1.

The independent auditor’s opinion helps establish the credibility of the financial
statements.
2. The independent auditor’s opinion is an assurance as to the efficiency or
effectiveness with which management has conducted the affairs of the entity.
-The first statement is true, the second statement is false

Which of the following is least likely an application of maintaining an attitude of

professional skepticism?
-In planning and performing an audit, the auditor assumes that management is
dishonest.

The independent auditor lends credibility to client financial statements by

-Attaching an auditor’s opinion to the client’s financial statements

The primary purpose of an independent financial statement audit is to

-Provide users with an unbiased opinion about the fairness of information reported
in the financial statements.

Which of the following statements is true concerning in an assurance engagement?

-Sufficiency is the measure of the quantity of evidence

Assurance services are best described as

-Independent professional services that improve the quality of information, or its
context, for decision makers.

Main standards to govern review engagements

-PSREs

1. The objective of the ordinary examination of financial statements is the

expression of an opinion on the accuracy of such financial statements.
2. The independent auditor’s opinion is an assurance as to the future viability of the
entity.
-The first statement is false, the second statement is false

The characteristics for determining whether criteria are suitable include:

(1)Relevance
(2)Reliability
(3)Completeness
(4)Neutrality
(5)Comparability
(6)Feedback value
-(1)Yes; (2)Yes; (3)Yes; (4)Yes; (5)No; (6)No

Assurance services least likely involve

-Implementing a system that improves the processing of information.

The decision as to whether the criteria are suitable involves considering whether the
subject matter is capable of reasonably consistent evaluation against or measurement
using such criteria. The characteristics for determining whether criteria are suitable
include the following except
-Sufficiency

The independent auditor’s responsibility in a regular audit is to express an opinion on the

financial statements. The auditor’s opinion:
-Helps establish the credibility of the financial statements.

Which of the following provides a positive form and high level of assurance?
-An audit report on external financial statements on which an adverse opinion is
expressed.

A concept relating to the accumulation of the audit evidence necessary for the auditor to
conclude that there are no material misstatements in the financial statements taken as a
whole.
-Reasonable assurance

Assurance services may include which of the following except?

-Tax preparation services

Which of the following statements is (are) true regarding the provision of assurance
services?
(I) The third party who receives the assurance generally pays for the assurance
received
(II) Assurance services always involve a report by one person to a third party on
which an independent organization provides assurance.
(III) Assurance services can be provided either on information or processes.
-III only

Which one of the following is not a provider of assurance services?

-PICPA

After accepting an assurance engagement, a practitioner is not allowed to change

the engagement to a non-assurance engagement, or from a reasonable
assurance engagement to a limited assurance engagement, except when there is
reasonable justification for the change. Which of the following ordinarily will
justify a request for a change in the engagement?

I. A change in circumstances that affects the intended users’ requirements.

II. A misunderstanding concerning the nature of the engagement.
-Both I and II

When a CPA expresses an opinion on the financial statements, his responsibilities

extend to
-Whether the results of the client’s operating decisions are fairly presented in the
financial statements.
The Philippine Framework for Assurance Engagements
-Defines and describes the elements and objectives of an assurance engagement,
and identifies engagements to which PSAs, PSREs, and PSAEs apply.

The document defines the elements and objectives not, by itself, establish standards or
provide procedural requirements for the performance of assurance engagements.
-Philippine framework for Assurance Engagements

Which of the following is broadest in scope?

-Assurance Services

Objective of a review engagement (PSRE 2400)

-To enable an auditor to state whether, on the basis of procedures which do not
provide all the evidence that would be required in an audit, anything has come to
the auditor’s attention that causes the auditor to believe that the financial
statements are not prepared, in all material respects, in accordance with Philippine
Financial Reporting Standards

Independent auditing can best be described as a

-Discipline that attests to the results of accounting and other operations and data.

The definition of auditing contained within A Statement of Basic Auditing Concepts

recognizes that auditing includes both a(n)
-Investigative process and a reporting process.

Which of the following services would be most likely to be structured as an assurance

engagement?
-An engagement to issue a report addressing an entity’s compliance with
requirements of specified laws.

The subject matter of an assurance engagement may take many forms including
-All of the above

Which of the following statements does not properly describe an element of the
theoretical framework of auditing?
-Auditors act on behalf of management

Which of the following is responsible for the fairness of representations made in financial
statements?
-The Client’s management

Which of the following is not a component of assurance services?

-A user or a group of users who derive value from the service provided.

Subject matter of an assurance engagement may take many forms including

(1) Data (2) Systems (3) Behavior
-(1)Yes; (2)Yes; (3)Yes

In an assurance engagement, the outcome of the evaluation or measurement of a

subject matter against criteria is called
-Subject matter information
Which of the following is an example of an assurance engagement?
Reporting on financial statements prepared using other comprehensive basis of
accounting.

In performing an attestation engagement, a CPA typically

-Expresses a conclusion about an assertion

Which of the following is incorrect regarding the three party relationship element of
assurance engagement?
-The responsible party is generally the addressee of the professional accountant
results.

The decision of whether the criteria are suitable involves considering whether the subject
matter of the assurance engagement is capable of reasonably consistent evaluation or
measurement using such criteria. Which of the following characteristics is not considered
necessary in determining whether the criteria are suitable?
-Sufficiency

Which one of the following is not a key attribute needed to perform assurance?
-Accounting skills

Which of the following elements is most likely to be a component of a direct reporting

assurance engagement?
-Auditor independence

Which of the following is not one of the elements of an assurance engagement?

-An opinion about whether the subject matter conforms, in all material respects,
with the identified criteria.

Which of the following is incorrect regarding the three party relationship element of
assurance engagement?
-All of the above statements are correct

All assurance engagements contain five basic elements. Which of the following is not
one of these elements?
-Engagement Acceptance

Suitable criteria are required for reasonably consistent evaluation or measurement of the
subject matter of an assurance engagement. Which of the following statements
concerning the characteristics of suitable criteria is correct?
-Neutral criteria contribute to conclusions that are free from bias.

It refers to the level of satisfaction as to reliability of an assertion being made by one

party for use by another party
-Assurance Level

Which of the following services provides a moderate level of assurance about the client’s
financial statements?
-Review
What are the three most commonly sought assurance services?
-Audits, reviews and other assurance services

In an assurance engagement, the outcome of the evaluation or measurement of a

subject matter against criteria is called
-Subject matter formation

The following are assurance engagements, except

-Tax services

In some assurance engagements, the evaluation or measurement of the subject matter is

performed by the responsible party, and the subject matter information is in the form of
an assertion by the responsible party that is made available to intended users. These
engagements are called
-Assertion-based engagements

What type of assurance engagement is involved when the practitioner expresses a

negative form of conclusion?
-Limited assurance engagement

Which of the following is not an assurance service?

-Compilation of financial information

Absolute assurance is generally not attainable as a result of such factors as:

(1)The use of testing
(2)The inherent limitations of internal control system
(3)The use of judgment
(4)Most audit evidence are persuasive rather than conclusive
-(1)Yes; (2)Yes; (3)Yes; (4)Yes

Which of the following statements best describes assurance services?

-information to meet the needs of an intended user.

It refers to the level of satisfaction as to the reliability of an assertion being made by one party
for use by another party
-Assurance level

Engagements frequently performed by professional accountants that are not assurance

engagements include the following, except
-Reasonable assurance engagement

Which statement is incorrect regarding related services?

-In a consultancy engagement, the accountant is engaged to use accounting expertise as
opposed to auditing expertise to collect, classify and summarize financial information.

Different government agencies influence the practice of accountancy in the Philippines. Which
of the following statements is correct?
-The Commission on Audit (COA) is principally tasked to keep the general accounts of the
government and preserve the vouchers and supporting papers thereto, and promulgate
accounting and auditing rules and regulations including those for the prevention and
disallowance of irregular, unnecessary, excessive, extravagant or unconscionable
expenditures, or uses of government funds and properties.

Which of the following statements best describes assurance services?

-Independent professional services that are intended to enhance the credibility of
information to meet the needs of an intended user.

According to PSA 120, which of the following is an appropriate combination of procedures

required in completing a review engagement
-Inquiry and analytical procedures

The objective of an agreed-upon procedures engagement

-Is to carry out those procedures of an audit nature to which the auditor and the entity and
any appropriate third parties have agreed and to report on factual findings.

The Framework of PSA (PSA 120) applies to

-Agreed upon procedures

Which of the following best describes why an independent auditor is asked to express an opinion
n the fair presentation of financial statements?
-The opinion of an independent party is needed because a company may not be objective
with respect to its own financial statements.

The overall objectives of the auditor in conducting an audit of financial statements are
I. To obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether caused by fraud or error.
II. To report on the financial statements.
III. To obtain conclusive rather than persuasive evidence.
IV. To detect all misstatements, whether due to fraud or error.
-I and II only

Which of the following statements does not properly describe a limitation of an audit?
-Many financial statement assertions cannot be audited.

Which of the following best describes the reason why independent auditors report on financial
statements?
-Different interests may exist between the company preparing the statements and the
persons using the statements.

The objective of an audit of financial statements is

-To express an opinion whether the financial statements are prepared, in all material
respects, in accordance with an identified financial reporting framework.

Which of the following is not one of the general principles governing an audit of financial
statements?
-The auditor should obtain sufficient appropriate evidence primarily through inquiry and
analytical procedures to be able to draw conclusions.
An audit of FS is conducted to determine if the
-Overall financial statements are stated in accordance with an applicable financial
reporting framework

Which of the following least likely limits the auditor’s ability to detect material misstatement?
-Most audit evidences are conclusive rather than being persuasive.

Why does company choose to have an independent auditor report on its financial statements?
-The company’s management preparing the financial statements may have a vested interest
in reporting certain results.

The primary objective of the ordinary examination of financial statements by a CPA is the
expression of an opinion.
-The fairness with the financial statements present financial position and results of
operations

Which of the following professionals has primary responsibility for the performance of an audit?
-The partner in charge of the engagement

The following are the general principles governing audit of financial statements:
I. Loyalty
II. Confidentiality
III. Objectivity
IV. Professionalism
V. Professional Behaviour
VI. Independence
-II, III , V and VI only

Auditing is important in a free market because

-It provides reliable information based upon which to judge economic performance

The primary reason for an audit by an independent external audit firm is to

-Provide increased assurance to users as to the fairness of the financial statements.

Which of the following is incorrect about responsibility for financial statements?

-Fair presentation of financial statements is an implicit part of the auditor’s responsibility.

Audit can have significant effect on information risk. Information risk refers to the risk of
financial information being unreliable. The main way (s) to reduce information risk is to have -
All of the above
Auditing consists of investigative and reporting processes. Thus, the audit process is
-A special application of the scientific method of inquiry

Which of the following statements about independent financial statement audit is incorrect?
-The risk that the auditor will fail to uncover material misstatement is eliminated when the
auditor complies with PSA

Which of the following best describes an auditor’s professional skepticism?

-Auditors should make a critical assessment, with an inquisitive mind, of the sufficiency and
appropriateness of audit evidence obtained.
Which of the following is a false statement about audit objectives?
-There should be a one-to-one relationship between audit objectives and procedures.

The auditor is required to maintain professional skepticism throughout the audit. Which of the
following statements concerning professional scepticism is false?
-A belief that management and those charged with governance are honest and have
integrity relieves the auditor of the need to maintain professional scepticism.

Which one of the following is not a management expectation for independent auditors?
-A participant in management decision making

Which of the following is not one of the limitations of an audit

-scope limitations imposed by the entity

The auditor is required to comply with all PSAs relevant to the audit of an entity’s
financial statements. A PSA is relevant to the audit when
I. The PSA is in effect.
II. The circumstances addressed by the PSA exist.
-Both I and II

Auditing is a systematic process that includes all of the following except:

-Providing important managerial decisions for client

Which of the following is a false statement about audit objectives?

-There should be a one-to-one relationship between audit objectives and procedures.

Which of the following statements concerning consulting services is false?

-Consulting services ordinarily involve external reporting.

The best statement of the responsibility of the auditor with respect to audited financial statement
is:
-The auditor’s responsibility is confined to the expression of opinion about the financial
statements.

Which of the following statements about independent financial statement audit is correct?
-The work undertaken by the auditor is permeated by judgment.

Per Glossary of Terms (PSA), it is defined as an appraisal activity established or provided as a

service to the entity.
-Internal Audit function

Which of the following types of audits are most similar?

-Compliance audits and independent financial statement audits

Least likely an objective of operational audit

-Increased reliability of financial reporting

Internal auditing relates to an

-Audit which serves the needs f management

This audit uses laws and regulations as its established criteria.

-Compliance

Can perform fraud audit

-Both A and B

It refers to the functions and activities necessary for the performance of a major purpose for
which a government agency is established.
-Program

Internal auditing encompasses

-Both financial and operational auditing

Not one of the three phases in an operational audit

-Review of internal control

Governmental audit includes examination of financial statements, program results, economy,

efficiency, effectiveness and
-Compliance

Criteria in operational audits, based on the Framework, are normally

-Specifically-developed criteria

Widely-accepted established framework in evaluating the effectiveness of internal control is that

of
-COSO

Independence of the internal auditors would be least likely achieved if internal auditors report to
the
-Controller

This audit involves a review of an organization’s procedures to determine whether the

organization adheres to specific procedures, rules or regulations set by an authoritative body. -
Compliance
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 measure of management performance in meeting organizational goals.

Not a main objective of operational audit

-To recommend the use of information

It usually includes the components of compliance, performance and financial statements audit
-Comprehensive audit

Not belonging to the group of audits below

-Compliance

Determines the objectives of an internal audit function

-Management

An objective of operational audit is to assess whether

-Specific units of the entity are functioning effectively and efficiently

Internal auditors review the adequacy of the company’s internal control system primarily to
-Determine whether the internal control system provides reasonable assurance that the
company’s objectives and he goals are met efficiently and economically

Usually an operational audit is performed

-By internal auditors at the request of top management or the board of directors.

Which statement/s is correct (PSA 610)?

I. An internal audit function is not independent of the entity irrespective of its

degree of autonomy and objectivity.
II. The external auditor has sole responsibility for the opinion expressed on the
financial statements of an entity even in the presence of an entity’s internal
audit function.
III. The external auditor’s responsibility for the opinion may be reduced by the
external auditor’s use of the work of internal auditors.
-I and II only

What are the two most important qualities for an operational auditor
-Competence and technical training

Which of the following is not one of the seven broad categories of financial statement assertions,
as classified in Glossary of Terms?
-Ownership

Management assertions are

-Implied or expressed representations about the accounts in the financial statements
Which of the following is the correct order of steps in the audit process?
A. Perform test of controls
B. Develop an overall strategy for the expected conduct and scope of the audit
C. Obtain client’s written representation
D. Prepare engagement letter
E. Perform substantive tests
-D,B,A,E,C

The five major phases in conducting a risk- based audit process are:
a. Audit planning and risk assessment activities
b. Preliminary engagement activities
c. Completing the audit and post- audit responsibilities
d. Reporting and communication
e. Responses to assessed risks

The proper sequence in applying the above steps is:

-BAEDC
Which of the following actions may be appropriate if the auditor is unable to agree to a
change of the engagement and is not permitted to continue the original engagement?
(I) Auditor should withdraw from the engagement
(II) Consider whether there is any obligation to report to the board of directors or
shareholders the circumstances necessitating withdrawal
-I,II

Communication with a predecessor auditor is initiated by:

-The successor auditor

Engagement letter that documents and confirms the auditor’s acceptance of the engagement
would normally be sent to the client.
-before the commencement of the engagement

When a CPA is approached to perform an audit for the first time, the CPA should make
inquiries of the predecessor auditor. This is necessary procedure because the predecessor
may be able to provide the successor with information that will assist the successor in
determining whether the engagement should be accepted.
Before accepting an audit engagement, a successor auditor makes specific inquiries of the
predecessor auditor regarding disagreements the predecessor had with the client
concerning auditing procedures and accounting principles.
Both statements are true

The form and content of audit engagement letters may vary for each client, but they would
generally include reference to the following, except
-Auditor’s responsibility for the financial statements

It is in the interest of both client and auditor that the auditor sends an audit engagement letter,
preferably before
-The commencement of the engagement

The understanding between the client and the auditor as to the degree of responsibilities to be
assumed by each is normally set forth in a (an)
-engagement letter

Prior to the acceptance of an audit engagement with a client who has terminated the services of
the predecessor auditor, the CPA should
-Advise the client of the intention to contact the predecessor auditor and request permission
for the contact.

An engagement letter should ordinarily include information on the objectives of the engagement
and (CPA responsibilities, Client responsibilities, Limitation of engagement)
-YES, YES, YES

Before accepting an audit engagement, you as the successor auditor would least likely make
specific inquiries of the previous auditor regarding
- The degree of cooperation the previous auditor received from the client’s lawyer.

Which of the following is not included in an engagement letter?

- Restriction on cash balances, lines of credit by similar arrangements

In which of the following situations would the auditor be unlikely to send a new engagement
letter to a continuing client?
- a recent change in the partner and/or staff in the audit engagement

Assuming a recurring audit, in which of the following situations would the auditor be unlikely to
send a new engagement letter to the client?
- A recent change in partner and/or staff involved in the audit engagement.

An engagement letter should be written before the start of an audit because

- All of the choices given

1st statement – Where the terms of the engagement are changed, the auditor and the client
should agree on the new terms.

2nd statement – The auditor should not agree to a change of engagement when there is no
reasonable justification for doing so.

3rd statement – If the auditor is unable to agree to a change of the engagement and is not
permitted to continue the original engagement, the auditor should withdraw and consider
whether there is any obligation, either contractual or otherwise, to report to other parties,
such as the board of directors or shareholders, the circumstances necessitating the
withdrawal.
-All statements are correct

An engagement letter is best described as:

- A letter from the auditors to company management that specifies the responsibilities of
both the company and the auditors in completing the audit and the timing for its
completion.

When an auditor believes that an understanding with the client has t been established, he or she
should ordinarily
-Decline to accept or perform the audit

Preplanning the audit involves several key activities. Which of the following would not be
included in preplanning an audit?
- Determining the likelihood of issuing an unqualified audit opinion on the client’s financial
statements

Which of the following would ordinarily be considered a reasonable basis for requesting a
change in the engagement?
-Both a and B

What is the most likely course of action that will be taken by an auditor in assessing management
integrity?
-Research the background and histories of officers

The following matters are generally included in an auditor’s engagement letter, except
-The factors to be considered in setting preliminary judgments about materiality

Which statement is correct regarding the sufficiency and appropriateness of audit evidence?
-The quantity of audit evidence needed is affected by the risk of misstatement (the greater
the risk, the more audit evidence is likely to be required) and also by the quality of such
audit evidence (the higher the quality, the less may be required).

Which of the following statements is incorrect regarding relevance of audit evidence?

-Obtaining audit evidence relating to a particular assertion is a substitute for obtaining
audit evidence regarding another assertion.

Which of the following terms is used in the standard to describe the effects on the financial
statements of misstatements or the possible effects on the financial statements, if any, that are
undetected due to an inability to obtain sufficient appropriate audit evidence?
-Pervasive

Which of the following types of audit evidence is the most persuasive?

-Bank statements obtained from the client

Which of the following generalizations does not relate to the appropriateness of evidence?
-An auditor’s opinion, to be economically useful, is formed within reasonable time and
based on evidence obtained at a reasonable cost.

Audit information is usually considered relevant when it is

-Consistent with the audit objectives.
The principal reason for an independent auditor to gather and evaluate audit evidence is to
-Form an opinion of the financial statements

Which of the following statements concerning evidential matter is correct?

-A client's accounting data cannot be considered sufficient audit evidence to support the
financial statements.

S1. The quantity of audit evidence needed is affected by the risk of misstatement and also
by the quality of such audit evidence.
S2. The reliability of audit evidence is influenced by its source and by its nature and is
dependent on the individual circumstances under which it is obtained.
-Both statements are true.

Holding other planning considerations equal, a decrease in the amount of misstatement in a class
of transactions that an auditor could tolerate most likely would cause the auditor to
-Perform the planned auditing procedures closer to the balance sheet date

Leadership responsibilities within the firm shall be assumed by the

-Chief executive officer

It is the responsibility of the auditor to evaluate the reasonableness of the accounting estimates
made by management. Which one of the following approaches would the auditor not use when
evaluating the reasonableness of the estimate?
-Confirm the estimate with independent parties.
Which of the following is an audit procedure that an auditor most likely would perform
concerning litigation, claims, and assessments?
-Discuss with management its policies and procedures adopted for evaluating and
accounting for litigation, claims, and assessments.

Management prepares accounting estimates and the auditor is responsible for evaluating the
reasonableness of the estimates. Which of the following would not be an auditor’s objective
when evaluating estimates?
-The accounting estimates developed by management are accurate with 100% certainty.

Which of the following is not an audit procedure that the independent auditor would perform
with respect to litigation, claims, and assessments?
-Confirm directly with the client’s lawyer that all claims have been recorded in the
financial statements.

Which of the following conditions or events most likely would cause an auditor to have
substantial doubt about an entity’s ability to continue as a going concern?
-Cash flows from operating activities are negative.

Which of the following procedures would an auditor most likely perform to obtain evidence
about the occurrence of subsequent events?
-Inquiring as to whether any unusual adjustments were made after the date of the financial
statements.

As used in PSA 560 (Subsequent Events), the term “subsequent events” refers to

I. Events occurring between the date of the financial statements and the date of the
auditor’s report.
II. Facts discovered after the date of the auditor’s report.
-Both I and II

PSA 570 (Going Concern) states that a fundamental principle in the preparation of financial
statements is the going concern assumption. Under this assumption, an entity is ordinarily
viewed as continuing in business for the foreseeable future with neither the intention nor the
necessity of liquidation, ceasing trading or seeking protection from creditors pursuant to laws
and regulations. The responsibility to make an assessment of an entity’s ability to continue as a
going concern rests with the
-Entity’s management

Harold, CPA, believes there is substantial doubt about the ability of Jersamtan Co. to continue as
a going concern for a reasonable period of time. In evaluating Jersamtan’s plans for dealing with
the adverse effects of future conditions and events, Harold most likely would consider, as a
mitigating factor, Jersamtan’s plans to
-Postpone expenditures for research and development projects.

By definition, subsequent events for reporting purposes occur between:

-the balance sheet date and the report date.
After issuing a report, an auditor has no obligation to make continuing inquiries or perform other
procedures concerning the audited financial statements, unless
-Information, which existed at the report date and may affect the report, comes to the
auditor’s attention.

Which of the following audit procedures would most likely assist an auditor in identifying
conditions and events that may indicate there could be substantial doubt about an entity’s ability
to continue as a going concern?
-Review of compliance with terms of debt agreements.

Which of the following statements best expresses the auditor’s responsibility with respect to
facts discovered after the date of the auditor’s report but before the date the financial statements
are issued?
-The auditor should consider whether the financial statements need amendment, discuss the
matter with management, and consider taking actions appropriate in the circumstances.

After an audit report containing an unmodified opinion on a client’s financial statements was
issued, the client decided to sell the shares of a subsidiary that accounts for 30% of its revenue
and 25% of its net income. The auditor should
-Take no action because the auditor has no obligation to make any further inquiries.

Which of the following procedures would an auditor most likely perform to obtain evidence
about an entity’s subsequent events?
-Obtain a letter from the entity’s attorney describing any pending litigation, unasserted
claims, or loss contingencies.

Which of the following statements best describes the “date of the financial statements?”
-The date of the end of the latest period covered by the financial statements, which is
normally the date of the most recent balance sheet in the financial statements subject to
audit.

Which of the following events occurring after the issuance of an auditor’s report most likely
would cause the auditor to make further inquiries about the previously issued financial
statements?
-The discovery of information regarding a contingency that existed before the financial
statements were issued.

When an auditor concludes that there is substantial doubt about a continuing audit client’s ability
to continue as a going concern for a reasonable period of time, the auditor’s responsibility is to
-Consider the adequacy of disclosure about the client’s possible inability to continue as a
going concern.

Which of the following statements best describes the auditor’s responsibility concerning the
appropriateness of the going concern assumption in the preparation of the financial statements?
-The auditor’s responsibility is to consider the appropriateness of management’s use of the
going concern assumption and consider whether there are material uncertainties about the
entity’s ability to continue as a going concern that need to be disclosed in the financial
statements.
Which of the following events most likely indicates the existence of related parties?
-Making a loan without scheduled terms for repayment of the funds.

Which of the following auditing procedures most likely would assist an auditor in identifying
related-party transactions?
-Reviewing confirmations of loans receivable and payable for indications of guarantees.

After determining that a related party transaction has, in fact, occurred, an auditor should
-Obtain an understanding of the business purpose of the transaction.

When auditing related party transactions, the auditor place primary emphasis on
-proper accounting for, and disclosure of, the related party transactions

An auditor searching for related party transactions should obtain an understanding of each
subsidiary’s relationship to the total entity because
-The business structure may be deliberately designed to obscure related party transactions.

The auditor should review information provided by those charged with governance and
management identifying

I. The names of all known related parties.

II. Related party transactions.
-Both I and II

A written representation from a client’s management that, among other matters, acknowledges
responsibility for the fair presentation of financial statements, should normally be signed by the
-Chief executive officer and the chief financial officer.

Which of the following is responsible for the fairness of the representations made in financial
statements?
-Client’s Management

What type of opinion should be expressed if the client’s management refuses to provide a
representation that the auditor considers necessary?
-Qualified opinion or a disclaimer of opinion.

Which of the following statements concerning management representations is incorrect?

-Representations by management can be a substitute for other audit evidence that the
auditor could reasonably expect to be available.\

The date of the management representation letter should coincide with the date of the
-Auditor’s report

“There have been no communications from regulatory agencies concerning noncompliance with,
or deficiencies in, financial reporting practices that could have a material effect on the financial
statements.” The foregoing passage is most likely from a
-Management representation letter.

When an audit is made in accordance with generally accepted auditing standards, the auditor
should always
-Obtain certain written representations from management.

The auditor is required to obtain audit evidence that management

I. Acknowledges its responsibility for the fair presentation of the financial statements
in accordance with applicable financial reporting framework.
II. Has approved the financial statements.
-Both I and II.

When considering the use of management’s written representations as audit evidence about the
completeness assertion, an auditor should understand that such representations
-Complement, but do not replace, substantive tests designed to support the assertion.

If management refuses to furnish certain written representations that the auditor believes are
essential, which of the following is appropriate?
-This may have an effect on the auditor’s ability to rely on other representations of
management.

The primary objective of analytical procedures used in the final review stage of an audit is to
-Assist the auditor in assessing the validity of the conclusions reached.

Analytical procedures used in the overall review stage of an audit generally include
-Considering unusual or unexpected account balances that were not previously identified

Which of the following is true?

-The auditor should evaluate management’s assessment of the entity’s ability to continue as
a going concern.

An auditor concludes that a substantive auditing procedure considered necessary during the prior
period’s audit was omitted. Which of the following factors would most likely cause the auditor
promptly to apply the omitted procedure?
-The omission of the procedure impairs the auditor’s present ability to support the
previously expressed opinion.

An auditor concludes that the omission of a substantive procedure considered necessary at the
time of the examination may impair the auditor's present ability to support the previously
expressed opinion. The auditor need not apply the omitted procedure if
-The results of other procedures that were applied tend to compensate for the procedure
omitted.

The audit report should not be dated

-Earlier than the date on which the auditor obtains sufficient appropriate evidence

Which among the following is not an appropriate addressee of an independent auditor’s report?
-President of the client company

The introductory paragraph of the auditor’s report should

-Refer to the summary of significant accounting policies and explanatory notes

The auditor's standard report states that the financial statements are presented fairly
-in all material respects.

The date of the audit report is important because

-The user has a right to expect that the auditor has performed certain procedures to detect
subsequent events that would materially affect the financial statements through the date of
the report

Which of the following statements is a basic element of the standard audit report?
-An audit includes assessing significant estimates made by the management

The audit report date is important to users because it indicates the

-Last day of the auditor’s responsibility for the review of significant events that occurred
after the date of the financial statements.

In which of the following circumstances may the auditor issue an unqualified standard audit
report?
-The auditor relies on the report of another auditor.

Which of the following is not usually the addressee in an external audit report?
-Management in audit of public company

Which of the following is not one of the basic elements of the auditor’s report
-Client’s address

The auditing profession recognizes the need for uniformity in reporting as a means of
-promoting credibility of the report in the global marketplace

The auditor s report should describe an audit by addressing some concerns that may
include:
I. An audit includes evaluating the appropriateness of the accounting
policies used.
II. An audit includes evaluating the reasonableness of accounting
estimates made by management.
III. Evaluating the overall presentation of the financial statements.
IV. An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the financial statements.
V. The procedures selected depend on the auditor's judgment.
Which of the foregoing concerns are stated in the audit report?
-I, II, III, IV, V

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.
-Unqualified opinion.

The introductory paragraph of the standard audit report may include the following:
 I. Identification of the entity whose financial statements have
been audited.
II. Statement that the financial statements have been audited.
III. Title of each of the financial statements that comprise the
complete set of financial statements.
IV. Reference to "basic financial statements" without indicating the
title of each of the financial statements.
V. Reference to the summary of significant accounting policies and
other explanatory notes
VI. Specific date and period covered by the financial statements.
VII. Reference to Philippine Standards on Auditing.
Which of the foregoing are specifically required by the applicable
standards on auditing to be included or referred to in the introductory
paragraph of the standard audit report?
-I, II, III, V, VI

Which is not referred to in the management’s responsibility paragraph?

-Effectiveness and efficiency of operating decisions

An auditor refers to significant related party transactions in a middle paragraph of the report. If
the ensuring opinion paragraph contains the words, “with the foregoing explanation,” the
auditor’s report would be considered a (an)
-Example of inappropriate reporting.

Per PSA 700, the auditor’s report should be addressed

-Either to the shareholders or the board of directors of the entity whose financial
statements are being audited

The element of the auditor's report that distinguishes it from reports that might be issued by
others is
-Title

Which of the following statements is not included in the auditor’s responsibility section of the
standard audit report?
-that audit includes examining on a test-basis evidence supporting the amounts and
disclosures in the financial statements.

When the financial statements contain a departure from PFRS, the effect of which is material, the
auditor should
-Qualify the opinion and explain the effect of the departure from PFRS in a separate
paragraph.

Under which of the following circumstances would a disclaimer of opinion not be appropriate?
-The financial statements fail to contain adequate disclosure concerning related party
transactions.

Should the auditor uncover circumstances during the audit that may cause suspicions of
management fraud, the auditor must
-evaluate their implications and consider the need to modify audit procedures
Under which of the following sets of circumstances might an auditor disclaim an opinion?
-There were significant limitations on the scope of the audit.

A choice between qualified or adverse opinion is made when the cause of misstatement is
I. Material disagreement with management on PFRS application (PFRS departure)
II. Inability to gather sufficient appropriate evidence because of restriction on
procedures (scope limitation)
-I only

In extreme cases such as situations involving multiple uncertainties that are significant to the
financial statements, the auditor
-may consider to express a disclaimer of opinion

When disclaiming an opinion due to a client-imposed scope limitation, an auditor should

indicate in a separate paragraph why the audit did not comply with PSAs. The auditor
should also omit the
(1) Auditor’s responsibility paragraph
(2) Opinion paragraph
-(1) Yes (2) No

Which of the following circumstances may not result to a disclaimer of opinion?

-The accounts receivable of the client comprised 80 percent of the total assets. The
auditor was instructed by the client not to confirm account balances. The auditor
however was satisfied by the results of alternative audit procedures

A qualified opinion is expressed when a misstatement is

-Material

Addition of an "emphasis of a matter" paragraph to what remains an unqualified opinion is least

likely for which of the following situations?
-Scope limitation

If the financial statements, including accompanying notes, fail to disclose information that is
required by PFRSs, the auditor should express either a(an)
-Adverse opinion or a “subject to” qualified opinion.

An explanatory paragraph reads as follows:

The Company has adopted the first-in, first-out method of determining inventory costs,
whereas it previously used the weighted average method. Athough use of the first-in,
first-out method is in conformity with generally accepted accounting principles, in our
opinion the Company has not provided reasonable justification for seeking a change as
required by BIR.
The paragraph likely appears in:
-A qualified opinion

An adverse opinion would be issued when a misstatement’s impact is

-Highly material
Restrictions imposed by a client prohibit the observation of physical inventories, which account
for 35% of all assets. Alternative audit procedures cannot be applied, although the auditor was
able to examine satisfactory evidence for all other items in the financial statements. The auditor
should issue a(an)
-Disclaimer of opinion.

An explanatory paragraph may be added to the audit report while at the same time issuing an
unqualified opinion in all cases except when:
-the audit work has been materially limited by management.

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 the notes to the financial statements. The CPA does not agree
with this departure from PFRS and should
-Qualify the opinion because of the deviation from generally accepted accounting principles.

If the scope of the examination has been satisfactory for all items except for one of material
amount, the auditor should issue a (an)
-Qualified opinion.

In extreme cases such as situations involving multiple uncertainties that are significant to the
financial statements, the auditor
-may consider to express a disclaimer of opinion

If an auditor is not independent of a client, the auditor should issue a(an)

-disclaimer of opinion

The principal auditor is satisfied with the independence and professional reputation of the other
auditor who has audited a subsidiary but wants to indicate the division of responsibility. The
principal auditor should
-Modify the introductory, auditor’s responsibility and opinion paragraphs of the report

An auditor may not issue a qualified opinion when

-The auditor lacks independence with respect to the audited entity.

Which of the following situation, the effect of which is significant, least likely require a decision
of whether to issue a qualified or adverse opinion?
-Limitation on the scope of the auditor's work.

When financial statements are presented wherein accounting principles have not been
applied consistently, an auditor, may issue a(an):
(1) Qualified Opinion
(2) Disclaimer of opinion
-(1) Yes (2) No

In which of the following circumstances would an auditor usually choose between issuing a
qualified op inion of a disclaimer of opinion?
-Inability to obtain sufficient competent evidential matter.

Which of the following statements indicates a qualified opinion?

-Except for the effects of a matter, the financial statements present fairly in all material
respects the financial position, results of operations, and cash flows in conformity with
GAAP.

When an auditor issues an adverse opinion, the implication is that the auditor
-Does not believe the statements are fairly presented

Per Glossary of Terms, it is a difference between the amount, classification, presentation, or

disclosure of a reported financial statement item and the amount, classification, presentation, or
disclosure that is required for the item to be in accordance with the applicable financial reporting
framework.
-Misstatement

The introductory paragraph of an auditor’s report contains the following

sentences:
We did not audit the financial statements of EZ Inc., a wholly-owned subsidiary,
which statements reflect total assets and revenues constituting 27 percent and 29
percent, respectively, of the related consolidated totals. Those statements were
audited by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the amounts included for EZ Inc., is based solely on the
report of the other auditors.
These sentences
-Indicate division of responsibility.

King, CPA, was engaged to audit the financial statements of Newton Company after its fiscal
year had ended. King neither observed the inventory count nor confirmed the receivables by
direct communication with debtors, but was satisfied concerning both after applying alternative
procedures. King’s auditor’s report most likely contained a(an)
-Unqualified opinion.

Grant Company’s financial statements adequately disclosed uncertainties that concern future
events, the outcome of which are not susceptible of reasonable estimation. The auditor’s report
should include a(an)
-Unqualified opinion.

Which of the following is a matter that do not affect the auditor’s opinion?
-Emphasis of matter

An auditor includes a separate paragraph in an otherwise unmodified report to emphasize that the
entity being reported on had significant transactions with related parties. The inclusion of this
separate paragraph
-Is appropriate and would not negate the unqualified opinion.

An auditor may not be able to express an unqualified opinion when the following
circumstances exist and, in the auditor’s judgment, the effect of the matter is or may be
material to the financial statements:
(1) There is a limitation on the scope of the auditor’s work;
(2) There is a disagreement with management regarding the acceptability of the
accounting policies selected, the method of their application or the adequacy of financial
statement disclosures.
(3) The auditor wants to give emphasis to an important matter affecting the financial
statements
-(1) Yes; (2) Yes; (3) No

An auditor may reasonably issue a qualified opinion for

(1) Disagreement with management regarding accounting policies;
(2) Scope Limitation
-(1) Yes; (2) Yes

If the auditor is unable to sufficient appropriate evidence concerning the opening

balances, the auditor’s report should include:
(1) Qualified Opinion;
(2) Adverse Opinion;
(3) Disclaimer of Opinion
-(1) Yes; (2) No; (3) Yes

An explanatory paragraph reads as follows:

On October 15, 2007, the Company emerged from bankruptcy. As discussed in the notes
the financial statements, the Company accounted for the reorganization using “fresh
accounting” and, as a result, the post-reorganization financial statements are not
comparable to the pre-organization financial statements
The paragraph likely is intended to:
-Emphasize a matter

The emphasis of a matter paragraph is normally placed:

-After the opinion paragraph but before the section containing other reporting
responsibilities.

Eagle Company’s financial statements contain a departure from PFRSs because, due to unusual
circumstances, the statements would otherwise be misleading. The auditor should express an
opinion that is
-Unqualified and describe the departure in a separate paragraph.

When the financial statements contain material departures from PFRS and the auditor modifies
the opinion, the auditor describes the effects in
-In a separate explanatory paragraph

When a principal auditor decides to make reference to another auditor’s examination, the
principal auditor’s report should always indicate clearly, in the introductory, auditor’s
responsibility, and opinion paragraphs, the
-Division of responsibility.

A qualified opinion should be expressed as being:

-“except for” the effects of the matter to which the qualification relates
Which of the following does not result to modification of opinion on financial statements?
-Limitations that are beyond the control of management.

The auditor’s report on financial statements include the following sentences:

“………………………………… we draw attention to Note X to the financial statements.
The Company is the defendant in a lawsuit alleging infringement of certain patent rights
and claiming royalties and punitive damages. The Company has filed a counter action,
and preliminary hearings and discovery proceedings on both actions are in progress. The
ultimate outcome of the matter cannot presently be determined, and no provision for any
liability that may result has been made in the financial statements.”

The above statement:

-is a qualification of an opinion

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
(1) A disclaimer of opinion
(2) A qualified opinion
-(1) No; (2) No

The current period's auditor who did not audit the prior period's financial statements is called
-Incoming auditor

Principal auditor is
-The auditor with responsibility for reporting on the financial statements of an entity when
those financial statements include financial information of one or more components audited
by another auditor.

In which of the following circumstances may the auditor issue an unqualified standard audit
report?
-The auditor relies on the report of another auditor.

All of the following are considered modification of the report except

-Report on consolidated financial statements where the principal auditor assumes
responsibility for the work of another auditor

When using the work of another auditor, the principal auditor should ordinarily perform the
following procedure
-All of the above

If the principal auditor decides to refer in the report to the audit made by another auditor
-The other auditor is responsible for his report and his work

When part of the examination is to be performed by another auditor, the principal auditor may
decide to assume responsibility for the other auditor’s work and make no reference to such work
when:
-The other auditor was retained by the principal auditor and worked under his supervision

Assume that Mr. Swabe, a principal auditor, decided to refer in his report the examination of
another auditor, he is required to disclose the
-Portion of the financial statements examined by the other auditor.

A client is presenting comparative (two-year) financial statements. Which of the following is

correct concerning reporting responsibilities of a continuing auditor?
-The auditor should issue one audit report that is on both presented years.

Jewel, CPA, audited Infinite Co.'s prior year financial statements. These statements are
presented with those of the current year for comparative purposes without Jewel's
auditor's report, which expressed a qualified opinion. In drafting the current year's
auditor's report, Grain, CPA, the successor auditor, should
I. Not name Jewel as the predecessor auditor.
II. Indicate the type of report issued by Jewel.
III. Indicate the substantive reasons for Jewel's qualification.
-I, II, and III

When reporting on comparative financial statements, an auditor ordinarily should change the
previously issued opinion on the prior year's financial statements if the
-Prior year's financial statements are restated to conform with generally accepted
accounting principles.

An auditor expressed a qualified opinion on the prior year's financial statements because of a
lack of adequate disclosure. These financial statements are properly restated in the current year
and presented in comparative form with the current year's financial statements. The auditor's up -
dated report on the prior year's financial statements should
-Express an unqualified opinion on the restated fi nancial statements of the prior year.

The predecessor auditor, who is satisfied after properly communicating with the successor
auditor, has reissued a report because the audit client desires comparative financial statements.
The predecessor auditor's report should make
-No reference to the report or the work of the successor auditor.

A client is presenting comparative (two- year) financial statements. Which of the following is
correct concerning reporting responsibilities of a continuing auditor
-The auditor should issue one audit report that is on both presented years
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.
-Corresponding figures

An auditor’s report on comparative financial statements should be dated as of the date of the
-Completion of the auditor’s recent field work.

Before reissuing the prior year's auditor's report on the financial statements of a former
client, the predecessor auditor should obtain a letter of representations from the
(1) Former client's management
(2) Successor auditor
-(1) Yes; (2) Yes

They are presented as complete financial statements capable of standing alone, but not an
integral part of the current period financial statements intended to be read nly in relationship to
the current period figures.
-Comparative financial statements

Unaudited financial statements for the prior year presented in comparative form with
audited financial statements for the current year should be clearly marked to indicate their
status and
I. The report on the prior period should be reissued to accompany
the current period report.
II. The report on the current period should include as a separate
paragraph a description of the responsibility assumed for the prior period's
financial statements.
-Either I or II.

An auditor's report would be designated as a special report when it is issued in connection with
financial statements that are
-Prepared in accordance with a comprehensive basis of accounting other than PFRS

Other comprehensive basis of accounting may include all of the following except
-The accrual basis of accounting.

An auditor’s special report on financial statements prepared in conformity with the basis of
accounting should include a separate explanatory paragraph before the opinion paragraph that
-Refers to the note to the financial statements that describes the basis of accounting.

When reporting on financial statements prepared on the same basis of accounting used for
income tax purposes, the auditor should include in the report a paragraph that
-States the basis of accounting used

PSA 800 “the auditor’s report on special purpose audit engagements” does not apply to a
-Audit of financial statements prepared in accordance with GAAP in the Philippines.

An auditor's report would be designated as a special report when it is issued in connection with
financial statements that are
-Refers to the note to the financial statements that describes the basis of accounting.

An auditor's report would be designated as a special report when it is issued in connection with
financial statements that are
-Prepared in accordance with a comprehensive basis of accounting other than generally
accepted accounting principles.

An auditor’s report on financial statements prepared on the cash receipts and disbursements basis
of accounting should include all of the following except
-All of the above statements are correct

Which statement is correct regarding report on a component of financial statements?

-This type of engagement may be undertaken as a separate engagement or in conjunction
with an audit of the entity’s financial statements.

An auditor is engaged to report on selected financial data that are included in a client- prepared
document containing audited financial statements. Under these circumstances, the report on the
selected data should
-Be limited to data derived from the audited financial statements.

Engagements to express an opinion on the entity’s compliance with contractual agreements

should be undertaken only when
-The overall aspects of compliance relate to accounting and financial matters

Reports are considered special reports when issued in connection with

-Compliance with contractual requirements related to audited financial statements.

Which of the following types of audits may include in its audit opinion the following phrase –
“consistent, in all material respects”.
-Audit of summarized financial statement

The auditor’s report on summarized financial statements should include

-An opinion as to whether the information in the summarized financial statements is
consistent with the audited financial statements from which it was derived.

An auditor may report on condensed financial statements that are derived from complete
financial statements if the
-Auditor indicates whether the information in the condensed financial statements is fairly
stated in all material respects in relation to the complete financial statements from which it
has been derived.

Hardy, CPA, asked to express an opinion on Gold, Inc. summarized financial information. Hardy
may accept this engagement only if
-Hardy also audits Gold’s complete financial statements.

In which of the following reports should an accountant not express negative or limited
assurance?
-A standard compilation report on financial statements of a nonpublic entity

Which of the following procedures does an accountant in a compilation engagement of

a nonpublic entity ordinarily perform?
-Reading the financial statements to consider whether they are free of obvious mistakes in
the application of accounting principles

A CPA who is not independent may issue a?

-Compilation report

When a professional CPA is not independent of a client and is requested to perform a compilation of its
financial statements, the professional CPA
-May accept the engagement and should disclose the lack of independence, but not the reason for
the lack of independence
A professional CPA’s compilation report should be dated as of the date of
-Completion of the compilation

Ethical principles governing compilation of financial statements include

1) Independence
2) Competence
3) Professional behaviors
-1) No 2) Yes 3) Yes

Main standards to govern compilation engagements

-PSRSs

During the course of an audit of financial statements, the client informs the professional CPA
that he may not correspond with the client’s legal counsel. Under these circumstances, the
professional CPA
-Should ordinarily refuse to issue either a review of compilation report

Compilations can be performed for

Public companies Non-public companies
-YES No

The statement that nothing came to our attention which would indicate that these statements are
not fairly presented expresses which of the following?
-negative assurance

Prior to commencing the compilation of financial statements of an entity, the accountant should?
-Acquire knowledge of any specialized accounting principles and practices used in
the entity’s industry.

Philippine Standards on Related Services establish standards and procedures for which of the
following engagements?
-Compiling an individual’s personal financial statement to be used to obtain a mortgage.

Which of the following is incorrect about a compilation engagement?

-The CPA uses his auditing expertise to collect, classify and summarize financial
information

Each page (or front page) of the financial information compiled by the accountant should include
the following reference, except
-Limited Assurance Provided”

Objective of a compilation engagement (PSRSs)

-For the auditor to use accounting expertise, as opposed to auditing expertise, to collect,
classify and summarize financial information

The procedures employed in doing compilation are:

-Not designed to enable the accountant to express any form of assurance

Which of the following should not be included in an accountant’s report based upon the
compilation of an entity’s financial statements?
-A statement that the accountant does not express an opinion but provides only negative
assurance on the statements.

Objective of an AUP engagement (PSRSs)

-For the auditor to carry out procedures of an audit nature to which the auditor and the
entity and any appropriate third parties have agreed and to report on factual findings

Matters to be agreed in an agreed-upon procedures engagement include the following, except:

-Anticipated form of the report and the level of assurance to be provided

Independence is not a requirement for which of the following engagements?

1) Compilation
2) Review
3) Agreed-upon Procedures\
-1) Yes 2) No 3) Yes

The objective of an agreed upon- procedures engagement is for the auditor to.
-Carry out procedures of an audit nature to which the auditor and the entity and any
appropriate third parties have agrees and to report on factual findings.

Level of assurance in an AUP engagement

-None

An accountant may accept an engagement to apply agreed-upon procedures to prospective

financial statements provided that
-Use of the report is restricted to the specified parties.

A report on factual findings is the end product of the auditor when performing
-Agreed-upon procedures

Which of the following ethical principles does not apply to an agreed-upon procedure
engagement?
-Independence

A CPA may accept an engagement to apply agreed-upon procedures on specified element of

financial statements provided
-The client takes full responsibility for the procedures to be performed

A CPAs report on agreed-upon procedures related to management’s assertion about an entity’s

compliance with specified requirements should contain:
-A statement of limitations on the use of the report

An accountant may accept an engagement to apply agreed-upon procedures that are not sufficient
to express an opinion on one or more specified accounts or items of a financial statement
provided that
-Distribution of the accountant’s report is restricted.
Engagement to apply agreed-upon procedures on certain accounts within a financial statement
may be accepted provided
-The distribution of the report is limited only to specified parties involved

Which of the following is incorrect about agreed- upon procedures engagement?

-The auditor should be independent of the financial data or financial statement where
agreed procedures have to be applied.

The objective of an agreed upon-procedures engagement is for the auditor to:

-Carry out procedures of an audit nature to which the auditor and the entity and any
appropriate third parties have agreed and to report on factual findings

AUP engagements are normally found in what type of audit

-Fraud

Incorrect regarding an AUP engagement

-Professional competence, due care and independence are required in the execution of the
procedures

Which of the following is incorrect about agreed- upon procedures engagement?

-The auditor should be independent of the financial data or financial statement where
agreed procedures have to be applied.

What level of assurance does an auditor provide an engagement to perform agreed-upon

procedures?
-No Assurance