*CORRECT ANSWER BASED ON SALOSAGCOL

*CORRECT ANSWER BASED ON QUIZLET/NET

*OUR ANSWERS

Q1. Risk in auditing means that the auditor accepts some level of uncertainty in performing the
audit function. An effective auditor will:
Recognize the risks exist and deal with them in an appropriate manner
Q2. One of the conditions that give rise to a demand for an external audit of financial statements is
expertise. Which of the following best describes the meaning of expertise as used in this context?
Users usually lack the necessary expertise to verify the reliability of the financial
information.
Q3. Which of the following statements about independent financial statement audit is incorrect?
The risk that the auditor will fail to uncover material misstatement is eliminated
when the auditor conducts the audit in accordance with PSAs.
Q4. Auditing standards differ from auditing procedures in that procedures relate to:
Acts to be performed
Q5. Which of the following is mandatory if the auditor is to comply with Philippines Standards on
Auditing?
Possession by the auditor of adequate technical training
Q6. Which of the following relatively small misstatements most likely could have a material effect
on an entity’s financial statement?
An illegal payment to a foreign official that was not recorded
Q7. Cruz, Santos, CPAs was hired by RFC, Inc. to prepare unaudited financial statements. The
statement that best describes this engagement is 
The CPA is performing an accounting service rather than an examination of the
financial statements.
The CPA may prepare the statements from the books, but may not assist in adjusting
and closing the books.
Q8. Which of the following best describes the operational audit?
It concentrates on seeking aspects of operations in which waste would be reduced by
the introduction of controls.
Q9. Engagement risk is influenced by the risks associated with the ff except
Unreasonably low professional fee
Q10. Internal auditing is an independent appraisal function established within an organization to
examine and evaluate its activities. To that end, internal auditing provides assistance to
Management and the board of directors
Q11. Which of the following would an auditor most likely use in determining the auditor’s
preliminary judgment about materiality?
The entity’s annualized interim financial statements.
Q12. Religious Corp. has a few large accounts receivable that total P1,000,000. Pilgrim Corp. has a
large number of small accounts receivable that also total P1,000,000. The importance of an error in
any one account is, therefore, greater for Religious Corp. than for Pilgrim Corp. This is an example
of the auditor’s concept of:
Materiality
Q13. When an accountant is not independent, the accountant is precluded from issuing a
Review report
Q14. Which one of the following is not among the conditions that give rise to a demand by external
users for independent audits of financial statements?
Complexity of making economic decisions
Q15. The independent auditor is most concerned with which of the following: (PAGE 251)
 Fairness and reliability of accounting data
Attainment of the organization’s objectives.
Q16. Jack has been retained as auditor of EVC Company. The function of Jack’s opinion on financial
statements of EVC Company is to
Lend credibility to management’s representations
Q17. Which of the following has the primary responsibility for the fairness of the representations
made in the financial statements?
Client’s management
Q18. An operational audit differs in many ways from an audit of financial statements. Which of the
ff is the best example of one of these differences?
The boundaries of an operational audit are often drawn from an organization chart
and are not limited to a single accounting period
Q19. Internal auditor’s role in preventing and detecting fraud would not include the
Direct responsibility of reporting fraud to the SEC
Q20. The concept of materiality would be least important to an auditor in determining the
Effects of direct financial interest in the client upon the CPA’s independence
Q21. There are 4 conditions that give rise to the need for independent audits of financial
statements. One of these conditions is consequence. In this context, consequence means that the:
Financial statements are used for important decisions
Q22. The review of a company’s financial statements by a CPA firm:
Is substantially less in scope of procedures than an audit
Q23. When setting a preliminary judgment about materiality
More evidence is required for a low peso amount than for a high peso amount
Q24. An auditor should not render a report on
The achievability of forecasts
Q25. Which of the ff types of management advisory services may not be performed by a CPA firm
that wants to maintain its independence with respect to the client? 
Supervising computer employees
Screening and interviewing applicants for a new accounting position
Q26. The independent audit is important to readers of financial statements because it
Involves the objective audit of and reporting on management prepared statements
Q27. If it is probable that the judgment of a reasonable person would have been changed or
influenced by the omission of misstatement of information, then that is:
Material
Q28. The Philippine Framework for Assurance Engagements identifies two types of assurance
engagements a practitioner is permitted to perform: a reasonable assurance engagement and a
limited assurance engagement. Which of the ff is the objective of a reasonable assurance
engagement?

A reduction in assurance engagement risk to a level that is acceptable in the circumstances

of the engagement as a basis for a negative form of expression of the practitioner’s
conclusion.
Q29. One of the following refers to an ethical responsibility of the auditor: (PAGE 252)
Exercise due professional care
Q30. Which statement is incorrect regarding the sufficiency and appropriateness of audit evidence?
(PAGE 256)
Merely obtaining more audit evidence may compensate for its poor quality.
Sufficiency and appropriateness are inter-related.
Q31. Operational auditing is primarily oriented toward:
Future improvements to accomplish the goals of management
Q32. An auditor obtains knowledge about a new client’s business and its industry to:
Understand the events and transactions that may have an effect on the client’s
financial statements
Q33. When a CPA expresses an opinion on financial statements, his or her responsibilities extend
to:
Whether the results of the client’s operating decisions are fairly presented in the
financial statements
Q34. Test of controls are used to test controls whether controls are:
Operating effectively
Q35. Which of the following is incorrect about responsibility for financial statements?
Fair presentation of financial statements is an implicit part of the auditor’s
responsibility
Q36. The subject matter of an assurance engagement can take the ff forms except
Evaluation of a capital investment proposal
Q37. Most of the independent auditor’s work in formulating an opinion on financial statements
consists of
Obtaining and examining evidential matter
Q38. A government audit evaluates a disbursement to determine if it is necessary, excessive or
extravagant in accordance with existing rules and regulations. The kind of audit conducted is 
Compliance and economy audits
Compliance
Q39. Inherent limitation in an audit stem from the ff factors except
Incompetence of an auditor
Q40. No matter how competent a CPA may be, his opinion on financial statements will be of little
value to those who rely on him unless he 
Maintain his independence
Issues an unqualified opinion
Q41. As the acceptable level of detection risk decreases, the assurance directly provided from:
Substantive tests should increase.
Q42. Which of the ff attributes is more closely associated with assurance services performed by a
CPA firm than with other lines of professional work?
Independence
Q43. The auditor communicates the results of his or her work through the medium of the
Audit report
Q44. Which of the following is one of the limitations of an audit?
Nature of evidence obtained
Q45. An audit of financial statements is conducted to determine if the
Overall financial statements are stated in accordance with the applicable financial
reporting framework
Q46. Which of the following is one of the limitations of an audit?
The fact that most audit evidence is persuasive rather than conclusive in nature
Q47. The risk that an auditor’s procedures will lead to the conclusion that a material error does not
exist in an account balance when in fact, such error does not exist is referred to as:
Detection risk
Q48. Because of the risk of material misstatement, an audit of financial statements in accordance
with generally accepted auditing standards should be planned and performed with an attitude of
Professional skepticism
Q49. Which of the following statements is not correct about materiality?
 An auditor considers materiality for planning purposes in terms of the largest
aggregate level of misstatements that could be material to anyone of the financial
statements.
Q50. The following defines an attitude of professional skepticism except
Is expected to eliminate the risk of overlooking suspicious circumstances, of over-
generalizing when drawing conclusions from observations and of using faulty assumptions
in determining the nature, timing and extent of evidence gathering procedures and
evaluating the results thereof
Q51. The primary purpose of the auditor’s consideration of internal control is to provide a basis for
Determining the nature, timing and extent of audit tests to be applied

Q52. Independent auditing can best be described as

A discipline which attests to the results of accounting and other functional operations
and data
Q53. Broadly defined, the subject matter of any audit consists of
Assertions
Q54. Which of the ff statements best describes the relationship between an external auditor and an
internal auditor? 
Although the internal auditor and external auditors have differences in the
independence of their positions, they nevertheless serve similar types of interests.
An internal auditor is more likely to be concerned with internal auditing control;
while an external auditor shall be more interested with operational auditing.
Q55. Non-assurance engagements include all of the ff except:
Compliance audit
Q56. Which of the following is not one of the limitations of an audit?
Limitations imposed by client
Q57. The risk that a misstatement that could occur in an account balance or class of transactions
and that could be material individually or in the aggregate, will not be prevented or detected and
corrected on a timely basis by the accounting and internal control systems:
Control risk
Q58. Which of the ff statements is not true?
The criteria used by an external auditor to evaluate published financial statements
are GAAP.
Q59. Auditing is based on the assumption that financial data and statements are
Verifiable
Q60. The ff are elements of an assurance engagement except
A 2-party relationship involving a practitioner and intended users
Q61. Independent auditing can best be described as a
Professional activity that attests to the fair presentation of financial statements
Q62. The primary reason for an audit by an external audit firm is
To provide increased assurance to users as to the fairness of the financial statements
Q63. Which of the following best describes the reason why an independent auditor reports on
financial statements?
Different interests may exist between the company preparing the statements and the
persons using the statements
Q64. Why would the auditor assess control risk?
Because it affects the level of detection risk the auditor may accept
Q65. Inherent risk and control risk differ from detection risk in that inherent risk and control risk
are
Functions of the client and its environment while detection risk is not
Q66. Which of the ff is not an assurance engagement?
Compilation
Q67. Which of the ff characteristics need not be exhibited in determining the identified suitability of
criteria of a subject matter in an assurance engagement? 
Substantial acquisition cost
Q68. By providing high level of assurance on audit reports on financial statements, the auditor
Enhances the credibility of the financial statements
Q69. The major reason an independent auditor gather audit evidence is
To form an opinion of the financial statement
Q70. Which of the following statements about independent financial statements audit is correct?
The auditor’s opinion is not an assurance as to the future viability of the entity as well
as the effectiveness and efficiency with which management has conducted the affairs of the
entity.
Q71. An auditor should design the written audit program so that
The audit procedures selected will achieve specific audit objectives
Q72. This refers to the development of a general strategy and a detailed approach for the expected
nature, timing and extent of audit:
Audit planning
Q73. Auditing is based on the assumption that financial data are verifiable. Data are verifiable when
two or more qualified individuals,
Working independently, each reach essentially similar conclusions
Q74. In financial statement audits, the audit process should be conducted in accordance with
Philippine Standards on Auditing
Q75. Which of the following best describes why publicly traded corporations follow the practice of
having the outside auditor appointed by the board of directors or elected by the stockholders?
To emphasize auditor independence from the management of the corporation