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AAP 2017 Updated Answer Key
AAP 2017 Updated Answer Key
1-2
1 A
2 C
3 B Engagement process is an element according to the superseded PSA 100.
4 A
5 B
6 C
7 D Subject matter may include financial or non-financial information, physical characteristics,
systems and processes, and behavior.
8 A
9 D Sufficiency is an attribute of audit evidence.
10 A Efficiency and effectiveness may involve subjective factors.
11 C
12 C
13 D Compilations are non-assurance engagements.
14 B Choice C refers to Business Risk Assessment service.
15 C
16 D
17 A
18 A
19 B
20 D
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Auditing and Assurance Principle 2017 Edition
By : Ireneo, Ireneo and James
Solutions Manual
2-2
1 D Degree of correspondence between assertions and established criteria.
2 C
3 D
4 D
5 B This refers to the completeness assertion
6 B
7 B
8 B
9 C
10 D
11 C
12 B Choice A is wrong because independent auditing is not a branch of accounting. Choice C
refers to accounting. Choice D is incorrect because auditing cannot assure the accuracy of
financial statements.
13 A
14 A Line functions are positions that exercise decision-making powers or responsibilities.
15 B
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Auditing and Assurance Principle 2017 Edition
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16 A
17 D
18 B
19 C
20 C
21 B
22 A Information risk is the likelihood that information presented is false or misleading.
23 B The best reason for audits is the conflict of interest between preparers and users of financial
statements.
24 B Choice B refers to the objective of a financial statement audit, not a reason for audits.
25 C
26 B Statement 1 is false because CPAs have as their primary responsibility the performance of
the audit function on published financial statements of publicly traded corporations.
27 B
28 C
29 D
30 B Some evidence supporting peso representations in the financial statements must be
obtained by oral or written representation of management.
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Auditing and Assurance Principle 2017 Edition
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3-2
1 D
2 D
3 C
4 D To be considered as practicing the profession, the CPA must be using his/her knowledge or
expertise in accounting.
5 A
6 C Fundamental principles refer to ethical requirements that must be complied with in all
engagements of the CPA. Independence, while being an ethical requirement, is not
necessary in some CPA services (such as compilation of financial statements).
7 D
8 C Representation of clients before government agencies on tax and other matters must be
related to accounting.
9 A
10 C
11 B
12 A
13 D Must not have any pecuniary interest, direct or indirect...
14 B
15 D
16 D
17 C
18 A
19 B Tolerance of violations of the Philippine Accountancy Act is a ground for suspension or
removal of a member of the BOA.
20 D
21 C
22 C
23 D
24 C
25 B
26 A Naturalized Filipino citizens may take the CPA Board Exams.
27 B
28 C
29 A
30 B
31 D
32 A
33 B
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Auditing and Assurance Principle 2017 Edition
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4-1
1 TRUE
2 FALSE At least 80 units by 2017 increasing gradually to 120 units
3 FALSE The corporate form is not allowed for the practice of public accountancy.
4 FALSE This method of billing refers to per diem basis.
5 TRUE Note however that this is not the main determinant of the amount of professional fees. See
related question number 6.
6 TRUE
7 FALSE This is a contingent fee arrangement.
8 FALSE Not anymore required per BOA Resolution No. 59
9 FALSE This refers to solicitation.
10 FALSE ...shall be valid for a period of three years...
11 FALSE
30 days from date of such death
12 FALSE
allowed subject to certain conditions
13 TRUE
14 FALSE
there is no such condition for revocation of partners license
15 FALSE
PRC CPE Council can delegate the work to PICPA CPE Council
16 FALSE
not immediately. Three years of meaningful experience shall be earned first by the CPA
17 FALSE
its the certificate of registration that is granted only once. Certificate of Accreditation is
valid for three years.
18 TRUE
19 FALSE
first name is allowed
20 TRUE These are alternative methods of earning CPD units.
4-2
1 D
2 B
3 C
4 D
5 C
6 D
7 D
8 C
9 A
10 C
11 C
12 D
13 D
14 D
15 B
16 C
17 A
18 B
19 D
20 D
5
Auditing and Assurance Principle 2017 Edition
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5-1
1 TRUE
2 FALSE The firms partners assumes ultimate responsibility...
3 FALSE At least annually
4 FALSE A familiarity threat occurs...
5 TRUE Smaller firms may employ less formal...
6 TRUE
7 FALSE Consultation is a normal part of a CPAs engagements, and applies in particular to
contentious or difficult matters.
8 TRUE
9 FALSE An engagement quality control review is required for all audits of listed entities.
10 FALSE The engagement partner may consult with the engagement quality control reviewer...
11 FALSE ...include at least one engagement for each engagement partner over an inspection cycle.
12 FALSE Audit working papers are the property of the auditor.
13 TRUE
14 FALSE PSA 220 follows the classification of elements of quality control mentioned in PSQC No. 1
15 FALSE PSA 220 applies to audits of historical financial information, while PSQC No. 1 applies to
assurance services in general.
5-2
1 D
2 B
3 C Engagement quality control review applies to engagements prior to issuance of the report,
while inspections apply to completed engagements.
4 B
5 D Monitoring is the responsibility of the leaders of the firm.
6 C
7 D
8 C
9 A
10 C Rotation of senior personnel (i.e., partner) is done every five years, as mandated by the
Code of Ethics.
11 D
12 D The Code of Ethics does not require continuance of the engagement.
13 C ...coaching by more experienced staff.
14 A Choice B is incorrect because supervision includes considering the capabilities and
competence of individual members of the assurance team. Choice C is incorrect because
supervision includes addressing significant issues... Choice D is incorrect because
supervision includes identifying matters for consultation or consideration by more
experienced engagement team members.
15 B
16 A
17 B
18 A
19 D
20 A
21 D
22 C
23 C
24 B
25 D
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Auditing and Assurance Principle 2017 Edition
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ANSWER KEY CHAPTER 6 : The Code of Ethics for CPAs in the Philippines
6-1
1 FALSE
2 TRUE
3 FALSE The auditor should ask the client to correct the error.
4 FALSE A CPA may not voluntarily...
5 TRUE
6 TRUE
7 FALSE A familiarity threat...
8 TRUE
9 FALSE A professional accountant in public practice will ordinarily need ...
10 FALSE A professional accountant in public practice may not readily...
11 TRUE
12 FALSE Network firms are also required to be independent of a financial statement audit client.
13 TRUE
14 FALSE Only legitimate aims must be furthered and supported by the CPA.
15 FALSE CPAs cannot provide assurance of infallibility.
16 FALSE The first remedy is to apply the policies of the organization on resolution of ethical conflict.
17 FALSE Objectivity is different from stubbornness. Objectivity simply refers to being neutral or
unbiased.
18 TRUE
19 FALSE See comments in number 14
20 FALSE May be allowed only if the necessary safeguards are in place (to reduce or eliminate threats
to compliance with fundamental principles).
6-2
1 A
2 A
3 C
4 C
5 D
6 D
7 C
8 D
9 B
10 D
11 A
12 D A second remedy would be to engage the services of experts. In the absence of remedies,
the CPA has no choice but to decline the engagement.
13 D
14 C
15 A
16 B
17 C
18 D
19 B
20 D
21 D Contingent fees result to significant threats to compliance with fundamental principles when
allowed for assurance engagements.
22 C
23 A Note: Assume that the CPAs have not established the necessary safeguards to reduce
threats to compliance with fundamental principles.
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Auditing and Assurance Principle 2017 Edition
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1 FALSE Professional competence and due care is obtained through a combination of education and
experience. It cannot be obtained through education alone.
2 TRUE
3 FALSE Materiality is one of the major factors considered in determining transactions that would be
reviewed.
4 FALSE Risk of material misstatement is greater when transactions and balances involved estimates
5 TRUE
6 TRUE
7 TRUE
8 TRUE
9 TRUE
10 FALSE The successor auditor has the duty to initiate communication with the predecessor auditor,
since the latter is bound by the duty of confidentiality.
11 TRUE
12 FALSE The primary objective of the study and evaluation of internal control is to determine the
nature, extent and timing of substantive tests to be performed.
13 TRUE
14 TRUE
15 TRUE
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14 C
15 A
16 B
17 A
18 D
19 D
20 B
21 C
22 D
23 D
24 C
25 C
26 A
27 A
28 D
29 C
30 D Choice A refers to Existence. Choice B refers to Completeness. Choice D refers to rights
and obligations.
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Auditing and Assurance Principle 2017 Edition
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19 FALSE Strategies are operational approaches by which management intends to achieve its
objectives. Objectives are the overall plans for the entity.
20 TRUE
21 TRUE
22 TRUE
23 TRUE
24 TRUE
25 TRUE
1 D
2 C
3 A
4 B
5 A
6 D
7 A Representation letters are considered at audit completion.
8 A The most costly procedure is test of balances.
9 C
10 D
11 C
12 A
13 C This is already a further audit procedure (performed after planning).
14 C
15 B Note that the client under consideration is a continuing audit client.
16 B Comparison of actual results versus budgeted figures is known as variance analysis.
17 D
18 C
19 D
20 C
21 C PSA 550 covers related parties. Related parties are indicated by transactions which have
abnormal terms of trade.
22 B
23 A
24 A
25 C Client management is expected to have a deeper understanding of the entity s operations.
The auditor is expected to obtain an understanding of the entity sufficient for him/her to
perform the audit effectively, but not so much as to be comparable to the level of
operational knowledge possessed by management.
26 B This procedure is a substantive test.
27 D
28 A
29 D Most business risks do have financial consequences.
30 B
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Auditing and Assurance Principle 2017 Edition
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1 A
2 C Choice A is incorrect because the auditor must still obtain an understanding of the
accounting system and control procedures of an entity. Choice B is incorrect because
control procedures (relevant to the audit) also require the auditor s consideration. Choice D
is incorrect because not all control procedures are considered by the auditor (only those
relevant to the audit).
3 C
4 D
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Auditing and Assurance Principle 2017 Edition
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5 C The internal control system of a company is broader in scope compared to the accounting
system of the entity.
6 B
7 C
8 B Not all controls are relevant to the auditors risk assessment (only those which may affect
the entitys ability to produce fairly stated financial statements).
9 A
10 D Choice A refers to risk assessment process. Choice B refers to the information system.
Choice C refers to control activities.
11 C
12 B Specific authorization is required for non-routine transactions, while general authorization is
required for routine transactions.
13 D Risk arises from change. Choice D shows stability (no change).
14 D
15 B
16 B
17 A See 9-1 number 18
18 A The understanding of internal control is used to determine the control risk, not inherent risk.
19 B
20 D See number 17.
21 B
22 A
23 B
24 B
25 D
26 A The basis for the control risk assessment is documented only when the control risk
assessment is Less than High.
27 A Choice B is incorrect because the preliminary assessment of control risk is done before tests
of controls. Choice C is incorrect because the preliminary assessment of control risk for a
financial statement assertion is normally HIGH, unless the auditor is able to identify controls
that are potentially reliable.
28 D Choice A is incorrect (see comment in number 26). Choice B is incorrect because
substantive tests cannot be eliminated, regardless of the control risk assessment. Choice C
is incorrect because evidence regarding the operation of controls in a prior period may be
considered during the current audit.
29 C Choice A is incorrect because tests of controls are used to verify effectiveness of controls
not management assertions. Choice B is incorrect because analytical procedures cannot be
used to validate control risk, and substantive tests are not used to validate control risk.
Choice D is incorrect because the assessment of control risk has already been performed
(see question).
30 D Tests of controls will not be performed since there are missing controls.
31 A Choices B, C and D are substantive tests.
32 A
33 B Choice B is evidence obtained during the performance of substantive tests.
34 C
35 C See comment for Choice B in number 29.
36 D
37 C
38 C As the acceptable level of detection risk decreases, the auditor relies on more stringent
substantive testing.
39 B
40 A
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Auditing and Assurance Principle 2017 Edition
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1 FALSE
2 FALSE Audit evidence includes only the information used by the auditor as a basis for his opinion.
3 TRUE
4 TRUE
5 FALSE Accounting records, on their own, do not constitute sufficient, appropriate audit evidence.
6 FALSE The higher the quality of audit evidence, the less evidence is required.
7 FALSE Obtaining audit evidence relating to a particular assertion is not a substitute for obtaining
audit evidence regarding another assertion.
8 TRUE
9 TRUE
10 TRUE
11 FALSE This statement refers to substantive tests.
12 TRUE
13 FALSE Inquiry is considered as insufficient unless corroborated by evidence from other audit
procedures.
14 FALSE The higher the assessment of risk, the more reliable is the audit evidence sought by the
auditor from substantive procedures.
15 TRUE
16 FALSE Substantive tests are never eliminated in an audit engagement.
17 FALSE Audit objectives establish broad general goals, while audit procedures specify the detailed
work to be performed.
18 FALSE Analytical procedures are required as a planning procedure and a completion procedure, but
not as a substantive test.
19 TRUE
20 FALSE Tests of details can be used for verifying existence and valuation.
21 FALSE Working papers do not serve as a substitute for the client s financial records.
22 TRUE
23 FALSE Working papers should not be kept in the clients premises.
24 FALSE Working papers which contain information relating primarily to the audit of a single period
are known as current files.
25 FALSE The primary purpose of indexing is to increase efficiency in the rechecking and review of
work performed.
10-2
1 A Correction: Choice A should read: The information obtained by the auditor...
2 C
3 D
4 D Some audit procedures address two or more audit objectives.
5 C See notes in 10-1 number 7
6 D
7 B
8 C
9 C The question demands for examples of assets which are inspected. Choice A is incomplete.
Choice B includes cancelled checks and sales documents (both of which are not assets).
Choice D includes cancelled checks (again, not an asset).
10 D
11 D
12 D
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Auditing and Assurance Principle 2017 Edition
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13 C
14 B
15 C
16 D Sampling affects the sufficiency of audit evidence.
17 C
18 A
19 A The difficulty and expense involved in testing a particular item is not a valid basis for an
auditor to decide to omit a test.
20 C The higher the auditors assessments of inherent and control risks, the more reliable and
relevant is the audit evidence sought by the auditor.
21 C
22 D Choice D is incorrect because substantive tests are inversely related to the auditors reliance
on internal controls.
23 D
24 C
25 C
26 A
27 B
28 A
29 C
30 B Choices A, C and D warrant the use of positive confirmation requests.
31 A
32 C
33 D
34 C A copy of the external auditors audit program should be included in the working papers.
35 D
36 A
37 B
38 B
39 D
40 B
1 FALSE
2 TRUE Tests performed on 100% of the items within a population does not constitute sampling.
3 TRUE
4 TRUE
5 TRUE
6 TRUE
7 TRUE
8 TRUE
9 TRUE
10 TRUE
11 FALSE The larger the tolerable error, the smaller the sample size
12 FALSE In tests of controls, the tolerable deviation rate is the maximum...
13 TRUE
14 TRUE
15 FALSE This statement refers to random selection.
16 FALSE Stratification may be appropriate to assist in the efficient and effective deisgn of the sample.
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Auditing and Assurance Principle 2017 Edition
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1 B
2 D
3 D
4 A Selecting specific items involve selecting high value or key items.
5 A
6 C
7 B
8 C
9 A
10 D
11 A Misstatements refer to errors found during substantive testing.
12 C
13 A
14 A Sampling risk is inversely related to sample size. Note also that sampling risk can be
eliminated by 100% testing.
15 A
16 B
17 A Choice B is incorrect because the question is talking about tests of controls, not substantive
tests. Choice C is incorrect because tests of controls and substantive tests have been
combined in this statement. Choice D refers to the likelihood of assessing control risk too
low.
18 B
19 A
20 B
21 C
22 C The interval is computed as population size divided by sample size.
23 D The disadvantage can be rectified by the use of random starts.
24 D
25 B
26 C
27 B
28 D This rate is developed in light of the auditors understanding of the entity and its
environment.
29 A This rate is developed based on the auditors professional judgment.
30 B
31 C
32 B
33 C Refer to PSA 530, Appendix
34 D
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Auditing and Assurance Principle 2017 Edition
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35 B
36 C
37 A
38 A 4/100 = 4% sample deviation rate + 2% allowance for sampling risk = 6% upper deviation
rate versus tolerable deviation rate of 5%
39 B
40 D
41 D
42 C
43 B
44 C Tolerable misstatement is inversely related to sample size
45 D
46 C
47 A
48 B Note that the sample deviation rate (in tests of controls) need not be projected; only the
sample misstatement (in substantive tests) need to be projected to the population.
49 C
50 A
51 B
52 B
53 B
1 TRUE
2 TRUE
3 FALSE A provision is not uncertain as to existence.
4 TRUE
5 FALSE Not all subsequent events need adjustment; some require disclosure only.
6 FALSE
7 TRUE
8 FALSE The period of assessment is at least 12 months from the reporting date.
9 TRUE
10 FALSE The auditor in this case should issue a qualified or disclaimer of opinion.
11 FALSE When other sufficient appropriate evidence can be reasonably expected to exist, such
evidence is obtained, rather than simply getting written representations from management.
12 TRUE PSA 580 requires written management representation letters.
13 TRUE
14 TRUE
15 FALSE Flowcharts of internal control do not constitute a form of internal communication.
1 A
2 D
3 A
4 B
5 A Subsequent events that pertain to conditions that did not exist as of balance sheet date are
normally disclosed.
6 D
7 A
16
Auditing and Assurance Principle 2017 Edition
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1 TRUE
2 FALSE This situation results to a disagreement with management, not a limitation on scope.
3 FALSE
4 TRUE
5 FALSE This situation would require the use of a qualified or adverse opinion, depending on
materiality.
6 FALSE The auditor is responsible in detecting material misstatements arising from either an error or
fraud.
7 FALSE If the auditor can not relied on the beginning inventory the gross profit also can not be
relied upon, hence results of operations can not be relied upon but the balance sheet with
the correct balance of ending inventory can be relied upon
8 FALSE Emphasis of a matter paragraphs are always placed before a modified opinion.
9 TRUE
10 TRUE
11 FALSE
12 TRUE
13 TRUE
17
Auditing and Assurance Principle 2017 Edition
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14 TRUE
15 TRUE
16 FALSE Disclaimer of opinion is not appropriate due to a materials departure from GAAP.
17 TRUE
18 TRUE
19 FALSE The auditor should not accept or withdraw from engagement if the auditor is not
independent in relation to the client.
20 TRUE
1 D
2 C
3 A
4 A
5 C
6 C
7 D GAAS in the Philippines are known as PSAs.
8 D
9 A
10 D
11 D
12 - Please disregard. Wrong Choices
13 A
14 B
15 C
16 B This situation includes an adverse opinion.
17 C There is uniform wording for the audit report (See PSA 700/701 and 705/706)
18 D
19 A
20 A
21 A
22 C
23 D
24 A
25 D
26 D
27 A
28 B
29 B
30 C
31 A
32 D
33 A
34 A
35 C
36 A
37 A
38 A
39 D
40 A
41 D
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Auditing and Assurance Principle 2017 Edition
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42 C
43 A
44 C
45 D
1 TRUE
2 FALSE The requirements of PSA 800 shall prevail.
3 TRUE
4 FALSE The special report on modified cash basis statements needs to indicate the basis of
accounting used.
5 FALSE Audit of components results in a report on a particular part of the financial statements.
6 FALSE Audit of components result to a more extensive examination of that component.
7 FALSE When an adverse opinion or disclaimer of opinion on the entire financial statements has
been expressed, the auditor should report on components of the financial statements only if
those components are not so extensive....
8 TRUE
9 TRUE
10 TRUE
1 A
2 D
3 C
4 B If statements are prepared using the accrual basis, the standard audit report applies.
5 D
6 D
7 D
8 C
9 A
10 D
11 A
12 D
13 B
14 A
15 D
16 D
17 C
18 D Special reports on compliance with contractual agreements are still audit reports; hence
they require independence.
19 C
20 C
21 C
22 D
23 B
24 A
25 B
26 C
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Auditing and Assurance Principle 2017 Edition
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27 B
28 D
29 D
30 D
31 D
32 C
33 C
34 A
35 D
36 A
37 D
38 C
39 D
40 D
41 C
1 A
2 B
3 B
4 B
5 D Choice D is part of a standard audit engagement.
6 A
7 B/C
8 A
9 C
10 A
11 B
12 A
13 B
14 C
15 D
16 C
17 A
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Auditing and Assurance Principle 2017 Edition
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18 B
19 D
20 C A CPA is always required to exercise due professional care.
21 D
22 C Compilations require accounting expertise, not audit expertise.
23 D
24 D
25 A
26 D See 15-1 number 12
27 D
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