Departmental Exam 1 - Attempt Review AAP

10/17/22, 12:59 PM Departmental Exam 1: Attempt review
Dashboard My courses ACTG10-19 Quizzes Departmental Exam 1
Started on Thursday, 22 September 2022, 2:05 PM

State Finished
Completed on Thursday, 22 September 2022, 3:03 PM
Time taken 58 mins
Grade 58.00 out of 60.00 (97%)
Question 1
Correct
Mark 1.00 out of 1.00
When inherent risk is high, there will need to be
1 - A lower assessment of audit risk
2 - More evidence accumulated by the auditor
a. Yes; No
b. No; Yes 
c. No; No
d. Yes; Yes
Question 2
Correct
1. A measure of how willing the auditor is to accept that the financial statements may be materially misstated after
the audit is completed and an unmodified opinion has been issued is the
a. Acceptable audit risk 

b. Inherent risk
c. Control risk
d. Detection risk
https://collvle.neu.edu.ph/mod/quiz/review.php?attempt=810612&cmid=218438&showall=1 1/22
Question 3
Correct
10. The Philippine Framework for Assurance Engagements
a. Contains basic principles, essential procedures, and related guidance for the performance of assurance
engagements
b. Provides a frame of reference for CPAs in public practice when performing audits, reviews, and
compilations of historical financial information
c. Establishes standards and provides procedural requirements for the performance of assurance
engagements
d. Defines and describes the elements and objectives of an assurance engagement, and identifies 
engagements to which PSAs, PSREs, and PSAEs apply
Question 4
Correct
11. Inquiries and analytical procedures ordinarily form the basis for which type of engagement?
a. Review 
b. Agreed-upon procedures
c. Audit
d. Examination
Question 5
Correct
13. Which of the following best describes the reason why independent auditors report on financial statements?
a. Poorly designed internal control may be in existence

b. Different interests may exist between the company preparing the statements and the persons using the 
statements
c. A misstatement of account balances may exist and is generally corrected as the result of the work of
independent auditors
d. A management fraud may exist and it is more likely to be detected by independent auditors
Question 6
Correct
14. What is the proper organizational role of internal auditing?
a. To serve as the investigative arm of the audit committee of the board of directors
b. To assist the external auditor in order to reduce external audit fees
c. To serve as an independent, objective assurance and consulting activity that adds value to operations 
d. To perform studies to assist in the attainment of more efficient operations
Question 7
Correct
15. Operational audits generally have been conducted by internal and COA auditors, but may be performed by
certified public accountants. A primary purpose of an operational audit is to provide
a. A means of assurance that internal accounting controls are functioning as planned

b. Aid to the independent auditor, who is conducting the examination of the financial statements
c. The results of internal examinations of financial and accounting matters to a companys top-level
management
d. A measure of management performance in meeting organizational goals 
Question 8
Correct
16. Governmental auditing often extends beyond examinations leading to the expression of opinion on the fairness
of financial presentation and includes audits of efficiency, economy, effectiveness, and also
a. Compliance. 
b. Accuracy.
c. Evaluation.
d. Internal control.
Question 9
Correct
17. Which of the following terms best describes the audit of a taxpayers return by a BIR auditor?
a. Operational audit
b. Government audit
c. Internal audit
d. Compliance audit 
Question 10
Correct
18. An objective of a performance audit is to determine whether an entitys
a. Specific operating units are functioning economically and efficiently 

b. Internal control is adequately operating as designed
c. Operational information is in accordance with government auditing standards
d. Financial statements present fairly the results of operations
Question 11
Correct
19. Which of the following services, if any, may a practitioner who is not independent provide?
a. Compilations but not reviews 

b. Reviews but not financial statement audits
c. Agreed-upon procedures but not compilations
d. Reviews but not compilations
Question 12
Correct
2. 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. Controls over the reliability of financial reporting are ordinarily most directly relevant to a financial 
statement audit, but other controls may also be relevant
c. All controls are ordinarily relevant to a financial statement audit
d. Controls over safeguarding of assets and liabilities are of primary importance, while controls over the
reliability of financial reporting may also be relevant
Question 13
Correct
20. This threat to independence occurs when a member of the assurance team has recently performed services
for an assurance client that directly affect the subject matter information of the assurance engagement (e.g.,
valuation services).
a. Self-review threat 
b. Familiarity threat
c. Self-interest threat
d. Advocacy threat
Question 14
Incorrect
21. The auditor is concerned with fraud that causes a material misstatement in the financial statements. There are
two types of intentional misstatements that are relevant to the auditor: misstatements resulting from fraudulent
financial reporting and misstatements resulting from
a. Management fraud
b. Collusion within the entity or with third parties
c. Employee fraud
d. Misappropriation of assets 
Question 15
Correct
22. Fraudulent financial reporting involves intentional misstatements including omissions of amounts or
disclosures in financial statements to deceive financial statement users. It may be accomplished in a number of
ways, including
a. Using an entity’s assets for personal use

b. Embezzling receipts
c. Stealing physical assets or intellectual property
d. Manipulation, falsification, or alteration of accounting records or supporting documentation from which 
the financial statements are prepared
Question 16
Correct
24. The primary responsibility for the prevention and detection of fraud rests with
a. Those charged with governance of the entity

b. The auditor
c. Management of the entity
d. Both those charged with governance of the entity and management 
Question 17
Correct
25. Which of the following statements best describes an auditor’s responsibility regarding misstatements?
a. An auditor’s failure to detect a material misstatement resulting from fraud is an indication of

noncompliance with the requirements of the Philippine Standards on Auditing (PSAs)
b. An auditor is responsible to detect material errors but has no responsibility to detect material fraud that is
concealed through employee collusion or management override of internal control
c. An auditor should obtain absolute assurance that material misstatements in the financial statements will
be detected
d. An auditor should obtain reasonable assurance that the financial statements taken as a whole are free 
from material misstatement, whether caused by fraud or error
Question 18
Correct
26. When obtaining an understanding of the entity and its environment, including its internal control, the auditor
may identify events or conditions that indicate an incentive or pressure to commit fraud or provide an opportunity
to commit fraud. Such events or conditions are referred to as
a. Fraud conditions.
b. Fraudulent activities.
c. Fraud environment.
d. Fraud risk factors. 
Question 19
Correct
27. The following are examples of fraud risk factors relating to misstatements arising from misappropriation of
assets, except
a. Recurring negative cash flows from operating activities while reporting earnings and earnings growth 
b. Adverse relationship between the entity and employees with access to cash or other assets susceptible to
theft created by recent changes made to employee compensation or benefit plans
c. Inadequate segregation of duties or independent checks
d. Inadequate physical safeguards over cash, investments, inventory, or fixed assets
Question 20
Correct
28. Which of the following conditions or events may create incentives/pressures to commit fraud?
a. Inadequate system of authorization and approval of transactions

b. Lack of mandatory vacations for employees performing key control functions
c. Excessive pressure on management or operating personnel to meet financial targets established by 
those charged with governance, including sales or profitability incentive goals
d. Inadequate access controls over automated records
Question 21
Correct
29. Because of the risk of material misstatement, an audit of financial statements in accordance with PSAs should
be planned and performed with an attitude of
a. Independent integrity.
b. Professional skepticism. 
c. Impartial conservatism.
d. Objective judgment.
Question 22
Correct
3. 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 sends copies of approved sales orders to the credit department for
comparison to authorized credit limits and current customer account balances
c. The accounting department supervisor independently reconciles, on a monthly basis, the accounts
receivable subsidiary ledger to the accounts receivable control account
d. The billing department supervisor matches prenumbered shipping documents with entries in the sales 
journal
Question 23
Correct
30. When planning the audit, the auditor should make inquiries of management. Such inquiries should address the
following, except
a. Management’s communication, if any, to those charged with governance regarding its processes for
identifying and responding to the risks of fraud in the entity.
b. Management’s consideration of how an element of unpredictability will be incorporated into the nature, 
timing, and extent of the audit procedures to be performed.
c. Management’s assessment of the risk that the financial statements may be misstated due to fraud.
d. Management’s process for identifying and responding to the risks of fraud in the entity.
Question 24
Correct
31. When the auditor identifies a misstatement in the financial statements, the auditor should consider whether
such a misstatement may be indicative of fraud and if there is such an indication, the auditor should
a. Communicate the information to regulatory and enforcement authorities.

b. Report the matter to the person or persons who made the audit appointment.
c. Consider the implications of the misstatement in relation to other aspects of the audit. 
d. Withdraw from the engagement.
Question 25
Correct
32. The auditor is required to maintain professional skepticism throughout the audit. Which of the following
statements concerning professional skepticism is false?
a. Professional skepticism is an attitude that includes questioning contradictory audit evidence obtained.
b. Maintaining professional skepticism throughout the audit reduces the risk of using inappropriate
assumptions in determining the nature, timing, and extent of the audit procedures and evaluating the
results thereof.
c. A belief that management and those charged with governance are honest and have integrity relieves 
the auditor of the need to maintain professional skepticism.
d. Professional skepticism is necessary to the critical assessment of audit evidence.
Question 26
Correct
33. Which of the following professionals has primary responsibility for the performance of an audit?
a. The managing partner of the firm.

b. The manager assigned to the engagement.
c. The senior assigned to the engagement.
d. The partner in charge of the engagement. 
Question 27
Correct
35. Which of the following statements concerning consulting services is false?
a. The performance of consulting services for audit clients does not, in and of itself, impair the auditors
independence.
b. Consulting services ordinarily involve external reporting. 
c. Most CPAs, including those who provide audit and tax services, also provide consulting services to their
clients.
d. Consulting services differ fundamentally from the CPAs function of attesting to the assertions of other
parties.
Question 28
Correct
36. Which of the following is the most appropriate action to be taken by a CPA who has been asked to perform a
consulting services engagement concerning the analysis of a potential merger if he/she has little experience with
the industry involved?
a. Accept the engagement and issue a report that contains his/her opinion on the achievability of the results
of the merger.
b. Accept the engagement but he/she should conduct research or consult with others to obtain sufficient 
competence.
c. Accept the engagement and perform it in accordance with Philippine Standards on Auditing.
d. Decline the engagement because he/she lacks sufficient knowledge.
Question 29
Correct
37. For audits of financial statements of listed entities, the engagement partner should not issue the auditor’s
report until the completion of the
a. Engagement Team Review

b. Engagement Partner Review
c. Engagement Quality Control Review 
d. Management Review
Question 30
Correct
38. Who should take responsibility for the overall quality on each audit engagement?
a. CPA firm
b. Engagement team
c. Engagement quality control reviewer
d. Engagement partner 
Question 31
Correct
4. Which of the following statements best describes assurance services?
a. Services designed to express an opinion on the fairness of historical financial statements based on the
results of an audit
b. Independent professional services that are intended to enhance the credibility of information to meet 
the needs of an intended user
c. The preparation of financial statements or the collection, classification, and summarization of other
financial information
d. Services designed for the improvement of operations, resulting in better outcomes
Question 32
Correct
40. Analytical procedures used in planning an audit should focus on
a. Reducing the scope of tests of controls and substantive tests

b. Enhancing the auditor’s understanding of the client’s business and identifying areas of potential risk 
c. Assessing the adequacy of the available evidential matter
d. Providing assurance that potential material misstatements will be identified
Question 33
Correct
41. Which of the following most likely would indicate the existence of related parties?
a. Depending on a single product for the success of the entity

b. Failing to correct previously identified internal control deficiencies
c. Borrowing money at an interest rate significantly below the market rate 
d. Writing down obsolete inventory just before year-end
Question 34
Correct
42. Which of the following statements is correct concerning an auditor’s assessment of control risk?
a. Evidence about the operation of controls in prior audits may not be considered during the current year’s
assessment of control risk
b. The lower the assessed level of control risk, the less assurance the evidence must provide that the controls
are operating effectively
c. Assessing control risk may be performed concurrently during an audit with obtaining an understanding 
of the entity’s internal control
d. The basis for an auditor’s conclusions about the assessed level of control risk need not be documented
unless control risk is assessed at the maximum level
Question 35
Correct
43. Error includes
a. Intentional misapplication of accounting policies relating to amounts, classification, manner of

presentation, or disclosure
b. Engaging in complex transactions that are structured to misrepresent the financial position or financial
performance of the entity
c. An incorrect accounting estimate arising from oversight or misinterpretation of facts 
d. Concealing, or not disclosing, facts that could affect the amounts recorded in the financial statements
Question 36
Correct
44. Fraud involving one or more members of management or those charged with governance is referred to as
a. Misappropriation of assets
b. Employee fraud
c. Fraudulent financial reporting
d. Management fraud 
Question 37
Correct
45. Opportunities to misappropriate assets increase when there are
a. Promotions, compensation, or other rewards inconsistent with expectations

b. Known or anticipated future employee layoffs
c. Inventory items that are small in size, of high value, or in high demand 
d. Recent or anticipated changes to employee compensation or benefit plans
Question 38
Correct
47. Which of the following is not likely a threat to independence?
a. Long association of a senior member of the assurance team with the assurance client
b. Owning immaterial indirect financial interest in an audit client 
c. Acting as an advocate on behalf of an assurance client in litigation or in resolving disputes with third
parties
d. Threat of replacement over a disagreement with the application of an accounting principle
Question 39
Correct
48. Which of the following factors most likely would cause a CPA not to accept a new audit engagement?
a. Management reputation for failing to provide schedules to prior auditors on a timely basis
b. The CPAs inability to review the predecessor auditors working papers
c. Managements unwillingness to make all financial records available to the CPA 
d. The CPAs lack of understanding of the entitys operations and industry
Question 40
Incorrect
49. Before accepting an audit engagement, a CPA should evaluate whether conditions exist that raise questions as
to the integrity of management. Which of the following conditions most likely would raise such questions?
a. There are significant differences between the entitys forecasted financial statements and the financial
statements to be audited
b. There have been substantial inventory write-offs just before the year end in each of the past four years 
c. The CPA will not be permitted to have access to sensitive information regarding the salaries of senior
management
d. The CPA becomes aware of the existence of related party transactions while reading the draft financial
statements
Question 41
Correct
5. Which of the following is not an assurance service?
a. Examination of prospective financial information

b. Compilation of financial information 
c. Audit of historical financial statements
d. Review of financial statements
Question 42
Correct
50. Which of the following statements would most likely appear in an auditors engagement letter?
a. Management is responsible for reporting to us any inadequate provisions for the safeguarding of assets
b. Management is responsible for making all financial records and related information available to us 
c. We will identify internal controls relevant to specific assertions that may prevent or detect material
misstatements
d. Management agrees to correct all deficiencies in internal control activities identified by us
Question 43
Correct
51. Which of the following activities is not an element of a CPA firms quality control system to be considered in
establishing quality control policies and procedures?
a. Selecting personnel for advancement who have the necessary qualifications

b. Deciding whether to accept or continue a client relationship
c. Monitoring the effectiveness of professional development activities
d. Assessing a clients ability to establish effective internal controls 
Question 44
Correct
52. The purpose of establishing quality control policies and procedures for deciding whether to accept or continue
a client relationship is to
a. Minimize the likelihood of associating with clients whose management lacks integrity 
b. Provide reasonable assurance that personnel are adequately trained to fulfill their responsibilities
c. Document the matters that are required to be communicated to the audit committee
d. Enhance the auditors understanding of the clients business and its industry
Question 45
Correct
53. Which of the following characteristics most likely would heighten an auditors concern about the risk of material
misstatements arising from fraudulent financial reporting?
a. Equipment is usually sold at a loss before being fully depreciated

b. There is a lack of turnover of employees in the accounting department
c. Monthly bank reconciliations usually include several deposits in transit
d. Management displays a significant disregard for regulatory authorities 
Question 46
Correct
54. Inherent risk and control risk differ from planned detection risk in that they
a. Exist independently of the financial statement audit 

b. May be assessed in either quantitative or nonquantitative terms
c. Arise from the misapplication of auditing procedures
d. Can be changed at the auditor’s discretion
Question 47
Correct
55. Which of the following should the auditors obtain from the predecessor auditors before accepting an audit
engagement?
a. Analysis of balance sheet accounts

b. All matters of continuing accounting significance
c. Facts that might bear in the integrity of management 
d. Analysis of income statement accounts
Question 48
Correct
56. Which of the following items would typically not be included in an audit program?
a. All of the above would typically be included in an audit program 

b. A list of audit procedures to be performed
c. An indication of who performed the procedure
d. A workpaper heading
Question 49
Correct
60. This term refers to acts of omission or commission by the entity being audited, either intentional or
unintentional, which are contrary to prevailing laws or regulations.
a. Noncompliance 
b. Unforgivable acts
c. Deplorable acts
d. Illegal acts
Question 50
Correct
7. In an assurance engagement, the outcome of the evaluation or measurement of a subject matter against
criteria is called
a. Subject matter information 

b. Subject matter
c. Assurance
d. Conclusion
Question 51
Correct
8. What type of assurance engagement is involved when the practitioner expresses a positive form of conclusion?
a. Positive assurance engagement

b. Limited assurance engagement
c. Absolute assurance engagement
d. Reasonable assurance engagement 
Question 52
Correct
9. Which of the following statements is true concerning evidence in an assurance engagement?
a. The reliability of evidence is influenced not by its nature but by its source
b. Obtaining more evidence may compensate for its poor quality
c. Sufficiency is the measure of the quantity of evidence 
d. Appropriateness is the measure of the quality of evidence, that is, its reliability and persuasiveness
Question 53
Correct
Independence is not a requirement for which of the following engagements?
1 - Compilation
2 - Review
3 - Agreed Upon Procedures
a. No; Yes; No
b. No; No; No
c. Yes; Yes; Yes
d. Yes; No; Yes 
Question 54
Correct
Which of the following conditions are generally present when misstatements due to fraud occur?
I. Incentive or pressure.
II. Perceived opportunity.

III. Rationalization.
a. I and II only.
b. I, II, and III.


c. I and III only.
d. II and III only.
Question 55
Correct
Assurance services differ from consulting services in that they

I. Focus on providing advice.
II. Involve monitoring of one party by another.
a. II only.

b. I only.
c. Neither I and II.
d. Both I and II.
Question 56
Correct
Statement 1: Inherent risk is the possibility of material misstatement before considering the client’s internal control.
Statement 2: Less control risk means an increase in the risk of material misstatement.
Statement 3: Detection risk does not exist when no audit is performed.
a. True, False, True


b. False, True, False
c. True, True, True
d. True, False, False
Question 57
Correct
Maria Cruz & Co., CPAs, is planning its audit procedures for its tests of the valuation of inventories of Eastern
Manufacturing Co. The auditors on the engagement have assessed inherent risk and control risk for valuation of
inventories at 100 percent and 50 percent, respectively. Calculate the appropriate level of detection risk for the
audit of this assertion, given that the auditors wish to restrict audit risk for the assertion to 3 percent.
Answer: 6% 
Question 58
Correct
Statement 1: The difference between a business risk and fraud risk is that fraud risk results from a person's
deliberate actions.
Statement 2: Business risk result from significant conditions, events, circumstances, actions, or inactions that could
adversely affect the entity's ability to achieve its objectives and execute its strategies.
Statement 3: Fraud refers to unintentional act by one or more individuals among management, those charged
with governance, employees, or third parties.
a. True; True; True
b. True; True; False 
c. False; True; False
d. False; False; False
Question 59
Correct
PSA 220 requires the engagement partner to consider whether members of the engagement team have complied
with the ethical requirements relating to audit engagements. The Code of Ethics establishes the fundamental
principles of professional ethics, which include
I. Integrity
II. Objectivity
III. Professional competence and due care
IV. Confidentiality
V. Professional behavior
a. I, II, III, IV, and V


b. I, II, IV, and V only
c. I, III, IV, and V only
d. II, III, IV, and V only
Question 60
Correct
A financial statement audit aids in the communication of economic data because the audit
a. Assures the readers of financial statements that any fraudulent activity has been corrected.
b. Guarantees that financial data are fairly presented.
c. Confirms the accuracy of management's financial representations
d. Lends credibility to the financial statements 
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10/17/22, 12:59 PM Departmental Exam 1: Attempt review

Dashboard My courses ACTG10-19 Quizzes Departmental Exam 1

Started on Thursday, 22 September 2022, 2:05 PM

Mark 1.00 out of 1.00

When inherent risk is high, there will need to be

1 - A lower assessment of audit risk

2 - More evidence accumulated by the auditor

Mark 1.00 out of 1.00

a. Acceptable audit risk 

Mark 1.00 out of 1.00

10. The Philippine Framework for Assurance Engagements

Mark 1.00 out of 1.00

Mark 1.00 out of 1.00

a. Poorly designed internal control may be in existence

Mark 1.00 out of 1.00

14. What is the proper organizational role of internal auditing?

Mark 1.00 out of 1.00

a. A means of assurance that internal accounting controls are functioning as planned

Mark 1.00 out of 1.00

Mark 1.00 out of 1.00

Mark 1.00 out of 1.00

18. An objective of a performance audit is to determine whether an entitys

a. Specific operating units are functioning economically and efficiently 

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a. Compilations but not reviews 

Mark 1.00 out of 1.00

Mark 1.00 out of 1.00

Mark 0.00 out of 1.00

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a. Using an entity’s assets for personal use

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a. Those charged with governance of the entity

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a. An auditor’s failure to detect a material misstatement resulting from fraud is an indication of

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Mark 1.00 out of 1.00

a. Inadequate system of authorization and approval of transactions

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Mark 1.00 out of 1.00

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a. Communicate the information to regulatory and enforcement authorities.

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a. The managing partner of the firm.

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35. Which of the following statements concerning consulting services is false?

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a. Engagement Team Review

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4. Which of the following statements best describes assurance services?

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40. Analytical procedures used in planning an audit should focus on

a. Reducing the scope of tests of controls and substantive tests

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a. Depending on a single product for the success of the entity

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43. Error includes