University of San Jose-Recoletos

AUDITING THEORY
1. Which of the following is not a basic element of an audit report?
a. Title of the report. c. Clients address.
b. Introductory paragraph. d. Auditors address.
2. A measure of uniformity in the form and content of the auditors report is desirable because
a. it helps the auditors aoid legal liability.
b. it helps the readers understand the report.
c. it helps the auditor identify the usual circumstances that are e!pected to occur.
d. it ma"es the auditors more informed of their responsibilities with respect to audit report.
#. Which of the following is not e!plicitly included in the opening paragraph of an audit report?
a. Identification of the financial statements that hae been audited.
b. $tatement that the financial statements are the responsibility of the entitys management.
c. $tatement that the responsibility of the auditor is to e!press an opinion on the financial statements based on his
audit.
d. A statement by the auditor that the audit proides a reasonable basis for the opinion.
%. Where do you find the following sentence?
&Those standards re'uire that we plan and perform the audit to obtain a reasonable assurance about whether the
financial statements are free of material misstatements.(
a. Introductory paragraph of the auditors report.
b. $cope paragraph of the auditors report.
c. )anagements representation letter.
d. Audit program.
*. Wheneer an auditor issues an aderse opinion+ the implication is that the auditor
a. does not "now if the statements are presented fairly.
b. does not beliee the statements are presented fairly.
c. is satisfied that the statements are presented fairly e!cept for a specific aspect of them.
d. is satisfied that the statements are presented fairly.
,. When there are multiple uncertainties that are significant to the financial statements+ the auditor may consider it
appropriate to
a. withdraw from the engagement. c. disclaim an opinion.
b. issue an aderse opinion. d. issue a 'ualified opinion.
-. When an auditor e!presses an opinion other than un'ualified opinion+ a clear description of all substantie reasons for
the modification of the opinion should be included in the report. This e!planation should be presented
a. as a separate paragraph that precedes the opinion paragraph of the audit report.
b. as a separate paragraph+ preferably after the opinion paragraph of the audit report.
c. in the opinion paragraph.
d. as a separate paragraph in the notes to financial statements.
.. Which of the following does not warrant a modification of an un'ualified opinion?
a. A significant doubt about the ability of the company to continue as a going concern/ such concern is ade'uately
disclosed by the entity in the notes to financial statements.
b. A limitation of the scope of the audit+ the possible effect of which is material to the financial statements.
c. The auditor has disagreement with management regarding the acceptability of the accounting policies+ the effect of
which is material.
d. The omission of significant information in the financial statement.
0. An auditors report on financial statements prepared in accordance with another comprehensie basis of accounting
should include all of the following e!cept
a. an opinion as to whether the basis of accounting used is appropriate under the circumstances.
b. an opinion as to whether the financial statements are presented fairly in conformity with the comprehensie basis
of accounting.
c. reference to the note to the financial statements that describes the basis of presentation.
d. a statement that the basis of presentation is a comprehensie basis of accounting other than generally accepted
accounting principles.
11. When additional language is added to the auditors report without modifying the opinion+ the additional language should
be included in
a. the introductory paragraph. c. the opinion paragraph.
b. the scope paragraph. d. one or more additional paragraphs that follow the
opinion paragraph.
11. When the principal auditor decides to refer to another auditor in his2her report+ the report should always include
a. a 'ualified or aderse opinion.
b. a disclaimer of opinion regarding the financial statements audited by the other auditor.
c. the percentage and monetary amounts of the portion of the financial statements e!amined by the other auditor.
d. reference to a footnote where the diision of responsibility between the principal auditor and the other auditor is
described in detail.
12. 3ernande4+ C5A+ concludes that there is substantial doubt about 678 Co.s ability to continue as a going concern. If
678s financial statements ade'uately disclose its financial difficulties+ 3ernande4s auditors report should
Include an e!planatory $pecifically use $pecifically use
paragraph following the words the words
the opinion paragraph 9oing concern substantial doubt
a. :es :es :es
b. :es :es ;o
c. :es ;o :es
d. ;o :es :es
1#. <ais+ C5A+ beliees there is substantial doubt about the ability of 3ill Co. to continue as a going concern for a
reasonable period of time. In ealuating 3ills plans for dealing with the aderse effects of future conditions and eents+
<ais most li"ely would consider+ as a mitigating factor+ 3ills plan to
a. accelerate research and deelopment pro=ects related to future products.
b. accumulate treasury stoc" at prices faorable to 3ills historic price range.
c. purchase e'uipment and production facilities currently being leased.
d. negotiate reductions is re'uired diidends being paid on preferred stoc".
1%. A limitation on the scope of an audit sufficient to preclude an un'ualified opinion will usually result when management
a. is unable to obtain audited financial statements supporting the entitys inestment in a foreign subsidiary.
b. refuses to disclose in the notes to the financial statements related>party transactions authori4ed by the board of
directors.
c. does not sign an engagement letter specifying the responsibilities of both the entity and the auditor.
d. fails to correct a reportable condition committed after the prior years audit.
1*. The e!istence of audit ris" is recogni4ed by the statement in the auditors standard report that the auditor
a. obtains reasonable assurance about whether the financial statements are free of material misstatement.
b. assesses the accounting principle used and also ealuates the oerall financial statement presentation.
c. reali4es some matters+ either indiidually or in the aggregate+ are important while other matters are not important.
d. is responsible for e!pressing an opinion on the financial statements that are the responsibility of management.
1,. An auditor was unable to obtain sufficient competent eidential matter concerning certain transactions due to an
inade'uacy in the entitys accounting records. The auditor would choose between issuing a?n@
a. 'ualified opinion and un'ualified opinion with an e!planatory paragraph.
b. un'ualified opinion with e!planatory paragraph and an aderse opinion.
c. aderse opinion and a disclaimer of opinion.
d. disclaimer of opinion and a 'ualified opinion.
1-. If the auditor beliees that the entity will not be able to continue as a going concern and the financial statements are
prepared on a going concern basis+ the auditors report should include
a. un'ualified opinion with e!planatory paragraph. c. aderse opinion.
b. 'ualified opinion. d. disclaimer of opinion.
1.. When the auditors report on the prior period+ as preiously issued+ included a modified opinion and the matter which
gae rise to the modification is unresoled+ and results in a modification of the auditors report regarding the current
period figures
a. the auditors report should be unmodified regarding the corresponding figures.
b. the auditors report should also be modified regarding the corresponding figures.
c. the auditors report does not refer to the preious modification.
d. the auditor should omit the comparaties as corresponding figures.
10. In relation to comparaties as corresponding figures+ which of the following is incorrect?
a. When the prior period financial statements are not audited+ the incoming auditor should state in the auditors report
that the corresponding figures are unaudited.
b. The incoming auditor must refer to the predecessor auditors report on the corresponding figures in the incoming
auditors report for the current period.
c. When the financial statements of the prior period were audited by another auditor+ the incoming auditors report
should state that the prior period was audited by another auditor.
d. In situations where the incoming auditor identified that the corresponding figures are materially misstated+ the
auditor should re'uest management to reise the corresponding figures or if management refuses to do so+
appropriately modify the report.
21. If after performing procedures+ the auditor is unable to obtain sufficient+ appropriate eidence concerning opening
balances+ the auditor may e!press modified opinion on financial statements during and as of year end of the current
period
a. either 'ualified or disclaimer for balance sheet and income statement.
b. 'ualified or disclaimer of opinion for balance sheet only.
c. 'ualified or disclaimer of opinion for income statement only.
d. no modification.
21. 3ow should generally accepted auditing standards and the 5hilippine $tandards on Auditing be loo"ed on by C5A
practitioners?
a. They are ma!imum standards that must be complied with.
b. They are minimum standards of performance.
c. They are clearly defined guidelines for determining the e!tent of eidence to be accumulated.
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d. They are minimum specific audit procedures that the auditors are e!pected to perform.
22. What is the oerriding ob=ectie of the International Auditing $tandards that are issued by the International Auditing
5ractices Committee of the International Aederation of Accountants?
a. To improe the uniformity of auditing practices and related serices throughout the world.
b. To oerride a counts regulations goerning the audit of financial statements.
c. To replace the generally accepted auditing standards.
d. To proide uniformity of specific audit procedures that are acceptable worldwide.
2#. Which of the following least li"ely re'uires an additional e!planatory paragraph in a standard un'ualified report?
a. $ubstantial doubt about going>concern ability of the entity.
b. Beports inoling other auditors.
c. Cmphasis of a matter.
d. Auditor agrees with change in generally accepted accounting principles.
2%. Which of the following re'uires a modified wording report?
a. $ubstantial doubt about going>concern problems of the entity.
b. Beports inoling other auditors.
c. Cmphasis of a matter.
d. All of the aboe.
2*. Which of the following changes would affect comparability but not consistency?
a. Dariations in format and presentation of financial information.
b. Change from AIAE to 8IAE inentory costing.
c. Changes in reporting entity+ such as the inclusion of a company in consolidated financial statements.
d. Correction of errors inoling accounting principles.
2,. When a significant portion of the financial statements hae been audited by other auditors and the principal auditor is
not willing to assume the whole responsibility+ the auditor report should include
a. modified wording in the introductory paragraph.
b. a modified wording in the introductory and opinion paragraphs but not on opinion paragraph.
c. modified wordings on the three paragraphs.
d. separate paragraph to indicate a diided responsibilities.
2-. Which of the following types of report is mostly uncommon?
a. Aderse report. c. $tandard un'ualified report with modified wordings.
b. Fualified report. d. Gn'ualified report.
2.. Which of the following scope limitation that is beyond the auditor and the clients control may mostly occur on a late
engagement?
a. Beiew of ban" reconciliation prepared by client personnel.
b. Be'uest for cutoff ban" statement.
c. Tests of sales transactions.
d. Ebseration of year>end inentory.
20. In which of the following type of audit report would omission of scope paragraph is re'uired?
a. An e!cept for opinion due to possible significant effect of a client>imposed limtation.
b. A disclaimer of opinion due to possible significant effect of client>imposed scope limitation.
c. An audit report limited to income statement only.
d. A and H.
#1. If the principal auditors report refers to the audit of another auditor+ he is re'uired to disclose the
a. name of another auditor.
b. portion of the financial statements audited by the other auditor.
c. opinion e!pressed by the other auditor and the reason if the opinion is other than un'ualified.
d. reason for being unwilling to assume the responsibility for the other auditors wor".
#1. Gnder which of the following circumstances would an un'ualified opinion be entirely appropriate?
a. The principal auditor decides to ma"e reference to the 'ualified report of another auditor+ who audited a subsidiary
b. There are significant uncertainties affecting the financial statements.
c. There has been material effect between periods of the change in the methods of application of 9AA5.
d. There has been a material effect of a departure from generally accepted accounting principle.
#2. Celia+ C5A+ is auditing 8y"a Corporation for the first time. 8y"a has been in the business for seeral years but has
neer had an audit before. After the audit is completed+ Celia concludes that the current year balance sheet is stated
correctly in accordance with 9AA5. The client did not authori4e Celia to do test wor" for any of the preious years.
Beporting on the current years financial statements+ Celia most li"ely would e!press
a. Fualified opinion on the financial statements of 8y"a Corporation.
b. Gn'ualified opinion on the balance sheet and 'ualified opinion on the income statement.
c. Gn'ualified opinion on the income statement and 'ualified opinion on the balance sheet.
d. Gn'ualified opinion on 8y"a Corporations financial statements.
##. )illard+ C5A+ is engaged in the audit of the financial statements of Alpha Company+ a manufacturing entity with branch
offices in many widely separated cities. )illard was not able to count the substantial undeposited cash receipts on the
last day of the fiscal year at all branch offices. As an alternatie procedures+ )illard erified all the reported
undeposited cash collections in the cut>off ban" statements and was satisfied as to cut>off of cash receipts.
3ow should )illard prepare his audit report?
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a. Issue an un'ualified opinion with an emphasis of matter paragraph that refers to the use of alternatie audit
procedure.
b. Issue a 'ualified opinion due to scope limitation.
c. Issue an un'ualified opinion on income statement and a 'ualified opinion on the balance sheet.
d. Issue a standard un'ualified opinion.
#%. Trula Company has prepared financial statements but has decided to omit the statement of cash flows. The
management beliees that the users of the financial statements the statement of cash flows confusing and prefer not
hae it included.
The omission of the statement of cash flows would re'uire the auditor to
a. Include an un'ualified report on emphasis of matter paragraph that e!plains the reasons for such an omission of
the statement.
b. Issue an aderse opinion due to inade'uate disclosure.
c. Issue a 'ualified opinion due to inade'uate disclosure.
d. Issue an un'ualified opinion based on limited reported ob=ectie.
#*. <ue to recurring operating losses and wor"ing capital deficiencies+ an auditor has substantial doubt about the ability of
the entity to continue as a going concern for a reasonable period of time. 3oweer+ the financial statement disclosures
concerning these matters are ade'uate.
The auditor should issue his report that contains
a. <isclaimer of opinion. c. $tandard un'ualified opinion.
b. Aderse opinion. d. Gn'ualified opinion with an emphasis of matter paragraph.
#,. A continuing auditor has =ust completed the audit of the entity. The audit report for the past three years included an
emphasis of matter paragraph that referred to a substantial doubt about the ability of the entity to continue as a going
concern. At the middle of the current audit year+ the ma=or stoc"holders infused substantial capital that made the
company stable. The continuing auditor should report on the comparatie financial statements by
a. Gpdating the audit report by issuing a standard three>paragraph audit report.
b. Including an emphasis of matter paragraph that refers to prior years going concern problem.
c. Issue an un'ualified opinion with an emphasis of matter paragraph that describes the steps the management did in
soling its going concern problem.
d. Fualify the audit report due to 'uestionable strategy of strengthening the entitys financial stability.
#-. An auditor assesses control ris" to do which of the following?
a. <etermine the tests of controls to perform
b. <etermine the nature+ timing+ and e!tent of substantie tests to perform
c. Ascertain whether reportable conditions e!ists
d. Ascertain whether there is an appropriate segregation of duties among employees
#.. Which of the following auditing procedures should not be considered a test of control?
a. Ebsering preparation of the ban" reconciliation
b. In'uiring about the entitys organi4ation structure
c. Inspecting customer order forms for the signature of the credit manager
d. Confirming with the customer the amount owed to the client
#0. Ene of the companys internal control structure procedures re'uires that shipping documents be matched with
customer inoices. To which of the following is that procedure releant?
a. The completeness assertion for reenue
b. The e!istence assertion for inentory
c. The occurrence assertion for purchases
d. The presentation and disclosure assertion for accounts receiable
%1. Tests of controls are primarily concerned with all but which of the following 'uestions?
a. 3ow were policies or procedures performed?
b. Were the policies or procedures performed?
c. 3ow were the policies or procedures designed?
d. <o policies or procedures e!ist?
%1. Which of the following is not a reason an auditor should obtain an understanding of the elements of an entitys internal
control structure when planning an audit?
a. To identify types of potential misstatements that can occur+
b. To design substantie tests
c. To consider the operating effectieness of the internal control structure
d. To consider factors that affect the ris" of material misstatements
%2. The se'uence of the steps in the auditors consideration of the internal control structure is as followsI
a. Ebtain an understanding+ design substantie tests+ perform tests of controls+ determine assessed leel of control
ris".
b. <esign substantie tests+ obtain an understanding+ perform tests of control+ determine assessed leel of control
ris".
c. Ebtain an understanding+ performs tests of controls+ determine assessed leel of control ris"+ design substantie
tests.
d. 5erform tests of controls+ obtain an understanding+ determine assessed leel of internal control+ design substantie
tests
%#. When documenting the assessed leel of control ris"+ the auditor should
a. C!press the assessed leel of control ris" in either 'uantitatie of 'ualitatie terms for all assertions.
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b. $tate the basis for the conclusion when the assessed leel of control ris" is below the ma!imum leel for an
assertion
c. $tate the basis for the conclusion when the assessed leel of control ris" is at the ma!imum leel for an assertion
d. <escribe how the planned substantie test hae been affected by the assessed leel of control ris"
%%. In determining the assessed leel f control ris"+ which of the following statements is correct?
a. The "nowledge obtained from the understanding of the internal control structure cannot be used
b. The "nowledge obtained about the internal control structure from the prior audits can be used
c. The auditor ealuates the design of a policy and whether it has been placed in operation
d. Ebseration proides more persuasie eidence about the operating effectieness of a policy or procedure than
e!pecting documentation
%*. After considering a clients internal control system+ an auditor has concluded that it is well designed and is functioning
as intended. Gnder these circumstances the auditor would most li"ely
a. <etermine the control policies and procedures that should preent or detect errors and irregularities
b. <etermine whether transactions are recorded to permit preparation of financial statements in conformity with
9AA5
c. ;ot increase the e!tent of predetermined substantie tests
d. 5erform tests of controls to the e!tent outlined in the audit program
%,. Ideally+ tests of controls should be applied to transactions and controls
a. at each 'uarterly interim period c. at the beginning of the fiscal year
b. at the balance sheet date d. for the entire period under audit
%-. A procedure that would most li"ely be used by an auditor in performing tests of control procedures that inole
segregation of functions and that leae no transaction trail is
a. Inspection c. Beconciliation
b. Ebseration d. Beperformance
%.. Cach "ey control that the auditor intends to rely on must be supported by sufficient
a. analytical reiew procedures c. tests of transactions
b. tests of controls d. reperformance procedures
%0. When controls leae no documentary eidence or trail
a. it is impossible for the auditor to erify them so he2she will hae to rely on substantie tests
b. it is important to audit that area of clients system
c. the auditor generally obseres them being applied
d. the only thing aailable as erification of their effectieness is in'uiry of management
*1. When the compensating control e!ists+ a wea"ness in the system
a. could cause a material loss+ so it must be tested using substantie procedures
b. is magnified and must be remoed from the sampling process and e!amined in its entirety
c. is no longer a concern because the potential for misstatements has been sufficiently reduced
d. is reduced but not remoed/ therefore+ it is still of concern to the auditor
*1. Ene of the ways to eliminate nonsampling ris" is through
a. control which ensure that the sample drawn is random and representatie
b. proper superision and instruction of the audit team
c. proper superision and instruction of the clients employees
d. the use of attributes sampling rather than ariables sampling
*2. $ampling ris" is an inherent part of sampling that results from
a. failure to recogni4e e!ceptions c. testing less than the entire population
b. inappropriate audit procedures d. wea"nesses in clients internal control system
*#. If the auditor decides to assess control ris" at the ma!imum leel+ tests of control are
a. Increased in number c. Beduced in number
b. ;ot performed d. Gnchanged from prior planned settings
*%. An auditor selects a sample from the file of shipping documents to determine whether inoices were prepared. This
test is performed to satisfy the audit ob=ectie of
a. Accuracy b. C!istence c. Completeness d. Control
**. An auditor e!amining inentory may appropriately apply sampling for attributes in order to estimate the
a. Aerage price of inentory items c. 5ercentage of slow>moing inentory items
b. 5hysical 'uantity of inentory items d. 5eso alue of inentory
*,. A principal adantage of statistical methods of attributes sampling oer nonstatistical method is that they proide a
scientific basis for planning the
a. C!pected population e!ception rate c. $ample price
b. Bis" of assessing control ris" too low d. Tolerable e!ception rate
*-. A basic premise underlying analytical procedure is thatI
a. These procedures cannot replace tests of balances and transactions
b. $tatistical tests of financial information may lead to the discoery of material misstatements in the financial
statements
c. The study of financial ratios is an acceptable alternatie to the inestigation of unusual fluctuations
d. 5lausible relationships among data may reasonably be e!pected to e!ist and continue in the absence of "nown
conditions to the contrary
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*.. Ene reason why an auditor ma"es an analytical reiew of the clients operations is to identify
a. improper separation of accounting and other financial duties
b. wea"ness of a material nature in the system of internal accounting control
c. unusual transactions
d. non>compliance with prescribed control procedures
*0. At what stage in the audit are the analytical procedures performed?
a. In planing stage
b. In con=unction with tests of transactions and tests of details of balances
c. ;ear the end
d. <uring all three states
,1. &Gnusual fluctuations( occur when
a. significant differences are not e!pected but do e!ist
b. significant differences are e!pected but do not e!ist
c. there is a material accounting error or irregularity
d. any one of the aboe three situations may occur
,1. To help plan the nature+ timing and e!tent of substantie auditing procedures+ preliminary analytical procedures should
focus onI
a. Cnhancing the auditors understanding of the clients business and eents that hae occurred since the last audit
date
b. <eeloping plausible relationships that corroborate anticipated results with a measurable amount of precision
c. Applying ration analysis to e!ternally generated data such as published industry statistics or price indices
d. Comparing recorded financial information to the results of other tests of transactions and balances
,2. Which of the following tends to be most predictable for purposes of analytical procedures applied as substantie tests?
a. Belationships inoling balance sheet accounts
b. Transactions sub=ect to management discretion
c. Belationships inoling income statement accounts
d. <ata sub=ect to audit testing in the prior year
,#. An auditor compares the 21!# reenues and e!penses with those of the prior year and inestigates all changes
e!ceeding 11J. Hy this procedure the auditor would be most li"ely to learn thatI
a. Aourth payroll ta!es were not paid
b. The client changed its capitali4ation policy for small tools in 21!#
c. An increase in property ta! rates has not been recogni4ed in the clients accrual
d. The 21!# proision for uncollectible accounts were inade'uate because of worsening economic conditions
,%. Aor which of the following account balances are substantie tests of details least li"ely to be performed unless
analytical reiew procedures indicate the need to e!tend details testing?
a. 5ayroll e!pense c. Besearch and deelopment
b. )ar"etable securities d. 8egal e!pense
,*. Which of the following comparisons would be most useful to an auditor in ealuating the results of an entitys
operations?
a. 5rior year accounts payable to current year accounts payable
b. 5rior year payroll e!pense to budgeted current year payroll e!pense
c. Current year reenue to budgeted current year reenue
d. Current year warranty e!pense to current year contingent liabilities
,,. Where an unusual fluctuation is indicated by analytical procedures and management is unable to proide a satisfactory
e!planation+ the auditor must assume that there is a high probability that an error or irregularity e!ists. In this case+ the
auditor mustI
a. Issue either a 'ualified or an aderse opinion
b. Issue a disclaimer
c. Issue either a 'ualified opinion or a disclaimer
d. <esign other appropriate audit procedures to determine if such errors do e!ist
,-. The auditor notices significant fluctuations in "ey elements of the companys financial statements. If management is
unable to proide an acceptable e!planation+ the auditor should
a. Consider the matter a scope limitation
b. 5erform additional audit procedures to inestigate the matter further
c. Intensify the e!amination with the e!pectation of detecting management fraud
d. Withdraw from the engagement
,.. Auditors sometimes use comparison of ratios as audit eidence. Aor e!ample+ an une!plained decrease in the ratio of
gross profit to sales may suggest which of the following possibilities?
a. unrecorded purchases
b. unrecorded sales
c. merchandise purchases being charged to selling and general e!pense
d. fictitious sales
,0. $ampling results could lead to the auditor to beliee erroneously that the account does not contain more monetary
error that can be tolerated. Which of the following corresponds to the preceding statement?
a. The ris" of incorrect re=ection c. Cstimation sampling
b. The ris" if incorrect acceptance d. 5ro=ected misstatement
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-1. The auditor generally gies most emphasis to ratio and trend analysis in the e!amination of the statement of?
a. Betained earnings c. Ainancial position
b. Income d. Cash flows
-1. Analytical procedures used in the oerall reiew stage of an audit generally includeI
a. Considering unusual or une!pected account balances that were not preiously identified.
b. 5erforming tests of transactions to corroborate managements financial statement assertions
c. 9athering eidence concerning account balances that hae not changed from the prior year
d. Be>testing control procedures that appeared to be ineffectie during the assessment of control ris"
-2. An aging analysis of accounts receiable would proide an indication as to theI
a. Dalidity of the accounts c. Integrity of the credit grantors
b. Collectibility of the accounts d. $olency of the customers
-#. Cidential matter supporting the financial statements consists of underlying accounting data and all corroborating
information aailable to the auditor. An e!ample of corroborating information isI
a. 9eneral and subsidiary ledgers
b. Wor"sheets supporting cost allocation
c. )inutes of meetings
d. Accounting manuals
-%. Which of the following is an accepted audit procedure that inoles the analysis if two records independent of one
another?
a. Ebseration c. Beconciliation
b. $tatistical sampling d. Douching
-*. The primary difference between an audit of the balance sheet and the audit of income statement is that the audit of the
balance sheet date more with the erification of
a. Transactions c. Costs
b. Authori4ations d. Halances
-,. An auditor encounters the following four accounts listed among the assets of a client. )ost li"ely the auditor would
ta"e e!ception to the asset recognition ofI
a. C!cess cost oer the boo" alue of a subsidiary
b. Besearch and deelopment costs incurred by an oil e!ploration company
c. 9oodwill arising from appraisal
d. Ergani4ation cost
--. Ene of this procedures is not deemed properI
a. Cash count should be made at a time not "nown in adance to the custodians of cash.
b. Cash should be counted only in the presence of the custodian or responsible representatie of the client. If any of
them were personally present+ there is no need for them to chec" the cash count.
c. Cash fund at distant branch offices should be confirmed in writing with the custodian+ where it is not practicable for
the auditor to isit the said office
d. The auditor should determine beforehand the appropriate amounts and locations of company funds not recorded
on the boo"s which are in the possession of the custodian of company funds.
-.. The e!amination of underlying documentary eidence in order to erify the entries which are based upon the eidence
a. Testing b. Auditing c. Tracing d. Douching
-0. $eeral types of documentary eidence were receied by the auditor+ but of these only one is considered most reliableI
a. Wor"ing papers prepared by the Chief Accountant and reiewed personally by the D5>Ainance.
b. A chec" issued by the Treasurer+ with the payees endorsement+ included in the statement mailed by the ban"
directly to the auditor.
c. A deliery receipt issued by the shipping department+ signed by the customer+ with an accompanying copy of the
sales inoice.
d. Confirmation of the balance of an accounts payable mailed by and returned directly to the auditor.
.1. A written re'uest and ac"nowledgment re'uiring a letter reply only in the eent of a discrepancy.
a. negatie confirmation c. letter confirmation
b. positie confirmation d. Clients representation letter
.1. Hy a cut>off reiew and close e!amination of sales =ournal entries for seeral days before and after a balance sheet
date+ and auditor might detect
a. 7iting cash sales receipts c. Inflating sales for the year
b. 8apping sales receipts d. )isappropriation of sales stoc"s
.2. A positie account receiable confirmation returned without e!ception attest to the
a. collectibility of the receiable balance
b. accuracy of the receiable balance
c. accuracy of the aging of the accounts receiable balance
d. accuracy of the allowance for bad debts
.#. Which of the following is the best audit procedure for determining the e!istence of unrecorded liabilities?
a. C!amine confirmation re'uests returned by creditors whose accounts appear on a subsidiary trial balance of
accounts payable
b. C!amine unusual relationships between monthly accounts payable balance and recorded purchases
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c. C!amine a sample of endors inoices a few days prior to and subse'uent to year end to ascertain whether they
hae been properly recorded
d. C!amine a sample of cash disbursements in the period subse'uent to the year end
.%. The physical count of the inentory of a retailer was higher than that shown by the perpetual records. Which of the
following could e!plain this differences?
a. Inentory items had been counted but the tags placed on the items had not been ta"en off the items and added to
the inentory compilation sheets.
b. Credit memos for seeral items returned by the customers had not been prepared.
c. ;o =ournal entry had been made on the retailers boo"s for seeral items returned to the suppliers.
d. An item purchased &AEH shipping point( had not arried at the date of the inentory count and had not been
reflected in the perpetual records
.*. Cut>off tests designed to detect credit sales made before the end of the year that hae been recorded in the
subse'uent year proide assurance about managements assertion of
a. Completeness b. C!istence c. 5resentation d. Bights
.,. In the conte!t of an audit of financial statements+ substantie tests are audit procedures that
a. may be either tests of transactions+ direct tests of financial balances or analytical tests
b. may be estimated under certain conditions
c. are designed to discoer significant subse'uent eents
d. will increase proportionately with increase in assessed control ris"
.-. If the ob=ectie of a test of details is to detect oerstatement of sales+ the auditor should ouch transactions from the
a. Accounting records to the source documents
b. Cash receipts =ournal to the sales =ournal
c. $ales =ournal to the cash receipts =ournal
d. $ource documents to the accounting records
... Which of the following combinations of procedures would an auditor most li"ely perform to obtain about plant asset
additions?
a. Inspecting documents and physically e!amining plant assets
b. Becalculating and obtaining written management representations
c. Ebsering operating actiities and comparing balances to prior period balances
d. Confirming ownerships and corroborating transactions through in'uiries of client personnel
.0. An auditor who selects a sample of items from the ouchers payable register for the last month of the period under
audit and traces these items to underlying documents is gathering primarily in support of the assertion that
a. Cash disbursements were recorded as incurred obligations
b. Incurred obligations were recorded in the correct period
c. Becorded obligations were alid
d. Becorded obligations were paid
01. Which of the following statements is correct concerning the use of negatie confirmation re'uests?
a. ;egatie confirmation re'uests are effectie when detection ris" is low
b. ;egatie confirmation re'uests are effectie when understatements of account balances are suspected
c. Gnreturned negatie confirmation re'uests indicate that alternatie procedures are necessary
d. Gnreturned negatie confirmation re'uests rarely proide significant e!plicit eidence
01. In the audit of inentories+ an auditor would least li"ely erify that
a. All inentory owned by the client is on hand at the time of the count
b. <amaged goods and obsolete items of inentories hae been properly accounted for
c. The client has used proper inentory pricing
d. The financial statement presentation of the inentories is appropriate
02. A client company has not paid its 2112 audit fees. According to the Code of 5rofessional Conduct+ for the auditor to be
considered independent with respect to the 211# audit+ the 2112 audit fees must be paid before the
a. 2112 report is issued c. 211# field wor" is started
b. 211# report is issued d. 211% field wor" is started
0#. Inclusion of which of the following in promotional brochure published by a public accounting firm would be most li"ely to
result in a iolation of the rules of conduct?
a. Beprints of newspaper articles that praise the firms e!pertise.
b. $erices offered and fees for such serices including hourly rates and fi!ed fees
c. Cducational and professional attainments of partners
d. Testimonial and endorsements
0%. According to the Code of 5rofessional Conduct+ a member who has a financial interest in a partnership that inests in a
potential client is considered to hae
a. An indirect financial interest in the client c. ;o financial interest in the client
b. A direct financial interest in the client d. A partial financial interest in the client
0*. The Bules of Conduct will ordinarily be considered to hae been iolated when the member represents that specific
consulting serices will be performed for a stated fee and it is apparent at the time of the representation that the
a. actual fee would be substantially higher
b. actual fee would be substantially lower than the fees charged by other members for comparable serices
c. fee was a competitie bid
d. member would not be independent
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0,. In which of the following instances would the independence of the C5A not be considered to be impaired? The C5A
has been retained as the auditor of a bro"erage firm
a. Which owes the C5A audit fees for more than one year
b. In which the C5A has a large actie margin account
c. In which the C5As brother is the controller
d. Which owes the C5A audit fees for serices in the current year and ha =ust filed a petition for ban"ruptcy
0-. Which of the following most completely describes how the profession has defined independence?
a. 5erforming an audit from the iewpoint of the public
b. Aoiding the appearance of significant interests in the affairs of an audit client
c. 5ossessing the ability to act with integrity and ob=ectiity
d. Accepting responsibility to act professionally and in accordance with a professional code of ethics
0.. The appearance of independence of a C5A+ or that C5As firm+ could be impaired if the C5A
a. owns a unit in a cooperatie apartment house where each unit has a ote in the cooperatie+ and the C5A+ who
does not participate in the management+ has been retained as the auditor for the cooperatie
b. =oins a trade association that is a client and seres in a non management capacity
c. accepts a gift from a client
d. none of the aboe
00. The Code of 5rofessional Conduct states that a C5A shall not disclose any confidential information obtained in the
course of a professional engagement e!cept with the consent of his or her client. In which of the situations that follow
would disclosure by a C5A be in iolation of the Code?
a. <isclosing confidential information to property discharge the C5As responsibilities in accordance with the
professions standards.
b. <isclosing confidential information in compliance with a subpoena issued by a court.
c. <isclosing confidential information to another accountant interested in purchasing the C5As practice
d. <isclosing confidential information in a reiew of the C5As professional practice by a peer reiew team.
111. Which of the following fee arrangements is in iolation of the Code of 5rofessional Conduct?
a. A fee based on whether the C5As report on the clients financial statements results in the approal of a ban" loan
b. A fee based on the outcome of a ban"ruptcy proceeding
c. A fee based on the nature of the serice rendered and the C5As particular e!pertise instead of the actual time
spent on the engagement.
d. A fee based on the charged by the prior auditor.
111. Which of the following describes most completely how the profession defines independence?
a. 5erforming an audit from the publics point of iew
b. Aoiding the appearance of a significant interest in an audit clients interest
c. Besisting a clients reluctance to reeal eidence
d. Accepting responsibility to act professionally and in accordance with a professional Code of Conduct
112. In which of the following circumstances would a C5A be bound to refrain from disclosing confidential information
obtained during a professional engagement?
a. The C5A is issued a summons enforceable by a court order that orders the C5A to present confidential
information
b. A ma=or stoc"holder of a client company see"s accounting information from the C5A after management declined to
disclose the information
c. Confidential client information is made aailable as part of a 'uality reiew of the C5As practice by a reiew team
authori4ed by the 5IC5A
d. An in'uiry by a disciplinary body of a national C5A society re'uests confidential client information
11#. The Code of 5rofessional Conduct would be iolated if a member accepted a fee for serices and the fee was
a. Ai!ed by a public authority
b. Hased on a price 'uotation submitted in competitie bidding
c. Hased on the result of =udicial proceedings
d. 5ayable after a specified finding was attained
11%. Independence is re'uired of a C5A performing
a. Audits+ but not any other professional serices
b. All attestations serices+ but not other professional serices
c. All attestation and ta! serices+ but not other professional serices
d. All professional serices
11*. Which of the following statements best describes why the profession of certified public accountants has deemed it
essential to promulgate a code of professional conduct and to establish a mechanism for enforcing obseration of the
code?
a. A distinguishing mar" of a profession is its acceptance of responsibility to the public.
b. A prere'uisite to success is the establishment of an ethical code that primarily defines the professionals
responsibility to clients and colleagues.
c. A re'uirement of most state laws for the profession to establish a code of ethics.
d. An essential means of self>protection for the profession is the establishment of fle!ible ethical standards by the
profession.
11,. Which of the following attributes is more closely associated with attestation serices performed by a C5A firm than
with other lines of professional wor"?
a. Integrity c. Independence
b. Competence d. 7eeping informed in current professional deelopments
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11-. In which of the following circumstances would a C5A be considered independent when performing the audit of the
financial statements of a new client for the year ended <ecember #1+ 211#?
a. The C5A resigned on 6anuary 1-+ 211# from the board of directors of the client+ prior to accepting the new audit
engagement.
b. The C5A continues to hold an immaterial indirect financial interest in the client.
c. The C5A continues to sere as a trustee for the clients pension plan.
d. The C5As spouse owns an immaterial amount of share of common stoc" in the client.
11.. In determining the scope and nature of serices to be performed in public practice+ a C5A firm should
a. Be'uire independence for all serices performed
b. <etermine that the performance of all serices is consistent with the firms members role as professionals.
c. 3ae in place internal control procedures.
d. Enly perform accounting related serices.
110. Independence of a C5A with respect to a client is not impaired if
a. The C5A has a loan to an officer of the client.
b. The C5A has an immaterial direct interest in the client.
c. The C5A is trustee for the clients pension plan.
d. The C5A has an immaterial =oint+ closely held business inestment with the client.
111. A C5A firm may not designate itself as &members of the 5IC5A( unless
a. All of its partners are members of the Institute.
b. Its entire professional staff is members of the Institute.
c. A ma=ority of its professional staff are members of the Institute.
d. At least one partner is a member of the Institute.
111. A C5As retention of client records as a means of enforcing payment of an oerdue audit fee is an action that is
a. Considered acceptable by the Code of 5rofessional Conduct.
b. III adised since it would impair the C5As independence with respect to the client.
c. Considered discreditable to the profession.
d. A iolation of generally accepted auditing standards.
112. The Code of 5rofessional Cthics for C5As was promulgated by theI
a. 5hilippine Institute of C5As c. $ecurities and C!change Commission
b. Hureau of internal reenue d. Hoard of Accountancy
11#. A C5A shall not disclose confidential information obtained during an audit engagement in which one of the
following situations?
a. When the security of the state so re'uires
b. With the consent of the client
c. In defense of himself when sued by the client
d. Gnder the rule against disclosing confidential information
11%. Ene of the following refers to a generally accepted auditing standardI
a. Confirm the cash balances c. 6oin professional society
b. C!ercise due professional care d. 5resere confidential relationship with client
11*. 8egacy Commercial Inc. engages the serices of )r. C. <imalanta+ C5A+ to ma"e a pro=ect study on the e!panded
foot ending operations of the corporation with the corresponding staffing and compensation pac"age for its e!ecutie
staff. <imalanta+ howeer+ has primarily auditing e!pertise and only in general merchandising operations. )r.
<imalanta may properlyI
a. Accept the engagement and carry it out consistent with generally accepted auditing standards.
b. Accept the engagement but e!ercise due professional care.
c. Accept the engagement and ac'uire the necessary competence or consult with established authorities.
d. <ecline the engagement for lac" of e!perience or competence in an entirely new line of speciali4ation.
11,. Gnder the proisions of the Code of the 5rofessional Cthics for C5As+ a partner suriing the death or withdrawal
of all other partners may continue to practice under the partnership nameI
a. Aor fie years after becoming a sole practitioner.
b. Aor three years after becoming a sole practitioner.
c. Aor two years after becoming a sole practitioner.
d. Aor one year after becoming a sole practitioner.
11-. A C5A will not offer or render serices under an agreement whereby the fee is contingent upon the findings. Ene
of these is deemed not permissible under the ethics of the professionI
a. Aees granted by the courts
b. Aees determined in ta! matters by =udicial proceedings.
c. Aees fi!ed by goernment agency findings.
d. Aees determined as a percentage of the total amount of authori4ed bond issues.
11.. The C5A in public practice iolates the Code of 5rofessional Cthics for C5As if he accepts a fee which wasI
a. Ai!ed by public authority
b. Hased on a price 'uotation submitted in competitie bidding.
c. <etermined+ based on the results of =udicial proceedings.
d. 5ayable after a specified finding was obtained.
10
110. Gpon discoery of irregularities in the clients ta! return that the client refuses to correct+ a C5A withdraws from the
engagement. 3ow should the withdrawing C5A respond if as"ed by the successor of C5A why the relationship was
terminated?
a. &It was a misunderstanding.(
b. &I suggest you get the clients permission for us to discuss all matters freely.(
c. &I suggest you as" the client.(
d. &I found irregularities in the ta! return which the client would not correct.(
121. A C5As opinion on financial statements is of little alue to those who relied on him unless heI
a. Issues an un'ualified opinion.
b. )aintains a program of continuing education.
c. $eres his clients with professional concern for their best interests
d. )aintains his independence.
121. The code of 5rofessional Cthics for C5As states+ in part+ that a C5A should maintain a high degree of integrity and
ob=ectiity in all his actuations. Eb=ectiity in said Code refers to a C5As abilityI
a. To maintain an impartial attitude on all matters which come under the C5As reiew
b. To independently distinguish between accounting practices that are acceptable and those that are not.
c. To be unyielding in all matters dealing with auditing procedures
d. To independently choose between alternate accounting principles and auditing standards.
122. In the absence of pronouncements issued by the A$5C and the 5IC5A+ published statements and guidelines by
other authoritatie bodies+ li"e AIC5A+ IA5C and AAA are the basis of determining generally accepted auditing
standards. What affect do these pronouncements proide in determining the generally accepted auditing standards?
a. Authoritatie b. 5ersuasie c. Alternatie d. 5arallel
12#. $pecifically+ the board of accountancy is officially represented in the A$5C byI
a. $ecretary of the HEA c. Chair+ 5BC
b. Chair+ HEA d. HEA member who handles Auditing theory sub=ect
12%. 3ow many members of A$5C are needed to approe the e!posed draft or 5hilippine standards in Auditing as
5hilippine $tandards on Auditing?
a. )a=ority of the regular members c. At least ten
b. At least eight d. At least twele
12*. Which of the following is the correct statement?
a. A$5C should normally e!pose a proposed interpretation of statements.
b. A$5C should normally e!posed its opinion on specific 'ueries from a practicing C5A
c. To ma"e the statements on 5hilippine $tandards on auditing operatie+ the final statement shall be submitted to
the board of accountancy for approal.
d. When it is deemed necessary to e!pose for a comment on proposed interpretation of statements+ the e!posure
period is understandably shorter than those of the regular drafts of standards.
12,. Which of the following is not presented by the signatories to the =oint memorandum of support to the creation and
operation of the auditing standards and practices council?
a. Hoard of Accountancy.
b. 5hilippine Institute of Certified 5ublic Accountants ?5IC5A@
c. Association of Certified Accountants in 5ublic 5ractices ?AC5A55@
d. 5hilippine Institute of Certified 5ublic Accountants Aoundation+ Inc.
END
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