1. Preliminary knowledge about the entity must be obtained after 13.
13. If planned detection risk is reduced, the amount of evidence the
accepting the engagement to determine whether the auditor
has the necessary knowledge to perform the audit. * FALSE
2. A general approach in auditing financial statements would
require consideration of financial statement assertions, audit
procedures and audit opinion. * FALSE
3. The level of knowledge about the client’s business required of
the auditor is ordinarily more than the level of knowledge
possessed by management. * FALSE
4. An auditor must have a good understanding of the risks
associated with a client's industry in order to ensure that the
financial statements reflect the underlying substance of
accounting transactions and the economic effects of such
transactions. * TRUE
5. Materiality and audit risk are considered throughout the audit. *
TRUE
6. Following the acceptance of the engagement, the auditor
should obtain detailed knowledge about the client’s business
preferably at the start of the engagement. * TRUE
7. Planning is not required in an audit as long as an audit program
has been developed. * FALSE
8. The concept of materiality recognizes that some matters are
important for fair presentation of financial statements in
conformity with acceptable financial reporting framework, while
other matters are not important. * TRUE
9. Engagement letter that documents and confirms the auditor’s
acceptance of the engagement would normally be sent to the
client before the audit report is issued or at end of fieldwork,
whichever comes earlier. * FALSE
10. In making a decision to accept or retain a client, the firm should
consider its competence, the integrity of the client’s
management and its ability to pay the professional fees. * FALSE
11. Before accepting an engagement to audit a new client, a CPA is
required to obtain a preliminary understanding of the
prospective client’s industry and business, including its control
environment. * FALSE
12. An auditor’s responsibility to detect illegal acts that have a
direct and material effect on the financial statements is the
same as that for errors and irregularities. * TRUE
auditor accumulates will decrease. * FALSE
14. Errors are always frauds; frauds are always errors. * FALSE
15. For continuing engagements, the auditor may no longer obtain
knowledge about the client’s business. * FALSE
16. It is usually equally difficult for the auditor to uncover errors and
fraud. * falsE
17. Planning is a discrete phase of an audit. * FALSE
18. An auditor obtains knowledge about a new client’s business and
its industry in order to maintain professional skepticism
concerning management’s financial statement assertions. *
FALSE
19. Analytical procedures are required for planning, substantive
testing and overall review of the financial statements. * FALSE
20. 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. * FALSE
21. Professional judgement *
a. Is not used in making decisions about materiality and audit
risk.
b. Should be exercised in planning and performing an audit of
financial statements but need no be documented
c. Is necessary in the evaluation of management’s judgments
in applying the entity’s applicable financial reporting
framework
d. Can be used as the justification for the decisions made by
the auditor that are not supported by the facts and
circumstances of the engagement
22. An auditor need not abide with a specific requirement of PSA if
the auditor believes that: *
a. The requirement of the PSA is impractical to perform.
b. Any of the given three choices is correct.
c. The amount is insignificant.
d. The requirement of the PSA is impossible to perform.
23. The objective of the quality control policies to be adopted by an
audit firm will ordinarily incorporate all of the following
except: *
a. Human resources
b. Risk assessment
c. Engagement performance
 d. Leadership responsibilities
24. Which of the following statements is correct concerning an
auditor’s responsibilities regarding financial statements? *
a. An auditor’s responsibilities for audited financial
statements are confined to the expression of the auditor’s
opinion.
b. Making suggestions that are adopted about the form and
content of an entity’s financial statements impairs an
auditor’s responsibilities
c. The auditor’s report should provide an assurance as to the
future viability of the entity.
d. The fair presentation of audited financial statements in
accordance with an applicable financial reporting
framework is an implicit part of the auditor’s responsibilities
25. S1: Attainment of professional competence requires initially a
high standard of general education followed by specific
education, training, and examination in professionally relevant
subjects and a period of work experience. S2: The engagement
partner should set example regarding the quality of audit by
emphasizing through actions and messages the importance of
performing work that complies with professional standards,
complying with the film's quality control policies and
procedures, and issuing appropriate audit reports. S3: The
engagement partner should be satisfied that the engagement
team collectively has the appropriate capabilities, competence
and time to perform. *
a. All statements are true
b. All statements are false
c. 2 statements are true
d. Only 1 statement is true
26. S1: Sufficiency and appropriateness of audit evidence are not
interrelated S2: The quantity of audit evidence is affected by its
quality and the risk of misstatement S3: A given set of
procedures may provide audit evidence that is relevant to
certain assertions, but not others. S4: An entity's accounting
records can be sufficient audit evidence to support the financial
statements *
a. All statements are true
b. 3 statements are true
c. 2 statements are true
d. Only 1 statement is true
27. A report may be based upon applying agreed-upon procedures
to specified elements, accounts or items of a financial
statement. The users of the report should participate in
establishing the procedures to be performed. If the auditor
cannot discuss the procedures with all the parties who will
receive the report, he/she may I. Discuss the procedures to be
applied with appropriate representatives of the parties involved.
II. Review relevant correspondence from the parties involved.
III. Distribute a draft of the type of report that will be issued to
the parties involved. *
a. I and II only
b. II and III only
c. I, II and III
d. I and III only
28. A CPA firm can issue a review report: *
a. Only if all the partners and the staff in the office performing
the engagement are independent
b. Only if the partners are independent
c. Of the partners have no material or direct immaterial
interest in client
d. Even if the CPA is not independent.
29. Audit standard requires an auditor to: *
a. Design the audit program to meet financial statement users'
expectations concerning fraud.
b. Provide reasonable assurance that the financial statements
are not materially misstated.
c. Perform procedures that are designed to detect all
instances of fraud.
d. Issue an unmodified opinion only when the auditor is
satisfied that no instances of fraud have occurred.
30. S1: Engagement to apply agreed-upon procedures on certain
accounts within a financial statement may be accepted provided
that the distribution of the reports is limited only to specified
parties involved. S2: Failure to comply with the standards
exposes the auditor to risk such as loss of public respect or even
assessment of legal damages. S3: Review involves monitoring
the progress of the audit resolving accounting and audit issues,
and considering the level of consultation appropriate for the
engagement. *
 a. All statements are true d. Modify the scope of the audit to reflect an increased risk of
b. All statements are false material misstatement due to fraud
c. 2 statements are true 35. Preliminary knowledge about the client’s business and industry
d. Only 1 statement is true must be obtained prior to the acceptance of the engagement
31. S1: Auditing is a subset of attestation engagements that focuses primarily to *
on the certification of financial statements. S2: Fair presentation a. Determine the degree of knowledge and expertise
of financial statements is an implicit part of the auditor’s required by the engagement
responsibility. S3: Audit of financial statements does not reduce b. Gather evidence about the fairness of the financial
management’s responsibility. * statements
a. All statements are true c. Determine the integrity of management
b. All statements are false d. Determine whether the firm is independent with the client
c. 2 statements are true 36. Which of the following is the most appropriate action to be
d. Only 1 statement is true taken by a CPA who has been asked to perform a consulting
32. S1: the criteria against which the subject matter of the assurance services engagement concerning the analysis of a potential
engagement is to be evaluated or measured should be relevant, merger if he/she has little experience with the industry
concise and neutral. S2: Established criteria are those that are involved? *
embodied in laws or regulations, or issued by authorized or a. Accept the engagement but he/she should conduct
recognized bodies. S3: The responsible party may or may not be research or consult with others to obtain sufficient
the party who engages the professional accountant. S4: competence.
Complete criteria allow reasonably consistent evaluation or b. Decline the engagement because he/she lacks sufficient
measurement of the subject matter including where relevant, knowledge
presentation and disclosure, when used in similar circumstances c. Accept the engagement and issue a report that contains
by similarly qualified practitioners. * his/her opinion on the achievability of the results of the
a. All statements are true merger.
b. 3 statements are true d. Accept the engagement and perform it n accordance with
c. 2 statements are true Philippine Standards on Auditing
d. Only 1 statement is true 37. The term efficiency in performance auditing refers to *
33. Auditing standards differ from auditing procedures in that a. The acquisition of resources at appropriate times and within
procedures relate to: * a specified time frame.
a. Audit judgements b. The achievement of intended results of operations
b. Measures of performance programs or activities
c. Audit principles c. Using resources to maximize output for a given input, or to
d. Acts to be performed minimize input for any given quantity or quality of output
34. If an auditor believes that an understanding with the client has d. The achievement of objectives within a specified time
not been established he or she should ordinarily * frame.
a. Decline to accept or perform the audit 38. A firm of independent auditors must establish and follow quality
b. Assess the control risk at the maximum level and perform a control policies and procedures because these standards *
primarily substantive audit a. Give reasonable assurance that the firm as a whole will
c. Perform the audit with increased professional skepticism comply with professional standards.
 b. Include formal filing of records of such policies and
procedures to regulatory agency.
c. Are required by the SEC for auditors of all firms.
d. Are necessary to meet increasing requirements of auditors
liability as insurers.
39. The risk that an auditor will fail to uncover a material
misstatement is eliminated *
a. If auditor observes the Code of Professional Ethics.
b. Under no circumstances.
c. When the auditor complies with PSA.
d. If client has good internal control.
40. Which of the following statements best describes the primary
purpose of Statements on Auditing Standards? *
a. They are authoritative statements, enforced through the
Code of Professional Conduct, and are intended to limit the
degree of auditor judgment.
b. They are guides intended to set forth auditing procedures
that are applicable to a variety of situations.
c. They are procedural outlines that are intended to narrow
the areas of inconsistency and divergence of auditor
opinion.
d. They are interpretations that are intended to clarify the
meaning of “generally accepted auditing
standards.”Correct answer
41. In audit communication between the predecessor and incoming
auditor should be *
a. Written and included in the working papers
b. Acknowledged in a representation letter
c. Either written or oral
d. Authorized in an engagement letter
42. The Philippine Standards on Auditing can be described as *
a. Defining the minimum standards of performance for an
auditor.
b. Providing assurance that an auditor will not issue an
inappropriate audit opinion
c. Similar to Philippine Financial Reporting Standards (PFRS).
d. Providing very specific guidance about the specific activities
as auditor must perform on each engagement.
43. The auditor’s best defense when material misstatements are not
uncovered is to have conducted the audit: *
a. In a timely manner.
b. Only after an adequate investigation of the management
team.
c. As effectively as reasonably possible.
d. In accordance with PSA.
44. The general Standards of the generally accepted auditing
standards include a requirement that *
a. Due Professional care be exercised by the auditor
b. The fieldwork to be adequately planned
c. The auditor to obtain sufficient, competent evidential
matter.
d. The Auditor’s report to state whether the financial
statements are presented in conformity with PFRS.
45. The auditor’s judgment concerning the overall fairness of
presentation of financial position, results of operations, and
changes in cash flow is applied within the framework of: *
a. Generally accepted accounting principles.
b. The auditor’s evaluation of the audited company’s internal
control.
c. Quality control.
d. Generally accepted auditing standards which include the
concept of materiality.
46. The single feature that most clearly distinguishes auditing,
attestation, and assurance *
a. CPA’s approach to the service
b. Type of service
c. Scope of services
d. Training required to perform the service
47. S1: Informative disclosure are to be regarded as reasonably
adequate unless otherwise stated in the report. S2: Standards of
reporting states that the report shall state whether the financial
statements are presented in accordance with generally accepted
accounting principles. S3: Sufficient competent evidential
matters is to be obtained through inspection, observation,
inquiries and confirmations to afford a reasonable basis for an
opinion regarding the financial statement under examination. *
a. All statements are true
b. All statements are false
c. 2 statements are true
d. Only 1 statement is true
48. Which of the following is correct about Philippine Auditing
Practices Statements (PAPS)? *
a. These statements are intended to have the authority of
PSAs.
b. These are issued to resolve issues relating to PSAs.
c. These statements are forms of interpretations issued by
AASC.
d. These statements are issued to provide practical assistance
to auditors in implementing PSAs or to promote good
practice.
49. S1: According to the standard, maintaining professional
skepticism reduces the risk of overlooking unusual
circumstances. S2: The auditor cannot be expected to disregard
past experience of the honesty and integrity of the entity's
management and those charged with governance, a belief that
they are honest and have integrity does not relieve the auditor
to maintain professional skepticism in conducting the audit. S3:
The auditor is required to document the exercise of professional
judgment. S4: The auditor exercises professional judgment in
evaluating management's judgment in applying the entity's
applicable financial reporting framework *
a. All statements are true
b. 3 statements are true
c. 2 statements are true
d. Only 1 statement is true
50. Which one is an example of management expectations from the
independent auditors? *
a. An active participant in management decision making
b. An expert providing a written communication as the
product of the engagement
c. Individuals who perform day-to-day accounting functions on
behalf of the company
d. An internal source of expertise of financial and other
matters.
51. Which of the following is not correct regarding an auditor’s
decision that a lower acceptable audit risk is appropriate? *
a. Review of audit documentation is performed by personnel
not assigned to the engagement
b. Special care is required in assigning experience staff
c. Less evidence is accumulated
d. More evidence is accumulated
1. Which of the following procedures would an auditor most likely
perform to obtain evidence about the occurrence of subsequent
events? *
a. Confirming a sample of material accounts receivable
established after the date of the financial statements.
b. Inquiring as to whether any unusual adjustments were made
after the date of the financial statements.
c. Investigating personnel changes in the accounting
department occurring after the date of the financial
statements.
d. Comparing the financial statements being reported on with
those of the prior period.
2. The following are the circumstances that an auditor will most
likely meet the client's legal counsel to discuss the likely outcome
of the litigation and claims. S1: The auditor determines that there
is a risk that needs to be brought up. S2: There is a disagreement
between management and the entity's legal counsel. S3: The
subject matter of the litigation is complex. *
a. All statements are true
b. All statements are false
c. 2 statements are true
d. Only 1 statement is true
3. S1: The objectives of financial audit in the public sector are often
broader than expressing an opinion whether the financial
statements have been prepared, in all material respects, in
accordance with the applicable financial reporting framework S2:
COA is mandated under the constitution and the PD 1445 to
conduct audits of all government agencies and instrumentalities
including unethical practices. S3: There is no need to seek
conformity by the auditees with the terms of engagement
because COA is constitutionally and legally mandated to audit all
 government agencies S4: Establishing the audit strategy involves
setting the scope, timing, and direction of the audit towards the
development of an audit engagement plan. *
a. All statements are true
b. 3 statements are true
c. 2 statements are true
d. Only 1 statement is true
4. S1: Entities that are under the common control by a state, that is
national, regional or local government are not considered as
related unless they engage in significant transactions or share
resources to a significant extent with one another. S2: The
concept of materiality is applied both in planning and performing
the audit S3: The management and the auditor shall determine
the materiality thresholds particular to the audited entity. S4: Risk
of material misstatement at the assertion level consists of
inherent risks and control risks *
a. All statements are true
b. 3 statements are true
c. 2 statements are true
d. Only 1 statement is true
5. Under which of the following circumstances would a disclaimer of
opinion not be appropriate? *
a. The financial statements fail to contain adequate disclosure
concerning related party transactions.
b. The auditor is unable to determine the amounts associated
with illegal acts committed by the client's management.
c. The auditor is engaged after fiscal yearend and is unable to
observe physical inventories or apply alternative procedures
to verify their balances.
d. The client refuses to permit its attorney to furnish information
requested in a letter of audit inquiry
6. The following are generalizations that relates to the reliability of
audit evidence. S1: Audit evidence is more reliable when it is
obtained from independent sources outside the entity. S2: Audit
evidence is more reliable when it exists in documentary form,
whether paper, electronic or other medium. S3: An auditor's
opinion, to be economically useful, is formed within a reasonable
time and based on audit evidence obtained at a reasonable cost.
S4: Audit evidence that is generated internally is more reliable
when the related controls imposed by the entity are effective *
a. All statements are true
b. 3 statements are true
c. 2 statements are true
d. Only 1 statement is true
7. Under PSA 580 (Written Representations), The auditor is required
to obtain audit evidence that management S1: Has provided the
auditor with all relevant information and access agreed in the
terms of the audit engagement. S2: Has fulfilled its responsibility
for the fair presentation of the financial statements in accordance
with the applicable financial reporting framework. S3: All
transactions have been recorded and reflected in the financial
statements *
a. All statements are true
b. All statements are false
c. 2 statements are true
d. Only 1 statement is true
8. During the review of a small business client's internal control
system, the auditor discovered that the accounts receivable clerk
approves credit memos and has access to cash. Which of the
following controls would be most effective in offsetting this
weakness? *
a. The controller receives the monthly bank statement directly
and reconciles the checking accounts.
 b. The owner reviews errors in billings to customers and
postings to the subsidiary ledger.
c. The controller reconciles the total of the detail accounts
receivable accounts to the amount shown in the ledger.
d. The owner reviews credit memos after they are recorded.
9. The following statements are ordinarily included in a
management representation letter, except *
a. Sufficient appropriate audit evidence has been made
available to permit the expression of an unmodified opinion
b. The completeness and availability of minutes of shareholders'
and directors' meetings
c. The financial statements are free of material misstatements,
including omissions.
d. There have been no irregularities involving management or
employees who have a significant role in internal control of
that could have a material effect on the financial statements.
10. S1: In testing internal control design, the auditor should only test
those controls that are important to the auditor's conclusion
about whether the controls of the Agency/Unit/Corporation?
project sufficiently address the assessed risk of misstatement to
each relevant assertion. S2: The auditor should test the operating
effectiveness of control by determining whether the control is
operating as designed and whether the person performing the
control possesses the necessary authority and competence to
perform the control effectively. S3: External Auditor, in this case,
COA Auditors, can also use the works of Internal Auditors, when
they have determined that the internal audit function is likely to
be relevant to the audit. S4: The external auditor has sole
responsibility for the audit opinion expressed and that
responsibility is not reduced by the external auditor's use of the
work of the internal auditors. *
a. All statements are true
b. 3 statements are true
c. 2 statements are true
d. Only 1 statement is true
11. Which of the following events most likely indicates the existence
of related parties? *
a. Selling real estate at a price that differs significantly from its
book value
b. Making loan without scheduled terms for repayment of the
funds
c. Borrowing a large sum of money at a variable rate of interest
d. Discussing merger terms with a company that is a major
competitor.
12. Which of the following statements is incorrect regarding the
International Standards of Supreme Audit Institutions(ISSAI)
guideline and COA's existing policies and practices? *
a. Professional Judgement, Due Care, and Skepticism are
considerations in the general auditing principles
b. The audit tools to assist and guide Auditors in ensuring the
quality of audit are prescribed in the audit manual.
c. Auditors should consider Materiality on the basis of the
threshold stated in the policies and procedures of each
government agency
d. Auditors should manage the risks of providing an
inappropriate report in the circumstances of the audit
13. Under which of the following circumstances would a disclaimer of
opinion not be appropriate? *
a. The auditor is engaged after fiscal yearend and is unable to
observe physical inventories or apply alternative procedures
to verify their balances.
b. The client refuses to permit its attorney to furnish information
requested in a letter of audit inquiry.
 c. The auditor is unable to determine the amounts associated
with illegal acts committed by the client's management
d. The financial statements fail to contain adequate disclosure
concerning related party transactions.
14. Which of the following subsequent events will be least likely to
result in an adjustment to the financial statements? *
a. Material changes in the settlement of liabilities which
were estimated as of the balance sheet date.
b. Material changes in the quoted market prices of listed
investment securities since the balance sheet date.
c. Culmination of events affecting the realization of
inventories owned as of the balance sheet date.
d. Culmination of events affecting the realization value of
accounts receivable owned as of the balance sheet date.
15. Which of the following audit procedures would most likely assist
an auditor in identifying conditions and events that may indicate
there could be substantial doubt about an entity's ability to
continue as a going concern? *
a. Review of compliance with terms of det agreements
b. Confirmation of accounts receivable from major
customers
c. Reconciliation of interest expense with debt outstanding
d. Confirmation of bank balances.
16. Which of the following statements concerning written
management representations is incorrect? *
a. Audit evidence obtained during the audit that
management has fulfilled its responsibility for the
preparation of the financial statements in accordance
with the applicable financial reporting framework is not
sufficient without obtaining confirmation from
management that it believes that it has fulfilled its
responsibility
b. The auditor shall request written representations from
management with appropriate responsibilities for the
financial statements and knowledge of the matters
concerned.
c. The auditor may consider it necessary to request
management to provide a written representation that it
has communicated to the auditor all deficiencies in
internal control of which management is aware.
d. The written representations shall be in the form of a
representation letter addressed to the entity's chief
executive officer and chief financial officer.
17. In determining whether transactions have been recorded, the
direction of the audit testing should be from the *
a. Adjusted Trial Balance
b. Original Source Documents
c. General Ledger Balances
d. General Journal Entries
18. Which of the following is not a universal rule for achieving control
over cash? *
a. Have bank reconciliation’s performed by employees who
do not handle cash.
b. Separate the cash-handling and record-keeping functions.
c. Decentralize the receiving of cash as much as possible.
d. Deposit each day’s cash receipts by the end of the day.
19. Which of the following statements about analytical procedures is
incorrect? *
a. Analytical procedures are required to be performed in the
planning phase of the audit.
b. Analytical procedures are required to be done during the
testing phase of the audit.

c. Analytical procedures may be performed in the planning,
testing and completion phases of the audit.
d. Analytical procedures are required to be done during the
completion phase of the audit.
20. The following are the financial audit guidelines of COA except *
a. Quality Control Review
b. Communication
c. Preliminary Engagement Activities
d. Planning Phase
21. Morgan, CPA, is the principal auditor for a multi-national
corporation. Another CPA has examined and reported on the
financial statements of a significant subsidiary of the corporation.
Morgan is satisfied with the independence and professional
reputation of the other auditor, as well as the quality of the other
auditor's examination. With respect to Morgan's report on the
consolidated financial statements, taken as a whole, Morgan *
a. May refer to the examination of the other auditor
b. Must refer to the examination of the other auditor.
c. Must not refer to the examination of the other auditor
d. May refer to the examination of the other auditor, in
which case Morgan must include in the auditor's report on
the consolidated financial statements a qualified opinion
with respect to the examination of the other auditor.
22. S1: The auditor is required to perform substantive test procedures
to verify the expert’s assumptions and findings. S2: The auditor
should obtain an understanding of the methods and assumptions
used by the expert. S3: The entity should not have an
understanding of the nature of the work to be performed by the
expert. S4: The expert should not have an understanding of the
auditor’s corroborative use of the expert’s findings. *
a. All statements are true
b. 3 statements are true
c. 2 statements are true
d. Only 1 statement is true
23. A written management representation letter is most likely to be
an auditor's best source of corroborative information of a client's
intention to *
a. Discontinue a line of business
b. Terminate an employee pension plan
c. Settle an outstanding lawsuit for an amount less than the
accrued loss contingency.
d. Make a public offering of its ordinary share capital
24. Fly High Butterfly maintains a large internal audit staff that
reports directly to the chief financial officer. Audit reports
prepared by the internal auditors indicate that the system is
functioning as it should and that the accounting records are
reliable. An independent auditor will probably: *
a. Avoid duplicating the work performed by the internal
audit staff.
b. Eliminate tests of controls.
c. Place limited reliance on the work performed by the
internal audit staff.
d. Increase the depth of the study and evaluation of
administrative controls.
25. Which of the following audit procedures is most likely to assist an
auditor in identifying related party transactions *
a. Retesting ineffective controls previously reported to the
audit committee
 b. Inspecting communications with law firms for evidence of
unreported contingent liabilities
c. Sending second requests for unanswered positive
confirmations of accounts receivable
d. Reviewing accounting records for nonrecurring
transactions recognized near the balance sheet date.
26. A component of Internal Control which includes the procedures
that an organization puts in place to treat risk *
a. Risk Assessment
b. Monitoring
c. Control Activities
d. Control Environment
27. Which of the following observations, made during the preliminary
survey of a local department store's disbursement cycle, reflects a
control strength? *
a. Individual department managers are responsible for the
movement of merchandise from the receiving dock to
storage or sales areas as appropriate.
b. Individual department managers use pre-numbered forms
to order merchandise from vendors.
c. The treasurer's office prepares checks for suppliers
based on vouchers prepared by the accounts payable
department.
d. The receiving department is given a copy of the purchase
order complete with a description of goods, quantity
ordered, and extended price for all merchandise ordered.
28. A limitation on the scope of the auditor's examination sufficient
to preclude an unqualified opinion will always result when
management *
a. Asks the auditor to report on the balance sheet and not
on the other basic financial statements
b. Discloses material related party transactions in the
footnotes to the financial statements.
c. Knows that confirmation of accounts receivable is not
feasible
d. Refuses to permit its lawyer to respond to the letter of
audit inquiry
29. The following statements relate to the use of analytical
procedures as substantive procedures. Which is false? *
a. Substantive analytical procedures are applicable when there
is only a small volume transactions
b. The presence of relationships among data provides evidence
as to the completeness, accuracy, and occurrence of
transactions captured in the information produced by the
entity's information system.
c. Reliance on the results of substantive analytical procedures
will depend on the auditor's assessment of the risk that the
analytical procedures may identify relationships as expected
when, in fact, a material misstatement exists.
d. The application of substantive analytical procedures is based
on the expectation that relationships among data exist and
continue in the absence of known conditions to the contrary.
30. Comparative financial statements include the financial statements
of a prior period which were examined by a predecessor auditor
whose report is not presented. If the predecessor auditor's report
was qualified, the successor auditor must *
a. Express an opinion on the current year statements alone
and make no reference to the prior year statements.
b. Disclose the reasons for any qualification in the
predecessor auditor's opinion.
c. Obtain written approval from the predecessor auditor to
include the prior year's financial statements.
d. Issue a standard comparative audit report indicating the
division of responsibility.
31. Which of the following is the correct definition of “control
deficiency?” *
a. A control deficiency exists if the design or operation of
controls does not permit company personnel to prevent
or detect misstatements on a timely basis.
b. A control deficiency exists if one or more deficiencies
exist that adversely affect a company’s ability to prepare
external financial statements reliably.
c. A control deficiency exists if the design or operation of
controls results in a more than remote likelihood that
controls will not prevent or detect misstatements.
d. A control deficiency exists if the design or operation of
controls results in a more than probable likelihood that
controls will prevent or detect misstatements.
32. An audit report contains the following paragraph: "Because of the
inadequacies in the company's accounting records during the year
ended June 30, 2019, it was not practicable to extend our auditing
procedures to the extent necessary to enable us to obtain certain
evidential matter as it relates to classification of certain items in
the consolidated statements of operations." This paragraph most
likely describes *
a. A material scope restriction requiring a qualification of
the audit opinion
b. An uncertainty that should not lead to a qualified opinion
c. A material departure from GAAP requiring a qualified
audit opinion
d. A matter that the auditor wishes to emphasize and that
does not lead to a qualified audit opinion.
33. The director of internal auditing of a manufacturing company is
updating the long-range audit schedule. There are several
possible audit assignments that can fill a given time spot.
Information on potential dollar exposure and key internal
controls have been gathered. Based on perceived audit risk,
select the assignment of greatest merit. *
a. Branch office petty cash - ledger amount, Php 50,000; ten
branch offices, equal amounts; replenishment of accounts
requires three separate approvals.
b. Precious metals inventory - book value, Php 1,000,000;
separately stored, but access not restricted.
c. Sales force travel expenses - budget, Php 1,000,000; 50
sales people; all expenditures over Php 25 must be
receipted.
d. Expendable tools inventory - book value, Php 500,000;
issued by tool crib attendant upon receipt of
authorization form.
34. Cutoff tests designed to detect credit sales made before the end
of the year that have been recorded in the subsequent year
provide assurance about management's assertion of *
a. Classification
b. Cutoff
c. Accuracy
d. Rights and Obligations
35. S1: Misappropriation of an asset or groups of assets if material,
would be considered fraud. S2: Approval occurs as a matter of
general policy and includes significant transactions only. S3: A
control deficiency exists if a necessary control is missing or not
properly formulated. *
a. All statements are true
b. All statements are false
c. 2 statements are true
d. Only 1 statement is true
36. A large University has relatively ineffective internal control. To
obtain assurance that all tuition revenue has been recorded, the
auditor should *
 a. Compare business office revenue records with registrar's
office records of students enrolled.
b. Observe tuition payment procedures on a surprise basis
c. Confirm a sample of tuition payments with the students.
d. Prepare a year-end bank reconciliation
1. S1: The confirmation requests should be mailed to respondents by
the auditor. S2: Second requests are ordinarily sent for positive
form confirmation requests when the first request is not
returned. S3: Confirmations address existence more than they
address completeness. S4: The best way to evaluate the results of
the confirmation process is to total the misstatements identified
and to compare that total to the account's tolerable error
amounts. *
a. All statements are true
b. 3 statements are true
c. 2 statements are true
d. Only 1 statement is true
2. Analytical procedures enable the auditor to predict the balance or
quantity of an item under audit. Information to develop this
estimate can be obtained from all of the following except *
a. Comparison of financial data for comparable prior
periods, anticipated results (budgets and forecasts), and
similar data for the industry in which the entity operates
b. Study of the relationship of financial data with relevant
nonfinancial data.
c. Tracing transactions through the system to determine
whether procedures are being applied as prescribed
d. Study of the relationships of elements of financial data
that would be expected to conform to a predictable
pattern based upon the entity's experience.
3. Which of the following statements concerning the auditor's
responsibility to detect conditions relating to financial stress of
employees or adverse relationships between a company and its
employees is correct? *
a. The auditor is required to plan the audit to detect these
conditions on all audits.
b. The auditor is not required to plan the audit to discover
these conditions, but should consider them if he/she
becomes aware of them during the audit.
c. These conditions relate to fraudulent financial reporting,
and an auditor is required to plan the audit to detect
these conditions when the client is exposed to a risk of
misappropriation of assets.
d. The auditor is required to plan the audit to detect these
conditions whenever they may result in missatements
4. Which of the following controls most likely would provide
reasonable assurance that all credit sales transactions of an entity
are recorded? *
a. The accounting department supervisor controls the
mailing of monthly statements to customers and
investigates any differences reported by customers.
b. The billing department supervisor matches prenumbered
shipping documents with entries in the sales journal.
c. The billing department supervisor sends copies of
approved sales orders to the credit department for
comparison to authorized credit limits and current
customer account balances.
d. The accounting department supervisor independently
reconciles, on a monthly basis, the accounts receivable
subsidiary ledger to the accounts receivable control
account
5. A CPA has completed his audit of the financial statements of ABC
Bus Company for the year ended December 31, 2021. Prior to 2021,
the company had been depreciating its buses over a 10-year
 period. During 2021, the company determined that a more realistic
estimated life of its buses was 12 years and computed the 2021
depreciation on the basis of the revised estimate. The CPA has
satisfied himself that the 12-year life is reasonable. The company
has adequately disclosed the change in estimated useful lives of
its buses and the effect of the change in 2021 income in a note to
the financial statements. Based on the situation, what will you
recommend an appropriate audit opinion? *
a. Qualified.
b. Unmodified.
c. Disclaimer.
d. Adverse.
6. In audit communication between the predecessor and incoming
auditor should be *
a. Acknowledged in a representation letter
b. Either written or oral
c. Written and included in the working papers
d. Authorized in an engagement letter
7. PIGHATI’s inventories on December 31, 2021 have a cost of Php
100,000 and a net realizable value of Php 80,000. Shortly after
December 31, 2021, but before the financial statements were
authorized for issue, the inventories were sold for a net sale
proceeds of Php 70,000. The correct valuation f PIGHATI’s
inventories in December 31, 2021 financial statements is? *
a. Php 70,000
b. Php 80,000
c. None of these.
d. Php 100,000
8. S1: Before accepting an audit engagement, the auditor should
obtain a preliminary knowledge of the client’s business and
industry to determine whether the auditor has the degree of
competence required by the engagement or whether such
competence can be obtained before the completion of the audit.
S2: PSA 220 suggests that audit work should be assigned to
personnel who have the appropriate capabilities, and time to
perform the audit engagement in accordance with professional
standards. S3: Inadequacy of the accounting records is sufficient
reason for the auditor to decline an audit engagement. S4: Clients
should be evaluated at least once a year or occurrence of major
events such as changes in management, directors, ownership,
nature of client’s business, or other changes that may affect the
scope of the examination. *
a. All statements are true
b. 3 statements are true
c. 2 statements are true
d. Only 1 statement is true
9. S1: The objectives of financial audit in the public sector are often
broader than expressing an opinion whether the financial
statements have been prepared, in all material respects, in
accordance with the applicable financial reporting framework S2:
COA is mandated under the constitution and the PD 1445 to
conduct audits of all government agencies and instrumentalities
including unethical practices. S3: There is no need to seek
conformity by the auditees with the terms of engagement
because COA is constitutionally and legally mandated to audit all
government agencies S4: Audit Planning involves setting the
scope, timing, and direction of the audit towards the
development of an audit engagement plan. *
a. All statements are true
b. 3 statements are true
c. 2 statements are true
d. Only 1 statement is true
10. Which of the following statements best describes why the
auditor's examination cannot reasonably be expected to bring all
 acts of noncompliance with existing laws and regulations by the
client to the auditor's attention? *
a. Noncompliance may involve conduct designed to conceal
it, such as collusion, forgery, deliberate failure to record
transactions, senior management override of controls, or
intentional misrepresentations being made to the
auditor
b. The client's internal control may be so strong that the
auditor performs only minimal substantive testing.
c. Acts of noncompliance by clients often relates to
accounting aspects rather than operating aspects.
d. Noncompliance may be perpetrated by the only person in
the client's organization with access to both assets and
the accounting records.
11. Which of the following is false statement concerning fraud? *
a. Fraud involves actions of management but excludes the
action of employees or third parties.
b. An audit rarely involves the authentication of
documentation; thus, fraud may go undetected by the
auditor
c. Fraud generally involves incentive or pressure to commit
fraud, a perceived opportunity to do so, and some
rationalization of the act.
d. To types of misstatements relevant to the auditor include
material misstatements arising from fraudulent financial
reporting and material misstatements arising from
misappropriation of assets.
12. When considering an entity's internal control system, an auditor is
not required to *
a. Determine whether relevant controls have been been
placed in operation.
b. Understand the components of the entity's internal
control system.
c. Perform procedures to understand the design of the
internal control system policies
d. Search for significant deficiencies in the operation
13. S1: Testing the operating effectiveness of controls is different
from obtaining audit evidence that controls have been
implemented. S2: Documentation requirements for auditors when
considering internal control is required at the conclusion stage
even if the control risk is at less than a high level. S3: The auditor
shall obtain an understanding of the control environment and
evaluate whether the management, with the oversight of those
charged with governance, has created and maintained a culture
of honesty and ethical behavior. S4: Organizational Structure
provides a framework for planning, directing, and controlling the
entity’s operations. *
a. All statements are true
b. 3 statements are true
c. 2 statements are true
d. Only 1 statement is true
14. An audit in accordance with PSAs is performed on the premise
that management and, where appropriate, those charged with
governance have responsibilities that are fundamental to the
conduct of the audit. Which of the following is not one of those
responsibilities? *
a. To design, implement, and maintain internal control
relevant to the preparation of financial statements that
are free from material misstatement, whether caused by
fraud or error
b. To provide unrestricted access to those within the entity
from whom the auditor determines it necessary to obtain
audit evidence
c. To provide the auditor with all information, such as
records and documentation, and other matters that are
relevant to the preparation and presentation of the
financial statements
 d. To comply with all relevant PSAs in the preparation and
presentation of the entity's financial statements
15. Control activities include those that relate to physical controls
over access to and use of assets and records. A departure from
the purpose of physical controls is that *
a. Only sales personnel use sales department vehicles.
b. Only warehouse personnel and production supervisors
have access to raw materials storeroom
c. The mail room clerk complies a list of the checks received
in the incoming mail
d. Access to safe-deposit box requires two officers
16. As a result of tests of controls, an auditor assessed control risk
too low and decreased substantive testing. This occurred because
the true deviation rate in the population was *
a. Less than the risk of assessing control risk too low, based
on the auditor’s sample.
b. More than the risk of assessing control risk too low, based
on the auditor’s sample.
c. More than the deviation rate in the auditor's sample
d. Less than the deviation rate in the auditor’s sample.
17. A predecessor withdrew from the engagement after discovering
that the client's financial statements are materially misstated that
it would not revise. if asked by the successor auditor about the
termination of the engagement, the predecessor should *
a. Suggest that the successor auditor should obtain the
client's consent to discuss the reasons.
b. Indicate that there was a misunderstanding.
c. Suggest that the successor auditor ask the client
d. State that the audit revealed material misstatement that
the client would not revise.
18. Specific control procedures that are relevant to financial
statement audit would include the following, except *
a. Control risk assesment
b. Performance reviews
c. Information processing
d. Physical controls
19. Which of the following statements would least likely appear in an
auditor's engagement letter? *
a. After performing our preliminary analytical procedures,
we will discuss with you the other procedures we
consider necessary to complete the engagement.
b. Our fees, which will be billed as work progresses, are
based on the time required by the individuals assigned to
the engagement plus out-of-pocket expenses.
c. Our audit will be made with the objective of our
expressing an opinion on the financial statements.
d. We remind you that the responsibility for the preparation
of financial statements including adequate disclosure is
that of the management of the entity.
20. S1: Informative disclosure are to be regarded as reasonably
adequate unless otherwise stated in the report. S2: Standards of
reporting states that the report shall state whether the financial
statements are presented in accordance with generally accepted
accounting principles. S3: Sufficient competent evidential matters
is to be obtained through inspection, observation, inquiries and
confirmations to afford a reasonable basis for an opinion
regarding the financial statement under examination. *
a. All statements are true
b. All statements are false
 c. 2 statements are true
d. Only 1 statement is true
21. A requirement that working papers be reviewed by the COA's
Audit Team Leader , and any deficiencies be discussed with the
preparer is an example of a quality control procedure in the area
of *
a. Acceptance and continuance of client relationships and
specific engagements
b. Relevant ethical requirements
c. Human resources
d. Engagement performance
22. In connection with the planning phase of an audit engagement,
which of the following statements is always correct? *
a. Observation of inventory count should be performed at
year-end
b. A portion of the audit of a continuing client can be
performed at interim dates.
c. An engagement should not be accepted after the client's
financial year-end
d. Final staffing decisions must be made prior to completion
of the planning stage
23. Proper segregation of duties reduces the opportunities for
persons to be in positions to both *
a. Establish internal control and authorize transactions
b. Record cash receipts and cash disbursements
c. Record transactions and prepare financial statements
d. Perpetrate and conceal errors or fraud
24. Accounting control procedures within computer processing may
leave no visible evidence indicating that the procedure were
performed. In such instances, the auditor should test these
controls by *
a. Making corroborative inquiries
b. Reviewing the run manual
c. Reviewing transactions submitted for processing and
comparing them to related output
d. Observing the separation of duties of personnel.
25. Which of the following auditing procedures most likely would
assist a State Auditor in identifying related party transactions? *
a. Reviewing accounting records for nonrecurring
transactions recognized near the end of the reporting
period.
b. Inspecting communications with law firms for evidence of
unreported contingent liabilities.
c. Retesting ineffective internal control procedures
previously reported to the audit committee
d. Sending second requests for unanswered positive
confirmations of accounts receivable
26. What is the responsibility of an auditor who is engaged to audit
the financial statements of a government entity? *
a. Assume responsibility for assuring that the entity
complies with applicable laws and regulations
b. Obtain an understanding of the possible financial
statement effects or laws and regulations having direct
and material effects on amounts reported.
c. Design the audit to provide reasonable assurance that the
statements are free of material misstatements resulting
from illegal acts having direct or indirect effects
 d. Assess control risk with respect to each component of
internal control
27. An auditor need not abide with a specific requirement of PSA if
the auditor believes that: *
a. The amount is insignificant.
b. The requirement of the PSA is impractical to perform.
c. Any of the given three choices is correct.
d. The requirement of the PSA is impossible to perform.
28. Assuming the tolerable deviation rate is 5 percent, the expected
population deviation rate is 3 percent, and the allowable for
sampling risk is 2 percent. What should an auditor conclude if
tests of 100 randomly chosen documents reveal 4 deviations? *
a. Accept the sample result as support for assessing control
risk below the maximum because the sample deviation
rate plus the allowance for sampling risk exceeds the
tolerable rate.
b. Accept the sample results as support for assessing control
risk below the maximum level because the tolerable
deviation rate less the allowance for sampling risk equals
the expected population deviation rate.
c. Assess control risk at the maximum level because the
tolerable deviation rate plus the allowance for sampling
risk exceeds the expected population deviation rate.
d. Assess control risk at the maximum level because the
sample deviation rate plus the allowance for sampling
risk exceeds the tolerable deviation rate.
29. The main purpose of implementing a system quality control is to
provide the firm reasonable assurance that: *
a. All of the above.
b. The audit will be performed in accordance with PSA.
c. The firm will issue a report that is appropriate in the
circumstances.
d. The firm and its personnel will comply regulatory and legal
requirements.
30. The statement "Quality control policies and procedures should be
relevant adequate, effective, and complied with" is most closely
associated with what quality control environment? *
a. Leadership responsibilities for quality within the firm
b. Engagement Performance
c. Monitoring
d. Relevant ethical requirements
31. Sherwin Magmanlac, CPA, is the principal auditor for a multi-
national corporation. Another CPA has examined and reported on
the financial statements of a significant subsidiary of the
corporation. Magmanlac is satisfied with the independence and
professional reputation of the other auditor, as well as the quality
of the other auditor’s examination. With respect to his report on
the consolidated financial statements, taken as a whole,
Magmanlac: *
a. Must not refer to the examination of the other auditor.
b. Must refer to the examination of the other auditor.
c. May refer to the examination of the other auditor.
d. May refer to the examination of the other auditor, in
which case Magmanlac must include in the auditor’s
report on the consolidated financial statements a
qualified opinion with respect to the examination of the
other auditor.
32. The objective of the quality control policies to be adopted by an
audit firm will ordinarily incorporate all of the following except: *
a. Risk assessment
b. Leadership responsibilities
 c. Engagement performance
d. Human resources
33. S1: Entities that are under the common control by a state, that is
national, regional or local government are not considered as
related unless they engage in significant transactions or share
resources to a significant extent with one another. S2: The
concept of materiality is applied both in planning and performing
the audit S3: The management and the auditor shall determine
the materiality thresholds particular to the audited entity. S4: Risk
of material misstatement at the assertion level consists of
inherent risks and control risks *
a. All statements are true
b. 3 statements are true
c. 2 statements are true
d. Only 1 statement is true
34. DEF Company is a defendant in a lawsuit alleging infringement of
certain patent rights. However, the ultimate outcome of the
litigation cannot be reasonably be estimated by management at
this time. The auditor believes that it is reasonably possible for
the client to incur a significantly material loss. The lawsuit is
adequately disclosed in the notes to the financial statements.
Based on the situation, what will you recommend an appropriate
audit opinion? *
a. Qualified.
b. Unmodified.
c. Adverse.
d. Disclaimer.
35. Which of the following best describes the process called
authentication? *
a. The user identifies himself/herself to the system
b. The system verifies the identify of the user
c. The system verifies that the user is entitled to enter the
transactions requested.
d. The user indicates to the system that the transaction was
processed correctly
36. The statements below describe the interrelationship of audit risk
components. Which is false? *
37. When inherent and control risks are high, the acceptable level of
detection risk needs to be low to reduce audit risk to an
acceptably low level.
38. The assessed level of inherent and control risks can be
sufficiently low to eliminate the need for the auditor to perform
any substantive procedures.
39. When inherent and control risks are low, an auditor can accept a
higher detection risk and still reduce audit risk to acceptably low
level.
40. There is an inverse relationship between detection risk and the
combined level of inherent and control risks
41. When there is uncertainty about a company’s ability to continue
as a going concern, the auditor’s concern is the possibility that the
client may not be able to continue its operations or meet its
obligations for a “reasonable period of time.” For this purpose, a
reasonable period of time is considered not to exceed: *
42. Six months from the date of the financial statements.
43. Six months from the date of the audit report.
44. One year from the date of the financial statements.
45. One year from the date of the audit report.
46. Which of the following would not create a threat to
independence? *
a. A deposit made by the firm or a member of the firm if
the assurance team with an assurance client that is a
bank and such deposit is held under normal commercial
terms.
 b. A loan, or a guarantee of a loan, to the firm from an
assurance client that is a bank or a similar institution and
the loan or guarantee is material to both the firm and the
assurance client
c. A loan, or a guarantee of a loan, to a member of the
assurance team from an assurance client that is a bank or
a similar institution and the loan or guarantee is not made
under normal lending procedures.
d. A loan, or guarantee of a loan, to the firm from an
assurance client that is a bank or a similar institution and
the loan or guarantee is made under normal lending
procedures, terms and requirements and it is material to
the assurance client or firm receiving the loan.
47. Which of the following statements indicates the wrong way to
sue an internal control questionnaire *
a. Filling out the questionnaire during an interview with the
person who has responsibility for the area that is being
audited
b. Constructing the questionnaire so that no response
requires attention
c. Supplementing the completed questionnaire with a
narrative description or flowchart
d. Clarifying all answers with written remarks and
explanations
48. If the results of the expert's work do not provide sufficient
appropriate audit evidence or are not consistent with other audit
evidence, the audit should. *
a. Resolve the matter
b. Withdraw from the engagement
c. Report the matter to the appropriate regulatory agency
of the government
d. Express an unmodified opinion with reference to the work
of the expert.
49. 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. The preparation of financial statements in accordance
with relevant pronouncements issued by the AASC
b. The establishment and maintenance of an adequate
internal control system that is necessary to enable the
preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
c. To provide the auditor with access to all information that
is relevant to the preparation of the financial statements
such as records, documentation, and other matters.
d. To provide the auditor with unrestricted access to
persons within the entity from which the auditor
determines it necessary to obtain audit evidence.
50. Analytical procedures performed in the *
a. The planning stage of the audit should address the risk of
material misstatement of revenue due to fraudulent
financial reporting.
b. Final review stage of the audit should achieve audit
objectives related to specific assertions in the financial
statements.
c. Final review stage of the audit should focus on identifying
specific risks.
d. Planning stage of the audit should assist in assessing the
validity of the conclusions reached.
51. Because the concepts of audit risk and materiality are
interrelated, they must be considered together by the auditor.
Which of the following statements is correct. *
 a. If misstatements are not individually material, but are
material when aggregated with other misstatements, the
concept of materiality does not apply.
b. Audit risk is the risk that an auditor may unknowingly
modify his/her opinion when, in fact, the financial
statements are fairly presented.
c. The phrase in the auditor's report "present fairly, in all
material respects, in accordance with Philippine Financial
Reporting Standards "indicates the auditor's belief that
the financial statements taken as a whole are not
materially misstated.
d. Only material errors cause financial statements to be
materially misstated.
52. Which of the following circumstances would permit an
independent auditor to accept an engagement after the end of
the reporting period? *
a. Issuance of a disclaimer of opinion as a result of the
inability to conduct certain tests required by PSAs due to
the timing of the acceptance of the engagement.
b. Remedy the limitations resulting from accepting the
engagement after the end of the reporting period, such
as those relating to the existence of physical inventory.
c. Expectation of the operating effectiveness of controls
d. Receipt of an assertion from the predecessor auditor that
the entity will be able to continue as a going concern.
53. Which of the following statements concerning the relevance of
various types of controls to a financial statement audit is
correct? *
a. An auditor may ordinarily ignore a consideration of
controls when a substantive audit approach is taken.
b. All controls are ordinarily relevant to a financial statement
audit.
c. Controls over the safeguarding of assets and liabilities are
of primary importance, while controls over the reliability
of financial reporting may also be relevant.
d. Controls over the reliability of financial reporting are
ordinarily most directly relevant to a financial statement
audit, but other controls may also be relevant.
54. S1: There is a direct relationship between the entity’s objectives
and the internal control it implements to provide reasonable
assurance about their achievement. S2: Control Environment is
the foundation for effective internal control, providing discipline
and structure. S3: Human Resource Policies and Procedures are
management’s approach to taking and managing business risks,
attitudes and actions toward financial reporting, and attitudes
toward information processing and accounting functions and
personnel. S4: For audit purpose the auditor is concerned only
with those risk that are relevant to the preparation of reliable
financial statements *
a. All statements are true
b. 3 statements are true
c. 2 statements are true
d. Only 1 statement is true
55. Using Laptop computers in conducting financial statement audits
may affect the methods used to review the work of staff
assistants because? *
a. Supervisory personnel may not have an understanding of
the capabilities and limitations of computers
b. The overall audit objectives may differ
c. Working paper documentation may not contain readily
observable details of calculations
d. Documenting the supervisory review may require
assistance of management services personnel.
56. S1: Attainment of professional competence requires initially a high
standard of general education followed by specific education,
 training, and examination in professionally relevant subjects and a
period of work experience. S2: The engagement partner should
set example regarding the quality of audit by emphasizing
through actions and messages the importance of performing
work that complies with professional standards, complying with
the film's quality control policies and procedures, and issuing
appropriate audit reports. S3: The engagement partner should be
satisfied that the engagement team collectively has the
appropriate capabilities, competence and time to perform. S4:
Review involves monitoring the progress of the audit resolving
accounting and audit issues, and considering the level of
consultation appropriate for the engagement. *
a. All statements are true
b. 3 statements are true
c. 2 statements are true
d. Only 1 statement is true
57. Assume an auditor’s interim consideration of internal control in
the expenditure/disbursement cycle reveals that control risk can
be assessed below the maximum and detection risk above the
minimum for some assertions. Which of the following is true
about substantive tests applied to accounts payable? *
a. The auditor is more apt to confirm payable balances.
b. The auditor is more apt to ignore the risk of incorrect
acceptance when sampling accounts payable.
c. The auditor is less apt to perform substantive tests at the
balance sheet date
d. The auditor is more apt to increase the extent of
substantive tests.
58. Which of the following statements relating to communication of
audit matters of governance interest is incorrect? *
a. The auditor should identify relevant persons who are
charged with governance and with whom audit matters of
governance interest are to be communicated
b. The auditor's communications with those charged with
governance may be made orally or in writing
c. In an audit in accordance with PSAs, the auditor should
design audit procedures for the specific purpose of
identifying matters of governance interest
d. 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
59. After gaining an understanding of internal control and assessing
the risks of material misstatements, an auditor decided to
perform tests of controls. The auditor most likely decided that *
a. There were many internal control weaknesses that could
allow misstatements to enter the accounting system
b. It is not possible or practicable to reduce the risks of
material misstatement at the assertion level to an
acceptably low level with audit evidence obtained only
from substantive test procedures
c. An increase in the assessed level of control risk is justified
for certain financial statement assertions.
d. Additional evidence supports a further reduction in
control risk is not available.
60. In performing a walk-through test, the *
a. Auditor traces one or several transactions within each
major class through the transaction trail to confirm the
cut off period.
b. Auditor traces one or several transactions within each
major class through that transaction trail to confirm his
or her understanding of the information system and
control procedures.
c. Senior auditor "walks-through" the processing of the
entity's transactions with other members of the audit
team focusing on the control processes which aim to
prevent misstatements in the financial statements
 d. The auditor performs a physical review of the entity's
property, plant, and equipment to confirm the physical
location of major assets.
61. A university does not have a centralized receiving function for
departmental purchases of books, supplies, and equipment.
which of the following controls would most effectively prevent
payment for goods not received, if performed prior to invoice
payment? *
a. Names and addresses on vendor invoices should be
compared to a list of department authorized vendors.
b. Vendor invoices should be matched with department
purchase orders.
c. Invoices over a specified amount should be approved by
the vice president of finance
d. Vendor invoices should be approved by a departmental
supervisor other than the employee ordering the goods
62. Under which circumstances below would the auditor conclude
that withdrawal from the engagement is necessary? *
a. The auditor concludes that then on compliance has a
material effect on the financial statements and has not
been properly reflected in the financial statements
b. The auditor is precluded by the entity from obtaining
sufficient appropriate audit evidence to evaluate whether
noncompliance that may be material to the financial
statements, has, or is likely to have, occurred
c. The entity does not take the remedial action that the
auditor considers necessary in the circumstance.
d. The auditor is unable to determine whether non
compliance has occurred because of limitations imposed
by the circumstances rather than by the entity.
63. Which is least likely to be a question asked of client personnel
during a walk-through in an audit of the internal control of an
issuer (public company)? *
a. Have you ever been asked to override the process or
controls?
b. Who is most likely to commit fraud among your
coworkers?
c. What do you do when you find an error?
d. What kind of errors have you found?
64. Which of the following statements concerning materiality is not
correct? *
a. The materiality level for the financial statements as a
whole determined in the planning stage of the audit
should not be affected by changes in the circumstances
of the engagement.
b. If, in the specific circumstances of the entity, there is one
or more particular classes of transactions, account
balances or disclosures for which misstatements of lesser
amounts that materiality for the financial statements as a
whole could reasonably be expected to influence to
economic decisions of users taken on the basis of the
financial statements, the auditor shall also determine the
materiality level or levels to those particular classes of
transactions, account balances or disclosures.
c. When establishing the overall audit strategy, the auditor
shall determine materiality for the financial statements as
a whole.
d. Determining materiality involves the exercise of
professional judgement
65. S1: Attainment of professional competence requires initially a high
standard of general education followed by specific education,
training, and examination in professionally relevant subjects and a
period of work experience. S2: The engagement partner should
set example regarding the quality of audit by emphasizing
through actions and messages the importance of performing
work that complies with professional standards, complying with
the film's quality control policies and procedures, and issuing
 appropriate audit reports. S3: The engagement partner should be
satisfied that the engagement team collectively has the
appropriate capabilities, competence and time to perform. *
a. All statements are true
b. All statements are false
c. 2 statements are true
d. Only 1 statement is true
66. If the balance sheet of a company is dated December 31, 2019, the
audit report is dated February 8, 2020, and both are released on
February 15, 2020, this indicates that the auditor has searched for
subsequent events that occurred up to: *
a. December 31, 2019.
b. February 8, 2020.
accounting estimates that could be material to the financial
statements? *
a. Inquire about the existence of related part transactions
b. Confirm inventories at locations outside the entity
c. Determine whether accounting estimates deviate from
historical patterns
d. Review the lawyer's letter for information about
litigation
69. The following are the financial audit guidelines of COA except *
a. Communication
b. Quality Control Review
c. Planning Phase

c. February 15, 2020. d. Preliminary Engagement Activities

d. January 1, 2020.
67. On January 2, 2022, the GHI Auto Supply Company received a
notice from its primary supplier that effective immediately, all
wholesale prices would be increased by 10%. On the basis of the
notice, GHI Auto Supply revalued its December 31, 2021 inventory
to reflect the higher costs. The inventory constituted a material
proportion of total assets; however, the effect of the revaluation
was material to current assets but not to total assets or net
income. The increase in valuation is adequately disclosed in the
notes to the financial statements. Based on the situation, what
will you recommend an appropriate audit opinion? *
a. Unmodified.
b. Disclaimer.
c. Qualified.
d. Adverse.
68. Which of the following procedures will most likely assist an
auditor in determining whether management has identified all