You are on page 1of 24

Page 1 of 24

CEBU CPAR CENTER


Mandaue City, Cebu

AUDITING THEORY
FINAL PREBOARD EXAMINATION

INSTRUCTIONS: CHOOSE THE BEST ANSWER FOR EACH OF THE FOLLOWING. MARK
THE LETTER OF YOUR CHOICE WITH A VERTICLE LINE ON THE ANSWER SHEET
PROVIDED. STRICTLY NO ERASURES ARE ALLOWED.

1. Which of the following best describes “high level of assurance”?


a. It refers to the professional accountant having obtained evidence based on procedures
agreed upon between the practitioner and the intended users to be satisfied that findings be
reported to the intended users.
b. It refers to the professional accountant having obtained sufficient external and internal
appropriate evidence to be satisfied that the subject matter is plausible in the
circumstances.
c. It refers to the professional accountant having obtained sufficient appropriate evidence to
conclude that the subject matter conforms in all material respects with identified suitable
criteria.
d. It refers to the professional accountant having obtained sufficient evidence to conclude that
he has no knowledge of any required modifications to be made in the financial statements
in order for them to conform of prescribed criteria.

2. Which statement is incorrect regarding assurance engagement risk?


a. Engagement risk is the risk that the practitioner will express an inappropriate conclusion
that the subject matter conforms in all material respects with suitable criteria.
b. All components of the engagement risk model will be significant for all assurance
engagements.
c. The extent to which the practitioner considers the relevant components of engagement risk
will be affected by the engagement circumstances.
d. Business risk is not part of engagement risk and does not affect the application of Philippine
Standard on Assurance Engagements.

3. Which statement is incorrect regarding an engagement to perform agreed-upon procedures?


a. An auditor is engaged to carry out those procedures of an audit nature to which the auditor
and the entity and any appropriate third parties have agreed and to report on factual
findings.
b. The recipients of the report must form their own conclusions from the report by the auditor.
c. The report is restricted to those parties that have agreed to the procedures to be performed.
d. The report on factual findings is expressed in the form of negative assurance.

4. Which of the following engagements provides third parties the highest level of assurance about
the client’s financial statements?
a. Audit c. Agreed-upon procedures
b. Review d. Compilation

5. In which of the following situations can third parties assume responsibility of the auditor
regarding association with financial information?
a. When the auditor attaches a report to that information.
b. When the auditor consents to the use of the auditor's name in a professional connection.
c. Either a or b.
d. Neither a nor b.

6. A concept relating to the accumulation of the audit evidence necessary for the auditor to
conclude that there are no material misstatements in the financial statements taken as a whole.
a. Reasonable assurance c. Moderate assurance
b. Positive assurance d. Negative assurance

7. Which statement is incorrect regarding the external auditor’s consideration of the work of
internal auditing?
a. The external auditor should consider the activities of internal auditing and their effect, if any,
on external audit procedures.

AT-3rdBatch-FinPB
Page 2 of 24

b. The external auditor should obtain a sufficient understanding of internal audit activities to
assist in planning the audit and developing an effective audit approach.
c. During the course of planning the audit, the external auditor should perform a preliminary
assessment of the internal audit function when it appears that internal auditing is relevant to
the external audit of the financial statements in specific audit areas.
d. When the external auditor intends to use specific work of internal auditing, the external
auditor need not evaluate and test that work to confirm its adequacy for the external
auditor's purposes.

8. The independent auditor lends credibility to client’s financial statements by


a. Maintaining a clear-cut distinction between management’s representations and the auditor’s
representation.
b. Testifying under oath about client’s financial statements.
c. Stating in the auditor’s management letter that the examination was made in accordance
with generally accepted auditing standards.
d. Attaching an auditor’s opinion to the client’s financial statements.

9. Which of the following is responsible for the fairness of representations made in financial
statements?
a. The independent auditor. c. The client's management.
b. The internal auditor. d. The audit committee.

10. The exposure period allowed for each exposure draft of PSA to be considered by the
organizations and persons to whom it is sent for comment is generally
a. Four months c. Two months
b. Three months d. Six months

11. Which statement is incorrect regarding the pronouncements of ASPC?


a. The PSAs and Interpretations may also have application, as appropriate, to other related
activities of auditors.
b. PSAs contain basic principles and essential procedures (identified in bold type black
lettering) together with related guidance in the form of explanatory and other material.
c. PSAs need only be applied to material matters.
d. The Interpretations have the same authority as the PAPSs.

12. The following should be occupied only by a duly registered CPA, except
a. Any position in any business or company in the private sector which requires supervising
the recording of financial transactions.
b. Any position in any business or company in the private sector which requires preparation of
financial statements.
c. Any position in any business or company in the private sector which requires coordinating
with the internal auditors for the audit of financial statements.
d. The position of the dean that supervises the BSA program of an educational institution.

13. Which of the following is not represented in the Auditing and Assurance Standards Council?
a. Board of Accountancy c. Bureau of Internal Revenue
b. Bangko Sentral ng Pilipinas d. Securities and Exchange Commission

14. A study, appraisal, or review by the BOA or its duly authorized representatives, of the quality of
audit of financial statements through a review of the quality control measures instituted by an
Individual CPA, Firm or Partnership of CPAs engaged in the practice of public accountancy.
a. Peer review c. Analytical review
b. Quality review d. Administrative review

15. Emong, CPA is applying for renewal of his professional license. He is exempted from the CPE
requirements
a. If he is at least 65 years old.
b. If he is working abroad and he has been out of the country for at least two years
immediately prior to the date of renewal.
c. Either a or b.
d. Under no circumstances.

16. The following statements relate to RA 9298. Which statement is true?

AT-3rdBatch-FinPB
Page 3 of 24

a. The Professional Regulation Commission has the authority to remove any member of the
Board of Accountancy for negligence, incompetence, or any other just cause.
b. Insanity is not a ground for proceeding against a CPA.
c. A person shall be considered to be in the professional practice of accounting if, as an officer
in a private enterprise, he makes decisions requiring professional accounting knowledge.
d. After three years, subject to certain conditions, the Board of Accountancy may order the
reinstatement of a CPA whose certificate of registration has been revoked.

17. There is a need for assurance that all services obtained from a professional accountant are
carried out to the highest standards of performance. This statement relates to
a. Credibility c. Quality of Services
b. Professionalism d. Confidence

18. Indicate the normal pattern of development for a professional accountant.


I. A period of work experience.
II. High standard of general education.
III. Specific education, training and examination in professionally relevant subjects
a. I, II, III b. II, III, I c. III, II, I d. II, I, III

19. A partner or employee of the firm serving as an officer or as a director on the board of an
assurance client will most likely create
a. Intimidation threat c. Advocacy threat
b. Self-review threat d. Familiarity threat

20. Which of the following least likely create a self-review threat?


a. A former officer, director or employee of the assurance client serve as a member of the
assurance team.
b. A director, an officer or an employee of the assurance client in a position to exert direct and
significant influence over the subject matter of the assurance engagement has been a
member of the assurance team or partner of the firm.
c. Assisting an audit client in matters such as preparing accounting records or financial
statements.
d. A firm, or network firm, provides internal audit services to an audit client.

21. This process may include, particularly in the case of large complex audits, requesting
personnel not otherwise involved in the audit to perform certain additional procedures.
a. Direction c. Review
b. Supervision d. All of these

22. Which of the following is least likely a factor that affects the extent of quality control
procedures?
a. The size of the firm. c. The number of practice offices.
b. The type of clients that the firm serves. d. The nature of the practice.

23. Which statement is incorrect regarding the auditor’s responsibility to consider fraud and error in
the audit of financial statements?
a. The auditor is entitled to accept records and documents as genuine.
b. The auditor is may be held responsible for the prevention of fraud and error.
c. The auditor should consider the risk of material misstatements in the financial statements
resulting from fraud or error.
d. The risk of not detecting a material misstatement resulting from error is lower than the risk
of not detecting a material misstatement resulting from fraud.

24. Which statement is incorrect regarding “fraud risk factors”?


a. Using the auditor’s knowledge of the business, the auditor may identify events or conditions
that provide an opportunity, a motive or a means to commit fraud, or indicate that fraud may
already have occurred.
b. A missing document, an out of balance general ledger, or an analytical procedure that does
not make sense may be the result of circumstances other than fraud.
c. Fraud risk factors indicate the existence of fraud because they often have been present in
circumstances where frauds have occurred.
d. The presence of fraud risk factors may affect the auditor’s assessment of inherent risk or
control risk.

AT-3rdBatch-FinPB
Page 4 of 24

25. Cash receipts from sales on account have been misappropriated. Which of the following acts
would conceal this defalcation and least likely to be detected by an auditor?
a. Understating the sales journal.
b. Overstating the accounts receivable control account.
c. Overstating the accounts receivable subsidiary ledger.
d. Understating the cash receipts journal.

26. Example of the type of information that may come to the auditor's attention that may indicate
that noncompliance with laws or regulations has occurred most likely include
a. Payments for specified services or loans to consultants, related parties, employees or
government employees.
b. Payments for goods or services made to the country from which the goods or services
originated.
c. Purchasing at prices significantly above or below market price.
d. Sales commissions or agent's fees that appear reasonable in relation to those ordinarily
paid by the entity or in its industry or to the services actually received.

27. When the auditor knows that an illegal act has occurred, the auditor must
a. Issue an adverse opinion.
b. Withdraw from the engagement.
c. Report it to the proper government authorities.
d. Consider the effects on the financial statements, including the adequacy of disclosure.

28. Which statement is correct regarding the auditor’s communications of audit matters with those
charged with governance?
a. The auditor’s communications of matters include all audit matters of governance interest.
b. An audit of financial statements is designed to identify all matters that may be relevant to
those charged with governance.
c. The auditor’s communications with those charged with governance may be made orally or
in writing.
d. None of the above.

29. It is in the interest of both client and auditor that the auditor sends an engagement letter,
preferably before
a. The performance of substantive testing.
b. The commencement of the engagement.
c. The completion of audit.
d. Before the issuance of audit report.

30. When a change in the type of engagement from higher to lower level of assurance is
reasonably justified, the report based on the revised engagement (choose the incorrect one)
a. Should not contain a separate paragraph that refers to the original engagement.
b. Should not refer to any procedures that may have been performed in the original
engagement.
c. Should qualify the opinion due to scope limitation.
d. Omits reference to the original engagement.

31. A basic tool used by the auditor to control the audit work and review the progress of the audit.
a. Audit program c. Engagement letter.
b. Progress flowchart d. Time and Expense Summary

32. Which of the following is not normally a planning procedure?


a. Assess the conclusions reached and the evaluation of the overall financial statement
presentation through the use analytical procedures.
b. Consider the risk of the existence of related-party transactions.
c. Consider the nature of the audit reports expected to be rendered.
d. Identify items likely to require adjustments.

33. An understanding of the client’s business and industry and knowledge about the company’s
operations are essential for doing an adequate audit. For a new client, most of this information
is obtained
a. From the predecessor auditor. c. At the client’s premises.
b. From the SEC. d. From the permanent file.

AT-3rdBatch-FinPB
Page 5 of 24

34. The management’s assessment of the entity’s ability to continue as a going concern covers a
period of:
a. Not longer than 12 months from balance date.
b. At least 12 months from the balance sheet date.
c. Not longer than 12 months from the date of audit report.
d. At least 12 months from the date of audit report.

35. Which of the following would an auditor most likely use in determining the auditor’s preliminary
judgment about materiality?
a. The results of the internal control questionnaire.
b. The contents of the management representation letter
c. The entity’s annualized interim financial statements.
d. The anticipated sample size of the planned substantive tests.

36. How can the audit program best be described at the beginning of the audit process?
a. Tentative. c. Conclusive.
b. Comprehensive. d. Optional.

37. Which of the following is appropriate about risk assessment?


a. Detection risk is eliminated if an auditor were to examine 100 percent of the account
balance or class of transactions
b. There is an inverse relationship between detection risk and the combined level of inherent
and control risk.
c. The assessed level of inherent and control risk can be sufficiently low, thus resulting to
eliminating the need for substantive tests.
d. Audit risk may be more appropriately determined by assessing inherent and control risk
separately.

38. Which of the following shows an appropriate relationship between the acceptable level of
detection risk and the combined level of inherent and control risk?
Auditor’s Assessment of
Acceptable level of
Inherent Risk Control Risk Detection Risk__
a. Low High Lower
b. Low High Medium
c. High High Lower
d. Low Low Higher

39. Which of the following most directly illustrates inherent risk?


a. Inadequate segregation of duties.
b. Confirmation of receivables by an auditor fails to detect a material misstatement.
c. ABC Company, a client company, lacks sufficient working capital to continue operations.
d. A client fails to discover employee fraud on a timely basis because bank accounts are not
reconciled monthly.

40. Which of the following is a valid statement about the assessment of control risk?
a. There is a positive relationship between detection risk and the combined level of inherent
and control risk.
b. The auditor should consider the assessed levels of inherent and control risks in determining
the nature, timing, and extent of substantive procedures required to eliminate audit risk.
c. Misstatements discovered by conducting substantive procedures may cause the auditor to
modify the previous assessment of control risk.
d. The assessed level of inherent and control risks can be sufficiently low in order to eliminate
the auditor’s need to perform substantive tests on some assertions.

41. The auditor should perform which of the following as risk assessment procedure?
a. Analytical procedures c. Recalculation
b. Confirmation d. Reperformance

42. Which of the following is least likely a potential benefit of effectiveness and efficiency for an
entity’s internal control that IT provides?
a. Enhance the timeliness, availability, and accuracy of information.
b. Enhance the ability to monitor the performance of the entity’s activities and its policies and
procedures.

AT-3rdBatch-FinPB
Page 6 of 24

c. Eliminate the risk that controls will be circumvented.


d. Consistently apply predefined business rules and perform complex calculations in
processing large volumes of transactions or data.

43. Control environment


a. Consists of the policies and procedures that help ensure that management directives are
carried out.
b. Includes the governance and management functions and the attitudes, awareness, and
actions of those charged with governance and management concerning the entity’s internal
control and its importance in the entity.
c. Is the entity’s process for identifying business risks relevant to financial reporting objectives
and deciding about actions to address those risks, and the results thereof.
d. Consists of the procedures and records established to initiate, record, process, and report
entity transactions (as well as events and conditions) and to maintain accountability for the
related assets, liabilities, and equity.

44. Which of the following situations will normally result to increase in the extent of audit
procedures?
a. Decrease in the risk of material misstatement.
b. Decrease in the degree of assurance the auditor plans to obtain.
c. Decrease in materiality level.
d. None of the above.

45. The auditor should determine overall responses to address the risks of material misstatement
at the financial statement level. Such responses most likely include
a. Assigning less experienced staff.
b. Emphasizing to the audit team the need to maintain professional skepticism in gathering
and evaluating audit evidence.
c. Performing predictable further audit procedures.
d. Performing substantive procedures at an interim date instead of at period end.

46. Which statement is incorrect regarding the nature, timing and extent of tests of controls?
a. Those controls subject to testing by performing inquiry combined with inspection or
reperformance ordinarily provide more assurance than those controls for which the audit
evidence consists solely of inquiry and observation.
b. If the auditor plans to rely on controls that have not changed since they were last tested, the
auditor should test the operating effectiveness of such controls at least once in every third
audit.
c. The length of time period between retesting controls is a matter of professional judgment,
but cannot exceed three years.
d. The more the auditor relies on the operating effectiveness of controls in the assessment of
risk, the greater is the extent of the auditor’s tests of controls.

47. Which of the following statements is correct regarding the auditor’s primary objective in
performing procedures to obtain an understanding of the internal control structure?
a. The primary objective is to provide the auditor with an evaluation of the consistency of
application of management’s policies.
b. The primary objective is to provide the auditor with knowledge necessary for audit planning.
c. The primary objective is to provide the auditor with evidential matter to use in assessing
inherent risk.
d. The primary objective is to provide the auditor with a basis for modifying tests of controls.

48. Which of the following would most likely indicate internal control deficiency for the revenue
cycle (including cash receipts)?
a. Credit is granted by a credit department.
b. Cash receipts received in the mail are received by a secretary with no recordkeeping
responsibility.
c. Cash is deposited weekly.
d. Cash disbursements over P100,000 does not require two signatures on the check.

49. The following statements relate directly to test of controls except


a. May involve comparisons of financial information with nonfinancial information.
b. Setting the planned assessed level of control risk at the maximum will eliminate these tests.
c. Often performed concurrently with obtaining an understanding of internal control.

AT-3rdBatch-FinPB
Page 7 of 24

d. Inquire of the accounts receivable clerk regarding the effectiveness of the computer
program in updating accounts receivable balances.

50. After obtaining an understanding of an entity’s internal controls, an auditor may assess control
risk at the maximum for some assertions because the auditor:
a. Believes internal control activities are unlikely to be effective.
b. Determines that internal control is not well-documented.
c. Performs tests of controls to restrict detection of risk to an acceptable level.
d. Identifies control activities that are likely to prevent material misstatements.

51. The report of the service organization auditor on the suitability of design (Type A) will not
ordinarily include an opinion by the service organization auditor that:
a. The description of the service organization's accounting and internal control systems,
ordinarily prepared by the management of the service organization is accurate.
b. The systems' controls have been placed in operation.
c. The accounting and internal control systems are operating effectively based on the results
from the tests of control.
d. The accounting and internal control systems are suitably designed to achieve their stated
objectives.

52. Which statement is correct regarding the audit evidence?


a. The greater the risk, the less audit evidence is likely to be required.
b. The higher the quality, the more may be required
c. Merely obtaining more audit evidence may not compensate for its poor quality.
d. Obtaining audit evidence relating to a particular assertion is a substitute for obtaining audit
evidence regarding another assertion.

53. Assertions used by the auditor fall into three categories. Existence is included under
a. Assertions about classes of transactions and events for the period under audit.
b. Assertions about account balances at the period end.
c. Assertions about presentation and disclosure.
d. All of the above.

54. Which of the following statements is incorrect regarding the reliability of audit evidence?
a. Oral representation by the client management is not a valid evidence.
b. Audit evidence obtained directly by the auditor is more reliable than that one provided by
the client management.
c. The effectiveness of accounting and internal control adds to the reliability of internal audit
evidence.
d. While internal audit evidence is considered to be acceptable, the auditor usually prefers
audit evidence form external sources.

55. Which statement is incorrect regarding the auditor’s attendance at physical inventory counting?
a. When inventory is material to the financial statements, the auditor should obtain sufficient
appropriate audit evidence regarding its existence and condition by attendance at physical
inventory counting unless impracticable.
b. When the quantities are to be determined by a physical inventory count and the auditor
attends such a count, the auditor would ordinarily observe count procedures and perform
test counts.
c. To obtain assurance that management’s procedures are adequately implemented, the
auditor would observe employees’ procedures and perform test counts.
d. The physical inventory count cannot be conducted at a date other than period end.

56. The auditor considers the status of legal matters up to


a. The date of the audit report. c. The issuance of financial statements.
b. The balance sheet date. d. Up to the date of receipt of letter from lawyers.

57. Which statement is correct regarding valuation and disclosure of long-term investments?
a. Regardless of the amount of long-term investments, the auditor should obtain sufficient
appropriate audit evidence regarding their valuation and disclosure.
b. Audit procedures regarding long-term investments ordinarily include considering evidence
as to whether the entity has the ability to sell the investment in the near term.
c. If the carrying amounts do not exceed market quotations, the auditor would consider
whether a write-down is required.

AT-3rdBatch-FinPB
Page 8 of 24

d. If there is an uncertainty as to whether the carrying amount will be recovered, the auditor
would consider whether appropriate adjustments and/or disclosures have been made.

58. In relation to opening balances, which of the following may cause the auditor to disclaim his
opinion?
a. The inability of the auditor to obtain sufficient appropriate audit evidence concerning
opening balances.
b. The opening balances contain misstatements that could materially affect the current
period’s financial statements and such misstatements have not been corrected.
c. The current period’s accounting policies have not been consistently applied in relation to
opening balances and the effect of such change is not properly accounted for or disclosed.
d. The assessed substantial doubt about the entity’s ability to continue as a going concern as
indicated by consistent negative cash flows.

59. The auditor notices significant fluctuations in key elements of the company's financial
statements. If management is unable to provide an acceptable explanation, the auditor should
a. Withdraw from the engagement.
b. Consider the matter a scope limitation.
c. Perform additional audit procedures to investigate the matter further.
d. Intensify the examination with the expectation of detecting management fraud.

60. In evaluating the assumptions on which the estimate is based, the auditor would least pay
particular attention to assumptions which are
a. Subjective.
b. Sensitive to variation.
c. Susceptible to material misstatement.
d. Reasonable in light of actual results in prior periods.

61. Which statement is correct regarding auditing fair value measurements and disclosures?
a. Many measurements based on estimates, including fair value measurements, are
inherently precise.
b. Assumptions used in fair value measurements are similar in nature to those required when
developing other accounting estimates.
c. Underlying the concept of fair value measurements is a presumption that the entity will be
liquidated.
d. The measurement of fair value may be relatively complex for assets that are bought and
sold in active and open markets.

62. The auditor needs to be aware of the existence of related parties and transactions between
such parties. Which of the following is the least likely reason?
a. GAAP in the Philippines require disclosure in the financial statements of certain related
party relationships and transactions.
b. Related parties and transactions between such parties are considered unusual features of
business.
c. The source of audit evidence affects the auditor's assessment of its reliability.
d. A related party transaction may be motivated by other than ordinary business
considerations.

63. Which of the following is most likely a procedure that would be performed by the auditor
regarding subsequent events?
a. Reading the minutes of the meetings of shareholders, the board of directors and audit
executive committees held throughout the audit year.
b. Reading the entity’s latest available interim financial statements.
c. Send second requests to the client’s customer who failed to respond to initial accounts
receivable confirmation requests.
d. Review the cutoff bank statements for several months after the year-end.

64. A client acquired 30% of its outstanding capital stock after year-end and prior to the completion
of the auditor’s fieldwork. The auditor should
a. Disclose the acquisition in the opinion paragraph of the auditor’s report.
b. Advise management to adjust the balance sheet to reflect the acquisition.
c. Issue pro forma financial statements giving effect to the acquisition as if it had occurred at
year-end.
d. Advise management to disclose the acquisition in the notes to the financial statements.

AT-3rdBatch-FinPB
Page 9 of 24

65. If a representation by management is contradicted by other audit evidence, the auditor should
a. Withdraw from the engagement.
b. Investigate the circumstances and, when necessary, reconsider the reliability of other
representations made by management.
c. Issue a qualified or adverse opinion.
d. Issue a qualified or disclaimer of opinion.

66. Which statement is incorrect regarding the auditor’s use of the work of an expert?
a. Determination of amounts using specialized techniques or methods, for example, an
actuarial valuation will likely require the services of an expert.
b. The auditor's education and experience enable the auditor to be knowledgeable about
business matters in general.
c. The auditor need not assess the objectivity of the expert since latter may be related to the
entity.
d. When planning to use the work of an expert, the auditor should assess the professional
competence of the expert.

67. Which statement is incorrect regarding inter-bank confirmations?


a. The requirement for bank confirmation arises from the need of the bank's management and
its auditors to confirm the financial and business relationships.
b. Inter-bank relationships are different in nature from those between the bank and a non-bank
customer.
c. The auditor should decide from which bank or banks to request confirmation, have regard
to such matters as size of balances, volume of activity, degree of reliance on internal
controls, and materiality within the context of the financial statements.
d. It is not usual practice to request a response only if the information submitted is incorrect or
incomplete.

68. Which statement is correct regarding small entities?


a. There is concentration of ownership and management in a small number of individuals
(often a single individual).
b. An entity owned by another enterprise cannot be regarded as a “small entity”.
c. The meaning of “small entity” gives consideration only to the size of an entity.
d. Small entities do not have internal controls.

69. The inability of the client to prepare certain audit requirements may most likely lead the auditor
to
a. Withdraw from the engagement.
b. Express qualified opinion or a disclaimer.
c. Express qualified or adverse opinion.
d. Express unqualified opinion with explanatory paragraph.

70. Which statement is incorrect regarding working papers?


a. The auditor should document matters which are important in providing evidence to support
the audit opinion.
b. The auditor should prepare working papers which are sufficiently complete and detailed to
provide an overall understanding of the audit.
c. Portions of or extracts from the working papers may be made available to the entity at the
discretion of the auditor since working papers are substitute for the entity’s accounting
records.
d. Working papers would include the auditor’s reasoning on all significant matters which
require the exercise of judgment, together with the auditor’s conclusion thereon.

71. Which of the following statements about working papers is correct?


a. Working papers are not permitted to be used as a reference source by the client.
b. The auditor should document the understanding of the client's internal control obtained to
plan the audit.
c. Working papers may be regarded as a substitute for the client's accounting records.
d. When reporting on comparative financial statements, the independent auditor may discard
working papers after two years.

AT-3rdBatch-FinPB
Page 10 of 24

72. Identify as to whether sampling or nonsampling risk, following the same order:
I. The auditor might reach a different conclusion based on samples used from the conclusion
if it were the entire population subjected to the same audit procedure
II. The auditor might use inappropriate procedures
III. The auditor might misinterpret the evidence
a. Nonsampling, sampling, nonsampling
b. Sampling, nonsampling, nonsampling
c. Sampling, nonsampling, sampling
d. Nonsampling, sampling, sampling

73. Which of the following is correct about sampling risks?


a. The risk of incorrect acceptance relates to the efficiency of the audit.
b. The risk of assessing control risk too low relates to the efficiency of the audit.
c. Sampling risk includes the auditor’s failure to recognize errors in the documents examines
for the chosen sample.
d. The likelihood of assessing control risk too high is the risk that the sample selected to test
controls does not support the auditor’s planned assessed level of control risk when the true
operating effectiveness of the control structure justifies such an assessment.

74. Identify the sample selection method used, following the same order:
I. Selecting items using a constant interval between selections; the first interval having a
random start.
II. Selecting items from the entire population with no intention to include or exclude specific
units
III. All items in the population or within each stratum have a known chance of selection
a. Systematic, random, haphazard.
b. Systematic, haphazard, random.
c. Haphazard, systematic, random.
d. Random, systematic, haphazard.

75. When sampling for attributes, which of the following would decrease sample size?
a b c d
Intended reliance internal controls Increase Decrease Increase Decrease
Tolerable deviation rate Decrease Increase Increase Increase
Expected deviation rate Increase Decrease Decrease Decrease
Risk of assessing control risk too low Decrease Increase Increase Decrease

76. In substantive testing, which of the following would increase sample size?
a b c d
Assessment of inherent risk Increase Increase Increase Decrease
Reliance on internal controls Increase Decrease Decrease Increase
Tolerable error Decrease Increase Decrease Increase
Expected error Increase Decrease Increase Decrease
Risk of incorrect acceptance Decrease Increase Decrease Increase

77. A CIS environment least likely affects


a. The overall objective and scope of an audit.
b. The procedures followed by the auditor in obtaining a sufficient understanding of the
accounting and internal control systems.
c. The consideration of inherent risk and control risk through which the auditor arrives at the
risk assessment.
d. The auditor’s design and performance of tests of control and substantive procedures
appropriate to meet the audit objective.

78. A CIS environment


a. Exists when a computer of any type or size is involved in the processing by the entity of
financial information of significance to the audit, whether that computer is operated by the
entity or by a third party.
b. Is the electronic transmission of documents between organizations in a machine-readable
form.
c. Consists of the policies and procedures that the entity implements and the IT infrastructure
(hardware, operating systems, etc.) and application software that it uses to support
business operations and achieve business strategies.
d. A communications network that serves users within a confined geographical area.

AT-3rdBatch-FinPB
Page 11 of 24

79. Which of the following statements most likely represents a disadvantage for an entity that
keeps microcomputer-prepared data files rather than manually prepared files?
a. It is usually more difficult to detect transposition errors.
b. Transactions are usually authorized before they are executed and recorded.
c. It is usually easier for unauthorized persons to access and alter the files.
d. Random error associated with processing similar transactions in different ways is usually
greater.

80. Gateway is
a. A hardware and software solution that enables communications between two dissimilar
networking systems or protocols.
b. A device that forwards frames based on destination addresses.
c. A device that connects and passes packets between two network segments that use the
same communication protocol.
d. A device that regenerates and retransmits the signal on a network.

81. Database systems are distinguished by two important characteristics:


a. Data sharing and data independence.
b. Data dictionary and database administration.
c. Data sharing and database administration.
d. Data dictionary and data independence.

82. General CIS controls generally do not include:


I. Controls over processing and computer data files
II. Organization and management controls
III. Development and maintenance controls
IV. Delivery and support controls
V. Monitoring controls
VI. Controls over input
VII. Controls over output
a. All of the above c. I, II, III, IV and V
b. II, III, IV and V d. I, VI and VII

83. An auditor anticipates assessing control risk at a low level in a computerized environment.
Under these circumstances, on which of the following procedures would the auditor initially
focus?
a. Programmed control procedures c. Application control procedures
b. Output control procedures d. General control procedures

84. Which of the following is not explicitly included in the opening paragraph of an audit report?
a. Identification of the financial statements that have been audited.
b. A statement by the auditor that the audit provides a reasonable basis for the opinion.
c. Statement that the financial statements are the responsibility of the entity’s management.
d. Statement that the responsibility of the auditor is to express an opinion on the financial
statements based on his audit.

85. Which of the following is least likely a description of audit contained in the scope paragraph of
the auditor’s report?
a. Examining evidence to support the financial statement amounts and disclosures.
b. Assessing the accounting principles used in the preparation of the financial statements.
c. Assessing the significant estimates made by management in the preparation of the financial
statements.
d. Evaluating the overall financial statement presentation.

86. The auditor issued a qualified opinion covering the financial statements of Client A for the year
ended December 31, 2004. The reason for the qualification was a departure from GAAP. In
presenting comparative statements for the years ended December 31, 2004 and 2005, the
client revised the 2004 financial statements to correct the previous departure from GAAP. The
auditor's 2005 report on the 12/31/04 and 12/31/05 comparative financial statements will
a. Express unqualified opinions on both the 2004 and 2005 financial statements.
b. Express a qualified opinion on the 2004 financial statements and an unqualified opinion on
the 2005 statements.
c. Retain the qualified opinion covering the 2004 statements, but add an explanatory
paragraph describing the correction of the prior departure from GAAP.

AT-3rdBatch-FinPB
Page 12 of 24

d. Render qualified audit opinions for both 2004 and 2005 financial statements given the 2005
carryover effect of the 2004 error.

87. When the financial statements of the prior period were not audited, the incoming auditor
should:
a. Insist that an audit of prior year’s financial statements must be made.
b. Obtain sufficient appropriate audit evidence that the corresponding figures meet the
requirements of the relevant financial reporting framework.’
c. Not allow the inclusion of the corresponding figures in the financial statements of the
current period.
d. Disclaim his opinion and treat the unaudited corresponding figures as basis of scope
limitation.

88. When a misstatement in the financial statements exists, but is unlikely to affect the decisions of
a reasonable user, it would be appropriate to issue
a. An unqualified opinion. c. A qualified opinion.
b. A disclaimer of opinion. d. An adverse opinion.

89. The audit report date is important to users because it indicates the
a. Last day of the fiscal period.
b. Last day of the auditor’s responsibility for the review of significant events that occurred after
the date of the financial statements.
c. Date on which the financial statements were filed with the SEC.
d. Last day on which users may institute a lawsuit either client or auditor.

90. When the principal auditor concludes that the work of the other auditor cannot be used and the
principal auditor has not been able to perform sufficient additional procedures regarding the
financial information of the component audited by the other auditor, the principal auditor will
likely issue
a. Unqualified opinion.
b. Unqualified opinion with explanatory paragraph
c. Qualified or adverse opinion
d. Qualified or disclaimer of opinion

91. When there is a limitation on the scope of the audit that results to a disclaimer of opinion, the
three paragraphs of the auditor report are:
Introductory Scope Opinion
a. Modified Modified Modified
b. Unmodified Modified Modified
c. Unmodified Unmodified Modified
d. Modified Unmodified Modified

92. If an amendment to other information in a document containing audited financial statements is


necessary and the entity refuses to make the amendment, the auditor would most likely issue
a. Unqualified opinion.
b. Unqualified opinion with explanatory paragraph
c. Qualified or adverse opinion
d. Qualified or disclaimer of opinion

93. The auditor’s report on summarized financial statements should include


a. An opinion as to whether the information in the summarized financial statements is
presented fairly, in all material respects.
b. An opinion as to whether the information in the summarized financial statements is
consistent with the audited financial statements from which it was derived.
c. A statement of negative assurance.
d. A description of the auditor’s factual findings including sufficient details of errors and
exceptions found.

94. A CPA's report on agreed-upon procedures related to management's assertion about an


entity's compliance with specified requirements should contain:
a. A statement of limitations on the use of the report.
b. An opinion about whether management's assertion is fairly stated.
c. Negative assurance that control risk has not been assessed.
d. An acknowledgment of responsibility for the sufficiency of the procedures.

AT-3rdBatch-FinPB
Page 13 of 24

95. Which of the following procedures does an accountant in a compilation engagement of a


nonpublic entity ordinarily perform?
a. Reading the financial statements to consider whether they are free of obvious mistakes in
the application of accounting principles.
b. Obtaining written representations from management indicating that the compiled financial
statements will not be used to obtain credit.
c. Making inquiries of management concerning actions taken at meetings of the stockholders
and the board of directors.
d. Applying analytical procedures designed to corroborate management's assertions that are
embodied in the financial statement components.

96. Which of the following should the auditor perform in a review engagement ?
a. Understand matters that are relevant to the financial statements.
b. Understand the entity’s internal control system.
c. Observe the physical count of inventory.
d. Inquire of legal counsel of pending litigations.

97. An auditor’s report on financial statements prepared in accordance with another


comprehensive basis of accounting should include all of the following except:
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
comprehensive 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 comprehensive basis of accounting other
than generally accepted accounting principles.

98. An auditor's report would be designated as a special report when it is issued in connection with
financial statements that are
a. For an interim period and are subjected to a limited review.
b. Unaudited and are prepared from a client's accounting records.
c. Prepared in accordance with a comprehensive basis of accounting other than generally
accepted accounting principles.
d. Purported to be in accordance with generally accepted accounting principles but do not
include a presentation of the Statement of Cash Flows.

99. Eddie Lares, a partner in a CPA firm performs free accounting service for a club of which he is
a treasurer. The most preferable way for Lares to issue the yearly statements of the club is
a. On the firm's letterhead with a disclaimer on lack of independence.
b. On the firm's letterhead with the caption that the statement is unaudited.
c. On the club's letterhead with Lares signing as treasurer.
d. On plain paper with no reference to Lares as a CPA.

100. The CPA who regularly examines the Marcos corporate financial statements was asked to
prepare pro forma income statements for the next three years based on the corporation's
operating assumptions for the internal use of the client. The CPA should
a. Reject the engagement since the statements are to be based on assumptions.
b. Reject the engagement because the statements are for internal use only.
c. Accept the engagement provided full disclosure is made of the assumptions used and the
extent of the responsibility of the CPA.
d. Accept the engagement provided the president of Marcos Corp. certifies in writing that the
statement will be solely for internal use.

101. When there is a change from manual processing to CIS environment in an audit client, the
overall objective and scope of an audit:
a. Is modified. c. Is unchanged.
b. Is extended. d. Becomes unlimited.

102. Which of the following is the least affected by the use of computer?
a. The auditor’s design and performance of tests of controls.
b. The procedures followed by the auditor in obtaining a sufficient understanding of the
accounting and internal control.
c. The auditor’s objective of considering internal control.

AT-3rdBatch-FinPB
Page 14 of 24

d. The consideration of inherent risk and control risk through which the auditor arrives at
the risk assessment.

103. Which of the following procedures to be performed by the auditor least requires the auditor
to have specialized CIS skills in an audit?
a. Obtain a sufficient understanding of the accounting and internal control systems affected by
the CIS environment.
b. Determine the applicability of using statistical sampling instead of judgmental sampling.
c. Design and perform appropriate tests of controls and substantive procedures.
d. Determine the effect of the CIS environment on the assessment of overall risk and of risk at
the account balance and class of transaction level.

104. Which of the following CIS personal computer environment is a general control?
a. A regular reconciliation of record counts or has totals.
b. A system of authorization and documentation of modification of the systems and
applications software.
c. A system of transaction logs and batch balancing.
d. A practice of direct supervision.

105. Which of the following is least likely an advantage of using personal computers?
a. They are small enough to be transportable.
b. Their operating system software is equally comprehensive as those found in larger
computerized environments.
c. They are relatively inexpensive to acquire and maintain.
d. There is an ease of using personal computers.

106. Which of the following is not a type of installation of personal computers?


a. A workstation connected to a server.
b. a stand-alone workstation operated by a single user or a number of users at different
times.
c. A workstation which is part of a local area network of personal computers.
d. A stand-alone workstation operated by a single user or a number of users
simultaneously using the same or different applications.

107. A computer program that attaches itself to a legitimate program or data file and users it as a
transport mechanism to reproduce itself without the knowledge of the user:
a. Trojan horse c. Hacker
b. Virus d. Backup

108. It refers to the plans made by the entity to obtain access to comparable hardware, software
and data in the event of their failure, loss or destruction.
a. Simulation. c. Documentation.
b. Backup. d. Parallel run.

109. Which of the following is the least concern of the auditor when he intends to rely on internal
accounting controls that relate to stand-alone personal computers?
a. Segregation of duties and balancing controls.
b. Access to the personal computers and files.
c. A system of authorization before a transaction is executed.
d. Use of third-party software.

110. How does the stand-alone personal computer environment of the client entity affect the
auditor’s audit procedures?
a. The auditor often assumes that control risk is reasonably low.
b. Because of the advantage provided by the use of stand-alone personal computers, the
audit procedures are restricted to low level.
c. The auditor usually concentrates the audit efforts on substantive tests at or near the end of
the year.
d. To be cost effective, the auditor makes an extensive review of general CIS and CIS
application controls as basis of reducing the audit efforts to be performed on detailed
testing of balances and transaction classes.

AT-3rdBatch-FinPB
Page 15 of 24

111. Computer-assisted audit may include the use of:


A B C D
Client software YES YES NO NO
Auditor’s own software programs YES NO YES NO

112. Which of the following may not be a purpose of using computer-audit software?
a. Add transactions or balances in the data files for comparison with control account balances.
b. Select accounts or transactions for detailed testing.
c. To evaluate the collectibility of accounts receivable.
d. To examine data bases for unusual items.

113. When the client has a large number of transactions that are processed by stand-alone
personal computer, the auditor:
a. May do tests of controls which he intends to rely on, if appropriate, to reduce the assessed
control risk, and do audit work on the data at a preliminary date.
b. Understand the control environment and flow of transactions but must omit preliminary audit
tests.
c. May do tests of controls and if those controls can be relied on, do interim testing and
omit year end audit testing.
d. Usually omits the understanding of control environment because the stand-alone personal
computer environment is not reliable.

114. The establishment of a framework of overall control over the computer information systems
activities to provide a reasonable level of assurance that the overall objectives of internal
control are achieved
1. general controls in computer information systems
2. application controls in computer information systems
3. control environment in information systems
4. control procedures in information systems

115. In a computer system environment the GAAS most affected are the
a. general standards c. general and fieldwork standards
b. fieldwork and reporting standards d. entire GAAS standards

116. A company that executes transactions and maintains related accountability or records
transactions and processes related data is
a. related party c. service organization
b. external auditor d. expert

117. These represent information obtained by the auditor in arriving at the conclusions on which
the audit opinion is based
a. audit documentation c. audit assertions
b. audit evidence d. audit conclusions

118. Generally, the auditor prefers external evidence to internal evidence. This is a measure of
a. Relevance c. analysis
b. Appropriateness d. evidence gathering

19. It refers to the correspondence of an evidence to a particular audit objective:


a. Competence or reliability. c. Persuasiveness.
b. Relevance. d. Corroboration.

20. A transaction or event is recorded at the properly amount and revenue or expense is allocated
at the proper period is a financial assertion of:
a. occurrence c. valuation
b. completeness d. measurement

21. The three major categories of documentary audit evidence are:


1. Documentary audit evidence created by third parties and held by the client entity
2. Documentary audit evidence created and held by third parties
3. Documentary audit evidence created and held by the client eneity
What is the order of their degree of reliability?
a. 1, 3, 2
b. 3, 1, 2

AT-3rdBatch-FinPB
Page 16 of 24

c. 2, 1, 3
d. 2, 3, 1

22. An audit schedule which is designed to show the activity in a general ledger account during the
period under audit, tying together the beginning and ending balances:
a. Analysis c. reconciliation
b. tests of transactions d. vouching

23. Confirmation is required for


A B C D
Accounts receivable Yes Yes No Yes
Cash Yes Yes No No
Inventory Yes No Yes No
Accounts payable Yes No Yes No

24. The negative request form of accounts receivable confirmation is useful particularly when the
Assessed level of control Number of small Consideration by the
Risk relating to receivable is balances is recipient is
a. Low Many Likely
b. Low Few Unlikely
c. High Few Likely
d. High Many Likely

25. According to PSA 500 (Audit Evidence), which of the following is incorrect of audit evidence?
a. Audit evidence may be obtained entirely from substantive procedures.
b. The appropriateness of the audit evidence is the measure of both the quality and quantity of
audit evidence.
c. Audit evidence is obtained form an appropriate mix of tests of control and substantive
procedures.
d. Substantive procedures mean tests performed to obtain audit evidence to detect material
misstatements in the financial statements.

26.Which of the following is an invalid statement about audit evidence?


a. Ordinarily, audit evidence regarding one assertion will compensate for failure to obtain audit
evidence regarding another assertion.
b. Ordinarily, audit evidence is obtained regarding each financial assertion.
c. The nature, timing and extent of substantive tests will vary depending on the assertions.
d. Audit tests can provide audit evidence about more than one assertion.

27. The following statements are discussions about financial assertions and audit evidence. Which
of them is(are) correct?
II. When in substantial doubt as to a material financial statement assertion, the auditor likely
attempt to obtain sufficient appropriate audit evidence to remove such doubt.
III. Difficulty and cost involved is a valid basis for omitting a necessary procedure.
IV. In obtaining audit evidence, the auditor needs to consider the relationship between the cost
of obtaining it and its usefulness.
V. When there are inconsistent evidences provided by two different sources, the auditor may
need to modify his audit opinion.
a. II, III, IV c. II, IV
b. I, III d. I, III, IV

28. The detailed instruction for the collection of a type of audit evidence that is to be obtained at
some time during the audit:
a. Audit program. c. Audit technique.
b. Audit procedure. d. Working papers.

29. The following statements relate to audit evidence, except:


a. The competence of audit is likely improved by selecting a larger sample size or different
population items.
b. The evidence obtained from a source outside the client entity is more persuasive than that
one obtained from within.
c. When a client’s accounting and internal controls are effective, the evidence obtained is
more reliable.

AT-3rdBatch-FinPB
Page 17 of 24

d. The evidence obtained directly by the auditor through physical examination, computation,
observation, or confirmation is more competent than an information obtained indirectly.

30. What is meant by timeliness of audit evidence?


a. Evidence is more reliable for balance sheet accounts when it is obtained as close to the
balance sheet date as possible.
b. Evidence is more reliable for income statement accounts if the sample comes from part of
the period as close to balance sheet date as possible.
c. Tests of transactions should be performed close to balance sheet date.
d. Tests of account balances must be performed before the balance sheet date.

31. In which of the following would the judgment of the auditor be least critical?
a. Verification of the authenticity of the transfer certificate of title.
b. Determination of the material level.
c. Assessment of the management plans of action in order to improve cash flows.
d. Assessing the reasonableness of the estimates made by the management.

32. The auditor’s attendance to client’s physical inventory count would not enable him to
a. Physically inspect inventory items.
b. Review the accuracy of pricing the inventory items.
c. Observe compliance with the prescribed procedures for recording and controlling the
results of the count.
d. Provide evidence as to reliability of management’s procedures.

33. If, after performing procedures, the auditor is unable to obtain sufficient, appropriate evidence
concerning opening balances, the auditor may express modified opinion on financial
statements during and as of year end of the current period:
Income Statement Balance Sheet
Qualified Disclaimer Qualified Disclaimer
a. Yes Yes Yes Yes
b. Yes Yes No No
c. Yes No Yes No
d. No No Yes Yes

34. Which of the following is not an auditor’s concern in obtaining sufficient appropriate audit
evidence for initial engagements?
a. opening balances do not contain misstatements that materially affect the current period’s
financial statements
b. the prior period’s closing balances have been correctly brought forward to the current
period or when appropriate, have been restated
c. appropriate accounting policies are consistently applied or changes to accounting policies
have been properly accounted for and adequately disclosed
d. opening balances have been audited by a competent auditor

35. The following considerations need to be observed by the auditor when he has to observe
physical inventory count or he has to perform alternative procedures:
A B C D
Inherent, control and detection risks
That are related to inventory YES YES NO NO
The timing of the count YES YES NO NO
A requirement for an expert NO YES YES YES
The nature of accounting and internal
control systems used regarding
inventory NO YES YES NO

36. Auditors try to identify predictable relationships when using analytical procedures.
Relationships involving transactions from which of the following accounts most likely would
yield the highest level of evidence?
a. Accounts payable c. Accounts receivable
b. Payroll expense d. Advertising expense

37. Which of the following best describes the primary purpose of audit procedures?
a. To detect errors or irregularities.
b. To comply with generally accepted accounting principles.

AT-3rdBatch-FinPB
Page 18 of 24

c. To gather corroborative evidence.


d. To verify the accuracy of account balances.

38. The following statements were made in a discussion of audit evidence by two independent
auditors. Which statement is untrue?
a. “I am seldom convinced beyond all doubt about all aspects of the financial statements being
audited.”
b. “I would not undertake that procedure because, at best, the results would only be
persuasive and I'm looking for convincing evidence.”
c. “I evaluate the degree of risk involved in deciding the kind of evidence I will gather.”
d. “I evaluate the usefulness of the evidence I can obtain against the cost to obtain it.”

39. Which of the following would not be a method used to conduct tests of controls?
a. Inquiry c. Confirmation
b. Walkthrough d. Observation

40. In which of the following would the judgment of the auditor be least critical?
a. Verification of the authenticity of the transfer certificate of title.
b. Determination of the material level.
c. Assessment of the management plans of action in order to improve cash flows.
d. Assessing the reasonableness of the estimates made by the management.

41. Which of the following is the least required of the audit working papers?
a. Confidentiality of information included in the working papers.
b. Safe custody of the working papers
c. Substitute for the entity’s accounting records
d. Retention for a period sufficient to meet the needs of the practice

42. Which of the following statements about working papers is incorrect?


a. Working papers are not permitted to be used as a reference source by the client.
b. The auditor should document the understanding of the client’s internal control in order to
plan the audit.
c. Working papers are not be regarded as a substitute for the client’s accounting records.
d. When reporting on comparative financial statements, the independent auditor may not
discard working papers after two years.

43. As a result of tests of controls, an auditor assessed control risk too low and decreased
substantive testing. This assessment occurred because the true deviation rate in the
population was
a. Less than the risk of assessing control risk too low, based on the auditor’s sample.
b. Less than the deviation rate in the auditor’s sample.
c. More than the risk of assessing control risk too low, based on the auditor’s sample.
d. More than the deviation rate in the auditor’s sample.

44. When designing audit procedures, the auditor should determine appropriate means of selecting
items for testing. The means available to the auditor are the following except:
a. Selecting all items
b. Selecting specific items identified by the auditor
c. Selecting specific items identified by the client
d. Audit sampling

45. Selecting all items for testing may least be appropriate for one of the following:
a. tests of controls
b. substantive tests
c. when population constitute of small number of large value items
d. when the repetitive nature of calculation makes 100% test more cost effective

46. Which of the following factors would least be considered by the auditor in selecting items for
examination
a. Items to test procedures c. High value or key items
b. Items to obtain information d. Items under a specific amount

47. A sample in which every possible combination of items in the population has an equal chance
of constituting the sample is

AT-3rdBatch-FinPB
Page 19 of 24

a. representative sample c. random sample


b. statistical sample d. judgment sample

48. A sample in which the characteristics in the sample are the same as those of the population is
a (an)
a. representative sample c. random sample
b. statistical sample d. judgment sample

49. Sampling risk occurs when the auditor


a. uses an inappropriate audit procedure
b. fails to recognize exceptions
c. tests less than the entire population
d. identifies weaknesses in client’s internal control system

50. When the auditor goes through a population and selects items for the sample without regard to
their size, source or other distinguishing characteristics, this is called
a. block selection c. systematic selection
b. haphazard selection d. statistical selection

51. The risk that the auditor is willing to take of accepting a control as being effective when it is not
is
a. tolerable deviation rate c. estimated population deviation rate
b. acceptable risk of overreliance d. finite correction factor

52. The risk of incorrect acceptance and the likelihood of assessing control risk too low relate to
the:
a. Allowable risk of tolerable misstatement. c. Type I Error
b. Preliminary estimates of materiality levels. d. Type 2 Error

53. The true deviation rate is


a. the number of deviations in the population divided by the sample size
b. the number of items in the population multiplied by the number of deviations in the sample
c. the number of deviations in the sample divided by the sample size
d. the number of deviations in the population divided by the population size

54. An advantage of statistical sampling over nonstatistical sampling is that statistical sampling
helps an auditor to plan the
a. sample size c. nature and timing of test
b. sampling risk d. report to be issued

55. Difference estimation, ratio estimation, and mean-per-unit estimation are all techniques that
constitute the general class of methods called
a. attribute sampling c. block sampling
b. monetary unit sampling d. variables sampling

56. The method used to measure the estimated total error amount in a population when there is
both a recorded value and an audited value for each item in the sample is
a. difference estimation c. ratio estimation
b. mean-per-unit estimation d. monetary-unit sampling

57. If the size of the errors in the population is proportionate to the recorded value of the population
items, smaller sample sizes will be generated using
a. difference estimation c. ratio estimation
b. mean-per-unit estimation d. monetary unit sampling

58. The auditor is concerned with the audited value rather than the error amount of each item in the
sample when using
a. difference estimation c. ratio estimation
b. mean-per-unit estimation d. monetary-unit sampling

59. Which of the following is not a characteristic of probability-proportional-to-size sampling?


a. Using a sample selection technique in which the same account balance could be selected
more than once.
b. Selecting a random starting point and then sampling every nth peso unit.

AT-3rdBatch-FinPB
Page 20 of 24

c. Combining negative and positive peso error items


d. Defining the sampling unit as an individual peso and not as an individual account balance.

60. What is the relationship of the following factors to sample size when using sampling on tests of
controls?
a b c d
Expected Deviation Rate Inverse Direct Inverse Direct
Reliance on internal Inverse Inverse Direct Direct
control
Tolerable deviation rate Direct Inverse Direct Inverse
Population Size No Effect No Effect Direct No Effect

61. What is the relationship of the following factors to sample size when using sampling on
substantive tests?
a b c d
Reliance on other substantive Inverse Direct Inverse Direct
test
Overall assurance required Inverse Direct Direct Inverse
Tolerable Error Inverse Inverse Inverse Direct
Confidence Level Direct Inverse Direct Direct

62. Identify as to whether sampling or nonsampling risk, following the same order:
a b c D
The auditor tests only Sampling Sampling Non-sampling Sampling
few samples
The auditor uses inappropriate Non-sampling Non-sampling Non-sampling Non-sampling
procedures
The auditor fails to Sampling Non-sampling Non-sampling Non-sampling
recognize error in
sample
The auditor haphazardly Sampling Sampling Non-sampling Non-sampling
chose the samples

63. This refers to the approximation of the amount of the item in the absence of a precise means of
measurement
a. Allocation c. Provision
b. Accounting Estimate d. Allowance

64. Which of the following statements is incorrect regarding audit of fair value measurements and
disclosures?
a. The auditor should obtain an understanding of the entity's process for determining fair value
measurements and disclosures and of the relevant control procedures sufficient to develop
an effective audit approach
b. Management is responsible for making the fair value measurements and disclosures
included in the financial statements while the auditor is responsible for ensuring that fair
value measurements are correct
c. The auditor should evaluate whether the fair value measurements and disclosures in the
financial statements are in accordance with GAAP in the Philippines
d. Where alternative methods for measuring fair value are available under GAAP in the
Philippines, or where the method of measurement is not prescribed, the auditor should
evaluate whether the method of measurement is appropriate in the circumstances under
GAAP in the Philippines

65. A representation letter issued by a client


a. is essential for the preparation of the audit program
b. is a substitute for testing
c. does not reduce the auditor’s responsibility
d. reduces the auditor’s responsibility only to the extent it is relied upon

66. When the external auditor intends to use specific work of internal auditing, the external auditor
should
a. evaluate and test that work to confirm the adequacy for external auditor’s purposes
b. reperform the procedures done by the internal auditors
c. place no reliance since internal auditors are not independent of management

AT-3rdBatch-FinPB
Page 21 of 24

d. ask management to attest to the independence of the internal auditors

67. In which of the following cases would an auditor not need the services of an expert?
a. The measurement of work completed and to be completed on contracts in progress
b. Legal opinions concerning interpretations of agreements, statutes and regulations
c. Valuations of certain types of assets like land and buildings
d. Evaluating the company’s internal control

68. When determining the need to use the work of an expert, the auditor would least likely
consider:
a. the materiality of the financial statement item being considered;
b. the risk of misstatement based on the nature and complexity of the matter being considered
c. availability of the expert
d. the quantity and quality of other audit evidence available.

69. If as a result of the work of the expert, the auditor decides to issue a modified auditor’s report,
the auditor should not
a. describe the work of the expert
b. refer and name the expert even without permission
c. describe the extent of the expert’s work
d. refer and name the expert only after obtaining permission from the expert

70. These represent information in the financial statements regarding distinguishable components
or industry and geographical aspects of an entity
a. related party information
b. segment information
c. confirmation
d. document accompanying financial statements

71. A matter whose outcome depends on future actions or events not under the direct control of the
entity but may affect the financial statements
a. Uncertainty c. subsequent event
b. accounting estimate d. projection

72. An auditor has a responsibility to evaluate the going concern status of an audit client for a (an)
a. Period of one year from the balance sheet date.
b. Period of one year from the date of the auditor’s report.
c. Period of two years from the balance sheet date
d. Indefinite period.

73. All the following may indicate substantial doubt as to an entity’s ability to continue as a going
concern except
a. Work stoppages c. Purchase of catastrophe insurance
b. Legal proceedings d. Operating losses

74. When audited financial statements are presented in a client’s document containing other
information, the auditor should
a. Perform inquiry and analytical procedures to ascertain whether the other information is
reasonable.
b. Add an explanatory paragraph to the auditor’s report without changing the opinion on the
financial statements.
c. Perform the appropriate substantive auditing procedures to corroborate the other
information.
d. Read the other information to determine that it is consistent with the audited financial
statements.

75. Audit report may be addressed to the:


Audited Entity Stockholder Chair of the Audit
Committee
a. No Yes No
b. Yes Yes No
c. Yes Yes Yes
d. Yes No Yes

AT-3rdBatch-FinPB
Page 22 of 24

76. Which of the following is not a basic element of an audit report?


a. opening paragraph c. opinion paragraph
b. scope paragraph d. starting and completion dates of the audit

77. Which of the following is not a basis of dating the audit report?
a. when the audit fee was collected
b. as of the completion date of the audit
c. as of any date earlier than the date on which the financial statements are signed of
approved by management
d. upon completion of fieldwork

78. Which of the following procedures is most likely relevant to obtain an information about events
or conditions that cast significant doubt on the entity’s ability to continue as a going concern
beyond the period assessed by management?
a. Inspection c. Inquiry
b. Observing d. Analysis

79. If the auditor believes that the entity will not be able to continue as a going concern and the
financial statements are prepared on a going concern, the auditor’s report should include
a. Unqualified opinion with explanatory paragraph c. Adverse opinion
b. Qualified opinion d. Disclaimer of opinion

80. The management denied the auditor’s request that management has to extend its assessment
of its going concern ability. However, the auditor’s other procedures are sufficient to assess
the appropriateness of management use of the going concern assumption in the preparation of
the financial statements. The auditor should issue:
a. unqualified opinion c. adverse opinion
b. unqualified opinion with explanatory paragraph d. disclaimer of opinion

81. If comparative financial statements are presented and the present auditor has audited both
years, the auditor should:
a. reissue the report c. redate the report
b. dual date the report d. update the report

82. When financial statements of a prior period are presented on a comparative basis with financial
statements of the current period, the continuing auditor is responsible for
a. expressing dual dated report
b. updating the report on the previous financial statements only if there has been no change in
the opinion
c. updating the report on the previous financial statements only if the previous audit report
was qualified and the reasons for the qualification no longer exists
d. updating the report on the previous financial statements regardless of the opinion
previously expressed

83. The objective of the consistency standard is to provide assurance that


a. there are no variations in the format and presentation of financial statements
b. substantially different transactions and events are not accounted for on an identical basis
c. the auditor is consulted before material changes are made in the application of accounting
principles
d. the comparability of financial statements between periods is not materially affected by
changes in accounting principles without disclosure

84. A dual dated report contains the dates of a subsequent event and the date the
a. auditor completed fieldwork in the client’s office
b. financial statements were prepared
c. subsequent event was resolved
d. audit report was delivered

85. If the principal auditor decides to take responsibility for the work of other auditors, the principal
auditor should:
a. modify the opening paragraph
b. modify the opening and opinion paragraphs
c. modify all three paragraphs
d. issue a standard audit report

AT-3rdBatch-FinPB
Page 23 of 24

86. If an auditor wishes to emphasize a matter included in the financial statements by adding an
explanatory paragraph, the following paragraphs should also be modified
a. introductory paragraph c. opinion paragraph
b. scope paragraph d. none

87. Which of the following modifications of the standard auditor’s report does not require an
explanatory paragraph?
a. reference to other auditors c. scope limitation
b. inconsistency d. adverse opinion

88. When determining whether an exception is highly material, the extent to which the exception
affects different parts of the financial statements must be considered. This is referred to as
a. Materiality c. financial analysis
b. Pervasiveness d. ratio analysis

89. The following circumstances result in a modified, but unqualified report, except:
a. inconsistent application of accounting principles
b. emphasis of a related party transaction that is disclosed in a footnote
c. Lack of disclosure of a restriction on payment of dividends
d. Other auditors perform work for which the principal auditor does not assume responsibility

90. According to PSA 710, how does a CPA issue his independent audit report when comparative
financial statements are issued by the client?
a. For comparative financial statements, the auditor’s report refers to each period that financial
statements are presented.
b. The auditor’s report only refers to the financial statements of the current period.
c. The auditor’s report refers to the financial statements of the current period and explicitly
refers to the financial statements of the prior period(s) as corresponding figures.
d. The auditor issues separate audit report for financial statements of different periods.

91. Special purpose auditor’s report is one issued in connection with the independent audit of
financial information other than the auditor’s report and may include the following, except:
a. compliance with contractual agreements
b. summarized financial statements
c. specified accounts, elements of accounts, or items in a financial statement
d. financial statements prepared in conformity with generally accepted accounting principles

92. Which of the following is a criteria least likely required of assurance engagements
a. a subject matter c. an engagement process
b. a two-party relationship d. a suitable criteria

93. Which of the following describes “high level of assurance”?


a. It refers to the professional accountant having obtained sufficient external and internal
appropriate evidence to be satisfied that the subject matter is plausible in the circumstances
b. It refers to the professional accountant having obtained evidence based on procedures
agreed upon between the practitioner and the intended users to be satisfied that findings be
reported to the intended users
c. It refers to the professional accountant having obtained sufficient appropriate evidence to
conclude that the subject matter conforms in all material respects with identified suitable
criteria
d. it refers to the professional accountant having obtained sufficient evidence to conclude that
he has no knowledge of any required modifications to be made in the financial statements
in order for them to conform of prescribed criteria

94. Which of the following is least likely an objective of an assurance engagement?


a. The engagement is intended to prevent the issuance of materially misleading information
b. The engagement is intended to enhance the credibility of information about a subject matter
c. An assurance engagement is intended for a professional accountant to express a
conclusion that provides the intended uses with a level of assurance about the subject
matter
d. The engagement is intended to provide a level of assurance to be issued by a professional
accountant about the information of being in conformity, in all material respects , with
suitable criteria

AT-3rdBatch-FinPB
Page 24 of 24

95. Which of the following is least likely a subject matter of an assurance engagement?
a. Data c. Compliance with regulations
b. Systems and processes d. Degree of loyalty of employees to their employer

96. Which of the following is least likely an objective of an assurance engagement?


a. The engagement is intended to prevent the issuance of materially misleading information
b. The engagement is intended to enhance the credibility of information about a subject matter
c. An assurance engagement is intended for a professional accountant to express a
conclusion that provides the intended uses with a level of assurance about the subject
matter
d. The engagement is intended to provide a level of assurance to be issued by a professional
accountant about the information of being in conformity, in all material respects , with
suitable criteria

97. Which is incorrect of the intended user?


a. the intended user is the person or class of persons for whom the professional accountant
prepares the report for a specific use or purpose
b. The intended user is always limited to the addressee of the professional accountant’s report
c. The responsible party may also be one of the intended users
d. The intended user(s) may not be the addressee of the professional accountant’s report

98. The objective of a review of interim financial information of a public entity is to provide an
accountant with a basis for reporting whether
a. material modifications should be made to conform with GAAP
b. a reasonable basis exists for expressing an updated opinion regarding the financial
statements that were previously audited
c. condensed financial statements or pro forma financial information should be included in a
registration statement
d. the financial statements are presented fairly in accordance with GAAP

99. Which of the following is not a basis of the auditor in determining the specific nature, timing
and extent of review procedures?
a. Assessed level of control risk
b. The extent to which a particular item is affected by management judgment
c. The materiality of transactions and account balances
d. Any knowledge acquired by carrying out reviews of the financial statements for prior
periods.

100. Which of the following is incorrect about agreed-upon procedures engagement?


a. An engagement to perform agreed-upon procedures may involve the auditor in performing
certain procedures concerning individual items of financial data.
b. Users of the agreed-upon procedures report assess for themselves the procedures and
findings reported by the auditor and draw their conclusion from the auditor’s work.
c. The auditor should be independent of the financial data or financial statements where
agreed procedures have to be applied.
d. The report is restricted to those parties that have agreed to the procedures to be preformed.

101. A CPA's report on agreed-upon procedures related to management's assertion about an


entity's compliance with specified requirements should contain:
a. A statement of limitations on the use of the report.
b. An opinion about whether management's assertion is fairly stated.
c. Negative assurance that control risk has not been assessed.
d. An acknowledgment of responsibility for the sufficiency of the procedures.

102. When compiling financial statements of an non-public entity, an accountant should


a. review agreements with financial institutions for restrictions of cash balances
b. understand the accounting principles and practices of the entity’s industry
c. inquiry of key personnel concerning related parties and subsequent event
d. perform ratio analyses of the financial data of comparable periods

- end of examination-
Good Luck!

AT-3rdBatch-FinPB