Bicol University

College of Business, Economics, and Management

Department of Accountancy

AUDITING THEORY - COMPREHENSIVE SELF-REVIEW QUIZER

MULTIPLE CHOICE

1. Which of the following statements is incorrect regarding the auditor’s evaluation of management’s
representations in forming an opinion?
A. The accounting policies selected and applied are consistent with the financial reporting
framework
B. The accounting estimates made by management are infallible
C. The information presented in the financial statements is relevant, reliable, comparable,
and understandable
D. The financial statements provide sufficient disclosures

ANS: B PTS: 1

2. Ash, CPA, has audited Ace Semiconductors, Inc. During the course of the audit, Ash enlisted the
services of Paul, an expert on electronics. As a result of Paul’s services, Ash issued a modified
report. While drafting the explanation to the modification, Ash decided that reference to the expert
is required. The expert did not grant permission to use his name. In these circumstances, Ash:
A. should obtain the permission of Paul before making such a reference
B. may refer to Paul without permission, but Luke’s identity must be concealed
C. should seek legal advice on action that must be taken regarding the situation
D. cannot refer to Paul under any circumstance

ANS: C PTS: 1

3. When the auditor judges that the limitation on scope in the audit could preclude him from
performing the audit effectively, but was able to determine alternative procedures that would offset
the preclusion caused by the limitation on scope, which of the following actions is valud for the
auditor to do?
A. issue an unqualified opinion
B. include an additional paragraph before the opinion paragraph
C. disclaim an opinion
D. include in the introductory paragraph that the auditors “were engaged to audit”

ANS: B PTS: 1

4. When the auditor judges that the materiality of the issue in the audit is material but when the
financial statements taken as a whole are not made misleading entirely, which of the following
actions is valid for an auditor to do?
A. place an additional paragraph after the opinion paragraph
B. resign from the audit
C. express an “except for” opinion in the audit report
D. request that management remove all scope limitations

ANS: C PTS: 1

5. When the auditor is assessing the auditability of a small business client, the auditor should focus
upon:
A. the integrity of management and the adequacy of the client’s internal control systems
B. whether the auditor has adequate resources to accomplish the audit
C. the amount of risk the audit represents and the audit fee which can be collected
D. whether the client’s accounting personnel are well trained and professionally qualified

ANS: A PTS: 1

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 6. Based on PSA 701, a material misstatements of the financial statements may arise in relation to
the following except:
A. approrpiateness of selected accounting policies
B. application of selected accounting policies
C. appropriateness of the going concern assumption
D. appropriateness or adequacy of disclosures

ANS: C PTS: 1

7. What is the logical reason why the basis for modified opinion paragraph is placed before the opinion
paragraph?
A. it is prescribed in the standards
B. it draws attention to the relevant matter that led the auditor to issue an other than
unqualified opinion
C. it informs the readers of the audit report of the relevant information that precludes the
expression of an unqualified opinion to soften the blow of the readers’ assumed
expectation of an unqualified opinion
D. none of the choices

ANS: C PTS: 1

8. Which of the following is not an advantage of converting from a manual to an IT-based system?
A. It usually centralizes data.
B. It permits higher quality controls over operations.
C. It may eliminate the control provided by division of duties of independent persons who
perform related functions and compare results.
D. It may take the record-keeping function and the document preparation function away
from those who have custody of assets and put those functions into the IT center.

ANS: D PTS: 1

9. A lawyer refuses to furnish corroborating information regarding litigation, claims, and assessments,
and the auditor is unable to perform alternative procedures to obtain the corroborating information.
In this case, the auditor will choose between issuing a(n):
A. unqualified opinion and qualified opinion
B. qualified opinion and adverse opinion
C. qualified opinion and disclaimer of opinion
D. adverse opinion and disclaimer of opinion

ANS: C PTS: 1

10. Where the client is changing auditors, PSA requires communication between the predecessor and
successor auditors. The burden of approving the communication rests with:
A. the predecessor auditor C. the successor auditor
B. the client D. the PRC

ANS: B PTS: 1

11. Which of the following statements on quality control is correct?

A. The term “auditor” means the person with least responsibility for the audit.
B. “Personnel” means all partners, professional and non-professional staff of a firm.
C. The firm’s general quality control policies and procedures should be communicated to
its personnel in a manner that provides absolute assurance that the policies and
procedures are understood and implemented.
D. The audit program, the time budget, and the overall audit plan are helpful tools for the
communication of audit directions.

ANS: D PTS: 1

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12. Normally, who is the maker and the recipient of the management representation letter?
A. Management, auditor, respectively
B. Auditor, management, respectively
C. management, management, respectively
D. auditor, auditor, respectively

ANS: A PTS: 1

13. When a limitation on scope has been imposed by management, which of the following actions
should an auditor primarily take?
A. request the removal of the scope limitation
B. perform alternative procedures
C. resign from the audit
D. disclaim an opinion

ANS: A PTS: 1

14. Pursuant to an attitude of professional skepticism, an auditor is seeking support for management
representations regarding litigation. The auditor’s primary means of obtaining corroboration of
management’s information is a:
A. confirmation of claims and assessments from an officer of the court presiding over the
litigation
B. letter of audit inquiry to the client’s lawyer
C. confirmation of claims and assessment from the other parties to the litigation
D. letter of corroboration from the auditor’s lawyer upon review of the legal documentation

ANS: B PTS: 1

15. What phrase in the client engagement letter implies the recognition of a possible limitation on
scope that could be imposed by management in an audit?
A. obtain sufficient appropriate audit evidence
B. unrestricted access to records and documents
C. the financial statements are the responsibility of management
D. procedures selected in the audit are based on the auditor’s professional judgment

ANS: B PTS: 1

16. In the auditing environment, failure to meet generally accepted auditing standards is often
A. An accepted practice C. Conclusive evidence of negligence
B. A suggestion of negligence D. Tantamount to criminal behavior

ANS: C PTS: 1

17. Which of the following represents the logical hierarchy in the decision making when there is a
limitation on scope imposed by management in an audit?
A. there is no other choice but to disclaim an opinion
B. alternative procedures, resignation, disclaimer
C. alternative procedures, removal of the limitation on scope, resignation, disclaimer
D. removal of the limitation on scope, alternative procedures, resignation, disclaimer

ANS: D PTS: 1

18. Leovic, CPA, is planning the audit of Theory, Inc. Theory verbally asserts to Leovic that all the
expenses for the year have been recorded in the accounts. Theory’s representation in this regard:
A. Is sufficient evidence for Leovic to conclude that the completeness assertion is
supported for the expenses
B. Can enable Leovic to minimize his work on the assessment of control risk for the
completeness of expenses
C. Should be disregarded because it is not in writing
D. Is not considered a sufficient basis for Leovic to conclude that all expenses have been
recorded

ANS: D PTS: 1

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19. Which of the following statements is correct regarding the management’s responsibility paragraph
of the audit report?
A. it states that management’s responsibility includes making accounting estimates that
are reasonable in the circumstances
B. it fully restricts management’s responsibility to the preparation and presentation of
financial statements
C. it refers implicitly to the provisions of the introductory paragraph
D. it states implicitly the responsibilities of the auditor

ANS: A PTS: 1

20. When the auditor judges that the financial statements are presented fairly, in all material respects,
but that knowledge of a specific information is deemed important for the understanding of the
users of the financial statements, which of the following actions is valid for the auditor to do?
A. express an “except for” opinion
B. restrict the auditor’s responsibility paragraph to the bulk of the auditor’s work
C. include in the introductory paragraph the phrase “we were engaged to audit”
D. include an additional paragraph after the opinion paragraph

ANS: D PTS: 1

21. Which of the following statements is incorrect regarding the title of the audit report?
A. it should include the term “independent”
B. it should reflect the overall content of the other information included in the company’s
annual report
C. it should follow the wording prescribed by the standards
D. it distinguishes the audit report from the other reports

ANS: B PTS: 1

22. Which of the following is incorrect conerning the date of the auditor’s report and the auditor’s
address?
A. the date of the auditor’s report informs the reader that the auditor has considered the
effects of subsequent events that occurred up to that date
B. the auditor should date the report no later than the date on which the auditor has
obtained sufficient appropriate audit evidence on which to base the opinion on the
financial statements
C. the audit report should name the location in the country where the auditor practices
D. the audtor’s address is usually the location of the main office building of the audit firm

ANS: B PTS: 1

23. This refers to learning which uses course manuals or accredited learning modules.
A. Masteral degree C. In-service training
B. Continuing professional education D. Self-directed learning package

ANS: D PTS: 1

24. In relation to the appropriateness or adequacy of disclosures in the financial statements, material
misstatements may arise when (choose the one which is inconsistent with PSA 701)
A. unintentional error in application of the required disclosures
B. the financial statements do not include all of the disclosures required by the applicable
financial reporting framework
C. the disclosures are not presented in accordance with the financial reporting framework
D. the financial statements do not provide disclosures to achieve fair presentation

ANS: A PTS: 1

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25. In forming an audit opinion, the auditor
A. obtains sufficient, appropriate audit evidence to be able to draw an opinion on which to
base that conclusion
B. obtains sufficient, appropriate audit evidence to be able to draw conclusions on which
to base that opinion
C. studies and evaluates the internal control structure of the company to be able to draw
conclusions on which to base an audit
D. evaluates the risk of material misstatements for various account balances and reports
the misstatements to management

ANS: B PTS: 1

26. Which of the following wordings or phrases should an audit report only include reference to when
the auditor does not express an opinion on the financial statements?
A. compliance with ethical requirements
B. obtaining and evaluating audit evidence
C. in making risk assessments, the auditor considers internal control relevant to the
entity’s preparation and presentation of financial statements
D. the auditor’s responsibility is to express an opinion on the financial statements

ANS: D PTS: 1

27. Which of the following limitations of internal control is least consistent with the provisions of PSA
315?
A. faulty human judgments in decision making
B. perceived oppotunities for fraud to occur
C. breakdowns in internal control caused by human error
D. ineffective operation of a control

ANS: B PTS: 1

28. In a review engagement the public accountant provides negative assurance in the report which is
issued. This can best be described by the phrase:
A. nothing has come to my attention C. we are unable to express an opinion
B. the financial statements present fairly D. except for the issues explained above

ANS: A PTS: 1

29. Which of the following would represent a limitation on scope of the audit that is beyond the control
of the entity?
A. the entity’s accounting records have been destroyed
B. when the timing of the auditor’s appointment precludes the observance of physical
inventory counting
C. when performing substantive procedures alone is not sufficient
D. all of the above

ANS: A PTS: 1

30. It describes the role of persons entrusted with supervision, control, and direction of an entity.
A. Management C. Audit committee
B. Governance D. Steward of company resources

ANS: B PTS: 1

31. In relation to the application of the selected accounting policies, material misstatements may arise
when (choose the one which is inconsistent with PSA 701)
A. when management has not applied the selected accounting policies consistently with
the financial reporting framework
B. when there is an unintentional error in the application
C. when the effect of the error is due to an action that is deliberate
D. when there is disagreement about the facts to which the selected accounting policies
are applied

ANS: C PTS: 1

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32. The auditor’s failure to recognize a misstatement in an amount or a control deviation is described
as a
A. statistical error C. standard error of the mean
B. sampling error D. nonsampling error

ANS: D PTS: 1

33. A CPA certificate is evidence of:

A. Recognition of independence in mind
B. Basic competence at the time the certificate is granted
C. Culmination of the educational process
D. Membership in the PICPA

ANS: B PTS: 1

34. Which of the following statements is incorrect concerning the introductory paragraph of an audit
report?
A. it should identify the entity whose financial statements have been audited
B. it should state that the financial statements have been audited
C. it should state that the auditors have audited the financial statements in all
circumstances
D. it should identify the title of each of the financial statements that comprise the
complete set of financial statements

ANS: C PTS: 1

35. The audit report states the description of an audit that includes all of the following except
A. performing procedures to obtain evidence about the amounts and disclosures in the
financial statements
B. that the procedures selected are imposed by the auditing standards
C. that risk assessment and materiality are part of the audit process
D. an audit also includes evaluating the appropriateness of the accounting policies used

ANS: B PTS: 1

36. Which of the following is an incorrect interpretation of “practice in education/academe”?

A. The chairman of the BSA program of Tulog University is having problems because Atty..
Sakitin is sick and there is no once to handle the business law curriculum. His only
alternative is to offer the subject to Enchong, CPA. Enchong is not a lawyer, though he
aspired to be one and is known for his great proficiency in business law. Enchong
accepted the offer and taught business law for that semester.
B. Pearl is a multi-skilled CPA and professor. During one semester, Pearl accepted offers
to teach both Advanced Accounting and Taxation.
C. The University of Pasado is conducting a review of job descriptions and qualifications of
its academic staff. One of the new requirements for the department chairman of the
Accountancy Department is that “the chairman must be a duly registered Certified
Public Accountant”.
D. In an interview for the student paper, the dean of the College of Accountancy has
stated his intention to “go back into teaching Auditing Theory after my term as dean.
Due to the demands of the deanship I have not taught any accounting class during my
tenure. I could not wait to resume my practice in education/academe... I have been
away for so long.”

ANS: D PTS: 1

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37. Which of the following statements is inconsistent with PSA 700 in expressing an unqualified
opinion?
A. it should be expressed when the auditor concludes that the financial statements taken
as a whole are free of material misstatements
B. it states that the information that the financial statements are designed to convey are
presented fairly
C. it states that the financial statements are in accordance with the company’s applicable
financial reporting framework
D. the unqualified opinion provides full assurance on the preparation and presentation of
the financial statements

ANS: D PTS: 1

38. You are the auditor of Baron Flowers, Inc. for 2013. To date, the aggregate of uncorrected
misstatements that you have identified is approaching the materiality level. What is the best course
of action to take?
A. Consider whether it is likely that undetected misstatements, when taken with aggregate
corrected misstatements could exceed materiality level.
B. Consider whether it is likely that undetected misstatements, when taken with aggregate
uncorrected misstatements could exceed materiality level.
C. Consider whether it is likely that undetected misstatements, when taken with individual
uncorrected misstatements could exceed materiality level.
D. Consider whether it is likely that detected misstatements, when taken with aggregate
uncorrected misstatements could exceed materiality level.

ANS: B PTS: 1

39. Which of the following is the most applicable reply to the text message of the client:
“Okay. See you in the meeting tomorrow.”?
A. Ok!
B. Okay. Will c u @ 9am.
C. Noted. We will be there before 9am at your office
D. Oks. S33 y0u t0m0rr0w.

ANS: C PTS: 1

40. This procedure for obtaining audit evidence consists of checking the arithmetical accuracy of source
documents and accounting records or of performing independent calculations.
A. inspection C. inquiry and confirmation
B. observation D. computation

ANS: D PTS: 1

41. In the case of recurring audits, the auditor should consider whether circumstances require the
terms of the engagement to be revised and whether there is a need to remind the client of the
existing terms of the engagement. The auditor may decide not to send a new engagement letter
each period. However, the following factors may make it appropriate to send a new letter, except:
A. there is indication that the client misunderstands the objective and scope of the audit
B. any revised or special terms of the engagement
C. a recent change of rank and file employees
D. legal requirements and other government agencies’ pronouncements

ANS: C PTS: 1

42. The auditor should be alert for particular trends and relationships that may indicate a risk of
material misstatement due to fraud, such as the following, except:
A. Uncharacteristically large amounts of income being reported in the last few weeks of
the reporting period
B. Unusual transactions
C. Application of conservatism or prudence in making accounting estimates
D. Income that is inconsistent with trends in cash flow from operations

ANS: C PTS: 1

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43. Based on PSA 700, which of the following statements is correct concerning the auditor’s basis for
forming an oipinion on the financial statements?
A. The auditor has performed audit procedures specifically necessary to obtain and
evaluate evidence that the internal controls of the company are effective
B. The auditor has acknowledged full responsibility for the discovery of all fraud and errors
C. There is explicit mentioning that all the provisions of the GAAS have been adhered to
by the auditor
D. There is reasonable assurance that sufficient appropriate audit evidence has been
obtained and evaluated in accordance with the auditor’s due professional care and
judgment

ANS: D PTS: 1

44. The return of a positive confirmation of accounts receivable without an exception attests to the
A. collectibility of the receivable balance
B. accuracy of the receivable balance
C. accuracy of the aging of accounts receivable
D. accuracy of the allowance for uncollectible accounts

ANS: B PTS: 1

45. Assertions are representations of management that are embodied in financial statement
components. They can be either explicit or implicit. Which of these assertions is not about valuation
or allocation?
A. Property is recorded at historical cost.
B. Trade accounts receivable in the balance sheet are stated at net realizable value.
C. Notes payable in the balance sheet include all such obligations of the entity.
D. Property cost is systematically allocated to appropriate accounting period.

ANS: C PTS: 1

46. According to PSA 315, an example of the matters that the auditor may consider to obtain an
understanding of the nature of the entity is conduct of operations. Conduct of operations include
the following, except:
A. stages and methods of production
B. business segments
C. alliances, joint ventures, and outsourcing activities
D. details of declining or expanding operations

ANS: C PTS: 1

47. Which of the following phrases is most likely found in the auditor’s responsibility paragraph?
A. We have audited the accompanying financial statements of Rez Company, which
comprise the balance sheet as of December 31, 2014...
B. This responsibility includes: designing, implementing, and maintaining internal control
relevant to the preparation and fair presentation of financial statements that are free
from material misstatement...
C. An audit involves performing procedures to obtain audit evidence about the amounts
and disclosures in the financial statements.
D. In our opinion, the financial statements present fairly, in all material respects, the
financial position of Rez Company as of December 31, 2014, and of its financial
performance and cash flows...

ANS: C PTS: 1

48. A document which the auditor receives from the client, but which was prepared by someone
outside the client’s organization, is a(n):
A. Confirmation C. External document
B. Internal document D. Inquiry

ANS: C PTS: 1

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49. Which of the following statements is incorrect regarding audit evidence in accordance with PSA
500?
A. the definition of audit evidence includes all the information used by the auditor in
arriving at the conclusions on which the audit opinion is based
B. audit evidence is necessary to support the opinion and the auditor’s report
C. audit evidence only includes information that corroborates management’s assertions
D. audit evidence is cumulative in nature and is a matter of professional judgment

ANS: C PTS: 1

50. Conflict between financial statement users and auditors often arises because of:
A. High cost of performing an audit
B. Extremely technical vocabulary which the auditor uses in the report
C. Placement of the auditor’s report in the back of the client’s annual report, where it is
hard to locate
D. Expectation gap

ANS: D PTS: 1

51. The following are examples of conditions and events that may indicate the existence of risks of
material misstatement, except:
A. Operations in regions that are economically unstable, for example, countries with
significant currency devaluation or highly inflationary economies
B. Changes in the supply chain
C. Changes in key personnel including departure of key executives
D. Low degree of complex regulation

ANS: D PTS: 1

52. Which of the following statements is incorrect about the concept of uncertainty and the assessment
of the going concern assumption?
A. In general terms, the degree of uncertainty associated with the outcome of an event or
condition decreases significantly the further into the future a judgment is being made
about the outcome of an event or condition.
B. Any judgment about the future is based on information available at the time at which
the judgment is made.
C. The size and complexity of the entity, the nature and condition of its business and the
degree to which it is affected by external factors all affect the judgment regarding the
outcome of events or conditions.
D. In general terms, the degree of uncertainty associated with the outcome of an event or
condition increases significantly the further into the future a judgment is being made
about the outcome of an event or condition.

ANS: A PTS: 1

53. Which of the following cases illustrate a violation of the provisions of RA9298 and its IRR?
A. Rushnell, CPA, obtained 60 units of Continuing Professional Education in order to qualify
for renewal of his professional license.
B. Paul, a non-CPA, was removed from her position as internal auditor of Table Company
because of the IRR requirement that high accounting positions in large companies
(qualifying under Section 4 of the IRR) must be CPAs.
C. Jensie, CPA, is the dean of a university offering BS Accountancy. Yellow was considered
practicing the profession in education, even though Yellow spends more time in the
office and has only 3 units of teaching load.
D. Gizelle, CPA, withdrew from an audit engagement after a client refused to accept her
audit report. White gave the client and adverse opinion, due to the presence of material
and pervasive uncorrected misstatements in the financial statements.

ANS: B PTS: 1

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54. What is the extent of the auditor’s responsibility with regards to the going concern assumption in
an audit?
A. determination of all uncertainties that will lead to doubts about the going concern
assumption
B. assessment of whether the going concern assumption is appropriate or not
C. making reasonable estimates and judgments for management for material uncertainties
D. restatement of the financial statements if the going concern assumption is not
appropriate

ANS: B PTS: 1

55. Because an external auditor is paid a fee by a client company, he or she:

A. is absolutely independent and may conduct an audit
B. may be sufficiently independent to conduct an audit
C. is never considered to be independent
D. must receive approval of the SEC before conducting an audit

ANS: B PTS: 1

56. While performing analytical procedures, an auditor observes that operating income has declined
significantly between 2012 and 2013. Accordingly, the auditor should next:
A. Require that the decline be disclosed in the financial statements
B. Consider the possibility that the financial statements may be materially misstated
C. Inform management that an except-for opinion on the financial statements will be
issued
D. Determine management’s responsibility for the decline and discuss the issue with the
audit committee of the client

ANS: B PTS: 1

57. After the study and evaluation of a client’s internal control and policies has been completed, an
auditor might decide to
A. increase the extent of substantive testing in areas where the internal control policies
and procedures are weak
B. reduce the extent of control testing in areas where the internal control policies and
procedures are strong
C. reduce the extent of both substantive and control testing in areas where the internal
control policies and procedures are strong
D. decrease the extent of substantive testing in areas where the internal controls are weak

ANS: A PTS: 1

58. In “auditing” accounting data, the focus is with:

A. Determining whether recorded information properly reflects the economic events that
occurred during the accounting period
B. Determining if fraud has occurred
C. Determining if taxable income has been calculated correctly
D. Analyzing the financial information to be sure that it complies with government
requirements

ANS: A PTS: 1

59. When the auditor judges that the circumstances would preclude him from adhering to the ethical
requirements set forth in the code, which of the following actions is valid for an auditor to do?
A. express an “except for” opinion
B. include in the audit report the phrase “we were engaged to audit”
C. include an additional paragraph after the opinion paragraph
D. include in the audit report the full description of an audit

ANS: B PTS: 1

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60. An initial audit requires more audit time to complete than a recurring audit. One of the reasons for
this is that:
A. The new auditors are usually assigned to an initial audit
B. The predecessor auditors need to be consulted
C. The client’s business, industry, and internal control are unfamiliar to the auditor and he
needs to study them
D. A larger proportion of customer accounts receivable need to be confirmed on an initial
audit

ANS: C PTS: 1

61. Which of the following statements is correct concerning the auditor’s signature on the audit report?
A. it implies that the ownership to the working papers in the audit belong to the auditor
B. it reflects the person who performed the most work on the audit
C. it reflects adherence to the provisions of the auditor and the client in the audit
engagement letter
D. it reflects the auditor’s assumption of responsibility and liability on the credibility of the
financial statements

ANS: D PTS: 1

62. Financial statement assertions are assertions by management, explicit or otherwise, that are
embodied in the financial statements. Which statement below refers to the Measurement assertion?
A. An asset or a liability exists at a given date.
B. An asset or liability is recorded at an appropriate carrying value.
C. A transaction or event is recorded at the proper amount and revenue or expense is
allocated to the proper period.
D. An item is disclosed, classified, and described in accordance with the applicable
financial reporting framework.

ANS: C PTS: 1

63. In a small company that employs inadequate number of employees to permit proper division of
responsibilities, effective internal control can best be strengthened by:
A. Direct participation by the owner of the business in the record-keeping activities of the
business
B. Employment of temporary personnel to aid in the separation of duties
C. Delegation of full clear-cut responsibility to each employee for the functions assigned to
each
D. Affirm in writing management’s approval of limitation on the scope of the audit

ANS: A PTS: 1

64. In which of the following planning concepts would the determination of the specific detailed
procedures to audit accounts be included?
A. audit strategy
B. audit plan
C. audit program
D. none of the choices

ANS: C PTS: 1

65. In accordance with PSA 701, when there are matters that do not affect the auditor’s opinion, which
of the following statements is incorrect?
A. the audit report shall bear additional information to regard that relevant matter
considered by the auditor
B. the auditor should state that regardless of the knowlege of said matter, the opinion
remains unmodified
C. the relevant matter should be placed in the basis for emphasis paragraph
D. the audit report should state that the auditors have audited the financial statements

ANS: C PTS: 1

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66. Which of the following statements is inconsistent with PSA 700 in describing the auditor’s
responsiblity in an audit?
A. the primary responsibility of the auditor is restricted to the expression of an opinion on
the financial statements
B. the standards require the auditor to comply with ethical requirements
C. the auditor should supersede management in the assessment of the going concern
assumption
D. the auditor should plan the audit

ANS: C PTS: 1

67. According to PAPS 1003, an important type of privilege that has to be considered regarding data
ownership is a(the):
A. Administrator’s ability to grant privileges to another administrator
B. User’s ability to grant privileges to another user
C. User’s ability to grant privileges to the network administrator
D. Network administrator’s ability to grant privileges to users

ANS: B PTS: 1

68. According to the IRR, this number is included in the seal used by a Certified Public Accountant.
A. Professional tax receipt number C. Tax identification number
B. Community tax certificate number D. CPA registration number

ANS: D PTS: 1

69. The CPA reviews Pizza’s payroll procedures. An example of an internal control weakness is to assign
to a department supervisor the responsibility for
A. distributing payroll checks to subordinate employees
B. reviewing and approving time reports for subordinates
C. interviewing applicants for subordinate positions prior to hiring by the personnel
department
D. initiating requests for salary adjustments for subordinate employees

ANS: A PTS: 1

70. When the auditor judges that the application of the accounting policies are inappropriate such that
the financial statements would be made misleading when taken as a whole, and that management
refuses to adjust the financial statements in accordance with the suggestions of the auditor, which
of the following actions is valid for an auditor to do?
A. include in the audit report the phrase “do not present fairly”
B. include an additional paragraph after the opinion paragraph
C. include in the introductory paragraph the phrase “we were engaged to audit”
D. disclaim an opinion

ANS: A PTS: 1

71. This refers to the gathering of professionals which shall include among others, workshops, technical
lectures or subject matter meetings, non-degree training courses and scientific meetings.
A. Seminars C. Meetings
B. Conventions D. Professional gathering

ANS: A PTS: 1

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72. Parties are considered to be related is:
A. If a breach of covenants has occurred, and if on or before balance sheet date, one
party has obtained a grace period of at least twelve months after balance sheet date
during which said party can rectify the breach, and the other party has agreed not to
demand payment for the term of the grace period
B. One party has the ability to control the other party and exercise significant influence
over the other party in making financial and operating decisions
C. If one party discounts a note receivable to another party and the discounting is without
recourse
D. If a transaction is processed in an unusual manner due to errors in the accounting and
internal control system

ANS: B PTS: 1

73. A CIS environment is designed to ensure that management possesses the information it needs to
carry out its functions through the integrated actions of
A. data gathering, analysis, and reporting functions
B. a computer-based information retrieval and decision-making system
C. statistical and analytical procedures functions
D. production-budgeting and sales-forecasting activities

ANS: A PTS: 1

74. What threat to independence is created when the same senior personnel are used for assurance
engagements over a prolonged period?
A. Self-review threat C. Advocacy threat
B. Intimidation threat D. Familiarity threat

ANS: D PTS: 1

75. Because an examination in accordance with generally accepted auditing standards is influenced by
the possibility of material errors, the auditor should conduct the examination with an attitude of
A. professional responsiveness C. objective judgment
B. conservative advocacy D. professional skepticism

ANS: D PTS: 1

76. An auditor’s report includes a statement that “the financial statements do not present fairly the
financial position in accordance with Philippine Financial Reporting Standards”. This auditor’s report
was probably issued in connection with financial statements that were (select the exception):
A. Prepared on a comprehensive basis for accounting other than PFRS.
B. Pervasively misstated.
C. Misleading.
D. Materially misstated.

ANS: A PTS: 1

77. Which of the following situations would impair the independence of the firm or a member of the
assurance team in an inadvertent violation of the Code as it relates to a financial interest in an
assurance client?
A. The firm has established policies and procedures that require all professionals to report
promptly to the firm any breaches resulting from the purchase, inheritance, or other
acquisition of a financial interest in the assurance client.
B. The firm promptly notifies the professional that the financial interest should be disposed
of.
C. The disposal occurs at the earliest practical date after the identification of the issue, or
the professional is removed from the assurance team.
D. The disposal occurs and the professional is removed from the assurance team after the
completion of the engagement.

ANS: D PTS: 1

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78. The auditor’s judgment as to what is sufficient, appropriate audit evidence is influenced by such
factors as the following, except
A. auditor’s assessment of the nature and level of inherent risk at both the financial
statement level and the account balance level or class of transactions level
B. nature of the accounting and internal control systems and the assessment of control
risk
C. materiality of the item being examined
D. results of audit procedures, excluding fraud or error which may have been found

ANS: D PTS: 1

79. The most important output control is:

A. Distribution control, which assures that only authorized personnel receive the reports
generated by the system
B. Review of the data for reasonableness by someone who knows what the output should
look like
C. Control totals, which are used to verify that the computer’s results are correct
D. Logic tests, which verify that no mistakes were made in processing

ANS: B PTS: 1

80. In relation to the appropriateness of accounting policies management has selected, material
misstatements may arise when (choose the one inconsistent with PSA 701)
A. the auditor is not entirely independent of the client
B. selected accounting policies are not consistent with the applicable financial reporting
framework
C. selected accounting policies are not appropriate in the circumstances
D. the financial statements, including the related explanatory notes, do not faithfully
represent the u nderlying transactions

ANS: A PTS: 1

81. Theoretically, it is possible to provide an infinite range of assurance from a very low level of
assurance to an absolute level of assurance. In practice, the professional accountant cannot
provide absolute assurance because of the following reasons, except:
A. The lack of expertise of the CPA in performing the engagement process
B. The inherent limitations of accounting and internal control systems
C. The use of judgment in gathering evidence and drawing conclusions based on that
evidence
D. The use of selective testing

ANS: A PTS: 1

82. Harve is working at his desk when his phone rings. He picks it up and says, “Hello?” The caller asks
to speak to Harve. If Harve wants to be grammatically correct, which of the following responses
should he choose?
I. This is his.
II. This is he.
III. Speaking
A. I or II only C. III only
B. II or III only D. None of the choices

ANS: B PTS: 1

83. This exists when other information contradicts information contained in the financial statements.
A. Material misstatement of fact C. Material misstatements
B. Material scope limitations D. Material inconsistency

ANS: D PTS: 1

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84. A facility offered by banks to their customers to store valuable property for safe-keeping.
A. Options C. Repurchase agreements
B. Safe custody D. Standby facility

ANS: B PTS: 1

85. When the auditor judges that there are disagreements with management that would preclude the
expression of an unqualified opinion, but the disagreement is such that the financial statements
would not be made misleading when these are taken as a whole, which of the following actions is
valid for the auditor to do?
A. restrict the auditor’s responsibility paragraph to include only the bulk of the work of the
auditor
B. express a “with the exception of” paragraph
C. include an additional paragraph before the opinion paragraph
D. disclaim an opinion

ANS: C PTS: 1

86. A limitation on the scope of the audit may arise from the following in accordance with PSA 701
except
A. circumstances beyond the control of the entity
B. circumstances relating to the nature or timing of the auditor’s work
C. limitations imposed by management
D. non-compliance with ethical requirements

ANS: D PTS: 1

87. A preliminary or entrance conference with the auditee is a useful step in avoiding
misunderstandings. Which of the following items is usually not covered in a preliminary conference?
A. Special problems known to be relevant to the audit
B. Extent to which the independent auditor will need assistance and cooperation from the
organization’s personnel
C. Condition of accounting records and other data sources which may affect the scope of
the audit and difficulty of completion
D. Audit program to be followed

ANS: D PTS: 1

88. Silver, CPA, is performing an audit of the financial statements of Ash Company. In the course of his
audit, he was not allowed by management to confirm receivables with customers of the company.
Assuming Silver was not able to perform satisfactory alternative audit procedures, and that the
resulting scope limitation is material and pervasive to the financial statements. Silver will:
A. Choose between expression of a qualified opinion or a disclaimer of opinion.
B. Try to resign from the engagement, if practicable; otherwise, Silver will express a
disclaimer of opinion on the financial statements.
C. Choose between expression of a qualified opinion or adverse opinion.
D. Express an adverse opinion on the financial statements.

ANS: B PTS: 1

89. What are the two most common types of tax services?
A. Tax evasion and tax planning C. Tax computation and tax planning
B. Tax planning and tax compliance D. Tax compliance and tax shelter

ANS: B PTS: 1

90. An audit senior is providing a pre-audit conference to the team. An associate asked, “which general
ledger account is the most important, included in and affecting several transaction cycles?” The
appropriate reply would be:
A. General cash account C. Income tax expense and liability
B. Inventory account D. Retained earnings account

ANS: A PTS: 1

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91. _____ of the documents _____ valid and genuine.
A. Each, is C. Some, is
B. Each, are D. None of the choices

ANS: A PTS: 1

92. Engagement team, as revised in the Definitions section of the Code of Ethics, is defined as all
partners and staff performing the engagement, and any individuals engaged by the firm or a
network firm who perform assurance procedures on the engagement. Which of the following
statements is/are true in relation to the revised definition of the term “engagement team?
I. Engagement team excludes external experts engaged by the firm or by a network firm.
II. Engagement team also excludes individuals within the client’s internal audit function who
provide direct assistance on an audit engagement when the external auditor complies with the
requirements of PSA 610.
A. I only C. I and II
B. II only D. None of these choices

ANS: C PTS: 1

93. Which of the following statements does not relate to the pervasiveness of the matter giving rise to
a modification of opinion in accordance with PSA 701?
A. when misstatements are confined to sepcific elements or items in the financial
statements
B. the misstatements could represent a substantial portion of the financial statements
C. the misstated disclosures are fundamental to the users’ understanding of the financial
statements
D. the misstatements are likely caused by a deliberate action on the part of the employees
or management

ANS: D PTS: 1

94. Which of the following is most likely to be a response to the auditor’s assessment that the risk of
material misstatement due to fraud for the existence of inventory is high?
A. Observe tests counts of inventory of certain locations on an unannounced basis.
B. Perform analytical procedures rather than taking test counts.
C. Request that inventories be counted prior to year end.
D. Request that inventory counts at the various locations be counted on different dates so
as to allow the same auditor to be present at every count.

ANS: A PTS: 1

95. Which of the following conditions would not normally cause the auditor to question whether
material misstatements exist?
A. bookkeeping errors are listed on an EDP-generated error listing
B. differences exist between control accounts and supporting master files
C. transactions are not supported by proper documentation
D. differences are disclosed by confirmations

ANS: A PTS: 1

96. The most important aspect of any system of controls is:

A. Proper authorization procedures C. Separation of duties
B. Competent, trustworthy personnel D. Regular review by top management

ANS: B PTS: 1

97. Material misstatements due to fraudulent financial reporting often result from:
A. An overstatement of revenues (such as premature revenue recognition)
B. An understatement of revenues (such as shifting income to a later period)
C. Both a and b
D. Neither a nor b

ANS: C PTS: 1

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 98. When the auditor judges that the limitation imposed by management is material, that management
refuses to remove the limitation, that alternative procedures are not available, that the financial
statements would be misleading when taken as a whole, and that resignation from the audit is
precluded, which of the following actions is valid for an auditor to do?
A. include an additional paragraph before the opinion paragraph
B. include an additional paragraph after the opinion paragraph
C. describe the full nature of an audit in the audit report
D. express an “except for” opinion

ANS: A PTS: 1

99. Which of the following statements is correct regarding the addressee of the audit report?
A. the addressee should be the management of the company
B. the addressee should be the president of the company, if the audit committee reports
directly to him
C. the addressee should be represented by the owners and the principals of the company
with whom management has an assumed agency conflict with
D. the addressee should be to whoever the sudit committee is reporting to, regardless of
independence issues

ANS: C PTS: 1

100. Janine, CPA, is planning the time budget for the audit of Leah Napkins, Inc., a medium-sized
manufacturing concern with less than one hundred (100) shareholders. Which one of the following
areas would require the most amount of audit time?
A. Balance sheet C. Liabilities
B. Assets D. Owners’ Equity

ANS: B PTS: 1

101. These are computer systems that enable users to access data and programs directly through work-
stations.
A. On-line computer systems C. Personal computer systems
B. Database management systems D. Database systems

ANS: A PTS: 1

102. Engagement quality control reviewers consider:

A. The work has been performed in accordance with GAAP.
B. Consultation with experts has been made for all phases of the engagement.
C. The work performed supports the conclusions reached and is appropriately documented
D. Whether the system of quality control is operating effectively and adequately

ANS: C PTS: 1

103. A database management system

A. physically stores each element of data only once
B. stores data on different files for different purposes, but always knows where they are
and how to retrieve them
C. allows quick retrieval of data but at a cost of inefficient use of file space
D. allows quick retrieval of data but it needs to update files continually

ANS: A PTS: 1

104. Which of the following is not an underlying condition that creates a demand by users for reliable
information?
A. Transactions are numerous and complex
B. Decisions are not time-sensitive
C. Financial decisions that are important to investors and users
D. Users separated from accounting records by distance and time

ANS: B PTS: 1

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105. When the auditor judges that the limitation on scope imposed by the circumstances cannot be
offset by alternative procedures and that the effect of this is to make the financial statements
misleading when taken as a whole, which of the following actions is valid for an auditor to do?
A. describe in the audit report the full nature of an audit
B. include an additional paragraph after the opinion paragraph
C. include in the introductory paragraph the phrase “we were engaged to audit”
D. draw attention to the limitation on scope while expressing an “except for” opinion

ANS: C PTS: 1

106. During audit planning, which of the following is not a factor that affects the auditor’s judgment as
to the quantity, type, and content of working papers?
A. The auditor’s preliminary assessment of control risk
B. The auditor’s preliminary evaluation of inherent risk based on the discussions with the
client
C. The nature of the client’s business
D. The type of report to be issued by the auditor

ANS: D PTS: 1

107. In comparing the control environment in complex versus non-complex IT systems, the control
environment in complex IT systems is:
A. More critical because there is greater potential for errors and irregularities
B. Less critical because the complexity ensures that controls will be built into the system
C. More critical because of the high degree of technical competence needed by the
programmers and operators
D. Less critical because non-experts do not have the opportunity to interact with the
system and mess it up

ANS: A PTS: 1

108. PSA 500, Audit Evidence, requires an auditor to obtain sufficient, appropriate audit evidence to be
able to draw reasonable conclusions on which to base the audit opinion. Substantive procedures
means
A. the information obtained by the auditor in arriving at the conclusion on which the audit
opinion is based
B. the tests performed to obtain evidence about the suitability of design and effective
operation of the accounting and internal control systems
C. the tests performed to obtain audit evidence to detect material misstatements in the
financial statements
D. procedures which comprise the source documents and accounting records underlying
the financial statements under audit

ANS: C PTS: 1

109. The following are considerations in forming an opinion of the financial statements in accordance
with PSA 700 except
A. whether the financial statements, irrespective of the adjustments made as a result of
the audit process, are consistent with the auditor’s understanding of the entity and its
environment
B. overall presentation, structure, and content of the financial statements
C. faithful representation of the notes and disclosures
D. analytical procedures performed at or near the end of the audit

ANS: A PTS: 1

110. Which of the following topics is not normally included in an engagement letter?
A. The auditor’s estimate of the professional fee for the engagement.
B. Limitations on the scope of the engagement
C. A description of responsibility for the detection of fraud
D. The auditor’s preliminary assessment of internal control

ANS: A PTS: 1

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111. When there is a limitation on scope imposed by management and management refuses to remove
the scope limitation, which of the following actions should an auditor take?
A. disclaim an opinion
B. perform alternative procedures
C. resign from the audit
D. inform the regulatory authorities

ANS: B PTS: 1

112. When performing analytical tests, a CPA is least likely to compare the current year’s balances or
ratios to expectations derived from:
A. informed judgment C. industry data
B. budgetary data D. unaudited data

ANS: D PTS: 1

113. For matters that do affect the auditor’s opinion in accordance with PSA 701, which of the following
statements is incorrect?
A. the placement of the paragraph that discusses the relevant matter shall be based on
the professional judgment of the auditor
B. these matters will generally result in an opinion that is other than unmodified
C. the relevant matter should be included and discussed in the basis for modified opinion
paragraph
D. the relevant matter shall lead to any of the qualified, adverse, or disclaimer of opinion,
but not piecemeal opinion

ANS: A PTS: 1

114. An auditor’s major consideration regarding going concern is:

A. The assessment of future conditions and events for a period of time, normally 12
months after balance sheet date
B. The propriety and adequacy of note disclosures about the going concern uncertainty
C. The material misstatements that always arise whenever there is doubt about the going
concern assumption
D. The assurance that such uncertainty should be accounted on an arm’s length basis

ANS: B PTS: 1

115. A set of guidelines not having the authority of standards defined by an authoritative body at a
national level and commonly applied by auditors in the conduct of an audit, review, other assurance
or related services.
A. Framework of Assurance Engagements
B. National practices
C. Code of ethics
D. PAPS

ANS: B PTS: 1

116. During audit planning, the entire audit team is considering the risk of non-compliance. The audit
associate asked the audit partner: “If an illegal act is discovered during the audit of a publicly held
company, what should the auditor do?” Select the most appropriate reply of the partner:
A. “The auditor should notify the regulatory authorities.”
B. “We must determine who was responsible for the illegal act.”
C. “The auditor should report the act to high level personnel within the client’s
organization and to the audit committee.”
D. “The audit team will intensify the examination, because we must identify all illegal
acts.”

ANS: C PTS: 1

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117. When the auditor judges that the disagreement with management is material but would not make
the financial statements misleading when taken as a whole, and when management accepts the
adjustments suggested by the auditor to restate the financial statements, which of the following
actions is valid for an auditor to do?
A. issue an “except for” opinion
B. include an additional paragraph before the opinion paragraph
C. include in the introductory paragraph the phrase “we were engaged to audit”
D. issue an unmodified report

ANS: D PTS: 1

118. According to the IRR, this refers to a study, appraisal, or review by the Board or its duly authorized
representatives, of the quality of audit of financial statements through a review of the quality
control measures instituted by the individual CPA, firm, or partnership of CPAs engaged in the
practice of public accountancy.
A. CPA review C. Professional review
B. Peer review D. Quality review

ANS: D PTS: 1

119. Whenever there is a scope restriction, the appropriate response is to issue:

A. A disclaimer of opinion
B. An adverse opinion
C. A qualified opinion
D. An unqualified report, a qualification of scope and opinion, or a disclaimer of opinion,
depending on materiality

ANS: D PTS: 1

120. The negative form of accounts receivable confirmation request is useful except when
A. internal control surrounding accounts receivable is considered to be effective
B. a large number of small balances are involved
C. the auditor has reason to believe the persons receiving the requests are likely to give
them considerations
D. individual account balances are relatively large

ANS: D PTS: 1

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