Pre-engagement Conclusion and

Risk Assessment Risk Response

Activities Reporting

Understanding the Entity and its Environment Further Audit Procedures (FAPs) Wrap-up Audit Procedures
• Audit Preconditions
• Competency and
Establishing Overall Audit Strategy and Audit Plan Test of Controls Substantive Tests Forming an Opinion
Capability
• Independence Planning the Direction, Supervision and Review Test of Details Reporting on FS
Re-
• Integrity of client assess
Control Substantive
Component Audits Small Entities Risk Key Audit Matters
Analytics Modifications of the Opinion
Initial Audits Work of an Auditor’s EOMs and Oms
Agreeing the Terms of the Other Audit Procedures
Expert Comparative Information
Engagement Other Information
Review and Update Risk Assessment Special Purpose Engagements

Communications, Debrief and

Documentation

Extensive Audit Matters:

Quality Control ●Documentation ●Ethical and Legal Requirements ●Engagement Management ●Fraud, Error and NOCLAR ●Going Concern Assumption
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Auditing Theory – Mastery Class

I. Intro to Financial Statement Audit, Pre-engagement activities

a. Assurance and Non-assurance Engagements
b. Reasonable and Limited Assurance
c. Attestation and Direct Reporting Engagements
d. Elements of an Assurance Engagement
e. Types of Audit according to subject matter
f. Types of Audit according to types of auditor
g. Financial Statement Assertions
h. Audit Risk Model
i. Acceptance and Continuance Procedures
j. Engagement Letter

MCQs:
1. The independent audit is important to readers of financial statements because it:
a. Guarantees the accuracy of the facts and figures contained in the FS.
b. Determines the effectiveness and efficiency of management in managing
the resources of the company.
c. Assures the shareholders that the management of the entity is not
committing illegal acts.
d. Involves the objective examination of and reporting on information prepared
by management.
2. Which of the following statements is TRUE about audit evidence?
a. Relevance is a measure of the usefulness of audit evidence.
b. To determine the relevance of audit evidence, the auditor checks the nature
of the evidence, its source, and the circumstances under which it was
obtained.
c. Externally obtained evidence is always more reliable than internally
obtained evidence.
d. The auditor performs one procedure to validate each financial statement
assertion.
3. Which of the following factors is controllable by the auditor?
a. Risk of material misstatements
b. Inherent Risk
c. Control Risk
d. Detection Risk

II. The Accountancy Profession

a. Areas of the Accountancy Profession
b. The Professional Regulatory Board of Accountancy (PRBOA)
c. CPA Licensure Examinations
d. Registration as CPAs
e. Accreditation Process
f. Related Organizations and Standard-setting Bodies

MCQs:
1. The signature of the chairperson of PRC and the chairman and members of BOA
can be seen in the CPA’s:
a. Certificate of Registration
b. Professional Identification Card
c. Both A and B
d. Neither A nor B
2. What is the minimum number of units required to be taken by a candidate that is
taking a refresher course?
a. 12 units
b. 24 units

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c. 36 units
d. 30 units
3. Which of the following would not be issued a special or temporary permit by
PRBOA?
a. Foreign CPA called for consultation or for a specific purpose, essential for
the development of the country, wherein no Filipino CPA is qualified for such
purpose.
b. Foreign CPA engaged as professor, lecturer, or critic in fields essential for
the advancement of accountancy education.
c. Foreign CPA who is a CFO of a multinational corporation operating in the
Philippines.
d. Foreign CPA who is an internationally recognized expert and his/her service
is essential for the advancement of accountancy in the Philippines.

III. Planning an Audit of Financial Statements

a. Overall Audit Strategy and Detailed Audit Plan
b. Benefits of Audit Planning
c. Risk Assessment Procedures (IIO + AP)
d. Materiality
e. Direction, Supervision and Review
f. Use of an expert, initial audits, and audit of small entities

MCQs:
1. The extent of planning activities would depend on all of the following except:
a. Size of the audit client
b. Auditor’s experience with the client or the client’s industry
c. Complexity of the transactions and the client’s processes
d. Size of the auditing firm
2. The nature, timing and extent of risk assessment procedures, further audit
procedures, and other planned audit procedures are best documented in the:
a. Overall audit strategy
b. Detailed audit plan
c. Engagement letter
d. Both A and B
3. Which of the following types of audit procedures is not attention directing?
a. Risk assessment procedures
b. Test of controls
c. Substantive procedures
d. All of the above are attention directing.

IV. Study and Evaluation of Internal Controls

a. IC: Address risks (financial reporting, operations and compliance)
b. Limitations of IC: Cost-benefit, management override, collusion, errors
c. Components of IC: CRIME
d. Control Environment: IM CPA HO
e. Risk Assessment: Risks? Likelihood and significance? Management?
f. Information systems and communication: People, Input or data,
Infrastructure, Software, Output
g. Control Activities: APIPS (Authorization, Performance reviews, Information
processing, Physical Controls, Segregation of Duties)
h. Monitoring: Ongoing and Separate Evaluations
i. IC Understanding (RAP): Design and Implementation vs. IC Testing (FAP):
Operating Effectiveness
j. IC Understanding: IIO + Walkthrough, IC Testing: IIO + Reperformance
k. IC Deficiencies

MCQs:
1. Which of the following procedures is always required to be performed by the
auditor?

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a. Understanding of Internal Controls

b. Testing of Internal Controls
c. Testing of Details of Transactions and Balances
d. Both A and C
e. All of the above.
2. Which of the following is TRUE when the auditor uses the reliance approach on
his/her audit?
a. The auditor may use a smaller sample size.
b. The auditor moves audit procedures nearer or at year-end.
c. The auditor is to perform more effective procedures.
d. The auditor may choose not to perform test of transactions.
3. Which of the following is a compensating control for the lack of segregation of
duties for smaller entities?
a. Owner designating a general manager in-charge of all business processes.
b. Active oversight by the owner-manager.
c. Use of automated information systems.
d. Strict compliance with paper-based documentation.

V. Transaction Cycles
a. Revenue/Receipt (receipt of order until receipt of payment)
b. Purchasing/Disbursement (request to purchase until payment to supplier)
c. Personnel/Payroll (hiring until payment to employees)
d. Inventory/Production (production planning to cost accounting)
e. Investing/Financing (acquisition, custody, and record-keeping)

MCQs:
1. When an entity has no separate billing department, the billing function should be
performed by:
a. Accounting
b. Sales
c. Shipping
d. Receptionist
2. Which of the following is one of the roles of the purchasing department?
a. Preparation of the purchase requisition form.
b. Finding the lowest cost vendor with best possible quality.
c. Counting the goods arriving from suppliers.
d. Posting the vendor’s invoices to the accounting records.
3. The auditor’s consideration applicable to fixed asset acquisitions that are not
present in the purchasing/disbursement cycle is:
a. The performance of the three-way match.
b. Specific authorization.
c. A properly approved requisition form.
d. A fixed asset custodian.

VI. Consideration of Fraud, Error and NOCLAR

a. Fraud vs. Error
b. Fraud Risk Factors
c. Fraudulent Financial Reporting
d. Misappropriation of Assets
e. Management Fraud vs. Employee Fraud
f. Responsibilities of Management and the Auditor
g. Non-compliance with Laws and Regulations
h. Effect on the Financial Statements
i. Communication and Reporting

MCQs:
1. Which of the following is not an appropriate response when the auditor assesses
a high risk of fraud in relation to a financial statements audit?
a. Relying more on external evidence rather than internal evidence.

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b. Performing the audit procedures at year-end rather than interim.

c. Obtaining evidence from more than once source to validate the assertion.
d. Placing more emphasis on the results of inquiries with senior management.
2. If there is no specific law/regulation requiring the auditor to communicate findings
of fraud/non-compliance during the audit,
a. The auditor uses professional judgment on deciding whether or not to
communicate such findings to regulatory agencies.
b. The auditor must seek the advice of a legal counsel in deciding whether or
not to communicate such findings to regulatory agencies.
c. The auditor must not communicate this information, consistent with the
principle of maintaining confidentiality of client information.
d. The auditor must withdraw from the engagement because of the
compromised integrity of client’s management.

VII. Evidence and Substantive Tests, Intro to Sampling

a. Underlying accounting records and other information
b. Sufficient and Appropriate Audit Evidence (SAAE)
c. Relevance and Reliability
d. Test of details and Substantive Analytics
e. Substantive Procedures: IIO + AP + External Confirmation, Recalculation
f. ToD: Recorded Amounts vs. Supporting Documents
g. SAP: Recorded Amounts vs. Auditor’s Expectations
h. Audit for Accounting Estimates: Reasonableness

MCQs:
1. The main difference between test of controls and substantive procedures is that
substantive procedures:
a. Give the auditor an evaluation of the likelihood of material misstatement.
b. Enable the auditor to actually detect material misstatements.
c. Update the auditor’s control risk assessment.
d. Improve the auditor’s reliance on the internal controls.
2. Which of the following procedures would provide the auditor with the most reliable
evidence, though also the costliest?
a. Inquiry
b. Inspection
c. External Confirmation
d. Recalculation
3. The main difference between vouching and tracing is that tracing:
a. Selects an item of transaction and follows/verifies it into the accounting
records.
b. Is normally used for test of overstatement.
c. Is normally designed for the audit of assets and income accounts.
d. Uses electronic audit trail rather than paper audit trail.

VIII. Selecting Items for Testing and Audit Sampling

a. 100%, Specific, or Audit Sampling
b. Population and Sampling Unit
c. Sampling Risk and Non-sampling Risk
d. Alpha Sampling Risk vs. Beta Sampling Risk
e. Risk of under reliance vs. Risk of over reliance
f. Risk of incorrect rejection vs. Risk of incorrect acceptance
g. Random Selection, Systematic Selection, Haphazard Selection, MUS, and
Block Selection
h. Statistical vs. Non-statistical
i. Attribute vs. Variable
j. Beta Sampling Risk, Tolerable Deviation Rate/Misstatement, Expected
Deviation Rate/Misstatement

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MCQs:
1. In performing variables sampling for a certain audit procedure, which of the
following has a direct relationship with the sample size?
a. Alternative substantive procedures
b. Tolerable misstatement
c. Expected misstatement
d. Stratification of the population
2. If the expected deviation rate (EDR), exceeds the tolerable deviation rate (TDR),
the auditor:
a. Does not perform test of controls.
b. Uses discovery sampling for test of controls.
c. Uses sequential sampling for test of controls.
d. None of the above is correct.
3. Under this method, each monetary unit comprising the population is considered as
one sampling unit. The main advantage of using this approach is that items of
higher value have a greater chance of being selected.
a. Value-weighted selection
b. Block selection
c. Haphazard selection
d. Systematic selection

IX. Completing the Audit and Audit Documentation

a. Concluding analytical procedures
b. Consideration of subsequent events (Type 1 – adjusting and Type 2 – non-
adjusting)
c. Litigations and Claims
d. Going Concern Assumption
e. Responsibility to gather SAAE: Up to the auditor’s report date
f. Written representations
g. Audit Documentation – form, content and extent
h. Retention of audit documentation
i. Communication with TCWG

MCQs:
1. In rare circumstances when there are multiple material uncertainties exist in
relation to the entity’s going concern assumption, the auditor ______ on the
financial statements:
a. Provides a disclaimer of opinion
b. Provides a qualified opinion or disclaimer of opinion
c. Provides a qualified or adverse opinion
d. Provides an adverse opinion
2. The auditor considers information on litigations and claims up to:
a. The date of the financial statements
b. The date of the auditor’s report
c. The date of the written representations addressing litigations and claims.
d. The date that the financial statements were authorized for issue.
3. Based on the requirements of PSA 230 and SEC Rule 68, how long should an
auditor retain audit documentation?
a. PSA 230 – 5 years, SRC Rule 68 – 7 years
b. PSA 230 – 7 years, SRC Rule 68 – 5 years
c. PSA 230 – 7 years, SRC Rule 68 – 10 years
d. PSA 230 – 5 years, SRC Rule 68 – 10 years

X. Quality Control for Audit and Assurance Firms

a. Inputs, Process, Outputs, Interactions within the Financial Reporting Supply
Chain, and Contextual Factors
b. Elements of Quality Control (LEA-HEM)
c. Leadership Responsibilities

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d. Ethical Requirements
e. Acceptance and Continuance Procedures
f. Human Resources
g. Engagement Performance
h. Monitoring

MCQs:
1. A partner, other person in the firm, suitably qualified external person, or a team
made up of such individuals, none of whom is part of the engagement team, with
sufficient and appropriate experience and authority to objectively evaluate the
significant judgments made by the engagement team and the conclusions it
reached in formulating the report.
a. Engagement quality control reviewer
b. Engagement partner
c. Key audit partner
d. Engagement manager
2. PSQC is NOT applicable to which of the following engagements?
a. Audit of historical financial statements
b. Audit of prospective financial statements
c. Review of financial statements
d. Tax consultancy engagements

XI. Audit Reporting (General Purpose) and Using the Work of Others
a. Opinion: Unmodified/Unqualified, Qualified, Adverse, Disclaimer
b. Report Content: TAO-BIR-SAD
c. Title
d. Addressee
e. Auditor’s Opinion
f. Basis for Opinion
g. *Key Audit Matters
h. Other Information
i. Responsibilities for the financial statements
j. Auditor’s Responsibilities
k. Name and signature of auditor
l. Address of the auditor
m. Date of the report
n. EOM and OM paragraphs
o. Comparative Information: Corresponding figures and Comparative FS

MCQ:
1. Communication for key audit matters is required for:
a. Listed Entities
b. Public Interest Entities (PIEs), as required by law or regulation
c. Both A and B.
d. None of the above.

XII. Reporting on Special Purpose Engagements and Other Audit-related Services

a. Special-purpose engagements
b. Single FS and Specific elements, accounts, or items of a FS
c. Summary FS
d. Review Engagements
e. Agreed-upon Procedures
f. Compilation

MCQ:
1. To which of the following engagements do we apply the requirements of PSAs?
a. Special-purpose engagements
b. Single FS and Specific elements

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c. Review engagements
d. A and B
e. All of the above.

XIII. Code of Ethics

a. Part 1 – Complying with the Code, Fundamental Principles and Conceptual
Framework
b. Part 2 – Professional Accountants in Business (PAIBs)
c. Part 3 – Professional Accountants in Public Practice (PAPPs)
d. Part 4A – Independence for Audit and Review Engagements
e. Part 4B – Independence for Assurance Engagements other than Audits and
Reviews
f. Fundamental Principles (COBID): Integrity, Objectivity, Professional
Competence and Due Care, Confidentiality, and Professional Behavior
g. Threats (IFASS): Self-interest, Self-review, Advocacy, Familiarity,
Intimidation
h. Long Association Provisions: 7-year time-on period. Cooling-off:
Engagement Parter – 5 years, EQCR – 3 years, Other KAPs – 2 years

MCQs:
1. This is a fundamental principle of ethics which is characterized as “to comply with
relevant laws and regulations and avoid any conduct that the professional
accountant knows or should know might discredit the profession.”
a. Integrity
b. Professional Behavior
c. Professional Competence and Due Care
d. Objectivity
2. A CPA-lawyer is currently practicing both his accounting and legal profession.
Because of providing legal advice and representing his/her clients, there is a
________ threat if the same client is an audit client.
a. Familiarity
b. Advocacy
c. Self-interest
d. Self-review

XIV. Auditing in an IT Environment

a. Reduction of paper transaction trails
b. Uniform, automated processing of transactions
c. General and Application Controls
d. Database Systems, Operating Systems and Networks
e. Auditing Around the Computer (Blackbox Approach)
f. Auditing Through the Computer (Whitebox Approach, CAATs)
g. Test data, Integrated Test Facility (ITFs), Parallel Simulation, etc.

MCQ:
1. When the auditor only tests the input and output of a system rather than the
program itself,
a. The auditor will be able to detect all program errors.
b. The auditor will not be able to detect program errors which do not show up
in the output sampled.
c. The auditor is not able to gather sufficient and appropriate audit evidence
on the computerized systems.
d. The auditor is not competent to perform audit of the program itself because
of its highly technical nature.

*End of Handout*

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