DE LA SALLE UNIVERSITY MANILA

RVR – COB DEPARTMENT OF ACCOUNTANCY

INTTHRY 2nd Term AY 17 - 18

Auditing Theory Long Quiz 1

Prof. Francis H. Villamin
==============================================================================

Name: ________________________________

Multiple Choice

1. Which of the following statements best describes assurance services?

a. Independent professional services that are intended to enhance the credibility of information to
meet the needs of an intended user
b. Services designed to express an opinion on the fairness of historical financial statements
based on the results of an audit
c. The preparation of financial statements or the collection, classification, and summarization of
other financial information
d. Services designed for the improvement of operations, resulting in better outcomes

2. Assurance engagements encompass the following types of services, except:

a. Attestation services
b. Audit of historical financial statements
c. Review engagements
d. Management consulting

3. What level of assurance is provided by the auditor in a review engagement?

a. No assurance
b. High, but not absolute
c. Reasonable
d. Limited

4. In a compilation engagement, the accountant is engaged to use accounting expertise as opposed

to auditing expertise to collect, classify, and summarize financial information. What type of
assurance is provided by the accountant when he/she performs this engagement?
a. Positive assurance
b. Negative assurance
c. No assurance
d. Limited assurance

5. Section 4 of the Rules and Regulations Implementing RA 9298 (IRR) provides that any position in
any business or company in the private sector which requires supervising the recording of financial
transactions, preparation of financial statements, coordinating with the external auditors for the
audit of such financial statements, and other related functions should be occupied by a duly
registered CPA. It provides further that
a. The business or company where such position exists has a paid-up capital of at least
P5,000,000 and/or annual revenue of at least P10,000,000
b. The business or company where such position exists has a paid up capital of at least
P10,000,000 and/or annual revenue of at least P5,000,000
c. The section applies to all incumbents to the position
d. The section applies only to persons to be employed after the effectivity of the Code of Ethics
for Professional Accountants in the Philippines

6. The following statements relate to the submission of nominations to the Board of Accountancy.
Which is correct?
a. 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
b. 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
c. 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
d. There should be adequate documentation to show the qualifications and primary field of
professional activity of each nominee.
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7. Which of the following statements is correct?

a. Any candidate who fails in two (2) complete CPA board examinations who will no longer be
allowed to take another set of examinations
b. Any candidate who fails in two (2) complete CPA board examinations shall be disqualified from
taking another set of examinations unless he/she submits evidence to the satisfaction of the
Board that he/she enrolled in and completed at least twenty-four (24) units of subjects given in
the licensure examination
c. The examination in which the candidate was conditioned and the removal examination on the
subject in which he/she failed shall be counted as two (2) complete examinations
d. The refresher course should be completed within two (2) years from the preceding examination

8. The standards of the Auditing and Assurance Standards Council include Philippine standards on:
I. Quality Control
II. Tax Engagements
III. Review Engagements
IV. Assurance Engagements
V. Consulting Engagements
a. I, II and III only
b. I, II and IV only
c. I, III, and IV only
d. I, II, III, IV and V

9. Which statement(s) is (are) correct regarding the pronouncements of AASC?

I. The exposure period allowed for each exposure draft of Engagement Standards and
Statements to be considered by the organizations and persons to whom it is sent for comment
is generally 60 days
II. Each final standard and statement shall be submitted to the PRC through the BOA for approval
after which the pronouncements become operative from the effective date stated therein
III. PAPSs will have the same authority as the PSAs
a. I only
b. II and III only
c. II only
d. I, II and III

10. The subject matter of an assurance engagement may take many forms, including:
a. b. c. d.
Nonfinancial performance or conclusion Yes Yes Yes No
Behavior Yes Yes Yes Yes
Financial performance or condition Yes Yes No Yes
Physical characteristics Yes No No No
Systems and processes Yes No Yes Yes

11. The characteristics for determining whether criteria are suitable include:
a. b. c. d.
Relevance Yes Yes Yes Yes
Reliability Yes Yes Yes Yes
Completeness Yes Yes No Yes
Neutrality Yes No No Yes
Comparability Yes Yes No No
Feedback value Yes No No No

12. The objective of an agreed-upon procedures engagement

a. is to enable the auditor to express an opinion whether the financial statements are prepared in
all material respects, in accordance with an identified financial reporting framework
b. is to enable the auditor to state whether, on the basis of procedures which do not provide all
the evidence that would be required in an audit, anything has come to the auditor’s attention
that causes the auditor to believe that the financial statements are not prepared in all material
respects, in accordance with an identified financial reporting framework
c. is to carry out those procedures of an audit nature to which the auditor and the entity and any
appropriate third parties have agreed and to report on factual findings
d. is to use accounting expertise as opposed to auditing expertise to collect, classify, and
summarize financial information

13. Which statement is incorrect regarding related services?

a. Related services comprise agreed-upon procedures and compilation
b. Audits and reviews are designed to enable the auditor to provide reasonable assurance and
limited assurance, respectively
c. Engagement to undertake agreed-upon procedures is not intended to enable the auditor to
express assurance
d. In a consultancy engagement, the accountant is engaged to use accounting expertise as
opposed to auditing expertise to collect, classify and summarize financial information
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14. The Framework of PSA applies to

a. Taxation
b. Consultancy
c. Agreed-upon procedures
d. Accounting advice

15. A pervasive characteristic of a CPA’s role in a Management Consulting Services engagement is

that of being a(an)
a. Objective advisor
b. Independent practitioner
c. Computer specialist
d. Confidential reviewer

16. Which one of the following is not a logical function of a CPA in public accounting practice?
a. Attest function
b. Supervision of internal audit staff
c. Tax practice
d. Management consulting services

17. Under this mode of billing for audit services, the client actually does not know in advance how
much will be the cost of audit engagement
a. Retainer basis
b. Maximum fee basis
c. Flat sum basis
d. Per diem basis

18. One of the advantages of the fixed fee (or flat sum) basis of billing a client is that the
a. Fixed fee method is particularly effective for measuring charges for routine engagements
b. CPA’s compensation is more directly related to the quality of his service rather than to time
spent
c. CPA is assured of avoiding a loss on the engagement even if he underestimates his costs
d. Client pays for exactly what he gets in terms of work performed

19. Which statement is incorrect regarding assurance engagement risk?

a. Engagement risk is the risk that the practitioner will express an inappropriate conclusion that
the subject matter conforms in all material respects with suitable criteria
b. All components of the engagement risk model will be significant for all assurance engagements
c. The extent to which the practitioner considers the relevant components of engagement risk will
be affected by the engagement circumstances
d. Business risk is not part of engagement risk and does not affect the application of Philippine
Standard on Assurance Engagements

20. Which of the following statements is (are) incorrect regarding assurance services?
a. Assurance services can be provided either on information or processes
b. The third party who receives the assurance generally does not pay for the assurance received
c. Assurance services always involve a report by one person to a third party on which an
independent organization provides assurance
d. All of the above

21. Assurance services are best described as

a. Independent professional services that improve the quality of information, or its context, for
decision makers
b. The assembly of financial statements based on assumptions of a reasonable party
c. Services designed to express an opinion on historical financial statements based on the
results of an audit
d. Services designed for the improvement of operations, resulting in better outcomes

22. Assurance services least likely involve

a. Implementing a system that improves the processing of information
b. Improving the quality of information for decision purposes
c. Improving the quality of the decision model used
d. Improving the relevance of information

23. Which of the following statements is (are) incorrect regarding assurance services?
a. Assurance services can be provided either on information or processes
b. The third party who receives the assurance generally does not pay for the assurance received
c. Assurance services always involve a report by one person to a third party on which an
independent organization provides assurance
d. All of the above
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24. In performing an attestation engagement, a CPA typically

a. Supplies litigation support services
b. Assesses control risk at a low level
c. Expresses a conclusion about an assertion
d. Provides management consulting advice

25. Framework of Philippine Standards on Auditing, provides that financial statements needed to be
prepared in accordance with one, or a combination of the following except:
a. Accounting standards generally accepted in the Philippines
b. International Accounting Standards
c. Another authoritative and comprehensive financial reporting framework designed for use in
financial reporting and is identified in the financial statements
d. accounting standards developed by the accountant of the business enterprise herself/himself

26. Inherent limitations in an audit stem from the following factors except
a. most audit evidence is persuasive rather than conclusive.
b. use of testing.
c. accounting and internal control system limitation.
d. incompetence of an auditor.

27. Although the CPA does not guarantee his findings, his opinion is nevertheless valuable to various
third parties. The value of the CPA’s opinion lies in the fact that
a. he has the qualifications required by law to be a CPA.
b. he is under the supervision of the Board of Accountancy.
c. he has gathered sufficient, competent evidential matter to support his opinion.
d. he has followed PSAs..

28. The independent auditor lends credibility to client financial statements by

a. stating in the auditor’s management letter that the examination was made in accordance with
generally accepted auditing standards.
b. maintaining a clear-cut distinction between management’s representations and the auditor’s
representations.
c. attaching an auditor’s opinion to the client’s financial statements.
d. testifying under oath about client’s financial information.

29. Which of the following best describes the reason why an independent auditor reports on financial
statements?
a. A management fraud may exist and it is more likely to be detected by independent auditors.
b. Different interests may exist between the company preparing the statements and the persons
using the statements.
c. A misstatement of account balances may exist and is generally corrected as a result of the
independent auditor’s work.
d. A poorly designed internal control system may be in existence.

30. The independent audit is important to readers of financial statements because it

a. determines the future stewardship of the management of the company whose financial
statements are audited.
b. measures and communicates financial and business data included in financial statements.
c. involves the objective examination of and reporting on management prepared statements.
d. reports on the accuracy of all information in the financial statements.

31. An independent audit aids in the communication of economic data because the audit
a. confirms the accuracy of management’s financial representations.
b. lends credibility to the financial statements.
c. guarantees that financial data are fairly presented.
d. assures the readers of financial statements that any fraudulent activity has been corrected.

32. To emphasize auditor independence from management, many corporations follow the practice of
a. appointing a partner of the CPA firm conducting the examination to the corporation’s audit.
b. establishing a policy of discouraging social contact between employees of the corporation
and the staff of the independent auditor.
c. requesting that a representative of the independent auditor be on hand at the annual
stockholder’s meeting.
d. having the independent auditor report to an audit committee of outside members of the board
of directors.

33. Professional auditing standards require that the auditor perform the audit:
a. With the aim of detecting fraud committed by the client.
b. Using Philippine Standards on Auditing without any exception.
c. To provide absolute assurance that all material errors are detected and corrected.
d. With an attitude of professional skepticism.
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34. According to the IRR, the accredited national professional organization of CPAs shall be
represented in the Quality Review Committee by ________?
a. Five members
b. Four members
c. Six members
d. Seven members

35. In a review engagement, the public accountant provides negative assurance in the report which is
issued. This can best be described by the phrase:
a. Nothing has come to my attention
b. The financial statements present fairly
c. We are unable to express an opinion
d. Except for the issues explained above

36. A person whose CPA certificate has been revoked

a. Can no longer practice as a CPA, unless reinstated.
b. Is automatically reinstated as a CPA after two years if he has acted in an exemplary manner.
c. Must be reinstated as a CPA by the BOA after two years if he has acted in an exemplary
manner.
d. May be reinstated as a CPA by the BOA after three years if he has acted in an exemplary
manner.

37. Which of the following is included in the seal used by a Certified Public Accountant?
a. Professional Tax Receipt (PTR) number.
b. Community Tax Certificate number.
c. Tax Identification Number (TIN).
d. CPA Registration number.

38. Which of the following is false? Philippine Framework for Assurance Engagements
a. describes the objectives and elements of assurance engagements intended to provide either a
reasonable assurance or limited assurance.
b. identifies engagements to which Philippine Standards on Auditing, Philippine Standards on
Review Engagements, and Philippine Standards on Assurance Engagements apply.
c. establishes standards or provides procedural requirements for the performance of assurance
engagements.
d. provides a frame of reference for the Auditing and Assurance Standards Council in its adoption
of International Standards on Auditing, International Standards on Review Engagements and
International Standards on Assurance Engagements for application in the Philippines.

39. Which of the following is not an assurance engagement?

a. Compilation
b. Financial statements audit
c. Information reliability services
d. Reviews of prospective financial statements

40. Nonassurance engagements include all of the following except:

a. agreed-upon procedures
b. management consulting
c. preparation of tax returns where no conclusion is expressed
d. compliance audit

41. Assurance engagements should exhibit the following elements except:

a. a subject matter
b. suitable criteria
c. an engagement process
d. appropriate professional fees

42. A practitioner should plan and conduct the assurance engagement in an effective manner to meet the
objectives of the engagement. Which of the following matters need not be a concern of the
practitioner in planning the work?
a. Criteria to be used
b. Engagement objective
c. Personnel and expertise requirements
d. Specific format of the assurance report

43. In performing an assurance engagement, a professional accountant typically

a. supplies litigation support services
b. assesses control risk at a low level
c. expresses a conclusion about an assertion
d. provides management consulting advice
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44. The decision of whether the criteria are suitable involves considering whether the subject matter of
the assurance engagement is capable of reasonably consistent evaluation or measurement using
such criteria. Which of the following characteristics is not considered necessary in determining
whether the criteria are suitable?
a. Relevance
b. Neutrality
c. Reliability
d. Sufficiency

45. Which of the following statements is true? Generally,

a. evidence from external sources is less reliable than that generated internally.
b. evidence generated internally is less reliable when subject to appropriate control with the
entity.
c. evidence obtained directly by the practitioner is more likely to be reliable than that obtained
from the entity.
d. evidence in the form of documents and representations is less likely to be reliable than oral
representations.

46. In general, internal auditor’s independence will be greatest when they report directly to the:
a. financial vice-president
b. corporate controller
c. audit committee of the board of directors
d. corporate stockholders

47. Operational audits often have an objective of determining whether an entity’s

a. internal control is adequately operating as designed.
b. operational information is in accordance with generally accepted governmental auditing
standards.
c. financial statements present fairly the results of operations.
d. specific operating units are functioning efficiently and effectively.

48. When the auditor expresses an opinion on financial statements, their responsibilities extend to:
a. the underlying wisdom of their client’s management decisions.
b. whether the results of their client’s operating decisions are fairly presented in the financial
statements.
c. an ongoing responsibility for their client’s solvency.
d. active participation in the implementation of the advice given to their client.

49. Operational audits generally have been conducted by internal auditors and governmental audit
agencies but may be performed by certified public accountants. A primary purpose of an
operational audit is to provide
a. a means of assurance that internal accounting controls are functioning as planned.
b. a measure of management performance in meeting organizational goals.
c. the results of internal examinations of financial and accounting matters to a company’s top-
level management.
d. aid to the independent auditor, who is conducting the audit of the financial statements.

50. In comparison to the external auditor, an internal auditor is more likely to be concerned with
a. internal administrative control
b. cost accounting procedures
c. operational auditing
d. internal control

51. This act provides that only licensed professionals may teach licensure subjects, and provides for
the triennial renewal of the Professional Identification Card:
a. RA No. 9298
b. RA No. 8981
c. IRR of RA 9298
d. PD 692

52. The overall objectives of the auditor in conducting an audit of financial statements are
I. To obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatements, whether caused by fraud or error
II. To report on the financial statements
III. To obtain conclusive rather than persuasive evidence
IV. To detect all misstatements, whether due to fraud or error
a. I and II only
b. II and IV only
c. I, II and III only
d. I, II, III and IV
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53. An audit is conducted on the premise that management and, where appropriate, those charged
with governance, have acknowledged and understand that they have responsibilities that are
fundamental to the conduct of an audit in accordance with PSAs. Which of the following is not one
of those responsibilities?
a. To provide the auditor restricted access to persons within the entity from which the auditor
determines it necessary to obtain audit evidence.
b. The preparation and presentation of financial statements in accordance with the applicable
financial reporting framework.
c. The establishment and maintenance of internal control relevant to the preparation and
presentation of financial statements that are free from material misstatement, whether due to
fraud or error.
d. To provide complete information to the auditor.

54. All CPAs who are considered in the practice of accountancy shall abide by the requirements, rules
and regulations on continuing professional development. For this purpose, it is required that all
registered CPAs must complete a minimum of
a. 60 credit units in three years
b. 80 credit units in three years
c. 100 credit units in three years
d. 120 credit units in three years

55. Which of the following is not one of the function of the Board of Accountancy as specifically
provided under RA 9298?
a. To determine and prescribe minimum requirements leading to the admission of candidates to
the CPA examination.
b. To investigate violations of the Accountancy Law and the rules and regulations promulgated
thereunder.
c. To perform visitorial powers or review professional work of accounting practitioners in a
general or random basis.
d. After due process, to suspend, revoke, or reissue certificates of registration for causes
provided for by law by the rules and regulations promulgated therefor.

56. No person shall serve the Professional Regulatory Board of Accountancy for more than
a. 3 years b. 6 years c. 9 years d. 12 years

57. RA 9298 provided that a CPA certificate may be suspended or revoked on grounds except
a. Immoral or dishonorable conduct.
b. Gross negligence or incompetence in the practice of profession.
c. Refusal to accept an audit engagement with a government corporation.
d. Conduct discreditable to the accounting profession.

58. Under the IRR of RA 9298, if a partner in a two-member partnership dies, the surviving partner
may continue to practice as an individual under the existing firm title which includes the
deceased partner’s name
a. For a period of time not to exceed five years.
b. For a period of time not to exceed two years.
c. Indefinitely.
d. Until the partnership payout to the deceased partner’s estate is terminated.

59. Which of the following is required for a partnership for public accountancy practice?
a. At least one of the partners must be a CPA.
b. All partners must be PICPA members.
c. All partners must be CPAs.
d. Firm name must contain names of partners only.

60. The accuracy of information included in the footnotes that accompany the audited financial
statements of a company whose shares are traded on a stock exchange is the primary
responsibility of
a. The stock exchange officials.
b. The management.
c. The lead engagement partner.
d. The Securities and Exchange Commission.

61. For an entity’s financial statements to be presented fairly in conformity with applicable financial
reporting framework, the principles selected should
a. Be applied on a basis consistent with those followed in the prior year.
b. Be approved by the Auditing and Assurance Standards Council (AASC).
c. Reflect transactions in a manner that presents the financial statements within a range of
acceptable limits.
d. Match the principles used by most other entities within the entity’s particular industry.
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62. The auditor’s opinion

a. Enhances the credibility of the financial statements.
b. Is an assurance as to the future viability of the entity.
c. Is an assurance as to the efficiency with which management has conducted the affairs of the
entity, but not effectiveness.
d. Certifies the correctness of the financial statements.

63. Which of the following is incorrect regarding the general principles of an audit?
a. The auditor should comply with the “Code of Ethics for Professional Accountants in the
Philippines” promulgated by the Philippine Professional Regulation Commission.
b. The auditor should conduct an audit in accordance with PSAs.
c. The auditor should plan and perform an audit with an attitude of professional skepticism
recognizing that circumstances may exist that cause the financial statements to be materially
misstated.
d. The auditor would ordinarily expect to find evidence to support management representations
and assume they are necessarily correct.

64. The objective of a review of financial statements

a. Is to enable the auditor to express an opinion whether the financial statements are prepared,
in all material respects, in accordance with an identified financial reporting framework.
b. Is to enable an auditor to state whether, on the basis of procedures which do not provide all
the evidence that would be required in an audit, anything has come to the auditor’s attention
that causes the auditor to believe that the financial statements are not prepared, in all
material respects, in accordance with an identified financial reporting framework.
c. Is to carry out those procedures of an audit nature to which the auditor and the entity and
any appropriate third parties have agreed and to report on factual findings.
d. Is to use accounting expertise as opposed to auditing expertise to collect, classify and
summarize financial information.

65. A CPA should comply with Philippine Standards on Auditing on every engagement
a. Without exception
b. Except in examinations that result in a qualified report
c. Except in engagements where the CPA is associated with unaudited financial statements.
d. Except in examinations of interim financial statements.

66. The Accountancy Law provides that all working papers made during an audit shall be the property of
the auditor. These working papers shall include the following, except:
a. Schedules and memoranda made by the CPA and his staff.
b. Working papers prepared and submitted by the client.
c. Excerpts or copies of documents furnished the auditor.
d. Reports submitted by the CPA to the client.

67. Individual CPAs, Firms or Partnerships of CPAs, including partners and staff members thereof
shall register with the BOA and the PRC. If the application for registration of AB and Co., CPAs
was approved on August 30, 2018, it shall file for renewal on or before
a. September 30, 2020 c. December 31, 2020
b. September 30, 2021 d. August 30, 2021

68. The principle of professional competence and due care imposes which of the following obligations
on professional accountants?
a. To refrain from disclosing confidential information obtained as a result of professional and
business relationships without proper and specific authority unless there is a legal or
professional right or duty to disclose
b. To maintain professional knowledge and skill at the level required to ensure that clients or
employers receive competent professional service
c. To comply with relevant laws and regulations and avoid any situation that may bring discredit
to the profession
d. Not to compromise professional or business judgment because of bias, conflict of interest or
undue influence of others

69. 1st – Detection risk is the susceptibility of an assertion to a material misstatement, assuming that
there are no related internal control structure policies and procedures
2nd – Inherent risk is the risk that the auditor will not detect a material misstatement that exists in
an assertion.
a. 1st statement is true, 2nd statement is false
b. 1st statement is false, 2nd statement is true
c. Both statements are true
d. Both statements are false
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70. A CPA establishes quality control policies and procedures for deciding whether to accept a new
client or continue to perform services for a current client. One of the main purposes for
establishing such policies and procedures is
a. To enable the auditor to attest to the integrity or reliability of a client
b. To comply with the quality control standards established by regulatory bodies
c. To lessen the exposure to litigation resulting from failure to detect fraud in client financial
statements
d. To minimize the likelihood of association with clients whose management lacks integrity

71. The three commonly sought types of assurance services are:

a. Audits, review and compilations
b. Audits, compilations, and other assurance services
c. Reviews, compilations and other assurance service
d. Audits, reviews and other assurance services

72. Which of the following best describes risk assessment services?

a. An engagement which provides assurance about whether financial and non-financial
information being reported from the entity’s performance measurement system is reliable
b. An engagement which involves the evaluation of the quality of health care, medical services
and looks into the health care delivery system
c. An engagement which identifies a set of risks that affect the client organization. It involves
the study of the link between risks and the organization’s vision, mission, objectives and
strategies and the development of new and relevant measures
d. None of these

73. Which of the following statements is incorrect?

a. Assurance services report on the quality of information
b. Assurance engagements encompass attestation engagements
c. Not all engagements performed by professional accountants are assurance engagements
d. Non-assurance engagements include agreed-upon procedures, compilation of financial or
other information, tax consulting and review engagements

74. In government auditing, the three elements of expanded scope auditing are:
a. Goal analysis, audit of operations, audit of systems
b. Financial and compliance, economy and efficiency, program results
c. Pre-audit, post-audit, internal audit
d. National government audit, local government audit, corporation audit

75. To operate effectively, an internal auditor must be independent of:

a. The line functions of the organization
b. The entity
c. The employer-employee relationship which exists for other employees in the organization
d. All of these

76. Internal auditors cannot be totally independent:

a. Since they do not possess the CPA license
b. As long as an employer-employee relationship exists
c. Because they don’t audit financial statements
d. Unless their immediate supervisor is a CPA

77. To provide for the greatest degree of independence in performing internal audit functions, an
internal auditor most likely should report to:
a. Those charged with governance
b. The corporate controller
c. The vice-president for finance
d. The shareholders of the company

78. The main objective of operations auditing is

a. To evaluate the integrity of accounting information
b. To verify fulfillment of plans and sound business requirements
c. To measure and evaluate the effectiveness of controls
d. To produce results as desired or directed

79. Management assertions are:

a. Stated in the footnotes to the financial statements
b. Implied or express representations about the accounts in the financial statements
c. Explicitly expressed representations about the financial statements
d. Provided to the auditor in the assertions letter, but are not disclosed in the financial
statements of the entity
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80. Auditing includes both a(an):

a. Documentation process and an evaluation process
b. Evaluation process and a reporting process
c. Investigative process and a reporting process
d. Documentation process and a reporting process

81. Which of the following statements is correct relating to the auditor’s consideration of fraud?
a. The auditor’s interest in fraud consideration relates to fraudulent acts that cause a material
misstatement of financial statements
b. A primary factor that distinguishes fraud from error is that fraud is always intentional, while
errors are generally, but not always, intentional
c. Fraud always involves a pressure or incentive to commit fraud, and a misappropriation of
assets
d. While an auditor should be aware of the possibility of fraud, management, and not the auditor,
is responsible for detecting fraud

82. Before accepting an audit engagement, a proposed (successor) auditor should make inquiries of
the previous (predecessor) auditor regarding the previous auditor’s
a. Evaluation of all matters of continuing accounting significance.
b. Understanding as to the reasons for the change of auditors.
c. Awareness of the consistency in the application of PAS/PFRS between periods.
d. Opinion of any subsequent events occurring since the previous auditor’s report was issued.

83. An auditor who discovers that client employees have committed an illegal act that has a material
effect on the client’s financial statements most likely would withdraw from the engagement if
a. The illegal act is a violation of generally accepted accounting principles
b. The client does not take the remedial action that the auditor considers necessary.
c. The illegal act was committed during a prior year that was not audited
d. The auditor has already assessed control risk at the maximum level

84. If the auditor is unable to agree to a change of the engagement and is not permitted to continue
the original engagement, the auditor should
a. Insist on continuing the original engagement.
b. Express a qualified opinion.
c. Express an adverse opinion.
d. Withdraw from the engagement.

85. With respect to planning an audit, which of the following statements is always true?
a. It is acceptable to perform a portion of the audit of a continuing audit client at interim dates
b. An engagement should not be accepted after the client’s year-end
c. An inventory count must be observed at year-end
d. Final staffing decisions must be made prior to completion of the planning stage

86. Audit risk has three components: inherent risk, control risk, and detection risk. Which of the
following statements is correct?
a. Detection risk is a function of the efficiency of an auditing procedure.
b. Cash is more susceptible to theft than an inventory of coal because it has a greater inherent
risk.
c. The risk that material misstatements will not be prevented or detected on a timely basis by
internal control can be reduced to zero by effective controls.
d. The existing levels of inherent risk, control risk and detection risk can be changed at the
discretion of the auditor.

87. An individual (whether internal or external to the firm) who has a reasonable understanding of (a)
audit processes, (b) PSAs and applicable legal and regulatory requirements, (c) the business
environment in which the entity operates, and (d) auditing and financial reporting issues relevant
to the entity’s industry.
a. Suitably qualified person.
b. Engagement quality control reviewer.
c. Experienced auditor.
d. Expert or specialist.

88. Which of the following types of fraud is an audit least likely to detect?
a. Theft of cash received from collection of accounts receivable
b. Intentional omission of transactions relating to equipment purchases
c. Intentional violations of occupational safety and health laws
d. Misapplication of accounting principles relating to inventory
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89. Prior to beginning the fieldwork on a new audit engagement in which a CPA does not posses
expertise in the industry in which the client operates, the CPA should
a. Reduce audit risk by lowering the preliminary levels of materiality
b. Design special substantive tests to compensate for the lack of industry expertise
c. Engage financial experts familiar with the nature of the industry
d. Obtain a knowledge of matters that relate to the nature of entity’s business

90. Which of the following statements relating to communication of audit matters of governance interest
is incorrect?
a. Audit matters of governance interest include only those matters that have come to the attention
of the auditor as a result of the performance of the audit
b. The auditor should identify relevant persons who are charged with governance and with whom
audit matters of governance interest are to be communicated
c. The auditor’s communications with those charged with governance may be made orally or in
writing
d. In an audit in accordance with PSAs, the auditor should design audit procedures for the
specific purpose of identifying matters of governance interest

91. Francis requested permission to communicate with the predecessor auditor and review certain
portions of the predecessor’s working papers. The prospective client’s refusal to permit this will
bear directly on Francis’ decision concerning the
a. Adequacy of the preplanned audit program
b. Ability to establish consistency in application of accounting principles between years
c. Apparent scope limitation
d. Integrity of management

92. At least annually, the firm should obtain ____________confirmation of compliance with its
policies and procedures on independence from all firm personnel required to be independent by
the Code of Ethics.
a. Oral
b. Written
c. Oral or written
d. Oral and written

93. Which of the following statements is true does auditor follow in communicating to management of
material weakness in accounting and internal control?
a. Communication must be in writing.
b. Oral communication of material weakness, when appropriate, would be documented in the
audit working papers.
c. The communication should indicate that the auditor had extensively examined the accounting
and internal control system of the client.
d. The auditor should indicate in the communication that the examination is primarily designed to
determine whether the accounting and internal control is adequate.

94. The principle of professional behavior imposes which of the following obligations on professional
accountants?
a. To refrain from disclosing confidential information obtained as a result of professional and
business relationships without proper and specific authority unless there is a legal or
professional right or duty to disclose
b. To maintain professional knowledge and skill at the level required to ensure that clients or
employers receive competent professional service
c. To comply with relevant laws and regulations and avoid any situation that may bring discredit
to the profession
d. Not to compromise professional or business judgment because of bias, conflict of interest or
undue influence of others

95. A CPA may reduce the audit work on a first time audit by reviewing the working papers of the
predecessor auditor. The predecessor should permit the successor to review working papers
relating to matters of continuing significance such as those that relate to
a. extent of reliance on the work of specialists
b. fees arrangements and summaries of payments
c. analysis of contingencies
d. staff hours required to complete the engagement
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96. Monitoring, as an element of quality control policies of a firm, requires:

a. Providing reasonable assurance that the firm’s other quality control policies and procedures
are effectively operating.
b. Designates individuals as specialists to serve as authoritative sources and define their
authority in consultative situations.
c. Ensuring that personnel are sufficiently directed, supervised and their work being reviewed
adequately.
d. Identify the right personnel to be assigned in an audit engagement

97. Users can reasonably expect audited financial statements to be

a. Complete and contain all important financial disclosures, be free from material misstatements
and be presented fairly.
b. Complete and contain all important financial disclosures, be free from material misstatements
and be presented fairly according to applicable reporting framework.
c. Complete, be accurate and be presented fairly according to applicable reporting framework..
d. Complete and contain all important financial disclosures, be free from all misstatements and be
presented fairly according to the substance of applicable reporting framework

98. Which of the following documentation is required for an audit in accordance with generally
accepted auditing standards?
a. A flowchart or an internal control questionnaire that evaluates the effectiveness of the entity’s
controls.
b. A client engagement letter that summarizes the timing and details of the auditor’s planned
fieldwork.
c. An indication in the working papers that the accounting records agree or reconcile with the
financial statements.
d. The basis for the auditor’s conclusions when the assessed level of control risk is at the
maximum level for all financial statement assertions.

99. 1st – Quality control standards relate to the conduct of individual audit engagements; PSAs relate
to the conduct of a firm’s audit practice as a whole
2nd – PSAs and quality control standards are related, and the quality control policies and
procedures that a firm adopts may affect both the conduct of individual audit engagements and
the conduct of a firm’s audit practice as a whole
a. First statement is true, second statement is false
b. First statement is false, second statement is true
c. Both statements are true
d. Both statements are false

100. In engagement quality control review is required to be performed:

a. Immediately after the reassessment of control risk.
b. For all types of audits, regardless of the subject matter of the engagement.
c. At engagement completion after the report is issued.
d. For all audits of financial statements of listed entities.

***END OF EXAMINATION***