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HANDOUT A

1. In assertion-based assurance engagements, the evaluation or measurement of the subject


matter against criteria is performed by the
a. Intended users
b. Responsible party
c. Practitioner
d. AASC
2. Assurance engagement risk is the risk
a. That practitioner expresses an inappropriate conclusion when the subject matter
information is materially misstated
b. Of expressing an inappropriate conclusion when the subject matter information is
not materially misstated.
c. Through loss from litigation, adverse publicly, or other events arising in connection
with a subject matter reported on.
d. Of expressing an inappropriate conclusion when the subject matter information is
either materially misstated or not materially misstated.
3. The following are components of assurance engagement risk, except
a. Inherent risk
b. Control risk
c. Detection risk
d. Business risk
4. An unqualified conclusion is not appropriate for either reasonable or limited assurance
engagement when
a. Circumstances prevent the practitioner from obtaining evidence required to reduce
assurance engagement risk to the appropriate level
b. The responsible party or the engaging party imposes a restriction that prevents the
practitioner from obtaining evidence required to reduce assurance engagement risk
to the appropriate level
c. Both A and B
d. Neither A nor B.
5. The following statements relate to the performance of an assurance engagement other than
an audit or review of historical information covered by PSAs and PSREs. Which is incorrect?
a. Those persons who are to perform the engagement should collectively possess the
necessary professional competence
b. The practitioner is precluded from using the work of persons from other
professional disciplines.
c. The practitioner should consider materiality and assurance engagement risk when
planning and performing an assurance engagement.
d. The assurance report should be in writing and should contain a clear expression of
the practitioner’s conclusion about the subject matter information.
6. Reducing assurance engagement risk to zero is very rarely attainable or cost beneficial as a
result of the following factors, except
a. The use of selective testing
b. The fact that much of the evidence available to the practitioner is persuasive rather
than conclusive.
c. The practitioner may not have the required assurance knowledge and skills to gather
and evaluate evidence.
d. The use of judgment in gathering an evaluating evidence and forming conclusions
based on that evidence.
7. After accepting an assurance engagement, a practitioner is not allowed to change the
engagement to a non-assurance engagement, or from a reasonable assurance engagement
to a limited assurance engagement, except when there is reasonable justification for a
change. Which of the following ordinarily will justify a request for a change in the
engagement?
I. A change in circumstances that affects the intended user’s requirements.
II. A misunderstanding concerning the nature of the engagement.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
8. Which of the following statements concerning compilation engagement is incorrect?
a. In a compilation engagement, the accountant is engaged to use accounting expertise
as opposed to auditing expertise to collect, classify, and summarize financial
information.
b. The procedures employed in a compilation engagement enable the accountant to
express a moderate level of assurance on the compiled financial information.
c. Users of the compiled financial information derive some benefit as a result of the
accountant’s involvement because the service has been performed with due
professional skill and care.
d. A compilation engagement ordinarily entail reducing detailed data to a manageable
and understandable form without a requirement to test the assertions underlying
that information.
9. When performing a compilation agreement, the accountant is required to
a. Assess internal controls
b. Make inquiries or management to assess the reliability and completeness of the
information provided.
c. Verify matters and explanations
d. Obtain a general knowledge of the business and operations of the entity.
10. Each page of the financial information compiled by the accountant should include the
following reference, except
a. “Unaudited”
b. “Compiled without Audit or Review”
c. “Refer to Compilation Report”
d. “Compiled, Negative Assurance Expressed”

11. The seven (7) members of the Monetary Board are


a. The BSP governor; a member of the cabinet to be designated by the President of the
Philippines, and five (5) members from the private sectors
b. The BSP governor and six (6) members from the private sector
c. A cabinet member and six (6) members from the private sector
d. The BSP governor, 2 members of the cabinet to be designated by the President of
the Philippines, and four (4) members from the private

12. As defined in the Code of Ethics, __________ is the communication to the public of
information as to the services or skills provided by professional accountants in public
practice with a view to procuring professional business.
a. Advertising
b. Publicity
c. Solicitation
d. Marketing professional services
13. As defined in the Code of Ethics, __________ is the communication to the public of facts
about a professional accountant which are not designed for the deliberate promotion of that
professional accountant
a. Advertising
b. Publicity
c. Solicitation
d. Marketing professional services
14. The following statements relate to the provisions of the Code of Ethics that deal with the
professional accountant’s marketing of professional services. Which is false?
a. When a professional accountant in public practice solicits new work, through
advertising or other forms of marketing, a self-interest threat to compliance with the
principle of professional behavior may be created.
b. The professional accountant should be honest and truthful when marketing
professional services
c. Advertising and publicity are generally unacceptable
d. When marketing professional services, the professional accountant should not make
exaggerated claims for services offered, qualifications possessed or experience
gained.
15. A professional accountant in public practice is allowed to
a. Refer to, use or cite actual or purported testimonials by third parties
b. Publish services in billboard (e.g., tarpaulin, streamers, etc.) advertisements
c. Publish and compare fees with other CPAs or CPA firms or compare those services
with those provided by another firm or CPA practitioner
d. Inform interested parties through any medium that a partnership or salaried
employment of an accountancy nature is being sought
16. Which element of a system qualify control is addressed by the establishment of policies and
procedures designed provide the firm with reasonable assurance that it has sufficient
personnel with the competence, capabilities, and commitment to ethical principles?
a. Monitoring
b. Leadership responsibilities for quality within the firm
c. Human resources
d. Engagement performance
17. The firm shall establish policies and procedures designed to provide it with reasonable
assurance that the firm and its personnel comply with relevant ethical requirements/ the Code
of Ethics for Professional Accountants in the Philippines establishes the fundamental
principles of professional ethics which include the following, except
a. Integrity
b. Objectivity
c. Relevance
d. Professional behavior
18. The audit work performed by each assistant should be reviewed by personnel of at least equal
competence to determine whether it was adequately performed and to evaluate whether the
a. Firm’s system of quality control has been maintained at a high level.
b. Work performed and the results obtained have been adequately documented
c. Audit procedures performed are approved in the professional standards.
d. Audit procedures performed are in accordance with Philippine Standards on Auditing
(PSAs)

19. In determining whether the work of the internal auditors is likely to be adequate for purposes
of the audit, the external auditor shall evaluate the internal auditor’s
a. Efficiency and experience
b. Independence and review skills
c. Training and supervisory skills
d. Competence and objectivity
20. In assessing the technical competence of an internal auditor, an external auditor most likely
would obtain information about the
a. Quality of working paper documentation, reports, and recommendations
b. Organizational level to which the internal auditor reports
c. Influence of management on the internal auditor’s duties
d. Entity’s commitment to integrity and ethical values.
21. Which of the following is a false statement about the use of the internal auditor’s work by the
external auditor?
a. The PSAs do not allow the external auditor to use the work of the internal auditor
b. PSAs do not allow the external auditor to substitute the work of the internal auditor,
the external auditor in critical judgments
c. The PSAs state that, when specific work of the internal auditor is to be used, it should
be evaluated and tested.
d. PSAs state that, when considering whether to use the work of the internal auditor,
the external auditor should consider the internal auditor’s competence and
objectivity
22. The coordination of activities between internal and external auditors
a. Eliminates duplication of audit efforts
b. Includes the exchange of audit reports and management letters
c. Prevents external auditors from having access to the programs used by internal
auditors.
d. Prohibits the internal auditor from using the same audit techniques as external
auditors and vice versa.
23. Which of the following are included in the activities of the internal function?
i. Monitoring of internal control
ii. Examination of financial and operating information
iii. Review of operating activities

a. I and II only

b. I and III only


c. II and III only
d. I, II and III

24. General IT controls are policies and procedures that relate to many applications and support
the effective functioning of application controls. General IT controls commonly included
controls over the following, except.
a. Data center and network operations
b. Manual follow-up of exception reports
c. Access security
d. Program change
25. Application controls are
a. Manual or automated procedures that typically operate at a business process level
and apply to the processing of transactions by individual applications
b. Policies and procedures that relate to many applications
c. Controls that maintain the integrity of information and security of data such as
controls over system software acquisition, change and maintenance
d. Controls that relate to many applications and support the effective functioning of
general controls
26. Under PSA 315, monitoring of controls is an internal control component that involves a
process of assessing the quality of internal control performance over time. It involves
assessing the design and operation of controls on a timely basis and taking necessary
corrective actions. Monitoring of controls is accomplished through ongoing monitoring
activities, separate evaluations, or a combination of the two. An entity’s ongoing monitoring
activities often include
a. Periodic reporting by the entity’s internal auditors about the functioning of internal
control
b. Reviewing the purchasing function
c. Periodic audits by the audit committee
d. The audit of the annual financial statements.
27. Control activities relate to the following, except
a. Segregation of duties
b. Performance reviews
c. An internal audit function
d. Authorization
28. The following are examples of monitoring activities, except
a. Information Technology (IT) management regularly generates exception reports for
unusual transactions or volumes of transactions and follows up with investigation as
to causes
b. Management has asked internal auditing to perform regular audits of the controls
over cash processing.
c. Management regularly compares divisional performance with budgets for the division
d. IT management regularly reconciles batch control totals for items processed with
batch controls for items submitted.
29. Proper segregation of duties reduces the opportunities for persons to be in positions to both
a. Establish internal control and authorize transactions
b. Perpetrate and conceal errors or fraud
c. Record cash receipts and cash disbursements
d. Record transactions and prepare financial statements
30. Control activities include those that relate to physical controls over access to and use of assets
and records. A departure from the purpose of physical controls is that
a. The mail room clerk compiles a list of the checks received in the incoming mail
b. Access to safe-deposit box requires two officers
c. Only warehouse personnel and production supervisors have access to raw materials
storeroom
d. Only sales personnel use department vehicles
31. Which of the following most likely would not be considered an inherent limitation of internal
control?
a. Management override
b. Incompatible functions
c. Mistakes in judgment
d. Collusion among employees
32. A basic concept of internal control is the concept of reasonable assurance, which recognizes
that
a. Establishing and maintaining internal control is an important responsibility of
management
b. Internal control may be ineffective due to collusion among employees
c. The cost of an entity’s internal control should not exceed the benefits expected to be
derived
d. Adequate safeguards over access to assets and records should permit an entity to
maintain proper accountability

33. All the information used by the auditor in arriving at the conclusions on which the audit
opinion is based is called
a. Audit information
b. Audit evidence
c. Accounting records
d. Corroborating information
34. As defined in PSA 500, _________ is an individual or organization possessing the expertise in
a field other than accounting or auditing, whose work in that field is used by the entity to
assist the entity in preparing the financial statements
a. Auditor’s expert
b. Management’s expert
c. Auditor’s internal expert
d. Auditor’s external expert
35. Which of the following statements concerning the management’s expert’s competence,
capabilities, and objectivity is correct?
a. Objectivity relates to the ability of the management’s expert to exercise the
competence in the circumstances
b. Competence relates to the possible effects that bias, conflict of interest or the
influence of others may have on the professional or business judgment of the
management’s expert.
c. Capability relates to the nature and level of expertise of the management’s expert
d. The management’s expert’s competence, capabilities, and objectivity are important
factors in relation to the reliability of any information prepared by the management’s
expert
36. Which of the following statements concerning audit evidence is false?
a. The auditor uses professional judgment and exercises professional skepticism in
evaluating the quantity and quality of audit evidence, and thus its sufficiency and
appropriateness, to support the audit opinion
b. The auditor ordinarily finds it necessary to rely on audit evidence that is persuasive
rather than conclusive.
c. In forming the audit opinion, the auditor does not examine all the information
available because conclusions ordinarily can be reached by using sampling
approaches and other means of selecting items for testing
d. The difficulty and expense of obtaining audit evidence concerning an account balance
is a valid basis for omitting the test
37. The following are assertions about account balances at the period end, except
a. Existence
b. Rights and obligations
c. Valuation and allocation
d. Cutoff
38. The following statements relate to the use of analytic procedures. Which is false?
a. Substantive analytic procedures are applicable when there is only a small volume of
transactions
b. The application of substantive analytic procedures is based on the expectation that
relationships among data exist and continue in the absence of known conditions to
the contrary
c. The presence of relationships among data provides evidence as to the completeness,
accuracy, and occurrence of transactions captured in the information produced by the
entity’s information system
d. Reliance on the results of substantive analytical procedures will depend on the
auditor’s assessment of the risk that the analytic procedures may identify
relationships as expected when, in fact, a material misstatement exists.
39. In the audit of which of the following general ledger accounts will tests of controls be
particularly appropriate?
a. Bank charges
b. Equipment
c. Bonds payable
d. Sales
40. Which of the following might be detected by an auditor’s review of the entity’s sales cutoff?
a. Inflated sales for the year
b. Lapping of year-end accounts receivable
c. Unrecorded sales discounts
d. Excessive goods returned for credit

41. Which of the following statements is true?


a. Statistical sampling is more convenient to use that non-statistical sampling
b. Statistical sampling aids the auditor in evaluating results
c. Statistical sampling requires the auditor to make fewer judgment decisions
d. Statistical sampling will be looked upon by the courts as providing superior audit
evidence.
42. The following are examples of nonsampling risk, except
a. Failure to recognize an error
b. Obtaining an unrepresentative sample
c. Use of an audit procedure inappropriate to achieve a given objective
d. Failing to evaluate results properly
43. The following are advantages of using statistical sampling, except
a. Statistical sampling provides a means for mathematically measuring the degree of risk
that results from examining only part of a population
b. Statistical sampling allows the auditor to greatly reduce substantive testing
c. Statistical sampling allows the auditor to measure the sufficiency of the evidential
matter obtained
d. Statistical sampling aids in the design of an efficient sample
44. Which of the following methods is most appropriate when performing tests of controls?
a. Stratified random sampling
b. Unrestricted random sampling with replacement
c. Variable sampling
d. Attribute sampling
45. In the audit of inventory, attribute sampling may be applied to estimate the
a. Average price of inventory items
b. Physical quantity of inventory items
c. Percentage of slow-moving inventory items
d. Peso value of inventory
46. The risk that the assessed level of control risk based on the sample is less than the true
operating effectiveness of the control policy or procedure is the risk of
a. Assessing control risk too low
b. Assessing control risk too high
c. Incorrect acceptance
d. Incorrect rejection
47. In attribute sampling, a 5% change in which of the following factors normally will have the
least effect on the size of a statistical sample?
a. Expected deviation rate
b. Risk of assessing control risk too low
c. Population size
d. Tolerable deviation rate
48. Given random selection, the same sample size, and the same tolerable deviation rate for the
testing of two unequal populations, the risk of assessing control risk too low for the larger
population is
a. Higher than the risk of assessing control risk too low for the smaller population
b. Lower than the risk of assessing control risk too low for the smaller population
c. The same as the risk of assessing control risk too low for the smaller population
d. Indeterminable relative to the risk of assessing control risk too low for the smaller
population
49. If the size of the sample to be used in a particular test of attributes has not been determined
by utilizing statistical concepts, but the sample has been randomly chosen
a. The auditor will have to evaluate the results by reference to the principles of discovery
sampling
b. May not use statistical evaluation
c. The auditor has committed a nonsampling error
d. No inferences can be drawn from the sample
50. In determining the number of items to be selected in a sample for a particular substantive test
of details, the auditor should consider all of the following, except
a. Tolerable misstatement
b. Characteristics of the population
c. Deviation rate
d. Allowable risk of incorrect acceptance.