1.Which of the following is included as part of the principles governing an audit?

(1 Point)
Auditors need to obtain a high level of assurance that the financial statements are free of all
misstatements.
An audit has inherent limitations such that auditor cannot provide absolute assurance about
whether the financial statements are free of misstatement.
Auditors need to maintain professional skepticism only on audits where there is a high risk if
material misstatement
All of the above are included as part of the principles governing an audit.
2.Which of the following statements are true about the audit opinion formulation process?
(1 Point)
The audit opinion formulation process is significantly different for the financial statement only
audit and the integrated audit
The audit opinion formulation process is based on the premise that management has
responsibility to prepare the financial statements and maintain internal control over financial
reporting.
The audit opinion formulation process is comprised of seven phases
All of the above are true statements regarding the audit opinion formulation process.
3.Which of the following activities is not part of the activities within the audit opinion formulation
process?
(1 Point)
The auditor develops a common understanding of the audit engagement with the client.
The auditor determines the appropriate nonaudit consulting services to provide to the client
The author identifies and assess risks of material misstatements and then responds to those
identified risks.
The auditor determined the appropriate audit opinion (s) to issue.
4.Which of the following is not one of the management assertions?
(1 Point)
Completeness
Existence
Rights and obligations
they are all management assertions
5.Which management assertion addresses whether the components of the financial statements are
properly classified, described and disclosed?
(1 Point)
Completeness
Existence
Rights and obligations
 Presentation and disclosure
6.Which of the following is a true statement regarding audit evidence and audit procedures
(1 Point)
The auditor has a responsibility to design and perform audit procedures to obtain sufficient
appropriate audit evidence.
Inquiry is a type of audit procedure that typically does not require corroborating evidence
The audit procedures that are performed during an audit are summarized in a document
referred to as an audit engagement letter.
Reperformance involves checking the mathematical accuracy of a document or record, such as
an inventory count sheet.
7.Which of the following items should be included in audit documentation?
(1 Point)
procedures performed
Audit evidence examined
Conclusions reached with respect to relevant financial statement assertions
All of the above should be included
8.Which of the following statements is a false statement regarding audit documentation?
(1 Point)
An audit program is an example of audit documentation
The only purpose of audit documentation is to provide evidence that the audit was planned and
performed in accordance with auditing standards
Audit documentation helps facilitate internal and external inspections of completed audits
All of the above statements are true
9.Which of the following procedures is least likely to be performed during the final phase of audit
opinion formulation process?
(1 Point)
Assessment of misstatements detected during the performance of substantive procedures and
tests of controls
Performance of preliminary analytical review procedures
Performance of an engagement quality review
Determination of the appropriate audit opinion(s) to issue.
10.Which of the following factors does not create a demand for external audit services?
(1 Point)
Potential bias by management in providing information
Requirement of PICPA
Complexity of the accounting processing systems
Remoteness between a user and the organization
11.Which of the following expectations can users of the audit report reasonably expect with regards
to the audited financial statements?
(1 Point)
The financial statements include all financial disclosures desired by users
The financial statements are presented fairly according to the substance of PFRS
The financial statements are free from all errors
All of the above are reasonable expectations
12.Which of the following parties are involved in preparing and auditing financial statements?
(1 Point)
Management
Audit committee
Internal audit funtion
External audit function
13.Which of the following are the responsibilities of the eternal auditor in auditing financial
statements?
(1 Point)
Maintaining internal controls and preparing financial reports
Providing internal assurance on internal control and financial reports
Providing internal oversight of the reporting process
None of the above
14.In terms of technical knowledge and expertise, which of the following should external auditors
do?
(1 Point)
Understand accounting and auditing authoritative literature
Develop industry and client-specific knowledge
Develop and apply computer skills
All of the above
15.Nikolai, Inc., a closely held company, wishes to engage Francis, CPA to examine its annual
financial statements. Nikolai was generally pleased with the services provided by its prior CPA, 10,
but thought the audit work performed was too detailed and interfered excessively with Nikolai's
normal office routines. Francis asked Nikolai to inform Jo of the decision to change auditors but
Nikolai did not wish to do so. List and Discuss the steps Francis should follow before accepting the
engagement.
(5 Points)
16.Refer to number 15. What additional procedures should Francis perform on this first-time
engagement over and beyond those Francis would perform on the Nikolai engagement of the
following year?
(5 Points)

17.You are a CPA in a regional accounting firm that has 5 offices in the Philippines. Mr. Sello has
approached you with a request for an audit. He is president of Funtech Software and Games, Inc., a
five-year old company that has recently grown to P 40 million in sales and P 20 million in total
assets. Mr Sello is thinking about going public with a P 17 million issue of common stock, of which
FIG million would be a secondary issue of shares he holds. You are very happy about this
opportunity because you know Mr. Sello is the new president of the Symphony Society board and
has made quite a civic impression since he came to your medium-size city seven years ago. Funtech
is one of the growing employers in the city. Discuss the sources of information and the types of
inquiries you and the firm's partners can make in connection with accepting Funtech as a new client.
(10 Points)

18.Refer to number 17 Suppose Mr. Sello has also told you that 10 years ago his closely held
hamburger franchise business went bankrupt, and upon investigation you learn from its former
auditors (your own firm) that Sello played "fast and loose" with franchise-fee income recognition
rules and presented such difficulties that your office in another city resigned from the audit (before
bankruptcy). Do you think the partner in charge of the audit practice should accept Funtech as a new
client?
(5 Points)