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AUDTTIilG THEOAY fsse Fil" f,remes ; R. fames

ATPW-Z*: FRmlrymruK QUffi$T'trCINS
1. In the internatbnal arena, thls body tnrers€es the IFAC's standard-setting activities in the areas of auditing and
assurance, ethics and education. i,iai i5
A.
Monitoring Group (ltlc)
B.
Public Interest Orcrsght Boad (pIOE),i,
C.
IFAC Reguhtory Liitison Grotrp (IRLG) -
D.
Intemauonal tudlfing ard Assurarm Staodards Board (IMSB)
Z. One ff the gwernment auditing standartls whi,ch ls
lot oEerved by inrlepenrtent CpAs in the prirrate sector is:
A. the audit ts to be adequately planned ard asslstanE are to be properly supruised.-
B. a ra&yvshall be maOioryfgiryge with legBland sfiatubry reqirireinen'ts. priv4{4 arouhfin+( op(rafiot'U -
c. an evaluatbn trrlio" niiilffirc* of-tnenrat oonm.7 u[;rsqrj '
D. sufficient compeEnt eviderrtiill matter shau be obtains through inspection, obEervatbn, inquiries and
confinnatiolr.uz
b. 3. A reguirement of the applietbn of pSAs is fur UE auditor:
A.
Not b obtain clhnts bv solicihtbn.
q.
To undertalG
@theuistirp inEnrat mntror.t w A bll)
C. To charye fees fairly and in rehticn to-Effiand cffi of the engagement.
D. To inspect all fxerl a$6ets acquircd during fre year.
4. A professbnal acmunBnt who does rmt mns*ler and apply tfie guHarre indudd in a reEvant practjce
Statement shouH be prepared b:
A.
Explain to die Board of Accountancy Eibunal why the practice staternent was not complied with
B. hr tfie @nsequeflces of suclt non-cornplhnce, such m suspensim or re\rocatbn license, plus d
imprbonment of not more than two (2) years.
C.
Face the sharehdders d fie entiU, and explain in the nreeting why such practice staternent was
not complied wtth, prorddd tlut the oelanation is also put in wriUng, and $gnd in the preence of
,the Chairperson of ffie fuditit1g and Asurance Standards hr.rncil.
D.
Exphin how tfre basic princi@ and essential procdures in the Engagenrent Standards addressed
by the Practioe Staternents have been comflied with.

b s. TheA, Core Compefiencir= of CPAs include: (p'rypSrtE 1IIIAL ?

p lJr,t PLES)
Asurance and infsnnatbn integrity. C, Sfiratq*c and cniticat thinking skflB.
B. Objectivity. / D. Fursuit of lifsbrrg learni*g and excellence.
6. A violation 0f ffie professionb effiical standards uould nrost likdy occur when a CpA who
A.is also ad,mfiedto tfre Bar reptsents on letErhead to he boffi an atbrney and a CpA.
B. Writes a newsl#r on financial rnanagenent also pernits a publiihing @mpany solicit b
subscri*ions by direct rnail.
C. is contrcller of a bank permits the bank b use the conboller's CPA title in ttre listing of officers in its

D. ibrmsapartneruitripforamuntarrcypracticewith!gn{I43.i vlaru'fiop it.,on cfA's ranngt pmt{rtt

ta4tunlihl'
$. T" which of the fiotbwirq describes mffit mrnptetety how the proftssion definesjndeperdence? P ub tiv
A. peifurming an audit from tfie publicb point of vieu, ::-
B. avo$ing the appearane f a s[nificant interest in an audit clienfs interest
C. rcsbting a dienfs reluctance b reneal alllene
D, accepd.grespqf.Eibilltypact theprdessbnut*gg {,W,:{^'@
Sg. whatkindofthreatsarccrcaHbyvirfuecd@lp*]itr,assilnncecrie!io*}otFthicf-ln{,W
*
A. Seff inEre* threat '-------e. Gtf mte& and setf-revien threat CI .t<.t+ 6+rZc{
B. Self-intercst and infimidatlrn ureat D. No thrcau are created.
t t hrr,KQ_ ergltiagi,i
ue. no a oirectol, ]n';#.,"I'H#i;1at'on
empbyees, depending on their role, of the assurarrce client, lcd
lirGfy creaE
A.Self-intercst threat..,' --f*infr'fridat6n rj'reat_./
B.SelFrevieuv threat. D.
Familhrity threat*--
D 10. If flrm, or network firm, persmtnel prwidirE such asststance npke managrement dechbns, the self-r€rvbw
threat creaEd couH not be rcdumd to an acm@ble le{rel by arry saquarAs. E<amphs of such manageriat
decisions indude the fullowing, except
Vr6r$a4
tli4\ f A. Determinlng or changing Jwrnal enUies, or the chssilicatirm fur accounB or transactions or other
.t,,t'rihylt I
,u/v'
accounting rmrdswithoutobtainingtlreapprwatof theauditdhnts.
I B. Authorizing or apprwing transactions.
L C. Preparing sourGe documents or orplnating data (includirry decisbns on evaluatbn assumptions), or
making changes to srrch docurnents or dah. ..,. _ - It
D, Assisung an dudit cllent in resofuing account reconciliathn pnoblans. -" c t tri c t
.+: -6,i4
ReSA - The Revieu, School of
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Atrouotancy
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page 1
 AudiUng Theory: Prerveek Questbrs AIftlU-Al5"r
V. 11. The provision oF accounting and bookkeeping servics to audit'clients in emergency or other unusualsituations,
when it is impractical
fojjlg+dltdlient lo.make other arangements, jtolE_lgt be consuered to pose qn
uiaccetta Ele threat tolrfiEFndencdFrcnrided :
Aliher@notassumearrymanagerialroleormakeanymanagerialdecisions..,/
B. The audit client accepts responsibitity for the results of the work. /
C. Personnel provlding the services are not members of the assurance team.,/
D. All of the above,
/1
t,' tZ. If the valuation services involves the valuation of matters material to the financial statements and the valuation
involves a significant degree of subjectivity, the self-rerrriew threat creafed (choose the inorrest{ne)
A. Could not be reduced to an acceptable level by the application of any safeguardy
B. Could be reduced to an acceptable level by the application of safeguards.
C. Such valuation services should not be provided.r/
D. The assurance team,should withdraw from the audit engagement,
- if the team opted- to perform the
vatuation services.",/ J rtt rtvi til +hrrlqt , 1', o hi{1h + i
n- . t3. Waste Managementand Emon are classic cases wherein the media was critical that auditors:
A. Were ignorant of the existing audit and assurance standards.
B. Have failed to plan the audit engagements properly.
C. Overlooked suspicions of earnings management reported in the Wall Street Journal.
D. Received signlficant consulting fm relative to aud it few,/'' , tqni iy
f
,t,
(/ltubrft
L4' A CPA/pg$tLsed sq9kilt a client corporation and placed it in a trust as an educational fund fur the CpA's minor b t
,,&'' chilrl, The trust securities were not material to the CFA but were rnaterial b the child's pemnal and worth.
Would the independence of the CPA be considered to be impaired with respect to the client?
A. Yea b-ecause the stock would be considered a direct financial interest and, mnsequenuy, materiality is
not-a factor.
B. Yes, because the stock would be conskJered an indirect financial interest that is material to the CpAb
child.
C. No, because the CPA would not be considered to have a direct financial interest in the client.
D, No, because the CPA would not be mnsidered to have a material indirect financial interest in the client.
{
15. TheCotleof PrcfessionalEthicswouldmostlikelybevblated
A A. Owns a building and leases floor space to an assurance client.
if anauditor;
J,(t+.in+th6{ thrral
B. Has an insured account with a brok'erage firm audit client. ;,
C. Is engaged by an audit client b ldentify potentiat acquisitions.../
D. Screens candidates for an audit client's vacant controllership position. uz
o-
P , 16' Pupung, CPA, is an audit manager of the Dom, Day and Jordan, CpAs, accounting firm. He has just been
assigned to the audit of the Lugao'Money Market Fund. Pupung has maintained a money market.account with
LMMF since it opened in 2005. All his savings, amounting to TSbn of his total assets, are in this accourit,
which
pays the highest interest available in money market funds. However, his account constitutes
only 0.00001
percent of the fundS assets. Is the audit firmt independence impaird in this situation?
A.Yes. Pupung is considered a member of the assurance team, since he b a manager and will provlde
raudit services to LMMF. The firm3 independence is impaired since Pupung hokli a material indirect
financial interest.
B. Yes' Pupung s considered a member of the assurance team, since he is a manager and will provide
audit services to LMMF. The firmS independence is impaired since Pupung hold-s a direct financial
interest. Dlv,tct {irrnliq ql irW nrt 'i rurary.r1,ra16.i- iilrpairl; - --'
'

C. No. Pupung, despite being a "rnember of the assurance team" holis only ,i.oOdr percent of the fundb
assets. His financial interest in CMMF i$ irrebvant to the guestion on
D. No. Pupung, despite being a *member of the assurance team" holdsindependence.
only 0.00001 percent of the fundt
assets. It is the audit partner in charge of the LI"IMF engagement (and not eupung) who should be
checkedforanydirectormaterialindirectfinancialinterestintheauditclient.
(Numbers 17 to 19 fiollow) CPA Dagult wife owns 20 percent of the ordinary strAres of pugad Company, which
wants Dagul to perform the audit for the calendar year ended December 31, 2009,
A
L ' 17. May Dagul perform the audit of Pugad Conrpany for the calendar year ended December 31, 2009?
. A' Y€s, since it is Dagult wife who cnruns the shares and not Dagul.
'
B. Yes, because the interest is less than 50 perceglggg!_therefoie Dagul considered'independent.
c. No, since Pgoul's wife's intercst is attributd,,ro-himlnd he wouldlo,isbu_lEgpglggql.
D. No, since oagu icantffin intimidatbn
threat.
, ,tf-"'
,u. wife gave her shares to their depenctent to-yearolct daughrer, tiny, 6 zu[1, 2e1g.
',\' }llT:L1-Dagul's
Dagul now perform the audit of Pugad Company for the calendar year ended oecemner jr ffi:-
May
,
A. Nq fior as long as Tiny is i oepenrient'child. rne nninrfont"rot s-.o*idered direct-
B.Yes,becauseDagulisnowmnsideredindepenclentsinceffinstheshares.
C. No, tur as long as Tiny is a dependent child. The financial interest is ionsidercd indirect.
D. Yes, bmause under the Code of Ethics, the interest in Pugad Company is no longer relevant to Dagul,s
.{: .decision whether to accept or decline the audit engagement
 Auditing Thmry: Prerreek Quctbns ATPW.zEIfI
b.
19- Assume further that Tny, acting through an appropriate custodian, sold the shares to her grandfather Lolo
on August l, 20fB. uaqv i
**"llg,,^'
llEggrcha-se, as an accommodation, took two'thirds oF his retirement savings. lvtay Oagul
now perform the audiilof Pugad Company for the catendar year enoeo Decembe?Tl;2ffi9i-
A.
Y6. But only if Lolo Dom is not Dagul's father (i.e., Lob Dom is Dagult father-in-law).
B.
No. The appearance of indePgllglgglg_llpqlreO. Moreover, th€f grandfather's investment
(66.67perdent)ln reEEolt6 nE-net nnanciat resouices.
C. Yes, Dagul may nolv accept the engagement since there is no impairment of inclepenrlence. Lolo Dom is
considered a non-dependent cbse relative.
D. No. The independence in mental attitude is impaire{. Moreover, the grandfather's investment is
rTl8terial {66.67 percent} in relation to his nnt finat:{ial resources.
,l __ qtt t
d.lrqh
r wa
-vv 4*P
-[ Dtc bl ?Nq
L.20' on Auggst 20,.2009, Mar Bonafe, CPA and,partner,.was offered and accepted the eng{gement to audit the
annual financial statemenE of ABC Corporation for the fiscal and caleridar years ended'December 31, Z}W.
Theauditbeganonxp@:@e@onMarcht7,20Lo.ABCCorporatbnisregulatedbythe
SEC. Scnafe served as November 5, 20{}2 untll January !2, 2009, at which
time fre teminated his ernployrnent'mh-Am. ,

Mar Eonafe owned a material amount of ABC Corporation's ordinary shares from November 5, 2002 until August
15, ZAW, at which time he sold the shares. fs Mar Bonafe in violation of the Cdde of Ethics due to impairrient
ofindependence? nrisr .ltt{ rtuitVt fhrtqt.
A. Yes, because Mar Bonafe owrred ABC shars at the start of the audit for December 31, 200g.
B. Yes, because Mar Bonafe served as a controller for ABC C$rporation in prevaous years.
C. Yes, because Mar Bonafe had an employment relationship with the clidnt durihg part 0f the period
covered by the financial statemens.-p irn&tthltflct f mpciif(rl
D. Yes, because it is still less than a year since Mar Bonafe has owned shares in ABC Coiporation.
21,
{re-provispn of servhes by a firm or network firm to an audit client that involve the desiln and implpmentatbn
of financial infornation technology systems that are used to generate information furming part.of a client,s
financial statemenB may moct lilrely create
A. Self.interest thrcar: C. Intimidation threat.
B. Self-review threafi/ i threat.
zz. The lending of staff oy M,or
," f + .f,p,ir rFamitiarity
b. network firCI, to an audir client may'l?el;;tg _---
threat when the
individual is in a positblr to influence the preparation of a clienfsaccounb or financial statiments.
A. Self-interest threat.{' C. Intimidatiorr threat.
B. Self-review threat ,0 D. Famitriarity threat.
b. 23, These Servaces may include such activities as acting as an expert witness, cakulating estimated damages or
other amounts that might become receivable payable or as the result of litigation or-other legal disputi, and
assistance with document managernent and ietrievai in relation to a dispute oi lit6ation.
A. Paralegalserykes C.
Client representa$on services.
D.
corporate finance and similar activities.
24. Legal seryices are defined as
T' The ,if.ing of issumptlons with regard to future developments, the application of certain methodologies
and techniques, and the combination of both in order to compute a c-ertain value, or range of valuesfbr
alt asset, a liability or for a business as a whole, Valva{ion of
'strvlal
B. A broad range of se.rviges, including compliance, planning, provisbn of formal taxatircn opinions and
assistance in tfie resolutbn of trx disputes. yr\X J {yvia.J
C. May include such activitie as acting as an expert witnesE cakulating estimatd damages or other
amounts that might bemme receivable or payable as the result of litigation or other leqal disDute, and I
assistance with document rnanagement and retrkval in rehtion to a dis[ute or litigation. t i+ig+ o
ft' irppV{ rfvr'r{
D' Any services for whieh the person providing the servhes must either be admittd to praaicl nefore tn|l
'Cpurts of the jurisdiction
s

in which such servics are to be provided or have the required legal training to
practke hw. Law ti. rtotq a 1
$
T2 zs. The recruitment of senior managernent for an assurance client, such as ffiose in a p$sition to affect the
subject
of the assurance engagernent may least likety-create
A Qelf-intrrreqt-Jh-re^nt r' th4u) JJ lff
fnfll\' Jr
tt/t4ut c0 fnfvt' ltttr'l ch
Ch . .
Intimidatio* threat.r
cy rh:t*:_ Familiarity threat. r
,'1
L 26. CPA

A BC D
-0 fhe qlnition ts in fafi puretLlErnorary . *r*:; Yes Yes Yes Yes
{a Listings of directors show she is an honorary dirmtor. No Yes Yes No
Yes Nc: Yes No
oes not vote or pa Yes Yes Yes
{
27. Rita, CPA is in charge o ng mennbers of the audit finn's
professional staff are working with Rita on this engagement, all of wEiEh-aie av-rgl-divers,_ Mabuhay
Resort srvns
Iwo
c?tom,I!um: in Boracay, whkh it uss primarity b enterrain ctients. @6@tler
of mabuhay Resort
has told me t time that ih"y ar"
not already in use. How.snouH
'
4 i+f r t hur p;htii1 " .riXni [i cqn; vatu t
 A. Rita shouH withdraw fiom the engagement due b a significaht threat to indeperdence.
B. Rita alon€ may accept the offer, but her staff may not use the condominiums.
C. Rita should decline the offer, both for hersefi-and her staff,
D. Rita may accept the offer, Uut onlffiEi6ftf
herTH'ffi3fie cannot use the condominiums because as
partner, Rlta willsign the report.
28. This refers to learning which uses course manuals or accredited learning modules.
A.Masteral degree C. In-service
training z<.--..
B. continuing professionateducation D__€F.!rese{la!1ng_pcrag{.\,,' ;
t
n 29. Generatty, advertising and pubticity in arry *uo,u*6(ffiffi*r,o; (*J* *ffiI-
A. It has as its o$ectlve the notification to tlie..FUDlkrcf=uch sectors of the public as are concerned, of
matters of fact (e,9., name, address, contact numbers, services offered) in a manner that is false,
misleading or decepljye

3: IlU,:Sff5rY,*r,,,", of, and any-,rqndue prominence beins siven to the name of the firm or
professional accounta'nt in public pra Ctice@
D, It is not professionally diqnifiW)
30. Which of the following is allowed undby'the revised rules on advertising?
U
A. Publishing services in Ullboard (e.g., tarpaulin, streamers, etc.) advertisements
B. Using words or phrases which are hard to define and even more difficult to substantiate objectively
C, Giving too much emphasls on competitive differences
D. None of these are albwed forms of advertising.
'il ., 31. Asser Tamayo,
v CPA, has listed his practice in a directory"
Cirectory" Which of the folbwing cannot be included in the
listing?
A, Complete narne
--r.-
Le{nvrtbto{ aY[tohqblt"rir-L
i

B. Address and contact number

' C. Professional description and services offered
.D. .Allof these may be included in the directory listing.
32. Antonio, CFA and partner of Dayag and Lee auditing firm, is being interviewd by Chris Bpenilla, CpA in his
noontime business show, "Chris per Minute". During the coume of the interuiew, which of the fullowing
responses by Antonio would be a violaficn of the revised rules on Advertising?
A. t'Derivatives require higher accounting knowledge, but they are relatively easy with study and practice.,,
B' 'PFRS No. 3 covers business combinations. It has been the recent subject of the HSB Improvemenb
Project."
C. "aiiEl',i I would be more than willing to entertain accounting from the audience.,,
D' "Dayag and Lee o'ffers audit and other assurance serviffi, Questions
andil$o management consulting services,
of accounting.
including creation and installation s)6tems. Our ilienS include top universities and
manufacturing mmpanies in the Luzon area.,,

C 33. An individual (whether internal or orternal to the fifin) who has a reasonable-understanding of (a) audit
processes, (b) PSAS and applicable legal and regulatory requirements, (c) the busines enyironment
ln whkh
the entity operates, and (d) auditing and financial reporting issues relwanf to the eftrty,s indultry.
Suitably qualifbd person a. Experienced auditor(t/)
tB. Engagement quality control reypwgq D. Expert or speciatist
,D
i
34. This is the date selectqd ny tnfiractitiongr_tlo date the regort.
A. Dualdate
B. Date or sisnins 3. f$rTrt:f#H work
35. A network is:

\y-
fi\AEThat
192- . I coooeration
hat is aimed at coooeration ym
ym rrra
rrr
I u
Yes No

(Z
\-/I
common ownership, controtor management, common
quality control policies and pncceduresr common business
strategy, the use of a common brand name, or a

r\
significant part of professional resources yes yes
\) - 20 The firm shall establish policies and pnccedures des(]ned to provlde it with reasonable a$urance that
engagemenB are performed in accordance with prof sbnal standards and regulatory ancl legal requirements,
" and that the firm or the engagement partner issue reports that are appropriite in tne circumstances. Such
policies and prmedures shall include:
A. MatteE relevant to promoting consistenry in the quality of engagement performance
B. Supervision responsibilitkx
c. Reviewresponiiuiritio
,, D. All of the choicesi
th
l/ 37, ln reviewing the audit work perfonned, the engogement partner:
A. Must review allaulit documentathn. _-
B. Nred-,;;Ld.A;@;il liiiiftI"*,@
ReSA B 735-9807 I734-39S9 / (0910) 439-1320 i'':, , ji,.i,,rri::i,r,ri:ri,,j Page 4
'Jt
 mE*Itrg llreory: Prsnt€er arrffifts tl r ruu-.ig,
C. Need riot review all audit documentation ,
D. Must ask the staff performing the audlt wcrk to sign the audit report.
3S. The inconruing audiior is also knonrn as the auditor:
A" Successor B. Frincipat f. Cther D. proposed
39. One gf ff." maior palG of audit planning E pre-planning. which of the foflwtring b NoT involved during the
v" pre-planning phase?
A. Deciding whether tio accept or continue this client. ,_ , ,_ ... r
B. obtaining information about ctienfs hgalobligations.{alr,rqd,1 ruul tlhltvr {<r*i n1
C. Selecting staff for the engagement.
D. Obtaining ar engagement letter.
40. Which of the following matters is least likely to be discussed in an engagement tetter?
A. the fact that the financial statements are the respnsibility of management.
B. the fact that an auditor does not plan to detect material inegularities.
C. assistance to be provided by client personnel.
D. timing of the peformance of the examination.
b 41. Tq obtain understal{ing of a-mntinuing clientb business i^n plq.nning an audit, an auditor most likety would
A.
A- -an
tests of detaik
Perform tesE details rf
dtransactions and turhnrff
trancartionc balances. .tubJkfl{irrr
.f vblfqnfiut Jr .[ut Liran
fiyrq
B.
B. prklr-yffir workino
Reuierr'orirx-vear
Revhw nirrerc.and,Hre
wsrking papem rtarrtraaant. fib.Fr tho rllonr
and,the derrnanent fih ficr the client. )
D. Reevaluate client's imternal contnol enviiron,menr, 4f hr p tqyrninS

A " *r. Ordinaiily, predecessor auditor permits the successor

relating to
to review the predecessor{s working paper analyses

Balance she€fr Balance sheet

Contingencies accounE Continsencls accorrilts
A. Yes Yes C, No yes
B. Yes No D. No No
fl
43; A CPA mry reduce the audit work on a first time audit by reviewing the working papers of the predecessor
auditor' The pledecessor should permit the successor to review working pape6 retating to matters of
continuing signiftcance such as thse that relate to
A. extenfof rclhnce on the work of specialists. C. analysis of[*tino"*lul
B' fee anangements and summaries of payments. D. stan nourfEfiffi-m m?hpbte the engagement.
t, 44. The following statemeots relate to audit programs. whkh statement is true?
The FRSC publbhes a standard auditBrogram and encourages the adoption for general use. acco,rn{iyr4
1.
The prc-paration of an audit program is lot influenced^by the state d the clientCinternal control systanl
s*qrr t, Ard\
9. An audit prcgram would not contain ooc@m it/l {turfl ,rd
!.
D. The audit phn ald related program Deing-cldoad.

t 4s' This means the amount or amounts set by rre auo#?i ,JI'J[f lrrt!,itii[{1o, g,* FS as a whore to reduce to
an,appropriately low level the probability that the aggrcgate of uncorrected and undetected misstaternents
exceeds rnateriality for the FS as a !\,hole,
A: Albwance for sampling risk C. Standard deviatbn
B. Planning materiality D. Performance materiality
t1
L/ ' 46- Which of the following statements best describes why an auditor makes a preliminary estimate
of materiality?
A.
an estimate is requird by generally accepted auditing standards
B.
the estimate provides a basis for e\raluating likely misstatements
c.
the $timate help6 the auditor plan the appropriate evidence to accumutate
D.
estimaung materiality early helps the auditor arroid legal lhbility

t 41 , Which of the folbwing dlscoveries by the auditoryld_lg,T_lralle

A. -l4anagement bonuses are based on a percentage oFfietlffi-me.
!!g red ftag of incredsedjggreg[rpt?*
B. -A bond indenture requires a current ratio of at ieastfnreelo one. 1, 2 - l . s'. notrrnq\ corrth{ pr{io
t -i
c. client mal€s odensive use of notes receivaole anMms payable rather than buying and selling on
open-account basis. -r Low iUthirth+ ris1c.
D. Client is a parent csnpany with a subsidiary.
rl
\-, 48. While performing ah audit, Conrad, CPA, decides to restrict the risk of materia! misstatement to 3olo. What
must the acceptable level of detection risk be if inherent rbk b 25olo and control rbk is 40o/o?
A. 0.3Yo C. 3S.00/o
B. LZ.Wa D. 33.3o/o b'/o sJb'loxt0'/. x ba',/o
A' 49- The systems approach to an audit is least likely to be appropriate fcrr:
A.
Clients with weak internal control. C.
Clients in specialized industries.
B.
Clients that are large in size. D.
Clients that are publiely listd.
n 50. One of the auditor's major concerns is to ascertaan whether the internal control structure is designed to provide
l,/
reasonable assurance that
- *t..

4.
B.
Profit margins are maximized, and operationaleffhienry b optimized.
The chief accounting officer revievls all accounting transaciions,
 C. Corporate morale problems are addressed immdiately ancl effectively.
D. Transactions are executed in accordance with managemsrtt general or spmifk authorization.
51. Which of the folbwing would be lca$t likely to be considered an objective of the internal control structure?
A. Checking the accuracy and reliabilifir of accounting data, rp
*#-"*--'t..|l^

rv\4n a rtltnt q|/\i

vlf1t '
B. Detecting manasement fraud, l lutfiowa
C. Encouraging adherence to managerial policies.
D. Safeguarding'assets.

lh 52. Which of the following comes SL9SFST to outlining the auditor's responsibitity for internal control on all
'' financial statement audits? , P I l'1 E
' A. An understanding of the controi-environment and the accounting system is necessary; an undersbnding
of the control procedures is necessary for areas in which the audi[or is performing tes6 of controb.
B. The auditor must obtain an understanding of each of the frve internal control elements sufficient to plan
the audit. d

C. . When tests of controls have been performed, control rbk must be assessed at a level less than the
, maximum.
D. An undemtanding of the control environment is necessary. but not of the accounting system or control
procedures unless control risk is to be assessed at a level bss than the maximum,
I
rA
53. An objective of a walk-through is to:
I A. Verify that the structure has been phced in operation.')
B. Replace tests of controls.
C. Evaluate the maior strengths and weaknesss in the clienfs structure.
D. Identify weaknesses to be communicated to management in the management letter.
J
n
fl'
54. Which of the following is an advantage of describing internal control through the use of a standardized
questionnaire?
A. QuesUonnaires highlight weaknesses in the system.
B. Questionnaires are rnore flo<iHe than other methods of describing internal control.
C. Questionnaires usually identify situations in which internal control weaknesses are compensdted for by
other strengths in the system.
D. Questionnair€s prwide a clearer and more specific portrayal of a ctient's system than other methods of
describing internat .onptgrr,,at
!un
A s5. which of the follory.ing-slaFfients is not iorrect?
fl' A. It would b,{unusgil to use both a narrative and a flowchart to describe the same s}6tem.
B, The use o}fffn questionnaire and flowcharts on the same engagement B rrighty desirable for
understanding the client's s)6tem.
C' The advantage of the narrative description is the ease of describing the details of the internal control
structure.
D. When reliable and underctandable narratives, flowcharts, and questbnnaires are available from the
client, it is desirable to use them rather than have the auditor prepare his/her own documents.
fr
t 56, The overall attitude and awareness of an entity's board of directors concerning the importance of the internal
control structure usually is reflected in its:
A, ' Computer-based controls, C, Control envi,ronment.
B. System of segregatbn of duties. D. safeguards over access tro assets.
fn
t/ 57. Internal control is a function of management, and effective control is based upon the concept of charge and
V
discharge of responsibility or duty. Which of the following is one of the overriding principtes of internal cdntrolZ
A. Responsibility for accounting and financial duties should be assigned to one iesponsible offiicer.
B. Responsibility for the performance of each duty must be fixed.
C. Responsibility for the accounting duties must be borne by the audit committee of the company.
D. Responsibility
for accounting activities and duties must be assigned only to ernployees who are bonded.
I
J

J* 58. Which of the following is not a valid concept of internal control?

l\ A.When one person is responsible for all phases of a transaction, there should be a clear designation of that
person's responsibility.
B. The recorded accountability for assets should be compared with the existing assets at reasonable
intervals and appropriate action should be taken it there are differences.
9.
D.
Accounting controlprocedures may apprcpriately be applied on a test basis in some circumstances.
Procedures designed to detect errors and irregularities should be perftrrmed by persons other than those
in a position to perpetuate irregularities
t\
L) 59. control procedures do nd encompass:
A. Comparison of assets with recorded accountability.
B. Design and use of documents.
C. froper safeguards over access to assets.
D' An internal audit runcuon' * it ;ff;puvuvri I { cohtnt thvirurr ttn/t4"[
n
Ul 60. This term means'to analyze identified rislc to conclude on their significance,'l
A. Estimate. . B. Assess. C. Measure. D. Analyze.
D.ur. which of the following is not a valid sequence of steps in the audit process?
' forrrr anqtq it tut pt/b(t4ur(J
ResA a 735-e807 l73/*3sss/ (810) 439-1320 r.. ,1.X1 '{tl Ptkn' I.'."a:i^ 'i, Page 6
Ulrlirrl- l.
 '
SeSA: The Review School of Accountancy
Auditing Tlteory: Prsrueek Questions ATPW-28TH
A. performing certain analytical procedures, assessing inherent risk, assessing control risk
B. choosing audit risk, assessing control risk, determining detection risk
C. choosing audit risk, performing certain analytkal procedures, assessing inherent risk
D. determining detection ris( assessing inherent risk, performing certain analyUcal procedures
\ . 62.A deficiency in internal controlexists when:
1'\ A. A control is desQned, impbmented or operated in such a way that it is unable to prevent, or detect and
' correct, misstatements in the financial statements on a timely basis.
B. A control necgsary to prevent, or detect and correct, miss.tatements in the financial statements on a
timely nasis i{not inissing.
C. There is a Oefibiedcy or iombination of deficiencies in internal control that, in the auditort professional
judgment, is of sufficient importance to merit the aftention of those charged with governan.". .filni{i rc{ht ,
D. All of these choices describe a demciency in internal control. dt{i c; u () (ofrtr0l t

;/ .63. The auditor shall communicate signifkant deficiencies in internal control identified during the audit to those
charged with governance on a tamely basis. Such communication:
A. May be done orally or in writing.
B. Must be done orally.
C. Must be in writing.
D. Is not required by Philippine Standards in Auditing.
,'n t 64, In order to ensure unbiased informatbn, record-keeping is typically included in a separate department under the: ,

\., A. VPoperations B. Treasurer C. Controller D. Internalauditor

trV. 65. Transaction cycles begin and end:
A. At the beginning and end of the fiscal period.
r .- - -- I (+r {r Cat cS
B. At the balance sheet date. \r
C. At January I and December 31. J
D, At the origin and final disposition of the company.
66. The authority to accept incoming goods in receiving should be based on a(n):
D. A. Vendor's invoice. C. Bill of ladinE .
'

B. Materials requisition. D, Approved purchase order.

I*'
*1 67. Input documents are typically the responsibility of the:
A. User department that transmits the documents to accounting before processing.
B. Accounting department which prepares and records them.
C. Production and quality control department to see that they are prepared properly.
D. Computer department since they will have to be responsible for inputting them.
t, 68' *Control activitk#'incldde procedures that peftain b physical controls over access to and
records. A departure from the purpose such procedures
of. that: is
use of assets and
,, b aw al c4 s{t rt roorirl
A. av*hq y;-tt^l r;l{l q, *vqr\ i a c ll
o{1
Access to the safe-deposit box Eggires$ffo-Afficers.
B. Only storeroom personnelanffiIrup"rvisoBrrfleaccess to the raw materials storeroom,Thtrf t i -r vlo\a{i5y1
C.' The mail clerk cornpiles a list ot flfficeived in the incoming mail.
D. Only salespercons and sales supervisors use sales department vehicles.

0O Ur.Effective internal control requires organizatbnal independence of departments. Organizational independence

"/ would be impaired in which of the following situations?
A. The internal auditors report to the audit committee of the board of directors.
B. The controlter reporb to the vice pr*to#'iorffiiltloi.:fr,i+f's""I)""'i'oarl o{ dirrcftru doYa\
C. The paynoll accounting depaftment reporlp to the chief accountant.
D. The cashier reports b the treasurer.
,l' 70. Which of the following statements is true?
\_l
A. Accounting for the sequence of pre-numbered documents is a control procedure'intended to achieve
specific control objectives related to validity.
B. Incompatible functions are thoee that place any person in a position to perpetuate errors or irregularities.
C. If comparison reveals that the assets do not agree with the recorded accountability, it providid evidence
of unrecorded or improperly recorded transactions.
D. A chart of accounts is generally prepared in detail to enable the controller to pinpoint budget variance
and trace it to a specific department or area of responsibility.
n
U 71. The frequenqy of the comparison of recorded accountability with assets (for the purpose of safeguarding - i
assets)should bedetermined by: hithr. litlidi{', r\tr( f rro1u1y1.f covllf
A. The amount of assets without reference l^lL^ -..l^r!L^
to the cct of the comparison. ' : , .r- . , ,
B. Thenatureil;;ioiit"u-u*tandthecostof makingthecomparison.+ cor{ brnt{rt
I

C. The cost of the mmparison and whether the susceptibility to loss resutb from unintentional errorc or
intentiona I irreg u la rities a nd/or defa lcations.
D. The auditor in consultation with client management.
(Numbers 72 and 73) Geline Hardware Wholesalers sells hardware and small appliances to selected retailers
throughout the Philippines. Terms are 2lt0, n/30. In addition to customer accounts, Gelinet accounts receivable
includes employee receivables, customer credit balances, and other non-trade receivables, such as returnable
contaifler deposits, utility deposits, and amounts receivable from sale of asseb other than invpntorv
 &dilfiig Tllsry; Prneryrek Arcstiqfrs RIrtU-z;l' -
These other amounti are considered material, but no effort is made to identify them separately for either interim or
annual financial statEment purpos€s.

f\-r 72, weakness

ldentify any internal control weakness present in Geline Hardware Wholesalers. Is the internal control
relevant to the audit?
A. Yes, because lt affects the completeness and cut-off assertions related to the revenue-reeivables-cash
rereipts cycle.
B. No, since the weakness in internal control affects only the classification of accounts in the trial balance
and the financial statements.
C. Yes, because it afFects the presentatbn and disclosure assertions related to the revenue,receivables-
cash receipts cycle.
D. Cannot be answered without additional information.
l)Y'. ,r. which- of the followino substantive auctit procetlures would most likely address the internal control weakness
denUfiedinnumber( ;- ?
A; Reviewing transactions at and near year-end to ascertain the propriety of cut-off procedures by the
client.
B. Tracing entri6 in the sales journal to the related invoices and shipping documents.
C. Sdecting sample sales invoices and Shipping documenb and checklng them against entries an the sales
journal and the accounts receivabb account.
I
D. -Cnecfing the propriety of classification of items in accounls receivable and proposing reclassification
entrids as necessary.
(u 74. The use of Eclelity bonds protects a company from embezzlement tmses and abo:
A. Allows the company to substitute the fldelity bonds for various Frrts of internal control.
B. ' Reduces the companyt need to.obtain e<pensive business interruption insurance.
C. Minimizes the possibility of employing persons with rtubious records in positions of trust.
D. Protects employees who made unintentional errors from possible monetary damages resulting from such
erroE,
t
ht, 75. Which one of these is not a type of evidence that would be used for both obtaining an understand'ing of the
V control structure and testing the controh?
n
A. Inquiries. B. Inspection. C. Observatinn. D. Reperturmance.

v 76. An error in which an item is posted to the wrong personal account, or the incorrect c.alculation of an amount
constituting an original entry is a(n):
A. Error of omission C. Error of principle
B. Error of commissbn ' D, Counterbalancirrg e!,rer
n
77. In the consideration of internal control, the effectiveness of the design of controls is tested by:
V A. Flowchartg. C. Substantive tests.
B. Tests of controls. D. Decision tabhs.
,
i 78. Tests of controls, for efficiency, are frequenUy clone at the same time as:
L A. Analytical procedurs, t^SubEtantive tests of transactions.
B. Compliance tests. b.SuLstantive tests of bafances.
79. The test for reorded sale for whlch there were no actual shipments, the auditor traces from the
A. Bill of lading to the sale6 journal
B. Sales journit to the Oiil of nOing
c, sales iournal to the accounts receivahle subsidiary ledger
D. Bill of lading to the supporting customer order and sales order I

80. To test the possibility of a shipment to a fictitious customer, the auditor traces from the -? hirtkt
f hipfitfltI 1
A A. Billof lading tothecreditauthorization ftiovrfu4 J,l{rs -? Chipotd ? I
'o .fq trs
qLt '
J\ B. Credit authorization to the bill of lading II b ill { --E!
c. Acmunrs receivabte tedger to the bir of hding ratct i our -t ,,1tit1l 7
d.*u lh'n{( \ qdinl i nvo ie {,

"o1 (0 b;\t o( ta6l,ln! 0r

. D. Sales journal to the accoung receivable hdger . ,|ourrql
81' An effective procedure to test for unbifled shipments is to trace from the o I t\ivtr t '{o{lP +
W A. Sales journal to the shipping documents
B. Shipping dmuments to the sales journal fhiPr[rnfI --? {icfi+i ovs Cutht'}rt
C. Sateilo-urnalto the accounrs receivabte ledger bit\ o{ \<divrq -p ertdil au{[,tovizqfi6t;1
D. Sales journal to the general ledger slaes accoun, ,*qr
staes account ,n*l,,rtrrtg
,rh(? iril
Ir q
?
o(tcu t
A, BZ. A CPA auditing an electric utility wishes to determine whetiler* all customers are heing billed. The CPA's best
:her Hl
rcfinn or
dirmtion te$ is
of test frorn the
E trom me rtord
r(LorOt
A.Meter department record to the billing (sales) register fi44 r
rudinl b ilting s ttlrvmt
-r /
r 11 irfif
B.Billing (sales) r€gister to the meter department records
C.Accounts receivable bdger to the billing (sales) register
D.Billing (sales) register to the accounts receivable ledger
An auditor concludes during the planning and internal control phase that the client is not auditable because of
deficient accounting records. under such cireumstances, the auditor must NoT: *=*-
A. Withdraw from ihe engagement without issuing a report.
 c. Issuean.adverseopinion. -e
t{r)u rahn0{ audit t\a '

D. Send the client a bill tur selices rendered.

fl. ti
84. In the revenue and colbction cycle, of the order of activities listed, which is in the best order of a typical
\,; sequence of activities?
A: Delivering goods, billing customers, credit granting, collection activity.
B. Customer ordering, del"ivering goods, billin! customer, cash receipts.
C. Customer ordering, delivering goods, credit granting, collection activity.
D. Credit granting, billing customers, delivering goods, cash receipts

Bs. The customer's requet fur merchandise, the customer Order, w0uld be in the form of:
U, A. An oral request. C.
A written request on pre-printed form.
B. A written request on customer's letterhead Any of these formats. D.
f!
'o 86. Athe:document for recording the description, quantity, and related information for goods ordered by a customer is

A. Customer order S. Satm order C. Shipping document D. Remittance advice

87. Sales order forms and invoice blanls should be controlled in the:
it'{ A. Sales order section of the sales deprtment. C. Credit rnanager in the credit department.
D.
,l

B. Billing clerk in the accounting department, Salm manager in the sales department.

r BB, Before goods are shipPed on account, a properly authorized person must:
C.
t
\\--) A. piepare ttre dps invoice. Approve credit.
.8. Approve the journal entry, D.
Verifu that the unit price is accurate.

,( 89, which one of the folbwing b nd an auditor's concern about a key authorization point in the revenue/receipts
t+
I\ cycle?
A. The receiving room must have authoriaation before releasing items to inventory control.
'f cu4t{trl '11
B" Credit must be authorized before the Sale.
tlfi{.in3
\
C. Goods must be shipped after the authorization.
D. Prices must be authorized.

\n
t'-)
w-
90. For rnost firms, the function of indicating credit approval k recorded on the
C. Sales invoice D. Rernittance advice
A, Customer order B. Sales order
n
lk 91. A document prepar# to initiate shipment of the good$ som is thel
\-,/'
A, Sales order B. Bill of lading C. Sales invoice D. Customer order

92. The document used to indicate to the customer the amount of a sale and due date of the payment is the:
\) A. Sales order B. Eill of lading C. Shipping document D" Sales invoice

v 93. Most companis recognize sales when althe: '

A. Merchandise is received by the C1istomer. C. Customer order i5 received.

B. Merchandise is shipped._ D. Cash ls received on account,

l)-, 94. Whqn pogtingro the sales journal, delails of a are journal posted to X and journal totals are po6ted to Y. What
t'/ i{x? wrrate[D-. !fitt'{ {tdXv/ conlrol o((otr>f
,/{ -x Y x Y
ruUsi{A(A. sates accouil General ledger C. bccount
Sahs AR subsidiary ledger
kdy/, B. AR master file General ledger D. AR GL account Sales GL account
p,,ltrr{'$i. The report which typicaily includes inforfiation analyz.ecl by key components as sales P€&fl, product, and
territory i$ the:
{b A. Remittance advice. C. Accounts receivable master file.
B. Summary sales report. D. Monthly statement. .

t) 96. A,file for recording individual sales, cash receipts, and sales returns and allowances foreach customer is the:
A. Sales journal, C" General ledger.
B, Cash receipts journal. D. Accounts receivable subsidiary ledger,

O^ 97. A document sent to each custor,ner showing their beginning accounts receivable bahnce and the amount and
V date of each sale, cash payment received, credit memo issued, and the ending accounts receivable balance is

T: Accoun6 receivable suboidiary ledger. C. Remittance advice.

B. Monthly statement. D. Sales imrcice'

D
ti 98. Which one of the following would the auditor's concern with when examining the billing function of the client?
A. Allshipments made have been billed.
B. No shipment hm been billed more than once.
C. Each shipment has been billed fol the prcper amount.
D. All of the above are of concern to the auditor.
I
.L\ 99. To achieve gpod internal control, whkh department should perficrm the activities of matching shipping
I documents witrr sates orders and preparing daily saEs summaris?
A. Billing B. ShiPPing C. Credit D. Salm order

:*' /, p"1 wata',^ttl 'A{t+' .talt r 6r&f -p De ti ,,{r} R rr d -l ,Pattt tr'tv o if t

P+
Re$A A 735'98AT 1734-3989 / (0910) 439-1320 li:",,, ;.:,li,,iir Page 9
 ReSA: The RevEw Schml of Accountancy
Auditing Theory: Preweek Qumtions ATPW.28TH
,
j 100. Which of the following control procedures may prevent the failure to bill customers for some shipments?
I \ A. Each shipment should be supported by a pre-numbered sahs invoice that is accounted for.
B. Each sales order should be'approved by authorized perconnel.
C, Sales journal entries should be reconciled to daity sales summaries,
D. Each sales invoice should be supported by a shipping document.

Y2 m. The document which supports reductions in accounts receivable b the:

A. Remittance advice
B. Credit memo C. Sales invoice D. Monthly statement
,d. rOZ. The document which accompanies the customer's payment is the:
A. Remittance advice B. Credit merno C. Sales invoice D. Monthly statement
a customer faib to include a remittance advke with a payment, it is common practice for the person
(b
tr" 103. When
opening the mail to prepare one. Consequently, mail should be opened by which of the following four company
empbyees? itn&pttn4[h{ rA r{v{tn uL (Vct(
Sotlt r ot/t<.
A. Credit manager, B. Receptionist. C. Sales manager. D. AR clerk.

V
t2 104. Internal control over cash receipts rs weakqled when an employee who receives customer mail receipts abo:
A. Prepares initialcash receips r&offil
B. Records credits to individual accounts receivable.
C. Prepares bank deposit slips for all mail receipts.

, o. Maintains a petty cash fund. galnavl4vdu

l!I \ .
"gfor the auditor to detect
tOS. The most difficult type of cash defalcaticin is that which occurs:
A. Before the cash is recorffill-
B. After cash is recorded but before it goes to the bank.
C. Out of the balance kept in the cash register.
D. [n amounts _under P100.

i'\-' 106. Which of the following would be the best protection for a company that wishes to prevent the "hpping" of trade
accounts receivable?
A. Segregate duties so that the bookkeeper in charge of the general lectger has no access b. incoming mail.
B. Segregate duties so that no employee has access to both checks from customers and currency from daily
cash receipts
C. Have customers send payments directly to the company's depository bank.
D. Request that custorner's payment checks be made payable to the company and addressed to the treasurer.

\Ll nl. When accounts receivable is considered uncollectible, the person who generalry authorizes the write-off is the:
' A. Credit manager B. Treasurer C. Accountant D. Sales manager
iL 108. The two most impoftant considerations the auditor should keep in mind in the verification of the write-off of
individual uncollectible accounts are:
A Cut-off a(d completeness. C. Validity and authorization.
B. Cut-off aid authorization. D. Validity and completenes.
n
\7 tOS. In the purchasing/disbursements rycle, of the order of activities listed, which is in the best order of a typical
sequence of activities?
A. Ordering goods, receiving vendort invoice, sel€ting authorizd vendor, payment activity.
B. Ordering goods, receiving goods, rcceiving vendo/s invoie, cash payments.
C. Ordering goods, receMing vendor's invoice, receiving goods, payment activity.

n I D. Selecting authorized vendor, receiving vendor's inroice, reeiving goods, payment activity.

Q ttO. A request by an authorized empbyee for goods or services is made on the:

A, Purchase order. C.
Debit memo.
B. Purchase requisition. D. Acquisition transaction file.
L 111. Proper authorization for acquisitions ensures that the client will not:
A. Be overbilled by the vendor.
B. Run out of stock before the next shipment arrives"
C. Purchase excessive or unnecessary items.
D. All three of the above.
n
V ll2. The purchase order, usually in writing, is a legal document that is:
A. A binding agreement between client and vendor.
B. nn offer to nuy.
C. Not enforceable if it is not in writing.
D. An acceptance of a vendor's catalog offer to sell.
f1
V 113. The receipt of goods and services in the normal course of businpss represents the date clients normalty
r recognrze:
A, Income. B. The liability. C, Warranty assets. D. sxpenses.
,r(
It
r
LL4. The personnel in the Receiving Department should:
..r: A. Be supervisd by the head of the storeroom, since it is the storeroom personnel who are responsible for the
physical control of goods.
R evevt, <',nerylsed b,y the Accounting Departrnent, since
Rp it !s the accounting pe$onne! who are responsible ficr
fho lrrrr:nr nf fha rarnrrlc :l"nrrf fho nmdc
' Auditing Theory: Preureek Questftrns AtPUIU-ZA'rr
C. Be independent of both the storeroom and accounting functions
D. Be supervised by the Shipping Department since the receiving docks and the shipping docks are in close
ProximitY.
*.
L'

115. An auditor usually eD@mines receiving reports b support entries in the

A. Voucher register and sales returns journal. C. Voucher register and sals journal.
B, Sales journal and sales returns journal. D. Check register and sales journal.
( , lrtO. The document which specifies the amount of money owed to the vendor for an acquisition is the:
A. Receiving report. B. Purchase cirder.C. Vendor's invoice.
D. AP trial balance.
.{
fi'
117. A file for recording individual acquisitions, cash dbbursements and acquisition returns and allowances for each
vendor is the:
A. Accounts payable master file" C. Acquisitions transaction$ file,
B. Cash disbursements transactions file" D- $umrnary acquisitions report.
( 118. The client's accounts payable master file should be the same as the vendofs statement, ,e)Gept for the
v following:
A. Disputed amounts B. Timing differences C. Both a and b D., None of the answers
lt
1l
\/ ttg. An important control in the accounts payable and IT departments is to require that those personnel who record
acquisitions do not have access to the:
A. Lists of vendor's narTles and addresses" C. Vendort price lis$.
B. Cash, trading securities, and other assets. D.
The accounts payable master file.

h\i 120. The accounts payable department usualty has responsibility for verifying the propriety of acquisitions by
' comparing the details on the: Ov,llr -? Frctivi n1 [r pf{ -i Vtr,dorr irr wiC[
A. Vendo/s invoice and the purchase requisition. ?urchnrr I

B. Vendor's invoice and the receiving report.

C. Purchase requisition, purchase order and receiving report.
D, Purchase order, receiving report, and vendort invoice.

\h 121. In assessing control risk for purchases, an auditor vouches a sample of entries in the voucher register to the
"/ supporting documents. Which assertion would this t€st tr controls mo6t likely pertain to?
dttuh{ntt ffi'loI}[s
t
i: r*:rxmJi,,:Hi 3 xilil*':lfflllffi,xli:
I ] D2. Adocument indicating a reduction in tbe amount owed to a vendor because of returned goods is known as:
'] A. Vendor-issued credit memo.- C. Receiving room report.
B. Purchase adjustment slip. D. Shipping roorn report.
L
|" . f ZS. For good internal controt, the person who should sign checks is the:
A. Person preparing the che€ks. C. Accounts payable clerk.
B. Purchasing aEent" D. Treasurer.
I
[ . tZ+. The
'\
mailing of dbbursement checks and remittance advices should be controlled by the employee
.A. Who signed the checks last.
B. Who approved the Vouchers for payment.
C. Who matched the receiving r*porB, purchase orders, and yendo/s invoices.
D. Who verified the mathematical aocuracy of the vouchers and remittance advices.

i) 125. When processing and recording cash disbursements, it is important to have a method of canceling the
" supporting documenB to prevent their reuse as support for another check at a later tirne. A common method is r

to:
A.Shred the documents so they cant be reused. ,

B.Transfer possessbn of the documents to a bank vault such as a safety depmit box.
C.Move the documents to a permanent off-site facility such as a warehouse.
D.Write the check number on the supporting documents.

i'\-' 126" Bellt accounts payable clerk has a brother who is one of Bell,s vendors. The brother will often inrcice Bell
twke for the.same delivery. The accoun8 payable clerk'removes the receiving reiprt for the first invoice from
the paid-wuchers file and uses it for support of payment for the duplicate invoice. The most effective
procedure for preventing this activity is to;
A. Use pre-numbered receiving reports,
B. Mail signed checks without allowing them to be returned to the accounB payable clerk.
C, Cancelrouchers and supporting documents when payment is made.
D. Use dual signatures.

L27. ln the personnel and payroll rycle, of the order of activities listed, which is the best order of a typical sequence
of activities?
A. Attendance and work, payrollaccounting, cash dbbursemen! payrolldistribution
B. Personnelhiring, labor relations, attendance and rarorlq payrollaccountingl pagrtl\ df ltvi boflot4
C. Personnel hiring, attendance and wort<, payroll distribution, payroll accounting,
.+, D. Labor relations, personnel hiring, payrolldistribution, payroll accounting.
 Auditing Theory: Prarueek Questions
I
*i I 128. The total of the individual employee earnings in the payroll master file equals the:
A. Total balance of gross payroll in the general ldger accounts.
B. Total of the checks drawn to employees for payroll.
C. Total gross payroll plus the total contributed by the employer for payroll taxes.
D. Total gross pay for the current weekt payroll.
t1
\," 129. The most common oontrol defkiency in the personnel and payroll cycle is the:
A. Attitude of management towards control.
B. Inadequate segregation of duties.
C. Unlimited access to the payrollsystem.
D. Little comparison of personneland payroll records.

L 130. Which of the folbwing best describes proper internal control over payroll?
A. The preparation of the payrcll must be under the control of the personnel department.
B. The confidentiality of employee payroll data should be carefully protected to prevent fraud.
C. The duties of hiring, payroll computation, and payment to employees should be segregated.
D. The payment of cash to employees should be replaced with payment by chtrks.
V 131. For appropriate segregation of duties, journalizing and pmting sfmmgry payroll transactions should be assigned
'- to:
A. The treasurer's departnlent. C.Payrollaccounting. i4 d''*1i1' d
B. Generalaccounting. i{ Jdfifi'or} O. The Umekeeping department.

,\' . f:2. distribution

For internal control purposes, which of the following individuals should preferably be responsible for the
of payroll checks?
A. The company paymaster. C. A bank representative.
B. A member of the accounting department. D. The internal auditor.
in
L-/
133. To minimize the opportunities for fraud, unclaimed cash payroll should be
A. Depositd in a safe deposit box. C. Deposited in a special bank account.
B. Held W the payrollcustodian. D. Held by the controller.
t
IAI
134. Which of the following departments most likely would approve changes in pay rates deductions from employee
sahries?
A. Personnel B. Treasury C. Controller D. Payroll
(u 135. Which of the following controls would be the moet appropriate means to ensure that terminated employees
have been removed from the payroll?
A. Mailing checks to empbyees'residences.
B. fstablishing direct deposit procedures with the employees'banks.
C. Reconciling payroll and time-keeping records
D. Establishing computerized limit checks on payroll rate.
I
*+
;\
136. The auditort test of the adequacy of physical controls over raw materials, work-in-procss, and finished gmds
must be restricted to:
A. Observation and inquiry. C, Documentation and confirmation.
B.. Documentation and.observatbn. D. Documentation and inquiry.
jI 137. The objectives of the internal structure for a production cycle are to provide assurance that transactions are
r i properly executed and recorded, and that
A. Custody of work in process and of finished goods is properly maintained.
B. Production orders or€ pr€:flurnbered and signed by a supervisor. I

C. Independent internal verification of activity reports is established

D. Transfers to finished goods are documented by a rcmpleted production report and a quality control report.
t'. 138. Which of the folbwing procedures is most likely to ensure that empbyee job time tickets are accurate?
[' A. Make sure tfrat tfre number of hours per week on each ehpnyeet job time ticket is not more than 40
hours.
B. Keep employment informatbn in the human resources department.
C. Approve the payroll vouchei in the accounts payable department.
D. Check the employee ti,me cards against the job time tickets.

L 139. A major difficulty in the verification of inventory cost records is determining the reasonableness of
q dt
A. The direci la'bor hourly rate. nar toa|r q C. The cost alloca$ons. - iey iu,\ t{hu14
B. The raw materials cost per unit. h4{4 vlhy'or'r i flucic( D. alt of ine inswers.
,\
l-l
140. Which of the followinE control prcedures could best prevent direct labor from being charged to manufacturing
overhead?
A. Comparison of daily journal entries with fuctory hbor surnmary.
B. Examinatb-n of routing tickeb from finished goods on delivery.
C. Reconciliation of work in process inventory with cost records.
D. Re-computatbn of direct labor based on inspection of time cards.
ry? -a- ''-'

ReSA: The Rsriew fthool of Accountancy

Auditing Theory: Preweek Questions ATPW.28TH
141' An auditor's"tests of a client's cost accounting sptem are designed primarily to determine that:
\l A. Quantities on h.and have been mmputed based on acceptable methods that reasonably approximate actual
quantities on hand.
B. Physical ihventoraes substantially agree with book inventories.
C. The system complies with generally accepted accounting principles and functions as planned.
D. Costs have been assigned properly to finished goodq work in process, and cmt of goods sold.

'r'', L42, Perpetual inventory master files provide a record:

ii
li
A. OF items on hand.
B. Of the use of raw materials and the sale of finbhed goods.
C. That can be uSed to pinpoint responsibility for custody.
D. For all three of the above.
l, 143. When perpetual inventory records are maintained in quantities and in pesos, and internal control proceduie
over inventory are defbienfi the auditor would probably:
A. Want the,client to schedufe the physical inventory count at the end of the year.
B. Insist that the client perform physicalcounb of inventory items seneral times during the year.
C. Increase the extent of tests for unrecorded liabilities at the end of the year.
D. Have to disclaim an opinion on the income statement that year.
t44. A useful starting point for be.coming familiar with the clientt inventory is for the auditor to:
! A. Read the PICPAT Industry Audlt Guide.
B. Review accounting theory covering special problems such as oil and gas accounting, or accounting for
lease-purchase agreements.
C. Read the client's accounting manual.
D. Tour the clientb facilities.
fi
i{ 145. The emphasis in auditing manufacturing equipment is on the verification of:
\ ,,, A. The balance carried forward in the account from the previous period (beginning balance).
B. The current period's acqulsitions and retirements.
C. The balance in the account after the current yea/s activitires are recorded (ending balance.
t\
D. All three of the above
I ) 146. An effective internal contrpl procedures covering fixed asset aOJitions should ,uqrir",
i
\,
A. Classification as invesmenB of those fixed asset additions that are not used in the business.
B. Capitalization of the cmt of fixed asset addition in excess of a specific pqso amount.
C. Performance of recurring fixed asset maintenance work solely ny company maintenance staff.
D. Authorization and approvalof major fixd asset additions.
+., L47. Which of the folbwing is an internal control weakness related to the acquisitbn of equipment?
iI
v A. Advance executive approrals are required for equipment acquisitinns,
B. Variances between autfiorized equipment expenditure and actual co6ts are to be immediately reported to ,
management.
' C. Depreciation policies are reviewed only once a year.
D. Acquisitions are to be made through and appro\€d ry the department in need of the equipment.
148, To strengthen control procedures over the custody of heavy mobile equipment, the client would most likely
$ institute a policy requiring a periodic
A. Increase in insurance ooverage.
/'tfur(aror(
B, I
Verification of liens, pledges, and collateralizations. g(unlttff n t
C. Accounting for work orders.{
D. Inspection of equiprnent and reconciliation with accounting records.

t\V r4e. A company holtls bearer bonds as a short-term investment (i.e. trading security;. Responsibility for custody of
these bonds and submission of coupons for periodic interest collections probably should be delegated b the:'
A. Chiefacco{ntant. B. Internalauditor,, C. Cashier. D. Treas*urer.au{honzl .h coilat
caSh {Vorn 4tt {ourilf,
lso. A company hm additional funds to invest. The Board of Directors decided to
fu purchase investment securities
and assigned the future purchase and sale decisions to a responsible financiaf executive. The best person(s) to
make perkrdic reviews of the investment activity should be
A. BOD inve$tment committee. C, The corporate controller.
B. The chief operating officer. D. The treasurer.
h\,.' 151. Notes payable which have been repaid in fuil shoutd be:
A. Destroyed so that they will not be paid again inadvenenuy.
B. Canceled and destroyed.
C. Canceled and returned to the creditor.
D. Canceled and retained by an authorized company official.
{
!l
r \.
;/.
rt I
152. Which of the following questions would an auditor most likely include on an internal control questionnaire for
ii
I
notes payable?
A. Are direct borrowings on notes payable authorized by the board of directors?
B. Are two or more authorized signatures required on checks that repay notes payable?
C. Are the proceeds from notes payable used for the purchase of noncurrent assets?
D. Are assets that collateralize note gayable critically needed for the
 ReSA: The Rrylew School of Accountancy
Auditing Theory: Preweek Quetions ATPW.28TH
h V'
153. Which of the following types
directors of a company?
of owners' equity tranffietions would require authsrization by the board of
A" Issuance oFshare capital ,/ C. Declaration of dividends.,/
B. Repurchase of share capital. / D. AII of the above,

\ l,/
l//
154. When no independent stock transfer agents are emphyed and the mrporation issues its own stocks and
maintains stock records, canceled stock certificates should
A.
Not be defaced but segregatect from other stock certificates and retained in a canceled certificates fih.
B.
Be destroyed to pre^rent fraudulent reissuance.
C.
Be defaced and sent to the Secretary of State.
D.
Be defaced to prevent reiasuance and attached to their corresponding stub6.
a /
t 155. These generally, include the dg of initial entries and suPPnrting recnrrls, such.afhecks and rgcods of
L glectronicfundtransfers/invo@gener5IarNIs_Umaiaryreoge's/iournalentr.es7Andother
/
/gdjustments to the finaficial sfaternentsfhat are not refbcted in formal journal dntries; and recolds such as
/work sheets and spreadsheeg/supportir{g cost allocations, computations, reconciliations and disclosures.
/^t^
A. Accounting system. C. Accaunting recorcls. W -r ro/ylho n ,tilpt l,
B, Source documents. l]. Atdffi
b 156. Amounts and other disclosures rel
A. Notes to the financial statements C. fxisting dischsures
B. -lLr.lrrent
period figureq Qm{hon. r$d- D" Financial statement ancillaries

157. Whkh one of the following statements is true? In deciding on substantive tests of transactions,
A.
some procedures are commonly employd on wery audit regardless of the circumstances
B, all procedures are dependent on the adequacy of the controb and the resuls of the tests of controts
C.
resulb obtained in the prbr year's audit will not affect the procedures userl this year
D.
the materiality of the item will not influencc the chofe of procedures used
**1 t 158. The general audit objectives of validity and mmpleteness emphasize opposite audit concerns:
il A.
Validity cleals with potentialovers[atement and completeness deals with understatement.
B. Validity deals with potential understatement and completeness deals with overstatement.
C; Validity and completeness may each deal wifh overstatements or understatements, but not in the same
transaction.
D. Validity always deals with overstatements only.
flrfl 159. The strongest criticism of the reliability of audit evidence that the auditor physically observes is that
tt
\.,,
A. the client may conceal items form the auditor.
B. the auditor may not be qualified to evaluate the items which he or she is observing.
C. such evidence is too costly in relation to its reliability.
D. the observation must occur at a sp*ific time, which is often ilifficult to arranse
160. According to the PSA Glossary of Terms, this means to inquire int-o matters arisiilg fronn other procedurs to
resolve them.
A. Confirm. B. Validate. C. Verify. D. Investigate t arh{l1qy1 d{h ,ll
b 161. The rnost reliable form of evidence, other than test of subsequent cash receipts, concernins the validity of a
note receivabh balance is a(n):
A. Bill of lading C. Customer purchase order
B. External confirmation reply. D. Sales invoice
162. Which of the fullowing is one of the better auditing techniques that might be used by an auditor to detect kiting
L, between intercompany banks?
A.Revieur compogiuon of authen$cated deposit slips.
B. Reviant subsequent bank statements. :

C. Prepare a xhedule of the bank transfers.

D. Prepare a year-end bank reconciliation.

b 163. An auditor shoultl be able b collect and evaluate documenta;y evidence. When evaluating and interpreting
evidence, the auditor must be on Euard against the possibility of drawing unwarranted conclusions. An

T"'"a"irffi'#r:t[$tfJr$bn as determined from observation or the physicarcounr. txir{tnru ,4 iuvrr-10)ru1

B. Client ownership determined from third-party inquiries about consigned goocts. J
C. Existence cif a company travel vehicle determined from the examination of the paid invoice for the said
vehicle.
D. Proper 3ccounts payable cut-off at reporting date as determined by a revierru of raw materials
-rEuisitionsl u,. r1a r1t (J
h\l 164. Which of the following bes! describes the.orerall approach usd when perfoiming a cut-off review?
A.Asceftain that management has included in the representation letter a statement that transactions have
been accounH for in the proper accounting period
B.Confirm year-end transactions with regular customers
C.Examine cash receipts in the subsequent period
D.Analyze transactions occurring within a few days before and after year end
%;'itie'i€ndeuy schml of Accounhncy
Auditing Theory: Preweek Questions ATPUTI.2STH
165. An entiq/s financial statements were misstated over
A a period of )aears due to large amounts of revenue being
recorded in journal entries that involved debits and credits to an ilbgical combinition of accounts. The auditoi
4
could most likely have been alefted to this inegularity by
A. Scanning the generaljournal for unusual entries.
B. Performing a revenue cut-off test at year end.
C. Tracing a sample of journal entrim to the general ledger.

*l
D. Examining documenlary evidence of sales returns and allowances recorded after year end.
166. An entity has leased a! Ssset aird appropriately recorded a finance lease because of the exbtence of a bargain
"1,1
)l
t\ purchase option. In addition, the entity expressed that it is certain to exercise the option. The auditor should
i
determine:
A. Whether the interest rate used in computing the present value of the minimum lease payments is the
interest rate implicit in the lease.
B. That recorded cost in the lesseet books is the same as the carrying value of the properry in the books
of the lessor immediately before the lease.
C. That the leased property is being depleciated over the lease term.
D. That the minimum lease payme; rent and executory costs
_XClnOent
+t
lt,

L67. For which of the following account balances are substan-tive tests of details least like[ to be performed unless
i\
analytical procedures indicate the need to ortend detail testing?
A. Payroll expense C. Research and development costs
B. Marketable securitie$ -+\uuiXut {','nt qnl u4tU t D.' Legal expense
n 168. One payroll auOit oblective is to determine whether the empbyees rmeivred pay in amounts recorded in the
payrolljournal. To achieve this objective, the auditor should:
\i
A. Determine whether a proper segregation of duties €Ddsts between recording paynoll and reconciling the
payroll bank account.
B. Requesting tfiat a company official distribute alt paychecks.
C. Reconcile the payroll bank account.
D. Compare cancellgd pavroll cheqF with the payrolljournal
,u
,'' 169' Which of the following incorne staternent accounts is least likely to be verifie in coniunction with the audit of a
L-, balance sheet account? ,t
A, Depreciation o(pense, ' C.
Travel and entertainment"/'
B. Interest revenue. D"
Uncollectible accounts expense.
t.
\,-)
t/
170. The following are purposes of analytical procedures, except:
IJ, A. Assist the audibr in planning the naturg timing and extent of other audit procedures
B. As a test to obtain audit erridence about th-e suitability of design and effective operatbn of internal
controls
C. As a substantive procedure when their use can be more effefiive or erFrcient than tests of details in
reducing detection risk for specific financial statement assertions
D. As an overall review of the financial statemenE in the final review stage of the audit
,{}
1t
l/
tZf. 1ie physical cmnt of inventory of a retailer wm hlgher than shown by the perpetual records. Which of the
,, following could explain the difference?
A. Inventory items had been counted but the tags placed on.the items had not been taken off the items and

B.' Credit memos for several items returned by customers had not been recorded. touvrf 7 b oobs.ondlrf i

&\
.
C. No iournal entry had been made on the reiailer's booK for several items returned to its suppliec. f ount
L,
/ b-c a vS
D. An item purchased "F.O.B. shipping point" had not arrived at the date of the inventory .ornt anct dad not- i, t
*gr*
I

Ir
1i
iI
tj
172. In a CIS environment, which of the folbwing is not a control objectivg associated with processing controls?
A. transactions are authorized
,,[!
L ou(r)
B. processing is complete
C. . ill changes to computer records are accurate
D. access to computer files is limiterl to authorized personnel
d
173. A manufacturer of complex electronic equipment such as oscilloscopes and microompes has been shipping its
Lr products with thiclf paper manuals but wants to rcduce the cost of producing and shipping this documentailon,
The best rnedium for the manufacturer to use to accomplish this is technology.
A. Write once, read many C. Compact disc/read-only mernory
B. Digital audb tape D. Computer output-to-microfilm
f
lr
/\
rt 174. Which of the folbwing statemenb is correct regarding the Internet as a commercially viable network?
14
i\ Organizations must use firewalls if they iisn d maintain security over internal data.
4'
B; Companies'must apply to the Internet to Eain permissbn to create a homepage to engage in electronic
commerce,
C. Companies that wish to engage in electronic commerce on the Internet must meet required segurity
standards established by the coalitircn of Internet providers.
D. All of the above
 Audiling Thsry: Preweek Aeitns ,l I rur-6(E
J
i1
175. which of the rotbwins represenF u typ"
4,i6ilr@re
-.t=.-*--y C. !ha-t
a EF p
A. Enterprise resource phnning v/ "f Central{--ffii-ng unit
B. Operating system D. Value-added network

,{, f ZO. Controls that the servke organization which assumes, in the design of its servke, will be implemented by user
n enUties, and, if neceesary to achieve controlobjective, are adentiFred in the description of its system.
.A. aontrols
Conrplimentary user enuty tqfiH yjlf /
or{ani uathVt
/""e ( slirn+)
J,(t/ ui
B. service auditor conrrots
C. /
General IT controb over the seruice organization
I
I

D. controls
End-user license agreement / U,,r avdi1,tr
'-! I J {r ui r{_r'udihr. !

t)\/ 177. AType II report is a report that comprises the folbwlng: / qn/. ot r4fion
- {

t/
A. A description, prepared by mana,gement of the service organization, of the service organization3
system, control objetives and related controk, their desBn and implementation as at a specified date
or throughout a spe€ified period and, in sorne cases, their operating effectivenes throughout a
"
sp4ined period. p) t,1pr tt -arsi{n/optralrm/t(tco{iv(
B. A report by the seryice auditor with the ohiective of conveying reasonable asslrante that inclddes the
service auditor's opinion on the description of the servke organizationt q6tem, control objectives anct
related controb, the suitability of the des(1n of the controls to achieve the specified control objectives,
and the operating effectiveness of the controb.
C. A description of the service auditqr's tesb of the controts and the resutb thereof.

/ 178. An auditor who, at the request of the service organizatbn, provides an assurance report on the controb of a
\, service organizatioil.
A. Requested auditor
tffie
a ud it-D ^ t
-tt---*----
orw'@ h ut'l {
B. Subseruice auditor D.
PracttCIner -
t^
{t,
\n L7g. A$auditor who audits and reports on the financialstatements X g6-"rrD
V A. Requested auditor C. Service auditor
B. USef aUditOf L( ot/YrtwY'1 Ptt*{ . D. Practitioner
.\{ 180. Whkh of the following phrases best describes a seruice organization?
5+
l\
,l A. A third-party organizatbn (or segment of a third-party organization) that provide services to user
entitie that are part of those entities'information spterrrs relevant to financial reporting.
B. The policies and procedures desbned, implemented and rnaintainert by the service organimtion to
proville user entities with the services covered by the seruke auditort report.
C. A servke organization usd ry another service organhation to perform sorne of the services prwide$ !o
user entities that are part of those user entities' inbrmation systems rele\rant to financial reporting.J ub -strvl (,l
D. An entity that uses and whose financial statements are being audited.
OfgahizarfiDh
" T,Tf#anizatign
181. Many clients noru have their data processed dt'ah independent computer sen ke center rather than have their
own computer. The difficulty thd independent auditor faces when a computer servke center is used is:
A. Gaining the permissbn of the servlce center to rariew their work.
B. Finding cornpatible programs that will analpe the service center programs.
C. In trying to abade by the Code of Ethics b maintain the security and confidentiality of the client's data.
D. In determining the adequacy of the service centefs internal controh.
fr
/\
182. The policies and procedures that the entity implements and the IT ioFrastructure (hartware, operating systems,
fr etc.)Pad applicaUon software that it uses to support business operations and achieve business strategies.
(- A/ IlrEnvtronment. B. Internalcontrol. C. Generalcontrols. D. Applkation controlsl t

use d computer in data processing sptems frequently eliminates the basic internal control of:
h 183. The
A. Usingrcuchers&UulhgriZationgldisbursemenE C. Informationprocessing
D. Cost should not exceed benefit
/X 184. When thdE{lEtm m is significan
significanq/the auditor should also obtain an understanding of the IT environment and
IT hether it may influpnce the assessrnefit of
[Sol risks. J C. Inherent and detection risks.
B. Control and detectbn nsls. .a D. General and applicatlnn controls.
yetpowerfuQrynntained general purpose computers.
C. Personal computers or tr-s.y'/.
1Bs. These are eonomical
C A. Cray II supercomputer
B. Pentium cornputers and multimedia station. D. RISOgraph photocopy machines.
p, 186. A personal cofiiputer can be used in any of the followirq configurationt excepj:
A.
'8. A stand-alone workstation operated by a single users or a number of users at the dffierent times.
A worlatation whlch is part of a local area network of personal aomputers.
C. A workstation connected to a server.
D. A server connected to another server.

LJ . 187. The following are cornmon characteri:stics of personalcomputers, except:

A. Provide users with substantial computing caq$tire(/
\-/)
B. Portability (smallenougb{o be transporaObl@)
\!./
C. Relatively inexpnsiv{V7'
D. Must be configured foX bng time before u*. lyvt 7
ryFc 'TteR*kschddAmuntarrcy
Auditing Theory: PreYreek Srestim lif-zgffi
ir
-;."{ I
ri
188. Thts b an anailgenrent where tno or nxlre peronal cdnpubrc are linlred bgeffter through the use of spechl
,t\
softrvare and ommunicatbn lln€s. Thb may atso be rerened b as a dbbibuEd q/sfrem.
A. ,Local area nawsrk[ u,{U) C.
WorH Wide Ureb.'
B. Wide arw netrvork, D.
Unlt to unit rvorlcslation
t 189. The two rquirenrcnts crudal b achleving audlt ffictmcy and effiecthrcnecc wiBr a personal Lmputer are
setecting:63
r'i

O
.fi
i \.
A. TheYppropriate audit tad6 fur pemonal smputer applirztlxts and th$dppropriate software b perform
the selecterl audit tasks.
B. The approphte sfrumre b perbrm the selected ardlt tasls and data that can be accessed by the
audito/s personal @mruEr.
C. Cornpany data that can be aaessed by tte audibr's personal oompuEr ard the appropnbte audit taslcs
for percomal omputer appllcatbns.
D. The apoffite samfle of onpany data to Est witfi the audibr's perconal mmputer and the apprcpriate
softrruare b perfurn tfie sehcted audit tasls.

in 190. S1: In a perconal computer environntenq ft rnay nd be practicable or cct-effiecttte for managernent to
L, implernent sufficlent onBob b reduce the rlsks d unde@d enon b a minimurn leyd.
52: fie
audibr may ofur assume that contd risk ts high in personal cornpuEr enyironmenB with insufficient
inbmalcontllob.
A. True, fatse B. Fabe, true C. True, true D. Falsg false
!
191. In a cornputerEed q6t"r, " through
a(n):
A. Interpreter. B. Verifrer. D. Converter.
nii 192. Which of the folbwing staternents ts lnorrect?
i;t,, A. The purpose of CIS applicatilin confu b b esbblish specik conm procedures orer the applitatbn
slrsterns in order to pro\ride rereonaHe assurance that a[ transacffons are authorizd aM recorded, and
are prcaessed accuratef ard on a timeff basis.
B. 'It may be more erfficlent to ranierv the desQn of &e general CIS controb before reniewing the CIS
appliiation contrcB.
C. ff genent CIS coritrots are not emcmrc, ttrere may be.a rtsk that mbstaErnents m[ht occur aml go
und*cted in the applkaffir sysEnls.
D. The purpme of ge@ a framework of overal! conhol orer the CIS activities
and to provire owa$ o0rectir6 of inhrnal control are achieved.
?
v 193. When pemnalcornrutBrs are accessible b marry u*rc, tie mnoern bon the risk relating to
A. Custody, B, Authorization. C. Reording. D. Alterauon.
l-'.r
i\
194. The fullorving, qcept one, are inErnal @ntrol tectrnfiues whkt can be used for data and program security:
\,J A. Employing pmsrcrds.
B. Using anU-virus sdtvyare programs.
C. Segregating data into ftles organized under separaE file dirdortes.
'D. Dlsmnnecting ftom SIeotrce rrchmrk
t.-
t\t;
t\
195. Management can ontribute b the effecthrc operatbn of stand€bne compuErs by prescriblng and enfurcing
tJ polhies for their aonbolard use, such re pdkf:s br:
A. ManagonentresponsibiliUes.
B. Standards of rcport brmat ard report dbtribution conbob.
C. Tralning requhemenBand peeonal rsage polici6.
D. Allof the answers.
fl t/t 196. These are computerqrcterns drat enable usets to accesstlah and pmgrams direct[ thrurgh workstations:
\,,'
A. In-line @mputer systelrm. C.
Transactbn procesing sJsterns.
B. On-line cfinputer systems. D.
hrsonal cornpuhr environiltent.
,,1
197. There ar,e tlry:comlrnn types of vuorMions -
general purpose terminab and spectrl purpooe terminab.
Whbh of the fidlowilU is nd a general purpce terminaP
A. Perconal cornputets. C. Point ff sale devic€s.
B. Intelligent terminal. D. Bask keytoard and rnonitor.
Y
--1
,, l
198. These are produrcs desBned b restrkt acess to on-line Ermlnal dwkrs, prograrns ard data.
A. Access controb. C. User authefiticatiln.
,4
B. Creneral IT conEob. D.
User authorization.
199. This acc€ss conhol typically attempts to idenUfy a user through unitlue logon klentificatinns, passrrrords, aocess
\-J
cads or hlornetric dah.
A' Accesosltob' c' usauthenttation'-p idrn+i{irj who usts cowtlu{t't"
(\ B. GenerallTonhoB. D. Userau$rorizatbn.4 approvri +h. w0!"14.
t/f 2fr). User authorization proaedures are desBned to prevent or detect the blbruing, scept:
\ ,,,
A. Unauthorized affi to on-!ilrc bnninal dwloe$ prggrms ard data.
B. Entry of authorized transactinrs.
C. Unauthortzed changes b data files.
. *t.'

D. The use of ompuEr prograrns by unauthorized pesonnel and the use d coinputer prograrirs tfiat harre
not been authorized.
 ReSA: Ttte Review Sctml of Accountanqf
Auditing tfheory: Preweek Questions ATPW.28T}I
D
''
201. Internal controls in an on-line computer systeni include the following:
A. Access &ntrols C. Transaction logs
" B. Controls orrer User IDs and passwords D. All d these

nt/ 202. These are programmed routines that check the input data and processing results for completeness, accuracy
and reasonablenes
A.Pre-processing authorizatbn. C.
Master file mntrols.
B.Cut-off procedurm. D.
Edit, reasonableness and validation controls.

|\- 203. This is the process of establishing control totals over data being submitted br processing through worlctations
and comparing the control totals during and after prosessing to ensure that complete and accurate data are
transferred $o each processing phase.
A. Footing. B. Crms-casting. C. Balancing. D. Po6ting.

n\,' 204, The electronic transmissbn of documents between organizations in a macfuine-readable form.
c.
a. Cryptography. Computer processing
b. Shoft rnessaging seruice d. Electronic data interchange

,n
v 205. A combination of hardware and software that protects a WAN, IAN or PC from unauthorized access through the
Internet and from the introduction of unauthorized or harmfu! softrruare, data or other material in electronk
form.
A. Anti-virus program B. Security upclate C. Firewall D. Access monitor
t-\
\)'' 206. The purpose of input controts is to ensure the:
A.
Authorizatbn of access to data files. C. Completeness, accuracy, and validity of update.
B.
Authorizatbn of access to prcgram files. D. Completeness, accurary and validity of input.
F\

\/)
\ 207. Procedures designed to prevent or detect improper changes to computer programs that are accessed through
on-line terminaldevlces
A. checl(s
Limit C. IT application controls
B. Edit checks D. Programming controls
+\
t,lI
i 208. A company uses the account code 614 for maintenance expense. However, one of the company clerks ffien
codes maintenance expense as 641. The highest account code in the system is 620. What would be the best
internal control check to buiH into the cornpany's computer s)lstem ro detect this error?
A.A manual re-chek of the cocle. C. Sequence check.
B. Valid-character tst. D. Valid-cocte test.
I
ii+
209. Parity check, read after write checks, and rluplicate circuitry checks are IT controls that are designed to detect:
i A. Erroneous internal hanctling of data.
B. Lack of suffkient documentation for computer processes.
C. Illogical programmingcommands,
D. nbgical uses of hardware.
h\,' 210. ReporE that are designed to create an audit trail for each cn-line transaction. Such reporB often document the
source of a transaction (terminal, time and user) as well as the transaction's detaib
A. Batch processing bgs C. Transmittalsheets
B. Transaction logs D. Embedded audit modules
+.
l-,
211. This is the individual responsible in preparing specifications for the systems to Suide programmer, and writes
procedures and user instructions.
A. Network adminbtrator. c. IT controlgroup supervisor.
B. Systems analyst. D. None of these. '
I

n,\
212. This is the individual responsible for the devebpment and management oF data communications qystem, and
reviews documentation to ensure compliance with standards and provides approval of, documentatbn when
standards are met.
A.Network adminbtrator. c.
IT control group supervisor.
4
B.S,lsterns analyst. D.
None of these.

L 213. A computer programmer has written a program for updating perpetual inventory records. Responsibility for
initial testing (debugging) of the program shoutd be msiEned to the:
A. IT departrnent control group, C. programmer.
B. Internal audit control group. D.
Machine operator.
{L Ztc. More than one file may be stored on a single rnagnetic memory dbk. Ssyeral programs may be in the core
v storage unit simultaneously. In both cases it is important to prevent the mlxing of datb. One way to do this b:
A. to use File integrity control. C. to use Interleaving.
B. to use Boundary protectbn.
t'. D. to us€ Paging.
LI , ZtS. complo<
In comparing the control environment in compto( versus non-complex IT systems, the mntrol environment in
'i IT systems is:
A. More critical because there is greater potential for errors anrl irregularities.
.r: B. Less critical because the complexity ensures that controb will be built into the qrtem.
C. More criticgl because of the h$h degree of technical competence ngeded by the programmers and
operators
E}*r"'qT6"=ry
I,

ReSA: The Rwiew School of Accountancy -!

Auditing Theory: Preweek Questions ATPW.28TH
i
,'1 216. During one prccessing run, sseral transactions have been rejected by the f[ system. Accordingly, the IT
department:
A. Should contact the user departments and inform them of the rejection.
B. Should re-encode the inputs previously made by computer operators and reprccess the transactions.
C. Is responsibb for ensuring that these transactbns are in fact resubmitted and re-entered for processing.
I
D. Is not responsible for the resolution of rejected transactions.
;,i
+-t 217. This refers to a collection of data that is shared and used by a number of different users for different purposes.
.l\
A. Database. B. Information file. C. Master file, ,D. TransacUon file.
i/
t,'
I 218. A database management system
"r ,l A, Physically stor6 each element of data only once.
B. Stores data on different files for different purpcgs, but always knows where they are and how to retrieve
them.
C. Allows quick retrieval of data but at a cmt of inefficient use of file space.
D. Allows guick retrieval of data but it needs to update files continually.
fr
w 219. Which two important characteristics distinguish database systems?
A. independence.
t/
v'
Data integrity and data C. Data sharing and data interconnection.
B. Data independence and data sharing, D. Data integrity and user integrity.

i
220. A software within the database management system whkh is required to keep kack of the location of data in
the database.
A, Data discugsion. l C.
Data dictionary.
B. Data tracker, D.
Documentation dictionary.
T-\ 22L User access to the various elements of a database may be controlled through the use of passwords. These
1;
v restrictions apply to
A. Individuals but not to terminal device and not to programs
B. Terminal devices but not to individuab and not to programs.
- C. Programs but not to individuals and not to terminal device.
D. Individuals, terminal devices and programs.
222, These controls require a database administrator to assign security attributes to data that cannot be changed by
database users:
A. Discretionary access controls. C. Password controls.
B. Mandatory access controls. D. Distributed access controls.
j 223. These controls allow users ts specifo who can access data they own and what actiCIn privileges they have with
Ii respect to that data"
A. Discretianary acces$ controls. C.Password controls.
B, Mandatory access controls" D.Distributed access controls.
f
t-
224. The best and most widely accepted modelfor explaining why "good people" commit fraud is known as the:
.A. Trustviotabrmbrem c.' "Fn*i-iiangb'
B. Cressey Model D. Gloria Zamora Model

{i. 225.lt there is fraud involving the collushn of several employees that
Y,/ chance that such fraud would be uncovered in a normalaudit is: includes the falsificatbn of documenB, the

A. Zero. B. Untikely. c. 50-50. D. Very high.

226. This is a kind of fraucl committed by making entries of fictitious payments or failure to enter receipts.
w A, Misappropriation of goods. C. Falsification of account$.
B, Misappropriation of cash. D. Lapping.
1-
iI
227. The fullowing stat€ments properly describe the pillars of the Fraud Triangle. Select the exception:
',i A.
Incentive or pressure to commit fraudulent financial r€porting may exist when management is under
Frnud ki4h4tt
pressure; from sources outside or inside the entity, to achieve an expected (and perhaps unrealistic)
orr,rru rr
r -'' Jearnings target or financial outcotne - particularly since the conseguences to management ior failing to
I meet financial goab can be significant.
/\ ..-
B:, A perceived opportunity to commit fraud may exist when an individual beliares internal control can be
oppo,rrhira{itttali-gvqnidden, for.example, because the indivirJual is in a position of trust or has knowledge of specific
-1\-ttr'ru1 itEbknesses in internalcontrol.
C.
Individuals may be able to rationalize committing a fraudulent act. Some individuals possess an attitude,
character or set of ethlcal valus that allow them knowingly and intentionally to commit a dishonest act.
D.
Evenb or conclitions indicate an incentive or pressure to commit fraud or provide an opportunity to
commit fraud, but do not necessarily confirm the presence of fraud. -N trau of ril k {1o iXrS
t
/t 228. Which of the following is an example of fraudulent financial reporting?
A.
fl Company management changes inventory count tags and overstates ending inventory, while
.,r\tbvl understating cost of goods sold.
..., , ,nof t{t'[ B. The treasurer diverts customer payments to his personal due, concealing his actions by debiting an
t/u'.'I\ . II expense account, thus overstating expenses.
L AIJ tYr I C. An employee steals inventory and the "shrinkage" is recorded in cost of goods sold.
L O. An employee steals small tools from the company and neglects to return them; the co6t is reported as a
^
 ReSA: The Rsienu Schml of Ac@untancy
Auditing Theory: Prewffik Questions ATPW.28TH
/t
229. What is the independent auditor's responsibility prior to completion of field work when he believes that a
fraud may have occurrd?
' material
A. NoUry the apprupraate law enforcement authority
B. Invmtigate the person invohrcd, the nature of the fraud, and the amounB involved.
C. Reach an understanding with the appropriate client representatives as to the desired nature and oftent
of subsequent audit work.
D. Continue to perform norrnal aurlit procedurm and write the audit report in such a way as to dlsclose
adquately the suspicions of material fraud.'
nt/ 230. This refers to the mathematical complements of sampling risk.
V
A. Assurance error B. Tolerable lenrels C.
Expected error D. Confidence levels

_n 231. Which of the folbwing statements is NOT correct?

t/
A. It is acceptable for auditors to use statistical sampling methods.
B. It is acceptable for auditors to use non-statistical sampling methods.
C. The primary benefit of statistical sampling nrethods is the quantifrcation of sampling risk.
D. An advantage of using statistical sampling is that the mst/benefit ratio isjlwgys positive.
T\
.l i 232. Which of the following statemenE is a vatid criticism of the use of non-statistical sampling methods?
tj
A. Many audit tests, such as footing of journals, must be performed outside a statistical context.
B. The cost of performing random selectibn of testing often enceeds the benefits.
C. Non-statisticalsampling does not differ substantially from statbtical sampling method.
D. Conclusions may be drawn in more precise wala when using statistical sampling methods.
n
p 233. Which of the folbwing statements regarding documentatbn of the sample selection process is NOT true?
A. Regardless of the method used ih sebcting a random sample, it
is necessary. to have proper
documentation. o-- ,1 tlvalt)
B. When comparing statistical sampling to judgmental sampling, it iv{maw importanf that statistkal
sampling be properly documented becarse of its mathematical nature. u--
C. Minimum docurnentation would include sufficient infrormation to permit the reproductbn of the ffirnple at
a tater date.
D. For documentation, it is permissible for the auditor to include in the working papers a copy of the table
used, with the random numbers identified.
{
23i1. Unless a precise statement of what constitutes an attribute is made in advance, the staff person who perfurms
![

/t
fJ
the aurlit procedure will have no guidelines:
A. For identifying daniations
B. To determine what documenb to obtain. and review for the obervation tests.
C. To use when evaluating the results of analytical rsriew prccedures.
D. For peforming all three of the above.
I
-T
235. Which of the folbwing statements regarding replacement and non-reqlacement sampling b NOT true?
r, A. In replacemgnt sampling,.an element in the population wilfiftot be included in the sample more than
once. fu m,ti{ytt-'chqur+t o{ stlt *t",i1 ' L-
B: In non-replacement sampling, an element in the populatbn can be inclurled in the sample only once-
C. If the random number corresponding to an element b sebctecl rnore than once in non-rephcement
sampling, it b treated as a discard the second time.
D. Auditors rarely usi reptacement smpling.
236. When the auditor intends to evaluate.a sample statistically, the only acceptable setection method is: I

A. Probabilistic selection. C. Haphazard selection.

B. Judgmental selection, D. Bimk selection.
237. When using statistical sampling, which of the following need not be known to evaluate the resutts of an

"To'l?ffiI"ju , c. Number of deviations in the popural;sn 1 ci{imafi.dl tonl

B. Risk of assessing control risk bo lw.,/ D. Number of deviations in the sample.T
T
t'1 238. The variabtes sampling method which generally results in smaller sample sizes than any other method is:
,'l
A. Difference estimation. C. Ratio estimation.
B. Mean per unit estimation. D. Peso-unit sarnpling.
b 239. Increases in the planned allowance for sampling risk have what effect on required sample size?
A. Increases B. Decreases C. No effect D. Indeterminate
ht\ 24A. The auditort failure to recognize an error in an amount or an error in an internal control data procssing
\l procdure is described as:
A. Statistical error C. Standard errCIr of the mean
B. Sampling error D. Non-sampling error
lrl
",rt 241. Non-sampling effors occur when the audit tests do not uncover oxisting exceptions in the:
A. Population. C. Planning stage.
B. Sample. D. Financial statements.
 ReSA: The Rsrlew School of kcountancy
Audlting Theory: Preweek Questions ATPW.28T}I
(,r1 242. If an auditor tested 50 transactions and found two deviations from an important cofitrol procedure, the auditor
could conclude from this test that the:
A. Tolerable rate is 0.04, C. Sample had two deviations.
B. Critical rate of occurrence is 0.04. D. Expected population deviation rate is 0,04.
A Z+S. Gq, CPA audited the May Company accounts receivable with a book value of P3,000,000 and 4,400 accounts- _
V 400 accounts, GQ fiound P13,200 understatement errors. The projected likely
ll".rffifj:of +lr._tffrr,ftlg
A. bt:,zoo. B. pr4s,zw. c. p272,727 D. pqrs,ooof;;c " {{tjp
9a
r-./
244. A type of valueweighted selection in whlch sample size, selection and evaluation results in a conclusion
monetary amounts.
in

A. Random sampling C" Stratified sampling

B. Monetary unit sampling D. Financial sampling

0- 245. Which of the following is NOT a responsibility that should be assigned to a company's internal audit
C department? rarrllr, ri it ' Xtroo f I lllptt ftrtlS*a.l^rrun]'
'' A. Evaluating internal control, / pol.li"r : 2{r00Q t4
B. Balancing subsidiary ledgers" Safrrg\gook ua\u(,
'10t01,890
-^ ^ ^ / I,OOC

c. neportlns on the effectiveness or operatins *q*une{i,,ili,*iri['-irrt,

D, Investigating potential merger candidates, --_-lil[ii':.,[lY]*-t ,\y
-
v?246.TheinoepenoentauditorsmEhtconsidertheproced,,**nllnI"lo,;:,il',alaqditorsd.ooP
l/A.Theyareemployees*"noseworkmustberevieuredduringsubs.tantivetesting.WvlJ-{ ffrnrC tq'InaTioul
B. They are employee; whose work might be considered. Av{rajttr-oo[a u\rrr/uutrf 1z0,oup
C. Their work impacb upon the cost/benefit trade-off in evaluating inherent limitdtbns. n,t a onr; b nn tu
D. *.'.. [&H'#;:ffiffi:"T;,fiI''i}J'fft'd,l,;:1'J':Ii,ll$';];:""-'"""; 11 ll,,-rsl' ? Ab.n' -\
St oo
f 247. Whkh of the folbwing terms best describes compnent rnanagenen? \
\.-, A. An auditor who, at the requestof the group engagement team, peforms work on financial information \* -, r,
B. An entity or business activity br which group or component management prepares financial information / ov(l'
that should be included in the group financialstatements. : ? IU r t00_ -.o-l r, 7 , 44,oob
C, d0
preparing
Management responsible for the financial information of a component. -;-I;
6 ( u tru
' ffiI 201000
I
.,I
D. tne rf,ateria',H.lt1"l"r"ftff,qfiif.*etermined by the group engagement team.
ov{U^
,:
t;
4-+
/\ 248. All the components vVhose financial info(mation is included in the gmup financial statements, are collectively n

known as:
A, Group B. Consolidation
: C" li D. Business Combination
ptn uni
+i
lt
249. In the context of PSA 600 (Revised and Redrafted), agroup:m 2,t\?tooC
L A.' dtr x t{,0n.
I
7
May have more than one component"
B. May consist entirely of one component, Pro j *.td ytrisrHtftt tYt{.
Z l210 0t}
C. Always has more than one component.
"
1 D; Cannot be determined without additional information. =:*---
t
JA.,
/r 250. A matter whose outcome depends on future actions or e!/ents not under the direct control of the entity but that.
may affect the financial staternents.
A. Uncertainty C. Provision
B. Inconsistency D. Significant risk
n '
t4
\/ 251. The date on wttictr tfrose with the recognized authority assert that they have prepared the entity3 complete set
of financial statements, including the related note, and that they have taken responsibility for them.
A. Date of the financial statements. C, Date of the auditor's report.
B. Date of apprwal of the financial staternents. D.
Date the financial statements are issued.
252. The date of the end of the latet period covered by the financial.statements, which is normally the date of the
w most recent balance sheet in the financial staternents subject to audit.
A, Date of management approval C. Date of the audit report
B. Date of the financial statements D. Date of financial statement issuance
{'v?53. Subsequent errents refer to e}vents that occur after the date of the financial statements and are:
A, Favorable to the entity being audited
B. Unfavorabh to the entfty being audited
C. Either fayorable or unhvorable to the entity being audited
D. Neither favorabh nor unfavcirable to the entity Ueing audited.
fi
;r
,Lts 254. Haruey, CPA, is preparing an audit program for the Nrpose of ascertaining the occurrence of subsequent
f!
I events that may require adjustment or discbgure trsential to a fair presentation of the financial statemenB in
conformity with GMP, Which of the following procedures would be leaat approprie for this purpose?
A. Confinn as of the mmpletion of fieHwork accounts receivable whkh have inrmsed signfficant[ from the
year-end date.
B. Read the minutes of the board of directors.
C. Inquire of managernent concerning events, which may have occurred
D. Obtain a hwyer3 letter as of the mmpletion of fieldwork.
 -RESA:
T?E$leuLrySIml * Fmtnhrry
Auditing Theory; Prewek Questbns

\ 255. A major customer of an audit client suffers a fire prior to completion of year-endd field rlrork. The audit client
fl believes that thls event could have a siqnifrcant direct effect.sn thg4nancial SEtrnienli=The auditor should:
A. Advise management to disclose the event;n rEt€s b the financialsBmeriEz,'
B. Disclose the arent in the audito/s report.
C. VUithhoH submissbn of the auditpt report until the extent of the direct effect on the financial
statemen$ is kncwn" ,,...tr , \/\
D. Aclvise manasement to adiutt ttre financial statemenm. {ctb5qtr$l /v{t't{S
256. Which of tfie following sventsioccurring after the issuance of an auditor's re rnwt likeh woufd cause the
auditor to make further inq-lriEs enEd!
A. A techrtological derelopment that ityt future ability to continue as a going concern.
#. The {t very of informstbn regardi E$ec|b#ore the financial statements were
iEsued.
+--*,.{

C. The entity's sale of suboidiary that accounts fur 30o/o of the enti!/s consolidated sales.
D. The final resolution of a lawsuit erplained in a sepa,rate paragraph of the auditor's report.
zs,.@nt,CPA,issuedanunoqalified-opi0o8onaclient,sauditedfinancialstatementsforthe
b year ended Deember 31. 208. @@._4,J@, Kenfs internal inspection program gisclosed that
engagement personnel failed to observFthe clientt physical inventory. Omissbn of this procedure impairs
Kent's present ubtly, to support the unqualified opinion. If the stockholders are currenuy relyinq on thp
opinion, Fent shouH first
A. Advise management to discloee to the stockholders that Kenfs unqualified opiniJn shouH not be relied
on.
B. Undertake to apply alternative procedures that would provide a satisfactory basis for the unqualified
opinbn.
C. Reissue the auditort report and add an explanatbn paragraph describing the departure from GMS.
D. Compensate for the omitted procedure by performing tesb of controls to reduce audit risk to a
sufficiently bw level.
!t
lr\

*
Ja.
258: V[hen considering the use d nranagementt written repregentatrcns as audit evidence uOort tnqdormJgfi)
sJ
f,lssertio} an aud'itor should undersiand that such reprsentations: ?J4 itO
Homplement, but do not replacg substantive test designed to support the assertion
B. Constitute sufficient evldence to support the assertion.when considered in combination with reliance on
internal accounting controb.
C. Are not parts of the evidentaal matter considered to support the assertion.
1
D. Replace reliance on internal accounting controb as evidence to support the assertion.
i
259. 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 nnt reduce the auditor's resporsibility
D. Reduces tnEauOGfs responsiOifity only to the extent that it is relied upon.
260. To which of the following matters would rnateriality limiE not apply in obtaining written management
representations?
A. The availability of minutes of stockholde/s and ctirectofs meeting.
B. Losses from purchase mmmitments at prices in excess of market value.
C. The disclmure of mmpensating balance arrangernents involving relatal parties. " I
D. Reductions of obsolete inventory to net realizable value.
,*|
261. Which of the folbwing o(pressbns is least likely to be included in a client's representation letter?
\- A- No arents have occurred subsequent to the balance sheet date that require adjustment to, or disclosure
in, the financial statements.
B. The company has complied with all aspects of contractltal ag.reements that would have a material effect
on the financial statements in the event of noncompliance.
C. Management acknourledges responsibility fur illegal actions committed by empbyees
D. Management has made available all financial statements and the related data.
t-\ 262. An audit committeet responsibilities normally would not inctude:
V A. Discussing the meaning and significance of auditd financial statements.
B. Discussing problems and orperience with independent auditors in completing the audit of annual financial
statements"
C. Nominating the independent auditom.
D. Discussing the audit programs of the independent auditors.
x1
ln 263. An auclitor is obtigatal to communicate a proposed audit adiustment to an entity's audit commiftee only if the
\I adjustment:
A. Has not been recorded before the end of the auditor's fieH work.
B. Has a slgnificant effect on the entity's financial reporting process.
C. Is a recurring matter that was proposed to management in the prior year.
D. . Results from conection of a prior period's departure from GMp.
 ReSA: The Review School of Accountancy
Auditing Theory: Preweek Questions ATPW.28TH
264. A document issued by an entity, ordinarily on an annual basis, which includes its financial statements together
C with the auditor's report thereon.
A. Auditor's report. C. Annual report.f

I
B. Statement of management's responsibility. t). Ma nagement assertions.
,1t

ll
265. Whrch PSA covers the audit of financial statements preparcd in accordance with speCial purpose frameworks?.
/)
ff
A. PSA 800,2 C.PSA 810 :'%
B. PSA 805- D.PSA 81s

tr
266. ln the auditort opinion on a financial statement prepared in accordance with a soeial-ourlose-framerao&rrye
note the following:
"Wthout moditying aur opinion, we draw attentbn to lwe X to the financial staamenB, which dsriw
the
basis of accounting. The frnancial staHmenB are prepard to.assbt the Wrtners of ABC Partnership in
prcWring their individual inmme tax returns. As a r6ul0 the frnancial statements may not be suitbble for
another purpose. Our rcport is intendd solely br AK Partnerchip and iE paftneo and should not be
distributd to parties other than ABC Partnerchip or its partnerc.
This paragraph is known as:
A. The opinbn paragraph
B. "Withoul modifying our opiliqn','-paragraph
D. Basis for adverse opinion paragraph

V., 267. ln the report acmmpanyingcompiled financial statements, which of the following statemenB should not be
L' inclu@?
A. "We haveaot audited or reviewed these financhl statements and accordingly oeress no assurance
thereon."@ .+ ttt' quit+
B. ' than an examinatbn in accordance with generally
'tA compilatkrn is substantially less extensive in.scgpe
accepted auditing standards,i'. 6Y PJA + hiMl YW Ytli nry,fi i-d(sc(o$t.
C. "On the basis of information provided by rnan gement, we have compild, in accordance with the
Philippine Standard on Related Services 44L0..."(r//
D. "Management is responsible for these financial st6temelhts. 3)
I 268. The distinction between a forecast and a projection is:
i\='r A.a projection is based on assumptions that includ{hfpotheset$hich may be different from rngla&nrgq!!
opinion of the most likely fgt-ot e,/ent , \-
- - -"-
B. only forecasts are based on managementb phnned course of action
C. forccasts are prcdictions with a shorter time horizon than projections
D.projections are frequently non-quantitative ln nature

& 269. Herchey, CPA, is preparing a repoft on internal control. She has already cliscussed the internal control
weaknesses with the appropriate client offkials. During these discussions, the client stated that, given its
circumstances, there was no practir:able conective actbn which could be taken for one of the rnaior
weaknesses and therefiore asked that it not be included in Hershey's report. In the final analysis, Hershey
concurred that no corrective actircn by management is practicable" Whkh of the following is the MOST
appropriate course of action br Hershey to take?
A. She must include this weakness in her report; otherwise, she will be iq violation of GMS.

She may omit this weakness from the report but shoulrl send a Lonfidential memo to the Board d
Directors pointing out the nature of the weakness and why it was omitted from her report.
D, She may omit the weakness from her report but should clearly state that the report is rstricted to
material weaknesses for which corrective actbn by managernent may be practicable in the
circumstances
I
,A 270. Which of the following phrases refer to'forecast?
J\ A.prospective financial inbrmation prepaieo on the ]b@s to future events which
management expects to lak _the*AEtions management expects to take as of the date the
information is prepared (Oest-estimate assrmptiond
B. prospective financial information prepaEon TEe basis of hypolheticqJ assumptions,about future events
and managernent actiens which are a Jnixture_ot beqll-
tbns' ?noiacfi oll
C. statemenb ptepareOffiffiril'f*t i"tuif as compared to unabridged financialstbtements. fufllr4fl F-f
D. None of these statements describe a forecast.
/r
I
J-4
1t 27I. PAPS 1000PH focuses on instanqes when:
J\ A. Scope limitations occur due to the ina0fitry'd fiE client !o ffiFre'sclrdules, reporb or cornputahlns or
the failure to reconcib differences noted in the audit due to the pmr condition of the accounting records.
B. A particular audit procdure b beyond the competence or area of expertise of the auclitor.
C. The scope limitation is imposed by the client or by circumstances.
D. The documents or information exbt but are not made available to the auditoi.
 \

ReSA: Tlre Rryier*r School sf Accountanry

Auditing Thecry: Prerveek Quetions ATPW-28TH
I 272. ffiE is a type of ftnancial institution whose principal activiff is the'taking of deposits and borrowing for the
"l+
t\ purpose of lending and inveting and that is recognized as a bank by Sre regulatory authorities
in any duntry in
which it operates.
A. Bank \ B. Depositorium c. stoctr broker D. Invstrnent house
I
t
273. Which of the following statemeots is incorrect?
A.
Whenever possible, the confirmation request should be prepared in the language of the confirming bank
or in the language,normally used for business purposes.
B. The most comrnonly requested information is.in respect of balances due to or from the reauestino bank on. .
ryrent, depo6it, ban and other accounts. -,------=-- ;+l--4!4tf0f
6Q
C. the content and dispatcfr ofdonfirmation requests-bthe responsibility of theffiyming bat}
i;5,l I
6TontroJryer
D. -eoffirftation oF asset repurchase and resa@Effien6-and options outstanding at t'Edreleva;t-date
shoukJ als* be srught"

I\ 274. Which statement is inconect regarding jnter-bank-confirmatbns?

lr' A. The.requirement for bank confifiiatibn arises from the neect of the bankt management and its auditors to
confi rm fi nancial and business relatbnships
, B' While inter-bank lthtbnships are similar in nature to those between the bank and a non-bank customer,
there may be speclalsignifi,cance in some inter-bank relatbnehips.
C. The auditor shoukt decide from whhh bank or bank to request aonfirmation, having regqnl to such
matters as the size of balances, voiume of activity, degree of reliance on, intemal controls; and materiatity
within the aontext of the financial statemeDtE
D' It is usual practice to request a resnons/5rf if the information submitted is incorrect or incomplete.
275. IAPS 1004, on whlch PAPS 1004 is qsed, was prffreo in association with which ot the fotbwrng?
h/ A.Internatbnal Accounting Standards Board.

D. Commissbn.
n,
Profpscional Regulation :

I zlo. which tlocument published in 1997 serves as a basic reference for an effective supervisory system
internationally and in all countries?
A. StatemenB on Auditing Standarcls applicabb to Banks and
QuasFBanking Institutions.
8. PAPS 1004 - The Relationship Between BSP anct the Bankt Externat nuditors.

:. Core Pringlples for Etr t

rgenffia
,'1
277. a generl.-,::tT.:fl^t?-ftf:1.: a v-v,g: variety.of financhl instruments whose value depends on an undertying
rate or price, such as interest ratesr exchange rates, equity ty prices, or comnlFdrfy
com prices.
4,, Asset/liability managernent C. Derivative{/
11-
B. Commodiry D. Hedge
I tE-rJgE
"
zta'
f H.::lLtgl=^:111,^tlt.trTts.professionats
renewal of the Professbnal identification cdrd:
may teach licensure subiects, and prcvides firr the triennial

A. RA No. 9298 c. ItlR of RA 929S

B. PRC Modernization Act D. PD 10St

end-

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