2TAY2122 BAUDPRIX Midterm Departmental Examination

2/6/22, 12:05 PM 2TAY2122 BAUDPRIX Midterm Departmental Examination
2TAY2122 BAUDPRIX Midterm

Departmental Examination
Instructions: The Midterm Departmental Examination is composed of 100 theory-questions.
Choose the best answer for each item. Make sure to submit before 3:00 pm. Observe honesty at
all times. Good luck and God bless!
Hi, Ken-Ei. When you submit this form, the owner will see your name and email address.
* Required
1. SECTION *
ACT195
ACT196
2. Statement I: An initial audit requires more audit time to complete than a recurring
audit.
Statement II: One purpose of performing preliminary analytical procedures in the

planning phase of an audit is to help the auditor make a preliminary assessment of
control risk.
*
(1 Point)
Only Statement I is true
Only Statement II is true
Both are true
Both are false
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3. Statement I: A major consideration in assigning staff to an audit engagement is

the experience levels required for the work, while a less important consideration is
maintaining staff continuity on the engagement.
Statement II: Materiality may be considered by the auditor with respect to direct
financial interest.
*
(1 Point)
Both are true
Both are false
4. Statement I: The auditor should carefully plan the audit the established the
nature, timing and extent of the audit procedures.
Statement II: Auditors begin their assessments of inherent risk during audit
planning.
*
(1 Point)
Both are true
Both are false
5. Statement I: If acceptable audit risk is low, and inherent risk and control risk are
both low, then planned detection risk should be high.
Statement II: If the audit assurance rate is 95%, then the level of acceptable
audit risk is 5%.
*
(1 Point)

Both are true
Both are false
6. An audit program provides a proof that *

(1 Point)
sufficient competent evidential matter is obtained.
the work is adequately planned.
there is compliance with generally accepted standards of reporting.
there is a proper study and evaluation of internal control.
7. Which of the following is not a consideration in the development of audit

programs?
*
(1 Point)
Internal control over the recording of plant asset additions and repairs and maintenance
expenditures is found to be weak.
The client constructed a major addition to its central manufacturing facility during the year
under audit.
The client is a private university located in Southern Philippines.
The members of the board of directors are elected by the stockholders during the annual
meeting.
8. Statement I: A major consideration in assigning staff to an audit engagement is

the experience levels required for the work, while a less important consideration is
maintaining staff continuity on the engagement.
Statement II: Materiality may be considered by the auditor with respect to direct
financial interest.
*
(1 Point)
Both are true
Both are false
9. Which of the following is correct?
*
(1 Point)
Approval is a policy decision implemented by employees.
Approval occurs as a matter of general policy and includes significant transactions only.
Authorization is a policy decision for either a general class of transactions or specific

transactions.
Approval should be given by the employee responsible for recording the transaction.
10. In an audit area that has a lower inherent risk, it would be prudent to:
*
(1 Point)
increase the amount of audit evidence gathered.
assign more experienced staff to that area.
increase the tolerable misstatement for the area.
expand planning procedures.

11. Which of the following statements regarding inherent risk is correct?
*
(1 Point)
The inherent risk assigned in the audit risk model is unaffected by the auditor’s experience
with client’s organization.
Most auditors set a low inherent risk in the first year of an audit and increase it if
experience shows that it was incorrect.
Most auditors set a high inherent risk in the first year of an audit and reduce it in
subsequent years as they gain experience, even when there is inherent risk.
The inherent risk assigned in the audit risk model is dependent upon the strengths in client’
internal control system.
12. When controls are deemed ineffective and assessed control risk is at the maximum
for a private company, there will be ______ emphasis placed on tests of controls.
*
(1 Point)
no
relatively little
moderate
heavy
13. Statement II: Audit evidence is cumulative in nature.
Statement II: Auditors are expected to address all information that may exist.
Statement III: Sufficiency is the measure of the quality of audit evidence.
*
(1 Point)
All statements are false
14. Which of the following types of audit uses laws and regulations as its criteria? *
(1 Point)
Compliance audit
Operational audit
Financial statement audit
Production audit
15. There has been recent media accounts of pension fund frauds. As a result, your
director, Jeynus Sembelyus, ask you to see how well the compensation division is
following the policies, procedures and plans established to protect those assets.
What type of audit should an auditor perform? *
(1 Point)
Program audit
Financial statement audit
Compliance audit
Operational audit
16. A CPA firm can issue a compilation report
*
(1 Point)
only if the partners are independent.
only if all the partners and the staff in the office performing the engagement are
independent.
even if it is not independent.
if the partners have no material or direct immaterial interest in client.
17. “The auditor should not assume that management is dishonest, but the possibility
of dishonesty must be considered.” This is an example of *
(1 Point)
a rule in the PICPA’s Code of Professional Conduct.
due diligence.
unprofessional behavior.
an attitude of professional skepticism.
18. Which of the following statements is true?
*
(1 Point)
Assertions about presentation and disclosure deal with whether the accounts have been
included in the financial statements at appropriate amounts.
Audit objectives follow and are closely related to management assertions.
Management’s assertions follow and are closely related to the audit objectives.
The auditor’s primary responsibility is to find and disclose fraudulent management

assertions.
19. One of the primary uses of an audit program is to *

(1 Point)
serve as a tool for planning, directing, and controlling the audit work.
delineate the audit risk accepted by the auditor .
provide for a standardized approach to the audit engagement.
document an auditor's understanding of the internal control.
20. An audit program is
*
(1 Point)
a generic document that auditing firms have developed to lead the process of the audit
through a systematic and logical process.
the detailed plan of audit procedures to be performed in the course of the audit.
a budget of the time that should be necessary to complete each phase of the audit
procedures.
an overview of the company and a general plan for the audit work to be accomplished.
21. In deciding whether to use the work of internal auditors, external auditors must
evaluate the internal auditors'
*
(1 Point)
objectivity and competence.
age and gender.
independence and professionalism.
education and certification.
22. Performance materiality is: *

(1 Point)
Determined by applying percentage to a chosen benchmark such as an element of the

financial statements.
The amount or amounts set by the auditor at less than materiality for the financial
statements as a whole.
Determined by applying simple mechanical calculation and does not involve the exercise of
professional judgment.
The amount or amounts set by the auditor at more than materiality for the financial
statements as whole.
23. An auditor’s expert is:
*
(1 Point)
May be either an auditor’s internal expert or an auditor’s external expert.
A member of the engagement team with expertise in a specialized area of accounting or

auditing.
Is an individual or organization possessing expertise in a field other than accounting or

auditing, whose work in that field is used by the entity in preparing its financial statements.
An individual or organization possessing expertise in accounting or auditing whose work is

used by the auditor in obtaining sufficient appropriate audit evidence.
24. The current period’s auditor who did not audit the prior period’s financial
statements is called: *
(1 Point)
Other auditor
Principal auditor
Predecessor auditor
Incoming auditor
25. Abel, a CPA is tasks to audit the financial statements of Jhim Company. With
respect to errors and fraud, Hugo as an auditor should plan to: *
(1 Point)
Search for fraud that would have material effects and for errors that would have either
material or immaterial effects on the financial statements.
Search for errors that would have material effect and for fraud that would have either
material or immaterial effects on the financial statements.
Search for errors and fraud that would have material effect on the financial statements.
Discover errors and fraud that would have material effect on the financial statements.
26. For an internal control system, Which of the following is correct?
I. The cost-benefit relationship is a primary criterion that should be considered in

designing an internal control system.
II. A properly maintained internal control system reasonably assures that collusion
among employees cannot occur.
III. The establishment and maintenance of the internal control system is an

important responsibility of the internal control with the directives of the
management. *
(1 Point)
III only
II only
I only
I, II, and III
II and III
27. When obtaining an understanding of an entity's internal control, an auditor should

concentrate on the substance of controls rather than their form because: *
(1 Point)
Management may establish appropriate controls but not enforce compliance with them.
Management may implement controls whose costs exceed their benefits.
The controls may be so inappropriate that no reliance is contemplated by the auditor.
The controls may be operating effectively but may not be documented.
28. Which of the following is not considered among the benefits of audit planning?
*
(1 Point)
Audit planning helps coordinate the work to be done by auditors of components and other
parties such as experts and specialists.
Audit planning helps ensure that the audit is properly organized, managed and performed in
an effective and efficient manner.
Audit planning aids in ensuring the examination of financial statements can be performed
without problems and difficulties.
Audit planning helps ensure that appropriate attention is devoted to important areas of the
audit.
29. Which of the following best describes the objective of an assurance engagement?
*
(1 Point)
To improve the company’s outcome.
To compare the company’s information and policies to those of other entities.
To enhance the credibility of information in order to improve the like hood that the
information will meet the needs of an intended user.
All of the above.
30. Which of the following statement is incorrect regarding the three-party

relationship element of an assurance engagement?
*
(1 Point)
The responsible party may not be the party who engages the professional accountant.
The responsible party may also be one of the intended users.
The responsible party is generally the addressee of the professional accountants report.
The responsible party and the intended user will often be from separate organization.
31. The audit risk model consists of: AR = IRxCRxDR. The detection risk is the
dependent variable. What is the acceptable level of detection risk if the assessed
level of inherent risk is high and control risk is medium? *
(1 Point)
Medium
Lowest
Lower
Higher
32. The concept of materiality with respect to attest function is:
*
(1 Point)
Applies only with public held firms.
Requires that relatively more effort be directed to those assertions that are more susceptibl
to misstatements.
Requires the auditor to make judgments as to whether misstatements affect the fairness of
financial statements.
Has greater application to the standards of reporting than the other generally accepted
auditing standards.
33. What is the proper organizational role of internal auditing? *

(1 Point)
To serve as independent, objective assurance and consulting activity that adds value to
operation.
To perform studies to assists the attainment of more efficient operations.
To assist the external auditor in order to reduce external audit fees.
To serve as the investigative arm of the audit committee of the board of directors.
34. Indicate the appropriate auditor’s response to:
Although the auditor has found internal control to be highly effective,

analytical procedures suggest that repairs and maintenance expenses
may have been debited to plant asset accounts, thereby materially
overstating net income.
*
(1 Point)
Raise the individual item materiality threshold
Increase reliance on external evidence
Lower the individual item materiality threshold
Lower the aggregate materiality threshold
Raise the aggregate materiality threshold
The auditor perceives internal control over sales and cash receipts as
excellent; but internal control over purchases, inventory, and cash
payments is considered weak.
*
(1 Point)
Although salespersons are granted 5% commissions on all sales, the

current year’s rate, based on unaudited sales and commissions’ data, is
3%. Internal control over sales and cash receipts is strong.
*
(1 Point)
37. Indicate by letter the appropriate auditor’s response to:
Tests of internal control revealed it to be much more effective than the

auditor had perceived during the preliminary planning stages.
*
(1 Point)
38. The listed scenario represents condition discovered by the auditor after analyzing
inherent risk and completing tests of financial reporting controls. Indicate the
impact on materiality thresholds set previously by the auditor during the
preliminary planning stages of the audit.
Although controls over sales processing appear to be effective,

analytical procedures indicate possible management override of the
controls in the form of premature revenue recognition.
*
(1 Point)
Lower the peso amount of the individual item threshold
Increase aggregate threshold as a percent of the individual item threshold
Lower aggregate threshold as a percent of the individual item threshold
No need to change initial thresholds
Increase the peso amount of the individual item threshold
Originally considered weak, payroll controls now appear to be effective,

based on auditor testing of selected controls.
*
(1 Point)
Although controls over the processing of vendor invoices were effective

in past years and were thought to be unchanged for the year under
audit, tests of controls revealed a significant deterioration.
*
(1 Point)
After testing controls related to payroll processing, the auditor was able
to reduce the assessed level of control risk; but application of analytical
procedures suggests that salaries and wages expense may be materially
overstated.
*
(1 Point)
The auditor decided not to test controls in the expenditure cycle

because they were considered ineffective in past years and, in the
auditor’s opinion, have not improved.
*
(1 Point)
n past audits, Jhim Abel, CPA, lowered the individual item threshold
given the use of “liberal” accounting practices by SG Industries, an audit
client (Proposed audit adjustments typically reduced unaudited net
income by 15% to 20%.) Application of analytical procedures to the
current year’s unaudited income, however, indicates the use of more
conservative accounting practices.
*
(1 Point)
44. When considering internal control, an auditor must be aware of the concept of
reasonable assurance which recognizes that
*
(1 Point)
The employment of competent personnel provides assurance that the objectives of internal
control will be achieved.
The segregation of incompatible functions is necessary to obtain assurance that the interna
control is effective.
The establishment and maintenance of a system of internal control is an important

responsibility of the management and not of the auditor.
The cost of internal control should not exceed the benefits expected to be derived from
internal control.
45. An internal control questionnaire indicates that an approved receiving report is

required to accompany every check request for payment of merchandise. Which
of the following procedures provides the greatest assurance that this control is
operating effectively?
*
(1 Point)
Select and examine receiving reports and ascertain that the related canceled checks are
dated no later than the receiving reports.
Select and examine receiving reports and ascertain that the related canceled checks are
dated no earlier than the receiving reports.
Select and examine canceled checks and ascertain that the related receiving reports are
dated no earlier than the checks.
Select and examine canceled checks and ascertain that the related receiving reports are
dated no later than the checks.
46. The auditor's review of the client's internal control is documented in order to
substantiate
*
(1 Point)
Conformity of the accounting records with generally accepted accounting principles.
Representation as to adherence to requirements of management.
Representation as to compliance with generally accepted auditing standards.
The fairness of the financial statement presentation.
47. A secondary objective of the auditor's study and evaluation of internal control is
that the study and evaluation provide
*
(1 Point)
A basis for constructive suggestions concerning improvements in internal control.
An assurance that the records and documents have been maintained in accordance with
existing company policies and procedures.
A basis for reducing the auditor's assessed level of control risk below the maximum level.
A basis for determination of the resultant extent of the tests to which auditing procedures
are to be restricted.
48. The auditor is studying internal control policies and procedures within the sales,
shipping, and billing subset of the revenue cycle. Which of the following
conditions suggests a need for additional testing of controls?
*
(1 Point)
Internal control over sales, billing, and shipping appears strong, but 80% of sales revenue i
attributable to three major customers.
Internal control over billing and shipping is thought to be strong and the auditor considers
additional testing of selected controls will result in a major reduction in substantive testing.
Internal control is found to be weak with regard to shipping and billing.
Internal control over the recording of sales is found to be weak and the sales are evenly
divided among a large number of customers.
49. An auditor evaluates the existing internal control in order to

*
(1 Point)
Ascertain whether any employees have incompatible functions.
Ascertain whether irregularities are probable.
Determine the extent of substantive tests which must be performed.
Determine the extent of control tests which must be performed.
50. After the study and evaluation of a client's internal control policies and procedures
has been completed, an auditor might decide to
*
(1 Point)
Increase the extent of substantive testing in areas where the internal controls are weak.
Reduce the extent of control testing in areas where the internal control policies and
procedures are strong.
Increase the extent of substantive testing in areas where the internal control policies and
procedures are strong.
Reduce the extent of both substantive and control testing in areas where the internal
control policies and procedures are strong.
51. When obtaining an understanding of an entity's control environment, an auditor

should concentrate on the substance of management's policies and procedures
rather than their form because
*
(1 Point)
The auditor may believe that the policies and procedures are inappropriate for that
particular entity.
The board of directors may not be aware of management's attitude toward the control
environment.
The policies and procedures may be so weak that no reliance is contemplated by the
auditor.
Management may establish appropriate policies and procedures but not act on them.
52. Which of the following is ordinarily considered a test of internal control

procedures?
*
(1 Point)
Send confirmation letters to banks.
Examine signatures on checks.
Count and list cash on hand.
Obtain or prepare reconciliations of bank accounts as of the balance sheet date
53. An auditor who accepts an audit engagement and does not possess the industry
expertise of the business entity, should
*
(1 Point)
Engage financial experts familiar with the nature of the business entity.
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.
Obtain a knowledge of matters that relate to the nature of the entity's business.
54. As a guidance for measuring the quality of the performance of an auditor, the
auditor should refer to
*
(1 Point)
Statements on Quality Control Standards.
Statements of the Financial Accounting Standards Board.
Interpretations of the Statements on Auditing Standards.
Generally Accepted Auditing Standards.
55. The audit procedures performed to obtain an understanding of the entity and its
environment, including the entity’s internal control, to identify and assess the risks
of material misstatement, whether due to fraud or error, at the financial statement
and assertion levels.
*
(1 Point)
Risk assessment procedures
Test of control
Inherent risk assessment
Substantive test
56. The process designed, implemented and maintained by those charged with
governance, management and other personnel to provide reasonable assurance
about the achievement of an entity’s objectives with regard to reliability of
financial reporting, effectiveness and efficiency of operations, and compliance with
applicable laws and regulations.
*
(1 Point)
Control environment
Internal control
Control activities
Monitoring
57. Elements of the control environment that may be relevant when obtaining an
understanding of the control environment include the following except;
*
(1 Point)
Communication and enforcement of integrity and ethical values
Commitment to competence
Participation by those charged with governance
None of the above
58. During Financial Statement audits, auditors assess which type of risk?
*
(1 Point)
Engagement risk
Inherent risk
Detection risk
Audit risk
59. The review of a company's financial statements by a CPA firm
*
(1 Point)
Is substantially less in scope of procedures than an audit
Is substantially more in scope of procedures than an audit
Is substantially the same in scope of procedures than an audit
None of the above
60. The risk associated with a company's survival and profitability is referred to as
*
(1 Point)
Business Risk
Engagement Risk
Information Risk
Financial Risk
61. Which of the following audit procedures is used extensively throughout the audit,
often is complementary to performing other audit procedures, yet the least
effective one?
*
(1 Point)
Inquiry
Inspection
Recalculation
Observation
62. How can the audit strategy and audit program best be described at the beginning
of the audit process
*
(1 Point)
Tentative
Comprehensive
Optional
Conclusive
63. It is the first step in audit planning where it serves as a basis for developing a
detailed audit plan
*
(1 Point)
Understanding the Entity
Establishing overall audit strategy
Performing analytical procedures
None of the above
64. Major considerations in developing overall audit strategy are as follows, except:
*
(1 Point)
type of audit opinion
significant factors
characteristics of engagement
reporting objectives
65. Which of the following is least likely included in an audit engagement letter?
*
(1 Point)
The objective of financial reporting
Management responsibility for the financial statements
The form of any reports or other communication of the results of the engagement
Arrangement concerning the involvement of other auditors or experts in some aspects of

the audit.
66. The auditor is not always required to perform
*
(1 Point)
Test of controls.
Either Risk assessment procedures or Test of controls
Risk assessment procedures.
Substantive procedures.
67. Which of the following procedures is not performed as a part of planning an audit
engagement?
*
(1 Point)
Designing an audit program.
Performing analytical procedures.
Reviewing the working papers of the prior year.
Confirmation of all major accounts.
68. Planning is a continuous process that must occur throughout the audit
engagement because :
*
(1 Point)
all information affecting the audit occurs concurrently.
the audit committee is likely to point out flaws in the original audit plan.
auditor skill levels are continuously fluctuating.
disconfirming information is likely to arise.
69. Communications between an incoming auditor and predecessor auditor: *

(1 Point)
require advanced approval from the client company.
are limited whenever the potential client is a public company.
must be documented in a ‘request for proposal’ if going concern issues exist.
are required to be documented in an engagement letter.
70. Which of the following is least likely to be used as a source of information about a
potential new audit client? *
(1 Point)
The potential client’s management and directors.
The potential client company’s predecessor auditor.
Published financial information of the potential client company.
Former employees and shareholders of the potential client company.
71. Which of the following is not a reason why auditors perform an investigation of
potential clients as part of their client acceptance and continuance procedures?
*
(1 Point)
They want to assist their audit clients in recovering from financial decline
They want to be reasonably assured of their ability to earn a profit from the audit
engagements they perform.
It is important for auditors to establish good reputations, so they strive to accept clients tha
possess a high level of integrity.
They want to avoid business risks associated with potential litigation.
72. Which of the following is true about analytical procedures?
*
(1 Point)
Analytical procedures are tests of controls used to evaluate the quality of a client's internal
control
Performing analytical procedures results in the most reliable form of evidence
Analytical procedures are used in planning, as a substantive procedure for specific accounts
and in the final review of the audited financial statements
Analytical procedures are used for planning, but they should not be used to obtain evidence
as to the reasonableness of specific account balances
73. What is the purpose of a financial statement audit?
*
(1 Point)
To provide assurance that the company is solvent
To provide assurance that the company has an effective internal control system that can
produce fair financial statements
To provide assurance that the financial statements are reliable
None of the above
74. If it is possible that the judgment of a reasonable person would have been
changed or influenced by the omission or misstatement of information, then that
information is:
*
(1 Point)
Insignificant
Significant
Relevant
Material
75. The primary purpose of the engagement letter is to:

*
(1 Point)
Remind management that the primary responsibility for the FS rests with the management
Satisfy the requirements for the CPA’s liability insurance policy.
Provide starting point for the auditor’s preparation for the preliminary audit program
Provide written record of the agreement with the client as to the services to be provided
76. The independent auditor is most concerned with which of the following:
*
(1 Point)
Promotion of operational efficiency
Adherence to prescribed managerial policies
Attainment of the organization’s objectives
Accuracy and reliability of accounting data
77. In developing the overall audit plan for a new client, factor not to be considered is
*
(1 Point)
The amount of estimated audit fee
The client’s business, including the structure of the organization and accounting system
used
The audit risks and procedures to be performed to achieve audit objectives
Materiality levels
78. Which of the following procedures would a CPA ordinarily perform during audit
planning?
*
(1 Point)
Obtain understanding of the client’s business and industry
Obtain client’s representation letter
Review the client’s bank reconciliation
Review and evaluate client’s internal control
79. The auditor can obtain knowledge of the industry and the entity from a number of
sources. These may include the following, except:
*
(1 Point)
Review of prior years’ working papers
Reading accounting journals and latest newspapers
Tour of client’s facilities
Reading books, periodicals, and other publications related to the client’s industry.
80. Adequate planning of the audit work is important because
*
(1 Point)
Planning helps ensure that appropriate attention is devoted to important areas of the audit
It allows the work to be completed expeditiously
It helps identify potential problems
All of the above
81. A measure of how willing the auditor is to accept that the financial statements
may be materially misstated after the audit is completed and an unqualified
opinion has been issued is the
*
(1 Point)
Inherent risk
Statistical risk
Financial risk
Acceptable audit risk
82. Engagement letter are widely used in practice for
*
(1 Point)
Related services only
Assurance engagements only
Professional engagement of all types
Audits only
83. According to PSA 210, the auditor and the client should agree on the terms of
engagement. The agreed terms would need to be recorded in a(an)
*
(1 Point)
Comfort letter
Engagement letter
Client representation letter
Memorandum to be placed in the permanent section of the audit working papers
84. Why would the auditor assess control risk?
*
(1 Point)
Because it affects the level of detection risk the auditor may accept.
Because it includes the aspects of nonsampling risk that are controllable.
Because it indicates where inherent risk may be the greatest.
Because it determines whether sampling risk is sufficiently low.
85. Which of the following is an incorrect statement?
*
(1 Point)
If individual audit risk remains the same, detection risk bears an inverse relationship to
inherent and control risks.
The greater the inherent and control risks the auditor believes exists, the less detection risk
that can be accepted.
Detection risk cannot be changed at the auditor’s discretion.
The auditor might make separate or combined assessments of inherent risk and control risk
86. Inherent risk and control risk differ from detection risk in that they
*
(1 Point)
May be assessed in either quantitative or nonquantitative terms.
Can be changed at the auditor’s discretion.
Arise from the misapplication of auditing procedures.
Exist independently of the financial statement audit.
87. The audit program should contain the following, except:
*
(1 Point)
Time budget for the various audit areas
Audit objective
Set of planned audit procedures
The combined assessed level of inherent and control risk
88. Risk assessment procedures shall include the following, except:
*
(1 Point)
Inquiry
Inspection
Confirmation
Analytical procedures
89. A relationship exists between audit risk and materiality. This relationship is *
(1 Point)
Either direct or inverse
Neither direct nor inverse
Inverse
Direct
90. An audit plan shall include a description of the following, except:
*
(1 Point)
The nature, timing and extent of planned risk assessment procedures
The nature, timing and extent of planned further audit procedures at the assertion level
Other planned audit procedures that are required to be carried out so that the engagement
complies with PSAs.
None of the above
91. It sets the scope, timing and direction of the audit, and that guides the
development of the audit plan.
*
(1 Point)
Overall audit strategy
Detailed audit plan
Understanding the entity
Materiality
92. If management or those charged with governance impose a limitation on the

scope of the auditor’s work in the terms of a proposed audit engagement such
that the auditor believes the limitation will result in the auditor disclaiming an
opinion on the financial statements, the auditor
*
(1 Point)
a. shall not accept such a limited engagement as an audit engagement, unless required by
law or regulation to do so.
b. shall accept such a limited engagement as an audit engagement and render a disclaimer
of opinion
Either A or B
Neither A nor B
93. In order to establish whether the preconditions for an audit are present, the
auditor shall:
*
(1 Point)
a. Determine whether the financial reporting framework to be applied in the preparation of

the financial statements is acceptable.
b. Obtain the agreement of management that it acknowledges and understand its

responsibility
Neither A nor B
Both A and B
94. Which of the following statements best describes assurance services?
*
(1 Point)
Services designed for the improvement of operations, resulting in better outcomes.
The preparation of financial statements or the collection, classification, and summarization

of other financial information.
Independent professional services that are intended to enhance the credibility of

information to meet the needs of an intended user.
Services designed to express an opinion on the fairness of historical financial statements

based on the results of an audit.
95. Which of the following is not an assurance service? *

(1 Point)
Compilation of financial information
Examination of prospective financial information
Review of financial statements

Audit of historical financial statements
96. In some assurance engagements, the evaluation or measurement of the subject

matter is performed by the responsible party, and the subject matter information
is in the form of an assertion by the responsible party that is made available to
intended users. These engagements are called
*
(1 Point)
Assertion-based engagements
Direct reporting engagements
Non-assurance engagements
Recurring engagements
97. Reducing assurance engagement risk to zero is very rarely attainable or cost
beneficial as a result of the following factors, except
*
(1 Point)
The use of selective testing.
The fact that much of the evidence available to the practitioner is persuasive rather than
conclusive.
The practitioner may not have the required assurance knowledge and skills to gather and
evaluate evidence.
The use of judgment in gathering and evaluating evidence and forming conclusions based
on that evidence.
98. After accepting an assurance engagement, a practitioner is not allowed to change

the engagement to a non-assurance engagement, or from a reasonable assurance
engagement to a limited assurance engagement, except when there is reasonable
justification for the change. Which of the following ordinarily will justify a request
for a change in the engagement?
I. A change in circumstances that affects the intended users’

requirements.
II. A misunderstanding concerning the nature of the engagement. *

(1 Point)
II only
Both I and II
Neither I nor II
I only
99. A practitioner should accept an assurance engagement only if
*
(1 Point)
The criteria to be used are not available to the intended users.
The practitioner’s conclusion is to be contained in a written report.
The subject matter is in the form of financial information.
The subject matter is the responsibility of either the intended users or the practitioner.
100. Which of the following best describes the reason why independent auditors report
on financial statements?
*
(1 Point)
Different interests may exist between the company preparing the statements and the
persons using the statements.
A misstatement of account balances may exist and is generally corrected as the result of
the independent auditors’ work.
Poorly designed internal control may be in existence.
A management fraud may exist and it is more likely to be detected by independent

auditors.
101. BONUS. *
(1 Point)
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2TAY2122 BAUDPRIX Midterm Departmental Examination

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2/6/22, 12:05 PM 2TAY2122 BAUDPRIX Midterm Departmental Examination

2TAY2122 BAUDPRIX Midterm

Statement II: One purpose of performing preliminary analytical procedures in the

Only Statement I is true

Only Statement II is true

Both are true

Both are false

3. Statement I: A major consideration in assigning staff to an audit engagement is

Only Statement I is true

Only Statement II is true

Both are true

Both are false

Only Statement I is true

Only Statement II is true

Both are true

Both are false

Only Statement I is true

Only Statement II is true

Both are true

Both are false

6. An audit program provides a proof that *

sufficient competent evidential matter is obtained.

the work is adequately planned.

there is compliance with generally accepted standards of reporting.

there is a proper study and evaluation of internal control.

7. Which of the following is not a consideration in the development of audit

The client is a private university located in Southern Philippines.

8. Statement I: A major consideration in assigning staff to an audit engagement is

Only Statement I is true

Only Statement II is true

Both are true

Both are false

9. Which of the following is correct?

Approval is a policy decision implemented by employees.

Authorization is a policy decision for either a general class of transactions or specific

increase the amount of audit evidence gathered.

assign more experienced staff to that area.

increase the tolerable misstatement for the area.

expand planning procedures.

11. Which of the following statements regarding inherent risk is correct?

13. Statement II: Audit evidence is cumulative in nature.

Statement III: Sufficiency is the measure of the quality of audit evidence.

Only Statement I is true

Only Statement II is true

Only Statement II is true

All statements are false

16. A CPA firm can issue a compilation report

only if the partners are independent.

even if it is not independent.

if the partners have no material or direct immaterial interest in client.

a rule in the PICPA’s Code of Professional Conduct.

an attitude of professional skepticism.

18. Which of the following statements is true?

Audit objectives follow and are closely related to management assertions.

The auditor’s primary responsibility is to find and disclose fraudulent management

19. One of the primary uses of an audit program is to *

delineate the audit risk accepted by the auditor .

provide for a standardized approach to the audit engagement.

document an auditor's understanding of the internal control.

20. An audit program is

objectivity and competence.

age and gender.