1.

Evidence of proper authorization, approval and review of transactions may appear on the face of documents
supporting the transactions. Which of the following techniques does not provide evidence of proper
authorization, approval or review.
Purchase orders are signed by the purchasing agent.
Receiving reports are signed by persons inspecting and counting incoming goods.
Vouchers are signed or initialed by the person comparing vendors' invoices, purchase orders, and receiving reports for
prices, quantities, and stock description.
Several checks are signed in advance whenever the treasurer is scheduled to be out of town for an extended period.
2. Auditors may issue a special purpose audit report for all of the following except an audit of financial
presentation
That are prepared on a basis of accounting that the entity uses to file its tax return
Using modified cash basis of accounting
Of an organization that has limited the scope of the audit
To comply with contractual agreement.
3. Controls that enhance the reliability of the financial statements may be classified as prevention controls and
detection controls. Which of the following is primarily a detection control?
Separation of duties between recording cash receipts and depositing cash.
Bank accounts are reconciled monthly by persons independent of cash recording and cash custody.
The human resources department authorizes the hiring of only those persons for accounting positions that meet the
written job requirements specified by the corporate controller.
An accounting manual, accompanied by a detailed chart of accounts, carefully and clearly describes each type of
transaction affecting the entity.
4. In the audit of inventories, an auditor would least likely verify that
All inventory owned by the client is on hand at the time of the count
Damaged goods and obsolete items of inventories have been properly accounted for
The client has used proper inventory pricing
The financial statement presentation of the inventories is appropriate
5. Which of the following is not a special purpose framework?
Income tax basis of accounting
Cash receipts and disbursement basis of accounting
Financial presentation to comply with regulatory requirement
Accrual basis of accounting
6. Which of the following would not generally create a threat to independence?
The purchase of goods and services from an assurance client by the firm (or from a financial statement audit client by
a network firm) or a member of the assurance team provided that the transaction is in the normal course of business
and on an arm’s length basis.
A partner or employee of the firm or a network firm serves as Company Secretary for a financial statement audit client.
Determining which recommendations of the firm should be implemented.
Reporting, in a management role, to those charged with governance.
7. In the auditing environment, failure to meet auditing standards is
An accepted practice
A suggestion of negligence
Conclusive evidence of negligence
Tantamount to criminal behavior
8. Which of the following most completely describes how the profession has defined independence?
Performing an audit from the viewpoint of the public
Avoiding the appearance of significant interests in the affairs of an audit client
Possessing the ability to act with integrity and objectivity
Accepting responsibility to act professionally and in accordance with a professional code of ethics
9. Familiarity threat could be created under the following circumstances except
A professional accountant accepting gifts from a client whose value is inconsequential or trivial.
Senior personnel having a long association with the assurance client.
A director or officer of the client or an employee in a position to exert significant influence over the subject matter of the
engagement having recently served as the engagement partner.
A member of the engagement team having a close or immediate family member who is a director or officer of the client.
10. According to Section 240 of the Code of Ethics, fees charged for assurance engagements should be a fair
reflection of the value of the work involved. In determining professional fees, the following should be taken into
account, except
The time necessarily occupied by each person engaged on the work.
The outcome or result of a transaction or the result of the work performed.
The skill and knowledge required for the type of work involved.
The level of training and experience of the persons necessarily engaged on the work.

11. Which of the following fee arrangements is in violation of the Code of Professional Conduct?
A fee based on whether the CPA’s report on the client’s financial statements results in the approval of a bank loan
A fee based on the outcome of a bankruptcy proceeding
A fee based on the nature of the service rendered and the CPA’s particular expertise instead of the actual time spent on
the engagement.
A fee based on the charged by the prior auditor.
12. An accountant who reviews the financial statements of a nonpublic entity should issue a report stating that a
review:
is substantially equivalent in scope to an audit.
is substantially more in scope than a compilation.
is substantially less in scope than an audit.
provides only limited assurance that the financial statements are fairly presented.
13. Financial interests may be held through an intermediary (for example, a collective investment vehicle, estate or
trust). When control over the investment vehicle or the ability to influence investment decisions exists, the code
defines that financial interest to be
Direct financial interest.
Material direct financial interest.
Indirect financial interest.
Material indirect financial interest.
14. Which of the following combinations of procedures would an auditor most likely perform to obtain about plant
asset additions?
Inspecting documents and physically examining plant assets
Recalculating and obtaining written management representations
Observing operating activities and comparing balances to prior period balances
Confirming ownerships and corroborating transactions through inquiries of client personnel
15. For effective internal control purposes, which of the following individuals should be responsible for mailing
signed checks?
Receptionist.
Treasurer
Accounts payable clerk
Payroll clerk
16. An auditor who selects a sample of items from the vouchers payable register for the last month of the period
under audit and traces these items to underlying documents is gathering primarily in support of the assertion
that
Cash disbursements were recorded as incurred obligations
Incurred obligations were recorded in the correct period
Recorded obligations were valid
Recorded obligations were paid
17. Inventory is a complex area to audit for all but which of the following reasons
Inventory is often in different locations.
There are several acceptable valuation methods and some entities use different methods for different types of
inventory.
Inventory is often the largest account in working capital.
Inventory valuation includes few estimates.
18. Review reports are normally dated as of the client's balance sheet date.
True
False
19. Which of the following is an example of engagement-specific safeguards in the work environment?
Advising partners and professional staff of those assurance clients and related entities from which they must be
independent.
Disclosing to those charged with governance of the client the nature of service provided and extent of fees charged.
A disciplinary mechanism to promote compliance with the firm’s policies and procedures.
Published policies and procedures to encourage and empower staff to communicate to senior levels within the firm any
issue relating to compliance with the fundamental principles that concerns them.
20. The physical count of the inventory of a retailer was higher than that shown by the perpetual records. Which of
the following could explain this differences?
Inventory items had been counted but the tags placed on the items had not been taken off the items and added to the
inventory compilation sheets.
Credit memos for several items returned by the customers had not been prepared.
No journal entry had been made on the retailer’s books for several items returned to the suppliers.
An item purchased “FOB shipping point” had not arrived at the date of the inventory count and had not been reflected
in the perpetual records.

21. Under which of the following circumstances would a disclaimer of opinion not be appropriate?
The financial statements fail to contain adequate disclosure concerning related party transactions.
The client refuses to permit its attorney to furnish information requested in a letter of audit inquiry.
The auditor is engaged after fiscal year-end and is unable to observe physical inventories or apply alternative procedures
to verify their balances.
The auditor is unable to determine the amounts associated with illegal acts committed by the client's management.
22. Which of the following audit procedures would most likely assist an auditor in identifying conditions and events
that may indicate there could be substantial doubt about an entity's ability to continue as a going concern?
review compliance with the terms of debt agreements
confirmation of accounts receivable from principal customers
reconciliation of interest expense with debt outstanding
confirmation of bank balances
23. Before performing a review of a nonpublic entity's financial statements, an accountant should:
complete a series of inquiries concerning the entity's procedures for recording, classifying, and summarizing
transactions.
obtain a sufficient level of knowledge of the accounting principles and practices of the industry in which the entity
operates.
inquire whether management has omitted substantially all of the disclosures required by generally accepted accounting
principles.
apply analytical procedures to provide limited assurance that no material modifications should be made to the financial
statements.
24. The following statements relate to the term of office of the chairman and members of the Board of Accountancy
(BOA). Which is false?
The chairman and members of the BOA shall hold office for a term of three (3) years.
Any vacancy occurring within the term of a member shall be filled up for the unexpired portion of the term only.
No person who has served two successive complete terms as chairman or member shall be eligible for reappointment
until the lapse of two (2) years.
Appointment to fill up an unexpired term is not to be considered as a complete term.
25. The CPA is asked to audit financial statements prepared on a modified cash basis. This is acceptable provided the
CPA
Converts the FS to accrual basis before rendering an audit report.
Qualifies the audit opinion because of departure form PFRS.
Issues disclaimer of opinion
States clearly in the audit report that fairness was evaluated within the framework of the modified cash basis rather
than PFRS
26. The standard of due audit care requires the auditor to
Apply judgment in a conscientious manner, carefully weighing the relevant factors before reaching a decision.
Ensure that the financial statements are free from error.
Make perfect judgment decisions in all cases.
Possess skills clearly above the average for the profession.
27. Which of the following would you normally characterize as a difficult and complex account to audit?
property, plant and equipment
cash
inventory
prepaid insurance
28. Which of the following underlies the application of generally accepted auditing standards, particularly the
standard to field work and reporting?
Elements of internal control
Elements of materiality and risks
Elements of reasonable assurance
Elements of corroborating evidence
29. Which of the following statements best explains why the CPA profession has found it essential to establish
ethical standards and means for ensuring their observance?
Vigorous enforcement of an established code of ethics is the best way to prevent unscrupulous acts.
Ethical standards that emphasize excellence in performance over material rewards establish a reputation for
competence and character.
A distinguishing mark of a profession is its acceptance of responsibility to the public.
A requirement for a profession is to establish ethical standards that stress primarily a responsibility to clients and
colleagues.
30. If the objective of a test of details is to detect overstatement of sales, the auditor should vouch transactions
from the
Accounting records to the source documents
Cash receipts journal to the sales journal
Sales journal to the cash receipts journal
Source documents to the accounting records

31. External auditor must obtain evidence regarding what attributes of an internal audit department if the external
auditors intend to relay on the internal auditor’s work
Integrity
Objectivity
Competence
All of the above
32. Whenever subsequent events are used to evaluate the amounts included in the statements, care must be taken
to distinguish between conditions that existed at the balance sheet date and those that come into being after
the end of the year. The subsequent information should not be incorporated directly into the statements if the
conditions causing the change in valuation:
took place before year-end.
did not take place until after year-end.
occurred both before and after year-end.
are reimbursable through insurance policies.
33. Which of the following circumstances may create advocacy threat for a professional accountant in public
practice?
The firm promoting shares in an audit client.
A firm issuing an assurance report on the effectiveness of the operation of financial systems after designing or
implementing the systems.
A firm being threatened with dismissal from a client engagement.
A firm being concerned about the possibility of losing a significant client.
34. Management of Blue Company has decided not to account for a material transaction in accordance with the
provisions of an FASB Standard. In setting forth its reasons in a note to the financial statements, management
 has clearly demonstrated that due to unusual circumstances the financial statements presented in accordance
with the FASB Standard would be misleading. The auditor's report should include an explanatory separate
paragraph and contain a(an)
Adverse opinion
"Except for" qualified opinion.
Unqualified opinion.
"Subject to" qualified opinion.
35. In general, material irregularities perpetrated by which of the following are most difficult to detect?
Internal auditor
Cashier
Keypunch operator
Controller
36. A client company has not paid its 2002 audit fees. According to the Code of Professional Conduct, for the auditor
to be considered independent with respect to the 2003 audit, the 2002 audit fees must be paid before the
2002 report is issued
2003 report is issued
2003 field work is started
2004 field work is started
37. The tolerable occurrence rate for a control test is generally
Lower than the expected occurrence rate in the related accounting records
Higher than the expected occurrence rate in the related accounting records.
Identical to the expected occurrence rate in the related accounting records.
Unrelated to the expected occurrence rate in the related accounting records
38. The concept of limited assurance is provided for in which of the following engagements?
Audit
Review
Compilation
Agreed-upon procedures
39. Which of the following statements concerning a CPA’s disclosure of confidential client information is ordinarily
correct?
Disclosure may be made to any party on consent of the client.
Disclosure should not be made even if such disclosure will protect the CPA’s professional interests in legal proceedings.
Disclosure should be made only if there is a legal or professional duty to make the disclosure.
Disclosure may be made to any government agency without subpoena.
40. The appearance of independence of a CPA, or that CPA’s firm, could be impaired if the CPA
Owns a unit in a cooperative apartment house where each unit has a vote in the cooperative, and the CPA, who does not
participate in the management, has been retained as the auditor for the cooperative
Joins a trade association that is a client and serves in a non management capacity
Accepts a gift from a client
None of the above

41. An advantage of statistical over non-statistical sampling is that statistical sampling:

Enables auditors to objectively measure the reliability of their sample results.
Permits use of a smaller sample size than would be necessary with non-statistical sampling.
Is compatible with a wider variety of sample selection methods than is non-statistical sampling.
Allows auditors to inject their subjective judgment in determining sample size and selection process in order to audit
items of greatest value and highest risk.
42. Cooper Co. prepared its FS on an accounting basis prescribed by a regulatory agency solely for filing with that
agency. JLP audited the FS in accordance with the generally accepted auditing standards and concluded that the
FS were fairly presented on the prescribed basis. JLP should issue a report with
Qualified opinion
Adverse opinion
Disclaimer of an opinion
Unmodified opinion
43. Negative assurance is not permissible in:
Reports based upon a review engagement.
Letters required by security underwriters for data pertinent to SEC registration statements.
Reports based on an audit of interim financial statements of a closely held business entity.
Reports relating to the results of agreed-upon procedures to one or more specified elements, accounts, or items of
financial statement.
44. Random numbers can be used to select a sample only when each item in the population
Can be assigned to a specific stratum
Is independent of outside influence
Can be identified with a unique number
Is expected to be within plus or minus three standard deviations of the population mean.
45. A partner surviving the death or withdrawal of all the other partners in a partnership may continue to practice
under the partnership name for a period of not more than how many years after becoming a sole proprietor?
1
2
3
4
 46. Which of the following is not an element of an entity's internal control?
Control risk
The information system
Control activities
The control environment
47. PSA 800 does not apply to
Audit of FS prepared in accordance with PFRS
Audit of FS prepared in accordance with the cash basis of accounting
Audit of FS prepared using modified cash basis
Audit of FS presentation that complies with contractual agreement
48. The members of the Professional Regulatory Board of Accountancy shall be appointed by the
Philippine Institute of CPAs (PICPA)
Professional Regulation Commission (PRC)
President of the Philippines
Association of CPAs in Public Practice (ACPAPP)
49. The following statements relate to the submission of nominations to the Board of Accountancy. Which is
correct?
The Accredited National Professional Organization of CPAs (APO) shall submit its nominations to the president of the
Philippines not later than sixty (60) days prior to the expiry of the term of an incumbent chairman or member.
The APO shall submit its nominations to the PRC not later than thirty (30) days prior to the expiry of the term of an
incumbent chairman or member.
If the APO fails to submit its own nominee(s) to the PRC within the required period, the PRC in consultation with the
Board of Accountancy shall submit to the president of the Philippines a list of five (5) nominees for each position.
There should be adequate documentation to show the qualifications and primary field of professional activity of each
nominee.
50. The primary duty to enforce the provision of RA 9298 and its IRR rests with
PRC
PRC and BOA
BOA
AASC

51. The exercise of due professional care requires that an auditor

Examine all available corroborating evidence.
Critically review the judgment exercised at every level of supervision.
Reduce control risk below the maximum.
Attain the proper balance of professional experience and formal education
 52. Which of the following would not be considered an internal control feature?
Prenumbered documents
Limited access to documents
Competent personnel
A comparison-shopping staff
53. An attorney is responding to an independent auditor as a result of the client's letter of inquiry. The attorney may
appropriately limit the response to:
Asserted claims and litigation.
Asserted, overtly threatened, or pending claims and litigation.
Items which have an extremely high probability of being resolved to the client's detriment.
Matters to which the attorney has given substantive attention in the form of legal consultation or representation.
54. Soon after Boyd's audit report was issued, Boyd learned of certain related party transactions that occurred
during the year under audit. These transactions were not disclosed in the notes to the financial statements.
Boyd should
Plan to audit the transactions during the next engagement.
Recall all copies of the audited financial statements.
Determine whether the lack of disclosure would affect the auditor's report.
Ask the client to disclose the transactions in subsequent interim statements.
55. The auditor has a responsibility to review transactions and activities occurring after the year-end to determine
whether anything occurred that might affect the statements being audited. The procedures required to verify
these transactions are commonly referred to as the review for:
Contingent liabilities.
Subsequent year's transactions.
Late unusual occurrences.
Subsequent events.
56. Inclusion of which of the following in promotional brochure published by a public accounting firm would be most
likely to result in a violation of the rules of conduct?
Reprints of newspaper articles that praise the firm’s expertise.
Services offered and fees for such services including hourly rates and fixed fees
Educational and professional attainments of partners
Testimonial and endorsements
57. Cut-off tests designed to detect credit sales made before the end of the year that have been recorded in the
subsequent year provide assurance about management’s assertion of
Completeness
Existence
Presentation
Rights
58. The death or disability of an individual CPA and/or the dissolution and liquidation of a firm or partnership of
CPAs shall be reported to the BOA not later than how many days from the date of such death, dissolution or
liquidation.
15
30
60
90
59. A CPA has received an attorney's letter in which no significant disagreements with the client's assessments of
contingent liabilities were noted. The resignation of the client's lawyer shortly after receipt of the letter should
alert the auditor that:
an adverse opinion will be necessary.
undisclosed unasserted claims may have arisen.
the auditor must begin a completely new examination of contingent liabilities.
the attorney was unable to form a conclusion with respect to the significance of litigation, claims, and assessments.
60. Which of the following statements concerning ownership of working papers is incorrect?
All working papers made by a CPA and his/her staff in the course of an examination remain the property of such CPA in
the absence of a written agreement between the CPA and the client to the contrary.
Working papers include schedules and memoranda prepared and submitted by the client of the CPA.
Working papers include reports submitted by a CPA to his/her client.
Working papers shall be treated confidential and privileged unless such documents are required to be produced through
subpoena issued by any court, tribunal, or government regulatory or administrative body.

61. Which of the following statements is not true regarding audit risk assessment?
The auditor studies the business and industry and applies analytical procedures as a basis for assessing inherent risk.
When control risk and inherent risk are high, the auditor increases detection risk to maintain overall audit risk at the
desired level.
The auditor studies and evaluates internal control policies and procedures for assessing control risk.
The auditor designs substantive audit procedures to reduce detection risk to an acceptable level.
62. Certificate of registration issued to successful examinees
Is renewable every five years
Is renewable every three years
Shall bear the signature of the PRC Chairperson
Shall remain in full force and effect until withdrawn, suspended or revoked
63. Which of the following statements is correct concerning the use of negative confirmation requests?
Negative confirmation requests are effective when detection risk is low
Negative confirmation requests are effective when understatements of account balances are suspected
Unreturned negative confirmation requests indicate that alternative procedures are necessary
Unreturned negative confirmation requests rarely provide significant explicit evidence
64. Which of the following will not create self-interest threat for a professional accountant in public practice?
The possibility of losing a significant client.
Direct financial interest in the assurance client.
Undue dependence on total fees from a client.
Preparing the original data used to generate records that are the subject matter of the assurance engagement.
65. An accountant has accepted an engagement in which the audit procedures of inquiry and analytical procedures
will be employed. These procedures will form the basis for issuance of:
A compilation report.
Audit report on supplemental information issued by the client.
Management advisory report requested by the audit committee.
Review report on comparative financial statements for a non-public company.
66. Receipt of ordered materials by the receiving department will generate the completion of a form called the:
Bill of lading
Receiving report
Materials requisition
Inventory acquisition summary
67. A CPA certificate is evidence of
Independence as a professional
Basic competence at the time of certification
Membership in the accredited association
Completion of continuing professional education program
68. To operate effectively, an internal auditor must be independent of
The line function of the organization
The entity
The employer-employee relationship which exists for other employees in the organization
The audit committee of the board of directors.
69. An auditor who accepts an audit engagement and does not possess the industry expertise of the business entity,
should
Engage financial experts familiar with the nature of the business entity.
Obtain a knowledge of matters that relate to the nature of the entity's business.
Refer a substantial portion of the audit to another CPA who will act as the principal auditor.
First inform management that an unqualified opinion cannot be issued.
70. The concept of materiality is least important to an auditor when considering the
Effects of a direct financial interest in the client upon the auditor’s independence.
Decision whether to use positive or negative confirmations of accounts receivable.
Adequacy of disclosure of a client’s illegal act.
Discovery of weaknesses in a client’s internal control.

71. Which of the following statements is not true regarding audit risk assessment?
The auditor studies the business and industry and applies analytical procedures as a basis for assessing inherent risk.
When control risk and inherent risk are high, the auditor increases detection risk to maintain overall audit risk at the
desired level.
The auditor studies and evaluates internal control policies and procedures for assessing control risk.
The auditor designs substantive audit procedures to reduce detection risk to an acceptable level.
72. Certificate of registration issued to successful examinees
Is renewable every five years
Is renewable every three years
Shall bear the signature of the PRC Chairperson
Shall remain in full force and effect until withdrawn, suspended or revoked
73. Which of the following statements is correct concerning the use of negative confirmation requests?
Negative confirmation requests are effective when detection risk is low
Negative confirmation requests are effective when understatements of account balances are suspected
Unreturned negative confirmation requests indicate that alternative procedures are necessary
Unreturned negative confirmation requests rarely provide significant explicit evidence
74. Which of the following will not create self-interest threat for a professional accountant in public practice?
The possibility of losing a significant client.
Direct financial interest in the assurance client.
Undue dependence on total fees from a client.
Preparing the original data used to generate records that are the subject matter of the assurance engagement.
75. An accountant has accepted an engagement in which the audit procedures of inquiry and analytical procedures
will be employed. These procedures will form the basis for issuance of:
A compilation report.
Audit report on supplemental information issued by the client.
Management advisory report requested by the audit committee.
Review report on comparative financial statements for a non-public company.
76. Receipt of ordered materials by the receiving department will generate the completion of a form called the:
Bill of lading
Receiving report
Materials requisition
Inventory acquisition summary
77. A CPA certificate is evidence of
Independence as a professional
Basic competence at the time of certification
Membership in the accredited association
Completion of continuing professional education program
78. To operate effectively, an internal auditor must be independent of
The line function of the organization
The entity
The employer-employee relationship which exists for other employees in the organization
The audit committee of the board of directors.
79. An auditor who accepts an audit engagement and does not possess the industry expertise of the business entity,
should
Engage financial experts familiar with the nature of the business entity.
Obtain a knowledge of matters that relate to the nature of the entity's business.
Refer a substantial portion of the audit to another CPA who will act as the principal auditor.
First inform management that an unqualified opinion cannot be issued.
80. The concept of materiality is least important to an auditor when considering the
Effects of a direct financial interest in the client upon the auditor’s independence.
Decision whether to use positive or negative confirmations of accounts receivable.
Adequacy of disclosure of a client’s illegal act.
Discovery of weaknesses in a client’s internal control.

81. The Rules of Conduct will ordinarily be considered to have been violated when the member represents that
specific consulting services will be performed for a stated fee and it is apparent at the time of the representation
that the
Actual fee would be substantially higher
Actual fee would be substantially lower than the fees charged by other members for comparable services
Fee was a competitive bid
Member would not be independent
82. By a cut-off review and close examination of sales journal entries for several days before and after a balance
sheet date, and auditor might detect
Kiting cash sales receipts
Lapping sales receipts
Inflating sales for the year
Misappropriation of sales stocks
 83. To assess the objectivity of internal auditors, an independent auditor would most likely
Consider the professional qualification and experience of the internal auditor
Consider the organization level to which the internal auditors report the result of their work
Consider proper planning, supervision and documentation of internal auditor’s work
Consider the nature and extent of the internal auditor’s assignment
84. Which of the following subsequent events will be least likely to result in an adjustment to the financial
statements?
Culmination of events affecting the realization value of accounts receivable owned as of the balance sheet date.
Culmination of events affecting the realization of inventories owned as of the balance sheet date.
Material changes in the settlement of liabilities which were estimated as of the balance sheet date.
Material changes in the quoted market prices of listed investment securities since the balance sheet date.
85. Which of the following statements concerning the issuance of Certificates of Registration and Professional
Identification Cards to successful examinees is correct?
The Certificate of Registration issued to successful examinees is renewable every three (3) years.
The Professional Identification Card issued to successful examinees shall remain in full force and effect until withdrawn,
suspended or revoked in accordance with RA 9298.
The BOA shall not register and issue a Certificate of Registration and Professional Identification Card to any successful
examinee of unsound mind.
The BOA may, after the expiration of three (3) years from the date of revocation of a Certificate of Registration, reinstate
the validity of a revoked Certificate of Registration.
86. Evidence for a review engagement consists primarily of:
Analytical procedures
Inquiries and Analytical procedures
Test of details
Inquiries and Test of Details
87. Management furnishes the independent auditor with information concerning litigation, claims, and
assessments. Which of the following is the auditor's primary means of initiating action to corroborate such
information?
Request that client lawyers undertake a reconsideration of matters of litigation, claims, and assessments with which
they were consulted during the period under examination.
Request that client management send a letter of inquiry to those lawyers with whom management consulted
concerning litigation, claims, and assessments.
Request that client lawyers provide a legal opinion concerning the policies and procedures adopted by management to
identify, evaluate, and account for litigation, claims, and assessments.
Request that client management engage outside attorneys to suggest wording for the text of a footnote explaining the
nature and probable outcome of existing litigation, claims, and assessments.
 88. In which of the following instances would the independence of the CPA not be considered to be impaired? The
CPA has been retained as the auditor of a brokerage firm
Which owes the CPA audit fees for more than one year
In which the CPA has a large active margin account
In which the CPA’s brother is the controller
Which owes the CPA audit fees for services in the current year and ha just filed a petition for bankruptcy
89. Who is not permitted by law to practice the public accountancy?
A corporation whose stockholders are all CPAs
A partnership of CPAs
Solo practitioner
Partnership of CAPs with some non-CPA staffs
90. A direct financial interest or a material indirect financial interest in the audit client of a member of the audit
team or his immediate family member may create a significant self-interest threat. Which of the following
safeguards would be least likely considered to eliminate the threat or reduce it to an acceptable level?
Discuss the matter with those charged with governance of the audit client.
Dispose of the direct financial interest prior to the individual becoming a member of the audit team.
Dispose of the indirect financial interest in total or dispose of a sufficient amount of it so that the remaining interest is
no longer material prior to the individual becoming a member of the audit team.
Remove the member of the audit team from the audit engagement.

91. Financial statements prepared in accordance with a special purpose framework are referred to in PSA 800 as
Special report
Special purpose FS
Special consideration
Special FS
92. A system of internal control, regardless of how carefully designed and implemented, contains certain inherent
limitations. Which of the following errors or irregularities is not caused by an inherent limitation.
The president and chief executive officer, with the assistance of the corporate controller, inflated earnings by recording
fictitious sales at year-end.
A newly-installed electronic data processing system failed to provide for a comparison of sales order amount with prior
customer balance and credit limit. This resulted in numerous sales to customers who had already exceeded their credit
limits.
Numerous recording errors occurred because persons analyzing and recording transactions did not have the necessary
accounting background.
A computer programmer and a computer operator conspired to divert funds from the company to an account controlled
by the dishonest employees.
 93. Which of the following factors does an auditor generally need to consider in planning a particular audit sample
for a control test?
Number of items in the population.
Total dollar amount of the items to be sampled.
Estimated standard deviation of the population.
Tolerable error.
94. The Board of Accountancy has the power to conduct an oversight into the quality of audits of financial
statements through a review of the quality control measures instituted by auditors in order to ensure
compliance with the accounting and auditing standards and practices. This power of the BOA is called
Quality assurance review
Peer review
Appraisal
Quality control
95. Auditor may decide to replace tests of details with analytical procedures when possible because the:
Analytical procedures are more reliable
Analytical procedures are considerably less expensive
Analytical procedures are more persuasive
Test of details are more difficult to interpret
96. An independent auditor might consider the procedures performed by the internal auditors because
They are employees whose work must be reviewed during substantive testing
Their work affects the cost benefit trade of
They are employees whose work may affect the nature, timing and extent of audit procedures.
Their degree of independence may be inferred from the nature of their work
97. Which of the following is the best audit procedure for determining the existence of unrecorded liabilities?
Examine confirmation requests returned by creditors whose accounts appear on a subsidiary trial balance of accounts
payable
Examine unusual relationships between monthly accounts payable balance and recorded purchases
Examine a sample of vendors’ invoices a few days prior to and subsequent to year end to ascertain whether they have
been properly recorded
Examine a sample of cash disbursements in the period subsequent to the year end
98. Which of the following is the most effective control procedure to detect vouchers that were prepared for the
payment of goods that were not received?
Count goods upon receipt in storeroom
Match purchase order, receiving report, and vendor's invoice for each voucher in accounts payable department.
Compare goods received with goods requisitioned in receiving department
Verify vouchers for accuracy and approval in internal audit department.
 99. When an immediate family member of a member of the assurance team is a director, an officer, or an employee
of the assurance client in a position to exert direct and significant influence over the subject matter information
of the assurance engagement, or was in such a position during the period covered by the engagement, the
threats to independence can only be reduced to an acceptable level by
Where possible, structuring the responsibilities of the assurance team so that the professional does not deal with
matters that are within the responsibility of the immediate family member.
Withdrawing from the assurance engagement.
Removing the individual from the assurance team.
Discussing the issue with those charged with governance, such as the audit committee.
100. The Code of Professional Conduct states that a CPA shall not disclose any confidential information
obtained in the course of a professional engagement except with the consent of his or her client. In which of the
situations that follow would disclosure by a CPA be in violation of the Code?
Disclosing confidential information to property discharge the CPA’s responsibilities in accordance with the profession’s
standards.
Disclosing confidential information in compliance with a subpoena issued by a court.
Disclosing confidential information to another accountant interested in purchasing the CPA’s practice
Disclosing confidential information in a review of the CPA’s professional practice by a peer review team.