Macaramion, Omelrair Mt - as fee TY unlike consulting services, services A. Report on how to use information. B, Make recommendations to management. G1 Report on the quality of informationy D. Are two-party contracts. 2. An audit on financial statements is ‘conducted to determine 1f the A. Client's internal control is ‘Functioning as intended. B. Overall financial statements arey stated in accordance with an applicable? financial reporting framework, C. Organization is operating efficiently and effectively. D. Auditee is following specific procedures or rules set down by higher authority. 3. Non-assurance engagements include all of the following, EXCEPT A. Agreed-upon procedures. & Preparation of tax returns where no conclusion is expressed. . Compliance audit. D. Management consulting. 4. For assurance engagements regarding historical financial information, Limit assurance engagements are called B. Audits. ; Compilations. C. Examinations. D. Reviews. 5. When a CPA expresses an opinion on financial statements, his or her responsibilities extend to A. The underlying wisdom of the client's management decisions. B. Active participation in the implementation of the advice given to the client. C.\ Whether the results of the client's operating decisions are fairly presented 4n the financial statements, D. An ongoing responsibility for the client's solvency 6. The subject matter of an assurance engagement can take the following forms, EXCEPT A. Historical or prospective financial statements. B. Evaluation of @ capital; investment proposal. €. Company's internal control. D. Performance of an entity that could indicate efficiency and effectiveness. 7. Which of the following criteria is unique to the auditor's attest function? A. | Independence B. General competence & Due professional care D. Familiarity with the particular industry of which the auditor's client is part 8. What are the three (3) most commonly sought assurance services? A. hudits, review and compilations. B.Audits, reviews: ‘assurance, (Services: ©. Audits, compilations and other D. Reviews, compilations and other 9. Which of the following attributes ie MORE closely associated with assurance twibla dod “TenVingDonns Guha AT services performed by a CPA firm than with other lines of professional work? Ay Independence: B: Integrity. C. Competence. D. Keeping informed in current Professional developments. 10. Internal auditing relates t: B. Audit which 1s performed by a Professional practitioner as an Andependent contractor. Be-AUditombi choserves the needs-of management. ©. Audit which 1s incidentally concerned with the detection and prevention of fraud. . D. Audit wherein the auditor should be Andependent of management both in fact and in mental attitude. 11, One of the government auditing standards which is NOT observed by independent CPAs if the private sector i A. An evaluation shall be made of the system of internal control. B. Sufficient competent evidential matter shall be obtained through inspection, observation inquiries and confirmations. CA review'shatl be made of compliance; with legal and statutory requirements: D. The audit is to be adequately planned Ghd assistants are to be properly supervised. 12. An audit designed to evaluate the efficiency and effectiveness of an organization or some part thereof would Rot come under the title of A. Compliance audit B. Management audit G: Operational audit Performance audit 13. Internal auditing is considered to be part of an organization's ‘A. External controll B. Accounting system. £3 Control envi ronments D. Internal “control procedures. 14. Operational auditing does not focus Ref ficiency. B Economy, C. Eftectivencss. DeCompliances 15. A requirement of the application of Philippine Standards on Auditing (PSAs) is for the auditor, A, Not to obtain clients by solicitation. . To undertake a proper study’ and fairly and reasonably in relation to costs of engagements. D. To inspect all fixed assets acquired during the year, 16. Which of the following describes MOST completely how the profession defines independence? A. (Accepting responsibility cover “Professionally and in accordance WAEhithe Professional Code of Conduct. B. Performing an audit from the public's point of view. ©. Avoiding the appearance of a significant interest in an audit client's interest. aeDY Resisting @ client's reluctance to reveal evidences 17. What particular audit-related services Provide NO assurance? A. Review and compilation engagements. B. vAgceed-upon procedure and compilation fengagenents.. ere" ygreed-upon procedure and review engagements. Do audit and review engagenents. Ie. Most of the independent auditor's work in formulating an opinion on financial statenents consists of Kinoptaining and eyamining evidential matter) Bo tanining cosh transactions €, “Comparing recorded accountability with Physical existence of property BrSeadying and evaluating internal control jo. An external audst? overlaps an internal audit Contradices an internal audit Complements an internal audst §. Confirms an internal audit 20. Bhilippine Standards on Auditing (PSAs) Should be looked upon by practitioners as rd ‘7 Wininun standards of performance whieh mst be achieved on each audit engagement. B. Ideals to strive for, But which are not achievable. er Maximin standards which denote excellent work. D. Benchmark to be used on all audits, reviews and compilations. 22, Rn auditor should Nor render a report’ on: A. the achievability OF forecasts: B. Client internal control- Managenent performance. quarterly financial information. 2. The “hallmark” of auditing 157 Al Available audit technology. B. Macersaliey and audit risk. €! Generally accepted auditing standards. Digeofesstene: Judgment DNemich of the Tollowing statements does Sor properly describe = Limitation of an audit? Ki Many financial “statement assertions “cannot be audited. B. Many audit conclusions are made on the basis of examining a sample of evidenc G. Patigue and carelessness can cause auditor to overlook pertinent evidence. D. Some evidence’ supporting peso Tepresentations in the financial statenents must be obtained by oral or written Tepresentations of management. 24. “What are the two (2). most important Gualities for an operational auditor? AL Independence and conpevence. 3. Personality and appearance €. Xeademic’. background and sufficient experience. D.peompetence and technical trainings 35. "which of these statenents is. NOT a distinction between independent auditing and internal auditing? R. Internal auditors are eiployees of the auaites, Unereas excemal auditors are Independent contractors 3B. The Internal auditor's span of coverage goes beyond financial auditing ce Although sndependent auditors strive for both validity and relevance of evidence, internal auditors are concerned almost S exclusively with validity” to encompass operational and performance auditing, p. Thdependent auditors represent third party users external to” the auditee entity, whereas internal auditors report directly to managenent. 26. "wnich of the following types of audits are Most similar? 2." compliance audits ‘and independent, Cinancialy statement audits.Internal and indepéndent financial Statement audiee G. Operational audits and compliance audit 5. Ghaependent financial statement audits and Operational audits 27°P%inherent. “risk” and control risk are coitectively know a3 : Ao'the dependent variables of Fake. 1B. cine tisk of matersel mis @: “The Guat lak team, Di fhe Fisk of infomation disseninatien. 25. “mich of the following Ss an objective of © review engagement? \Skeporting whether material modifications - Wihouid ‘be mde co auch fipanciel Statements’ to” make then” conform to « Generally accepted accounting principles. a! Reporting ‘hat the financial statements, invall. material respects, fairly present the financial position” and. operating Fosuits of the ctient. : c. Expressing a positive opinion that’ the Elmanciel” information $a” presented “in conformity with generally accepted Sccounting principles: p. Expreasins a Limited assurance to users tne nave, agreed ae. to procedures that hia be pesfomed by the CPA. 29. “wich "of the following procedures Stdinarily performed during an audit are also perforned in a review engagenent? "A. Assessment of accounting and internal control systens. B, Test of controls, (Elpiaguiry and analytical procedures. b. Test of kecords and responses to inquires. 30, Procedures in a review engagement consist primarily of inguiry and analytical procedures. Regarding review procedures which bf the following statement is INCORRECT? A,Waere is a gr@ater risk that misstatements” AU yall not be detected in an audit thanin a {review B. The auditor should apply judgment. in determining the specific nature, timing fand extent of review procedures. . The auditor should apply the sane materiality considerations as would be applied if an audit opinion on the Financial statenents were given. D. The judgment as to what is material is made ‘by reference to the information on which the auditor is reporting and the needs of those relying on that information, not to the level of assurance provided. 31, Preliminary arrangenents agreed to by the auditors and the client should be reduced by the auditors. The best place to set forth these arrangements is in: (A, Aeclient representation letter, ‘B. A confirmation letter attached to the constructive services letter. c. An engagement Lecver. D. A memorandum to be placed in the permanent section of the auditing working papers. 22, An audit engagement letter! TAL Is “prepared for the benefit of the auditor, audit client and general public. B. Shall. include the specific audit procedures to be performed by the auditor. ©. May not be. prepared each period for a recurring ‘engagenent D. "1s usually sent by the auditor to the elient upon the commencement of the audit. 33. Which of the following factors or conditions is an auditor LeAsT likely to plan fan audit to discover? ——— Br “nadeguace “monitoring of significant = controls.0 igh cumover of senior management. Clopinancial pressres affecting employees. Di Inability "eo general positive sonst Blows Flam opetaeions” aa. “ioich’ one of these in NOR a ype of Ghidense that would be used fol Both obtaining Sh'understanding of the control structure and Eeating the conteols? Ao Yngutedes 2. Inipecticn ©. Observation etormance. Fee eRe acceptable level of detection. risk decreases, ‘thet assurance: disectiy provided ‘A. Substantive tests should decrease. Bi fests of controls should increase. €: Fests of controls should decrease, Dlodubstantive testa should) tperease. 36, in which of the following situntions would an expett be LEAST Likely contracted by 4 CPA? A, Detecnis@EDGn of “falc Values “dng ecialized statistical techniques. 2. RBplication ot acsomeing “nathods in Zenputing inventory belitanay c. Legal opinions concerning thterpretations Of engagenenta, statutes and regulations. b. Valuations of certain” types "of ‘asset ike and and buildings. 37. then setting « preliminary judgnent about Betertalicy Re Wore. evidence Is -Feqilced gor a ow peap fhoune than for a high peso amount. v. The mame amount’ of evidence ie, begutred for either Tow or high peso anounta: C. ess evidence 1a required for a iow peso amount ‘than for a high peso amount. 1B. There is ho relationship between 18 and the Beso amount of evidence nended. So." mich of ‘the’ felloving characteriseics SP Likely would heighten an auditor's concern about the risk of intentional manipulation of financial statements? Ay Maflagélient Places ‘substantial enbhastsi¥on” eeting earnings projections. B. Turnover of senior accounting personnel is low. €. Insiders recently purchased additional. shares of the entity's stock. D. The rate of change in the entity's industry 4s low. 39. With respect to errors and irregularities, the auditor should plan to. A. Search for irreqularities that would have @ material effect and for errors that would have either material or immaterial effect on the financial statements. B. Search for errors or irregularities that would have a material effect on FS. . Search for error that would have a material effect and for irregularities that wold have either material or immaterial effect on the financial seatements. D. Discover errors or irregularities that have either material or immaterial effect on the financial statenents. 40. The objective ‘of performing “analytical Procedures in planning an audit engagement is to identify the existence of A. Illegal acts that went Undetected Because of internal control weaknesses. B, Wnusualstransactions and events. &: Related party transactions. D. Recorded transactions that were not Properly authorized. 41. With respect to planning an audit, which of the following statement is always TRUE? A. An engagement should not be accepted after the client's year end. B. An inventory count mst be observed at year end.Tt is acceptable to perform a portion of the audit of a continuing client at interim dates. . >. Financial staffing decisions mist be made Prior to completion of the planning stage. 42. The element of the audit planning process most Likely to be agreed upon with the client before the implementation of the audit strategy is the determination of the Pending legal matters to be included in the inquiry of the client's attorney. B.oTiming of inventory observation procedures "| to be performed. Procedures to be undertaken to discover Litigation, claims and assessments. D. Evidence to be gathered to provide a sufficient basis” for the auditor's opinion. 43. Which Of the following is LEAST Likely considered by the auditor in establishing the overall audit strategy and developing the audit plan? ‘A. Understanding of the accounting and intemal control systens. By Risk and materiality. C. The involvenent of other auditors in the audit of major subsidiaries. D. The tems of payment to other-auditors’ andy their respective clients: 44. cost-benefit considerations are part of audit planning, In relation to this, which of fie feblocing’ audle procedures ts usually: the LEAST costly to perform? ByRialytical procedures. B. Tests of controls. C. Tests of balances. D. Substantive tests of transactions. 45. When obtaining an understanding of an entity's internal control, an auditor should concentrate on the substance of controls Father than their form because A. Management may establish controls but not act on them. ) ‘The controls may be operating effectively Dut may not be documented. ‘The controls may be 30 inappropriate that ho, reliance is contemplated by the auditor. 2. Management may implement controls with ~" costs in excess of benefits. 46. As part on obtaining an understanding of internal controls, an auditer is MOT required a a A: OBESIN “Tnowledge about the operating! effectiveness of internal control. Consider factors that affect the risk of material misstatenent. Ascertain whether internal control policies and procedures have been placed in operation. D. Identify "the types of potential misstatements that may occur. 4. ‘The most common statistical techniques used with analytical procedure A(egression analysis, B.A decision rule tabic ©. Comparison of carrent-year data, locking for large peso or large percentage changes. D. Disaggregated data. 48. The objective of performing analytical procedures in planning an audit engagement 13 appropriatey 8 ° to identify the existence of AJ Unusual transactions and vents B. Wlegal acts that went undetected because of internal control weaknesses. ©. Related party transactions DI Recorded’ transactions that were not properly authorized. 49." Te auditor should design che written audit program so thaAtm specific audit objectives, B. Substantive test prior to the balance sheet date will be minimized. All material transactions will be selected <" for substantive testing. audit procedures selected will achieve D. Each account balance will be tested under either tests of controls or tests of transactions. 50.the basic premise underlying analytical procedures is that Ri These procedures cannot replace tests of balances and transactions. Statistical tests of financial information may lead to. the discovery of material errors in the financial statements. c. The study of financial ratios is an acceptable alternative to the investigation Of unusual fluctuations. D. Relationships among data may rt expected to exist and continue in the absence of known conditions tothe contrary, 51. One of the major parts of audit planning is’ pre-planning, which of the following is NOT involved during’ the pre-planning phase? — A. Obtaining an engagement letter. B, Obtaining information about client's legal obligations. Selecting staff for the engagenent. Deciding whether to accept or continue an audit engagenent. 52. Which of the following matters is LEAST Likely to be discussed” in” an. engagement, letter? A. The fact that the financial statements are the responsibility of engagement. B, Assistance to be provided by client Personnel C. Timing of the performance of the D. The fact that an auditor does not plan to detect material irregularities. 53. To obtain an understanding of a continuing client's business in planning an audit, an auditor Most Likely would: ‘A. Review prior year working papers and the permanent file for the client. B, Read specialized industry journals Cl Performs test of details of transactions and balances. D. Reevaluate client's internal control 54. Proper segregation of functional responsibilities in an effective structure of internal control calls for separation of the functions of: ‘Authorization, execution, and payment. Custody, execution, and reporting. Authorization, payment, and recording. Authorization, recording and custody. Wnich of the following represents an inherent Limitation of internal controls? E. |The CBO can request a check with Sno (purchase order : EK Bank reconcilietions are not performed on a timely basis. G. Customer credit checks are not. performed. 4H. Shipping documents are not matched to les invoices. 56. In considering internal control, the auditor is basically concerned that the structure provides reasonable assurance that. 1. (Brrore and irregularities have been (prevented or detected J. Controls have not been circumvented by collusion. f Management cannot override the system,L, Operational efficiency hasbeen, achieved in accordance with managenent plans. 57. An auditor is LEAST likely to test for the Anternal control that provides for: M. / Classification of revenue and expense transactions by product line, N, Approval of the purchase and sale of marketable securiti ©. Comparison of receiving reports and venders’ invoices with purchase orders. P. Segregation of the functions of "recording disbursements and reconciling ‘the benk account. 58. A well-designed system of internal control that is functioning effectively is MOST likely to detect an irregularity arising fiom: @. he fraudulent action of an individuay employee: R, The fraudulent action of several employees. 8. Informal deviations from the official "organization chart. + T. Management fraud. 59. the auditor is responsible for detecting ‘Ezaud: U. | When the’ application of the Philippine Standards on Auditing would have uncovered the fraud. hen the fraud did not result from collusion. W. When third parties are likely to rely fon the client's financial statenents. X. When the client’s system of internal contzol is judged by the auditor to be inadequate. 60. When an auditor increases the planned assessed level of control risk because certain control procedures were determiied to be ineffective, the auditor would most likely snoreaae the: Y. | Extent of tests of details. Level of inherent risk. RA. Extent of tests of controls. BB. Level of detection risk. 61. An auditor may compensate for a weakness in the internal control structure by sncreasing the: GC. Level of detection risk. DD. extent of tests of controls. BE. | Extent of analytical procedures. FF. preliminary judgment about audit risk. 62. waile performing audit Me. "ABZ, CPA, decides to restrict the risk of material misstatement toJ8, What must the acceptable Level of detection risk be if inherent risk is 255 and control risk 1s 408? \s 66. 308 a. 0.38 11 13s os. 33.38 63. Wnich of the following statenents BEST describes why an auditor makes a preliminary imate of materiality? KK. |The estimate helps the auditor plan the [appropriate evidence to accumlate. LL. “An estinate is required by general accepted auditing standards. WO, The estimate provides a basis for evaluating Likely misstatements. My, Estimating materiality early helps the auditor avoid legal 14ability.‘8. Overall financial statements are ~ ¢ ‘the following would be LEAST S4l Which of jective of the likely to be considered an ob: internal control structure? "0Q, Detecting management: fraud. oer Checking the accuracy and reliability of accounting data 00, Safeguarding Assets- BR. Encouraging adherence 0 policies. 65. Which of the managerial fotlowing is Nor a valid SSquance of seeps in the audit process) neue eaminang detention — riskr=—assesaatg—” After isk, performing. __certally Analytical procedures a. enaeding audit risk, performing certain Ghetyeieal, assessing invemnet 113k c. Beitliming certain analytical procedures: Pert orejincernet risk, assessing control Link. p. choosing audit risk, assessing seek determining detection risk. A. accounting system, and all Control procedures: 66. wnat is the relationship between an Secsey'a objectives and the controls it see etes "co provide reasonable assurance About their achievement? A. Inverse BL Adverse $F) Cannot be determined Ch. “Risks can. arise or | change Slreumstances such a3 the following EXCEPT: circum gu employees have been hired Dy (the company, bo She Company switched — from manual TMeomatien systems to a computerized control gue to syster. we He Necounting and financial reporting PBeonerk has experienced significant bp. There as a change in the regulatory oF co. Been Sethe Folle cement BEST Tan Sethe following statement Soceibes control environment? and Rctthis includes the governance 2 Tes jenent functions and the attitudes, meeageess, and acticn of those charged Bithjovernance and management concerning AS" Etiey's internal control and its Siporeance to the entity. p.m Gniey's process. for identifying Bee eos risks, relevant to financial businting objectives and deciding about keporna to address those risks, and the Eesults thereof _ Fae yatem for transferring information Tea transaction processing systems to be {Ritral ledger or the financial reporting Systen. b. Policies and pi that management directives srocedures that help, ensure are carried 69. Wnich of the following statement SSicesbes the processing function of an Secounting system? i"Ghe preparation of financial reports 42 Wein Se other information, in electronic oF SEineed format, that che entity uses in Ressuring and reviewing the entity's ‘financial performance pe Eeiting)» ‘nd validation, calculating, peasuring, Summarizing, and Heconeiling functions. c. identifying and capturing the | infomation for transactions or events b. All of the chokces describe the processing Function. yo. “wmich of the following descriptions pertain to physical controls? wantey A. Physical security of assets, including Adequate safequards suchas secured facilities over access to assets and | records B, The assignment of incompatible functions fo different people. c. Control activities that include reviews fand analyses of actual performance versus budgets, forecasts, and. prior period performance b. Controls, performed to check accuracy, = SSmpleteness, and authorization of 71. Management assertions are: A. Directly related to standards on = auditing BL. Directly related to financial reporting standards. c. Indizectly related to standards on auditing. p. Indirectly related to financial reporting standards. aaummich of the following statements best Geseribes the auditor's responsibility “With Tespect. to illegal acts that do not have a material effect on the client’s financial statements? 2. Generally, the auditor is under no obligation to notify parties other than personne) within == the ~—cléent’s organization. F. generally, the auditor is under an Sbligation to see that. stockholders are notified. Generally, the auditér is obligated to Gisclose the relevant facts in the auditor’ report. H. Generally, the auditor is expected to compel the client to adhere to Eequirenents of the Foreign Corrupt Practices Act. 13. to be competent, evidence mst be both: I, Useful and objective. J. Timely and substantial. ‘K Reliable and documented. L, Walid and ‘relevant. 7a.tn testing the existence assertion for an asset, an auditor ordinarily works from the: W ~ Accounting records to the supporting M9 evidence, N. Supporting evidence to the accounting records. Financial statements to the potentially unrecorded items. P. Potentially unrecorded items to the financial statements. 75 the primary source of infomation to be reported about litigation, “ claims, and assessments is the: Q. Client’ s management. E. ndependent auditor. S. Client's lawyer. T. Court records. 76. the permanent file section of the working papers that is kept for each audit client MOST Likely contains: rane v, “Narrative descriptions accounting procedures | controls. v. | correspondence counsel concerning pending litigation. W. A schedule of | time spent on the engagement by each individual auditor. of the client's and) internal with the client's legalx. 4 Review notes pertaining to questions and coments regarding the audit work performed. 77. Working papers that record the procedures used by the auditor to gather evidence should bes A. Destroyed when the audited entity cease to be a client. B. considered the primary support for the financial statements being examined. c. Designed to meet the circunstances of the particular engagement. (B. Viewed as the connecting Link between the ‘books of account and the financial statements. 78. The primary emphasis in most tests of details of balances is on the ¥, Income statement accounts. 2) Cash flow statements account. AK. Balance sheet accounts. (BBL ALL of these. 75. mich of the following audit procedures is used extensively throughout the audit but does not, by itself, provide sufficient appropriate ‘evidence? CC. Inspection of tangible assets. BD. Inspection of records or docunents. EE. Observation, FP. Inquiry. 80. Complete the statement: “rhe evidence gathering technique of-—sebservation EGF Limited to what the auditor sees.) HH. Requires the gathering of corroborative evidence.” II, Ts useful in most parts of the audit.” J9. ts garely sufficient by itself.” @1. The folloving aze the descriptions of assertions about presentation and disclosure. Waieh one refers to completeness? ‘A. Disclosed events, transactions and other matters have occurred and pertain to the entity, B. Ril disclosures that should have been included in the financial statements have ‘been included. c. Financial information is appropriately presented and described, and disclosures are clearly expressed. Financial and other information are disclosed fairly and at appropriate 82. Physical examination of tangible assets is fan insufficient form of evidence when the auditer wants = tos determine— the Condition oF quality of the assets. Existence of the assets. Ownership of the assets. : “quantity and description of the asset Confirmation is the process of obtaining a representation of information or of an existing condition directly from a third party. Traditionally, confirmations are used to verity 1. (Bank balances and accounts receivable: 3. Individual transactions between transactions. ‘organizations, such as sal K. Fined assets additions 4, All of the choices. 86. Who signs the confirmation request Letter prior to sending the same to the recipients? M. (The appropriste level of management. N. The audit partner.2. The CEO/CFO of the client. P. Both management and the auditor. 85. A confirmation request letter should always be sent under the control of: Q.,; The auditor. 2. The recipient. S$. The client. © T. Both the auditors and the recipient. 86. Negative confirmation request may be used when . Us A large number of small balances is involved. we A substantial number of errors ig expected. W. The auditor has reason to believe that respondents will disregard negative confirmation request. X. The assessed levels of control risks are HIGH. 87. When the recipient. has accomplished the confirmation request, replies should be inherent and Y. Sent directly to the auditor. Z. Sent directly to the client, after which the client gives ‘the replies to the auditor. AA. Sent directly to the auditor, with another copy of the reply going to the client. BB. Not sent back since a confirmation request does not necessitate reply.