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Aud Theory
Aud Theory
Aud Theory
14. According to Section 9(A) of the IRR, the Commission upon the
recommendation of the Board, shall create an auditing standard
setting body to be known as the
a. Auditing and Assurance Standards Council (AASC)
b. Auditing Standards and Practices Council (ASPC)
c. Auditing Standards Board (ASB)
d. Auditing Standards Council (ASC)
26. Which of the following statements concerning audit risk and its
components is incorrect?
a. Regardless of the assessed levels of inherent and control risks,
the auditor should always perform some substantive
procedures for material account balances and classes of
transactions
b. The higher the assessment of inherent and control risks, the
more evidence the auditor should obtain from the performance
of substantive procedures
c. The assessed level of inherent risk need not be considered in
determining the nature, timing, and extent of substantive
procedures required to reduce audit risk to an acceptably low
level
d. After obtaining an understanding of the accounting and internal
control systems, the auditor should make a preliminary
assessment of control risk, at the assertion level, for each
material account balance or class of transactions
60. An auditor who uses the work of an expert may refer to and
identify the expert in the auditor’s report if the
a. Expert is employed by the entity
b. Expert’s work provides the auditor greater assurance of
reliability
c. Auditor expresses a qualified opinion or an adverse opinion
related to the work of the expert
d. Auditor indicates a division of responsibility related to the work
of the expert
a.) Tests of controls b.) Extent of tests of details c.) Tolerable risk
d.) Population size
67.) In accordance with SAS No. 105, which of the following correctly
denotes the revised wording of the first general standard of auditing?
a) The audit must be performed by a person or persons with
a college degree in accounting.
b) The audit must be performed by a person or persons who
are partners in a CPA firm.
c) The audit must be performed by a person or persons
having adequate technical training and proficiency as an
auditor.
d) The audit should be performed by a person or persons
having adequate technical training and proficiency as an
auditor.
68.) When control risk is assessed as low for assertions related to
payroll, substantive tests of payroll balances most likely would be
limited to applying analytical procedures and
a) Recalculating payroll accruals.
b) Observing the distribution of paychecks.
c) Footing and cross footing the payroll register.
d) Inspecting payroll tax returns.
**When the auditor determines that the internal control structure is
effective and thus the control risk is assessed as low, the auditor may
alter the nature, timing, and extent of substantive tests performed. In
the case of assertions related to payroll, the auditor may decide to
limit substantive tests to performing analytical procedures, which
would evaluate the reasonableness of payroll-related amounts for the
year, and recalculating payroll accruals, which would provide some
assurance that the year-end adjustments are proper.
71.) An auditor most likely would assess control risk at the maximum
if the payroll department supervisor is responsible for
a) Comparing payroll registers with original batch
transmittal data.
b) Authorizing payroll rate changes for all employees.
c) Examining authorization forms for new employees.
d) Hiring all subordinate payroll department employees.
** Authorization and recording are incompatible functions that should
be assigned to different individuals. In this case, authorization of
payroll changes, which is typically the responsibility of the human
resources department, should be segregated from recording payroll,
which is the responsibility of the payroll department. If the payroll
department supervisor is responsible for these two functions, the
entity's internal control structure may be inadequate to prevent or
detect material misstatements in the payroll area. Thus, the auditor
would assess control risk at the maximum.
73.) Which of the following best describes proper internal control over
payroll?
a) The payment of cash to employees should be replaced
with payment by checks.
b) The confidentiality of employee payroll data should be
carefully protected to prevent fraud.
c) The duties of hiring, payroll computation, and
payment to employees should be segregated.
d) The preparation of the payroll must be under the control
of the personnel department.
** The authorization of transactions, record keeping, and custodial
functions should be segregated.
74.) The primary purpose of an auditor's consideration of internal
control is to provide a basis for
a) Determining whether procedures and records that are
concerned with the safeguarding of assets are reliable.
b) Constructive suggestions to clients concerning
improvements in internal control.
c) Determining the nature, extent, and timing of audit
tests to be applied.
d) To express an opinion.
** The second standard of fieldwork requires, "A sufficient
understanding of internal control is to be obtained to plan the audit
and to determine the nature, timing, and extent of tests to be
performed."
b) Existence or occurrence.
c) Completeness.
d) Valuation or allocation.
a) Purchasing agent.
c) Receiving department.
a) Sales returns.
b) Sales.
c) Purchase returns.
d) Purchase discounts.
a) It is a first-time audit.
**If the auditors determine that the client's internal control is effective
at preventing or detecting misstatements, they will assess the control
risk low. They can then accept a higher level of detection risk, and the
substantive testing can be decreased.
124.) Which of the following tests of controls most likely would help
assure an auditor that goods shipped are properly billed?
d) Analytical procedures.
a.) Skepticism .b.) Materiality. c.) Risk. d.) All of the above.
b) General accounting.
c) Payroll accounting.
140.) Which of the following internal controls most likely would reduce
the risk of diversion of customers’ receipts by an entity's employees?
a) Incompatible duties.
a) Receiving reports.
b) Vendor's invoices.
c) Purchase orders.
d) Canceled checks.
153.) The CPA firm of Terry & Francona is auditing the financial
statements of Fenway International Corporation. Fenway owns a
number of unique investments where the market value is difficult to
determine. The CPA firm hires a specialist in investment analysis to
help determine the market value of these assets. Which of the
following statements is true?
b) The hiring of this analyst means that the firm must provide
a qualified audit opinion.
c) The hiring of this analyst means that the firm must add an
extra paragraph to the end of the audit report to alert readers to
the work of the specialist.
157. The first standard of field work, which states that the work is
to be adequately planned, and assistants, if any, are to be properly
supervised, recognizes that
a) Early appointment of the auditor is advantageous to the
auditor and the client.
b) Acceptance of an audit engagement after the close of the
client's fiscal year is generally not permissible.
c) Appointment of the auditor subsequent to the physical count of
inventories requires a disclaimer of opinion.
d) Performance of substantial parts of the examination is
necessary at interim dates.
177. What is the meaning of the GAAS that requires the auditor to
be independent?
a) The auditor must be without bias with respect to the client
under audit.
b) The auditor must adopt a critical attitude during the audit.
c) The auditor's sole obligation is to third parties.
d) The auditor may have a direct ownership interest in the client's
business if it is not material.
201. The auditor communicates the results of his or her work through
the medium of the
a. Engagement letter.
b. Management letter.
c. Audit report.
d. Financial statements.
Choose the following actions with the Code of Conduct rule violated
by the action. No rule is used more than once. Briefly explain why
the action is a violation of the rule cited.
a. Independence
b. Integrity and objectivity
c. General standards
d. Compliance with standards
Choose the following actions with the Code of Conduct rule violated
by the action. No rule is used more than once. Briefly explain why
the action is a violation of the rule cited.
a. Accounting principles
b. Confidential client information
c. Contingent fees
d. Acts discreditable
220. PSA 250 states that in order to plan the audit, the
auditor should obtain a general understanding of the legal and
regulatory framework applicable to the entity and the industry and
how the entity is complying with that framework. To obtain this
understanding, the following procedures would ordinarily be
considered by the auditor, except
a. Use the existing understanding of the entity’s industry,
regulatory, and other external factors.
b. Inquire of management concerning the entity’s policies and
procedures regarding compliance with laws and regulations.
c. Inquire of management as to the laws and regulations that may
be expected to have a fundamental effect on the operation of
the entity.
d. Inspect correspondence with relevant licensing or regulatory
authorities.
234. Lapping is
a. Making the financial statements indicate a more favorable
position by giving effect to tr5ansactions is a period other than
that in which these actually occurred
b. Done to inflate the cash position or cover the theft of cash by
depositing at the end of the accounting period a check drawing
on one bank account in another bank account without making
the necessary deduction in the balance of the first bank
c. An irregularity that conceals cash shortages by a delay in
recording cash collections, retaining a customer’s payment on
credit sales and covering up the shortage with subsequent cash
receipts
d. A kind of fraud committed by making entry of fictitious
payments or failure to enter receipts
256. Under PSA 260, this term is used to describe the role
of persons entrusted with the supervision, control, and direction of
an entity.
A. Oversight C. Direction
B. Governance D. Control
265. Lotlot, CPA, has issued a report with the following wordings: “In
our opinion, the schedule presents, in all material respects…”. In
this situation, Lotlot’s report is likely to be:
a. A standard audit report.
b. An audit report with a qualified opinion.
c. An attestation with a qualified opinion.
d. An attestation report.
269. Berto, CPA, discovered an illegal act during the audit of UBE
Corporation, a publicly held company. Accordingly, which of the
following would be the best response by Berto?
a. Berto shall notify the Securities and Exchange Commission
regarding the illegal act.
b. Berto should determine who was responsible for the illegal act.
c. Berto shall report the act to the audit committee and high level
personnel within Ube Corporation.
d. Berto shall intensity the examination to identify all illegal acts.
271. Cruz, Del Rosario, CPAs, was hired by Ariel Rivera Company to
give an opinion on recently prepared, but still unaudited, financial
statements. The statement that best describes this engagement is:
a. The CPA is performing an examination of the financial
statements rather than an accounting service.
b. The financial statements are representations of both
management and the CPA.
c. The CPA is performing and accounting service rather than an
examination of the financial statements.
d. The CPA may prepare the statements from the books, but may
not assist in adjusting and closing the books.
287. The auditor faces a risk that the examination will not detect
material misstatements in the financial statements. In regard to
minimizing this risk, the auditor primarily relies on:
a. Substantive tests. c. Internal control.
b. Tests of controls. d. Statistical analysis.
290. A professional accountant who does not consider and apply the
guidance included in a relevant Practice Statement should be
prepared to:
a. Explain to the Board of Accountancy tribunal why the practice
statement was not complied with.
b. Bear the consequences of such non-compliance, such as
suspension of revocation of license, plus imprisonment of not
more than two (2) years.
c. Face the shareholders of the entity, and explain in the meeting
why such practice statement was not complied with, provided
that the explanation is also put in writing, and signed in the
presence of the Chairperson of the Auditing and Assurance
Council.
d. Explain how the basic principles and essential procedures in
the Engagement Standards addressed by the Practice
Statements have been complied with.
302. The following are the more significant powers and functions of
the Board of Accountancy select the exception)
a. To prescribe and adopt the rules and regulations necessary for
carrying out the provisions of RA 9298.
b. To supervise the registration, licensure and practice of
professions in the Philippines
c. To administer oaths in connection with the administration of RA
9298
d. To revoke of licenses of violators of RA 9298
303. Which of the following best describes the most important stage
of an auditor’s statistical analysis of significant ratios and trends?
a. Computation of significant ratios and trends
b. Interpretation of significant variations and unusual relationships
c. Reconciliation of statistical data to the client’s accounting
records
d. Comparison of statistical data to prior year statistics and to
similar data published by governmental and private sources.
328. The following statements relate to RA 9298 and its IRR. Which
statement is incorrect?
a. A person shall be considered to be in the professional practice
of accounting if, as an officer of a private enterprise, he makes
decisions requiring professional accounting knowledge
b. When a CPA represents his/her client before government
agencies o tax and other matters related to accounting, the
CPA is engaged in public accountancy
c. A registered professional shall be permanently exempted from
CPE requirements upon reaching the age of 65 years old
d. The total CPE credit units required for CPAs shall be sixty (60)
units for three years, provided that a maximum of fifteen (15)
credit units shall be earned in each year