You are on page 1of 37

AUDITING THEORY Comprehensive Rev iewer Preliminary Grading Per iod

SET 1 1. An independent financial statement audit is important to financial statements users because it: a. Objectively examines and reports on special-purpose financial statements. b. It reduces cost of capital c. Objectively examines and reports on general-pur pose financial statements. d. Objectively reports on the accuracy of information in the financial statements. 2. In a. b. c. d. relation to auditing, which of the following is a correct phrase? Auditing communicates results to management. Audit ing involves obtaining ev idence regarding action and events. Auditing evaluates assertions regar ding evidence. Auditing subjectively obtains and evaluates evidence.

3.

Which of the following is not an output of an indepe ndent audit engagement? a. Management letter. b. Audit report. c. Engagement letter. d. Audited financial statements. The best description of the auditor’s responsibility with respect to audited financial statement is: a. The auditor's responsibility on fair presentatio n of financial statements is limited only up to the date of the audit report. b. The auditor is responsible for detecting misstatements on the financial statements. c. The responsibility over the financial statements rests with the management. d. The auditor's responsibility is limited to the expression of opinion on the financial statements. When a CPA expresses an opinion on the financial statements, his responsibilities extend to a. The underlying wisdom of the client's management decision. b. Active participation in the implementation of the advice given to the client. c. An ongoing responsibility for the client's solvency. d. Whether the results of the client's operating decisions are fair ly presented in the financial statements. The accuracy of information included in the footnotes that accompany the audited financial statements of a company w hose shares are traded on a stock exchange is the primar y responsibility of a. The stock exchange officials. b. The company's management. c. The independent auditor. d. The Securities and Exchange Commission. The responsibility for adopting sound accounting policies, maintaining adequate internal control, and making fair representations in the financial statements rests a. With management b. With the independent auditor c. Equally with management and the auditor d. With the internal audit department. Audit standards require an auditor to: a. Perform procedures that are designed to detect all instances of fraud. b. Prov ide reasonable assurance that the financial statements are not mater ially misstated. c. Issue an unqualified opinion only w hen the auditor is satisfied that no instances of fraud have occurred. d. Design the audit program to meet financial statement users' expectations concer ning fraud. Generally, the decision to notify parties outside the client's organization regarding an illegal act is the responsibility of the a. Outside legal counsel. b. Independent auditor. c. Management.

4.

5.

6.

7.

8.

9.

Red Sirug

Page 1

d.

Internal auditors.

10. If requested to perform a review engagement for a nonpublic entity in w hich an accountant has an immaterial direct financial interest, the accountant is a. Independent because the financial interest is immaterial and, therefore, may issue a review report. b. Not independent and, therefore, may not issue a review report. c. Not independent and, therefore, may not be associated with the financial statements. d. Not independent and, therefore, may issue a review report, but may not issue an auditor's opinion. 11. Solicitation consists of the various means that CPA firms use to engage new clients. following would not be an example of solicitation? a. Advertisements in the yellow pages of a phone book. b. Accepting new clients that approach the fir m. c. Taking prospective clients to lunch. d. Offering seminars on current tax law changes to potential clients. Which one -of the

12. Which of the following activities is not prohibited for the CPA firm's attestation service clients? a. Referral fees on audit jobs. b. Compet itive bidding on audit jobs. c. Contingent fees on audit jobs. d. Commissions for obtaining client services on audit jobs. 13. Family and personal relationships between a member of the assurance team and a director, an officer or certain employees, depending on their role, of the assurance client, least likely create a. Self-rev iew threat. b. Self-interest threat. c. Intimidation threat. d. Familiarity threat. 14. A director, an officer or an employee of the assurance client in a position to exert direct and significant influence over the subject matter of the assurance engagement has been a member of the assurance team or partner of the firm. This situation least likely create a. Self-interest threat. b. Advocacy threat. c. Intimidation threat. d. Familiarity threat. 15. A former officer, director or employee of the assurance client serves as a member of the assurance team. This situation will least likely create a. Self-interest threat. b. Self-review threat. c. Familiarity threat. d. Int imidation threat. 16. Which of the following will least likely impair independence? a. A partner or employee of the firm ser ves as an officer or as a director on the board of an assurance client. b. An immediate family member of a member of the assurance team is a director, an officer or an employee of the assurance client in a position to exert direct and significant influence over the subject matter of the assurance engagement. c. A partner or employee of the fir m or a networ k f ir m serves as Company Secretary for an audit client, the dut ies and functions undertaken are limited to those of a rout ine and for mal administrative nature as such as the preparation of minutes and maintenance of statutory returns. d. A member of the assurance team participates in the assurance engagement while knowing, or having reason to believe, that he or she is to, or may, join the assurance client some time in the future. 17. When a CPA firm is requested to provide a written or oral opinion on the application of accounting principles or the type of audit opinion that would be issued for a specific or hypothetical transaction relating to an audit client of another CPA firm, primar y among the requirements set for th is that a. Client is entitled to confidentiality, so the consulting CPA firm is forbidden form communicating with the CPA firm which does the audit. b. Client is not entitled to confidentiality under these circumstances, so the existing auditors should share all information with the consulting CPA firm. c. The consulted CPA fir m should communicate with the entity's existing auditors to ascertain all the available facts relevant to for ming a professional judgment on the

Red Sirug

Page 2

d.

matters the fir m has been requested to report on. Client is entitled to confidentiality, so the CPA firm which does audit should refuse to share any information with the consulting CPA firm under any circumstances.

18. A professional accountant has a professional duty or right to disclose confidential information in each of the following, except: a. To disclose to BIR fraudulent scheme committed by the client on pay ment of income tax. b. To comply with technical standards and ethics requirements. c. To comply with the quality review of a member body or professional body d. To respond to an inquir y or investigation by a member body or regulator y body. 19. Which of the following is not likely a threat to independence? a. Acting as an advocate on behalf of an assurance client in litigation or in resolving disputes with third parties. b. Long association of a senior member of the assurance team with the assurance client. c. Threat of replacement over a disagreement with the application of an accounting principle. d. Owning immaterial indirect financial interest in an audit client. 20. When threats to independence that are not clearly insignificant are identified, the following are appropriate, except: a. When the fir m decides to accept or continue the assurance engagement, the decision need not be documented prov ided the threats ident ified were eliminated. b. Professional judgment is used to determine the appropriate safeguards to eliminate threats to independence or to reduce them to an acceptable level. c. In situations when no safeguards are available to reduce the threat to an acceptable level, the only possible actions are to eliminate the activities or interest creating the threat, or to refuse to accept or continue the assurance engagement. d. The evaluation of the significance of any threats to independence and the safeguards necessary to reduce any threats to an acceptable level, takes into account the public interest. 21. The following loans and guarantees would not create a threat to independence, except: a. A loan from, or a guarantee thereof by, an assurance client that is a bank or a similar institution, to the firm, provided the loan is made under normal lending procedures, terms and requirements and the loan is immaterial to both the firm and the assurance client. b. A loan from, or a guarantee thereof by, an assurance client that is a bank or a similar institution, to a member of the assurance team or their immediate family, provided the loan is made under normal lending procedures, terms and requirements. c. If the fir m, or a member of the assurance team, makes a loan to an assurance client that is not a bank or similar institut ion, or guarantees such an assurance client's borrowing. d. Deposits made by, or brokerage accounts of, a firm or a member of the assurance team with an assurance client that is a bank, broker or similar institution, provided the deposit or account is held under normal commercial terms. 22. Examples of circumstances that may create self-interest threat include: a. Contingent fees relating to assurance engagements. b. A direct financial interest or material indirect financial interest in an assurance client. c. A loan or guarantee to or from an assurance client or any of its directors or officers. d. All of the above 23. Examples of circumstances that may create self-review threat least likely include a. Potent ial employ ment with an assurance client. b. Preparation of original data used to generate financial statements or preparation of other recor ds that are the subject matter of the assurance engagement. c. A member of the assurance team being, or having recently been, an employee of the assurance client in a position to exer t direct and significant influe nce over the subject matter of the assurance engagement. d. Performing services for an assurance client that directly affect the subject matter of the assurance engagement. 24. A CPA-lawyer, acting as a legal counsel to one of his audit client, is an example of a. Advocacy threat b. Familiarity threat c. Self-interest threat d. Self-review threat 25. Examples of circumstances that may create familiarity threat least likely include

Red Sirug

Page 3

c. Objectivity refers to the CPA's ability to a. d. b. A member of the assurance team having an immediate family member or close family member who is a director or officer of the assurance client. A CPA firm is considered independent when it performs which of the following ser vices for a publicly-traded audit client? a. would reasonably conclude a firm's or a member of the assurance team's integrity. Determining which accounting policies will be adopted by the client. d. 30. Additional examples relating to anniversaries and websites wherein publicity is acceptable. b. w hen the assurance report is expressly restricted for use by identified users. allowing an individual to act with integrity. b. d. d. c. The auditor planned the work in a hasty and inefficient manner. Determine accounting practices that were consistently applied. who circumvented the existing inter nal control. c. series of 2000. were included. c. as provided in boa resolution 19. b. 26. is in a position to exert direct and significant influence over the subject matter of the assurance engagement. 32. 28. Dealing in. d. d. For assurance engagements provided to clients that are not audit clients. d. b. The fraud was perpetrated by one client employee. and exercise objectivity and professional skepticism. 27. A former partner of the firm being a director. Determine the materiality of items. as an employee of the assurance client. The networ k firms are required to be independent of the client a. c. Accountants performing important par ts of the w ork failed to discover a close relationship between the treasurer and the cashier. b. Accounting information system design and implementation. Statistical sampling techniques were not used on the audit engagement. Advertising and solicitation by individual professional accountants in public practice were not permitted in the Philippines. Maintain an impartial attitude on all matters which come under his review. Payment and receipt of commissions were not permitted in the Philippines. b. For assurance engagements provided to clients that are not audit clients. officer of the assurance client or an employee in a position to exert direct and significant influence over the subject matter of the assurance engagement. Independence consists of independence of mind and independence in appearance. Tax return preparation as approved by the board of directors. The Code of Professional Ethics states. Failure to detect collusive fraud perpetrated by members of top management. The following are modifications made to the IFAC Code to consider Philippine regulator y requirements and circumstances. Independence of mind is the state of mind that permits the provision of an opinion without being affected by influences that compromise professional j udgment. Red Sirug Page 4 . c. that a CPA should maintain integrity and objectivity. Independence in appearance is the avoidance of facts and circumstances that are so significant a reasonable and informed third par ty. b. Which of the following is incorrect regar ding independence? a. except a. The per iod for rotation of the lead engagement partner was cha nged from five to seven years. In connection with the examination of financial statements. Which of the following conditions suggests auditor negligence? a. Failure to detect errors occurring outside the internal control structure. share or other secur ities in an assurance client. w hen the report is not expressly restricted for use by identified users. or being a promoter of.a. including any safeguards applied. 31. an independent auditor could be responsible for failure to detect a material fraud if a. All of the above 29. A member of the assurance team having an immediate family member or close family member who. Failure to detect collusive fraud perpetrated by members of middle management. in part. having knowledge of all relevant information. c. c. Independence is a combination of impart iality. For assurance engagements prov ided to an audit client. intellectual honesty and a freedom from conflicts of interest. Serving as a member of the client's board of directors. objectivity or professional skepticism had been compromised. Insist on all matters regar ding audit pr ocedures.

Quality control reviewer. Assuming that the application for registration of Sisip and Co. The perfor mance of consult ing services for audit clients does not. the independent auditor attempts to corroborate assertions made by the company’s management in connection with each account. d. The registration will expire on Dec. b. Which of the following is best considered a fraud? a. Which of the following statements is incorrect? a. Placement of the auditor's repor t in the back of the client's annual report w here it is hard to locate. Intent ional misrepresentation of financial infor mation. d. The registration will expire on August 30. 33. Which of the following statements is correct? a. including partners and staff members thereof shall register with the BOA and the PRC. its reliability and persuasiveness. d. Which of the following statements is correct? a. b. The term “materiality” refers to any factor of a size or type that would impact an outside decisionmaker’s decision about a set of financial statements. In an audit. 31.. The role of the independent auditor is to gain sufficient appropriate evidence so as to provide reasonable assurance that material misstatements do not exist in any of the assertions made by management. Individual CPAs. 35. The fair presentation of audited financial statements in accordance with applicable financial repor ting framework is an implicit part of the auditor’s responsibility. class of transactions. which of the following is true? a. including those who provide audit and tax serv ices. c. d. Appropriateness is the measure of the quality of evidence. The reliability of evidence is influenced not by its nature but by its source. Conflict between financial statement users and auditors often arises because of the a. c. d. Secondary beneficiary. Professional judgment can be used as the justification for the decisions made by the auditor that are not otherwise supported by the facts and circumstances of the engagement or sufficient appropriate evidence. c. b. 2007. Third party. A belief that management and those charged with governance are honest and have integrity relieves the auditor of the need to maintain pr ofessional scepticism. Anyone identified to the auditor by name prior to the audit who is to be the principal recipient of the auditor's report is a a. that is. Technical vocabular y which the auditor uses in the repor t. 2005. d. 40. Pr imary beneficiary. c. and disclosures found in a set of financial statements. impair the auditor’s independence. 2007 since the validity of the cer tificate of registration is three years. Inability to pr ovide due diligence. while appropriateness refers to the quantity of evidence. c. also prov ide consult ing services to their clients. Declining to finish wor k on client in light of a valid contract. Quality control procedures are applicable to the individual audit engagement. 37. b. The registration must be renewed on September 30. d. 39. Manager assigned to the engagement. Failure to detect material errors under condit ions of weak internal control. in and of itself. Foreseen beneficiary. Not acting professionally while performing services. c. CPA firm. Most CPAs. b. Expectation gap. c. High cost of performing an audit. 2007. Firms or Partnerships of CPAs. 36. 31. financial statements are the responsibility of the independent auditor. The implementation of such quality contr ol procedures is responsibility of the: a. b. Engagement team. d.d. Sufficiency refers to the quality of evidence. The registration will expire on Dec. 2007 which is also the last day of renewal of certificate of Red Sirug Page 5 . b. Because of the attest function. 34. CPAs was approved on August 30. 38. c. b.

46. Which of the following statements is an not an example of an inherent limitation of internal control? a. b. 42. c. c. Determine audit risk. The audit will be completed expeditiously. Insanity is not a ground for pr oceeding against a CPA. Only audit and attestation services since these types of services also require independence. d. Material indirect-effect noncompliance. Understand the events and transactions that may have an effect on the client's financial statements. d. c. Potential problems are identified and resolved on a timely basis. set materiality. 45. Which of the following is least likely an advantage to the client and the auditor as a result of early appointment of the auditor? a. Professional services c. b. c. Assurance services 47. d. determine detection risk. All services provided by CPAs. subject to certain conditions. Obtaining a written representation letter from the client to emphasize management's responsibilities. c. The confidential relationship applies to: a. Red Sirug Page 6 . as an officer in a pr ivate enterprise. Performing analytical procedures to identify material fraud and material error. Material direct-effect noncompliance. Reading the minutes of stockholder and director meetings to discover whether any unusual transactions have occurred. Tax consultancy services d. 48. b. Most internal controls tend to be directed at routine transactions rather than non-routine transactions. Perfor ming analytical procedures to ident ify areas that may represent specific risks. set materiality. c. incompetence. the Boar d of Accountancy may order the reinstatement of a CPA w hose cer tificate of registrati on has been revoked. Set materiality. d. determine audit r isk. The cost-benefit relationship is a primary criterion in designing inter nal control. Audit and MAS services. Auditors would perform the following steps in which or der? a. b. The auditor will be able to perform the examination more efficiently and will be finished at an early date after the year-end. d. c. determine detection risk. 41. Compliance with the independence requirement is necessar y whenever a CPA performs: a. Only audit and attestation services. b. Evaluate w hether the aggregation of known misstatements causes the financial statements taken as a whole to be materially misstated. All noncompliance since they affect the financial sta tements directly or indirectly. 44.registration. d. he makes decisions requir ing professional account ing knowledge. assess control r isk. c. Which of the following procedures would an auditor be most likely to perform in planning a financial statement audit? a. determine audi t risk. Non-assurance ser vices b. or any other j ust cause. Make constr uctive suggestions concerning impr ovements to the client's inter nal control. The Professional Regulation Commission has the authority to remove any member of the Board of Accountancy for negligence. d. b. The auditor will be able to complete the audit wor k in less time. Determine audit risk. After three years. but not compilation engagements. determine detection risk. 43. Direct-effect noncompliance. d. Set materiality. b. Auditor’s responsibility for detecting noncompliance is limited to those: a. assess control risk. assess control risk. Which of the following statements regarding RA 9298 is true? a. deter mine detection r isk. 49. assess control risk. Errors may arise from mistakes in judgments. Develop an attitude of professional skepticism concerning management's financial statement assertions. A person shall be considered to be in the professional practice of accounting if. The primary purpose why an auditor obtains an understanding of the entity and its environment is to: a. The effectiveness of control procedures depends on segregation of dut ies. b.

such as collusion. b. b. d. b. d. Tolerable materiality. Purchasing at pr ices significant ly above or below book value. Tolerable error. related parties. Fraud ordinar ily involves acts designed to conceal it. or government employees. 54. The auditor designs only procedures to detect material error but no procedures are designed to detect material fraud. Noncompliance may involve conduct designed to conceal it. Whenever the auditor has completed an evaluat ion of the relevant internal control. Special care is required in assigning experienced staff. b. b. Key relationships among financial statement elements. deliberate failure to record transactions. the auditor should design an a udit program suitable to the circumstances on particular engagements. Planning mater iality. An auditor can not be held responsible for preventing noncompliance. Review of the working papers by personnel who were not assigned to the engagement. Usually. b. Which of the following is least likely a potential effect of an auditor's decision to reduce acceptable audit risk at low level? a. c. Which of the following statements best describes why the auditor's examination cannot reasonably be expected detect all acts of noncompliance with existing laws and regulations? a. c. 52. Prior to beginning the actual audit work. Such preliminary materiality is know n as: a. c. The PSA do not require the auditor to discover information that is indicative of fraud. c. d. Which of the following statements is true? a. Which of the following is not an information source for developing analytical procedures used in the audit? a. d. d. Presented below are circumstances that may indicate the occurrence of nonco mpliance with laws and regulations. It is usually easier for the auditor to uncover errors than fraud. 53. Red Sirug Page 7 . Acts of noncompliance by clients often relates to accounting aspects rather than operating aspects. Tolerable misstatement. c. c. It is usually easier for the auditor to uncover management fraud than employee fraud. It is usually equally difficult for the auditor to uncover errors or fraud. It is management's responsibility to ensure that entity's operations are conducted in accordance with laws and regulations. c. the auditor does not design procedures to uncover fraud or errors. Less evidence is required. 57. The client's inter nal control may be so strong that the auditor performs only minimal substantive testing. 51. Payment of fines or penalties b. After reviewing the client's accounting records and procedures. d. 55. d.50. Which of the following statements about noncompliance is incorrect? a. More evidence is required. An audit in accordance with PSA can not be expected to detect noncompliance with all laws and regulations. d. 56. Noncompliance may be perpetrated by the only person in the client's organization with access to both assets and the accounting records. b. Auditors allocate the preliminary judgment about materiality to account balances. The deter mination as to whether a part icular act constitutes noncompliance is ult imately based on the judgment of the auditor. forgery. Payment for unspecified services to consultants. because: a. It is the responsibility of the management to detect fraud and the auditor's responsibility is confined only to the detection of material errors. A complete audit program for an engagement generally should be developed a. Although generalized audit programs may be used. The risk of not detecting material misstatement resulting from fraud is greater than the risk of not detecting a material misstatement arising from error. c. After completing the s tudy of internal control. except: a. 58. Purchasing at prices significantly above or below market price.

66. Provides negative assurance that the inter nal control is functioning as designed. The CPA hopes to reduce the audit wor k by consulting with the predecessor auditor and reviewing the predecessor's working papers. The auditor should apply the sam e materiality considerations as would be applied if an audit opinion on the financial statements were being given. The financial statements for the client. 61. Conduct some audit procedures at an interim date rather than at period end. The judgment as to what is material is made by reference to the information on which the auditor is reporting and the needs of those relying on that information. Provides only a limited assurance that the financial statements are fairly presented. Acceptable if the client and the predecessor auditor agree to it. Required if the CPA is to render an unqualified opinion. Attestation standards do not include standards of reporting. Which of the following is required to be performed in an audit but not in review engagement? a. not to the level of assurance provided. Is substant ially less in scope than an audit. Which statement is incorrect regarding procedures and evidence obtained in a review engagement? a.b. Have more confidence in internal control and the reliability of audit evidence generated internally within the entity. c. b. A review engagement. c. Relationships between financial and relevant nonfinancial data. b. T his procedure is a. d. Weaknesses in the control environment ordinarily will lead the auditor to a. b. Complying with the "Code of Professio nal Ethics for Certified Public Accountants" promulgated by the Board of Accountancy b. Which of the following is a conceptual difference between the attestation standar ds and generally accepted auditing standards? a. 59. b. c. b. Attestation standards do not require independence in mental attitude. An accountant who reviews the financial statements should issue a report stating that a review a. It is acceptable for the auditor to prepare: a. c. The attestation standar ds do not permit an attest engagement to be par t of a business acquisition study or a feasibility study. c. c. The auditor should apply judgment in determi ning the specific nature. Is substantially more in scope than a compilation 64. Acceptable if the CPA refers in the audit report to reliance upon the predecessor auditor's work. Agreeing on the terms of engagement d. b. A draft of the financial statements and notes to the financial statements for the client. d. Study ing and evaluat ing internal control structure 65. Planning the engagement c. d. c. A draft of the financial statements for the client. Modify the nature of audit procedures to obtain more persuasive audit evidence. The assessment of the risks of material misstatement at the financial statement level is affected by the auditor’s understanding of the control environment. The attestation standards prov ide a framewor k for the attest function beyond histor ical financial statements. When an accountant performs more than one level of service. A compilation engagement. he generally should issue a report that is appropriate for: a. There is a greater risk that misstate ments will not be detected in an audit than in a review. 62. d. c. Red Sirug Page 8 . A CPA is conducting the first examination of a non-public company's financial statements. timing and extent of review procedures. Compar ison of current year financial data with project ions for next year's financial results d. The highest level of service rendered. d. d. Decrease the number of locations to be included in the audit scope. Comparison of financial data with anticipated results. 60. b. The lowest level of service rendered. 63. The notes to financial statements for the client. Unacceptable because the CPA should bring an independent viewpoint to a new engagement. d.

Auditing standards are not changed 75. Accountants performing important parts of the work failed to discover a close relationship between the treasurer and the cashier. The fraud was perpetrated by one client employee. Sales of merchandise between a parent company and its subsidiary. f. 73. b. Whenever it would be appropriate. Audit procedures performed are approved in the professional standards. 70. For every audit. Statistical sampling techniques were not used on the audit engagement. 72. The auditor is responsible for the failure to detect material errors and frauds only when such failure results from the misapplication of generally accepted accounting principles. d. The procedures used are not changed d. Which of the following would not fit the description of a related-party transaction? a. The audit should be designed to prov ide reasonable assurance that material errors and fraud are detected. b.67. Loans to corporate officers at mar ket rates of interest with a regular repayment schedule. The auditor planned the work in a hasty and inefficient manner. The audit wor k performed by each assistant should be reviewed to determine w hether it was adequately performed and to evaluate whether the a. b. Inherent risk. c. Fraudulent financial reporting and management fraud. The purposes of auditing is not changed c. Which of the following is not a document or recor d that should be examined early in the engagement? a. Auditor's system of quality control has been maintained at a high level. Philippine Standards on Auditing require auditors to assess the risk of material misstatements due to fraud a. 69. Audit has been per formed by persons having adequate technical training and proficiency as auditors. Acceptable audit risk. The definition of auditing is not changed b. Management letter. 68. Which of the following statements best describes the auditor's responsibility to detect material errors and fraud? a. Exchanges of equipment between two companies owned by the same person. Misrepresentation b. Sufficient to find any frauds which may exist. Statistical risk. d. d. Misappropriation of asset and defalcation d. b. b. Control risk. For first-time audits. Misapplication Red Sirug Page 9 . c. Corporate charter and by-laws. A measure of the auditor's assessment of the likelihood that there are material misstatements in a segment before considering the effectiveness of the internal control structure is a. The auditor is responsible for the failure to detect material errors and frauds onl y w hen the auditor fails to confirm receivables or observe inventories. d. 76. d. c. Contracts. c. Which of the following statements best identifies the two types of fraud? a. Which of the following is not true regar ding planning in an electronic environment? a. d. b. c. h. Extended auditing procedures are required to detect unrecorded transactions even if there is no evidence that material errors and frauds may exist. Theft of assets and employee fraud. b. An unusually large sale of merchandise to the company's best and largest customer. In connection with the examination of financial statements. 74. who circumvented the existing inter nal control. 71. an independent auditor could be responsible for failure to detect a material fraud if e. Minutes of board of directors' and stockholders' meetings. Results are consistent with the conclusions to be presented in the auditor's report. Management fraud and employee fraud c. c. g. Which of the following terms relates to the embezzling of receipts? a.

Encompass a plan to search actively for illegalities which relate to operating aspects. Auditors focus on a. Inherent and control risks 84. Which of the following statements is incorrect about materiality? a. 85. 82. d. such error does exist is referred to as a. Red Sirug Page 10 . The risk that the audit will fail to uncover a material misstatement is eliminated a. Areas where the risk of material errors and irregular ities is greatest. 79. c. d. control and detection risks. d. c. Inherent risk. c. Adverse relationships between the entity and employees with acce ss to cash or other assets susceptible to theft may motivate those employees to misappropriate those assets. When the auditor has complied with generally accepted auditing standards. in fact. Inadequate inter nal control over assets may increase the susceptibility of misappr opriation of those assets. Adequacy of disclosure of the transaction is secondar y to its legal form. b. d. c. Not be relied upon to prov ide assurance that illegal acts will be detected. Areas where the risk of material errors and irregularities is least. Be relied upon to disclose violations of tr uth-in-lending act. Which of them is are dependent variable(s)? a. b. Recurr ing negat ive cash flows from operations or an inability to generate cash flows from operations while reporting earnings and earnings growth. Materiality judgments are made in light of surrounding circumstances and necessarily involve both quantitative and qualitative judgments. c. c. Inherent risk b. d. Which of the following concepts of materiality is incorrect? a. b. For example. Materiality is a matter of pr ofessional audit judgment. Which of the following fraud risk factors relate to misstatement arising from fraudule nt financial repor ting? a. The concept of materiality recognizes that some matters are impor tant for fair presentation of financial statements in conformity with GAAP. Audit risk components consist of inherent. A random selection of all areas. After discovering that a related. Prevention risk. b. d. while other matters are not important. b. Control risk. An auditor considers materiality for planning pur poses in ter ms of the largest aggregate level of misstatements that could be mater ial to any one of the financial statements. 78. Personal financial obligations may create pressure on management or employees with access to cash or other assets susceptible to theft to misappropriate those assets. An auditor's examination performed in accordance with generally accepted auditing standards generally should a. the auditor should be aware that the a. c. b. Under no circumstances. All areas equally. Substance of the transaction could be significant ly different from its for m. c. Financial statements should recognize the legal form of the transaction rather than its substance. If a client has strong internal controls. b. Be expected to provide assurance that illegal acts will be detected where internal control is effective. An auditor’s consideration of materiality is influenced by the auditor’s perception of the needs of a reasonable person who will rely on the financial statements. misappropriation of assets may occur because there is the following: d. d. 83. Materiality is more closely related to the fieldw ork and reporting standards than to general standards.c. Misappropr iation Manipulation 77. Transaction is assumed to be outside the ordinary course of business.party transaction exists. 80. b. The probability of an auditor's procedures leading to the conclusion that a material error does not exist in an account balance when. Materiality is based on quantitative and non-quantitative factors. If a client follows generally accepted accounting principles. 81. Detection r isk d. Materiality does not apply if internal control is highly effective. Control risk c.

Substantial increases in sales. Place increased emphasis on the audit of objective transactions rather than subjective transactions. b. c. and certain illegal acts. d. Must be increased to support the auditor's belief. Fraud and direct-effect illegal acts. Material error and material illegal acts. Use less predictable audit procedures. b. if the auditor has no reason to believe that illegal acts e xist. d. b. Obtain an understanding of the client's system of internal control. To increase the tolerable error in the accounts d. Ignore the topic. Understand the economic substance of significant transactions completed by the client. Use only certified public accountants on the engagement. Is not determinable. 86. Fraud involving senior management and material fraud. irregularit ies. b. Aggregate materiality thresholds should not change under conditions of changing risk levels. To decrease the risk of overreliance 91. mater ial fraud. b. Material error. Which of the following statements is true with regard to the relationship among audit risk. 88. Can be significant ly less than where internal control is not adequate. Still include some audit procedures designed specifically to uncover illegalities. Which of the following most accurately summarizes what is meant by the term “material miss tatement?” a. d. The risk of fraudulent financial reporting increases in the presence of a. c. Will not be affected since the auditor must arrive at an independently determined opinion. Frequent changes in suppliers. A thoroughly designed systems approach to auditing can eliminate the need for any substantive procedures. 94. d. Understand the entity and the industry in w hich it operates. Negative cash flows from operat ions. the auditor should place more emphasis on obtaining external ev idence and should reduce reliance on internal evidence. and materiality? a. Under condit ions of high inherent and control r isk. To find smaller errors b. the lower the aggregate materiality threshold. To find larger errors c. d. Which of the following is most likely to be considered a risk factor relating to fraudulent fina ncial repor ting? a. The lower the inherent risk and control risk. 89. If the auditor is convinced that the client has an excellent inter nal control structure. b. Detection r isk. while the Red Sirug Page 11 . Why should the auditor plan more wor k on individual accounts as lower acceptable levels of both audit ris k and materiality are established? a. Make inquir ies of management regarding their policies and their knowledge of violations. Which of the following does an auditor least likely perform in assessing audit risk? a. c. Which statement best describes the emphasis of the systems and substantive approaches in the audit plan? a. Include audit pr ocedures which have a str ong probability of detecting illegal acts. c. Domination of management by top executives. the auditor may safely ignore inherent risk. Supervise members of the audit team less closely and rely more upon judgment. c. c. d. Large amounts of cash processed. d. and then rely on nor mal audit procedures to detect errors. b. 87. The systems approach focuses on detailed testing of specific accounts for accuracy. the auditor should a. 92. a. Small high-dollar inventory items. c. d. and illegalit ies. When planning the audit. the amount of audit evidence to be gathered. c. Incent ive systems based on operating income. Improved control systems. Where inherent risk is high and control risk is low. Which of the following is most likely to be an overall response to fraud risks identified in an audit? a. b. 93. 95.d. b. 90. audit evidence. Gather audit evidence in support of recorded transactions.

2. The Code of Ethics for Professional Accountants in the Philippines is applicable to professional services in the Philippines on or before: a. b. 2009 Which part of the Code of Ethics applies to professional accountants in public practice? a. a. July 1. Timing of audit procedures. d. 3. 100. December 31. The audit ev idence gathered supports the auditor’s conclusions. 96. Search for unrecorded liabilities has been performed and documented. Quality control reviewer b. June 30. d. an auditor should establish specific audit objectives that relate primarily to the a. knowledge and experience in a particular field excluding accounting and auditing. Sufficient appr opriate evidence was obtained. b. b. Inherent risk is assessed at a sufficiently low level. The audit program usually cannot be finalized until the a. c. Integr ity b. 97. Professional behavior The principle professional competence and due care imposes w hich of the following obligations on professional accountants? a. Part C This fundamental ethical principle prohibits association of professional accountants with reports. c. b. The auditor can make constructive suggestions to management. a. 4. d. Cost-benefit of gathering evidence. 2004 c. Part A b. Part A and Part B d. returns. Red Sirug Page 12 . Taxation specialist SET 2 1. Selected audit techniques. Professional competence and due care d. Most of the required procedures can be performed as interim wor k. There was compliance with generally accepted standards of reporting. 99. 98. Financial statement assertions. Expert d. while the substantive approach is the detailed testing of specific accounts for accuracy. The systems approach focuses on testing controls to make sure they are effective. To maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent profess ional serv ice. Reportable conditions have been communicated to the audit committee of the boar d of directors. 2009 b.substantive approach is the testing controls to make sure they are effective. June 30. An audit pr ogram pr ovides proof that a. c. Part B c. Audit programs should be designed so that a. Engagement letter has been signed by the auditor and the client. The work was adequately planned. There was a proper study and evaluation of inter nal control. In designing written audit programs. A person or firm possessing special skill. Objectivity c. c. The systems approach focuses on the use of computer systems to aid in the audit while the substantive approach focuses on more manual tests. d. communications and other information that contains materially false or misleading information or statements. 2008 d. d. Multiskilled personnel c. c. Consideration of the entity’s internal control has been completed.

conflict of interest or undue influence of others. Should be expected to provide the same degree of assurance. b. a high standard of education. a period of wor k experience. except: a. the auditor's risk of failing to discover the fraud is Greater for employee fraud because of the lar ger number of employees in the or ganization. Greater for management fraud because managers are inherently smarter than employees. d. Attainment of professional competence requires the following. A description of the engagement and identification of the subject matter Red Sirug Page 13 .b. the audit plan Cannot be expected to provide the same degree of assurance. and examination in professionally relevant subjects. 7. d. In a. 8. The risk that the audit will fail to uncover a material misstatement is eliminated a. Not be relied upon to prov ide assurance that illegal acts will be detected. An ethical requirement. It is usually equally difficult for the auditor to uncover errors or irregularities. c. Whether prescribed or not. none of the above statements is tr ue. Encompass a plan to search acti vely for illegalities which relate to operating aspects. 11. A draft of statement. Greater for employee fraud because of the higher crime rate among blue collar w orkers. discovering material management fraud and an equally material error. If client follows generally accepted accounting principles. c. The practitioner’s report on an assurance engagement should always include the following. Unprofessional behavior. An attitude of professional skept icism. b. c. At least 10 c. At least 12 d. except a. b. Usually. Be relied upon to disclose violations of tr uth-in-lending act. It is usually easier for the auditor to uncover irregularities than errors. d. but the possibility of dishonesty must be considered. To be fair and tr uthful. c. When the auditor has complied with generally accepted auditing standards." T his is an example of a. c. 5. Twelve d. d. In a. Which of the following statements is true? a. b. Majority of the regular members An auditor's examination performed in accordance wit h generally accepted auditing standards generally should a. It is usually easier for the auditor to uncover errors than irregularit ies. d. training. Provide no assurance of detecting either. Initially. 13. Due diligence. d. How many 6. Under no circumstances. The audit should not assume that management is dishonest. At least 8 b. c. Ten c. Be expected to provide assurance that illegal acts will be detected where internal control is effective. If client has good internal control. 14. Specific education. d. A continuing awareness and an understanding of relevant technical professional and business developments. Not to override or compromise his professional or business judgment because of bias. Should provide complete assurance of detection. Major ity How many members of the AASC are needed to approved the exposed draft as PSA a. b. members of the AASC are required to approve the draft for exposure? a. c. To comply with relevant laws and regulations and avoid any action that discredits the profession. Eight b. b. 12. 10. b. studies or standards should be discussed by the Council en banc. comparing management fraud with employee fraud. 9. Greater for management fraud because of management's ability to override exist ing internal controls. d. c.

Required auditor communication to the Audit Committee concerning noncompliance with laws and regulations that were detected includes: a. Auditing and Assurance Standards Council (AASC) c. The professional accountant must take steps to see that such experts are aware of the ethical requirements of the profession. Determined by statistical analysis 19. except: a. An entity that controls a par tnership of professional accountants. d. A sole practitioner. Exper ts who are not professional accountants need not be informed of ethical requirements because they are not members of the Accountancy profession. 17. The term receiving accountant includes the following. Provided in the Philippines Standards on Auditing. Firm includes the following except: a. Red Sirug Page 14 . Before June 30. When it is deemed necessary to expose a statement for a comment on proposed interpretations of statements. One requir ing professional judgment d. a.2008 d. AASC should normally expose a proposed interpretation of statements. partnership or corporat ion of professional accountants. c. Any of such acts. Before January 1. After June 30. Which of the following is required if the professional accountant uses exper ts who are not professional accountants? a. 23. AASC should normally expose its opinion on specific queries from a practicing CPA. Professional accountants employed in the public sector hav ing manager ial responsibilities. 16. d. 18. To make the statements on Philippine Standards on Audit ing operative. d. b. Which of the following is expected of AASC to do? a. 15. d. c. The revised Code of Ethics is mandator y for all CPAs and is applicable to professional ser vices performed in the Philippines on or: a. A sole practicing professional accountant. The ultimate responsibility for the professional service is assumed by the exper t who is not a professional accountant. Which of the following is not explicitly referred to in the Code of Ethics as source of technical standards? a. Each partner or person occupying a position similar to that of a partner staff in a practice providing professional services to a client. 2008 c. 2008 b. Commission on Audit (COA) b. 22. c. except. c. b.b. 2008 20. d. An entity controlled by a partnership of professional accountants. After Januar y 1. the exposure period is understandably shor ter than those of the regular drafts of standards. the final statement shall be submitted to the Board of Accountancy for approval. The decision as to how much evidence to be accumulated for a given set of circumstances is: a. Identification of the standards under which the engagements was conducted. b. c. The professional accountant is discouraged to engage the ser vices of experts w ho are not a professional accountant. Provided by following GAAP c. A sole proprietor providing professional services to a client. b. All those that constitute management fraud. c. Reference to the wor k of an expert. A professional accountant in public practice to whom existing accountant has referred tax engagement. d. Relevant legislation 21. A firm of professional accountants in public practice. All material items. b. The term pr ofessional accountant in public practice includes the following. b. Securities and Exchange Commission (SEC) d. All those which are not adequately addressed by management. Identification of the criteria.

High level of assurance that all mater ial errors and fraud have been found. 24." they provide subjective guidance which allow the auditors to: a. The approach to a potential client for the purpose of offering professional ser vices. An entity which is under common control with that client (referred to as a "sister entity") provided the sister entity and the client are both material to the entity that controls both the client and sister entity. d. Upon completion of a typical audit. An entity over which the client has direct or indirect control. 32. Demonstrate the acceptance of responsibility Jo the interest of those served by the profession. A professional accountant in public practice to whom the client of the existing accountant has referred audit engagement. learned that the s tatements are accompanied by an unqualified auditor's repor t. Indirect promotion c. b. c. b. Accounting skills 31. d. A professional accountant in public practice who is consulted in order to meet the needs of the client. while reading the financial statements of Star Corporation. Reduce the likelihood that members of the profession will be sued for substandard wor k. means a. Use adequate professional judgment when apply ing the standards. The communication to the public of facts about a professional accountant w hich are not designed for the deliberate promotion of that professional accountant. An investor. c. Advertising. Established criteria or standards c. The skill and knowledge required for the type of w ork involved. b. d. The expected outcome of the engagement. Subject matter knowledge d. Though PSAs do not provide "hard and fast r ules. Tailor their audit to procedures requested by management. consulting or similar professional services for a client. Which one of the following is not a key attribute that is essential to perform an assurance ser vice? a. b. d. Independence b. A low level of assurance that all material errors and fraud have been found. The communication to the public of facts about a professional accountant which are not designed for the deliberate promotion of that professional accountant. 25. 29. Related entity is an entity that has any of the following relationships with the client.b. 30. Total assurance that al material errors and fraud have been found. From this the investor may conclude that: Red Sirug Page 15 . d. An entity with a direct financial interest in the client even though such entity has no significant influence over the client provided the interest in the client is material to such entity. d. Publicity b. the auditor has a. c. An entity that has direct or indirect control over the client provided that the client is material to such entity. c. Ensure that all members of the profession posses approximately the same level of competency. b. The required level of training and experience of the person engaged on the wor k. The communicat ion to the public of infor mat ion as to the services or skills prov ided by professional accountants in public practice with a v iew to procur ing professional business. Require members of the profession to exhibit loyalty in all matters pertaining to the affairs of the organization. a. c. 26. except: a. A primary purpose for establishing a code of ethics within a pr ofessional organization is to: a. No assurance that all material errors and fraud have been found. A professional accountant in public practice currently holding an audit appoint ment or carrying out accounting. Only apply those standards that are important to the audit. Which of the following is least likely the basis of determining audit fees? a. c. d. Accurately interpret the Code of Ethics for CPAs. Solicitation 27. as defined in the Code of Ethics. Any of the given choices. taxation. 28. c. b. Advertising d. The degree of responsibility and urgency that the wor k entails.

d. d. d. b. the auditor is concer ned with Analyzing the financial information to be sure that it complied with government requirement. An operational audit differs in many ways from an audit of financial statements. Qualified opinion. The auditor has ascertained that Silver's financial statements have been prepared accurately. Which of the following is the best example of these differences? a. c. The boundaries of an operat ion audit are often drawn from an organizat ion chart and are not limited to a single account ing per iod. b. but not other professional ser vices. Deter mining whether recorded infor mat ion proper ly reflects the economic events that occurred during the accounting per iod. Financial statements. Adverse opinion. c. Business risk c. d. Assertions. c. but not other professional ser vices. b. Economic data. In a. 34. Operating data. d. The partner in char ge of the engagement b. b. Any disputes over significant accounting issues have been settled to the auditor's satisfaction. c. Information risk b. b. c. Red Sirug Page 16 . 38. The usual audit of financial statement covers the four basic financial statements whereas the operational audit is usually limited either the balance sheet or the income statement. Unqualified opinion. All attestation and tax ser vices. An expert providing a wr itten communicat ion as the product of the engagement. a. The manager assigned to the engagement 35. Attestation engagement b. 36. 33.a. A CPA should maintain objectivity and be free of conflicts of interest when performing: a. AN active par ticipant in management decision-making. The auditor is satisfied that Silver is operationally effi cient. Which of the following has primary responsibility for the performance of an audit? a. The managing partner of the firm d. b. Audits. Individuals who perform day-to-day accounting functions on behalf of the company. The risk associated with a company's survival and profitability is referred to as: a. c. An engagement in which a CPA firm arranges for a critical review of its practices by another CPA firm. "auditing" accounting data. Determining if fraud has occurred. Detection risk 41. 39. All pr ofessional services. c. Operation audits do not ordinarily result in the preparation of a report. Quality assurance engagement 40. The senior assigned to the engagement c. Determining if taxable income has been calculated correctly. but not any other professional ser vices. the subject matter of any audit consists of a. All attestation services. Broadly defined. d. 37. An internal source of expertise on financial and other matters. Informative disclosures in the financial statements but not necessarily in the notes to financial statements are to be regarded as reasonably adequate. The most common type of audit repor t contains a(n): a. Disclaimer of opinion. Quality control engagement d. b. The operational audit deals with operating profit while financial audit considers both the operating and net pr ofits. Control risk d. Which one of the following is an example of management expectations from the independent auditors? a. Peer review engagement c. d.

Internal control audit. an accountant most likely would: a. All of the given choices 49. Examination of the economy and efficiency of governmental operations c. d. b. Assurance services involve all the following except: a. Additionally. Prov ing the accuracy of the books and records d. Complexity of transactions affecting the financial statements b. d. the auditor owes primary allegiance to: a. b. 44. b. d. The Auditing and Assurance Standar ds Council. Improving the quality of the decision model used. b.42. Assurance services may include w hich of the following? a. Whenever a CPA professional is engaged t o perform an audit of financial statements accor ding to Philippine Standards on Auditing. the auditor must a. 46. c. d. Establish new criteria by w hich financial statements may be compared. The auditor of financial statements must make ver y difficult interpretations regarding authoritative literature. d. 50. Lack of cr iteria on which to base infor mation Red Sirug Page 17 . The auditor's judgment. c. Ask about actions taken at board of directors' meetings. 45. d. The management of the audit client because the auditor is hired and paid by management. Implementing a system that improves the processing of infor mat ion. Limit the distribution of the accountant's repor t. Philippine Standar ds on Audit ing. Gathering evidence about assertions c. d. c. Disregard independence in or der to find the underlying truth of the evidence. b. c. The audit program. c. Improving the quality of information for decision purposes. and the investing public. Which one of the following is not a part of the attest process? a. Evaluating evidence against objective criteria b. To reduce the audit program to be prepared by the auditor. Attesting to financial statements b. Communicating the conclusions reached 51. Assurance services. creditors. Eliminate the professional judgment in resolving audit issues. Philippine Financial Reporting Standards. When performing an engagement to review a nonpublic entity's financial statements. Compilation ser vices. b. The audit committee of the audit client because that committee is responsible for coordinating and reviewing all audit activities within the company. because it determines auditing standards and auditor's responsibility. he required to comply with those standards in order to a. Which of the following is the broadest and most inclusive concept? a. 48. Force management to make certain decisions regarding their financial statements. Improving the relevance of information. Audits of financial statements. Which one of the following is not a reason w hy the users of financial statements desire for an independent assessment of the financial statement presentation? a. Eliminate audit risk. The audit of historical financial statements should be conducted by the CPA professionals in accordance with a. Stockholders. Obtain an understanding of the entity's internal control. b. Have a measure of the quality of audit perfor mance. 47. Confirm a sample of significant accounts receivable balances. c. c. Proceed beyond PFRS to assess how the economic activ ity is portrayed in the financial statements. 43. Evaluation of a division's performance for management d. In determining the primar y responsibility of the external auditor for an audit of a company's financial statements.

d. Maximum standards w hich denote excellent wor k. Management is unwilling to per mit inquiry of its legal counsel. Competence as a certified public accountant includes all of the following except a. Helps achieve public confidence d. Pronouncements issued by the Auditing and Assurance Standards Council. 62. Practitioner's independence: a. The CPA is unable to review the predecessor auditor's working papers. General guidelines to help auditors. Ideals to w ork towards. Rules acknowledged by the accounting profession because of their universal compliance. c. Which one of the following attributes is required of an auditor in relation to audit clients? a. 61. Which of the following factors most likely w ould cause a CPA to decline a new audit engagement? a. Which of the following best describes what is meant by generally accepted auditing standards? a. d. Measures of the quality of the auditor's perfor mance. Minimum standards of perfor mance which must be achieved on each audit engagement. be independent. Achieves compliance with the standards of fieldwor k. d. Consulting others if additional technical information is needed. Remoteness of the user from the organization All of them are potential reasons 52. 54. Rationalization c. Having the technical qualifications to perform an engagement. Must be impart ial when dealing with the client. c. Possessing the ability to supervise and evaluate the quality of staff w ork. Defends against liability c. 56. Warranting the infallibility of the wor k perfor med. d. Cannot perform any consulting services for an audit client. Auditing standards are a. The CPA does not understand the entity's operations and industr y. c. d. c. An audit which determines whether or ganizational policies ar e being followed and w hether external mandates are being met is referred to as a. b. To a. c. d. Independence d. reviews. 58. 55. Uses error-free judgment.c. 57. b. c. b. Statutory in nature. Management acknowledges that the entity has had recurring operating losses. b. Is responsible only to third-par ty users of the financial statements. The exercise of due professional care requires that an auditor Red Sirug Page 18 . but which are not achievable. c. The exercise of due professional care requires that an auditor a. None of the above 53. the auditor: Cannot place any reliance on the client's verbal and written assertions. b. Rules imposed by the Securities and Exchange Commission. c. Examines all corroborating evidence available. and compilations. Loyalty b. A financial audit b. Be responsible for fulfilling his or her dut ies diligently and carefully. d. including tests of controls. An operational audit. 60. d. Rules imposed by the PICPA. Procedures to be used to gather evidence to support financial statements. Minimizes risk. b. Considers internal control. Generally Accepted Auditing Standards (GAAS) and Philippine Standards on Auditing (PSA) should be looked upon by practitioners as a. A compliance audit. d. b. Bias 59. b. Benchmar ks to be used on all audits.

Financial Reporting Standards Council b. c. d. practices and procedures that shall be generally accepted by the account ing profession in the Philippines. c. To under take continuing research on both auditing and financial accounting in order to make them responsive to the needs of the public. Consider internal control. d. The Philippine Standar ds on Auditing issued by the Auditing and Assurance Standards Council (AASC) a. should a. Cr itically review the judgment exercised at every level of supervision. par ticularly the standards of fieldwor k and reporting? a. Must be followed in all situations. Red Sirug Page 19 . Elements of materiality and r is k d. They are procedural outlines which are intended to narrow the areas of inconsistency and divergence of auditor opinion. b. b. Critically review the wor k done at ever y level of super vision. Which of the following is the authoritative body designated to promulgate auditing standards? a. In financial statement audits. Which of the following statements best describes the primar y purpose of Philippines Standards on Auditing? a. b. Philippine Standar ds on Audit ing d. Audit ing and Assurance Standards Council 67. that are intended to limit the degree of auditor judgment. They are authoritative statements. The Philippine Standar ds on Auditing issued by AASC a. 68. enforced through the Code of Ethics for Professional Accountants. To promulgate audit ing standards. c. d. Which of the following mostly describes the function of AASC? a. Refer a substantial portion of the audit to another CPA who will act as the principal auditor. Are interpretations of generally accepted auditing standards b. 63. 65. Obtain a knowledge of matters that relates to the nature of the entity's business. To assist the Board of Accountancy in conducting administrative proceedings on erring CPAs in audit practice. d. d. c. Element of reasonable assurance c. Attain the proper balance of professional experience and formal education. Are the equivalent of laws for audit practitioners. Philippine Financial Reporting Standards b. even though such a departure may result to more effective achievement of the objective of an audit. Are optional guidelines which an auditor may choose to follow or not follow when conducting an audit. Which of the following underlies the application of generally accepted auditing standar ds. Philippine Accounting Standards 71. Use error-free judgment. They are guides intended to set forth auditing procedures that are applicable to a variety of situations. They are interpretations which are intended to clar ify the meaning of "generally accepted audit ing standards. Need to be applied on all audit related.a. To monitor full compliance by auditors to PSAs. 69. Element of corroborating evidence b. Engage financial exper ts familiar with the nature of the business entity. 64. including tests of controls. Examine all corroborating evidence available. Examine all available corroborating evidence. b. An auditor who accepts an audit engagement and does not possess the industry expertise of the business entity. c." 70. PICPA c. the audit process should be conducted in accor dance with a. Require that in no circumstances would an auditor may judge it necessar y to depart from a PSA. c. Association of CPAs in Public Practice and PICPA d. b. International Accounting Standards c. Element of inter nal control 66. Reduce control risk below the maximum. b. First inform management that an unqualified opinion cannot be issued. The exercise of due professional care requires that an auditor a. d.

Membership in any professional body. d. 2 years b. Apply to independent examinat ion of financial statements of any ent ity when such an examinat ion is conducted for the purpose of expressing an opinion. Listings of the fir m's clients. c. The relationship between the two may be illustrated by how they apply from engagement to engagement. Auditing standards may vary but auditing procedures are applied uniformly. while GAAS are the standards that the auditors should follow when conducting an audit. The requirement of the PSA is impractical to perform. the professional accountants owe their primar y loyalty to: The accounting profession The general public The client Government regulatory agencies Red Sirug Page 20 . d. Audit j udgments. Ever y independent audit engagement involves both auditing standar ds and auditing procedures. c. 6 years 78. Both auditing standards and auditing procedures are applied uniformly. sufficiently strong GAAS may make up for most GAAP deficiencies. How frequent can a professional accountants have press and other media releases commemorating their anniversaries in public practice by informing the public of their achievements or accomplishments in contributing toward nation building or enhancing the image or standards of the accounting profession? a. from one audit engagement to the next. The use of the name of a n internat ional accounting fir m affiliation/correspondence is generally allowed.c. Booklets and other documents bearing the name of a professional accountant and giving technical information for the assistance of staff or clients may be issued to such persons. Names of par tners/principals with their educational attainment. 75. c. a. d. 79. In a. The amount is insignificant. 3 years c. d. c. b. d. 73. Generally accepted accounting principles (GAAP) are distinguished from generally accepted auditing standards (GAAS) in that: a. Audit principles. Acts to be performed. Measures of performance b. When GAAP are violated. to a non-client a factual and objectively worded of the services provided. Auditing standards are applied uniformly but auditing procedures are optional. GAAP are promulgated by the SEC. other professional accountants or other interested par ties. Which of the following is not allowed by the revised code of ethics? a. An auditor needs not abide by a Philippines Standard on Auditing if the auditor believes that a. The requirement of the PSA is impossible to perform. 5 years d. b. GAAP are the principles for presentation of financial statements and underly ing transactions. Which of the following is not allowed to be included in a website of a firm of professional accountants? a. A professional accountant in public practice may issue to client or. c. b. b. their fiduciary r ole. Audit ing standards are applied unifor mly but audit ing procedures may vary. 74. 77. Must not apply to other related activities of auditors. 72. 76. while GAAS are the standards for presentation of financial statements and underlying transactions. Any of the above three is correct. Auditing standards differ from auditing procedures in that procedures relate to: a. d. in response to an unsolicited request. w hile GAAS are promulgated by the PFRC. c. c. Awards received d. b. b. d. The best representation of this application is that. GAAP are the principles auditors follow when conducting an audit. A firm or CPA practitioner can continue to use the term "Accredited" or any similar words or phrase calculated to convey the same meaning if the claimed accreditation has not expired.

Professional competence and due care b.interest 85. Professional accountants may encounter problems in identifying unethical behavior or in resolving an ethical conflict. A primary commit ment to self. Which fundamental principle is seriously threatened by an engagement that is compensated based on the net pr oceeds on loans received by the client from a commercial bank? a. Which of the following is a distinguishing mark of the accountancy profession? a. Integrity implies not merely honesty but fair dealing and tr uthfulness. c. c.80. after considering the ethical issues and relevant facts may do any of the following. b. The principle of objectivity imposes the obligation on all professional accountants to be fair. intellectually honest and free of conflicts of interest. Confidentiality c. Should weigh me consequences of each possible course of action. Which of the following is incorrect regar ding integrity and objectivity? a. Which of the following values is not necessar y for a professional accountant? a. Integrity b. Professional skepticism 81. d. Red Sirug Page 21 . d. except: a. Follow the established policies of the employing organization to seek a resolution of such conflict b. A professional accountant is likened to a prudent father to his son. Actual fee would be substantially lower than the fees charged by other members for comparable services. As a resolution of the conflict in the application of fundamental principles. The professional accountant may wish to obtain professional advice from. Professional behavior d. except a. Objectivity c. d. Actual fee would be substant ially higher. the auditor. The IFAC Code of Professional Conduc t will ordinarily be considered to have been violated when the member represents that specific consulting services will be performed for a stated fee and it is apparent at the time of the representation that the a. c. Should consult with other appropriate persons within the firm or employing organization for help to finally resolve the matter. the immediate super ior need not be not ified of the decision. Objectivity This relates to what f undamental 83. Professional accountants ser ve in many different capacities and should demonstrate their objectivity in varying circumstances. professional accountants should do the following. Review the conflict problem with the immediate superior if the organization's policies do not resolve the ethical conflict. If the problem is not resolved wit h the immediate super ior and the professional accountant deter mines to go to the next higher manager ial level. Fee was a competitive bid. 82. Integrity d. 87. Honesty b. b. Acceptance of the responsibility to act in the public interest c. Professional objectivity d. Objectiv ity c. Member would not be independent. Professional accountants should neither accept nor offer any gifts or entertainment. When faced with significant ethical issues. c. the relevant professional body without breaching confidentiality if significant conflict cannot be resolved. Must immediately resign from the engagement or the employing entity. d. b. Confidentiality 84. 86. A drive to excellence b. principle? a. Seek counseling and advice on a confidential basis with an independent advisor or the applicable professional accountancy body or regulator y body to obtain an understanding of possible courses of action. Integrity d.

Professional due care d. 2011 96. c. September 30. d. 4 years Red Sirug Page 22 . 90. b.88. 2 years b. 3 years c. Partners. 2008. CPAs. Confidentiality 89. 2010 b. Integr ity c. including partners and staff members thereof shall register with the BOA and the PRC. Which of the following is not a function of the Boar d of Accountancy as specified in the Philippine Accountancy Act of 2004? a. which of the following fundamental principles is likely violated? a. c. A CPA whose certificate of registration has been revoked: a. The Philippine Accountancy Act of 2004 provides that all Working papers made during an audit shall be the property of the auditor. May be reinstated by the Professional Regulation Commission after tw o years if he has acted in an exemplar y manner. Registration number 95. 93. December 31. September 30. of the following are represented to the Financial Repor ting Standar ds Council. To create and direct accredit ing agencies that are entrusted the funct ions of reviewing higher educat ional institut ions' policies and practices leading to accreditation/reaccreditation of BSA program. May be reinstated as a CPA by the Board of Accountancy after two years if he has acted in an exemplary manner. Analysis and schedule prepared and submitted to the auditor by his client's staff. d. the next renewal must be on or before: a. All partners only c.. Who are required to apply for accreditation with the Professional Regulation Commission if the applicant is a partnership of Professional Accountants? a. b. The APO shall renew its Certificate of Accreditation once every how many years after the date of the Resolution granting the petition for re-accreditation and the issuance of the said certificate upon submission of the requirements? a. and staff members 94. To determine and prescribe minimum requirements leading to the admission of candidates to the CPA licensure examination. 2010 d. 92. c. Individual CPAs. Firms or Partnerships of CPAs. Working papers prepared by the CPA and his staff. b. d. 2011 c. To investigate violations of the Accountancy Law and the rules and regulations promulgated therewith. If the accreditation of Velasco and Co. except: a. Is automatically reinstated as a CPA by the PRC after two years if he has acted in an exemplar y manner. Tax ident ification number b. Name of the professional accountant c. except: Securities and Exchange Commission Bureau of Inter nal Revenue Commission on Higher Education Board of Accountancy 91. was renewed on September 30. principals. Title of the profession d. All a. b. These working papers shall include the following. Managing par tner only b. If a professional accountant is billing an audit client a number of hours greater than those actually wor ked. c. Can no longer be reinstated. d. Which of the following is not included in the seal of a pr ofessional accountant? a. Partners and staff members d. Objectivity b. Excerpts or copies of documents furnished to the auditor. To look from time to time into the conditions affecting the practice of the accountancy profession. Any report submitted by the auditor to his client. December 31.

The auditor should not assume that management is dishonest. c. c. 6 years 97. b. d. An insurer but not a guarantor of the statements. d. Neither a guarantor nor an insurer of financial statements. and making fair representations in the financial statements rests a. d. An attitude of professional skept icism. Both a guarantor and an insurer of the financial statements. d. b. but the possibility of dishonesty must be considered. Serve as an introduction to company personnel and an authorization to examine the records. SET 3 1. 3. Equally with management and the auditor. The responsibility for adopting sound accounting policies. c. 4. Provide a star ting point for the auditor's preparation of the preliminary audit program. Forgeries on company checks. Engagement letters are widely used in practice for professional engagements of all types. A principal pur pose of a letter of representation from management is to a. c." This is an example of a. T he rationale for this rule is to a. A guarantor but not an insurer of the statements. Normal audit procedures are more likely to detect a fraud arising from a. d. Identifies areas and specialized situations where consultation is required and encourages personnel to consult with or in use authoritative sources on other complex matters. Red Sirug Page 23 . With the management. An ethical requirement. b.d. the auditor is: a. d. Remind management of its primary responsibility for financial statements. The ordinary examination of financial statements is not primarily designed to disclose defalcations and other irregularities although their discovery may result. Provide the basis for excluding admission of the working papers as evidence because of the privileged communication rule. The working papers prepared by a CPA in connection with an audit engagement are ow ned by the CPA. d. Which of the following is not likely a quality control procedure on consultation? a. 2. subject to cer tain limitations. Confirm in writing management's approval of limitations on the scope of the audit. Prov ide a written record of the agreement wit h the client as to the services to be provided. Specifies the extent of documentation to be provided for the result of consultation in those areas and specialized situations w here consultation is required. b. Establish a continuity of relationship with the client whereby indiscriminate replacement of CPAs is discouraged. According to Philippine Standards on Auditing. b. c. Collusion on the part of several employees. 100. Prov ide the CPA with ev idence and documentation which may be helpful in the event of a lawsuit. 98. Failure to record cash receipts for ser vices rendered. Remind management of its primary responsibility over the financial statements. c. With the internal audit department. b. Satisfy the requirements of the Code of Professional Conduct for CPAs. With the independent auditor. Due diligence. c. maintaining adequate internal control. The primary purpose of the engagement letter is to a. b. because there are inherent limitations in an audit that affect the auditor's ability to detect material misstatements. d. 99. Expectation gap. b. Protect the working papers from being subpoenaed. Theft of inventor ies. Designates individuals as specialists to ser ve as authoritative sources and define their authority in consultative situations. Assigns an appropr iate person or persons to be responsible for assigning per sonnel to audits. Discharge the auditor from legal liability for his examination. c.

Reporting these activities to the audit committee. Discuss the matter with those believed to be involved in the perpetration of material irregularity. Which of the following is incorrect regar ding the professional accountants' tax practice? a. Red Sirug Page 24 . d. b. The audit objectives have been achieved. Consult legal counsel. Which of the following is least likely an application of maintaining an attitude of professional skepticism? a. 6. Internal auditors. Engagement performance b. Monitoring d. In planning and perfor ming an audit. 13. d. b. Doubt may be resolved in favor of the client or the employer if there is a reasonable suppor t for the position. Generally. It is us ually easier for the auditor to uncover errors than irregularit ies. d. It is usually easier for the auditor to uncover irregularities than errors. c. the CPA may be charged with unethical conduct for a. d. b. Withdrawing from the engagement. Outside legal counsel. 10. c. c. 9. An auditor who believes that a material irregularity may exist should initially a. The conclusions expressed are consistent with the result of the wor k performed and suppor t the opinion. c. the decision to notify parties outside the client's organization regarding a noncompliance with laws and regulations a. Independence.5. The auditor does not consider representations from management as substitute for obtaining sufficient appropriate audit evidence to be able to draw reasonable conclusions on w hich to base the audit opinion. Be relied upon to disclose indirect-effect noncompliance with laws and regulations. b. c. The work of each assistant needs to be reviewed by personnel of at least equal competence. integrity. c. Encompass a plan to search actively for noncompliance with laws and regulations w hich relate to operating aspects. Personnel management 11. or an employer. none of the given statements is true. the auditor assumes that management is dishonest. Discuss the matter with a higher level of management. b. Which of the following is not one of the objectives of this requirement? a. 8. Usually. Be expected to provide assurance that noncompliance with laws and regulations will be detected if the internal control is effective. 12. Professional accountants should ensure that the client or the employer is aware of the limitations attaching to tax advice and services so that they do not misinterpret an expression of opinion as an assertion of fact. evaluated and documented. Withdraw fr om the engagement. A professional accountant may hold out to a client or an employer the assurance that the tax return prepared and the tax advice offered by him are beyond challenge. and objectivity c. Issuing a disclaimer of opinion. d. b. Not be relied upon to prov ide assurance that all noncompliance with laws and regulations will be detected. d. It is usually equally difficult for the auditor to uncover errors or irregularities. Independent auditor. Failure to uncover the noncompliance to laws and regulations during the prior audits. All available ev idences have been obtained. The work performed and the results obtained have been adequately documented. c. When management refuses to disclose in the financial statements noncompliance to laws and regulati ons which are identified by the independent auditor. An audit made in accordance with Philippine Standards on Auditing generally should a. b. A professional accountant rendering professional tax services is entitled to put forward the best position in favor of a client. d. 7. Which of the following statements is true? a. b. Management. A procedure in which a quality control partner periodically tests the application of quality control procedures is most directly related to which quality control element? a.

16. Under no circumstances. b.c. materiality will affect w hether ownership is a violation of r ule of independence a. A compilat ion used only by management. When the users of financial statements have confidence in the independence of the CPA. c. Red Sirug Page 25 . d. d. To disclose to the Bureau of Internal Revenue any fraudulent scheme committed by the client on pay ment of income tax. When CPAs are able to maintain an independent attitude in fulfilling their responsibility. it is referred to as independence in a. A professional accountant has a professional duty or right disclose confidential information in each of the following. c. Which of the following statements is true when the CPA has been engaged to do an attestation engagement? a. except: a. b. To comply with the quality review of a member body or professional body d. 15. A review. An audit. The CPA fir m is engaged and paid by the client. Fact. Which of the following best describes the passing of confidential information from a client to its auditor? The information: a. d. When determining whether independence is impaired because of an ownership interest in client company. the firm has primar y responsibility to be an advocate for the client. 21. Should be conveyed to the public if it affects the "correctness" of the financial statements. 17. The CPA firm is engaged and paid by the client. Appearance. the CPA is free to endorse the choice w hich is best in the client's interest. Can only be released for peer reviews after receiving permission from the client. 19. A member in public practice may perform for a contingent fee any professional services for a client for whom the member or member's firm per forms a. d. d. c. Should in no circumstances be conveyed to third par ties. Only for direct ow nership. As long as CPA firms are competent. He holds one share of the client's capital stock. of the validity of audit evidence obtained. The auditor makes a critical assessment. c. therefore. c. Only for indirect ownership. To respond to an inquir y or investigation by a member body or regulator y body. and there is a choice of actions w hich could impact client's financial statements either positively or negatively. b. it is not required that they remain unbiased. b. Conduct. c. with a questioning mind. d. b. but the primary beneficiar ies of the audit are the statement users. b. Total. 14. To comply with technical standards and ethics requirements. Should a situation arise where there is no convincing authoritative standard available. 18. Appearance. it is referred to as in independence in a. Is not legally protected and can be subpoenaed by a competent court. He failed to disclose a client's departure from GAAP. Fact. d. An audit of prospective financial information. d. 20. b. c. c. In all circumstances. Total. He has his name and address listed on a one-page section of the telephone book. b. He obtained a loan from a bank under the normal lending procedures. The auditor is alert to audit evidence that contradicts or brings into question the reliability of documents or management representations. Conduct. Which of the following will impair the independence of a CPA in public practice? a. terms and requirements of the bank.

The statement for client. When preparing the financial statements. Which of the following statements best describes the auditor's responsibility regarding the detection of material errors and frauds? a. With the audit committee. on the basis of adequate evidence. 27. d. b. When the auditor issues an erroneous opinion as a consequence of an underlying failure to comply with the requirements of generally accepted auditing standar ds. Whether it is peso amount or a process. 30. The responsibility for the fairness of the financial assertions that are embodied in the financial statements and in the notes to the financial statements rests: a. Be a guarantor of the fairness in the statements. 23. c. b. Business failure. Materiality. d. b. c. b. This imposes upon the auditor a d uty to a. c. With management. Justify the conclusions he has otherwise reached. d. d. A prudent user. The auditor has considerable responsibility for notifying users as to whether or not the statements are properly stated. 28. The factor that distinguishes an error fr om an irregularity is a. Intent. The audit should be designed to prov ide reasonable assurance that mater ial errors and frauds are detected. Extended auditing procedures are required to detect unrecor ded transactions even if there is no evidence that material errors and frauds may exist. c. A draft of the statements and footnotes for client. A draft of the statements for client. Prov ide reasonable assurance that material misstatements will be detected. Satisfy the requirements of the bureau of inter nal revenue. Non-attestation services. Whether it is a caused by the auditor or the client. 26. Enable him to reach conclusions about the fairness of the financial statements and issue an appropriate audit report. Non-attestation ser vices. The reason why an auditor accumulates evidence is to a. d. c. d. Be equally responsible with management for the preparation of the financial statements. b. The auditor gives an audit opinion on the fair presentation of the financial statements and associates his or her name with them when. b. The auditor is responsible for the failure to detect material errors and frauds only when the auditor fails to confirm receivables or observe inventories. Red Sirug Page 26 . d. d. c. d. Audit failure. Audit risk. Defend himself in the event of a lawsuit. b. The auditor is responsible for the failure to detect material errors and frauds only when such failure results from the misapplication of generally accepted accounting principles. The footnotes for client. unless the CPA fir m was also perfor ming attestation services for the same client. With Securities and Exchange Commission. c.22. All services performed by a CPA film. Be an insurer of the fair ness in the statements. Investors. 25. c. b. The reader. All of them 24. Which one of the following contingent fee is allowed? a. 29. Equally with management and the stockholders. c. Management. b. it is acceptable for the auditor to prepar e a. Attestation services. the auditor concludes that the financial statements are unlikely to mislead a. it results to a.

Representations that the financial statements were prepared in accordance with PFRS c. What will an auditor who has been proposed for an audit engagement usually do prior to accepting a new client? a. Does it have programs to mitigate fraud risks? d. c. The same amount of evidence will be required as for a high level. d. Has it repor ted to the audit committee the nature of the company's internal control? 35. 40. c. Obtain the potential client's permission to talk to the former auditor and review w ork papers. Detection r isk. d. With the per mission from the prospect ive client. Where inherent risk is high and control risk is low. The lower the inherent risk and control risk. 33. Which of the following is most likely to be an overall response to fraud risks identified in an audit? a. b. t iming of the work. a. d. such error does exist is referred to as a. c. c. An audit plan is a a. Senior management b. Are financial report ing operations co ntrolled by and limited to one location? b. in fact. Objectives of the engagement b. and materiality? a. Which of the following is not included in an audit engagement letter? a. d. Under conditions of high inherent and control r isk. Budget of the time that should be necessary to complete each phase of the audit procedures. c. Various employees whose duties financial reporting responsibilities d. 39. the auditor may safel y ignore inherent risk. Supervise members of the audit team less closely and rely more upon judgment. b. Draft the financial statements of the client as a measure of goodwill. If the auditor sets the preliminary judgment about materiality level at a relatively low peso amount. Generic document that auditing firms have developed to lead the process of the audit through a systematic and logical process. Which of the following should the auditors normally interview as part of their assessment of fraud risk? a. d. Audit committee c. b. Document that provides an overview of the company and a general plan for the audit wor k to be accomplished. More evidence will be required than for a high level.31. b. Inherent risk. Perform a peer review on the potential client in accordance with professional standards. Control risk. Less evidence will be required than for a high level. Nonroutine transactions. All of the given choices 36. and other matters of concern to the audit. d. Red Sirug Page 27 . the lower the aggregate materiality threshold. The type of transactions that ordinarily have a high inherent because they involve management judgment or assumptions referred to as a. Aggregate materiality thresholds should not change under conditions of changing risk levels. 38. Routine transactions. b. Related-par ty transactions. Est imat ion transactions. 32. Management's responsibilities d. Which of the following is least likely included in an auditor’s inquir y of management while obtaining information to identify the risks of material misstatement due to fraud? a. A clear explanation of the services to be performed on the engagement 34. Does it have knowledge of fraud or suspect fraud? c. The probability that an auditor's procedures leading to the conclusion that a material error does not exist in an account balance when. Which of the following statements is true with regard to the relationship among audit risk. Prevention risk. c. b. 37. The amount of evidence required will not be affected. the auditor should place more emphasis on obtaining external ev idence and should reduce reliance on internal evidence. Detailed plan of analytical procedures and all substantive tests to be performed in the course of the audit. contact the predecessor auditor to determine if there are any disagreements between the client and the audit fir ms. audit evidence.

Relate to their activities concerning the design. c. d. 43. d. c. Place increased emphasis on the audit of objective transactions rather than subjective transactions. Enter prise risk assessment c. Help the auditor understand the environment in which the financial statements are prepared. If the problem is not resolved wit h the immediate super ior and the professional accountant deter mines to go to the next higher manager ial level. b. b. When such analytical procedures use data aggregated at a high level (which is often the situat ion). b. and amounts. Which of the following represents a procedure that the auditor may use because plausible relationships among financial statement balances are expected to exist? a. 41. the auditor develops expectations about plausible relationships that are reasonably expected to exist. The depth of the overall understanding that is required by the auditor in perfor ming the audit is at least equal to that possessed by management in managing the entity. d. the auditor considers those results in identifying risks of material misstatement. c. d. the results of those analytical procedures prov ide a clear -cut indicat ion whether a material misstate ment may exist. Analytical review 42. b. Follow the established policies of the employing organization to seek a resolution of such conflict. The need for public confidence in the quality of service of the profession. Use less predictable audit procedures. Help the auditor in evaluating the appropriateness of the selection and application of certain accounting policies. except a. or contractual arrangements with its customers. In performing analytical procedures as risk assessment procedures. and trends that might indicate matters that have financial statement and audit implications. c. Professional accountants may encounter problems in identifying unethical behavior or in resolving an ethical conflict. c. c. Use only certified public accountants on the engagement. 45. When faced with significant ethical issues. Red Sirug Page 28 . d. d. Review the conflict problem with the immediate superior if the organization's policies do not resolve the ethical conflict. the immediate super ior need not be not ified of the decision. and effectiveness of the entity's internal control and whether management has satisfactorily responded to any findi ngs from these activities. sales trends. b. Understanding of the e ntity and its environment establishes frame of reference within which the auditor plans the audit and exercises professional j udgment about assessing risks of material misstatement in the financial statements and responding to those risks throughout the audit. ratios. professional accountants should do the following. Obtaining an understanding of the entity and its envir onment is an essential aspect of performing an audit in accordance with PSAs. The auditor's primar y consideration is w hether the understanding that has been obtained is sufficient to assess the risks of material misstatement in the financial statements and to design and per form further audit procedures. Which of the following statements is incorrect regarding obtaining an understanding of the entity and its environment? a. Attributes testing b. When comparison of those expectations with recorded amounts or ratios developed from recorded amounts yields unusual or unexpected relationships. Seek counseling and advice on a confidential basis with an independent advisor or the applicable professional accountancy body or regulator y body to obtain an understanding of possible courses of action.b. Inquiries directed towards those char ged with governance may most likely a. Analytical procedures may be helpful in identifying the existence of unusual transactions or events. That it allows Professional Regulation Commission to have a yar dstick to measure deficient performance. Relate to changes in the entity's mar keting strategies. 44. The underlying reason for a code of pr ofessional conduct for any profession is a. That it is required by congress. Inherent tests of control d. That it provides a safeguar d to keep unscrupulous people out. Which statement is incorrect regarding analytical procedures? a. 46.

Which of the following is most likely to be considered a risk factor relating to fraudulent financial repor ting? a. Sales goals in excess of any of the preceding three years. c. The auditor should design and perform further audit procedures whose nature. Fraud with a material effect on the financial statements should ordinarily be disclosed by the auditor through the use of an emphasis of a matter paragraph added to the audit report. Only use cer tified public accountants on the engagement. Profitability of the entity relative to its industr y is inconsistent. d. Which of the following factors most likely would heighten an auditor's concern about the risk of fraudulent financial reporting? a. and extent are responsive to the assessed risks of material misstatement at the assertion level. All fraud with a material effect on the financial statements should be reported directly by the auditor to the SEC c. b. Determine materiality level. b. 49. b. the auditors identity risks. Financial management's participation in the initial selection of accounting principles. d. Such responses least likely include a. b. All of these are equally important. Modify the nature of audit procedures to obtain more persuasive audit evidence. Low turnover of senior management. The auditor should determine overall responses to address the risks of material misstatement at the financial statement level. Extreme degree of competit ion within the industry. d. Perfor ming substant ive procedures at an inter im date instead of at per iod end. d. The auditor has no responsibility to disclose fraud outside the entity under any circumstances. c. Place increased emphasis on the audit of objective transactions rather than subjective transactions. c. Consider the likelihood that the risks could result in material misstatements. The assessment of the risks of material misstatement at financial statement level is affected by the auditor’s understanding of the control environment. Which of the following is correct concerning requirements about auditor's communications about fraud? a. b. Assigning more experienced staff or those with special skills or using experts. d. A new client with no prior audit history. 54. d. d. Supervise members of the audit team less closely and rely more upon judgment. Large amounts of liquid assets that are easily convertible into cash. b. Red Sirug Page 29 . Incorporating additional elements of unpredictability in the selectio n of fur ther audit procedures to be performed. Emphasizing to the audit team the need to maintain professional skepticism in gathering and evaluating audit evidence. 51. b. 48. d. While assessing the risk of material misstatement. Which of the following is most likely to be an overall response to fraud risks identified in an audit? a. Capital structure including various operating subsidiaries. relate risk to what could go wrong. Have more confidence in internal control and the reliability audit evidence generated internally within the entity. 50. Assess the risk of misstatements due to noncompliance to laws and regulations. c. 55. Fraud that involves senior management should be reported direct ly to the audit committee regardless of the amounts involved. c. Weaknesses control environment ordinarily will lead the auditor to a. timing. Conduct some audit procedures at an interim date rather than at period end. The extent of the audit procedures. Decrease the number of locations to be included in the audit scope. Consider the complexity of the transactions involved. 52. The nature of the audit procedures. c. 53. Which of the following is the most important consideration in responding to the assessed risks? a. An overly complex or ganizat ional structure involv ing unusual lines of author ity. Management operating and financing decisions are dominated by top management.47. Low grow th and profitability as compared to other entity's in the same industry. Which of the following is least likely considered a financial statement audit risk factor? a. c. consider the magnitude of risks and: a. Rate of change in the entity's industry is rapid. b. b. c. The timing of the audit procedures.

d. Issue a disclaimer. The auditor is not liable to his client for a. This is evidence of the firm's adherence to prescribed standar ds of a. Is both a guarantor and an insurer of the financial statements. b. but the evidence var ies. c. The circumstances may vary form audit to audit. 63. Red Sirug Page 30 . Bad faith. b. b. Most accounting and auditing professionals agree that when an audit has failed to uncover material misstatements. depending on the circumstances. Is an insurer but not a guarantor of the statements. 61. Errors of judgment d. A CPA firm studies its personnel advancement experience to ascertain w hether individuals meeting stated criteria are assigned increased degrees of responsibility. c. c. The audit firm should implement quality contr ol policies and procedures designed to ensure that all audits are conducted in accor dance with PSAs or relevant national standards or practices. The general audit objectives may var y from audit to audit. Supervision and review. A principal pur pose of a letter of representation from management is to a. 60. The policies and procedures adopted by indiv idual audit fir ms should not vary since t here is an applicable PSA that prescribes quality control policies and procedures that must be adopted by all auditing fir ms. the auditor must a. b. Continuing pr ofessional education. d. but t he circumstances remain the same. b. A basic objective of a CPA firm is to provide professional services that conform to pr ofessional standards. d. Has failed to follow generally accepted auditing standards (GAAS). Should be asked to defend the quality of the audit. Deserves to lose the lawsuit. b. 56. Negligence. Quality control policies and procedures should be implemented at both the level of the audit firm and on an individual audits. Should the auditor uncover circumstances during the audit that may cause suspicions of management fraud. 58. 57. Use less predictable audit procedures. b. 59. Professional development. Withdraw fr om engagement. Confirm in writing management's approval of limitations on the scope of the audit. Remind management of its primary responsibility for financial statements. d. the audit firm a. Which of the following is correct? a. but the evidence accumulated remains the same. Continuing pr ofessional education. 62. b. d. Is a guarantor but not an insurer of the statements. The evidence w hich the auditor accumulates remains the same fr om audit to audit. c. Dishonesty. but the general objectives var y. c. b.d. Should not be held responsible for the financial loss suffered loss suffered by others. d. Quality control policies are objectives and goals w hile quality control procedures are steps to be taken to accomplish the policies adopted. c. c. There is generally an agreement within the auditing profession and the cour ts that the auditor a. 64. Compliance with generally accepted repor ting standards. depending on the circumstances. A system of quality control. c. The general audit objectives remain the same from audit to audit. d. Evaluate their implications and consider the need to modify audit evidence. and the wrong type of audit opinion is issued. c. Reasonable assurance of achieving this basic objective is provided through a. Discharge the auditor from legal liability for his examination. Is neither a guarantor nor an insurer of financial statements. Issue an adverse opinion. Which of the following statements regarding quali ty control policies and procedures is incorrect? a. Serve as an introduction to company personnel and an authorization to examine the records. A system of peer review.

c. 68. a CPA firm's system of quality control should ordinarily provide that all personnel a. Infor ming assistants of their responsibilities and the objectives of the procedures they are to perform. c. Engagement quality contr ol reviewer. Seek assistance from persons having appropriate level of knowledge. d. It involves a study or evaluation of the quality of audit of financial statements through a review of quality control measures established by on CPA firms and individual CPAs in public practice to ensure compliance with accounting and auditing standards and practices a. The primary purpose for establishing such policies and procedures is a. c. To minimize the likelihood of association with clients whose management lacks integrity. In connection with the element of professional developmen t. Designates individuals as specialists to serve as authoritative sources and define their authority in consultative situations. and authority. 69. b. Quality control. Resolution of differences in audit findings. c. The objective of quality control mandates that a public accounting firm should establish policies and procedures for professional development w hich provide reasonable assurance that all entry-level personnel a. To lessen the exposure to litigation resulting from failure to detect irregularities in client financial statements. Will advance within the organization. d. motivation. b. d. b. To enable the auditor to attest to the integrity or reliability of a client. b. b. 67. c. Assigning a number of employees to each engagement in excess of the number required so as not to overburden the staff. 70. d. Rotating employees from assignment to assignment on a random basis to aid in the staff training effort. c. The implementation of quality control procedures that are applicable to the individual audit engagement is the responsibility of the a. Resolving any differences in professional judgment between audit personnel. judgment. Possess judgment. 72. Have the knowledge required to enable them to fulfill responsibilit ies assigned. A CPA establishes quality control policies and procedures for deciding whether to accept a new client or continue to perform services for a current client. Assigns an appropr iate person or persons to be responsible for assigning personnel to audits. Have the knowledge required to enable them to fulfill responsibilit ies assigned. Quality review Red Sirug Page 31 . 66. CPA firm. Which of the following is not likely a quality control procedure on consultation? a. 71. d. Exper t contracted by the firm in connection with the audit engagement. and adequate experience. To comply with the quality control standards established by regulatory bodies. Prepare working papers which are standardized in form and content. Compliance audit c. c. Peer review d. External audit b. b. In pursuing its quality control objectives with respect to assigning personnel to engagements. Identifies areas and specialized situations where consultation is required and encourages perso nnel to consult with or in use authoritative sources on other complex matters. and inter fere with the quality of the audit wor k performed. d. b. Specifies the extent of documentation to be provided for the result of consultation in those areas and specialized situations w here consultation is required. a public accounting firm may use policies and procedures such as a. Allowing staff to select the assignments of their choice to promote better client relationships.d. Which of the following is an element of "directing an audit assistant" objective? a. 65. Develop specialties in specific areas of public accounting. Demonstrate complianc e with peer review directives. Identifying in advance the staffing requirements of a particular audit engagement. Engagement team. Requiring t imely ident ificat ion of the staffing requirements of specific engagements so that enough qualified personnel can be made available. d.

b. c. Normal audit procedures are more likely to detect a fraud arising from a. Which of the following risks is entirely a quality criterion based on professional judgment? a. T he rationale for this rule is to a. c. being subpoenaed. The concept of materiality is not used by auditors as a guide to a. Inherent risk b. 77. Effectiveness of the client’s accountants. The Review Repor t b. 80. Inherent risk is not a characteristic of the a. Planning the audit program c. Working papers prepared by a CPA in connection with an audit engagement are owned by t he CPA. Major types of transactions. Evaluation of the audit evidence d. The ordinar y examination of financial statements is not primarily designed to disclose defalcations and other irregularities although their discover y may result. Applicat ion of general standards 75. To evaluate periodically the per formance of educational institutions offering accountancy educa tion. Report of Fact ual Findings c. c. The auditor's responsibility for failure to detect fraud arises a. Management Letter d. Collusion on the part of several employees. subject to certain limitations. Defalcation 79. Total assets. Which of the following is one of the functions of QCR: a. To promulgate accounting and auditing standards that will be generally accepted in the Philippines.73. 76. c. Theft of inventor ies. The financial statements 78. d. d. d. Whenever the amounts involved are material. d. d. b. To adopt a Code of Ethics for the practice of accountancy. Detection risk d. Making decisions about the audit report b. Employee fraud c. Audit risk 74. Client’s business. Protect the working papers from. Management fraud d. b. Fraudulent financial reporting is often called: a. Failure to record cash receipts for ser vices rendered. The primary deliverable of an engagement to perform based on procedures prescribed by the intended user of the report is/are: a. Prov ide the CPA with ev idence and documentation which may be helpful in the event of a lawsuit. Misstatements must be compared to some measurement base before a decision can be made about the materiality of the failure to follow GAAP. Control risk c. Forgeries on company checks. Provide the basis for excluding admission of the working papers as evidence because of the privileged communication rule. Establish a continuity of relationship with the client whereby indiscriminate replacement of CPAs is discouraged. Net income. Substant ive procedures. 81. Theft of assets b. A commonly accepted measurement base w ould be a. Working capital. All of the above. 82. b. c. To conduct a review on applicants for registration to practice public accountancy and render a report which shall be attached to the application for registration. b. Red Sirug Page 32 .

or others with equivalent authority. Gross misconduct. Inadequate segregation of dut ies places an employee in a position to perpetrate and conceal thefts. c. c. Inadequate employee training results in lengthy EDP exception reports each month. whether internal control is str ong or weak. c. The factor that distinguishes constructive fraud from actual fraud is a. The more material the undetected error the greater the likelihood of ordinar y negligence. Include audit pr ocedures which have a str ong probability of detecting illegal acts. c. irregular ities. When planning the audit. 83. Of the following statements. Report the matter to an appropriate level of management at least one level above thos e involved. which best distinguishes ordinary negligence from gross negligence? a. When such failure clear ly results from noncompliance to generally accepted audit ing standards. Intent. 85. d. he or she may be held liable to unknow n third parties for: a. d. c. Which of the following statements is correct concerning the auditor's responsibility with respect to illegal acts? a. Ignore the topic. c. b. b. Contributory negligence. Failure to exercise reasonable care denotes ordinary negligence. 89. d. d. Discuss the matter with those believed to be involved in the perpetration of the material irregularity. The client is a multinational company that does business in numerous foreign countries. Discuss the evidence with the client's audit committee. the auditor should a. An auditor who believes that a material irregularity may exist should initially a. Fraudulent misconduct. 88. An auditor must design tests to detect both material direct-effect and material indirect-effect illegal acts. d. Withdraw fr om the engagement. Only when the examination was specifically designed to detect fraud. 84. b. Consult legal counsel. An auditor must design tests to obtain reasonable assurance of detecting material direct effect illegal acts. b. b. if the auditor has no reason to believe that illegal acts exist. 90. d. The client does business with several related parties. c. the auditor should next a. If a CPA recklessly abandons standards of due care and diligence while performing an audit. Quality of internal control. d. but indirect effect on-the financial statements. Materiality. 87. b. and illegalit ies. Failure to detect material errors. d. and then rely on nor mal audit procedures to detect errors. d. suggests gross negligence. whereas failure to exercise minimal care indicates gross negligence. Red Sirug Page 33 . An auditor must design tests to detect both direct-effect and indirect-effect illegal acts. Seek the advice of an informed expert qualified to practice law as to possible contingent liabilities. If specific information comes to an auditor's attention that implies the existence of possible illegal acts that could have a material. c. Gross negligence is most probable when the auditor fails to detect errors that occurred under conditions of strong internal control. Type of error or irregularity. Discuss the matter with a higher level of management.b. The auditor is most likely to presume that a high risk of irregularities exists if a. c. Gross negligence. An auditor must design tests to detect both immaterial and material direct-effect illegal acts. Only when such failure clearly results from negligence so gross as to sustain an inference of fraud on the par t of the auditor. b. Make inquir ies of management regarding their policies and regar ding their knowledge of violat ions. 86. Still include some audit procedures designed specifically to uncover illegalities. b. Apply audit procedures specifically directed to ascertaining whether an illegal act has occurred.

c. Reporting these activities to the audit committee. b. An auditor who finds that the client has committed an illegal act would be most likely to withdra w from the engagement when the a. the auditor must a. Consider the effects on the financial statements. the auditor's initial course of action should be to a. A partner in the Cebu office of the CPA fir m who maintains a small. and the amounts involved. Decide whether the fraud. c. Report it to the proper government authorities. The spouse of a staff member on the audit has an immater ial common stock invest ment in the audit client. might be of such a magnitude as to affect the auditor's report on the financial statements. When an independent auditor's examination of financial statements discloses special circumstances that make the auditor suspect that fraud may exist. Investigate the persons involved. including the adequacy of disclosure. The auditor's evaluation of the likelihood of material employee fraud is normally done initially as a part of a. In a common law action against an accountant. Reach an understanding with the appropr iate client representatives as to the desired nature and extent of subsequent audit wor k. 94. The Tests of Transactions. Illegal act has material financial statement implications. 99. c. Recommend that the client pursue the suspected fraud to a conclusion that is agreeable to the auditor. 93. c. but currently has no responsibilities with respect to the engagement d. What is the independent auditor's responsibility prior to completion of fieldwork w hen he believes that a material fraud may have occurred? a. d. d. Withdraw fr om the engagement. Continue to perform normal audit procedures and write the audit report in such a way to disclose adequately the suspicions of material fraud. A partner in the Davao office w ho wor ked on the Company A for a different assurance engagem ent in previous years. The assessment of w hether to accept the audit engagement. Extend normal audit procedures in an attempt to detect the full extent of the suspected fraud. Issue an adverse opinion. d.91. b. Is the accountant's client. the independent auditor may be charged with unethical conduct for a. c. d. d. b. a nonaudit client. the nature of the fraud. c. The partner in charge of the entire CPA firm. b. An individual on the audi t has a close relative w ho is a receptionist for the client. b. When the auditor knows that an illegal act has occurred. Illegal act has received widespread publicity. Failure to uncover the illegal activities during prior audits. the lack of privity is a viable defense if the plaintiff a. Withdrawing from the engagement. Bases his action upon fraud. Which of the following partners is least likely to be considered a "covered member" for purposes of rendering assurance ser vice to of Company A. d. The partner in charge of the Davao office. d. b. Issuing a disclaimer of opinion. 96. 97. When management refuses to disclose illegal activities which were identified by the independent auditor. Auditor cannot reasonably estimate the effect of the illegal act on the financial statements. a portion of w hich arises from this audit. performed by the head office of a nati onal CPA firm? a. Illegal act affects the auditor's ability to rely on management representations. In which circumstance is a CPA firm's independence most likely to be impaired? a. The Tests of Controls. b. Reach an understanding with the pr oper client representative as to whether the auditor or the client is to make the investigation necessary to determine if a fraud has in fact occurred. Red Sirug Page 34 . Understanding the ent ity's internal control structure. c. 98. if in fact it should exist. The partner in charge of the office's compensation is affected by office profi tability. 92. The father of the audit senior holds a material financial interest in the client of w hich the senior is unaware. Notify the appropriate law enforcement authority. c. b. 95. b. immater ial invest ment in Company A.

b. Is a creditor of the client who sues the accountant for negligence. Superior. Which of the following statement/s is true? a. c. 100. Gross negligence may constitute constr uctive fraud. A criminal conviction against an auditor can result only w hen it is demonstrated that the auditor a. Ordinar y negligence 107. Constructive fraud. Greater than average. d. 106. Fraud. The existence of extreme or unusual negligence. b. Caused financial loss to an innocent third party. Can prove the presence of gross negligence w hich amounts to a reckless disregard for the truth. Which of the following is the firm’s defense? a. Whether defendant was involved in fraud. c. 108. d. held liable for criminal acts. Ordinar y fraud. Intended to deceive or har m others. An accepted practice. In rare cases auditors have been. Ordinary negligence. professionals have always had a duty to provide a level of care which is a. 103. Constructive fraud is also termed recklessness. Contributory negligence 101. The amount of the damages suffered by the users of the financial statements.c. 104. is a. b. The factor that distinguishes constructive fraud from ordinar y negligence is a. b. Guaranteed to be free from error. Tantamount to criminal behavior. d. Fraud requires the intent to deceive. if present. b. 102. The principal issue to be resolved in cases involving alleged negligence is usually a. c. Intent to deceive c. d. d. even though there was no intent to deceive or do harm. Gross fraud. b. All three above are true. 109. d. An evidence of negligence. Lack of pr iv ity c. The failure of the auditor to meet generally accepted auditing standards is a. Reasonable. A suggestion of negligence. c. c. Reckless disregard d. b. "Absence of reasonable care that can be expected of a person in a set of circumstances" is the definition of a. Constructive fraud. Privity of contract b. d. Which of the following. d. Was negligent. Lack of intent d. Was grossly negligent. A third party sues a public accounting firm for negligence under common law on the basis of materially false financial statements. The level of care required to be exercised. Red Sirug Page 35 . 105. Intent. Lack of reliance b. would support a finding of constructive fraud on the par t of a CPA? a. c. Type of error or irregularity. Level of care. Whether to impose punitive damages on defendant. Materiality. While performing ser vices for their clients. b. c.

Anyone that relied upon the audited financial statements to make a decision to sue the auditor as long as the auditor knew or should have know n of such reliance. c. The auditor's legal liability to third parties under common law extends to? a. Auditor and c lient. b. 111. The limitation of auditor liability under contract law is know n as a. c. The client is privately held as contrasted with a public company. Third party injury has been minimal. The concept of privity may be important in defending auditors against potential claimants. selected third parties for ordinary negligence. Clients to sue their auditors. All third parties for all acts of negligence. He would have no liability because privity of contract is lacking. The auditor's defense of contributor y negligence is most likely to prevail when a. Pr ivity of contract. Selection and implementation of an accounting information system c. CPA is criminally liable if he Refuses to turn over the schedules or wor king papers prepared by the client staff to the client. 118. He would have no liability. Was not able to submit the audited financial statements on time. 114. The function of the internal controls b. Statutory liability. Contributory liability. b. 115. 113. All third parties for acts of fraud and gross negligence. CPA. Auditor and thir d parties. All third parties for fraud. Audits of the effectiveness of internal control Red Sirug Page 36 . As a matter of common law. b. d. to w hat extent w ould Bugoy be liable to Leis Corporation for losses attributable to the theft? a. Shareholders who relied upon the audited financial statements to make an investment decision. The auditor fails to detect fraud resulting from management override of the control structure. d. All of the above 112. He would be liable for losses attributable to his negligence. A a. b. CPA will most likely be negligent when the CPA fails to: Correct errors discovered in the CPA's previously issued audit reports. Warn a client's customers of embezzlement that may be perpetuated by the client's employees. c. He would be liable only if it could be proven that he was grossly negligent. c. All third parties for acts of willful misconduct. A a. selected third parties for gross and ordinary negligence. 116. d. Privity in general only allows: a. Bugoy. Common law liability. b. Detect all of a client's fraudulent activities. b. Undetected errors have resulted in materially misleading financial statements. As a consequence of his failure to adhere to generally accepted auditing standards in the course of his examination of the ABC Corporation. Intent ionally allows an omission of a material fact required to be stated in a financial statement. d. b. c. did not detect the embezzlement of a material amount of funds by the company's controller. c. Gross negligence. Performs an audit in a negligent manner. Privity of contract exists between the a. Auditor and the Securities and Exchange Commission. d. d. d. Public accountants are not prohibited from providing w hich of the following services for public audit clients? a. 110. 117. d. d. b. c.c. Quarterly financial statement bookkeeping d. Fraud. Include a negligence disclaimer in the CPA's engagement letter. since the ordinar y examination cannot be relied upon to detect defalcations. c. Lenders of the client to sue the auditor.

123. 127. To test internal controls. Detection risk 128. They include representations of financial statements in accordance with the applicable reporting criter ia d. Management’s assertions in the financial statements are relevant to the audit process because: a. To provide a uniform application of specific audit procedures that are acceptable worldwide. Due diligence d. Accounting information system design and implementation. 122. Jessie Garcia. Fraud 125. Competence c. Analytical procedures are used a. To assess the reasonableness of financial statement amounts. CPA. c. c. Ethical requirements with respect to independence. internal auditors also strive to possess: a. Inherent risk c. Objectivity d. Completion of a successful audit for the entity d. The overriding objective of the International Auditing Standards that are issued by the International Auditing Practices Committee of the IFAC is a. All of the above 126. To replace generally accepted auditing standards. The users of the financial statements. Ordinary negligence c. To improve the unifor mity of audit ing practices and related services throughout the wor ld. forgot to test a client’s assessment of goodwill impairment during an audit.119. Similar to auditors in the CPA realm. A a. c. The investors and creditors c. Reckless professional behavior b. Obtaining profitability and financial strength b. c. What is the primary purpose of effective inter nal control? a. b. review engagement differs in scope as compared to an audit due to The subject matter of the audit. Serving as a member of the client’s board of directors. d. A CPA firm is considered independent when it performs which of the following ser vices for a publicly traded audit client? a. 124. Tax return preparation as approved by the board of directors. c. Achievement of certain organizational goals. They embody the audit procedures that will be performed by the audit engagement team. To override a countr y’s regulations governing the audit of financial statements. Audit risk b. They relate to regulator’s expectations about audit results. Independence b. The risk that material misstatements have occurred in transactions entering the accounting system is a. b. To provide direct evidence about the numbers in the financial statements. d. The employees b. b. Shareholder involvement in the company’s success 121. An expectation of the public is that the auditor will recognize that the primary users of audit services are: a. b. To set materiality limits. They provide evidence that auditors have prepared financial statements in accordance with GAAP b. c. Control risk d. The quant ity and type of evidence obtained. The SEC d. Such an act is probably an example of: a. The board of directors 120. Determining which accounting policies will be adopted by the client. Red Sirug Page 37 . d. d.