URDANETA CITY UNIVERSITY

COLLEGE OF ACCOUNTACY AND BUSINESS MANAGEMENT

San Vicente West, Urdaneta City

PRE-ASSESSMENT TEST IN
COMPETENCY APPRAISAL

Multiple Choice
1. Management’s assertions are:
a. Directly related to the financial reporting framework used by the company
b. Stated in the footnotes to the financial statements
c. Explicitly expressed representations about the company’s financial condition
d. Provided to the auditor in the23 assertions letter, but are not disclosed on the
financial statements

2. Which of the following assertions does not relate to balances at period end?
a. Existence
b. Occurrence
c. Valuation or Allocation
d. Rights and Obligation

3. Which of the following audit procedures is used extensively throughout the audit and
often is complementary to performing other audit procedures?
a. Inspection
b. Observation
c. Inquiry
d. Confirmation

4. This consists of checking the mathematical accuracy of documents or records.

a. Reperformance
b. Recalculation
c. Confirmation
d. inspection

5. Which of the following factors most likely would cause an auditor not to accept a new
audit engagement?
a. An independent understanding of the entity’s internal control structure
b. The close proximity to the end of the entity’s fiscal year
c. Concluding that the entity’s management probably lacks integrity
d. An inability to perform preliminary analytical procedures before assessing
control risk

6. Audit risk consists of all but the following components

a. Inherent risk
b. Substantive risk
c. Detection risk
d. Control risk

7. Which of the following statements concerning audit planning is incorrect?

a. Planning is a discrete phase of an audit
b. Planning is a continual and iterative process
c. In a recurring audit, planning often begins shortly after the completion of the
previous audit and continues until the completion of the current audit
engagement
d. In planning an audit, the auditor considers the timing of certain planning
activities and audit procedures that are to be completed prior to the
performance of further audit procedures.
8. In planning the audit engagement, the auditor should consider each of the following,
except
a. The type of opinion that is likely to be expressed
b. The entity’s accounting policies and procedures
c. Matters relating to the entity’s business and the industry in which it operates
d. Materiality level and audit risk.

9. What materiality level is used by the auditor in determining which line items in the
financial statements are to be tested?
a. Overall materiality
b. Performance materiality
c. Specific materiality
d. Individual materiality

10. An audit program should be designed for each individual audit and should incorporate
steps and procedures to
a. Detect and eliminate fraud of any type
b. Gather sufficient amount of management information available
c. Provide assurances that the objectives of the audit are satisfied
d. Insure that only material items are audited

11. The program flowcharting symbol represent a decision is a

a. Triangle
b. Circle
c. Rectangle
d. Diamond

12. Which of the following would be least likely to be included in an auditor’s tests of
controls?
a. Confirmation
b. Inquiry
c. Observation
d. Inspection

13. Narratives, flowcharts, internal control questionnaires are three commonly used
methods of
a. Documenting the study of internal control
b. Testing the internal control structure
c. Designing the audit manual and procedures
d. Documenting the auditor’s understanding of client’s organizational structure

14. The auditor’s study and evaluation of internal control is done for each of the following
reasons except
a. To provide a basis for constructive service suggestions
b. To aid in determination of the nature, timing, and extent of audit tests
c. To establish a basis for reliance thereon
d. To provide training and development for staff accountants

15. Establishing and maintaining as system of internal control is the responsibility of the
a. Internal auditor
b. Management
c. External auditor
d. Financial vice-president
16. The process of having the auditor select several documents for the initiation of a
transaction type and tracing them through the entire accounting process is known as
a. Documentation
b. A walk-through
c. Tracing
d. The transaction cycle

17. Which of the following would be least likely to be considered an objective of an

internal control structure?
a. Checking the accuracy and reliability of accounting data
b. Detecting management fraud
c. Encouraging adherence to managerial policies
d. Safeguarding assets

18. Which of the following activities would be least likely to strengthen a company’s
internal control?
a. Separating accounting from other financial operations
b. Fixing responsibility for the performance of employee duties
c. Maintaining insurance for fire and theft
d. Carefully selecting and training employees

19. Of the following statements about an internal control system, which one is not valid?
a. No one person should be responsible for the custodial responsibility and the
recording responsibility for an asset
b. Transactions must be properly authorized before being processed
c. Because of cost/benefit considerations, a client may apply control procedures on a
test basis
d. Control procedures reasonable ensure that no fraudulent activity could occur

20. Coverage of shortage in one bank account by means of an unrecorded check drawn on
another bank account is known as
a. Lapping
b. Kiting
c. Reconciling
d. adjusting

21. Fraudulent financial reporting is often called

a. Defalcation
b. Theft of assets
c. Management fraud
d. Employee fraud

22. The factor which distinguishes an error from an irregularity is

a. Materiality
b. Intent
c. Whether it is a peso amount or a process
d. Whether it is a caused by the auditor or the client

23. When the auditor knows that an illegal act has occurred, the auditor must
a. Issue an adverse opinion
b. Withdraw from the engagement
c. Consider the effects on the financial statements, including the adequacy of
disclosure
d. Report it to the proper governmental authorities
24. Transaction cycles begin and end
a. At the beginning and end of the fiscal period
b. At the balance sheet date
c. At January 1 and December 31
d. At the origin and final disposition of the company

25. In testing the cut-off, the objective is to determine

a. Whether all of the current period’s transactions are recorded
b. That no transactions from the prior period are included in the current period
balances
c. That no transaction of the current period have been delayed and recorded in a
future period
d. Whether transactions are recorded in the proper period

26. Which of the following is not a proper match of auditor’s objective with management’s
assertion?
a. Validity matches with existence/occurrence
b. Completeness matches with completeness
c. Ownership matches with rights and obligations
d. Classification matches with presentation

27. Which of the following is not one of the characteristics of competent evidence?
a. Independence of provider
b. Effectiveness of internal control structure
c. Size of the sample
d. Degree of objectivity

28. Which one of the following statements is true?

a. Evidence must pertain to the objective the auditor is testing before it can be
persuasive
b. Relevance can only be considered in terms of specific audit objectives
c. Evidence may be relevant to one objective but not for a different objective
d. All three of the above statements are true

29. In determining the quantity and quality of evidence to gather, the auditor will be
satisfied when the evidence is
a. Irrefutable
b. Conclusive
c. Highly persuasive
d. Completely convincing

30. Many tests of controls involve inspecting documents. These tests are commonly
referred to as
a. Tests of transactions
b. Tests of documentation
c. Tests of balances
d. Tests of analytical procedures

31. Which of the following is not one of the four determinants of the persuasiveness of
evidence?
a. Competence
b. Physical examination
c. Relevance
d. Sufficiency
32. Traditionally, confirmations are used to verify
a. Individual transactions between organizations, such as sales transactions
b. Fixed asset additions
c. Bank balances and accounts receivables
d. All three of the above

33. The working papers are

a. Property of client
b. Property of the auditor although prepared by the client
c. The primary means for documenting that an adequate audit was conducted in
accordance with standards on auditing
d. Use primarily as a basis for the partners to review and reward the work of the
managers, seniors, and staff

34. In the context of an audit of financial statements, substantive tests are audit
procedures that
a. May be either tests of transactions, direct tests of financial balances, or analytical
tests
b. May be eliminated under certain conditions
c. Are designed to discover significant subsequent events
d. Will increase proportionately with the auditor’s reliance on internal control

35. An auditor would be least likely to use confirmations in connection with the
examination of
a. Inventories
b. Long-term debt
c. Property, plant, and equipment
d. Stockholders’ equity

36. A major purpose of the auditor’s report on financial statements is to

a. Assure investors of the complete accuracy of the financial statements
b. Enhance the degree of confidence of intended users in the financial statements
c. Deter creditors from extending loans in high-risk situations
d. Describe the specific auditing procedures undertaken to gather evidence for
the opinion
37. A misstatement is immaterial to the financial Statements of the company for the
current period, but is expected to have a material effect in future periods, it is
appropriate to express
a. A qualified opinion
b. An unmodified opinion
c. A disclaimer of opinion
d. An adverse opinion

38. The auditor’s report should be addressed

a. Only to the shareholders of the entity whose financial statements are being
audited
b. Only to the board of directors of the entity whose financial statements are
being audited
c. To the CEO or the CFO of the entity whose financial statements are being
audited
d. Either to the shareholders or the board of directors of the entity whose
financial statements are being audited

39. An auditor’s responsibility to express an opinion on the financial statements is

 a. Implicitly represented in the auditor’s report
b. Explicitly represented in the “Auditor’s Responsibility” section of the auditor’s
report
c. Explicitly represented in the “Management’s Responsibility” paragraph of the
auditor’s report
d. Explicitly represented in the opinion paragraph of the auditor’s report

40. Which paragraphs of an auditor’s report on financial statements should refer to the
Philippine Financial Reporting Standards?
a. Introductory and Opinion
b. Auditor’s Responsibility and Management’ Responsibility
c. Introductory and Auditor’s Responsibility
d. Management’s Responsibility and Opinion

41. The auditor’s report should be dated as of the date on which the
a. Report is delivered to the client
b. Field work is completed
c. Fiscal period under audit ends
d. Review of the working papers is complete

42. The first paragraph of a standard unmodified audit report is referred to as the
a. Introductory paragraph
b. Scope paragraph
c. Opinion paragraph
d. Explanatory paragraph

43. Which of the following should not be the basis of dating the audit report?
a. When the audit fee is collected
b. As of the completion date of the audit
c. As of any date earlier than the date on which the financial statements are signed or
approved by management
d. Upon completion of the field work

44. The most common type of audit report contains

a. The adverse opinion
b. The disclaimer of opinion
c. The qualified opinion
d. The unmodified opinion

45. A qualified opinion is appropriate when the auditor is satisfied that the overall financial
statements are
a. Fairly stated
b. Materially misstated
c. Fairly stated, but there is a material exception
d. Fairly stated, even though there is an immaterial exception

46. The code of Professional ethics for CPAs promulgated by the Board of Accountancy
applies to
a. All CPAs in public practice
b. All CPAs in government
c. All CPAs in public practice, employed in private business and industry, in the
government, and in education
d. All CPAs in education
47. Which of the following is not the one of the characteristics of a profession?
a. Mastery of a particular intellectual skill acquired by training education
b. Adherence by its members to a common code of conduct
c. Acceptance of a duty to society as a whole
d. A responsibility to protect exclusively the interest of a client or employer

48. Competence as a certified public accountant includes all of the following except
a. Having the technical qualification to perform an engagement
b. Possessing the ability to supervise and evaluate the quality of staff work
c. Warranting the infallibility of the work performed
d. Consulting others if additional technical information is needed

49. The essence of the due care principle is that the auditor should not be guilty of:
a. Bias
b. Errors in judgment
c. Fraud
d. Negligence

50. A CPA shall not disclose confidential information obtained during an audit engagement
in which one of the following situations?
a. When the security of the state requires
b. With the consent of the client
c. In defense of himself when sued by his client
d. To a successor auditor without the client’s permission

51. Independence in auditing means

a. Not having any financial or economic relationship with the client
b. Being an advocate of the assurance
c. Taking an unbiased viewpoint
d. Not having a loan to or from an assurance client

52. Independence is required whenever a professional accountant performs:

a. Professional services
b. Assurance services
c. Non-assurance services
d. Tax consultancy services

53. Which of the following professional services does not require independence?
a. Direct reporting engagements
b. Examination of financial forecast
c. Tax consultancy services
d. Assertion-based engagement

54. This occurs when, because of a close relationship, a professional accountant becomes
too sympathetic to the interests of others
a. Self-interest threat
b. Self-review threat
c. Advocacy threat
d. Familiarity threat

55. Acting for an audit client in the resolution of a dispute or litigation would most likely
create
a. Advocacy threat
b. Self-interest threat
c. Intimidation threat
d. Familiarity threat
56. Accepting gifts or undue hospitality from an assurance client would most likely create
a. Familiarity threat
b. Self-review threat
c. Advocacy threat
d. Intimidation threat

57. The rotation of senior accounting personnel can be regarded as a safeguard

a. Created by the profession
b. Created within the client’s systems and procedures
c. Created in the work environment
d. Created within the business community

58. Analytical procedures are required to be performed during the

a. Planning and substantive test stages
b. Substantive test and overall review stages
c. Planning and overall review stages
d. Planning stage only

59. The auditor relies on the client representation letter to

a. Confirm written representations given to the auditor
b. Document the continuing materiality of client representations
c. Guarantee the absence of management fraud
d. Reduce the possibility of misunderstanding concerning management’s
representations

60. Which of the following is not among the characteristics of the procedures being
performed in completing the audit?
a. They are optional since they have only an indirect impact on the opinion to be
expressed
b. They involve a lot of subjective judgment by the auditor
c. They do not pertain to specific transaction cycles or accounts
d. They are usually performed by the audit managers or other senior members of the
audit team who have extensive audit experience with the client

61. Which of the following activities is ordinarily performed prior to year-end?

a. Audit documentation review
b. Interim testing
c. Roll-forward work
d. Subsequent event review

62. The responsibility for the identification and disclosure of related parties and
transactions with such parties rests with the
a. Auditor
b. Entity’s management
c. Financial Reporting Standard Council (FRSC)
d. Securities and Exchange Commission (SEC)

63. Which of the following would not necessarily be a related party transaction?
a. A purchase from another corporation that is controlled by the corporation’s chief
shareholder
b. A loan from the corporation to a major shareholder
c. Sale of land to the corporation by the spouse of a director
d. A sale to another corporation with a similar name
64. Which of the following procedures would an auditor most likely perform to obtain
evidence about the occurrence of subsequent events?
a. Inquiring as to whether any unusual adjustments were made after the date of the
financial statements
b. Confirming a sample of material accounts receivable established after the date of
the financial statements
c. Comparing the financial statements being reported on with those of the prior
period
d. Investigating personnel changes in the accounting department occurring after the
date of the financial statements

65. Which of the following conditions or events most likely would cause an auditor to have
substantial doubt about an entity’s ability to continue as a going concern?
a. Restrictions on the disposal of principal assets are present
b. Usual trade credit from suppliers is denied
c. Significant related party transactions are pervasive
d. Arrearages in principal stock dividends are paid

66. The written representations shall be in the form of a representation letter addressed to
the
a. Entity’s management
b. Auditor
c. Entity’s chief executive officer
d. Entity’s chief financial officer

67. The auditor standards regarding “subsequent discovery of facts” refers to knowledge
obtained after
a. The audit report released date
b. The auditor’s report date
c. The entity’s year-end balance sheet date
d. The date interim audit work was complete

68. An audit of financial statements is conducted to determine if the

a. Organization is operating efficiently and effectively
b. Auditee is following specific procedures or rules set down by some higher authority
c. Overall financial statements are stated in accordance with an identified financial
reporting framework
d. Client’s internal control is functioning as intended

69. Which of the following types of audit uses laws and regulations as its criteria
a. Operational audit
b. Financial statement audit
c. Compliance audit
d. Performance audit

70. In financial statement audits, the audit process should be conducted in accordance
with
a. The audit program
b. Philippine Standards on Auditing
c. Philippine Accounting Standards
d. Philippine Financial Reporting Standards

71. Independent external auditing can best be described as a

a. Professional activity that measures and communicates financial accounting data
b. Subset of accounting
c. Professional activity that attests to the fair presentation of financial statements
d. Regulatory activity that prevents the issuance of misleading financial information
72. Internal auditors report to
a. the audit committee of the board of directors
b. management
c. external auditors
d. the government regulators

73. The reason an independent auditor gathers evidence is to

a. form an opinion on the financial statements
b. detect fraud
c. evaluate management’s performance
d. evaluate the entity’s internal control

74. Which of the following is not one of the limitation of an audit?

a. The use of testing
b. Limitations imposed by client
c. Human error
d. Nature of evidence that the auditor obtains

75. In the auditing environment, failure to meet auditing standards is often:

a. An accepted practice
b. As suggestion of negligence
c. Conclusive evidence of negligence
d. Tantamount to criminal behavior

76. The auditor is not liable to his client for

a. Negligence
b. Fraud
c. Dishonesty
d. Errors in application of judgment

77. In making a decision to accept or retain a client, the firm should consider
a. Its competence
b. Its ability to comply with ethical requirements
c. The integrity of the client’s management
d. All three should be considered

78. The responsibility for establishing and maintaining an internal control rests with
a. Management and those charged with governance
b. The controller or the treasurer
c. The external auditors
d. The internal auditors

79. An act of two or more employees to steal assets and cover their theft by misstating the
accounting records would be referred to as
a. Collusion
b. A material weakness
c. A control deficiency
d. A significant deficiency

80. Internal controls are not designed to provide reasonable assurance that
a. All frauds will be detected
b. Transactions are executed in accordance with management’s authorization
c. Access to assts is permitted only in accordance with management’s authorization
d. Company personnel comply with applicable rules and regulation
81. The policies and procedures that help ensure that management directives are carried
out are referred to as the
a. Control environment
b. Monitoring of controls
c. Information system
d. Control activities

82. The auditor’s consideration of a company’s internal control is

a. Required under the Philippine Accountancy Act
b. Required by the code of ethics
c. Required by the SEC
d. Required by the PSA

83. Auditing standards require the auditor to obtain an understanding of the client’s
internal control structure
a. For every audit
b. For first time audits
c. Sufficient to find any frauds which may exist
d. Whenever it would be appropriate

84. Material weaknesses in internal control of a public company must be reported in

writing to which of the following?
a. The SEC
b. Audit committee of the company’s board of directors
c. Members of management who responsible for the related area of functions
d. The PICPA

85. In testing controls over cash disbursements, the auditor most likely would determine
that the person who signs checks also:
a. Reviews the monthly bank reconciliation
b. Returns the checks to accounts payable
c. Is denied access to the supporting documents
d. Is responsible for mailing the checks

86. Reconciliation of the bank account should not be performed by an I dividual who also
a. Processes cash disbursements
b. Has custody of the securities
c. Prepares the cash budget
d. Reviews inventory reports

87. The document used to indicate to the customer the amount of a sale and due date of
the payment is the
a. Sales order
b. Shipping document
c. Bill of lading
d. Sales invoice

88. To minimize the opportunity for fraud, unclaimed salary checks should be
a. Deposited in a special bank account
b. Kept in the payroll department
c. Left with the employee’s supervisor
d. Held for the employee in the personnel department

89. The most important objective in the audit of depreciation expense is proper
a. Cutoff
b. Disclosure
c. Classification
d. valuation
90. audit working papers should not
a. include any client prepared papers or documents other than those prepared by the
CPA or his assistant
b. be kept by the CPA after review and completion of the audit except for items
required for the income tax return or the permanent file
c. be submitted to the client to support the financial statements and to provide
evidence of the audit work performed
d. themselves be expected to provide sufficient support for the auditor’s opinion

91. A control which relates to all parts of the EDP system is called
a. system controls
b. general controls
c. applications controls
d. universal controls

92. Controls which apply to a specific use of the system are called
a. General controls
b. Systems controls
c. Applications controls
d. User controls

93. Which of the following is not an input control?

a. Proper authorization of controls
b. Check digits
c. Control totals
d. Adequate documents

94. Auditors usually evaluates the effectiveness of

a. Hardware control first
b. Sales cycle control first
c. General controls before applications controls
d. Applications controls first

95. The auditor’s computer program approach and the test data approach
a. Are complementary
b. Are mutually exclusive
c. Are incompatible
d. Must be used simultaneously

96. A review service engagement involving unaudited financial statements involves

a. More than a compilation and an audit
b. Less work than an audit but more work than a compilation
c. Less work than a compilation but more work than an audit
d. More work than an audit but less work than a compilation

97. Accountants are permitted to express “negative assurance” in which of the following
reports?
a. Standard unmodified audit report on audited financial statements
b. Compilation report on unaudited financial statements
c. Review report on unaudited financial statements
d. Adverse opinion report on audited financial statements

98. An assurance service is defined as a service that

a. Improves the quality of information for decision makers
b. Reviews unaudited financial information
c. Provides auditing services to nonfinancial information
d. Reduce the risk in management decision making
 99. Which of the following is least likely to be the subject matter of an attestation
engagement?
a. Behavior
b. Historical events
c. Suitable criteria
d. Systems or processes

100. The level of assurance that is provided by the CPA on a compilation report is
a. none
b. low
c. medium
d. high

End of the pre-assessment test