Professional Documents
Culture Documents
1. The current period’s auditor who did not audit the prior period’s financial
statements.
a. Existing auditor
b. Continuing auditor
c. Incoming auditor
d. Predecessor auditor
2. They are not presented as complete financial statements capable of standing alone,
but are an integral part of the current period financial statements intended to be
read only in relationship to the current period figures.
a. Corresponding figures
b. Comparative financial statements
c. Prior period figures
d. Comparatives
3. This term comprises officers and others who also perform senior managerial
functions.
a. Management
b. Governance
c. Audit committee
d. Board of directors / trustees
4. This term exists when other information, not related to matters appearing in the
audited financial statements, is incorrectly stated or presented.
a. Material inconsistency
b. Material misstatement of fact
c. Material weaknesses
d. Misstatement
13. Which of the following factors are essential to an effective internal auditing
organization?
I. Operating responsibility
II. Organizational status
III. Objectivity
IV. Authority over operations
a. I and II.
b. III and IV.
c. II and III.
d. I and IV.
14. When an independent auditor decides that the work performed by internal auditors
may have a bearing on the nature, timing, and extent of contemplated audit
procedures, the independent auditor should plan to evaluate the objectivity of the
internal auditors. Relative to objectivity, the independent auditor should
a. Consider the qualifications of the internal audit staff.
b. Consider the organization level to which internal auditors report the results of
their work.
c. Review the quality control program in effect for the internal audit staff.
d. Examine the quality of the internal audit reports.
18. When a CPA expresses an opinion on the financial statements, his responsibilities
extend to
a. The underlying wisdom of the client’s management decision.
b. Active participation in the implementation of the advice given to the client.
c. An ongoing responsibility for the client’s solvency.
d. Whether the results of the client’s operating decisions are fairly presented in
the financial statements.
19. Usually in a publicly-held company, this committee is tasked to see that both
management and outside auditor effectively discharge their responsibilities.
a. Executive committee
b. Internal audit committee
c. Management committee
d. Audit committee
22. Which statement is incorrect regarding the pronouncements of Audit and Assurance
Standards Council (AASC)?
a. The exposure period allowed for each exposure draft of PSA and PAPS to be
considered by the organizations and persons to whom it is sent for comment is
generally three months.
b. Each final standard, interpretation and statement shall be submitted to the PRC
through the BOA for approval after which the pronouncements become operative 6
months from publication in the official gazette.
c. The Interpretations will have the same authority as the PSAs.
d. PSAs issued by AASC are not the only authoritative source of auditing standards
for members of the accountancy profession in the Philippines.
24. A CPA may practice under a firm name that includes or indicates
a. Name(s) of past partner(s) in firm name of successor partnership.
b. Fictitious name.
c. Specialization.
d. Misleading as to the type of organization.
25. Ebee and Barney, CPAs, organized a partnership for the practice of public
accounting. Which of the following is the best name for the firm?
a. Ebee and Barney, CPAs
CEBU CPAR REVIEW CENTER, INC. Page 4 of 12 AUDITING THEORY
Mandaue City, Cebu FIRST PRE-BOARD EXAMINATION
b. Ebee and Barney, Inc.
c. Ebee and Barney, Auditors and Tax Consultants
d. Ebee and Barney, Members, PICPA
26. Under this mode of billing for audit services, the client actually does not know
in advance how much will be cost of audit engagement?
a. Retainer basis
b. Maximum fee basis
c. Flat sum basis
d. Per diem basis
27. The objectives of the Philippine Accountancy Act of 2004 are the following,
except
a. Standardization and regulation of accounting education.
b. Integration of accountancy profession.
c. Examination for registration of certified public accountants.
d. Supervision, control and regulation of the practice of accountancy.
28. Which of the following is the least function of the Board of Accountancy?
a. Determination of the minimum requirements leading to the admission of candidates
to the CPA licensure examinations.
b. Regulation of the practice of accountancy.
c. Supervision over the accredited professional organization of CPAs.
d. Preparation of the contents of the CPA licensure examinations and rating of the
examination papers.
30. The following statements relate to the Philippine Accountancy Act of 2004. Which
of the following statements is true?
a. The Professional Regulation Commission has the authority to remove any member of
the Board of Accountancy for negligence, incompetence, or any other just cause.
b. Insanity is not a ground for proceeding against a CPA.
c. A person shall be considered to be in the professional practice of accounting if,
as an officer in a private enterprise, he makes decisions requiring professional
accounting knowledge.
d. After three years, subject to certain conditions, the Board of Accountancy may
order the reinstatement of a CPA whose certificate of registration has been
revoked.
31. Individual CPAs, firms or partnerships of CPAs, including partners and staff
members thereof shall register with the BOA and the PRC. If the application for
registration of FAB and Co., CPAs was approved on August 30, 2015, the registration
will expire on
a. September 30, 2017
b. December 31, 2018
c. December 31, 2017
d. August 30, 2017
32. No person shall serve the Professional Regulatory Board of Accountancy for more
than
a. 3 years
b. 6 years
c. 9 years
d. 12 years
33. The following are represented both to the Financial Reporting Standards Council
(FRSC) and Auditing and Assurance Standards Council (AASC), except
a. Bangko Sentral ng Pilipinas
b. Bureau of Internal Revenue
c. Securities and Exchange Commission
d. Board of Accountancy
34. Which of the following is not a requisite in applying for the CPA licensure
examinations?
a. Natural-born citizen of the Philippines.
b. Good moral character.
c. Holder of the degree of Bachelor of Science in Accountancy.
d. Has not been convicted of any criminal offense involving moral turpitude.
37. How many CPE credit units must be accumulated by a registered accounting
professional within the three year period?
a. 15 credit units
b. 45 credit units
c. 60 credit units
d. 90 credit units
39. The provision of services by a firm or network firm to an audit client that
involve the design and implementation of financial information technology systems
that are used to generate information forming part of a client’s financial
statements may most likely create
a. Self-interest threat.
b. Self-review threat.
c. Intimidation threat.
d. Familiarity threat.
40. Lance, a CPA, has a law practice. Lance has recommended one of his clients to Li,
a CPA. Li has agreed to pay Lance 10% of the fee for services rendered by Li to
Lance’s client. Who, if anyone, is in violation of the Code of Ethics?
a. Both Lance and Li
b. Lance only
c. Neither Lance and Li
d. Li only
43. The approach to a potential client for the purpose of offering professional
services.
a. Advertising
b. Publicity
c. Promotion
d. Solicitation
45. The CPA profession deemed it necessary to establish a Code of Ethics and a
mechanism to its enforcement because
a. An ethical code that stresses the CPA's responsibility to clients and colleagues
is a prerequisite to success.
b. A requirement of law provides that CPAs establish a code of ethics.
c. Acceptance of responsibility to the public is a distinguishing mark of a
profession.
d. The establishment of flexible ethical standards provides self-protection for
CPAs.
46. Which of the following is prohibited by the Code of Ethics for CPAs?
a. Use of a firm name which includes the name of a retired partner.
b. Announcement in a newspaper of the opening of a public accounting office.
c. Engaging in civic activities during business hours.
d. Accepting an engagement or employment which one cannot reasonably expect to
complete or discharge with professional competence.
47. The Code of Ethics for CPAs states, in part, that a CPA should maintain integrity
and objectivity. Objectivity refers to the CPA's ability to
a. Determine accounting practices that were consistently applied.
b. Maintain an impartial attitude on all matters which come under his review.
c. Determine the materiality of items.
d. Insist on all matters regarding audit procedures.
48. Which of the following is a violation of the Code of Ethics for CPAs?
a. A CPA permits his/her name to be used in a client's advertising as having
verified financial data and/or statistical facts with respect to the client's
products.
b. Based on information obtained in an audit, a CPA reports an illegal act of his
client to government authorities.
c. Three years after a partner has retired, the remaining partners continue to
practice under a firm name that includes the name of the retired partner. The
retired partner has severed all connections with the CPA firm.
d. A CPA running for public office uses the professional designation "CPA" after his
name on posters employed in connection with his election campaign.
49. Which of the following will impair the independence of a CPA in public practice?
a. He has his name and address listed on a one-page section of the telephone book.
b. He obtained a loan from a bank under the normal lending procedures, terms and
requirements of that bank.
c. He holds one share of the client’s capital stock.
d. He failed to disclose a client’s departure from GAAP.
50. The CPA should not undertake an engagement if his fee is to be based upon
a. A percentage of audited net income.
b. Per diem rates plus expenses.
c. The findings of a tax authority.
d. The complexity of the service rendered.
51. The work of each assistant needs to be reviewed by personnel of at least equal
competence. Which of the following is not one of the objectives of this requirement?
a. The conclusion expressed is consistent with the result of the work performed and
support the opinion.
b. The work performed and the results obtained have been adequately documented.
c. The objectives of the audit procedures have been achieved.
d. All available evidences have been obtained, evaluate and documented.
54. Under the Philippine Standards on Auditing, which of the following reflects
application of the Standard?
a. The initial planning of the audit engagement.
b. Confirmation of accounts receivable.
c. Completion of an internal control questionnaire.
d. Assignment of audit personnel to continuing professional education programs
conducted by the firm.
55. Which of the following should the auditor likely to do when the application of
planned audit procedures indicates the possible existence of fraud or error?
a. The auditor should resign in order to avoid legal responsibility.
b. He should discuss the matter with the person whom he believes is involved with
the irregularities.
c. He should consider the potential effect on the financial statements.
d. He should refer the suspected fraud or error to the internal auditor.
56. Examples of risk factors relating to misstatements resulting from fraud least
likely include
a. There is mandatory vacation for employees performing key control functions.
b. A significant portion of management’s compensation is represented by bonuses the
value of which is contingent upon the entity achieving unduly aggressive targets
for operating results, financial position or cash flow.
c. A high degree of competition or market saturation, accompanied by declining
margins.
d. Inability to generate cash flows from operations while reporting earnings and
earnings growth.
58. Which of the following circumstances least likely indicate the possibility of
fraud or error?
a. Unrealistic time deadlines for audit completion imposed by management.
b. Limitation in audit scope imposed by management.
c. Conservative application of accounting principles.
d. Significant difficult-to-audit figures in the accounts.
61. Generally, the decision to notify parties outside the client's organization
regarding an illegal act is the responsibility of the
a. Independent auditor.
b. Management.
c. Outside legal counsel.
d. Internal auditor.
62. Consistent Manufacturing, Inc. sought a P2,000,000 loan from Chinabank Lending
Corporation. Chinabank Lending insisted that audited financial statements be
submitted before granting credit. Consistent Manufacturing agreed. An audit was
performed by an independent auditor who submitted an audit report to Consistent
Manufacturing that was to be used solely for the purpose of negotiating a loan from
Chinabank Lending. Chinabank Lending, upon reading the audited financial statements,
decided in good faith, not to extend the credit desired. Certain ratios, used
routinely by Chinabank Lending in reaching credit decisions, were judged
insufficient. Consistent used copies of the audited financial statements to obtain
credit elsewhere. Despite complying with Philippine Standards on Auditing, the
independent auditor failed to discover a sophisticated embezzlement scheme
perpetrated by Consistent Manufacturing's chief financial officer. The auditor is
liable to
a. Third parties who relied on the audited financial statements to extend credit.
b. Consistent to repay the audit fee because Chinabank Lending did not extend
credit.
c. Consistent for any losses Consistent suffered as a result of failing to discover
the embezzlement.
d. None of the parties.
65. A well-established CPA firm establishes quality control policies and procedures
for deciding whether or not to accept or continue serving a client. The primary
purpose for establishing such quality control is
a. To enable the auditor to attest to the reliability of a client.
b. To minimize the likelihood of associating with clients whose management lacks
integrity.
c. To comply with standards established within the industry.
d. To lessen exposure to litigation for failure to detect fraud or embezzlement.
68. Which of the following is incorrect about the standard audit report?
a. The opinion paragraph of an auditor’s report on financial statements refers to
generally accepted accounting principles.
b. The consistent application of accounting principles is implicitly represented in
the standard auditor’s report on comparative financial statements.
c. Examination of evidence on a test basis is explicitly represented in the standard
auditor’s report.
d. The auditor’s responsibility for the financial statements is explicitly
represented in the opening paragraph of the auditor’s standard audit report.
69. When financial statements are audited by an accounting firm, the partner-in-
charge of engagement ordinarily signs in the name of the firm because
a. The partner-in-charge of engagement should be relieved of any responsibility
regarding the opinion issued.
b. It is required by reporting standards.
c. The firm assumes responsibility for the audit.
d. The opinion becomes more credible if signed in name of the firm.
70. An auditor completed fieldwork on February 10, 2016 for a December 31, 2015 year-
end client. A significant subsequent event occurred on February 22, 2016. In this
case, which of the following report dates would not be appropriate?
a. February 10, 2016
b. February 10, except Note 1, February 22, 2016
c. February 22, 2016
d. December 31, 2015
71. An auditor concludes that there is substantial doubt about an entity's ability to
continue as a going concern. If the entity's disclosures about continued existence
are adequate, the audit report should include
A disclaimer of opinion A qualified opinion
a. Yes Yes
b. No No
c. No Yes
d. Yes No
73. Wowowee, CPA, was about to issue an unqualified opinion on the financial
statements of Stampede Company when a letter was received from Stampede's
independent counsel. The letter stated that the NTC has notified Stampede that its
broadcasting license will not be renewed because of alleged irregularities in its
broadcasting practices. Stampede cannot continue to operate without the license.
Wowowee has also learned that Stampede and its independent counsel plan to take all
necessary legal action to retain the license. The letter from independent counsel,
however, states that a favorable outcome of any legal action is highly uncertain. On
the basis of this information, what action should Wowowee take?
a. Issue an unqualified opinion, with an explanatory paragraph that describes the
matter giving rise to the uncertainty.
b. Issue an adverse opinion and disclose all reasons why.
c. Issue a piecemeal opinion with full disclosure made of the license dispute in a
note to the financial statements.
d. Issue an unqualified opinion if full disclosure is made of the matter in a note
to the financial statements.
74. Identify the appropriate type of opinion to issue when the auditor is satisfied
that there is a remote likelihood of a loss resulting from the resolution of an
uncertainty.
a. Unqualified opinion.
b. Unqualified opinion with a separate explanatory paragraph.
c. Qualified opinion or disclaimer of opinion, depending on whether the uncertainty
is adequately disclosed.
d. Qualified opinion or disclaimer of opinion, depending upon the materiality of the
loss.
75. Circumstances which make it impracticable to apply the necessary audit procedures
a. Does not have to be addressed in the standard audit report provided this is
agreed upon.
b. Requires changes in the audit report.
c. Will not permit the auditor to issue any audit report.
d. Requires that the financial statements items not examined be included in
management’s representation letter.
76. Under which of the following circumstances may a CPA agree with a departure from
a Philippine Financial Reporting Standard?
a. When the Standard was one formulated by the Accounting Standards Council (ASC)
inasmuch as the ASC is no longer the standard-setting body.
b. When the CPA can demonstrate that application of the principle in question would
make the financial statements materially misleading.
c. When the disputed principle is contrary to industry practice.
d. When adoption of the principle would cause the financial statements to be
inconsistent with prior years.
79. The auditor’s report would have to note an inconsistency of a client’s accounting
principles in which of the following situations?
a. During the client’s first year of operations, it began using weighted average,
but changed to FIFO after six months, and finished their first year with their
financial statements using FIFO.
b. Client’s previous year’s financial statements valued inventory using weighted
average, while the current statements used FIFO.
c. During the previous year the client, a privately-held company which did not
publish its financial statements and was not audited, valued inventory using
weighted average. This year it changed to FIFO. The amount of the inventory was
immaterial in both years using either method.
d. All of the foregoing situations would require the auditor’s report to note the
inconsistency.
80. A CPA engaged to examine financial statements observes that the accounting for a
certain material item is not in conformity with generally accepted accounting
principles, and that this fact is prominently disclosed in a footnote to the
financial statements. The CPA does not agree with this departure from GAAP and
should
a. Not allow the accounting treatment for this item to affect the type of opinion
because the deviation from generally accepted accounting principles was
disclosed.
b. Express an unqualified opinion and add an explanatory paragraph emphasizing the
matter by reference to the footnote.
c. Qualify the opinion because of the deviation from generally accepted accounting
principles.
d. Disclaim an opinion.
END OF EXAMINATION