GORDON COLLEGE

COLLEGE OF BUSINESS AND ACCOUNTANCY

Auditing Theory

Audit Sampling, Completing the Audit, Reports-Other Assurance and Related Services,
Auditor’s Responsibilities to Fraud in an Audit of FS, Consideration of Laws and Regulations in
an Audit of FS, Communication with those Charged with Governance

Source : CPA Review Schools

Choose the best answer.

1. In designing audit procedures, the auditor
required to determine appropriate means of
selecting items for testing to gather audit
evidence. Which of the following means is/are
available to the auditor?
I. Selecting all items (100% examination)
II. Selecting specific items
III. Auditing sampling
A. And II only
B. III only
C. I and III only
D. I, II and III
2. It will be appropriate to audit all of the items
that make up class of transactions or account
balance (100% examination), except
A. When the class of transactions or account
balance consist of large number of small value
items.
B. When the class of transactions or account
balance consist of a small number of large value
items.
C. When there is a significant risk of
misstatement and other selection methods do
not provide sufficient appropriate audit
evidence.
D. When the repetitive nature of a calculation or
other process performed automatically by the
client’s computer information system (CIS)
makes a 100% examination cost effective.
3. Audit sampling involves the
A. Selection of all items over a certain amount.
an account balance such that all items have a
chance of selection.
C. Application of audit procedures to all items
that comprise a class of transactions or an
account balance.
D. Application of audit procedures to all items
over a certain amount and those that are
unusual or have a history of error.
4. An advantage of statistical over nonstatistical
sampling methods in test of controls is that the
statistical methods
A. Afford greater assurance than a nonstatistical
sample of equal size.
B. Provide an objective basis for quantitatively
evaluating sample risk.
C. Can more easily convert the sample into a
dual purpose test useful for substantive testing.
D. Eliminate the need top used judgment in
determining appropriate sample sizes.
5. The risk of incorrect acceptance and the
likelihood of assessing control risk too low relate
to the
A. Effectiveness to the audit
B. Efficiency of the audit
C. Preliminary estimates of materiality levels.
D. Tolerable misstatement.
6. The likelihood of assessing control risk too
high is the risk that the sample selected to test
controls.

B. Application of audit procedures to less than A. Does not support the auditor’s planned
100% of items within a class of transactions or assessed level of control risk when the true

Kirby Pecson Quimat, CPA Theory of Accounts - Integration Page 1

operating effectiveness of internal control
justifies such an assessment.
B. Contains misstatement that could be material
to the financial statement when aggregated
with misstatement in other account balances of
transactions classes.
C. Contains proportionately fewer deviations
from prescribed internal controls than exist in
the balance or class as a whole.
D. Does not support the tolerable misstatement
for some or all of management’s assertions.
7. Which of the following sample planning
factors would influence the sample size for a
substantive test of details for a specific account?
Expected Error Tolerable Error
A. No Yes
B. Yes Yes
C. No Yes
D. Yes No
8. An underlying feature of random-based
selection of items is that each
A. Stratum of the accounting population is given
equal representation in the sample.
B. Item in the accounting population is
randomly ordered.
C. Item in the accounting population should
have an opportunity to be selected.
D. Selected using replacement
9. Which of the following statistical selection
techniques is least desirable for use by an
auditor?
A. Systematic selection
B. Stratified selection
C. Block selection
D. Sequential selection
10. The expected population deviation rate of
client billing errors is 3%. The auditor has
established a tolerable rate of 5%. In the review
client invoices the auditor should use
A. Stratified sampling
B. Variable sampling
Kirby Pecson Quimat, CPA Theory of Accounts - Integration
C. Discovery sampling
D. Attribute sampling
11. Which of the following statement is correct
concerning statistical sampling in test of
controls?
A. Deviations from control procedure at given
rate usually result in misstatements at a higher
rate.
B. As the population size doubles, the sample
size should also double.
C. The qualitative aspects of deviations are not
considered by the auditor.
D. There is an inverse relationship between the
sample size and the tolerable rate.
12. Which of the following statistical sampling
plans does not use a fixed sample size for tests
of controls?
A. Attributes sampling
B. Sequential sampling
C. PPS sampling
D. Variables sampling
13. When performing a test of a control with
respect to control over cash receipts, an auditor
may use a systematic sampling technique with a
start at any randomly selected item. The biggest
disadvantage of this type of sampling is that the
items in the population
A. Must be systematically replaced in the
population after sampling.
B. May systematically occur more than once in
the sample.
C. Must be recorded in a systematic pattern
before the sample can be drawn.
D. May occur in a systematic pattern, thus
destroying the sample randomness.
14. Which of the following combinations results
in a decrease in sample size in a sample for
attributes?
A.Increase Decrease Increase
B.Decrease Increase Decrease
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C. Increase Increase Decrease
D. Increase Increase Increase
15. An auditor is testing internal control
procedures that are evidenced on an entity’s
vouchers by matching random numbers with
voucher numbers. If a random number matches
the number of a voided voucher, that voucher
ordinarily should be replaced by another
voucher in the random sample if the voucher.
A. Constitutes a deviation.
B. Has been properly voided.
C. Cannot be located.
D. Represents an immaterial peso amount.
16. An auditor plans to examine a sample of 20
purchase orders for proper approvals as
prescribed by the client’s internal control
procedures. One of the purchase orders in the
chosen sample cannot be found, and the
auditor is unable to use alternative procedures
to test whether that purchase was properly
approved. The auditor should
A. Choose another purchase order to replace
the missing purchase order in the sample.
B. Consider this test of control invalid and
proceed with substantive test since internal
control cannot be relied upon.
C. Treat the missing purchase order has a
deviation for the purpose of evaluating the
sample.
D. Select to a completely new set of 20
purchase orders.
17. Which of the following courses of action
would an auditor most likely follow in planning
a sample of cash disbursement if the auditor is
aware of several unusually large cash
disbursements?
A. Set the tolerable rate of deviation at a lower
level than originally planned.
B. Stratify the cash disbursement population so
that the unusually large disbursements are
selected.
C. Increase the sample size to reduce the effect
of the unusually large disbursement.
Kirby Pecson Quimat, CPA Theory of Accounts - Integration
D. Continue to draw new samples until all the
large disbursements appear in the sample.
18. Use of the ratio estimation sampling
technique to estimated peso amounts in
appropriate when
A. The total book value is known and
corresponds to the sum of all the individual
book values.
B. A book value for each sample item is known.
C. There are some observed differences
between audited values and book values.
D. The audited values are nearly proportional to
the book values.
19. What is an auditor’s evaluation of a
statistical sample for attributes when a test of
50 documents results in three deviations if the
tolerable rate is 7%, the expected population
deviation rate is 5%, and the allowance for
sampling risk is 2%?
A. Modify the planned assessed level of control
risk because the tolerable rate plus the
allowance for sampling risk exceeds the
expected population deviation rate.
B. Accept the sample results as support for the
planned assessed level of control risk because
the sample deviation rate plus the allowance
for sampling risk exceeds the tolerable rate.
C. Accept the sample results as support for the
planned assessed level of control risk because
the tolerable rate minus the allowance for
sampling risk equals the expected population
deviation rate.
D. Modify the planned assessed level of control
risk because the sample deviation rate plus the
allowance for sampling risk exceeds the
tolerable rate.
For questions #20 and 21
An auditor desired to test credit approval on
10,000 sales invoices processed during the year.
The auditor designed a statistical sample that
would provide 1% risk assessing control risk too
low (99% confidence) that not more than 7% of
the sales invoices lacked approval. The auditor
estimated from previous experience that about
2 ½ % of the sales invoices lacked approval. A
sample of 200 invoices was examined and seven
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of them were lacking approval. The auditor then
determined the achieved upper precision limit
to be 8%.*
20. In the evaluation of this sample, the auditor
decided to increase the level of the preliminary
assessment of control risk because the
A. Tolerable rate (75%) was less than the
achieved upper precision limit (8%).
B. Expected deviation rate (7%) was more than
the percentage of errors in the sample (3 ½ %).
C. Achieved upper precision limit (8%) was more
than the percentage of errors in the sample (3 ½
%).
D. Expected deviation rate (2 ½ %) was less than
the tolerable rate (7%).
21. The allowance for sampling brisk was
A. 5 ½ %.
B. 4 ½ %.
C. 3 ½ %.
D. 1%.
22. When using classical variables sampling for
estimation, an auditor normally evaluates the
sampling results by calculating the possible
misstatement in either direction. This statistical
concept is known as
A. Precision.
B. Reliability.
C. Projected misstatement.
D. Standard deviation.
23. Analytical procedures used in the overall
review stage of the audit generally include
A. Retesting controls that appeared to be
ineffective during the assessment of control risk.
B. Considering unusual or unexpected account
balances that were not previously identified.
C. Gathering evidence concerning account
balances that have not changed from the prior
year.
D. Performing test of transactions to
corroborate management’s financial statement
assertions.
Kirby Pecson Quimat, CPA Theory of Accounts - Integration
24. Analytical procedures performed in the
overall review stage of an audit suggest that
several account have unexpected relationships.
The results of these procedures most likely
indicate that
A. The communication with the audit
committee should be revised.
B. Irregularities exist among the relevant
account balances.
C. Additional substantive test of details are
required.
D. Internal control activities are not operating
effectively.
25. Which of the following events most likely
indicates the existence of related parties?
A. Making a loan without scheduled terms for
payment of the funds.
B. Discussing merger terms with a company that
is a major competitor.
C. Selling real estate at a price that differs
significantly from its book value.
D. Borrowing a large sum of money at a variable
rate of interest.
26. After determining that a related party
transaction has, in fact, occurred, an auditor
should
A. Obtain an understanding of the business
purpose of the transaction.
B. Substantive that the transaction was
consummated on terms equivalent to an arm’s-
length transaction.
C. Add separate paragraph to the auditor’s
report to explain the transaction.
D. Perform analytical procedure to verify
whether similar transactions occurred, but were
not recorded.
27. Which of the following statements best
describes the “date of the financial
statements?”
A. The date on which those with the recognized
authority assert that they have prepared the
entity’s complete set of financial statement,
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including the related notes, and that they have
taken responsibility for them.
B. The date that the auditor’s report and
audited financial statements are made available
to third parties.
C. The date of the end of the latest period
covered by the financial statements, which is
normally the date of the most recent balance
sheet in the financial statement subject to
audit.
D. The date on which the auditor has obtained
sufficient appropriate audit evidence on which
to base the opinion on the financial statement.
28. After issuing a report, an auditor has no
obligation to make continuing inquiries or
perform other procedures concerning the
audited financial statements, unless
A. Final determinations or resolutions are made
of contingencies that had been disclosed in the
financial statements.
B. Information about an event that occurred
after the date of the auditor’s report comes to
the auditor’s attention.
C. The control environment changes after
issuance of the report.
D. Information, which existed at the report
date and may affect the report, comes to the
auditor’s attention.
29. Which of the following statements best
describes the auditor’s responsibility concerning
the appropriateness of the going concern
assumption in the preparation of the financial
statements?
A. The auditor’s responsibility is to make a
specific assessment of the entity’s ability to
continue as a going concern.
B. The auditor’s responsibility is to predict
future events or conditions that may cause the
entity to cease to continue as going concern.
C. The auditor’s responsibility is to consider the
appropriateness of management’s use of the
going concern assumption and consider
whether there are material uncertainties about
the entity’s ability to continue as a going
concern that need to be disclosed in the
financial statements.
Kirby Pecson Quimat, CPA Theory of Accounts - Integration
D. The auditor’s responsibility is to give a
guarantee in the audit report that the entity has
the ability to continue as a going concern.
30. Which of the following conditions or events
most likely would cause an auditor to have
substantial doubt about an entity’s ability to
continue as a going concern?
A. Cash flows from operating activities are
negative.
B. Stock dividends replace annual cash
dividends.
C. Significant related party transactions are
pervasive.
D. Research and development projects are
postponed.
31. Harold, CPA, believes there is substantial
doubt about the ability of Jersamtan Co. to
continue as a going concern for a reasonable
period of time. In evaluating Jersamtan’s plans
for dealing with the adverse effects of future
conditions and events, Harold most likely would
consider, as a mitigating factor, Jerssamtan’s
plans to
A. Postpone expenditures for research and
development projects.
B. Purchase production facilities currently being
leased from related party.
C. Strengthen internal controls over cash
disbursement.
D. Discuss with lenders the terms of all debt and
loan agreements.
32. When an audit is made in accordance with
generally accepted auditing standards, the
auditor should always
A. Observe the taking of physical inventory on
the balance sheet date.
B. Obtain certain written representations from
management.
C. Employ analytical procedures as substantive
test to obtain evidence about assertions related
to account balances.
D. Document the understanding of the client’s
internal control and the basis for all conclusions
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about the assessed level of control risk for
financial statement assertions.
33. The date of the management representation
letter should coincide with the date of the
A. Balance sheet
B. Latest related party transaction
C. Auditor’s report
D. Latest interim financial information
34. Which of the following statements
concerning management representations is
incorrect?
A. Representations by management can be a
substitute for other audit evidence that the
auditor could reasonably expect to be
available.
B. If the auditor is unable to obtain sufficient
appropriate audit evidence regarding a matter,
which has, or may have, a material effect on the
financial statements and such audit evidence is
expected to be available; this will constitute a
limitation in the scope of the audit, even if a
representation from management has been
received on the matter.
C. If a representation by management is
contradicted by other audit evidence, the
auditor should investigate the circumstances
and, when necessary, reconsider the reliability
of other representations by management.
D. The auditor’s working papers would
ordinarily include a summary of oral discussions
with management or written representations
from management.
35. What type of opinion should be expressed if
the client’s management refuses to provide a
representation that the auditor considers
necessary?
A. Qualified opinion or a disclaimer of opinion.
B. Qualified opinion or an adverse opinion.
C. Adverse opinion or a disclaimer of opinion.
D. Unqualified opinion.
36. The primary reason an auditor request that
letters of inquiry be sent to a client’s attorneys
is to provide the auditor with
Kirby Pecson Quimat, CPA Theory of Accounts - Integration
A. A description and evaluation of litigation,
claims, and assessment that existed at the
balance sheet date.
B. The attorneys’ opinion of the client’s
historical experiences in recent similar litigation.
C. Corroboration of the information furnished
by management about litigation, claims, and
assessments.
D. The probable outcome of asserted claims and
pending or threatened litigation.
37. The letter of audit inquiry should be
A. Prepared and sent by the auditor.
B. Prepared by management and sent by the
auditor.
C. Prepared and sent by management.
D. Prepared by the auditor and sent by the
management.
38. In which of the following circumstances
would an auditor most likely meet with the
client’s legal counsel to discuss the likely
outcome of the litigation and claims?
I. The auditor determines that the matter is a
significant risk.
II. There is a disagreement between
management and the entity’s legal counsel.
III. The subject matter of the litigation is
complex.
A. I and II only
B. II and III only
C. I and III only
D. I, II and III
39.Which of the following statements extracted
from a client’s lawyer’s letter concerning
litigation, claims, and assessment most likely
would cause the auditor to request
clarification?
A.” I believe that the action can be settled for
less than the damages claimed.”
B.” I believe that the company will be able to
defend this action successfully.”
C.” I believe that the plaintiff’s case against the
company is without merit.”
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D.” I believe that the possible liability to the
company is nominal in amount.”
40. Financial statement of an entity that have
been reviewed by an accountant should be
accompanied by a report stating that a review
A. Provides only limited assurance that the
financial statement are fairly presented.
B. Includes examining, on a test basis,
information that is the representation of
management.
C. Consist principally inquiries of company
personnel and analytical procedures applied to
financial data.
D. Does not contemplate obtaining
corroborating evidential matter or applying
certain other procedures ordinarily performed
during an audit.
41. An accountant’s report on an review of the
financial statements of an entity should state
that the accountant
A. Does not express an opinion or any form of
limited assurance on the financial statements.
B. Conducted the review in accordance with
the Philippine Standard on Review
Engagements.
C. Obtained reasonable assurance about
whether the financial statements are free of
material misstatements.
D. Examined evidence, on a test basis,
supporting the amount and disclosures in the
financial statements.
42. Financial statements of an entity that have
been reviewed by an accountant should be
accompanied by a report stating that
A. The scope of the inquiry and analytical
procedures performed by the accountant has
not been restricted.
B. The financial statements are the
responsibility of the company’s management.
C. A review includes examining, on a test basis,
evidence supporting the amount and
disclosures in the financial statement.
D. A review is greater in scope than a
compilation, the objective of which is to present
Kirby Pecson Quimat, CPA Theory of Accounts - Integration
financial statement that is free of material
misstatements.
43. An accountant who reviews the financial
statements of an entity should issue a report
stating that a review
A. Provides less assurance than an audit.
B. Provides negative assurance that internal
control is functioning as designed.
C. Provides only limited assurance that the
financial statements are fairly presented.
D. Is substantially more in scope than a
compilation.
44. When compiling an entity’s financial
statements, an accountant would be least likely
to
A. Perform analytical procedures designed to
identify relationships that appear to be
unusual.
B. Read the complied financial statements and
consider whether they appear to include
adequate disclosure.
C. Obtain an acknowledgement from
management of its responsibility for the
financial statements.
D. Plan the work so that an effective
engagement will be performed.
45. Which of the following should not be
included in an accountant’s report based upon
the compilation of an entity’s financial
statements?
A. A statement that a compilation of the
company’s financial statements was made in
accordance with the Philippine Standard on
Related Services applicable to compilation
engagements.
B. A statement that management is responsible
for the financial statements.
C. A statement that the accountant ha not
audited or reviewed the statements.
D. A statement that the accountant does not
express an opinion but provides only negative
assurance on the statements.
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46. Given one or more hypothetical
assumptions, a responsible party may prepare,
to the best of its knowledge and belief, an
entity’s expected financial position, results of
operations, and cash flows. Such prospective
financial statements are known as
A. Pro forma financial statements
B. Financial projections
C. Partial presentations
D. Financial forecast
47. When an accountant examines prospective
financial statement, the accountant’s report
should include a separate paragraph that
A. Contains an opinion as to whether the
prospective financial statement are properly
prepared on a basis of the assumptions and are
presented in accordance with generally
accepted accounting principles in the
Philippines.
B. Provides an explanation of the differences
between an examination and an audit.
C. States that the accountant is responsible for
events and circumstances up to 1 year after the
report’s date.
D. Disclaims an opinion on whether the
assumptions provide a reasonable basis for the
prospective financial statements.
48. A prospective financial information prepared
on the basis of assumptions as to future events
which management expects to take place and
the actions management expects to take as of
the date the information is prepared (best-
estimate assumptions) is known as
A. forecast
B. Hypothetical financial information
C. Projection
D. Best-estimate projection
49. Which of the following is prospective
financial information for general use upon
which an account may appropriately report?
A. Financial projection
B. Partial presentation
Kirby Pecson Quimat, CPA Theory of Accounts - Integration
C. Pro forma financial statement
D. Financial forecast
50. Misstatement in the financial statement that
can arise from fraud or error. The distinguishing
factor between fraud and error is whether the
underlying action that results in the
misstatement of the financial statement is
I. Intentional or unintentional
II. Rational or irrational
A. I only
B. II only
C. Both I and II
D. Neither I or II
51. ”Error” includes
A. Engaging in complex transactions that are
structured to misinterpret the financial position
or financial performance of the entity.
B. Concealing, or not disclosing, facts that could
affect the amounts recorded in the financial
statements.
C. An incorrect accounting estimate arising
from oversight or misinterpretation of facts.
D. Intentional misapplication of accounting
policies relating to amounts, classification,
manner or presentation, or disclosure.
52. Fraud involving one or more members of
management or those charged with governance
is referred to as
A. Management fraud.
B. Employee fraud.
C. Fraudulent financial reporting.
D. Misappropriation of assets.
53. The auditor is concerned with the fraud
that causes a material misstatement in the
financial statements. There are two types of
intentional misstatement that are relevant to
the auditor: misstatement resulting from
fraudulent financial reporting and
misstatements resulting from
A. Management fraud.
B. Employee fraud.
C. Misappropriation of assets.
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D. Collusion within the entity or with third
parties.
54. Fraudulent financial reporting involves
intentional misstatement including omissions of
amount or disclosures in financial statements to
deceive financial statement users. It may be
accomplished in a number of ways, including
A. Embezzling receipts.
B. Stealing physical assets or intellectual
property.
C. Using an entity’s assets for personal use.
D. Manipulation, falsification, or alteration of
accounting records or supporting
documentation from which the financial
statements are prepared.
55. Which of the following statements best
describes an auditor’s responsibility regarding
misstatements?
A. An auditor should obtain reasonable
assurance that the financial statements taken
as a whole are free from material
misstatement, whether caused by fraud or
error.
B. An auditor should obtain absolute assurance
that material misstatements in the financial
statements will be detected.
C. An auditor is responsible to detect material
errors but has no responsibility to detect
material fraud that is concealed through
employee collusion or management override of
internal control.
D. An auditor’s failure to detect a material
misstatement resulting from fraud is an
indication of non compliance with the
requirements of the Philippine Standards on
Auditing (PSAs).
56. When obtaining an understanding of the
entity and its environment, including its internal
control, the auditor may identify events or
conditions that indicate an incentive or pressure
to commit fraud or provide an opportunity to
commit fraud. Such events or conditions are
referred to as
A. Fraud conditions.
B. Fraud risk factors.
Kirby Pecson Quimat, CPA Theory of Accounts - Integration
C. Fraudulent activities.
D. Fraud environment.
57. The following are examples of fraud risk
factors relating to misstatement arising from
misappropriation of assets, except
A. Recurring negative cash flows from
operating activities while reporting earnings
and earnings growth.
B. Inadequate physical safeguards over cash,
investments, inventory, or fixed assets.
C. Inadequate segregation of duties or
independent checks.
D. Adverse relationship between the entity and
employees with access to cash or other assets
susceptible to theft created by recent changes
made to employee compensation or benefit
plans.
58. Opportunities to misappropriate assets
increase when there are
A. Known or anticipated future employee
layoffs.
B. Promotions, compensation, or other rewards
inconsistent with expectations.
C. Recent or anticipated changes to employee
compensation or benefits plans.
D. Inventory items those are small in size, or
high value, or in high demand.
59. Which of the following conditions or events
may create incentives/pressures to commit
fraud?
A. Inadequate system of authorization and
approval of transactions.
B. Lack of mandatory vacations for employees
performing key control functions.
C. Excessive pressure on management or
operating personnel to meet financial targets
established by those charged with governance,
including sales or profitability incentive goals.
D. Inadequate access controls over automated
records.
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60. When planning the audit, the auditor
should make inquiries of management. Such
inquiries should address the following, except
A. Management’s assessment of the risk that
the financial statements may be misstated due
to fraud.
B. Management’s process for identifying and
responding to the risk of fraud in the entity.
C. Management’s consideration of how an
element of unpredictability will be
incorporated, into the nature, timing, and
extent of the audit procedures to be
performed.
D. Management’s communication, if any, to
those charged with governance regarding its
processes for identifying and responding to the
risk of fraud in the entity.
61. When the auditor identifies misstatement
in the financial statements, the auditor should
consider whether such a misstatement may be
indicative of fraud and if there is such an
indication, the auditor should
A. Consider the implications of the
misstatement in relation to other aspects of
audit.
B. Withdraw from the engagement.
C. Communicate the information to regulatory
and enforcement authorities.
D. Report the matter to the person or persons
who made the audit appointment.
62. The following statements relate to
communication of misstatements resulting from
fraud to management and to those charged
with governance. Which is false?
A. The auditor need not bring to the attention
of those charged with governance any material
weaknesses in internal control related to the
prevention and detection of fraud.
B. If the auditor has identified fraud, whether or
not it results in a material misstatement in the
financial statements, the auditor should
communicate these matters to the appropriate
level of management on a timely basis, and
consider the needs to report such matter to
those charged with governance.
Kirby Pecson Quimat, CPA Theory of Accounts - Integration
C. If the auditor has obtained evidence that
indicates that fraud may be exist (even if the
potential effect on the financial statements
would not be material), the auditor should
communicate these matters to the appropriate
level of management on a timely basis, and
consider the need to report such matters to
those charged with governance.
D. The auditor’s communication with those
charged with governance may be made orally or
in writing.
63. As used in PSA 250 (Consideration of Laws
and Regulations in an Audit Financial
Statements), this term refers to acts of omission
or commissions by the entity being audited,
either intentional or unintentional, which are
contrary to prevailing laws or regulations.
A. Noncompliance
B. Illegal acts
C. Erotic acts
D. Unforgivable acts
64. PSA 250 states that in order to plan to
audit, the auditor should obtain a general
understanding of the legal and regulatory
framework applicable to the entity and the
industry and how the entity is complying with
that framework. To obtain this understanding,
the following procedures would ordinarily be
considered by the auditor, except
A. Use the existing understanding of the entity’s
industry, regulatory, and other external factors.
B. Inquire of management concerning the
entity’s policies and procedures regarding
compliance with law and regulations.
C. Inquire management as to the law and
regulations that may be expected to have a
fundamental effect on the operations of the
entity.
D. Inspect correspondence with relevant
licensing or regulatory authorities.
65. If the auditor concludes that the
noncompliance has a material effect on the
financial statements, and has not been properly
reflected in the financial statements, the auditor
should express
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A. A qualified or an adverse opinion. B. In an audit accordance with PSAs, the
auditor should design audit procedures for the
B. A qualified opinion or a disclaimer of opinion. specific purpose of identifying matters of
C. A disclaimer of opinion. governance interest.

D. A qualified opinion. C. The auditor should identify relevant persons

66. If the auditor is precluded by the entity
obtaining sufficient appropriate audit evidence
to evaluate whether non compliance that may
be material to the financial statements, has, or
is likely to have, occurred, the auditor should
express
who are charged with governance and with
whom audit matters of governance interest are
to be communicated.
D. The auditor’s communication with those
charged with governance may be made orally or
in writing.

A. A qualified opinion or an adverse opinion. 69. Audit matters of governance interest to be

communicated to those charged with
B. A qualified opinion or a disclaimer of governance ordinarily include
opinion.
A. Audit adjustments, whether or not recorded
C. An adverse opinion.
by the entity that have, or could have, a
D. An adverse opinion or a disclaimer of material effect on its financial statements.
opinion.
B. Expected modifications to the auditor’s
67. Under which of the circumstances below
report.
would the auditor conclude that withdrawal
from engagement is necessary?
C. Material uncertainties related to events and
A. The auditor concludes that the conditions that may cast significant doubt on
noncompliance has a material effect on the
the entity’s ability to continue as a going
financial statements and has not been properly
reflected in the financial statements. concern.

B. The auditor is precluded by the entity from D. All of the above.

obtaining sufficient appropriate audit evidence
to evaluate whether noncompliance that may
be material to the financial statements, has, or
is likely to have, occurred.

C. The auditor is unable to determine whether

noncompliance has occurred because of
limitations imposed by the circumstances rather
than by the entity.

D. The entity does not take the remedial action

that the auditor considers necessary in the
circumstances.

68. Which of the following statements relating

to the communication of audit matters of
governance interest is incorrect?

A. Audit matters of governance interest include

only those matters that have come to the
attention of the auditor as a result of the
performance of the audit.

Kirby Pecson Quimat, CPA Theory of Accounts - Integration Page 11