Communication of a misstatement resulting from fraud, or a suspected fraud, or error to the

appropriate level of management on a timely basis is important because it enables management to

take action as necessary. Ordinarily, the appropriate level of management is*
At least equal to the level of the persons who appear to be involved with the misstatement or suspected fraud.
At least one level above the persons who appear to be involved with the misstatement or suspected fraud.
 
The audit committee of the board of directors.
The head of internal audit department.

 
The examination by CPAs of a CPA firm’s auditing practices to ascertain compliance with its quality
control system*
Compliance audit
Examination
Peer review
 
Quality control audit

 
The scope paragraph of the review report least likely includes*
A reference to Philippine Standard on Auditing applicable to review engagements.
A statement that a review is limited primarily to inquiries and analytical procedures.
A statement that an audit has not been performed, that the procedures undertaken provide less assurance than
an audit and that an audit opinion is not expressed.
 
A statement of the responsibility of the entity's management and the responsibility of the auditor

Correct answer
A statement of the responsibility of the entity's management and the responsibility of the auditor

 
The statement that “nothing came to our attention which would indicate that these statements are
not fairly presented” expresses which if the following?*
Disclaimer of opinion
Negative confirmation
Negative assurance
 
Piecemeal opinion

 
A review report should be dated as of the*
Date the report is delivered to the entity reviewed.
Date the review is completed.
 
Balance sheet date of the latest period reported on.
Date a letter of audit inquiry is received from the entity’s attorney of record.

 
Which of the following mostly describes the function of ASPC?*
To monitor full compliance by auditors to PSAs.
To promulgate auditing standards, practices and procedures that shall be generally accepted by the accounting
profession in the Philippines.
 
To assist the Board of Accountancy in conducting administrative proceedings on erring CPAs in audit practice.
To undertake continuing research on both auditing and financial accounting in order to make them responsive to
the needs of the public.

 
Fraudulent financial reporting involves intentional misstatements or omissions of amounts or
disclosures in financial statements to deceive financial statement users. Fraudulent financial
reporting least likely involve*
Deception such as manipulation, falsification, or alteration of accounting records or supporting documents from
which the financial statements are prepared.
 
Misrepresentation in, or intentional omission from, the financial statements of events, transactions or other
significant information.
Intentional misapplication of accounting principles relating to measurement, recognition, classification,
presentation, or disclosure.
Embezzling receipts, stealing physical or intangible assets, or causing an entity to pay for goods and services
not received

Correct answer
Embezzling receipts, stealing physical or intangible assets, or causing an entity to pay for goods and services
not received

 
When the auditor believes that the presentation and disclosure of the prospective financial
information is not adequate, the auditor should*
Express a qualified or adverse opinion in the report on the prospective financial information
Withdraw from the engagement
Disclaim the opinion in the report on the prospective financial information
Either a or b
 
 
An accountant who is not independent may issue a*
Compilation report
 
Review report
Comfort letter
Qualified opinion

 
The BOA shall not refuse the registration of any person who successfully passed the CPA
examinations if*
Convicted by a court of competent jurisdiction of a criminal offense involving moral turpitude
Convicted for a political offense.
Guilty of immoral and dishonorable conduct
 
None of the above.

Correct answer
Convicted for a political offense.

 
In connection with the element of professional development, a CPA firm’s system of quality control
should ordinarily provide that all personnel*
Have the knowledge required to enable them to fulfill responsibilities assigned.
 
Possess judgment, motivation, and adequate experience.
Seek assistance from persons having appropriate levels of knowledge, judgment, and authority
Demonstrate compliance with peer review directives.

 
The firm is to be staffed by personnel who have attained and maintained the technical standards
and professional competence required to enable them to fulfill their responsibilities with due care is
the objective of what quality control policy?*
Professional Requirements
Skills and Competence
 
Assignment
Delegation

 
Prospective financial information can include financial statements or one or more elements of
financial statements and may be prepared for distribution to third parties in*
A prospectus to provide potential investors with information about future expectations.
An annual report to provide information to shareholders, regulatory bodies and other interested parties
 
A document for the information of lenders which may include, for example, cash flow forecasts.
Any of the above.

Correct answer
Any of the above.

 
The following are examples of error, except*
A mistake in gathering or processing data from which financial statements are prepared
 
An incorrect accounting estimate arising from oversight or misinterpretation of facts.
A mistake in the application of accounting principles relating to measurement, recognition, classification,
presentation, or disclosure
Misrepresentation in the financial statements of events, transactions or other significant information.

Correct answer
Misrepresentation in the financial statements of events, transactions or other significant information.

 
Reports on compilation engagements should contain the following, except:*
A statement that the engagement was performed in accordance with the PSA applicable to compilation
engagements.
Identification of the financial information noting that it is based on information provided by management.
A statement that management is responsible for the financial information compiled by the accountant.
 
A statement that the accountant does not express an opinion but expresses only limited assurance on the
financial statements.

Correct answer
A statement that the accountant does not express an opinion but expresses only limited assurance on the
financial statements.

 
If the accountant becomes aware of material misstatements, the accountant should try to agree
appropriate amendments with the entity. If such amendments are not made and the financial
information is considered to be misleading, the accountant should*
Do nothing.
Withdraw from the engagement.
 
Issue a qualified or adverse opinion.
Issue a negative assurance.

 
Which statement is incorrect regarding the auditor’s responsibility to consider fraud and error in an
audit of financial statements?*
The auditor is not and cannot be held responsible for the prevention of fraud and error.
In planning the audit, the auditor should discuss with other members of the audit team the susceptibility of the
entity to material misstatements in the financial statements resulting from fraud or error.
The auditor should design test of controls to reduce to an acceptably low level the risk that misstatements
resulting from fraud and error that are material to the financial statements taken as a whole will not be detected.
 
When the auditor encounters circumstances that may indicate that there is a material misstatement in the
financial statements resulting from fraud or error, the auditor should perform procedures to determine whether
the financial statements are materially misstated.

 
The auditor’s report on summarized financial statements least likely include*
An identification of the audited financial statements from which the summarized financial statements were
derived.
A reference to the date of the audit report on the unabridged financial statements and the type of opinion given
in that report.
 
An opinion as to whether the information in the summarized financial statements is presented fairly, in all
material respects.
A statement which indicates that for a better understanding of an entity’s financial performance and position
and of the scope of the audit performed, the summarized financial statements should be read in conjunction
with the unabridged financial statements and the audit report thereon.

Correct answer
An opinion as to whether the information in the summarized financial statements is presented fairly, in all
material respects.

 
When compiling financial information, the accountant ordinarily is required to*
Obtain a general knowledge of the business and operations of the entity.
Make any inquiries of management to assess the reliability and completeness of the information provided
 
Verify any matters.
Verify any explanations.

Correct answer
Obtain a general knowledge of the business and operations of the entity.

 
When planning and performing audit procedures and evaluating and reporting the results thereof,
the auditor should*
Search for errors that would have a material effect and for fraud that would have either material or immaterial
effect on the financial statements
Consider the risk of misstatements in the financial statements resulting from fraud or error.
 
Search for fraud that would have a material effect and for errors that would have either material or immaterial
effect on the financial statements.
Consider the risk of material misstatements in the financial statements resulting from fraud or error.

Correct answer
Consider the risk of material misstatements in the financial statements resulting from fraud or error.

 
In a review engagement, the independent accountant’s procedures include:*
Examining bank reconciliation.
Confirming accounts receivable with debtors.
Reading the financial statements to consider whether they appear to conform with GAAP.
 
Obtaining a letter of audit inquiry from all attorneys of record.

 
Which statement is incorrect regarding procedures and evidence obtained in a review engagement?
*
The auditor should apply judgment in determining the specific nature, timing and extent of review procedures.
The auditor should apply the same materiality considerations as would be applied if an audit opinion on the
financial statements were being given.
There is a greater risk that misstatements will not be detected in an audit than in a review.
 
The judgment as to what is material is made by reference to the information on which the auditor is reporting
and the needs of those relying on that information, not to the level of assurance provided.

 
If matters have come to the auditor's attention, the auditor should describe those matters that
impair a fair presentation, in all material respects in accordance with GAAP in the Philippines,
including, unless impracticable, a quantification of the possible effect(s) on the financial
statements, and*
Express a qualification of the negative assurance provided.
When the effect of the matter is so material and pervasive to the financial statements that the auditor concludes
that a qualification is not adequate to disclose the misleading or incomplete nature of the financial statements,
give an adverse statement.
Not provide any assurance.
Either a or b
 
 
Which statement is incorrect regarding the pronouncements of ASPC?*
The PSAs and Interpretations may also have application, as appropriate, to other related activities of auditors.
PSAs contain basic principles and essential procedures (identified in bold type black lettering) together with
related guidance in the form of explanatory and other material.
PSAs need only be applied to material matters.
 
The Interpretations have the same authority as the PAPSs

Correct answer
The Interpretations have the same authority as the PAPSs

 
Which statement is incorrect regarding the general principles of a review engagement?*
The auditor is not required to comply with the “Code of Professional Ethics for Certified Public Accountants”
promulgated by the Board of Accountancy.
The auditor should conduct a review in accordance with PSA 910.
The auditor should plan and perform the review with an attitude of professional skepticism recognizing that
circumstances may exist which cause the financial statements to be materially misstated.
 
For the purpose of expressing negative assurance in the review report, the auditor should obtain sufficient
appropriate evidence primarily through inquiry and analytical procedures to be able to draw conclusions.

Correct answer
The auditor is not required to comply with the “Code of Professional Ethics for Certified Public Accountants”
promulgated by the Board of Accountancy.

 
Engagement letter for a review of financial statements least likely includes*
The objective of the service being performed.
The fact that the engagement cannot be relied upon to disclose errors, illegal acts or other irregularities, for
example, fraud or defalcations that may exist
A statement that an audit is not being performed and that an audit opinion will not be expressed.
 
The fact that because of the test nature and other inherent limitations of an audit, together with the inherent
limitations of any accounting and internal control system, there is an unavoidable risk that even some material
misstatement may remain undiscovered.

Correct answer
The fact that because of the test nature and other inherent limitations of an audit, together with the inherent
limitations of any accounting and internal control system, there is an unavoidable risk that even some material
misstatement may remain undiscovered.

 
A CPA is not required to comply with the “Code of Professional Ethics for Certified Public
Accountants” promulgated by the Board of Accountancy when performing*
Review
Agreed-upon procedures.
Compilation.
None of the above
 
 
Which of the following statements is incorrect regarding relevance of audit evidence?*
A given set of audit procedures may provide audit evidence that is relevant to certain assertions, but not others.
The auditor often obtains audit evidence from different sources or of a different nature that is relevant to the
same assertion.
Obtaining audit evidence relating to a particular assertion is a substitute for obtaining audit evidence regarding
another assertion.
 
None of the above.

 
In pursuing its quality control objectives with respect to assigning personnel to engagements, a
public accounting firm may use policies and procedures such as*
Rotating employees from assignment to assignment on a random basis to aid in the staff training effort.
 
Requiring timely identification of the staffing requirements of specific engagements so that enough qualified
personnel can be made available.
Allowing staff to select the assignments of their choice to promote better client relationships
Assigning a number of employees to each engagement in excess of the number required so as not to
overburden the staff and interfere with the quality of the audit work performed.

Correct answer
Requiring timely identification of the staffing requirements of specific engagements so that enough qualified
personnel can be made available.

 
A CPA firm offers management advisory services to clients. Its primary purpose is to*
Furnish professional advice and assistance which will enable the client to improve operations.
 
Keep the CPA firm competitive with other firms.
Establish the firm as a consultant, thus ensuring its future expansion and growth.
Permit the firm’s staff members to acquire expertise in other areas of practice.

 
Other information that the auditor may use as audit evidence least likely includes*
Minutes of meetings.
 
Confirmations from third parties.
Information obtained by the auditor from such audit procedures as inquiry, observation, and inspection.
Adjustments to the financial statements that are not reflected in formal journal entries

Correct answer
Adjustments to the financial statements that are not reflected in formal journal entries

 
Which statement is incorrect regarding audit evidence?*
The auditor should obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on
which to base the audit opinion.
Accounting records alone do not provide sufficient audit evidence.
The auditor uses professional judgment and exercises professional skepticism in evaluating the quantity and
quality of audit evidence, and thus its sufficiency and appropriateness, to support the audit opinion.
The matter of difficulty or expense involved is a valid basis for omitting an audit procedure for which there is no
alternative.
 
 
Which statement is incorrect regarding the procedures performed in a compilation engagement? *
If the accountant becomes aware that information supplied by management is incorrect, incomplete, or
otherwise unsatisfactory, the accountant should consider performing appropriate procedures and request
management to provide additional information.
The accountant should read the compiled information and consider whether it appears to be appropriate in form
and free from obvious material misstatements.
The generally accepted accounting principles in the Philippines and any known departures therefrom should be
disclosed within the financial information, and their effects should be quantified.
 
The accountant should obtain an acknowledgment from management of its responsibility for the appropriate
presentation of the financial information and of its approval of the financial information.

 
On each page of the financial information or on the front of the complete set of financial
statements, the financial information compiled by the accountant should contain a reference such
as*
"Unaudited"
"Compiled without Audit or Review"
"Refer to Compilation Report"
Any of the above.
 
 
Which of the following government agencies is represented both to the Auditing Standards and
Practices Council and the Auditing and Assurance Standards Council?*
Bangko Sentral ng Pilipinas
Bureau of Internal Revenue
Securities and Exchange Commission
 
Commission on Higher Education

 
Which statement is incorrect regarding compilation engagement?*
This ordinarily entails reducing detailed data to a manageable and understandable form without a requirement to
test the assertions underlying that information.
The procedures employed are designed to enable the accountant to express limited assurance on the financial
information
 
Users of the compiled financial information derive some benefit as a result of the accountant's involvement
because the service has been performed with professional competence and due care
In all circumstances when an accountant's name is associated with financial information compiled by the
accountant, the accountant should issue a report.

 
Forecast means*
Financial information based on assumptions about events that may occur in the future and possible actions by
an entity.
Prospective financial information prepared on the basis of assumptions as to future events which management
expects to take place and the actions management expects to take as of the date the information is prepared
(best-estimate assumptions).
 
Prospective financial information prepared on the basis of hypothetical assumptions about future events and
management actions which are not necessarily expected to take place
Prospective financial information prepared on the basis of a mixture of best-estimate and hypothetical
assumptions.

 
Which of the following is least likely an example of fraud risk factors relating to management’s
characteristics and influence over the control environment?*
There is motivation for management to engage in fraudulent financial reporting.
There is a failure by management to display and communicate an appropriate attitude regarding internal control
and the financial reporting process.
 
Non-financial management participates excessively in, or is preoccupied with, the selection of accounting
principles or the determination of significant estimates.
New accounting, statutory or regulatory requirements that could impair the financial stability or profitability of
the entity

Correct answer
New accounting, statutory or regulatory requirements that could impair the financial stability or profitability of
the entity

 
Which statement is incorrect regarding audit evidence?*
Audit evidence is all the information used by the auditor in arriving at the conclusions on which the audit opinion
is based.
Audit evidence includes the information contained in the accounting records underlying the financial statements
and other information.
Audit evidence is cumulative in nature.
Auditors are expected to address all information that may exist.
 
 
The report on an agreed-upon procedures engagement needs to describe the purpose and the
agreed-upon procedures of the engagement in sufficient detail to enable the reader to understand
the nature and the extent of the work performed. The report of factual findings should not contain:*
Addressee (ordinarily the client who engaged the auditor to perform the agreed-upon procedures).
Identification of the purpose for which the agreed-upon procedures were performed.
A description of the auditor’s factual findings including sufficient details of errors and exceptions found.
 
Statement that the procedures performed constitute an audit and, as such, an opinion is expressed.

Correct answer
Statement that the procedures performed constitute an audit and, as such, an opinion is expressed.
 
Which of the following is not one of the grounds for proceedings against a CPA?*
Gross negligence or incompetence in the practice of his profession.
Engaging in public practice while being employed in a private enterprise.
Immoral or dishonorable conduct.
Insanity.
 
Correct answer
Engaging in public practice while being employed in a private enterprise.

 
Which statement is incorrect regarding agreed-upon procedures?*
Users of the report assess for themselves the procedures and findings reported by the auditor and draw their
own conclusions from the auditor’s work.
The report is restricted to those parties that have agreed to the procedures to be performed since others,
unaware of the reasons for the procedures, may misinterpret the results
The auditor should conduct an agreed-upon procedures engagement in accordance with PSA 920 and the terms
of the engagement.
Where the auditor is not independent, a statement to that effect need not be made in the report of factual
findings.
 
 
The auditor’s ability to detect a fraud depends on factors such as I. The skillfulness of the
perpetrator. II. The frequency and extent of manipulation. III. The degree of collusion involved. IV.
The relative size of individual amounts manipulated. V. The seniority of those involved. *
All of the above
 
I, III and V only
I, II, III and V only
III and V only

 
Which statement is incorrect regarding report on summarized financial statements?*
Unless the auditor has expressed an audit opinion on the financial statements from which the summarized
financial statements were derived, the auditor should not report on summarized financial statements.
Summarized financial statements are presented in considerably less detail than annual audited financial
statements.
Summarized financial statements need to be appropriately titled to identify the audited financial statements
from which they have been derived.
Summarized financial statements contain all the information required by the financial reporting framework used
for the annual audited financial statements.
 
 
The most likely explanation why the auditor’s examination cannot reasonably be expected to bring
all illegal acts by the client to the auditor’s attention is that*
Illegal acts are perpetrated by management override of internal accounting controls.
 
Illegal acts by clients often relate to operating aspects rather than accounting aspects.
The client’s system of internal accounting control may be so strong that the auditor performs only minimal
substantive testing.
Illegal acts may be perpetrated by the only person in the client’s organization with access to both assets and the
accounting records.

Correct answer
Illegal acts by clients often relate to operating aspects rather than accounting aspects.

 
The Philippine Standards on Auditing issued by ASPC*
Apply to independent examination of financial statements of any entity when such an examination is conducted
for the purpose of expressing an opinion thereon.
 
Must not apply to other related activities of auditors
Need to be applied on all audit related matters.
Require that in no circumstances would an auditor may judge it necessary to depart from a PSA, even though
such a departure may result to more effective achievement of the objective of an audit

 
Which of the following is not normally a service rendered by public accountants? *
Management consultation service
Attest function
Internal auditing
 
Taxation

 
Which statement is incorrect regarding examination of prospective financial information? *
The auditor should not accept, or should withdraw from, an engagement when the assumptions are clearly
unrealistic or when the auditor believes that the prospective financial information will be inappropriate for its
intended use
The auditor and the client should agree on the terms of the engagement.
The auditor should obtain a sufficient level of knowledge of the business to be able to evaluate whether all
significant assumptions required for the preparation of the prospective financial information have been
identified.
The auditor need not obtain written representations from management regarding the intended use of the
prospective financial information, the completeness of significant management assumptions and management’s
acceptance of its responsibility for the prospective financial information.
 
 
Which of the following procedures is not included in a review engagement on a nonpublic entity?*
Inquiries of management.
Inquiries regarding events subsequent to the balance sheet date.
 
Any procedures designed to identify relationships among data that appear to be unusual.
Communicating any material weaknesses discovered during the study and evaluation of internal accounting
control.

Correct answer
Communicating any material weaknesses discovered during the study and evaluation of internal accounting
control.

 
The auditor least likely obtains written representations from management that the management: *
Acknowledges its responsibility for the implementation and operations of accounting and internal control
systems that are designed to prevent and detect fraud and error.
Believes the effects of those uncorrected financial statement misstatements aggregated by the auditor during
the audit are material, both individually and in the aggregate, to the financial statements taken as a whole.
 
Has disclosed to the auditor all significant facts relating to any frauds or suspected frauds known to
management that may have affected the entity.
Has disclosed to the auditor the results of its assessment of the risk that the financial statements may be
materially misstated as a result of fraud.

 
An accountant’s compilation report should be dated as of the date of*
Completion of fieldwork.
Completion of the engagement.
 
Transmittal of the compilation report.
The latest subsequent event referred to in the notes to the financial statements.

 
Accounting records least likely include*
The records of initial entries and supporting records.
The general and subsidiary ledgers.
Work sheets and spreadsheets supporting cost allocations.
Comparable data about competitors (benchmarking).
 
 
Within the context of quality control, the primary purpose of continuing professional education and
training activities, is to enable a CPA firm to provide personnel within the firm with:*
Technical training that assures proficiency as an auditor.
 
Professional education that is required in order to perform with due professional care
Knowledge required to fulfill assigned responsibilities and to progress within the firm.
Knowledge required in order to perform a peer review.
Correct answer
Knowledge required to fulfill assigned responsibilities and to progress within the firm.

 
In comparing management fraud with employee fraud, the auditor’s risk of failing to discover the
fraud is*
Greater for employee fraud because of the higher crime rate among blue collar workers.
Greater for management fraud because of management’s ability to override existing internal controls.
 
Greater for employee fraud because of the larger number of employees in the organization.
Greater for management fraud because managers are inherently smarter than employees.

 
A person whose CPA certificate has been revoked*
Can no longer be reinstated as a CPA
Is automatically reinstated as a CPA after two years if the has acted in an exemplary manner
May be reinstated as a CPA by the Board of Accountancy after two years if he has acted in an exemplary manner
 
May be reinstated by the PRC after two years if he has acted in an exemplary manner

 
Which of the following is not a basic element of a review report?*
Title of the report
Client’s address
Introductory paragraph
 
Auditor’s address

Correct answer
Client’s address

 
Which of the following would not be appropriate to a report on an engagement to apply agreed-upon
procedures to specified financial statement items?*
Indicate the intended distribution of the report
Provide an opinion on the specified elements, accounts, or items
 
Enumerate the procedures performed
State that the report relates only to the elements, accounts, or items specified.

 
Which of the following is required to be performed in an audit but not in review engagement? *
Complying with the “Code of Professional Ethics for Certified Public Accountants” promulgated by the Board of
Accountancy.
Planning the engagement.
Agreeing on the terms of engagement.
Studying and evaluating internal control structure.
 
 
The following statements relate to the accounting profession: I. To merit public trust and
confidence, the professional person must convince the public that he will place public service
ahead of personal reward. II. A CPA certificate is evidence of basic competence in the discipline of
accounting at the time the certificate is granted. III. A code of professional conduct is one of the
most important distinguishing characteristics of a profession. State whether the foregoing
statements are true or false.*
All of the statements are true.
 
Only one of the statements is true
Only two of the statements are true.
All of the statements are false.

 
An auditor should not issue a report on*
The achievability of forecasts
 
Internal control
Management performance
Quarterly financial information

The following are related to the auditor’s responsibility to assess the ability of the company to
continue as a going concern? I.) The auditor should consider the appropriateness of the
management’s use of the going concern assumption in the preparation of the financial statements.
II.) The auditor is to consider whether there are material uncertainties about the entity’s ability to
continue as a going concern that needs to be disclosed in the financial statements. III.) The
absence of any reference to going concern uncertainty in the auditor’s report is viewed as a
guarantee as to the entity’s ability to continue as a going concern. Which of the foregoing
inappropriately describe(s) the auditor’s responsibility?*
I only
I and II only
II only
III only
 
 
Adequate planning of the audit work helps the auditor of accomplishing the following objectives,
except:*
Gathering of all corroborating audit evidence.
 
Ensuring that appropriate attention is devoted to important areas of the audit.
Identifying the areas that need a service of an expert.
The audit work is completed efficiently.

 
Which of the following may not cast significant doubt about the going concern assumption of an
entity.*
The entity heavily used equity financing for investment in permanent assets.
Non-compliance with capital or other statutory requirements.
Pending legal or regulatory proceeding against the entity that may, if successful, result in claims that are unlikely
to be satisfied.
 
Changes in legislation or government policy expected to adversely affect the entity.

Correct answer
The entity heavily used equity financing for investment in permanent assets.

 
If the auditor believes that the entity will not be able to continue as a going concern and the
financial statements are prepared on a going concern basis, the auditor’s report should include: *
Unqualified opinion with explanatory paragraph.
Qualified opinion.
Adverse opinion.
 
Disclaimer of opinion.

 
Which of the following statements is not correct about materiality?*
The concept of materiality recognizes that some matters are important for fair presentation of financial
statements in conformity with GAAP, while other matters are not important.
An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements
that could be material to any one of the financial statements.
 
Materiality judgments are made in light of surrounding circumstances and necessarily involve both quantitative
and qualitative judgments.
An auditor’s consideration of materiality is influenced by the auditor’s perception of the needs of a reasonable
person who will rely on the financial statements.

 
The audit program should contain the following, except:*
Audit objective
Time budget for the various audit areas
Set of planned audit procedures
The combined assessed level of inherent and control risk
 
 
Throughout the course of the audit, the auditors make judgment about many matters where
knowledge of the business is important. These procedures do not include:*
Evaluating accounting estimates and management representations.
Identifying related parties and related party transactions.
Assessing inherent and control risks.
Assessing the appropriateness of using statistical sampling instead of judgmental sampling.
 
 
Which of the following least likely affect the form and content of the overall audit plan?*
Complexity of the audit engagement.
Methodology and technology used by the auditor.
 
The entity’s form of business organization.
The size of the entity.

Correct answer
The entity’s form of business organization.

 
Which of the following is an aspect of scheduling and controlling the audit engagement?*
Including in the audit program a column for estimated and actual time.
Performing audit work only after the client’s books of account have been closed for the period under
examination.
Writing a conclusion in individual working papers indicating how the results of the audit will affect the auditor’s
report.
Including in the engagement letter an estimate of the minimum and maximum audit fee.
 
Correct answer
Including in the audit program a column for estimated and actual time.

 
Understanding the business and using this information appropriately assists the auditor in, except *
Deciding whether to do tests of controls.
 
Evaluating audit evidence.
Assessing risks and identifying potential problems.
Planning and performing the audit effectively and efficiently.
 
Which of the following would a successor auditor normally perform after acceptance of an audit
client?*
Inquiry of predecessor auditor regarding the client.
Review the SEC filings of the client.
Inquiry of bankers regarding the client.
Review of predecessor auditor working papers.
 
 
The management denied the auditor’s request that the management has to extend its assessment
of its going concern ability. However, the auditor’s other procedures are sufficient to assess the
appropriateness of management use of the going concern assumption in the preparation of the
financial statements. he auditor should issue:*
Unqualified opinion
 
Unqualified opinion with explanatory paragraph
Adverse opinion
Disclaimer of opinion

 
Which of the following procedures would an auditor most likely perform in planning a financial
statement audit?*
Inquiring of the client’s legal counsel concerning pending litigation.
Comparing the financial statements to anticipated results.
 
Examining computer generated exception reports to verify the effectiveness of internal controls.
Searching for unauthorized transactions that may aid in detecting unrecorded liabilities.

 
If the auditor believes that management should extend its assessment but the latter refuses to do
so, the auditor should:*
Rectify the lack of analysis by management.
Extend his audit procedures to obtain sufficiently appropriate evidence regarding the use of the going concern
assumption.
Emphasize this matter in the audit report.
Consider a modification of the report as a result of the limitation in the scope of the auditor’s work.
 
 
Which of the following will most likely help the auditor to identify and understand the events,
transactions and practices of his audit client?*
Obtaining a sufficient knowledge of the business of his client.
 
Understanding of accounting and internal control.
Testing control policies and procedures.
Obtaining a representation letter from the client management.

 
If adequate disclosure is not made by the entity regarding substantial doubt about its ability to
continue as a going concern, the auditor should include in his report specific reference to the
substantial doubt as to ability of the company to continue as a going concern and should express:*
Unqualified opinion with explanatory paragraph
A subject to qualified opinion or adverse opinion.
 
Either an “except for” qualified opinion or an adverse opinion.
A disclaimer of opinion.

Correct answer
Either an “except for” qualified opinion or an adverse opinion.

 
Which of the following is an engagement attribute for an audit of an entity that processes most of
its financial data in electronic form without any paper documentation?*
Discrete phases of planning, interim, and year-end field work.
Increased effort to search for evidence of management fraud.
Performance of audit tests on a continuous basis.
 
Increased emphasis on the completeness assertion.

 
The risk that the assertion contains material misstatements that, when aggregated with
misstatements in other assertions, could make the entire financial statements materially misstated
is:*
Individual audit risk
 
Inherent risk
Control risk
Detection risk

 
The auditor is not expected to have*
A particular knowledge of the economy and the industry within which the entity operates.
 
A particular knowledge of how the entity operates.
A level of knowledge of business ordinarily less than that possessed by management.
A knowledge of business which is used in assessing inherent and control risk.

 
The auditor should have or obtain a knowledge of the client’s business sufficient to:*
Evaluate whether the financial statements are materially misstated.
Document material weaknesses in accounting and internal control systems.
Identify and understand events, transactions and practices that may have effect on financial statements.
 
Have an overall evaluation of whether financial assertions are fairly presented in the financial statements.

 
The development of a general strategy and a detailed approach for the expected nature, timing, and
extent of audit refers to :*
Supervision
Audit procedures
Directing
Planning
 
 
Which of the following is an effective audit planning and control procedures that helps prevent
misunderstandings and inefficient use of audit personnel?*
Make copies, for inclusion in the working papers, of those client supporting documents examined by the auditor.
Provide the client with copies of the audit programs to be used during the audit.
Arrange a preliminary conference with the client to discuss audit objectives, fees, timing, and other information.
Arrange to have the auditor prepare and post any necessary adjusting or reclassification entries prior to final
closing.
 
Correct answer
Arrange a preliminary conference with the client to discuss audit objectives, fees, timing, and other information.

 
The auditor consider events and condition relating to the going concern assumption during the
planning stage in order to:*
Help management do action that may mitigate its going concern problems.
Identifying the areas of accounting and internal control systems that need tests of control.
 
To have a timely discussion with management and a review of management’s plans and esolutions of any
identified going concern issues.
In order to shorten assessment period.

Correct answer
To have a timely discussion with management and a review of management’s plans and esolutions of any
identified going concern issues.

 
Which of the following statements is correct concerning analytical procedures?*
Analytical procedures usually involve comparisons of ratios developed from recorded amounts to assertions
developed by management.
Analytical procedures used in planning an audit generally use data aggregated at a high level.
 
Analytical procedures can replace tests of controls in gathering evidence to support the assessed level of
control risk.
Analytical procedures are more efficient, but not more effective, than tests of details and transactions.

 
Which of the following is required documentation in an audit in accordance with generally accepted
auditing standards?*
A flowchart or narrative of the information system describing the recording and classification of transactions for
financial reporting.
An audit program setting forth in detail the procedures necessary to accomplish the engagement’s objectives.
 
A planning memorandum establishing the timing of the audit procedures and coordinating the assistance of
entity personnel.
An internal control questionnaire identifying policies and procedures that assure specific objectives will be
achieved.

 
Incremental risk is the increased risk that errors may not be detected at the balance sheet date
because:*
Audit procedures were performed at an interim date
 
Inherent risk was assessed too low.
Analytical procedures were not performed.
Detection risk was set too high a level.

 
Which of the following is the ultimate concern of the knowledge about the business?*
Consideration of how it affects the financial statements taken as a whole.
 
Assists the auditor in enforcing quality control procedures.
To assure that sufficient audit evidence is obtained.
It assists in determining the type of audit report to be issued.

 
Analytical procedures, which means the analysis of significant ratios and trends including the
resulting investigation of fluctuations and relationships that are inconsistent with other relevant
information or which deviate from predicted amounts, are not required to be applied*
At the planning stage of the audit
Overall review stage of the audit
 
As substantive procedures
None of the above

Correct answer
As substantive procedures

 
Analytical procedures used in planning an audit should focus on*
Reducing the scope of tests of controls and substantive tests.
Providing assurance that potential material misstatements will be identified.
Enhancing the auditor’s understanding of the client’s business.
 
Assessing the adequacy of the available evidential matter.

 
Which of the following is least likely considered by the auditor in developing the overall audit plan? *
Understanding of the accounting and internal control systems.
Relevant risk and materiality.
The involvement of other auditors in the audit of major component of financial statements
The general level of competence of audit assistants.
 
 
To obtain an understanding of a continuing client’s business in planning an audit, an auditor most
likely would*
Perform tests of details of transactions and balances.
Review prior-year working papers and the permanent file for the client.
 
Read specialized industry journals
Reevaluate client’s internal control environment.

 
The extent of planning will vary according to any of the following, except:*
Size of the audit client.
Auditor’s experience with the entity and knowledge of the business.
The nature and complexity of the audit engagement
The assessed level of control risk.
 
 
A knowledge of the business is a frame of reference within which the auditor exercises professional
judgment. This assists the auditor in carrying out the following objectives, except: *
Assessing risks and identifying problems.
Evaluating audit evidence.
Determining the audit opinion to be expressed.
 
Planning and performing the audit effectively and efficiently.

 
Which of the following proposed actions may mostly mitigate the going concern problem of an
entity?*
Rescheduling of loan payments.
More vigorous business expansion.
Acquiring asset replacement using short-term loans.
 
Increasing the amount of cash dividends to be paid.

Correct answer
Rescheduling of loan payments.

 
The auditor should consider the nature, extent, and timing of the work to be performed and should
prepare a written audit program for every audit. Which audit standard is most closely related to this
requirement?*
The audit is to be performed by a person or persons having adequate technical training and proficiency as an
auditor.
In all matters relating to the assignment, an independent mental attitude is to be maintained by the auditor(s).
Due professional care is to be exercised in the planning and performance of the audit and preparation of the
report.
The work is to be adequately planned and assistants, if any, are to be properly supervised.
 
 
Which of the following is not considered by the CPA when he makes an overall audit plan? *
Identification of complex accounting areas including those involving accounting estimates.
The information technology used by the client.
The content of the representation letters.
 
The nature and timing of reports or other communication with the entity that are expected under the
engagement.

 
When events or conditions have been identified which may cast significant doubt on the entity’s
ability to continue as a going concern, the auditor should:*
Review management’s plans for future actions based on its going concern assessment.
Gather sufficient appropriate audit evidence to confirm or dispel whether or not a material uncertainty exists
through carrying out procedures considered necessary, including considering the effect of any plans of
management and other mitigating factors.
 
Seek written representations from management regarding its plans for future action.
All of the above.

Correct answer
All of the above.
 
Which of the following factors is inappropriately relevant to the management’s assessment of the
going concern assumption?*
The degree of uncertainty associated with the outcome of an event or condition decreases significantly the
further into the future of judgment being made about the outcome of an event or condition.
Any judgment about the future is based on information available at the time at which the judgment is made.
The size and complexity of the entity, and the nature and conditions of its business affect the judgment
regarding the outcome of events or conditions.
Subsequent events can contradict a judgment which was reasonable at the time it was made.
 
Correct answer
The degree of uncertainty associated with the outcome of an event or condition decreases significantly the
further into the future of judgment being made about the outcome of an event or condition.

The assessment of control risk can be made at any of the following times except:
Immediately after obtaining an understanding of internal control
 
After some tests of controls are performed concurrently with obtaining an understanding.
After the performance of additional tests of controls designed to further lower the assessment of control risk.
After performing all the necessary substantive tests.
No possible answer

Correct answer
After performing all the necessary substantive tests.

 
Which of the following is not a characteristic of the primarily substantive approach?
The auditor usually gathers all or most of the evidence with substantive tests
Usually little or no reliance is placed on controls.
 
The assessment of control risk is usually at or near maximum level.
Extensive tests of controls are performed
No possible answer

Correct answer
Extensive tests of controls are performed

 
Auditors are often concerned with three aspects of internal controls related to the sales and
collection cycle. Which of the following is not one of those controls?
Controls over cutoff
Controls over acquisitions
Controls that detect or prevent embezzlements
Controls related to the allowance for doubtful accounts
No possible answer
 
Correct answer
Controls over acquisitions

 
Which of the following statements is true? If control risk is assessed of the maximum, the  
nature of related substantive tests should be changed from more to less effective
nature of related substantive tests should be changed from less to more effective
 
timing of related substantive tests should be changed from year-end to an interim date.
extent of related substantive tests should he changed from a larger to a smaller sample.
No possible answer

 
Which Of the following is not a characteristic of the lower control risk approach?  
Control risk is usually assessed at maximum level.
 
Substantive tests are usually restricted.
The auditor usually plans to place considerable reliance on the controls.
The auditor plans to perform extensive tests of controls.
No possible answer

 
Once an understanding of the internal control structure that is sufficient for audit planning is
obtained, then the auditor must first assess  
whether a lower level of control risk could be supported
whether the financial statements are auditable
 
the level of control risk supported by the understanding obtained
the level of control risk to use.
No possible answer

 
After obtaining an understanding of an entity's internal controls and assessing control risk, an
auditor may next:  
Perform tests of controls to verify management's assertions that are embodied in the financial statements
 
Consider whether he can reduce the assessed level of control risk further
Discontinue searching for reportable condition.
Evaluate whether control activities can detect material misstatements
No possible answer
Correct answer
Consider whether he can reduce the assessed level of control risk further

 
What typically ends the acquisitions and payment cycle?
Purchase requisition
Issuance of a purchase requisition or request for purchase of goods/services
Approval of a new vendor
 
Issuance of a payment to a vendor
No possible answer

Correct answer
Issuance of a payment to a vendor

 
An auditor may decide to assess control risk at the maximum level for certain assertions because
he believes  
sufficient evidential matter to support the assertions is likely to be available
Evaluating the effectiveness of policies and procedures is inefficient.
 
more emphasis on tests of controls than substantive tests is warranted
Considering the relationship of assertions to specific account balances is more efficient.
No possible answer

 
Which of the following is not a strong indicator of the existence of a material weakness in internal
control?
An ineffective control environment
An ineffective internal audit function
Inadequate controls over the selection of the best investment opportunities.
Ineffective oversight of external reporting by the audit committee.
No possible answer
 
Correct answer
Inadequate controls over the selection of the best investment opportunities.

 
The accounts payable department usually has responsibility for verifying the propriety of
acquisitions by comparing the details on the:
Purchase requisition, purchase order, and receiving report
Vendor's invoice and the receiving report
 
Purchase order, receiving report, and vendor's invoice
Vendor's invoice and the purchase requisition
No possible answer

Correct answer
Purchase order, receiving report, and vendor's invoice

 
For good internal control, the purchasing department should not be responsible for:
Authorizing the acquisition of goods
Designing the purchase order form
Finding the lowest cost vendor
Reviewing vendors' catalog descriptions and prices for standardized items
No possible answer
 
Correct answer
Authorizing the acquisition of goods

 
If the auditor uses the primarily substantive approach instead of the lower control risk approach  
A higher level of understanding of internal control is required
 
The auditor plans to assess control risk at a lower level.
The auditor plans a heavier reliance on substantive tests
The auditor plans to restrict substantive tests
No possible answer

Correct answer
The auditor plans a heavier reliance on substantive tests

 
Which one of the following is more difficult to evaluate objectively?
Compliance with government regulations
Efficiency and effectiveness of operations
 
All three of the above are equally difficult
Presentation of financial statements in accordance with generally accepted accounting principles
No possible answer

 
Many auditors perform extensive analytical procedures on audits because:
They pinpoint errors in accounts
They indicate areas of potential risk and misstatement
 
They are required for tests of controls
They are required by Philippine Auditing Standards
No possible answer
 
In which of the following situations would the auditor most likely issue an unqualified report?
The client valued ending inventory by using the Next-In-First-Out (NIFO) method
The client valued ending inventory at selling price rather than historical cost
The client valued ending inventory by using the First-In-First-Out (FIFO) method, but showed the replacement
cost of inventory in the Notes to the Financial Statements
 
The client valued ending inventory by using the replacement cost method
No possible answer

 
Which of the following is a significant audit concern related to the transfer of inventory from one
location to another?
Transfers were properly transported
Recorded transfers occurred
 
Transfers were properly planned
Transfers represent efficient movement of assets
No possible answer

 
After obtaining an understanding of internal control and assessing control risk, an auditor decided
to perform tests of controls. The auditor most likely decided that
It would be efficient to perform tests of controls that would result in a reduction in planned substantive tests
Additional evidence to support a further reduction in control risk is not available
 
An increase in the assessed level of control risk is justified for certain financial statement assertions
There were many internal control weaknesses that could allow errors to enter the accounting system
No possible answer

Correct answer
It would be efficient to perform tests of controls that would result in a reduction in planned substantive tests

 
The results of the considerations of internal control least likely affect the auditor‘s decisions
pertaining to:  
The use of analytical procedures
The assessment of control risk
The assessment of inherent risk
 
Detailed tests of ending balances.
No possible answer

 
Which of the following requirements of internal control is expected of management of a public
entity?
Accept responsibility for the effectiveness of internal control
Evaluate the effectiveness of internal control using a written assertion
Prepare a detailed flowchart that summarizes the company's internal control.
 
Provide a monthly updated report on-internal control.
No possible answer

Correct answer
Accept responsibility for the effectiveness of internal control

 
After considering a client's internal control, the auditor has concluded that the system is well
designed and is functioning as anticipated. Under these circumstances, the auditor would most
likely  
cease to perform further substantive tests.
not increase the extent of planned substantive tests
 
increase the extent of anticipated analytical procedures.
perform all tests of controls to the extent outlined in the pre-planned audit program.
No possible answer

 
Josh Corporation’s stock is listed on a national stock exchange and registered with the Securities
and Exchange Commission. Josh’s management hires a CPA to perform an independent audit of
Josh’s financial statements. The primary objective of this audit is to provide assurance to the:
Securities and Exchange Commission
Stock exchange
Management of Josh Corporation
Investors in Josh Corporation’s stock
 
No possible answer

 
After obtaining an understanding of an entity's internal control, an auditor may assess control risk
at the maximum level for some assertions because he
believes the internal control policies and procedures are unlikely to be effective
 
determines that the pertinent internal control components are not well documented
performs tests of controls to restrict detection risk to an acceptable level
identifies internal control policies and procedures that are likely to prevent material misstatements
No possible answer

 
Which of the following statements is correct concerning reportable conditions in an audit?  
An auditor is required to search for reportable conditions during an audit.
All reportable conditions are also considered to be material weaknesses.
An auditor may communicate reportable conditions during an audit or after the audit's completion.
 
An auditor may report that no reportable conditions were noted during an audit.
No possible answer

 
Which of the following is not a valid basis for omitting an audit test?
The relative risk involved
The relationship between the cost of obtaining evidence and its usefulness
The difficulty and expense involved in testing a particular item
 
The degree of reliance on the relevant internal controls
No possible answer

 
As a result of tests of controls, an auditor assessed control risk too low and decreased substantive
testing. This assessment occurred because the true deviation rate in the population was  
Less than the risk of assessing control risk too low, based on the auditor's sample
Less than the deviation rate in the auditor's sample.
 
More than the risk of assessing control risk too low, based on the auditor's sample
More than the deviation rate in the' auditor's sample
No possible answer

Correct answer
More than the deviation rate in the' auditor's sample

 
Which circumstance would be consistent with both the planned assessed level and the assessed
level of control risk being low?  
No tests of controls have been performed
Tests of controls have been performed.
 
Externally generated evidence supports management's contentions relating to internal control
The results of the consideration of internal control suggest that controls are not operating effectively
No possible answer

Correct answer
Externally generated evidence supports management's contentions relating to internal control

 
Tests of controls may include which of the following types of evidence?
Reperformance (No); Observation (Yes)
Reperformance (No); Observation (No)
Reperformance (Yes); Observation (Yes)
 
Reperformance (Yes); Observation (No)
No possible answer

 
A control that reduces the risk that on existing or potential control weakness will result in a failure
to meet a control objective is referred to as a
Compensating control
Conditional control
 
Non-routine control
Walkthrough control.
No possible answer

Correct answer
Compensating control

 
If the auditor lacks independence, a disclaimer of opinion must be issued:
Only if it is material but not highly material
If the client requests it
Only if it is highly material
In all cases
 
No possible answer