluded y the entity fro$ otaining sufficient appropriate audit evidence to evaluate )hether nonco$pliance that $ay e $aterial to the financial state$ents, has, or is li8ely to have, occurred, the auditor should e5press A. A 9ualified or an adverse opinion. + A 6ualified opinion or a disclaimer of opinion+ C. An adverse opinion &. An adverse opinion or a disclai$er of opinion. (3. (4. nder PSA (4?, this ter$ is used to descrie the role of persons entrusted )ith the supervision, control, and direction of an entity. A. Oversight C. &irection %. #overnance &. Control (7. nder PSA (4?, those $atters that arise fro$ the audit of financial state$ents and, in the opinion of the auditor, are oth i$portant and relevant to those charged )ith governanc e in overseeing the financial reporting and disclosure process are called A+ Audit matters of governance interest+ %. Significant audit $atters. C. Auditor>s findings &. Daterial $isstate$ents in the financial state$ents. (:. hich of the follo)ing state$ents relating to co$$unication of audit $atters of governance interest is incorrect0 A+ Audit $atters of governance interest include only those $atters that have co$e to the attention of the auditor as a result of the perfor$ance of the audit. + -n an audit in accordance with PSAs, the auditor should design audit procedures for the specific purpose of identifying matters of governance interest+ C+ The auditor should identify relevant persons )ho are charged )ith governance and )ith )ho$ audit $atters of governance interest are to e co$$unicated. 0+ The auditor>s co$$unication )ith those charged )ith governance $ay e $ade orally or in )riting. (<. Audit $atters of governance interest to e co$$unicated to those charged )ith g overnance ordinarily include A. Audit ad!ust$ents, )hether or not recorded y the entity that have. Or could have, a $aterial effect on its financial state$ents. %. 5pected $odifications to the auditor>s report. C. Daterial uncertainties related to events and conditions that $ay cast significant dout on the entity>s aility to continue as a going concern. 0+ All of the a!ove+
+?. PSA (4? re9uires the auditor to deter$ine the relevant persons )ho are charged )ith governance and )ith )ho$ audit $atters of governance interest are co$$unicated. *or corporations covered y the SC Code of Corporate Bovernance, )hich of the follo)ing is pri$arily responsile for corporate governance0 A+ President C+ oard of 0irectors + Controller &. Danage$ent CO& O* PRO*SSIO'AF TICS +. hich of the follo)ing state$ents est e5plains )hy accountancy profession has found it essential to pro$ulgate ethical standards and to estalish $eans for ensuring their oservance0 A. A professional accountant>s pri$ary responsiility is to satisfy the needs of an individual client or e$ployer. + A distinguishing mark of a profession is acceptance of its responsi!ility to the pu!lic+ C. Strict i$ple$entation and enforce$ent of ethical re9uire$ents is the est )ay to prevent unscrupulous acts. &. thical standards that e$phasi;e e5cellence in perfor$ance over $aterial re)ards estalish reputation for co$petence and character. 3. In order to achieve the o!ectives of the accountancy profession, professional accountants have to oserve a nu$er of prere9uisites or funda$ental principles. hich of the follo)ing funda$ental principles re9uires a professional accountant to e straightfor)ard and honest in perfor$ing professional services0 A. Confidentiality %. -ntegrity
C. O!ectivity &. Professional co$petence and due care
7. The follo)ing state$ents relate to the professional accountant>s oligation to respect the confidentiality of infor$ation aout a client>s or an e$ployer>s affairs ac9uired in the course of professional services. hich is false0 A. The duty of confidentiality continues even after the end of the relationship et)een the professional accountant and the client or e$ployer. %. Confidentiality should al)ays e oserved y a professional accountant unless specific authority has een given to disclose infor$ation or there is a legal or professional duty to disclose. C+ hen authori9ation to disclose confidential information is given !y the client or the employer, third parties8 interests that might !e affected need not !e considered+ &. A professional accountant $ay disclose confidential infor$ation to protect hisEher professional interests in legal proceedings. 1. To ensure that independence of $ind and independence in appearance are not co$pro$ised, $e$ers of the assurance tea$s, fir$s, and net)or8 fir$s should I. Identify threats to independence. II. valuate the significance of identified threats to independence. III. If the threats are other than clearly insignificant, identify and apply safeguards to eli$inate the threats or reduce the$ to an acceptale level. A. I only %. - and -- only
C. I and III only. &. I, II and III.
13. hich of the follo)ing independence re9uire$ents for assurance engage$ents is incorrect 0 A. *or an audit engage$ent, the $e$ers of the assurance tea$, the fir$, and net)or8 fir$s are re9uired to e independent of the client. + For a non?audit assurance engagement, when the report is not e7pressly restricted for use !y identified users, the mem!ers of the assurance team, the firm, and network firms are re6uired to !e independent of the client+
C. *or a non2audit assurance engage$ent, )hen the report is not e5pressly restricted for use y identified users, the $e$ers of the assurance tea$ and the fir$ are re9uired to e independent of the client. &. *or a non2audit assurance engage$ent, )hen the report is e5pressly restricted for use y identified users, the $e$ers of the assurance tea$ are re9uired to e independent of the client and the fir$ should not have a $aterial direct or indirect financial interest in the client. (+. Safeguards created y the profession, legislation or regulation include the follo)ing, e7cept A. ducational, training, and e5perience re9uire$ents for entry into the profession. + hen the assurance client8s management appoints the firm, persons other than management ratify or approve the appointment+ C. Continuing Professional ducation "CP# re9uire$ents. &. Professional standards and $onitoring and disciplinary processes. 4?. hich of the follo)ing is 'OT a factor to consider in deter$ining the professional fee of a professional accountant in pulic practice0 A. The s8ill and 8no)ledge re9uired for the type of professional services involved. + .he result of the assurance work+ C. The level of training and e5perience of the persons necessarily engaged in perfor$ing the professional services. &. The ti$e necessarily occupied y each person engaged in perfor$ing the professional services. 4(. The follo)ing actions should e ta8en y a professional accountant in pulic practice entrusted )ith clients> $oney, e7cept A. Keep such $oney separately fro$ personal or fir$ $oney. + hen it seems likely that the client8s money will remain on client account for a significant period of time, place such money in an interest?!earing account within a reasona!le time, even without the client8s concurrence+ C. se such $oney only for the purpose for )hich it is intended. &. At all ti$es, e ready to account for the $oney to any person entitled to such accounting. 4+. The co$$unication to the pulic of facts aout a professional accountant )hich are not designed for the delierate pro$otion of that professional accountant is C. Pro$otion. A+ Advertising + Solicitation 0+ Pu!licity+ 43. Pulicity y individual professional accountants in pulic practice is acceptale provided A. It has as its o!ect the notification to the pulic of $atters of fact in a $anner that is not false, $isleading or deceptive. %. It is in good taste and is professionally dignified. C. It avoids fre9uent repetition of, and any undue pro$inence given to the na$e of the professional accountant in pulic practice. 0+ All of the a!ove+ PIF ACCO'TA'CG ACT O* (?? 1.Repulic Act <(<: is 8no)n as the A. Revised Accountancy Fa) %. Code of thics for Professional Accountants. C+ Philippine Accountancy Act of %&&H+ &. Philippine Accountancy Fa) of (??. (. hich of the follo)ing is 'OT an o!ective of the Philippine Accountancy Act of (??0 A. The standardi;ation and regulation of accounting education. %. The e5a$ination for registration of certified pulic accountants. C. The supervision, control, and regulation of the practice of accountancy in the Philippines.
0+ .he development and improvement of accounting standards that will !e generally accepted in the Philippines+
+. The practice of accountancy includes A. Practice of Pulic Accountancy %. Practice in Co$$erce and Accountancy C. Practice in ducationE Acade$e. 0+ All of the a!ove+ 4. The $e$ers of the Professional Regulatory %oard of Accountancy shall e appointed y the A. Philippine Institute of CPAs "PICPA# %. Professional Regulation Co$$ission "PRC# C+ President of the Philippines+ &. Association of CPAs in Pulic Practice "ACPAPP# <. The follo)ing state$ents relate to the ter$ of office of the chair$an and $e$ers of the %oard of Accountancy "%OA#. hich is false0 A. The chair$an and $e$ers of the %OA shall hold office for a ter$ of three "+#. %. Any vacancy occurring )ithin the ter$ of a $e$er shall e filled up for the une5pired portion of the ter$ only. C+ 5o person who has served two successive complete terms as chairman or mem!er shall !e eligi!le for reappointment until the lapse of two $%) years+ &. Appoint$ent to fill up an une5pired ter$ is not to e considered as a co$plete ter$. 1?. The %oard of Accountancy has the po)er to conduct an oversight into the 9uality of audits of financial state$ents through a revie) of the 9uality co ntrol $easures instituted y auditors in order to ensure co$pliance )ith the accounting and auditing standards and practices. This po)er of the %OA is called A. Quality review C. Appraisal %. Peer revie) &. Quality control. 11. hich of the follo)ing is a function of the %oard of Accountancy0 A. To prescrie and adopt the rules and regulations necessary for carrying out the provisions of the Philippine Accountancy Act of (??. %. To supervise the regulation, licensure, and practice of accountancy in the Philippines. C. To issue, suspend, revo8e, or reinstate the certificate of registration for the practice of the accountancy profession. 0+ All of the a!ove+ 1. hich of the follo)ing is not a 9ualification of an applicant for the CPA licensure e5a$ination0 A. eEshe is a *ilipino citi;en. %. eEshe is of good $oral character. C+ 4eIshe is at least %D years of age+ &. eEshe is a holder of the degree of %achelor of Science in Accountancy. 13. To pass the CPA licensure e5a$ination, a candidate $ust otain a A. Beneral average of si5ty2five percent "43H#, )ith no grades lo)er than seventy2five percent "73H# in any given su!ect. + #eneral average of seventy?five percent $(GJ), with no grades lower than si7ty?five percent $GJ) in any given su!"ect+ C. Beneral average of seventy2five percent "73H#. &. Beneral average of si5ty2five percent "43H#.
(?. The follo)ing state$ents relate to the practice of pulic accountancy. hich state$ent is incorrect 0
A. Single practitioners and partners of partnerships organi;ed for the practice of pulic accountancy shall e registered CPAs in the Philippines. + From the effectivity of RA K%KE, a Certificate of Accreditation shall !e issued to CPAs in pu!lic practice only upon showing, in accordance with rules and regulations promulgated !y the oard and approved !y the PRC, that such registrant has ac6uired a minimum of two$%) years meaningful e7perience in any of the areas of pu!lic practice including ta7ation+ C. A partnership engaged in the practice of pulic accountancy $ay e carried on in the for$ of a general partnership "BP# or a li$ited liaility partnership "FFP# organi;ed in accordance )ith Philippine la)s. &. The Securities Co$$ission shall not register any corporation organi;ed for the practice of pulic accountancy. (1. hich of the follo)ing state$ents concerning o)nership of )or8ing papers is incorrect 0 A. All )or8ing papers $ade y a CPA and hisEher staff in the course of an e5a$ination re$ain the property of such CPA in the asence of a )ritten agree$ent et)een the CPA and the client to the contrary. %. or8ing papers include schedules and $e$oranda prepared and su$itted y the client to the CPA. C+ orking papers include reports su!mitted !y a CPA to hisIher client+ &. or8ing papers shall e treated confidential and privileged unless such docu$ents are re9uired to e produce through supoena issued y any court, triunal, or govern$ent regulatory or ad$inistrative ody. ((. The follo)ing state$ents relate to the use of seal y registered CPAs. hich is incorrect 0 A+ A registered CPA shall o!tain and use a seal of a design that will suit hisIher taste+ %. The seal should e of a design prescried y the %oard earing the CPA>s na$e, registration nu$er, and title. C. The auditor>s reports shall e sta$ped )ith the CPA>s seal, indicating therein hisEher current Professional Ta5 Receipt "PTR# nu$er, dateEplace of pay$ent )hen filed )ith govern$ent authorities or )hen used professionally. &. The seal of a CPA shall e circular in for$. (+. A specialEte$porary per$it $ay e issued y the %oard of Accountancy "%OA# to the follo)ing persons, e7cept A+ A foreign CPA called for consultation or for a specific purpose which, in the "udgment of the OA, is essential for the development of the country regardless of whether there are Filipino CPAs who are 6ualified for such consultation or specific purpose+ %. A foreign CPA engaged as a professor, lecturer or critic in fields essential to accountancy education in the Philippines and hisEher engage$ent is confined to teaching only. C. A foreign CPA )ho is an internationally recogni;ed e5pert or )ith speciali;ation in any ranch of accountancy and hisEher service is essential for the advance$ent of accountancy in the Philippines. &. A foreign CPA called for consultation or for a specific purpose )hich, in the !udg$ent of the %OA, is essential for the develop$ent of the country and that there is no *ilipino CPA 9ualified for such consultation or specific purpose. (. Any person )ho shall violate any of the provisions of the Accountancy Act or any of its i$ple$enting rules and regulations pro$ulgated y the %oard of Accountancy su!ect to the approval of the PRC, shall, upon conviction, e punished y A. A fine of not $ore than P3?,???. %. I$prison$ent for a period not e5ceeding t)o years. C+ A fine of not less than PG&,&&& or !y imprisonment for a period not e7ceeding two years or !oth+ &. Fethal in!ection. (3. hich of the follo)ing is the accredited national professional organi;ation of CPAs "APO#0 A. P-CPA C. AAS%
%. ASC
&. *RSC
(<. As defined in Anne5 -C/ of the IRR, this refers to the inculcation, assi$ilation and ac9uisition of 8no)ledge, s8ills, proficiency and ethical and $oral values, after the initial registration of a professional that raise and enhance the professional>s technical s8ills and co$petence. A. Professional &evelop$ent. C. Continuing Professional &evelop$ent %. Continuing Professional ducation+ &. Professional Bro)th and &evelop$ent +?. The PRC CP Council shall assist the %OA in i$ple$enting its CP progra$. hich of the follo)ing state$ents is incorrect concerning the Council>s co$position0 A. The PRC CP Council shall e co$posed of a chairperson and t)o "(# $e$ers. + .he chairperson shall !e chosen from among the mem!ers of the OA !y the PRC+ C. The first $e$er shall e the president or, in hisEher asence or incapacity, any officer chosen y the %oard of &irectors of PICPA. &. The second $e$er shall e the president, or in hisEher asence or incapacity, any officer of the organi;ation of deans or depart$ent heads of schools, colleges or universities offering the degree re9uiring licensure e5a$ination. ++. hich of the follo)ing state$ents concerning a CPA>s disclosure of confidential client infor$ation is ordinarily correct0 A+ 0isclosure may !e made to any party on consent of the client+ %. &isclosure should not e $ade even if such disclosure )ill protect the CPA>s professional interests in legal proceedings. C. &isclosure should e $ade only if there is a legal or professional duty to $a8e the disclosure. &. &isclosure $aye $ade to any govern$ent agency )ithout supoena.
A<0-. SA1P>-5# PSA G;&
1.In designing audit procedures, the auditor is re9uired to deter$ine appropriate $eans of selecting ite$s for testing to gather audit evidence. hich of the follo)ing $eans isEare availale to the auditor0 I. Selecting all ite$s "1??H e5a$ination# II. Selecting specific ite$s. III.Audit sa$pling A+ I and II only + III only
C. I and III only 0+ -, -- and ---
(. hich of the follo)ing should e considered y the auditor in deciding )hich $eans " or co$ination of $eans# to use in selecting ite$s for testing0 I. The ris8 of $aterial $isstate$ent related to the assertion eing tested. II. Audit efficiency. A+ I only + II only
C+ oth - and -- only &. 'either I nor II
+. It )ill e appropriate to audit all the ite$s that $a8e up a class of transactions or account alance "1??H e5a$ination#, e5cept A+ hen the class of transactions or account !alance consists of a large num!er of small value items+ %. hen the class of transactions or account alance consists of a s$all nu$er of large value ite$s. C. hen there is a significant ris8 of $isstate$ent and other selection $ethods do not provide sufficient appropriate audit evidence. &. hen the repetitive nature of a calculation or other process perfor$ed auto$atically y the client>s co$puter infor$ation syste$ "CIS# $a8es a 1??H e5a$ination effective.
. Audit sa$pling involves the A+ Selection of all ite$s over a certain a$ount. + Application of audit procedures to less than D&&J of items within a class of transactions or an account !alance such that all items have a chance of selection+ C+ Application of audit procedures to all ite$s that co$prise a class of transactions or an account alance. 0+ Application of audit procedures to all ite$s over a certain a$ount and those that are unusual or have a history of error. 3. Population, as defined in PSA 3+?, $eans the entire set of data fro$ )hich a sa$ple is selected and aout )hich the auditor )ishes to dra) conclusions. It is i$portant for the auditor to ensure that the population is I. Appropriate to the o!ective of the audit procedure. II. Co$plete. A+ I only C+ oth - and -- only &. 'either I nor II + II only
4. An advantage of statistical over nonstatistical sa$pling $ethods in tests of controls is that in statistical $ethods A. Afford greater assurance than a nonstatistical sa$ple of e9ual si;e. + Provide an o!"ective !asis for 6uantitatively evaluating sampling risks+ C. Can $ore easily convert the sa$ple into a dual2purpose test useful for sustantive testing. &. li$inate the need to use !udg$ent in deter$ining appropriate sa$ple si;es. 7. The ris8 of incorrect acceptance and the li8elihood of assessing control ris8 too lo) relate to the A. ffectiveness of the audit . C. Preli$inary esti$ates of $ateriality levels. %. fficiency of the audit. &. Tolerale $isstate$ent. :. The li8elihood of assessing control ris8 too high is the ris8 that the sa$ple selected to test controls A+ 0oes not support the auditor8s planned assessed level of control risk when the true operating effectiveness of internal control "ustifies such an assessment+ %. Contains $isstate$ents that could e $aterial to the financial state$ents )hen aggregated )ith $isstate$ents in other account alances of transactions classes. C. Contains proportionately fe)er deviations fro$ prescried internal controls than e5ist in the alance or class as a )hole. &. &oes not support the tolerale $isstate$ent for so$e or all of $anage$ent>s assertions. <. hile perfor$ing a test of details during an audit, the auditor deter$ined that the sa$ple results supported the conclusion that the recorded account alance )as $aterially $isstated. It )as in fact, not $aterially $isstated. This situation illustrates the ris8 of A. -ncorrect re"ection C. Assessing control ris8 too lo). %. Incorrect acceptance &. assessing control ris8 too high. 1?. hich of the follo)ing sa$ple planning factors )ould influence the sa$ple si;e for a sustantive test of details for a specific account0
A. + C. &.
7pected rror 'o :es 'o Ges
.olera!le rror 'o :es Ges 'o
11. An underlying feature of rando$2ased selection of ite$s is that each A. Stratu$ of the accounting population e given e9ual representation in the sa$ple. %. Ite$ in the accounting population e rando$ly ordered.
C+ -tem in the accounting population should have an opportunity to !e selected+ &. Ite$ $ust e syste$atically selected using replace$ent.
1(. hich of the follo)ing est illustrates the concept of sa$pling ris80 A+ A randomly chosen sample may not !e representative of the population as a whole on the characteristic of interest+ %. An auditor $ay select audit procedures that are not appropriate to achieve the specific o!ective. C. An auditor $ay fail to recogni;e errors in the docu$ents e5a$ined for the chosen sa$ple. &. The docu$ents related to the chosen sa$ple $ay not e availale for inspection. 1+. hich of the follo)ing statistical selection techni9ues is least desirale for use y an auditor0 A+ Syste$atic selection C. lock selection + Stratified selection &. Se9uential selection 1. The e5pected population deviation rate of client illing errors is +H. The auditor has estalished a tolerale rate of 3H. In the revie) of client invoices the auditor should use A+ Stratified sa$pling C. &iscovery sa$pling + @ariale sa$pling 0+ Attri!ute sampling 13. hich of the follo)ing sa$pling $ethods )ould e used to esti$ate a nu$erical $easure$ent of a population, such as peso value0 A+ Attriutes sa$pling C+ 3aria!le sampling + Stop2or2go sa$pling &. Rando$2nu$er sa$pling 14. hich of the follo)ing state$ents is correct concerning statistical sa$pling in tests of controls0 A. &eviations fro$ control procedures at a given rate usually result in $isstate$ents at a higher rate. %. As the population si;e doules, the sa$ple should also doule. C. The 9uantitative aspects of deviations are not considered y the auditor. 0+ .here is an inverse relationship !etween the sample si9e and the tolera!le rate+ 17. hich of the follo)ing statistical sa$pling plans does not use a fi5ed sa$ple si;e for tests of controls0 A. Attriutes sa$pling C. PPS sa$pling %. Se6uential sampling &. @ariales sa$pling 1:. If certain for$s are not consecutively nu$ered A. Selection of a rando$ sa$ple proaly is not possile. + Systematic sampling may !e appropriate+ C. Stratified sa$pling should e used. &. Rando$ nu$er tales cannot e used. 1<. hen perfor$ing a test of a control )ith respect to control over cash receipts, an auditor $ay use a syste$atic sa$pling techni9ue )ith a start at any rando$ly selected ite$. The iggest disadvantage of this type of sa$pling is that the ite$s in the population A. Dust e syste$atically replaced in the population after sa$pling. %. Dust syste$atically occur $ore than once in the sa$ple. C. Dust e recorded in a syste$atic pattern efore the sa$ple can e dra)n. 0+ 1ay occur in a systematic pattern, thus destroying the sample randomness+ (?. hich of the follo)ing co$inations results in a decrease in a sa$ple si;e for attriutes0 Ris8 of assessing control ris8 too lo) A. Increase %. &ecrease C+ -ncrease &. Increase
Tolerale rate 5pected population deviation rate &ecrease Increase Increase &ecrease -ncrease 0ecrease Increase Increase
(1. An auditor is testing internal control procedures that are evidenced on an entity>s vouchers y $atching rando$ nu$ers. If a rando$ nu$er $atches the nu$er of a voided voucher, that voucher ordinarily should e replaced y another voucher in the rando$ sa$ple if the voucher A+ Constitutes a deviation. + 4as !een properly voided+ C+ Cannot e located. 0+ Represents an i$$aterial peso a$ount. ((. An auditor plans to e5a$ine a sa$ple of (? purchase orders for proper approvals as prescried y the client>s internal control procedures. One of the purchase orders in the chosen sa$ple cannot e found, and the auditor is unale to use alternative procedures to test )hether that purchase )as properly approved. The auditor should A. Choose another purchase order to replace the $issing purchase order in the sa$ple. %. Consider this test of sa$ple invalid and proceed )ith sustantive tests since internal control can not e relied upon. C+ .reat the missing purchase order as a deviation for the purpose of evaluating the sample+ &. Select a co$pletely ne) set of (? purchase orders. (+. The tolerale rate of deviations for a test of a control is generally A. Fo)er than the e5pected rate of errors in the related accounting records. + 4igher than the e7pected rate of errors in the related accounting records+ C. Identical to the e5pected rate of errors in the related accounting records. &. nrelated to the e5pected rate of errors in the related accounting records. (.If the auditor is concerned that a population $ay contain e5ceptions, the deter$ination of a sa$ple si;e sufficient to include at least one such e5ception is a characteristic of A. 0iscovery sampling C. Rando$ sa$pling %. @ariales sa$pling &. PPS sa$pling (3. hich of the follo)ing courses of action )ould an auditor $ost li8ely follo) in planning a sa$ple of cash disurse$ents if the auditor is a)are of several unusually large cash disurse$ent0 A. Set the tolerale rate of deviation at a lo)er level than originally planned. + Stratify the cash dis!ursements population so that the unusually large dis!ursements are selected+ C. Increase the sa$ple si;e to reduce the effect of the unusually large disurse$ents. &. Continue to dra) ne) sa$ples until all the unusually large disurse$ents appear in the sa$ple. (4. hile perfor$ing a test of details during an audit, an auditor deter$ined that the sa$ple results supported the conclusion that the recorded account alance )as $aterially $isstated. It )as, in fact, not $aterially $isstated. This situation illustrates the ris8 of A. Assessing control ris8 too high. %. Assessing control ris8 too lo). C+ -ncorrect re"ection &. Incorrect acceptance. (7.se of the ratio esti$ation sa$pling techni9ue to esti$ated peso a$ounts is inappropriate )hen A. The total oo8 value is 8no)n and corresponds to the su$ of all the individual oo8 values. + A !ook value for each sample item is unknown+ C. There are so$e oserved differences et)een audited values and oo8 values. &. The audited values are nearly proportional to the oo8 values. (:. *or )hich of the follo)ing audit tests )ould an auditor $ost li8ely use attriute sa$pling0 A. Da8ing an independent esti$ate of the a$ount of *I*O inventory. %. 5a$ining invoices in support of the valuation of fi5ed asset additions. C. Selecting accounts receivale for confir$ation of account alances. 0+ -nspecting employee time cards for proper approval !y supervisors+
%K+ For which of the following audit
CO1P>.-5# .4 A<0-. 35.S AF.R .4 A>A5C S4. 0A. PSA G& 1#.+ RPRS5.A.-O5 >..R PSA GE&
1.Analytical procedures used in the overall revie) stage of the audit generally include A. Retesting controls that appeared to e ineffective during the assess$ent of control ris8. + Considering unusual or une7pected account !alances that were not previously identified+ C. Bathering evidence concerning account alances that have not changed fro$ the prior year. &. Perfor$ing tests of transactions to corroorate $anage$ent>s financial state$ent assertions. (. Analytical procedures perfor$ed in the overall revie) stage of an audit suggest that several accounts have une5pected relationships. The results of these procedures $ost li8ely indicate that A. The co$$unication )ith the audit co$$ittee should e revised. %. Irregularities e5ist a$ong the relevant account alances. C+ Additional su!stantive tests of details are re6uired+ &. Internal control activities are not operating effectively. +. the responsiility for the identification and disclosure of related parties and transactions )ith such parties rests )ith the A. Auditor + ntity8s management C. *inancial Reporting Standards Council "*RSC# &. Securities and 5change Co$$ission "SC#. . The auditor should revie) infor$ation provide y those charged )ith governance and $anage$ent identifying I. The na$es of all 8no)n related parties. II. Related party transactions. A+ I only + II only
C+ oth - and -- only &. 'either I nor II
3. hich of the follo)ing events $ost li8ely indicates the e5istence of related parties0 A+ 1aking a loan without scheduled terms of repayment of the funds+ %. &iscussing $erger ter$s )ith a co$pany that is a $a!or co$petitor. C. Selling real estate at a price that differs significantly fro$ its oo8 value. &. %orro)ing a large su$ of $oney at a variale rate of interest. 4. An auditor searching for related party transactions should otain understanding of each susidiary>s relationship to the total entity ecause A. This per$it the audit of interco$pany account alances to e perfor$ed as of the concurrent dates. %. This $ay reveal )hether particular transactions )ould have ta8en place if the parties had not een related. C+ .he !usiness structure may !e deli!erately designed to o!scure related party transactions+ &. Interco$pany transactions $ay have een consu$$ated on ter$s of e9uivalent to ar$>s2length transactions.
7. After deter$ining that a related party transactions has, in fact, occurred, an auditor should A+ O!tain an understanding of the !usiness purpose of the transaction+ %. Sustantiate that the transaction )as consu$$ated on ter$s e9uivalent to an ar$>s2length transaction. C. Add a separate paragraph to the auditor>s report to e5plain the transaction. &. Perfor$ analytical procedures to verify )hether si$ilar transactions occurred, ut )ere not recorded. :. As used in PSA 34? "Suse9uent vents#, the ter$ -suse9uent events/ refers to I. II. A+ I only + II only
vents occurring et)een the date of the financial state$ents and the date of the auditor>s report. *acts discovered after the date of the auditor>s report. C+ oth - and -- only &. 'either I nor II
<. hich of the follo)ing state$ents est descries the -date of the financial state$ents/0 A. The date on )hich those )ith the recogni;ed authority assert that they have prepared the entity>s co$plete set of financial state$ents, including the related n otes, and that they have ta8en responsiility for the$. %. The date that the auditor>s report and audited financial state$ents are $ade availale to third parties. C+ .he date of the end of the latest period covered !y the financial statements, which is normally the date of the most recent !alance sheet in the financial statements su!"ect to audit+ &. The date on )hich the auditor has otained sufficient appropriate audit evidence on )hich to ase the opinion on the financial state$ents. 1?. hich of the follo)ing procedures )ould an auditor $ost li8ely to perfor$ to otain evidence aout the occurrence of suse9uent events0 A+ -n6uiring as to whether any unusual ad"ustments were made after the date of the financial statements+ %. Confir$ing a sa$ple of $aterial accounts receivale estalished after the date of the financial state$ents. C. Co$paring the financial state$ents eing reported on )ith those of the prior period. &. Investigating personnel changes in the accounting depart$ent occurring after the date of the financial state$ents. 11. hich of the follo)ing state$ents est e5presses the auditor>s responsiility )ith respect to facts discovered after the date of the audio>s report ut efore the date the financial state$ents are issued0 A+ The auditor should a$end the financial state$ents. + If the facts discovered )ill $aterially affect the financial state$ents, the auditor should issue a ne) report )hich contains either a 9ualified opinion or an adverse opinion. C+ .he auditor should consider whether the financial statements need amendment, discuss the matter with management, and consider taking actions appropriate in the circumstances+ 0+ The auditor should )ithdra) fro$ the engage$ent. 1(. After issuing a report, an auditor has no oligation to $a8e continuing in9uiries or perfor$ other procedures concerning the audited financial state$ents, unless A. *inal deter$inations or resolutions are $ade of contingencies that had een disclosed in the financial state$ents. %. Infor$ation aout an event that occurred after the date of the auditor>s report co$es to the auditor>s attention. C. The control environ$ent changes after the issuance of the report. 0+ -nformation, which e7isted at the report date and may affect the report, comes to the auditor8s attention+
1+. hich of the follo)ing events occurring after the issuance of an auditor>s report $ost li8ely )ould cause the auditor to $a8e further in9uiries aout the previously issued financial state$ents0 A. A technological develop$ent that could affect the entity>s future aility to continue as a going concern. %. The entity>s sale of a susidiary that accounts for +?H of the entity>s consolidated sales. C+ .he discovery of information regarding a contingency that e7isted !efore the financial statements were issued+ &. The final resolution of a la)suit disclosed in the notes to the financial state$ents. 1. PSA 37? "Boing Concern# states that a funda$ental principle in the preparation of financial state$ents is the going concern assu$ption. nder this assu$ption, an entity is ordinarily vie)ed as continuing in usiness for the foreseeale future )ith neither the intention nor the necessity of li9uidation, ceasing trading or see8ing protection fro$ creditors pursuant to la)s and regulations. The responsiility to $a8e an assess$ent of an entity>s aility to continue as a going concern rests )ith the A. Auditor C. SC %. ntity8s management &. ntity>s creditors 13. hich of the follo)ing state$ents est descries the auditor>s responsiility concerning the appropriateness of the going concern assu$ption in the preparation of the financial state$ents0 A. The auditor>s responsiility is to $a8e a specific assess$ent of the entity>s aility to continue as a going concern. %. The auditor>s responsiility is to predict future events or conditions that $ay cause the entity to cease to continue as a going concern. C+ .he auditor8s responsi!ility is to consider the appropriateness of management8s use of the going concern assumption and consider whether there are material uncertainties a!out the entity8s a!ility to continue as a going concern that need to !e disclosed in the financial statements+ &. The auditor>s responsiility is to give a guarantee in the audit report that the entity has the aility to continue as a going concern. 14. hich of the follo)ing conditions or events $ost li8ely )ou ld cause an auditor to have sustantial dout aout an entity>s aility to continue as a going conc ern0 A. Cash flo)s fro$ operating activities are negative. + Stock dividends replace annual cash dividends+ C. Significant related party transactions are pervasive. &. Arrearages in principal stoc8 dividends are paid. 17. hich of the follo)ing conditions or events $ost li8ely )ou ld cause an auditor to have sustantial dout aout an entity>s aility to continue as a going conc ern0 A. Restrictions on the disposal of principal assets are present. + s aility to continue as a going concern0 A. Confir$ation of an8 alances. %. Confir$ation of accounts receivale fro$ $a!or custo$ers. C. Reconciliation of interest e5pense )ith det outstanding. 0+ Review of compliance with terms of de!t agreements+ (?. hen an auditor concludes that there is sustantial dout aout a continuing audit client>s aility to continue as a going concern for a reasonale period of ti$e, the auditor>s responsiility is to A+ Consider the ade6uacy of disclosure a!out the client8s possi!le ina!ility to continue as a going concern+
%. Issue a 9ualified or adverse opinion, depending upon $ateriality, due to the possile effects on the financial state$ents. C. Report to the client>s audit co$$ittee that $anage$ent>s accounting esti$ates $ay need to e ad!usted. &. Reissue the prior year>s auditor>s report and add an e$phasis of $atter paragraph that specifically refers to -sustantial dout/ and - going concern/. (1. nder PSA 3:? "Danage$ent Representation#, the auditor is re9uired to otain audit evidence that $anage$ent I. II. A+ I only + II only
Ac8no)ledges its responsiility for the fair presentation of the financial state$ents in accordance )ith applicale financial reporting fra$e)or8. as approved the financial state$ents. C+ oth - and -- only &. 'either I nor II
((. hen an audit is $ade in accordance )ith generally accepted auditing standards, the auditor should al)ays A. Oserve the ta8ing of physical inventory on the alance sheet date. + O!tain certain written representations from management+ C. $ploy analytical procedures as sustantive tests to otain evidence aout specific assertions related to account alances. &. &ocu$ent the understanding of the client>s internal control and the asis for all conclusions aout the assessed level of control ris8 for financial state$ent assertions. (+. hen considering the use of $anage$ent>s )ritten representations as audit evidence aout the co$pleteness assertion, an auditor should understand that such representations A. Constitute sufficient appropriate audit evidence to support the assertion )hen considered in co$ination )ith a sufficiently lo) assessed level of control ris8. %. Are not part of the audit evidence considered to support the assertion. C. Replace a lo) assessed level of control ris8 as audit evidence to support the assertion. 0+ Complement, !ut do not replace, su!stantive tests designed to support the assertion+ (. A )ritten representation fro$ a client>s $anage$ent that, a$ong other $atters, ac8no)ledges responsiility for the fair presentation of financial state$ents, should nor$ally e signed y the A. Chief financial officer and the chair of the oard of directors. + Chief e7ecutive officer and the chief financial officer+ C. Chief e5ecutive officer, the chair of the oard of directors, and the client>s la)yer. &. Chair of the audit co$$ittee of the oard of directors. (3.The date of the $anage$ent representation letter should coincide )ith the date of the A. %alance sheet %. Fatest related party transaction C+ Auditor8s report &. Fatest interi$ financial infor$ation (4. hich of the follo)ing state$ents concerning $anage$ent representations is incorrect0 A+ Representations !y management can !e a su!stitute for other audit evidence that the auditor could reasona!ly e7pect to !e availa!le+ + If the auditor is unale to otain sufficient appropriate audit evidence regarding a $atter, )hich has, or $ay have, a $aterial effect on the financial state$ents and such audit ev idence is e5pected to e availale, this )ill constitute a li$itation in the scope of the aud it, even if a representation fro$ $anage$ent has een received on the $atter. C+ If a representation y $anage$ent is contradicted y other audit evidence, the auditor should investigate the circu$stances and, )hen necessary, reconsider the reliaility of other representations y $anage$ent.
0+ The auditor>s )or8ing papers )ould ordinarily include a su$$ary of oral discussions )ith $anage$ent or )ritten representations fro$ $anage$ent.
(7. hat type of opinion should e e5pressed if the client>s $anage$ent refuses to provide a representation that the auditor considers necessary0 A+ Qualified opinion or a disclaimer of opinion %. Qualified opinion or an adverse opinion. C. Adverse opinion or a disclai$er of opinion. &. n9ualified opinion. (:. The pri$ary source of infor$ation to e reported aout litigation, clai$s and assess$ents is the A. Independent auditor C. Court records %. Client8s management &. Client>s la)yer (<. The pri$ary reason an auditor re9uests that letters of in9uiry e sent to a client>s attorneys is to provide the auditor )ith A. A description and evaluation of litigation, clai$s and assess$ents that e5isted at the alance sheet date. %. The attorney>s opinions of the client>s historical e5periences in recent si$ilar litigation. C+ Corro!oration of the information furnished !y management a!out litigation, claims and assessments+ &. The proale outco$e of asserted clai$s and pending or threatened litigation. +?. The letter of audit in9uiry should e A. Prepared and sent y the auditor. + Prepared !y management and sent !y the auditor+ C. Prepared and sent y $anage$ent. &. Prepared y the auditor and sent y $anage$ent. +1. The refusal y the client>s la)yer to provide a representation on the legality of a particular act co$$itted y the client is ordinarily A. Proper grounds to )ithdra) fro$ the engage$ent. %. Insufficient reason to $odify the auditor>s report ecause of the la)yer>s oligation of confidentiality. C+ Considered to !e a scope limitation+ &. Sufficient reason to issue a -su!ect to/ opinion. +(. Danage$ent>s refusal to give the auditor per$ission to co$$unicate )ith the entity>s legal counsel is $ost li8ely to lead to A. An adverse opinion %. A 9ualified opinion or an adverse opinion C. An un9ualified opinion 0+ A 6ualified opinion or a disclaimer of opinion ++. In )hich of the follo)ing circu$stances )ould an auditor $ost li8ely $eet )ith the client>s legal counsel to discuss the li8ely outco$e of the litigation and clai$s0 I. II. III.
The auditor deter$ines that the $atter is a significant ris8. There is a disagree$ent et)een $anage$ent and the entity>s legal counsel. The su!ect $atter of the litigation is co$ple5.
A+ I and II only C. I and III only + II and II only 0+ -, -- and --+. hich of the follo)ing state$ents e5tracted fro$ a client>s la)yer>s letter concerning litigation, clai$s and assess$ents $ost li8ely )ould cause the auditor to re9uest clarification0 A+ L- !elieve that the action can !e settled for less than the damages claimed+M %. -I elieve that the co$pany )ill e ale to defend this action successfully./
C. -I elieve that the plaintiff>s case against the co$pany is )ithout $erit./ &. -I elieve that the possile liaility to the co$pany is no$inal in a$ount./ +3. The auditor should consider the status of legal $atters up to the A. %alance sheet date. + 0ate of the auditor8s report+ C. &ate of approval of the financial state$ents. &. &ate of issuance of financial state$ents.
RPOR.S O.4R ASSA.0 SR3-CS 5#A#15.S .O R3- F-5C8> S.A.15.S
1.*inancial state$ents of an entity that have een revie)ed y an accountant should e acco$panied y a report stating that a revie) A. Provides only li$ited assurance that the financial state$ents are fairly presented. %. Includes e5a$ining, on a test asis, infor$ation that is the representation of $anage$ent. C+ Consists principally of in6uiries of company personnel and analytical procedures applied to financial data+ &. &oes not conte$plate otaining corroorating evidential $atter or applying certain other procedures ordinarily perfor$ed during an audit. (.An accountant>s report on a revie) of the financial state$ents of an en tity should state that the accountant A. &oes not e5press an opinion or any for$ of li$ited assurance on the financial state$ents. + Conducted the review in accordance with the Philippine Standard on Review ngagements+ C. Otained reasonale assurance aout )hether the financial state$ents are free of $aterial $isstate$ents. &. 5a$ined evidence, on a test asis, supporting the a$ounts and disclosures in the financial state$ents. +. *inancial state$ents of an entity that have een revie)ed y an accountant should e acco$panied y a report stating that A+ The scope of the in9uiry and analytical procedures perfor$ed y the accountant has not een restricted. + .he financial statements are the responsi!ility of the company8s management+ C+ A revie) includes e5a$ining, on a test asis, evidence supporting the a$ounts and disclosures in the financial state$ents. 0+ A revie) is greater in scope than a co$pilation, the o!ective of )hich is to present financial state$ents that are free of $aterial $isstate$ents. . An accountant )ho revie)s the financial state$ents of an entity should issue a report stating that a revie) A+ Provides less assurance than an audit+ %. Provides negative assurance that internal control is functioning as designed. C. Provides only li$ited assurance that the financial state$ents are fairly presented. &. Is sustantially $ore in scope than a co$pilation. 3. hen co$piling the financial state$ents of an entity, an accountant should A. Revie) agree$ents )ith financial institutions for restrictions on cash alances. + s financial state$ents, an accountant )ould e least li8ely to A+ Perform analytical procedures designed to identify relationships that appear to !e unusual+
%. Read the co$piled financial state$ents and consider )hether they appear to include ade9uate disclosures. C. Otain an ac8no)ledge$ent fro$ $anage$ent of its responsiility for the financial state$ents. &. Plan the )or8 so that an effective engage$ent )ill e perfor$ed. 7. hich of the follo)ing should not e included in an accountant>s report ased upon the co$pilation of an entity>s financial state$ents0 A. A state$ent that a co$pilation of the co$pany>s financial state$ents )as $ade in accordance )ith the Philippine Standard on Related Services applicale to co$pilation engage$ents. %. A state$ent that $anage$ent is responsile for the financial state$ents. C. A state$ent that the accountant has not audited or revie)ed the state$ents. 0+ A statement that the accountant does not e7press an opinion !ut provides only negative assurance on the statements+ :. 'egative assurance $ay e e5pressed )hen an accountant is re9uested to report agreed2upon procedures to specified
A. %. C+ &.
le$ents of a *inancial State$ents Ges Ges 5o 'o
Accounts of a *inancial State$ent Ges 'o 5o Ges
<. An accountant $ay accept an engage$ent to apply agreed2upon procedures that are not sufficient to e5press an opinion on one or $ore specified accounts or ite$s of a financial state$ent provided that A. The accountant>s report does not enu$erate the procedures perfor$ed. %. The financial state$ents are prepared in accordance )ith a co$prehensive asis of accounting other than generally accepted accounting principles. C+ 0istri!ution of the accountant8s report is restricted+ &. The accountant is also the entity>s consulting auditor. 1?. Biven one or $ore hypothetical assu$ptions, a responsile party $ay prepare, to the est of its 8no)ledge and elief, an entity>s e5pected financial position, results of operations, and cash flo)s. Such prospective financial state$ents are 8no)n as A. Profor$a financial state$ents C. Partial presentations %. Financial pro"ections &. *inancial forecasts 11. A financial forecast consists of prospective financial state$ents that present an entity>s e5pected financial position, results of operations, and cash flo)s. A forecast A. Is ased on the $ost conservative esti$ates. %. Present esti$ates given one or $ore hypothetical assu$ptions. C. nli8e a pro!ection, $ay contain a range. 0+ -s !ased on assumptions reflecting conditions e7pected to e7ist and courses of action e7pected to !e taken+ 1(. hen an accountant e5a$ines prospective financial state$ents, the accountant>s report should include a separate paragraph that A+ Contains an opinion as to whether the prospective financial statements are properly prepared on the !asis of the assumption and are presented in accordance with generally accepted accounting principles in the Philippines+ %. Provides an e5planation of the differences et)een an e5a$ination and an audit. C. States that the accountant is responsile for events and circu$stances up to 1 year after the report>s date. &. &isclai$s an opinion on )hether the assu$ptions provide a reasonale asis for the prospective financial state$ents.
1+. A prospective financial infor$ation prepared on the asis of assu$ptions as to future events )hich $anage$ent e5pects to ta8e place and the actions $anage$ent e5pects to ta8e as of the date the infor$ation is prepared "est2esti$ate assu$ptions# is 8no)n as A. Forecast C. Pro!ection %. ypothetical financial infor$ation &. %est2esti$ate pro!ection 1. The follo)ing state$ents relate to the e5a$ination of prospective financial infor$ation. hich is false0 A+ .he auditor should e7press an opinion as to whether the results shown in the prospective financial information will !e achieved+ %. %efore accepting an engage$ent to e5a$ine prospective financial infor$ation, the auditor should consider the intended use of the infor$ation. C. The auditor should not accept, or should )ithdra) fro$, an engage$ent to e5a$ine prospective financial infor$ation )hen the assu$ptions are clearly unrealistic. &. hen in the auditor>s !udg$ent an appropriate level of satisfaction has een otained, the auditor is not precluded fro$ e5pressing positive assurance regarding the assu$ptions. 13. hich of the follo)ing is a prospective financial infor$ation for general use upon )hich an accountant $ay appropriately report0 C. Profor$a financial state$ents A+ *inancial pro!ection + Partial presentation 0+ Financial forecast
A<0-.OR8S RPOR. O5 F-5A5C-A> S.A.15.S PSA (&&
1.To distinguish it fro$ reports that $ight e issued y others, such as y officers of the entity, the oard of directors, or fro$ the reports of other auditors )ho $ay not have to aide y the sa$e ethical re9uire$ents as the independent auditor, the auditor>s report should have an appropriate A. Addressee C. Signature %. .itle &. Opinion (. The auditor>s report should e addressed A. Only to the shareholders of the entity )hose financial state$ents are eing audited. %. Only to the oard of directors of the entity )hose financial state$ents are eing audited. C. ither to the shareholders or oard of directors of the entity )hose financial state$ents are eing audited. 0+ ither to the shareholders or !oard of directors, or !oth, of the entity whose financial statements are !eing audited+ +.
hich of the follo)ing is included in the introductory or opening paragraph of the auditor>s report0 A+ -dentification of the financial statements audited, including the date of and period covered !y the financial statements+ %. A state$ent that the financial state$ents re the responsiility of the entity>s $anage$ent. C. A state$ent that the audit )as conducted in accordance )ith Philippine Standards on Auditing. &. A state$ent that the responsiility of the auditor is to e5press an opinion on the financial state$ents ased on the audit.
. The opinion paragraph of the auditor>s report I. II. A+ I only
Identifies the applicale financial reporting fra$e)or8 on )hich the financial state$ents are ased. 5presses an opinion on the financial state$ents. C+ oth - and -- only
+ II only
&. 'either I nor II
3. The follo)ing state$ents relate to the date of the auditor>s report. hich is false0 A. The auditor should date the report as of the co$pletion date of the audit. %. The date of the auditor>s report should not e earlier than the date on )hich the financial state$ents are signed or approved y $anage$ent. C+ .he date of the auditor8s report should not !e later than the date on which the financial statements are signed or approved !y management+ &. The date of the auditor>s report should al)ays e later than the date on )hich the financial state$ents "i.e., the alance sheet date#. 4. In )hich of the follo)ing circu$stances )ould an auditor $ost li8ely add an e$phasis of $atter paragraph to the auditor>s report )hile e5pressing an un9ualified opinion0 A+ .here is su!stantial dou!t a!out the entity8s a!ility to continue as a going concern+ %. Danage$ent>s esti$ates of the effects of future events are unreasonale. C. 'o depreciation has een provided in the financial state$ents. &. Certain transactions cannot e tested ecause of $anage$ent>s records retention policy. 7. An auditor>s responsiility to e5press an opinion on the financial state$ents is A. I$plicitly represented in the auditor>s report. + 7plicitly represented in the LAuditor8s Responsi!ilityM paragraph of the auditor8s report+ C. 5plicitly represented in the -Danage$ent>s Responsiility/ paragraph of the auditor>s report. &. 5plicitly represented in the opinion paragraph of the auditor>s report. :. hich paragraphs of an auditor>s report on financial state$ents should refer to Philippine *inancial Reporting Standards0 A. Introductory and Opinion. %. Auditor>s Responsiility and Danage$ent>s Responsiility C. Introductory and Auditor>s Responsiility. 0+ 1anagement8s Responsi!ility and Opinion+ <. An independent auditor discovers that a payroll supervisor of the co$pany eing audited has $isappropriated P3?,???. The co$pany>s total assets and inco$e efore ta5 are P7? $illion and P13 $illion, respectively. Assu$ing no other issues affect the report, the auditor>s report )ill $ost li8ely contain aEan A. s usiness operations are stored on $agnetic dis8s, and that no e$ergency ac8up syste$s or duplicate dis8s are stored ecause the an8 and its auditors consider the occurrence of a catastrophe to e re$ote. %ased upon this note, the auditor>s report should e5press A. A 9ualified opinion C. An adverse opinion %. An un6ualified opinion &. A -su!ect to/ opinion 11. An auditor )ho uses the )or8 of an e5pert $ay refer to and identify the e5pert in the auditor>s report if the A. 5pert is e$ployed y the entity. %. 5pert>s )or8 provides the auditor greater assurance of reliaility. C+ Auditor e7presses a 6ualified opinion or an adverse opinion related to the work of the e7pert+ &. Auditor indicates a division of responsiility related to the )or8 of the e5pert.
1(. hen )ould an auditor refer to the )or8 of an appraiser in the auditor>s report0 A+ An adverse opinion is e7pressed !ased on a difference of opinion !etween the client and the outside appraiser as to the value of certain assets+
%. A disclai$er of opinion is e5pressed ecause of a scope li$itation i$posed on the auditor y the appraiser. C. A 9ualified opinion is e5pressed ecause of a $atter unrelated to the )or8 of the appraiser. &. An un9ualified opinion is e5pressed and an e$phasis of $atter paragraph is added to disclose the use of the appraiser>s )or8. 1+. hen t)o or $ore auditing fir$s participate in an audit, one fir$ should e the principal auditor. If the principal auditor $a8es reference to another auditor in an audit that )ould other)ise result in an un9ualified opinion, the type of audit report issued should e A+ A disclai$er of opinion C+ An un6ualified opinion &. An adverse opinion + A 9ualified opinion 14. hen audited financial state$ents are presented in a docu$ent "e.g., annual report# containing other infor$ation, the auditor A+ Should read the other information to consider whether it is inconsistent with the audited financial statements+ %. as no responsiility for the other infor$ation ecause it is not part of the asic financial state$ents. C. an an oligation to perfor$ auditing procedures to corroorate the other infor$ation. &. Is re9uired to e5press a 9ualified opinion if the other infor$ation has a $aterial $isstate$ent of fact. 17. An auditor concludes that there is a $aterial inconsistency in the other infor$ation in an annual report to shareholders containing audited financial state$ents. If the auditor con cludes that the financial state$ents do not re9uire revision, ut the client refuses to revise or eli$inate the $aterial inconsistency, the auditor $ay A. &isclai$ an opinion on the financial state$ents after e5plaining the $aterial inconsistency n an e$phasis of $atter paragraph. + Revise the auditor8s report to include an emphasis of matter paragraph descri!ing the material inconsistency+ C. 5press a 9ualified opinion after discussing the $atter )ith the client>s directors. &. Consider the $atter closed ecause the other infor$ation is not in the audited state$ents. 1:. PSA 7(? states, -If, on reading the other infor$ation, the auditor identifies a $aterial inconsistency, the auditor should deter$ine )hether the audited financial state$ents or the other infor$ation needs to e a$ended./ hat type of opinion should e e5pressed if the client refuses to $a8e the necessary a$end$ent in the financial state$ents0 A. &isclai$er of opinion. %. Qualified opinion or disclai$er of opinion. C. n9ualified opinion )ith an e$phasis of $atter paragraph descriing the $aterial inconsistency. 0+ Qualified or adverse opinion+ 1<. An auditor $ay e5press a 9ualified opinion under )hich of the follo)ing circu$stances0
A. %. C. 0+
Fac8 of Sufficient Appropriate vidence 'o 'o Ges :es
Restriction on the Scope of the Audit 'o Ges 'o :es
(?. hich of the follo)ing should e included in the opinion paragraph )hen an auditor e5presses a 9ualified opinion0 hen Read in Con!unction )ith 'ote L
ith the *oregoing 5planation
A. %. C+ &.
Ges 'o 5o Ges
'o Ges 5o Ges
(1. In )hich of the follo)ing situations )ould an auditor ordinarily choose et)een e5pressing a 9ualified opinion or an adverse opinion0 A. The auditor )ishes to e$phasi;e an unusually i$portant suse9uent event. + .he financial statements fail to disclose information that is re6uired !y Philippine Financial Reporting Standards+ C. vents disclosed in the financial state$ents cause the auditor to have sustantial dout aout the entity>s aility to continue as a going concern. &. The auditor did not oserve the entity>s physical inventory and is unale to eco$e satisfied as to its alance y other auditing procedures. ((. hich of the follo)ing phrases )ould an auditor $ost li8ely include in the auditor>s report )hen e5pressing a 9ualified opinion ecause of inade9uate disclosure0 A. &o not present fairly in all $aterial respects. + 7cept for the omission of the information included in the preceding paragraph+ C. ith the foregoing e5planation of these o$itted procedures. &. Su!ect to the departure fro$ generally accepted accounting principles, as descried aove. (+. An auditor>s report includes the follo)ing state$ent= -In our o pinion, ecause of the effects of the $atters discussed in the preceding paragraph, the financial state$ents do not present fairly, in all $aterial respects, the financial position of A%C Co$pany as of &ece$er +1, (?L1, and of its financial perfor$ance and its cash flo)s for the year then ended in accordance )ith Philippine *inancial Reporting Standards./ This auditor>s report contains aEan A+ Qualified opinion C. &isclai$er of opinion + n9ualified opinion 0+ Adverse opinion (. An auditor should disclose the sustantive reasons for e5pressing an adverse opinion in an e$phasis of $atter paragraph A. *ollo)ing the opinion paragraph + Preceding the opinion paragraph C. *ollo)ing the introductory paragraph &. ithin the notes to the financial state$ents. (3. There are t)o road financial reporting fra$e)or8s for co$paratives= the corresponding figures and the co$parative financial state$ents. hich of the follo)ing state$ents is correct concerning these reporting fra$e)or8s0 A+ s reporting responsiilities regarding co$paratives. hich is incorrect0 I. *or corresponding figures, the auditor>s report only refers to the financial state$ents of the current period. II.*or co$parative financial state$ents, the auditor>s report refers to each period that financial
state$ents are presented. A+ I only + II only
C. %oth I and II only 0+ 5either - nor --
(7. PSA 71? states that the e5tent of audit procedures perfor$ed on the corresponding figures is significantly less than for the audit of the current period figures. The auditor>s procedures are ordinarily li$ited to ensuring that the corresponding figures have een correctly reported and are appropriately classified. The auditor should assess )hether I. Accounting policies used for the corresponding figures are consistent )ith those of the current period or )hether appropriate ad!ust$ents andEor disclosures have een $ade. II.Correponding figures agree )ith the a$ounts and other disclosures presented in the prior period or )hether appropriate ad!ust$ents andEor disclosures have een $ade. A+ I only + II only
C+ oth - and -- only &. 'either I nor II
(:. In )hich of the follo)ing circu$stances )ould an auditor>s report least li8ely include specific reference to the corresponding figure0 A+ hen the auditor8s report on the prior period, as previously issued, included a modified opinion and the matter which gave rise to the modification is resolved and properly dealt with in the financial statements+ %. hen the auditor>s report on the prior period, as previously issued, included a $odified opinion and the $atter )hich gave rise to the $odification is unresolved, and results in a $odification of the auditor>s report regarding the current period figures. C. hen the auditor>s report on the prior period, as previously issued, included a $odified opinion and the $atter )hich gave rise to the $odification is unresolved ut does not result in a $odification of the auditor>s report regarding the current period figures. &. hen the auditor>s report on the prior period financial state$ents containing a $aterial $isstate$ent included an un$odified opinion and the prior period financial state$ents have not een revised and reissued, and the corresponding figures have not een properly restated andEor appropriate disclosures have not een $ade. (<. According to PSA 71?, the inco$ing auditor $ay refer to the predecessor auditor>s report on the corresponding figures in the inco$ing auditor>s report for the current period. The inco$ing auditor>s report should indicate I. That the financial state$ents of the prior period )ere audited y another auditor. II. The type of report issued y the predecessor auditor. III.The date of the predecessor auditor>s report. A+ I and II only. + II and III only.
C. I and III only. 0+ -, -- and ---+
+?. hen the prior period financial state$ents are not audited, the inco$ing auditor should state in the auditor>s report that I. The corresponding figures are unaudited. II. The inco$ing auditor is not re9uired to perfor$ procedures regarding opening alances of the current period. A. - only+ %. II only.
C. %oth I and II. &. 'either I nor II.
+1. Dary Ruth, CPA, audited D&B Co$pany>s prior2year financial state$ents. These state$ents are presented )ith those of the current year for co$parative purposes )ithout Ruth>s auditor>s report, )hich e5pressed a 9ualified opinion. In drafting the currents year>s auditor>s report, Christine Darie, CPA, the inco$ing auditor, should
